Corporate Secrecy & Privacy & Roles of Whistleblowers, Informers, Leakers, Hackers…: The Booming Market for Secrets & Deceptions…

“Secrecy is critical to more businesses than most people might imagine. Entire industries are based to some extent on the process of creating goods and services and then putting them behind walls of secrecy.”

‘Secrecy & privacy’ is an important part of corporate culture in every industry: Is there a difference between ‘privacy’ and ‘secrecy’? According to Jeremy Fisher, ‘secrets’ can be shared, whereas ‘privacy’ is a solitary experience. Unlike privacy, secrets are used to gain power and the element of surprise. Unlike secrecy, privacy is a way of shutting out external influence. The main problem when trying to define the differences between privacy and secrecy is that they can mean different things to different people.

According to Chad Perrin, the key to maintaining secrecy is to reorient one’s perspective on security. Protect the ‘right’ things and you can maintain reasonable security. Protect the ‘wrong’ things and you are doomed before you begin. The shelf life of a secret, especially in large organizations, is increasingly minuscule, and effectively limited only by the quickness with which modern technology can be leveraged to distribute such secrets beyond the set of people authorized to access those secrets. Companies become successful, in part, by staying one step ahead of the competition.

They accomplish this by keeping sensitive information, i.e., trade secrets confidential. What is a trade secret? Many states have adopted a statute known as the ‘Uniform Trade Secrets Act’, which forms as the model for trade secrets. Simply, trade secret is any private information about a business that gives an economic advantage over the competition. Typically trade secrets include; customer lists, formulas, patterns, software, devices, methods, techniques, process, financial records, contracts, and the like; information that would be very valuable to the competition. The law protects this information, as long as reasonable steps have been taken by the company to protect it.

In the articleIs Secrecy Necessary in Business by Philip R. Diab writes:  Every organization has sensitive information that it guards carefully and protects against having competitors or non-authorized individuals from gaining access to.  This type of information can be technical documentation on the inner-workings of products, strategic plans, market research, or a variety of other types of documents.  In fact, conventional wisdom has held in the past that the organization should not reveal documents such as strategic plans to anyone but a select few so as not to jeopardize the success of these plans.

However, there are leaders in the field who advocate the exact opposite in terms of sharing such information and being a bit more transparent with employees, suppliers, customers, and even competitors.  It’s likely that there will not be agreement as to what should be shared versus what should be ‘hidden’ from others, what can be agreed is the fact that some information should be considered confidential.  Confidentiality is a part of the business culture and in every industry.  This makes good business sense; however, what should be of concern is the confusion between confidentiality and secrecy.

I’ve observed that in some organizations there are individuals who behave in an almost paranoid manner.  So rather than focus on protecting confidentiality, they go above and beyond to scaring everyone from sharing any information with anyone because they fear negative consequences. While it may seem that secrecy and confidentiality are the same concept, in my perspective they are greatly different.  Secrecy is focused on withholding information from individuals and groups.

Confidentiality on the other hand is focused on ensuring that any information that is shared with an individual or group is not given to someone who does not have authorization to see it. What is necessary is to set clear governance policy that balances the need for transparency as well as confidentiality, while avoiding secrecy…

In the article A World of Secrets: Why We Should Cherish Leakers and Hackers by Bob Simpson writes:  In a world of secrets and lies there are groups like WikiLeaks, anonymous and information leakers that supply the truth…Yes, they do break the law. It is often necessary to break the law to achieve justice. Corporations both large and small keep secrets. It’s a bizarro world of trade secrets, non-disclosure agreements, patent abuse, competitive advantage, insider trading, tax evasion, environmental and labor law evasion, conspiracies in restraint of trade, political bribery, influence peddling and even murder.

Violations of the public trust are common. Outright lawbreaking is just part of doing business. Prosecution and punishment is rare. When global corporations have wealth greater than many countries and even employ their own private armies, this should surprise no one. If it takes leakers and hackers to liberate accurate information, than so be it. The leakers and the hackers are part of a non-violent resistance movement to the government and corporate madness that is engulfing our planet…

There is a growing ‘market for secrets’; WikiLeaks’ posting of 250,000 confidential, diplomatic cables has been called traitorous, treasonous and despicable – but could it also be prophetic?  According to Stewart Brand; “information wants to be free”, at the first Hackers’ Conference back in 1984, “because the cost of getting it out is getting lower and lower all the time.”  The growth of global computer networks and the creation of massive databases have led to the collapse of the information-price bubble, which makes it easier for hackers, activists and just about anyone else to become a WikiLeaks source.

This trend has coincided with rising distrust of government and corporations. Distrust provides motivation. The result is a ‘market for secrets’ that will certainly grow much faster than anyone’s ability to control it.  While much of the outrage about WikiLeaks and its founder, Julian Assange, has centered on the legal and national security implications of the releases, the real question is whether the movement toward forced transparency can be stopped.  In an interview, Assange tells Forbes‘ Andy Greenberg that his website is receiving more confidential information than he can find time and resources to publish.

Andrew Sullivan of ‘The Daily Dish’ observes that the many governments face a difficult dilemma:  “Trying to crack down on the organization would only give it more publicity, which would allow it to attract more leaks.” As Greenberg notes, many of the top minds in the field of cyber-security (including former hackers) now work for the Defense Advanced Research Projects Agency, which created the Internet. The agency’s tactics include network forensics, the process of monitoring every ‘fingerprint’ on a server to track the actions of data trespassers. While this approach won’t seal the floodgates, it may deter the next leakers.

In the report “The Value of Corporate Secrets” by Forrester writes: Proprietary company secrets generate revenue, increase profits, and maintain competitive advantage. In addition, custodial data such as customer, medical, and payment card information has value because regulation or contracts make it toxic when spilled and costly to clean up. Secrets that have intrinsic value to the firm are always specific to the enterprise’s business context. An interested party could cause long-term competitive harm if it obtains these secrets. Keeping proprietary knowledge away from competitors is essential to maintaining market advantage.

An interesting case of theft of trade secrets is about Xiang Dong (“Mike”) Yu, a former employee of Ford Motor Company, copied around 4,000 documents belonging to the company before he left the company, without notifying anyone of his plans or giving notice, and traveling toChina. The documents have been evaluated and are said to worth between $50 and $100 million, and include designs of various Ford car components such as the engine/transmission mounting subsystem, the electrical distribution system, the generic body module, and others. Almost two years after he left, he accepted a job offer with the Chinese-based Beijing Automotive Company and shared the documents with his new employer…

As Andy Greenberg points out, financial reform has expanded whistleblower incentives to reward corporate employees who report illegalities.  It offers the conscience-stricken and vindictive alike a chance to publish documents largely unfiltered, without censors or personal repercussions, thanks to privacy and encryption technologies that make anonymity easier than ever before.  What’s a corporate CEO to do?

The choice is simple; either run an honest business or risk painful, massive leaks of information. “In the struggle between open and honest companies and dishonest and closed companies,” Greenberg says, “we’re creating a tremendous reputational tax on the unethical companies.”  Most people don’t become whistleblowers when they simply object to a management strategy. They go public when they feel they’ve been treated badly, or when they believe someone is violating the law.

For the rest of us, says Sullivan, it’s time to come to terms with a new reality:  “We live increasingly in a world without curtains or even veils… When the cost of leaking information is low… When leakers are motivated by incentives… It is clear that the business of publishing secrets is entering a boom market.”  Companies have plenty of good reasons to keep things under wraps; whether they’re trade secrets, upcoming products, or even confidential government contracts. However,  some businesses take things beyond what seems normal, going to great lengths to keep questionable information as secret, even going so far as to keep their entire company secret for years…

“The link between secrecy and deceit is so strong in the minds of some that they mistakenly take all secrecy to be deceptive” ~Sissela Bok

“Secrecy was Bernie Madoff’s hallmark. When the reporter for Barron’s pressed him for details, Madoff simply replied: It’s a proprietary strategy. I can’t go into it…”

Success in Business & The Golden Ring: Define It; Get It; Use It; Share It; Lose It; Wish You Never Had It…

Success in business. “Flaming enthusiasm, backed up by horse sense and persistence, is the quality that most frequently makes for success”. ~Dale Carnegie

A Google search on the word ‘success’ brings up nearly 100 million results… That says people are interested in ‘success’…  and, in having more of it. Regardless of what ‘success in business’ means to you, it’s within your reach and a lot closer than you might think. How do you reach success? The quest for success and the search for the ‘golden ring’ have given us many ‘formulations for success’, and we will discuss a few of them.

There is a theory that Murray Raphel, business expert, has about business success: If business is good, it’s not because of the weather, the time of year or the economy. It’s because of  ‘you’. You are doing something right. If business is bad, it’s not because of the weather, the time of the year or the economy. It’s because of ‘you’. You are doing something wrong.  Today’s world is no longer satisfied with simply success–we want to know how the successful get to the top.

The Russians developed a concept called ‘anthropomaximology’ in which they try to answer the question of why some individuals outperform others. Through the years I’ve done some ‘anthropomaximology’ of my own and found there are certain qualities that describe successful business people. Here are a few:

  • Constantly set higher goals; successful business people are mountain climbers who, having climbed one peak, look beyond to the next highest.
  • Avoid ‘comfort zones’. To a successful person, standing still feels like going backwards. People who stay in their ‘comfort zones’ do what they did before ‘it’s the way we’ve always done it’
  • Driven by accomplishments, not money. Successful people follow the theory of Apple Computer’s founder Steve Jobs, who said, ‘The journey is the reward.’
  • Solve problems rather than place blame. Successful business people do not waste their time looking at problems and saying, ‘It’s not our fault’ or ‘Why didn’t we …’ They say, ‘Let’s look at what went wrong and realize it was a learning experience and figure out how we can make it work next time.’
  • Look at the worst possible scenario. ‘What’s the worst possible result if we follow this plan?’ They understand the most harmful result and then decide if they can live with the outcome.
  • Rehearse the future as they see it. Successful people move towards the pictures they create in their ‘mind’s eye’. They rehearse coming actions or events as they ‘see’ them.

In an article by Johnny B. Truant writes: “Folks, I don’t have a formula for success, and there is no magic formula that will work every time. I’ll be blunt: If you believe you can be assured of success by buying some ‘guru’s product or consulting, or any one thing, you’re in for a rude awakening.”  The internet is filled with promises of: “Do what I do and say (and pay my price) and you’re guaranteed riches.” But it’s a lie. It’s all a big lie. “There is one — and only one — true formula for success that actually works. Get your pen ready, because here it comes: The one and only one true formula for success”:

  • Step 1: Try– something.
  • Step 2: Repeat Step 1— until the desired result is achieved.

In the article “Formula for Success” by Tolani Brendan Moseu writes: There are some principles of success that will always produce the same result when adhered to. My ‘formula for success’ is as follows: Formula for success = ‘your human capital (what you know)’ + ‘your social capital (who you know)’ + ‘your reputation (who trusts you)’.  This formula is summarized as follows: Business Success = ‘Applied Knowledge’ + ‘Relationships’ + ‘Trust’.

In an article “Einstein’s Formula for Success” by Pastor Tim Henry writes: The other day I printed out a paper called ‘Einstein’s Formula for Success’ by Ron White for my 11 year old son. Einstein has always been kind of a hero for him. People pick different heroes. My son picked Einstein.  And as a result, I have been able to teach him a number of valuable lessons about life by relating (Einstein humor here!) his life and theories to everyday situations.

This morning I found this quote about ‘not trying to be a success’… by Albert Einstein:  “Try not to become a man of success but rather try to become a man of value”. Einstein had a formula for most everything and this was his formula for ‘success’.  The formula goes like this:  If ‘A’ equal success, then the formula is: A=X+Y+Z. where; X is ‘work’, Y is ‘play’, Z is ‘keep your mouth shut’.  I know. It’s algebra. We’ll get through it. To get success, Einstein said that you measure each of the three elements…’work’,  ‘play’, ‘keep your mouth shut’, then you combine them in such a way to produce ‘success’.

Therefore; ‘A (Success)’ = 99% ‘Work (X)’ + 1%‘Play (Y)’ + 0% ‘Keep-your-mouth-shut (Z)’.  See, we’ve done it!  Does this mean ‘success’ for you: ‘Working 99% of the time…?  Playing 1% of the time…? Never shutting up? Although Einstein gave us this formula, he didn’t tell us what particular ‘mix’ was right for each of us. 

In an article The  4+2 Formula For Success by Tahl Raz writes: Why do some succeed while others fail? Nitin Nohria, Professor Harvard Business School, recently concluded an exhaustive study of 160 companies in 40 different industries over two five-year periods in an attempt to answer the most basic question in business: Why do some companies flourish/succeed while others fail?

The answer he found, is as ‘simple as 4+2’. Nohria and co-authors William Joyce and Bruce Roberson argue in the book ‘What Really Works: The 4+2 Formula for Sustained Business Success’, that success requires managers to implement four primary fundamental business practices; strategy, execution, culture, organization; and two of four secondary one; talent, leadership, innovation, mergers & partnerships. It doesn’t matter what industry you’re in or what macroeconomic circumstances you face: Successful companies, Nohria says, invariably are those that employ ‘the 4+2 formula’.

In an articleSuccess Formula’ by Coach John G. Agno, he writes: Over the years, I have discovered success is powered by three things: know-how, reputation, network of contacts. That’s it. That’s the secret. Formula for success = ‘your human capital (what you know)’ + ‘your social capital (who you know)’ + ‘your reputation (who trusts you)’.

In an articleFormula for Success’ by Brian Tracy writes: You have to put in many, many tiny efforts that nobody sees or appreciates before you can achieve anything worthwhile or success.  You can be successful at anything that is important to you, if you focus on the little things that matter. The steps of the many little things are:

  • Step 1. Select an Issue: One of the most important things in your life in which you have a burning desire to be successful. 
  • Step 2. Identify the Little Things: List as many little things as you can think of that play a role in helping you achieve your desired results.
  • Step 3. Get Started: Organize and prioritize your list of these little things. 
  • Step 4. Give Your Best: Strive for excellence as you begin to focus on each item on your list. 
  • Step 5. Expand Your List: Continue to look for little things you can add to your list.

Accordingly to Andrew Carnegie to have business success; ‘aim high’ and believe that ‘your place is at the top’. ‘Then vow that you will reach that high position with an untarnished reputation; honest, truthful, fair-dealing and free from pernicious or equivocal associations…’ This is great, but the key question is: How does the person rise from a lower position to the position for which they aspire?

Carnegie says he has the secret, and it lies mainly in this: Instead of the question, ‘What must I do for my employer?’ substitute ‘What can I do?’ Carnegie says that faithful and conscientious discharge of the duties assigned you is all very well, but the verdict in such cases generally is that you perform your present duties so well that you had better continue performing them; now, this will not do.

He goes on to say; there must be something beyond this. The rising person must do something exceptional, and beyond the range of their regular dutiesThey must attract attention with extraordinary performance… for as Emerson says, “no one can cheat you out of ultimate success but yourself.”

“What we think or what we know or what we believe is, in the end, of little consequence. The only consequence is what we do” ~John Ruskin

“The greatest mistake you can make in life is to continually fear that you will make one.” ~Elbert Hubbard

Two Faces of Envy in Workplace– Destructive & Competitive: Menacing, Motivating, Managing… or Stimulus to Excel

“While it is impossible for a leader to eradicate ‘envy’ from the workplace; however, there is much a leader can do to create an environment that minimizes its occurrence.”

Envy: He has it; I want it… If I can’t have it, nobody can. Envy is not only felt for material possessions, but more often we envy people who are well regarded, admired, influential, and successful. We wish we had their stature. Envy (Wikipedia) is best defined as a ‘resentful emotion’ that occurs when a person lacks another’s (perceived) superior quality, achievement, or possession and either desires it or wishes that the other lacked it.

‘Envy’ in the workplace damages relationships, disrupts teams, and undermines organizational performance. Most of all, it harms the one who feels it. When you’re obsessed with someone else’s success, your self-respect suffers, and you may neglect or even sabotage your own performance and possibly your career.

In the article “Envy at Work” by Tanya Menon, Leigh Thompson write: Comparing yourself with successful coworkers can be motivating, but it can also trigger ‘envy’. The authors’ research suggests that such feelings may cause real damage, both to your own career and to your organization’s success. Denying or concealing envy makes the problem worse.

Over the past 10 years, we have studied hundreds of executives and their organizations in an effort to discover what role this deadly sin plays in the workplace. We have found that regardless of the economic climate, people at all levels of a firm are vulnerable to envy. Envy is difficult to manage, in part because it’s hard to admit that we harbor such a socially unacceptable emotion.

In the course of our research, we’ve found that it is possible to prevent yourself from being consumed by ‘envy’ and even to harness it to your advantage with positive actions, such as; recognize potentially destructive thoughts and behaviors; refocus them into more generous and productive ones. Make yourself more open to others; more receptive to change and more fulfilled at work.

Envy has sometimes been described as a social microscope, for example;  When others succeed in the workplace it bothers you, you become ruminative. You obsess over interactions with rivals, compare your rewards, and over-analyze even the fleeting praise the boss bestows on others. Some people become so fixated on a rival that they lose their focus on their own performance…

In the article “The Psychology of Zero-Sum” by Richard Landes writes:  One of the most difficult aspects of an ‘honor-shame’ culture is the way in which we tend to view the world as ‘limited good’. Therefore, all transactions and developments are seen as a ‘zero-sum game’ in which, when someone else wins, I lose; and when I win, someone else must lose. ‘Zero-sum’ attitudes have a close relationship to ‘envy’; if someone’s success necessarily diminishes others, then any success will elicit ‘envy’ and, in many cases, mobilize forces to bring down the haughty ones.

‘Envy’ is a pervasive element of the human psyche and of human societies. The evidence suggests that cultures that take envy as an inevitable and pervasive part of their lives produce societies of ‘limited good’. By contrast cultures that resist envy, even in relatively small but significant amounts, become wealth producing nations. When ‘envy’ dominates a culture, its members mobilize against success. As the saying goes, ‘the higher up the pole you get, the more your ass is visible’. On the contrary, when people can tolerate success by others, even rejoice in the success of others, you have conditions for economic development…

In an article by researchers, Niels van de Ven, Marcel Zeelenberg, and Rik Pieters, at Tilburg University in the Netherlands, they made some important discoveries about the motivations that result from different kinds of ‘envy’. Two types of ‘envy’ exist: benign and malicious”, the authors explain.Benign’ envy exists if the advantage of the other person is ‘deserved’ and motivates people to attain a coveted product or position for themselves.

This more motivating type of envy makes people pay an ‘envy’ premium for the products that elicited their envy. On the other hand, ‘malicious’ envy occurs if the other person is thought to be ‘un-deserving’; it evokes a desire to ‘pull down’ the other person. In a series of experiments, the authors compared ‘benign’ envy with its ‘malicious’ cousin. They found that only benignly envious people were willing to pay more for products that they coveted.

Maliciously envious people were more likely to pay more for related but different competitive products. For example, people who felt maliciously envious of someone with an iPhone were more likely to pay more for a BlackBerry. In the experiments (which involved potential internships as well as products like iPhones),  participants were asked to imagine feeling ‘envious and admiration’ for the fellow student (‘benign’ envy condition), to imagine feeling ‘envious and begrudging’ (the ‘malicious’ envy condition), or just to imagine that they really liked the product (‘control’ condition).

Companies should be cautious not to evoke the more negative form of envy that drives people away from their products. “Advertisers should make sure that the celebrities they want to use in their ads actually deserve their status,” the authors write. “If they do not, these celebrities might actually trigger malicious envy and drive the sales to a competitor’s product”.

In the article “Envy in the Workplace: Jealous Guise” by Hilary Osborne writes: Allowing envious feelings towards colleagues to take over ones life could be disastrous for your career. Researcher Tanya Menon, University of Chicago, along with fellow professor Leigh Thompson, have spent 10 years studying what happens when ‘envy’ – defined by the Oxford Concise Dictionary as ‘discontented or resentful longing aroused by another’s possessions, qualities or luck’ – occurs in the workplace. They found evidence that ‘envy’ can be a real issue for both employers and employees, dividing workforces and distracting people from the jobs they want and are paid to do.

Although envy is an emotional response, our research shows how it can have real financial consequences, Menon says. Ben Williams, psychologist, says envy is “usually aggravated by low esteem or a lack of assertiveness“. When a colleague has something we want – a better job title, pay packet or perk…

instead of feeling pleased for them, or understanding why they are in a better position, we feel inferior and start to resent their success. Steve Williams says ‘envy’ can be “started or fired-up by a lack of opportunity – when people feel they are not being treated in the same way as their colleagues.”  

He suggests that transparency is the manager’s best defense. “Having fair, open processes for how people are given promotions and pay rises and allocated projects can go a long way to eliminating envy.”  Menon says companies should make sure they are not set-up in a way that feeds envy. “Even if people want to do the right thing and display their most generous sides, their organizations are implicitly, or even explicitly, rewarding them for pursuing status at the expense of others,” she says. Menon says she doesn’t think it is possible for organizations to stamp out envy from the human psyche, “but it is possible to manage it, and remove organizational incentives that encourage people to undermine as opposed to support talented co-workers.

When a problem arises between colleagues, Ben Williams says “don’t let it fester, otherwise they become a magnet for other disharmony in the workforce.”  Steve Williams suggests that “to some degree a form of envy is a motivational thing. You see something you want and it drives you to work harder”.

But Menon disagrees “whereas, competition involves wanting to outdo the other person, envy is wanting what the other person has, wanting to take it away, and even wanting to see the person ruined,” she says. “Competition and social comparison can both have advantages: people can be motivated to do better, improve themselves and their organizations when they see talented competitors. However, if they channel their response towards envying others, I don’t see many positive consequences”…

‘Envy’ in the workplace isn’t pretty even on a good day; news of someone else’s good fortune can send us spiraling into a pit of bitter accusations and weak self-righteousness. It poisons our confidence and undermines our sense of worth. Given enough energy, envy can balloon into outright hate. But facing this ‘green-eyed monster’, looking it in the eye without flinching, can tell you powerful things about yourself; what you really want and what you need to change. Seen this way, envy is information.

It points us to the good, and the belief that good or excellence is within our reach. Of all the negative character traits, envy is the only one with a redeeming factor. A healthy dose of ‘envy’ is even good – think of it as fuel to drive your way to success or contentment. Take heart, it’s perfectly normal for people to look at others and wish to have what they have.

The trick is to use that ‘envy’ to better your situation instead of using it to fuel your hate.  In business, for example – the negative way is to start bad-mouthing your colleagues, manager, or the company. The positive way is to observe, learn, and apply the way the other people work to your own advantage.

You benefit, and your group gets a more positive outcome; its win-win.  Act positive and you can have what they have, and maybe more. ‘Envy’ is a double-edge sword – choose to wield it for the better…

“Envy comes from people’s ignorance of, or lack of belief in, their own gifts.” ~Jean Vanier

Business Value Creation Must be Inclusive and Aligned Around the Triad: Customers, Employees, Investors…

Business value: Being good enough, is not good enough give customers, employees, and investors a reason to be faithful.  ~ Graham Roberts-Phelps

The fundamental principle of business value is to ‘create value’ for all stakeholders, primarily; ‘customers’, ‘employees’ and ‘investors’. The most successful organizations understand that ‘sustainable value’ cannot be created for one group unless it is created for all. Initially, focus should be on ‘creating value’ for ‘customers’ but, this cannot be achieved unless ‘employees’ are carefully selected, developed and rewarded, however, unless ‘investors’ receive consistently attractive financial returns, resources and support won’t be available:

These are symbiotic relationships. Increasingly, businesses view their fundamental purpose as innovators and creators of a continuous stream of added-value; for customers, employees and investors, in ways that integrate the interests of all three groups. Not the traditional maximize short-term earnings or beat the competition. The ultimate goal is long-term growth and consistent profitability, and ‘value creation’ is the optimal business strategy.

In the article “Model of Corporate Value Creation” by Cengiz Haksever, Radha Chaganti, and Ronald G. Cook write: ‘Value’ is a central concept in economic theory; theories of different schools of thought have been developed around different definitions of ‘value’. However, unlike ethicists, economists are interested in the value of ‘things’. Adam Smith in his book ‘Wealth of Nations’ formalized the concept of ‘value’. More recently, in addition to economists, scholars in various fields of management and engineering paid increased attention to the concept and measurement of value and inevitably have come up with different definitions.

These range from ‘value’ being simply equal to ‘price’ to more elaborate definitions. For example, Michael Porter defines value as “what buyers are willing to pay” and “superior value results when a firm offers lower prices than competitors for equivalent benefits or when it provides unique benefits that more than offset a higher price”. Most economists, however, make a clear distinction between ‘value’ and ‘price’ for goods/services. Then, our definition of value:Value is the capacity of a good, service, or an activity, or activities of an organization to satisfy a need, or provide a benefit to a person or legal entity”.

This definition of value is clearly broader than the traditional definition used in economics. It includes any type of good, service, or act that satisfies a need or provides a benefit, tangible or intangible, including those that positively contribute to; the quality of life, knowledge, prestige, safety, physical and financial security, as well as providing nutrition, shelter, transportation, income…

In an article by Paul O’Malley; the most successful organizations understand that the purpose of any business is to create value for customers, employees, and investors and that all their interests are inextricably linked. In today’s economy, value creation is based typically on innovation and on understanding unique customer needs. But companies can innovate and deliver outstanding service only if they tap the commitment, energy, and imagination of their employees.

‘Value’ must therefore be created for ‘employees’ in order to motivate and enable them. Employees value meaningful work, excellent compensation opportunities, and continued training and development. ‘Real’ value creation– and long-term growth and profitability– occur when companies develop a continuous stream of ‘innovation’ that offer unique and compelling benefits to a set of target customers. This means that to maintain industry leadership, a company must establish a sustainable process of ‘value creation’…

In the article “Build Culture of Value Creation–Value-Management” by Steve Chopp and John K. Paglia write: ‘Value management’(VBM) is the alignment of key organizational processes; such as, strategic planning, budgeting, compensation, performance measurement, training, and communication  centered around ‘value creation’. The organization needs this alignment and consistency to develop a culture whereby individuals, at all levels, will make decisions focused on sustainable long-term ‘value creation’.

A study by ‘Haspeslagh, Noda, and Boulos’ reports that the difference between successful and unsuccessful companies is that successful companies realize that VBM is not simply about the numbers; it is about building a culture around ‘value creation’. In other words, VBM has to become a way of life, and anything less will lead to the creation of another tombstone in your company’s junkyard of failed initiatives.

A Harvard Business Review (HBR) Study highlights this importance: 62% of the successful VBM companies reported training more than 75% of their managers in VBM concepts, whereas only 27% of the unsuccessful companies trained their management staffs. Realizing that VBM is a cultural change is the key to lasting change that will create sustainable improvements in shareholder value.

As a company implements VBM, it will need to accomplish three steps: gain senior team commitment; customize the VBM framework; make VBM a way of life in the organization. VBM provides an organization the opportunity to significantly improve performance by aligning the entire organization around ‘value creation’…

In the article “Introducing the New Value Creation Index” by Geoff Baum, Chris Ittner, David Larcker, Jonathan Low, Tony Siesfeld, and Michael S. Malone write:  No one has yet developed a systematic means to tell us how much; say, ‘’ is really worth; we have no accounting system that captures all the hidden values– brand, human capital, partnerships, intellectual property— embedded within the total market valuation of a company in the new economy.

When intangible assets make-up a huge portion of a company’s value, and when that value is re-measured every business day by stock market analysts and traders, the current system of financial measurement has become increasingly disconnected from what appears to be, truly valuable in the new economy.

In the current economy, not only do intangible assets make up nearly all of the value of the hottest companies but they now may represent as much as half the value of the entire U.S. economy. What are the key non-financial factors in creating value for the modern corporation? The answers ranged from ‘employees’ to ‘products’ to ‘company image’.

Historically, most intangible asset measurements have been top-down: Investors theorize a contributing factor and then try to figure out how to measure it. Our approach was different. What we found was surprising. Some perceived value drivers translate into market value; others do not.

Our research found that the important drives for corporate value (in rank order) were: (1) Innovation; (2) ability to attract talented employees; (3) alliances; (4) quality of major processes and products; (5) environmental performance; (6) brand investment; (7) technology; (8) customer satisfaction.  Surprisingly, for all the blather over the past 10 years about the importance of customer satisfaction, it apparently has no major effect on corporate value. Why?

It may be that real customer satisfaction is now inextricably tied to innovation. If your product line is at the cutting edge of technology, your customers probably are happy; if your products aren’t state-of-the-art, then no amount of call centers and training videos is going to help.

For Internet companies, the value drivers were different (in rank order of importance): (1) alliances, (2) innovation, (3) eyeballs (usage traffic), (4) brand investment, (5) stickiness (minutes spent on Web pages). Here, the most important value driver was the number of ‘alliances and alliance partners’ and ranked close behind was investments in ‘innovation’…

In the article “Put Value Creation First” by Ken Favaro writes:  Understanding where, how, and why ‘value is created’ within your company and your markets is the best, most objective way to identify which of your activities and assets are distinctive enough to provide a platform for sustainable and profitable growth. Putting ‘value creation’ first gives companies two advantages over their competitors in driving for profitable and sustainable growth: First is ‘capital’, second is ‘talent’.

In a world where nearly everyone faces abundant choices, the challenge for all businesses is to develop and sustain a uniquely attractive proposition for both customers and employees. To consistently put ‘value creation; first requires leadership skills, discipline, and perseverance.

If you put ‘value creation’ first in the right way, your managers will know where and how to grow, they will deploy capital better than your competitors, and they will develop more talent than your competition. This will give an enormous advantage in building the company’s ability to achieve profitable and long-lasting growth…

In financial terms, ‘creating value’ means earning a return-on-capital that exceeds the cost-of-capital over time; or alternatively, it means earning a positive economic profit. The term ‘value creation’ can be a misnomer, but it’s simply: delivering additional value to the bottom line. However, the difficulty lies in identifying the particular ‘value(s)’ out of the plethora of intangible drivers that you have to deal with.

Non-financial factors like; innovation, people and ideas are difficult to quantify, and rarely acknowledged in accounting methods— and not adequately measured, managed or reported by organisations.  According to ‘Juergen Daum and Karl Gruber’, traditionally it was sufficient to bring the ‘right product’ onto the ‘right market’ at the ‘right time’; however, the pace of technological development and the hyper-competition brought on by globalization have changed the very foundation of the formula for business success.

It’s not really, what a company produces and offers on the market that determines success anymore, but rather how it goes about it. That is, how creative the company is in shaping its value-added offering, value creation model and profit model in a way that will result in an effective business model.

Enabling the company to stay ahead of the competition by continually ‘creating-added-value’ for customers, employees, and shareholders… In other words, instead of placing the ‘right product’ on the ‘right market’; it is essential for a company to have the ‘right business model’ for the ‘right target group’ at the ‘right time’.

A business model is the ‘right’ one as long as its; value-added offering, value creation model, and profit model fit-in with the target market conditions and provides a unique competitive advantage and relevance to its core target groups; customers, employees, investors..

 “Price is what you pay, value is what you get” ~Warren Buffett

Corporations Schemes of Tax Non Compliance—Tax Avoidance, Tax Havens, Tax Evasions: Deceptions to Avoid Social Responsibility…

Corporations Schemes of Tax Non Compliance ‘The United States loses approximately $100 billion in tax revenues every year due to corporations and individuals sending their money to offshore tax havens… that’s just the tip of the tax avoidance scheming…”

Tax-noncompliance (Wikipedia) describes a range of activities that are unfavorable to the tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities. The use of the terms ‘tax avoidance’ and ‘tax evasion’ can vary depending on the jurisdiction.

In general, the term ‘evasion’ applies to illegal actions and ‘avoidance’ to actions within the law. In the United States ‘tax evasion’ is evading the assessment or payment of a tax that is already legally owed at the time of the criminal conduct. ‘Tax evasion’ is criminal, and has no effect on the amount of tax actually owed, although it may give rise to substantial monetary penalties.

By contrast, the term ‘tax avoidance’ describes lawful conduct, the purpose of which is to avoid the creation of a tax liability in the first place. Whereas an evaded tax remains a tax legally owed, an avoided tax is a tax liability that has never existed. For example, consider two businesses, each of which have a particular asset, in this case, a piece of real estate that is worth far more than its purchase price.

  • Business #1 sells the property and under-reports its gain. In this instance, tax is legally due. Business #1 has engaged in tax evasion, which is criminal.
  • Business #2 consults with a tax advisor and discovers that it can structure the sale as a ‘like kind exchange’ for other real estate that it can use. In this instance, no tax is due because no sale took place. Business #2 has engaged in tax avoidance (or tax mitigation), which is completely within the law.

In 2010, U.S. corporations avoided approximately $60 billion in U.S. corporate income taxes by using a variety of devices and gimmicks to shift profits to foreign subsidiaries, while the Fortune 100 companies received some $89.6 billion in federal contracts. Since the Government Accountability Office (GAO) reviewed this issue in 2008, top companies have added 44 new subsidiaries in countries identified by the GAO as ‘tax havens’.

The lost revenue would be more than enough to fund the entire budgets of the Environmental Protection Agency (EPA) and the Departments of Energy (DOE) and Labor (DOL) combined. One recent study found that eight of the top 12 companies effectively paid no federal income taxes from 2008 through 2010. The official U.S. corporate tax rate of 35% largely exists in name only. The U.S. collects less in corporate taxes as a share of GDP than 24 out of 26 industrialized countries.

The share of the federal budget funded by corporate income taxes has dropped dramatically since the 1940s, from 28.8% of the budget to 10.3%. Of the 77 Fortune 100 companies with subsidiaries in ‘tax haven’ countries, 69 had federal contracts. The pharmaceutical and tech sectors loom particularly large, including; Merck, Pfizer, General Electric, Dell, Google. General Electric is paying essentially no federal tax, and had over $3 billion in federal contracts. Google’s ‘Double Irish-Dutch Sandwich’ illustrates the convoluted mechanisms used to hide profits overseas…

Then there is the ‘Reverse Morris Trust’, a tax-avoidance technique that is increasingly deployed by corporations seeking to sell off unwanted assets without paying taxes on their gains. The ‘Reverse Morris Trust’ starts with a parent company looking to sell assets to a smaller external company. The parent company then creates a subsidiary, and that subsidiary and a smaller external company merge and create an unrelated company.

The unrelated company then issues shares to the shareholders of the original parent company. If those shareholders control over 50% of the voting right and economic value in the unrelated company, the Reverse Morris Trust is complete. The parent company has effectively transferred the assets, tax-free, to the smaller external company. The Reverse Morris Trust originated from the Morris Trust: In 1966, the legal case ‘Commissioner v. Mary Archer W. Morris Trust’ went to court, and Morris Trust received a favorable ruling. Due to this ruling, a loophole was created for companies to avoid taxes when looking to sell unwanted assets.

Two examples of Reverse Morris Trust-driven transactions were a $2.7 billion spin-off of Verizon Communications’ and a $2.4 billion spin-off of the Walt Disney Company’s ABC Radio business. Verizon received $1.7 billion in cash and securities, and Disney retained $1.35 billion in cash from the proceeds…

In the article “Procter & Gamble and the Dark Art of Tax Avoidance” by Allan Sloan writes:  The tax-avoidance spotlight has been shining brightly, via the media, on companies like General Electric, Exxon Mobil, Verizon, and big multinational banks. But some of the most clever and innovative tax avoiding is being done by a company not usually associated with financial wheeling and dealing: ‘Procter & Gamble’ (P&G).

In three deals spread over almost a decade, P&G–the owner of Tide detergent, Bounty towels, Gillette shaving products, and many other household names– has managed to reopen a loophole that Congress closed in 1997. By my estimate, P&G’s profits on the deals, which involve selling brands it no longer wants, total about $6 billion and are tax-free to the company, and are tax-deferred to its shareholders, possibly forever.

A straight-up sale would have triggered a $2 billion federal tax bill and a hefty state tax bill. All three involve so-called ‘Reverse Morris Trust’ transactions. “P&G is the most active practitioner of this technique,” says tax expert Robert Willens. These deals are perfectly legal, and under current market mores, P&G’s obligation to maximize its owners’ returns trumps its obligation to pay taxes to support our society.

“P&G’s goal in these transactions is to achieve the best value for company shareholders, while also seeking a good fit for the business being sold,” says company spokesman Jennifer Chelune. Fair enough. If there’s no abuse, why am I discussing these sales? To show that the system needs reforming. To demonstrate how even a company like P&G practices the dark tax-avoiding arts. And to show how big the stakes are…

In the articleThe Social Irresponsibility of Corporate Tax Avoidance by John Christensen and Richard Murphy write:  Tax revenues are the lifeblood of democratic government and the social contract, but the majority of multinational businesses have been structured so as to enable ‘tax avoidance’ in every jurisdiction in which they operate.

They argue that policy measures are required to redress the distortions that have arisen as global companies have left nationally based tax regimes floundering. The scale of  ‘tax avoidance’ activity has become so enormous that it can fairly be described as a ‘shadow economy’ operating in the majority of global sectors…

Owing to the secretive nature of this type of activity, it is not possible to quantify accurately scale of this shadow economy, but recent estimates give some idea of possible scale: At least half of all world trade appears to pass through ‘tax havens’, even though these jurisdictions account for only about 3% of global GDP.

The UK government estimates that 60% of international trade consists of intra-company transactions, that is, firms trading with themselves and much of this is passed through tax havens that charge low or zero rates of tax on profits. The value of assets held offshore, either tax-free or subject to minimal tax, is estimated at US$11 trillion, which is over one-third of global GDP…

Multinational companies make use of aggressive tax-planning strategies because they are able to operate in the legal vacuum that exists between nation states…

In the article “The Top 10 Worst Tax Avoidance Corporations” by Robert Oak writes:  Everybody knows multinational corporations are not paying U.S. taxes. Yet instead of making corporations cough up, our government is busy planning more screw jobs on the U.S. middle class and labor force, all under the guise of reducing spending.

Senator Bernie Sanders is trying to draw attention to the insanity with a top-ten list of the worst corporate tax avoiders. Here is the list from Sander’s floor speech:

  • Exxon Mobil made $19 billion in profits in 2009. Exxon not only paid no federal income taxes, it actually received a $156 million rebate from the IRS, according to its SEC filings.
  • Bank of America received a $1.9 billion tax refund from the IRS last year, although it made $4.4 billion in profits and received a bailout from the Federal Reserve and the Treasury Department of nearly $1 trillion.
  • Over the past five years, while General Electric made $26 billion in profits in the United States, it received a $4.1 billion refund from the IRS.
  • Chevron received a $19 million refund from the IRS last year after it made $10 billion in profits in 2009.
  • Boeing, which received a $30 billion contract from the Pentagon to build 179 airborne tankers, got a $124 million refund from the IRS.
  • Valero Energy, the 25th largest company in America with $68 billion in sales last year received a $157 million tax refund check from the IRS and, over the past three years, it received a $134 million tax break from the oil and gas manufacturing tax deduction.
  • Goldman Sachs in 2008 only paid 1.1 percent of its income in taxes even though it earned a profit of $2.3 billion and received an almost $800 billion from the Federal Reserve and U.S. Treasury Department.
  • Citigroup last year made more than $4 billion in profits but paid no federal income taxes. It received a $2.5 billion bailout from the Federal Reserve and U.S. Treasury.
  • ConocoPhillips, the fifth largest oil company in the United States, made $16 billion in profits from 2007 through 2009, but received $451 million in tax breaks through the oil and gas manufacturing deduction.
  • Over the past five years, Carnival Cruise Lines made more than $11 billion in profits, but its federal income tax rate during those years was just 1.1%.

The evidence is clear that major U.S. corporations are avoiding tens of billions of dollars in U.S. corporate income taxes through a variety of schemes and gimmicks which allow them to hide profits and avoid paying corporate income tax. The U.S. corporate tax system debuted more than 100 years ago and has evolved little to meet the challenges of today’s economies.

The U.S. corporate tax system must be reformed to keep pace with the new realities of multinational corporations and global economies. A simplified tax system that provides corporations with incentives to locate, invest, and produce in the U.S., while offering citizens the prospect of more and better job opportunities and higher wages.

The U.S. Congress and Administration must begin the process of reforming/reinventing the corporate tax systems, now: First, address and correct the corporate tax loopholes & gimmicks that allow large-scale ‘tax avoidance’; second, fundamentally rethink the corporate tax system and align it with the realities of the new multinational corporations and global economies of the 21st Century…

“The Capitalism System can exist without tax loopholes & shady practices: Corporations must shoulder their fair share of tax burden- it has in the past- it can do so again.”

Luck (Good & Bad) Happens in Business… Luck Does Play an Important Role in Business Success: The Return-on-Luck (ROL) Factor…

“Overall success in business doesn’t mean you ‘got lucky’, it means you used luck, taking advantage of the ‘good’, identifying and canceling the ‘bad’ luck”.

‘Luck’: What is it? How is ‘luck’ defined? The Merriam-Webster online dictionary defines ‘luck’ as; (a): force that brings good fortune or adversity, or (b): events or circumstances that operate for or against an individual.  Or, ‘luck’ can be defined as a positive correlation between wishes and events, that is, we say that someone has ‘good luck’ when it happens what he wished. ‘Bad luck’ can be defined as a negative correlation between wishes and events, that is, we say that someone has ‘bad luck’ when it happens the opposite that he wished.

Luck has good deal to do with success in business.  Not superstitious luck, as found in baseball rituals, but luck as chance, accident and coincidence. Malcolm Gladwell’s excellent book, ‘The Tipping Point’, offers numerous examples of luck lending a helping hand.  He puts a face on some of the forces that create luck, too.  So does Chris Anderson’s The Long Tail’, which illustrates how the internet, social networks and viral marketing have led to unexpected good fortune (luck). Luck typically favors persistence and diligence.

Those who stay in the game, pick themselves up by the bootstraps when things fail, and who keep swinging until they get it right are usually the ones whom ‘luck’ favors. When luck has been considered, it has been dealt with in generality; meaning, the authors have assumed their readers know what luck is. Some have defined luck according to their own perception or in only a limited sense.  Years ago, ‘Justice William O. Douglas’ was claimed to have said; “he could not define pornography, but he knew it when he saw it”.

Luck as a behavioral or attitudinal variable may be in much the same situation; everyone has an intuitive perception of what it is, they just have a difficult time trying to define it in universally applicable terms.  From a managerial perspective, there are moral and management issues very relevant to several dimensions of luck. For a sales-related example; are some salespeople just luckier than others? Or, do they manufacture their luck? Is it just luck that they are in right place at the right time talking to the right people about the right products, or is it the result of planning and preparation?

According to John Hafer and George Gresham in their article “Luck’s Role in Business Success” says: Luck is a complex concept that has received extensive exposure in the philosophical literature.  Luck was a recognized, mystical, unexplainable phenomenon. Several papers have related luck to macro-business issues, such as business failures macro-economic issues and policy, management and business performance, and small business location decisions.

“The reason free markets work is because they allow people to be lucky”, says Nassim Taleb who raised awareness about the role of luck through his best-selling book, ‘Fooled by Randomness’. Then, how much success is due to luck, and how much to preparation? Luck as a general concept appears to need six things:

  • Event occurs infrequently.
  • Outcome happened as a result of the event.
  • Outcome affects someone in someway.
  • Outcome has significant value.
  • Degree of significance of the outcome is subjective.
  • There was some/no control over the outcome.

In the article Why Some People Have All the Luck” by Anette Mikes and Robert Kaplan write: Some business builders just seem to have more luck than others. But luck in business isn’t entirely, well; luck. There’s a popular saying that ‘you make your own luck’. This ‘make your own luck’ principle — turns out to be a critical factor in successful business-building.

Over the course of now hundreds of interviews, collaborations and interactions with entrepreneurs, my co-authors Richard Harrington and Tsun-yan Hsieh and I found that, while there are certain types of luck which you cannot affect, there is absolutely a lot of luck that you can meaningfully influence.

Arguably, most of ‘business luck’ can be influenced — i.e. you can increase your propensity to be lucky in business if you understand how to have luck: Being ‘luckier’ in business is fundamentally about having the right ‘lucky attitude’. As it turns out, luck is as much about ‘attitude’ as it is about probability. We have found in our research that people who self-describe themselves as lucky in their personal profile tend to be luckier because they have the ‘right attitude’.

The basic equation of developing the right ‘lucky attitude’ therefore is quite simple: It starts with having the humility to be self-aware, followed by the intellectual curiosity to ask the right questions, and concluding with the belief and courage that something better is always possible (optimism)’. The luckiest people in the business world are those who hold all three elements of the ‘lucky attitude’ equation; humility, intellectual curiosity, and optimism.

“For a long time now I have tried to write the best I can.  Sometimes I have good luck and write better than I can” ~Ernest Hemingway

In the article “What’s Luck Got to Do With It?” by Jim Collins and Morton Hansen write: We completed a nine-year research study of some of the most extreme business successes of modern times. We examined entrepreneurs who built small enterprises into companies that outperformed their industries by a factor of ‘10’ in highly turbulent environments.

We call them ‘10Xers’ for ’10-times success’. The very nature of this study: How some people thrive in uncertainty, lead in chaos, deal with a world full of big, disruptive forces that we cannot predict or control — led us to smack into the question, ‘Just what is the role of luck?’

Could it be those leaders’ skills account for the difference between just meeting their industry’s average performance (1X success) and doubling it (2X)? But that ‘luck’ accounts for all the difference between 2X and 10X?  Maybe or maybe not.  But how on Earth could we go about quantifying something as elusive as ‘luck’?

The breakthrough came in seeing luck as an event, not as some indefinable aura. We defined a ‘luck event’ as one that meets three tests: ‘First, some significant aspect of the event occurs largely or entirely independent of the actions of the enterprise’s main actors. Second, the event has a potentially significant consequence — good or bad. And, third, it has some element of unpredictability.’  

We systematically found 230 significant luck events across the history of our study’s subjects. We considered good luck, bad luck, the timing of luck and the size of ‘luck spikes’. Adding up the evidence, we found that 10X cases weren’t generally ‘luckier’ than comparison cases. (We compared the 10X companies with a control group of companies that failed to become great in the same extreme environments.)  The 10X cases and the control group both had luck, good and bad, in comparable amounts, so the evidence leads us to conclude that luck doesn’t cause 10X success.

The crucial question is not, ‘Are you lucky?’ but ‘Do you get a high ‘return-on-luck’ (ROL)?  Luck, good and bad, happens to everyone, whether we like it or not. But when we look at the 10Xers, we see people who recognize luck and seize it, leaders who grab luck events and make much more of them.

This ability to achieve a high ROL at pivotal moments has a huge multiplicative effect for 10Xers. They zoom-out to recognize when a luck event has happened and to consider whether they should let it disrupt their plans.  When we examined less successful companies, we saw a generally poor overall ‘return-on-luck’ (ROL).

Some of the comparison cases had extraordinary sequences of good luck yet showed a spectacular ability to fritter that luck away. When the time came to execute on their good fortune, they stumbled. They didn’t fail for lack of good luck. They failed for lack of superb execution.

Nietzsche wrote, “What does not kill me makes me stronger.” We all get bad luck: The question is how to use it to turn it into ‘one of best things that ever happened.’  There’s an interesting asymmetry between good and bad luck. A single stroke of good luck, no matter how big, cannot by itself make a great company.

But a single stroke of extremely bad luck, or an extended sequence of bad-luck events that creates a catastrophic outcome, can terminate the quest.  The 10Xers exercise productive paranoia, combined with empirical creativity and fanatic discipline, to create huge margins of safety.

If you stay in the game long enough, good luck tends to return, but if you get knocked-out, you’ll never have the chance to be lucky again. Luck favors the persistent, but you can persist only if you survive. Bill Gates didn’t just get a lucky break and cash in his chips. He kept pushing, driving, working — and sustained that effort for more than two decades. That’s not luck — that’s ‘return-on-luck’ (ROL).

There are many factors that contribute to a business being a success or failure. In some cases the major factor is ‘luck’. Of course, you can increases your chances of having good luck by doing the important work like making a solid business plan, working hard, hiring the right people, being smart with your money, etc… However, good luck can strike for some businesses even though they didn’t have the best plan or idea and bad luck can sometimes hit the ones that did their due diligence.

Luck is something that cannot be controlled. At best, you can only increase or decrease the odds of having luck on your side. Having as high a chance as possible to receive good luck is worth going through the hard work and necessary steps even though a positive result is not guaranteed. If you’re not going to give your business a 100% effort, then there is no point to do it all. Learn from the mistakes and don’t dwell on the failure.

Good luck: As we have seen, whether or not one can create good luck basically depends on an attitude towards oneself, towards others, and towards life. It is also tied to the perception that the individual is much more of a cause than an effect. And above all, to the realization that one must make oneself the creator of the conditions that foster success and the achievement of specific, visualized goals.

The problem is that we often seem to forget old principles based on common sense, which basically says; ‘we must work, be aware of our actions, and take responsibility for correcting them when the need arises’. The person who grasps that wisdom is lucky indeed.  Nothing comes easy. There are few overnight successes in life. The best companies struggle – just not publicly. And the harder we work, the luckier we get. The question is always asked as a choice: ‘Would you rather be lucky or good?

I always give the same answer: I’d rather be lucky. In the business world, luck makes you good. If I am unlucky, it’s very hard to be successful no matter what I do. Fate and luck play a big role in business. As much as working hard and slowly building financial security is part of the universal dream, another part of that dream for all of us is; ‘capture luck, cheat fate, and strike it rich by taking shortcuts to the top’: Someone has to win the lotto–Why not you?

“You know, it’s quite amazing. The more I practice, the luckier I get.” “You are vastly overestimating the importance of luck.  Skill(s) counts for much more.”

The Sales Maturity Model Process Improvement Framework: Improving Maturity-Level of Sales Organizations, Selling Activities, and Produce the Desired Outcome…

“A Maturity Model looks at how a process should be executed, the persons who will be involved in the execution, the company infrastructure elements that will be used, the metrics and benchmarks that should be used to evaluate performance, as well as the executive responsible for oversight”.

‘Maturity’ relates to the development and growth of a process, from an ‘initial state’ to an ‘improved state’. In the context of business/sales change and improvement, the ‘initial state’ would be implementation of a business/sales process, and the ‘improved state’ is one where the strategies of the process have been fully adopted and integrated into the organization on an ongoing and robust way.

Mapping the cycle of ‘maturity’ provides a framework enabling an organization to gauge the health of its process by providing a point of reference for its ‘current state’, and then consequently guide the future direction of the process by; setting and prioritizing goals, aligning functions and projects, and setting a method for future appraisal.

The ‘Maturity Model’ gives the leadership a method of measuring and reviewing the progress of an improvement program.

The ‘Capability Maturity Model (CMM)’ is a process and framework first described in the 1989 book Managing the Software Process by Watts Humphrey from his work at Carnegie Mellon. Though the CMM comes from the field of software development, it became clear that the model could be applied to other processes.

This gave rise to a more general concept that is applied to business. The CMM has thus been used by different organizations as a general and powerful tool for understanding and then improving general business process performance. The ‘Capability Maturity Model (CMM)’ involves five aspects:

  • Maturity Levels: 5-level process maturity continuum; where the uppermost (5th) level is an ‘ideal state’ where processes would be systematically managed by a combination of process optimization and continuous process improvement.
  • Key Process Areas (KPA): Identifies a cluster of related activities that, when performed together, achieve a set of goals considered important.
  • Goals: Summarize the states that must exist for that key process area to have been implemented in an effective and lasting way. The goals signify the scope, boundaries, and intent of each key process area.
  • Common Features: Practices that implement and institutionalize a key process area. There are five types of common features: Commitment to Perform, Ability to Perform, Activities Performed, Measurement and Analysis, and Verifying Implementation.
  • Key Practices: Elements of infrastructure and practice that contribute most effectively to the implementation and institutionalization of the KPAs.

There are five levels defined along the continuum of the CMM where predictability, effectiveness, and control of an organization’s process are believed to improve as the organization moves up these five levels:

  • Initial (chaotic, ad hoc, individual heroics): Starting point for a new or undocumented repeatable process.
  • Repeatable: Process is at least documented sufficiently such that repeating the same steps may be attempted.
  • Defined: Process is defined/confirmed as a standard business process.
  • Managed: Process is quantitatively managed in accordance with agreed-upon metrics.
  • Optimizing: Process management includes deliberate process optimization/ improvement.

In the article “The Ends are the Means: A Sales 2.0 Maturity Model” by Eryc Branham writes:  Even at the most successful companies, executives want to know if their sales teams are performing optimally, for example:

  • Am I getting the best bang for the buck that I spend on my sales force?
  • Can I drive higher sales productivity out of my existing teams or do I need to invest in new sales staff, leadership, systems, or channels?
  • Can I meet my sales goals without making changes at all?

A useful tool for benchmarking sales performance is the ‘Sales Maturity Model’, which is based on the ‘Capability Maturity Model (CMM)’.  This model is a yardstick for a company to compare themselves against the best practice of other companies, and used to set realistic targets for sales productivity based on their ‘current maturity level’.

Traditional ‘Sales Maturity Models’ have identified a number of characteristics that describe each ‘maturity phase’ including; sales metrics, sales processes, sales tools, and sales methodologies.  However, a new sales discipline has emerged over the past few years – broadly referred to as ‘Sales 2.0’ – that aims to align a company’s selling strategy to their customer’s buying behaviors.

A Sales ‘Maturity Model’ that incorporates the goals of ‘Sales 2.0’ provides a better framework for companies to measure their sales performance against the latest industry best practice. This sales maturity model is composed of ‘5-ends’ that are characterized in the diagram:


In Branham’s ‘5–Ends Sales Maturity Model’ (refer to the diagram), the capabilities for each stage are additive, meaning you build upon the previous maturity stage and add new capabilities that give you entirely new productivity gains. For the past decade, the focus of most companies has been toward ‘solution selling’; shifting sales teams from a ‘product-based–Intend/Spend’ to a ‘solution-based–Recommend’.

Many services-based companies have gone one-step further and present their company as a ‘trusted advisor–Comprehend’ to their customers. Each step-up the ‘maturity model’ brings new capabilities to the company’s sales team: new sales metrics, new sales tools, new skills, and even new sales channels. But the capabilities in the ‘buyer-based–Blend’ phase is recent and unique; a suite of approaches, techniques, and information that was not available prior to the advent of more sophisticated collaboration tools and social networks like Twitter, Facebook, and LinkedIn.

Companies in highly competitive markets, who have made incremental improvements in their sales productivity, have only one way to go in order to differentiate themselves from their competition: Invest in these new ‘buyer-based–Blend’ capabilities and transform into a ‘Sales 2.0’ selling organization with social media tools that augment their core processes and applications.

In short, the ‘5 –Ends Sales Maturity Model’ is the means through which companies can; develop a sales strategy and roadmap, set achievable goals for sales productivity, make smart investments in new capabilities that move its sales team up the ‘maturity model’ and leverage new ‘Sales 2.0’ capabilities to differentiate and win customers.

In the article “Where are you on the Sales Management Maturity Model?” by Dan Perry writes: The ‘Sales Management Maturity Model’ depicts the movement a sales manager and their sales team through several levels of maturity. Starting with a state of ‘chaos’ and eventually assuming a state of ‘predictable performance’; each one of these growth and maturity stages is represented by certain attributes that can be measured to sustain productivity.

Since industries, organizations and products change consistently, that is, what is today’s hot product is tomorrows commoditized purchasing agents dream. Then, how do you move up the ‘maturity model’?  There are three ways sales management can move up the ‘maturity model’, namely: 

  • Design, Develop and Implement a Sales Process mapped to a Buying Process: Foundation of any sales strategy is a well-defined sales process that is adopted in the field.  Sales Managers can then coach and develop to the process, improve productivity and begin to move up the model.
  • Implement a Sales Performance Management System: Baseline the Key Performance Metrics by identifying how to measure these metrics accurately. Use these baselines to gauge performance as you mature. Make sure you understand what the reasons for improvement are.
  • Stick to the Sales Management Fundamentals: Regular cadence around one-on-ones, sales meetings, field evaluations and coaching to situational development is essential for increasing maturity on the model: Adhering to customers visits, making sure sales reps spend the majority of their time selling, and measuring leading indicators (funnel depth) vs. lagging indicators are essential to success.

A ‘maturity model’ seeks to answer two vital questions: Why do some improvements initiatives succeed, while others fail? What is it that successful programs do differently? Consequently, the correct utilization of a ‘maturity model’ can help greatly in ensuring that an improvement program is on  right path to success. There have been many different ‘maturity models’ for business change management, operational excellence and process improvement.

Although they differ in various ways, they all set out to define the stages, process areas, constituents and levels of maturity with descriptions of the characteristics and behavior that typify these stages. In doing so, they offer the opportunity to identify best practice and guard against bad practice.

In the case of the Sales ‘Maturity Model’, it serves as a roadmap for a sales organization: It provides a well-structured path that defines, evaluates, and optimizes the sales/business process within the organization. It outlines a series of steps a sales organization can take to improve results, and formalizes what is often a chaotic and disorganized process.

It emphasizes well-defined processes, goals, and practices as a way to turn the sales organization and selling activities into a successful, repeatable endeavor. There are many frameworks and maturity models. They each have their merits, and their blind spots. Take a look around and pick the models that best speak to your own business needs.

“Maturity Models provides a well structured path which leads from process improvement to process excellence and finally deliver excellence and enhanced customer satisfaction.”