How to get your improvement projects approved
In 2011, a well known process improvement marketplace firm surveyed over five hundred companies about business improvement strategies and tactics. The findings showed that the two top impediments to needed improvements were:
- Change resistance in the organization;
- Securing managers’ approval for business improvement programs (possibly another face of change resistance).
My July PEX Network article overviewed the first challenge as an excerpt from my book, Primordial (Reptilian) Change Management. The article noted how middle managers are often in a "shock absorber" role between management demands and employees' reactions.
Addressing the second issue is also in http://www.amazon.com/dp/B00LEXF80Y.
Constraints on getting improvement projects approved can have three possible causes:
- A poor program/project marketing and sales approach versus needed success criteria, both in terms of absolute value and relative to competing submissions (only 'x' percent of 'y' submissions will be approved);
- Change resistance by middle managers;
- A combination of the above.
The antidotes to these problems are high, compelling, safe value to be provided, absolutely and relatively, and personal selling skills. Combined they will get top management’s attention, the needed political champions, and can overcome middle manager resistance if it exists, from above.
When In Rome Do As The Romans Do
You are selling to senior executives, against competitors for the funds and fighting "kinetic energy," so first you need to understand how executives think. They are people like the rest of us, but have higher level focuses and vocabulary. They are required to achieve optimal results, and thereby be rewarded. Their responsibilities include:
- Increase shareholder value results (Earning Per Share (EPS) and the Price/Earnings (P/E) multiple)
- Get the best possible Return on Assets (ROA) and Return on Equity (ROE).
- Beat the competition to achieve market share growth ("All strategic positioning is competitively oriented."—Kenachi Ohmae, McKenzie,Mind of the Strategist)
- Relatedly, get the most from the number one "intangible asset," people (customers, employees, partners)
Legally, leaders are required to exercise "fiduciary" care in their decisions, and they take that requirement personally. Therefore they must exercise care in deciding on potential returns versus risk; both absolutely and relative to alternative programs from which to choose.
Some truisms of that process include:
- Inter-manager jockeying to win the needed resources for success and advancement is very strong, even if hidden.
- The process is very political, often behind the scenes. Align well!
- All business cases will be challenged, especially for larger ones.
- The more thought out the business case, the better chance for approval.
The CFO’s staff support is critical to success:
- Are seen as more neutral
- Are tasked with financial vetting
- The CFO has to look the Board in the face and say which he/she supports
- "Greenmail" and shareholder suits must be defended by the CFO’s and CLO’s offices.
The business case quality is very important. It generally will have a great Executive Summary and a Why, What, How, When, Who and How Much flow. Metrics and measures need to exist as well.
Back to what executives care about, and how you should therefore leverage for you, the company’s Mission Plan is a good start. The mission, set by the Board and published in the Annual Report, could include any combination of:
- Leading technology quality
- Largest market share
- Fastest growing
- Fastest adapting
- Most profitable
- Most Green
- Shareholder value
The implementation Objectives/Goals, set by the Executive Committee, can include any combination of:
- Revenues growth/levels
- Both (EBITDA)
- Free cash flow
- Market share (via new customers and no lost customers)
- Others (Operations Key Performance Indicators also)
Per this graphic, these high level, Strategic Objectives/Goals will then be "cascaded" deep into each division, business, unit, department, etc. Those sub-goals details must also be clearly understood and harnessed at each level. Together, they will be the basis for project approval or rejection.
In dealing with middle managers, they can be either a facilitator or barrier. Your job is to make them into a facilitator via "communisuasion."
Some contextual approval realties will exist, to be Judo-leveraged:
- Both "OpEx" and CapEX" resource allocations are based on what is best for shareholders (financially, politically and legally).
- The larger and more impactful the process/program, the more critical the responsibility.
- Also, C-managers’ bonuses and stock options are based on earnings and stock price growth, so choosing the right projects is personal to them. They have families.
"OpEx" programs are expensed, and directly affect Earnings Per Share (EPS) in an operating year.
- Thus, highly certain payback, usually in one year, is needed
- Operating efficiency ratios are often tracked by Wall Street analysts, and if a project will negatively skew the ratio then the Price/Earnings (P/E) multiple could be downgraded (the P/E ratio is a psychological value given by investment analysts and stock purchasers, generally based on future expectations quality and safety).
- A negative earnings impact and a lowered P/E means someone can be fired. Those below can have their careers set back.
An over-achieving, high ROI vs. Plan project boosts earnings and may boost the P/E as well. Stock price and shareholder value grow, and:
- People get bonuses and promotions
- Thus, getting the ROI and business cases right (aka slightly conservative) are important defensively and offensively.
CapEx" programs must be specially funded, by a policy process.Three options exist:
1. From Cash and Retained Earnings
- Meaning less liquidity safety and perhaps too little net working capital vs. expected ratios. The P/E can be reduced. Dividends might be negatively impacted, affecting the P/E ratio.
2. From debt borrowings
- Usually via issued corporate bonds that carry an interest rate that must be expensed each year
- Will affect the "hurdle rate" for the ROI
- May cause Balance Sheet Debt/Equity problems and P/E problems
3. From new stock issues
- Preferred and/or Common stock
- Dilutes existing shareholders; may impact EPS and P/E.
"ROI" (Return on Investment) encompasses several analyses…simultaneously: Payback Period, Net Present Value (NPV) and Internal Rate of Return (IRR).
Other approval criteria may exist that need to be researched and incorporated as needed:
ALL of the above factors need to be considered in a quality, approval business plan, and are all are explained in Primordial (Reptilian) Change Management, available on Amazon.
The good news is that for "Talent Management" assessments, a good proposal that wins acceptance and is well executed has personal career value.