Of top director issues for 2015, cyber security is the No. 2 concern behind strategic planning.
– Kerry Berchem, Head of Corporate Governance practice, Akin Gump Strauss Hauer & Feld, based upon an extensive survey of corporate directors
If you’ve been paying any attention at all to business headlines, you’re aware of how critical a concern cybersecurity breaches have become. Home Depot, Adobe, Ebay, JP Morgan Chase, Target, Sony, and a host of lower profile organizations have suffered expensive losses during the past several years. If the threat of such losses weren’t putting pressure on businesses, recent comments by SEC Commissioner Luis Alvarez have set board rooms abuzz, e.g.:
Board members cannot expect to avoid personal responsibility for [cybersecurity] losses that might have been prevented by the application of “reasonable business judgment.”
— Luis Aguilar, SEC Commissioner, September 2014
Translation: for losses incurred due to cybersecurity breaches, corporate directors are no longer safe behind the “corporate veil” protecting their personal assets from shareholder lawsuits. Boards who can’t demonstrate that they’ve exercised considerable oversight (“reasonable business judgment”) to ensure that their companies are taking appropriate measures to protect their information from hackers are now exposed.
Does this mean directors must become internet security experts? Of course not, but they should become conversant enough to understand what their companies are doing to minimize the danger and impact of a breach. One place to start is a framework developed a couple of years ago by NIST (“Framework for Improving Critical Infrastructure Cybersecurity,” National Institute of Standards and Technology, February 12, 2012).
The framework comprises three major components:
- the Framework Core identifies “the key cybersecurity outcomes identified by industry as helpful in managing cybersecurity risk,”
- the Framework Implementation Tiers provide “context on how an organization views cybersecurity risk and the processes in place to manage that risk,” and
- the Framework Profile aligns the other elements with “the business requirements, risk tolerance, and resources of the organization.”
The Tiers illustrate how a company can grow its ability to deal with breaches by assessing its current state and upgrading its infrastructure and processes where appropriate in the context of the specific business. I’ve summarized the Tiers in the table below.
Companies can evaluate themselves in three key areas: (1) the risk management processes currently in place, (2) how integrated those processes are across the organization, and (3) the extent to which the company shares information and collaborates with its business partners and other external organizations. While NIST suggests using the framework to create a unique plan for improvement rather than employ it as a maturity model, it nonetheless offers a good way to assess a company’s readiness to deal with breaches.
The vertical scale outlines increasingly sophisticated stages of cybersecurity implementations, from Partial through Risk Informed and Repeatable to Adaptive. Examining each column reveals the relative strength within each of the three areas (Risk Management Process, Integrated Risk Management, External Participation). Viewing the company through the lens of these tiers empowers a board member to ask the right questions as they add “cybersecurity governance” to their responsibilities as a director.
People who wield more influence and impact than others always seem to have incredible networks. While they may not be wealthier or brighter than their friends, everyone leans in when they talk and remembers what they say. What’s their magic?
Having spent decades observing the most highly influential friends and acquaintances in my business network, here are 7 habits that grow your influence… [LinkedIn]
Every man must decide whether he will walk in the light of creative altruism or the darkness of destructive selfishness.
-Martin Luther King Jr.
In his recent bestselling book entitled Give and Take, organizational psychologist Adam Grant divides people into givers, takers, and matchers, then analyzes how each type defines and achieves success. His descriptions and rich examples provide critical insight for CEOs into how their leadership style impacts their organization and its success.
In ten years of studying reciprocity in organizations, Grant has identified three fundamental styles. While each of us may use all three styles on occasion, we tend to use one of these primary interaction styles:
- Takers like to get more than they give;
- Givers prefer to give more than they get, and
- Matchers seek an equal balance of giving and getting.
Examples of takers abound. Although most of us possess a kind of “justice radar” protecting us from predatory types, many takers are good at hiding their true nature. The Achilles heel for takers, however, is that they can’t help themselves and eventually display evidence of their true nature. The late Ken Lay of Enron is cited as a perfect example of a taker in giver’s clothing, often able to ingratiate himself to those in a position to help him. Eventually, though, public company taker CEOs expose their attitude that they are the “suns in their companies solar systems.” Useful unobtrusive measures cited by the author are the size of the CEO’s picture in the annual report, the CEO’s overuse of first person pronouns when describing the company’s progress, and the high degree of compensation the CEO receives relative to his direct reports. For example, taker CEOs tend to earn 3 times as much as the next highest paid executive, while the multiple averages 1.5 for givers.
CEOs who are givers can be harder to detect but refreshing to find. Grant describes a number of giver CEOs who have been very successful while giving much to those around them. Jon Huntsman and David Hornik are two of a number of business leaders mentioned who have succeeded through their unselfish support of those around them.
Matchers “operate on the principle of fairness: when they help others, they protect themselves by seeking reciprocity.” You can tell you’e a matcher if you continually seek to create an even exchange of favors, rather than looking for an advantage for yourself or not keeping score at all. Often, givers become matchers when they have to deal with takers, in order to protect their interests from being bulldozed.
Which style produces the least successful people? Which style is practiced by the most successful? Surprisingly, in both instances, it’s the givers. Two types of givers emerged: selfless givers and other-focused givers. Selfless givers have “high other-interest and low self-interest… and they pay a price for it. Selfless giving is a form of pathological altruism.” Giving without any getting eventually leads to burnout. The real winners are other-focused givers. As Grant puts it, “if takers are selfish and failed givers are selfless, successful givers are otherish: they care about benefiting others, but they also have ambitious goals for advancing their own interests.” Otherish is a term he uses to describe these winning givers who, while they aren’t selfless, they “help with no strings attached; they’re just careful not to overextend themselves along the way.”
Grant offers practical actions you can take to leverage the insight provided by the book. Here are a few:
Test Your Giver Quotient – He provides online self-assessment tools at www.giveandtake.com that you and people in your network can take to rate your reciprocity style.
Run a Reciprocity Ring – What would happen if groups of people in your organization met weekly for 20 minutes to make requests and help each other fulfill them?
Help Other People Craft Their Jobs to Incorporate More Giving – A VP at a large multinational retailers met one-on-one with each of his employees and asked them what they would enjoy doing that might also benefit other people.
Embrace the Five-Minute Favor – Ask people what they need and look for ways to help that are valuable to them but have minimal cost to you.
If you’re interested in moving your business forward using practical knowledge based upon social psychological research, you’ll find Give and Take highly thought-provoking and beneficial.
Paul Gillin’s recent post about the purpose and value of editing inspired me to share six core principles I’ve discovered that drive creation of content that CEOs will read.
1. Keep the ROI high.
More than other audiences, CEOs focus intently on using their time profitably. Content must provide a high return on investment. If you waste a CEO’s time, he/she stops reading. Even a minute away from the promise of ideas that promote growth will risk losing their attention.
2. Assume your audience is up to speed.
Don’t give lengthy explanations of terms you understand and are afraid your audience won’t. CEOs already have to keep up with current issues, so if they need more background, they know how to find it on their own.
3. Make every word count.
Every paragraph, even every word, must deliver value and encourage the reader to continue. To transfer a concept that helps readers become more successful may require ten or more edit passes. Emulate what Paul Gillin calls the Wall Street Journal’s “obsessive culture… with packing more information into less space.”
4. Watch your language.
It’s imperative to be candid and use direct, active language. TexasCEO publisher Pat Niekamp points out that “pieces ghost written for a CEO by someone who’s never had the experience of having to meet a payroll or pay the rent or determine a long term strategy, or deal with killer competition may contain words like they might, could, consider… CEOs use active words like do, are, will.”
5. Get to the point.
Getting high ROI content read requires getting to the point quickly. Someone thankfully taught me early on not to make the audience wait too long for the punch line. If a CEO doesn’t get it by the second slide in a prez, for example, he/she will page ahead if they have paper copies, or they’ll get impatient and completely lose interest. Apply the same principle to your writing.
6. Get in and get out.
Similarly, keep your posts short and give some idea up front of the value and outcome, i.e. what’s in this for me if I read it. Short means blog posts that are about 500-1000 words, with the average closer to 500.
Respect is due anyone who’s willing to take on the CEO role. While I’m happy that the “open rate” for my monthly newsletter hovers at 35-40%, it’s a constant struggle to create higher ROI content for them. Hopefully these principles will help you do the same.
Please leave a comment below or drop a line to email@example.com to share your thoughts.
[For a deeper understanding of social media, follow Paul Gillin's blog.]
The title of a popular business book years ago was All You Can Do Is All You Can Do. And it’s true, but sometimes choosing the right thing to do is all-important.
The dilemma for many CEOs is that they stay so busy running the business that they end up with too little time spent thinking about how to accelerate its growth. The old saying often applies: “It’s hard to remember that the original objective was to drain the swamp when you’re up to your ass in alligators.”
Speaking recently with a highly successful CEO who’s grown and sold several companies, he speculated on what determines how open a CEO is to coaching. His experience and mine perfectly aligned: a serially successful CEO will seek input and help from friends far more often than a first-time CEO and founder. Highly successful people learn how to choose advisors they trust in order to achieve the success they desire.
The stumbling block for many a founder and CEO of an established small company is that he or she comes to believe in his/her own abilities so much that they’re unable to accept the help that would take them to the next level. No matter how passionate they may be about accelerating growth, their complete reliance upon their own judgment closes their minds to innovative ideas, even if the source is someone they trust.
If you run an established business, test yourself with these questions:
- If an experienced CEO took a deep look at my company and told me I had to make big changes in order to grow, would I be open to changing?
- If a partnering expert offered to develop an alliance strategy that could double the growth rate of my company, would I listen to learn how?
If the answer to either of these questions is no, your company may already be decelerating or it’s about to hit a bump in the road. Once that happens, it will become even harder to carve out time to consider innovative ways to grow.
Are you focused on maintaining your role as chief problem-solver in your company, or are you passionate enough about growing your company to seek help trusted friends? Sometimes all you can do, by yourself, is not enough.
The Oxford Dictionary defines opportunity as “a set of circumstances that makes it possible to do something.” Although opportunities are generally thought of as spontaneous, serendipitous, and not amenable to process, is it possible to find them systematically?
In general, an opportunity is a chance to move from state A to state B; a business opportunity requires an interaction with another person or organization to create a desired outcome. Since a business opportunity implies a relationship, a thorough understanding of how and why relationships are created is the foundation of systematic opportunity discovery. Although some opportunities arise through original creative thought, even those are based on an understanding of relationships.
The exchange of money for goods and services is one type of business interaction, but it represents a desired outcome, not an opportunity. While the ultimate measure of success is revenue generation and profitability, value creation must precede it. An opportunity is created by an exchange of resources that enhance value. What classes of value-enhancing resources are there?
Five of the most common are:
1. new products and technology,
2. brand recognition,
3. additional staffing,
4. customer relationships, and
5. new markets and industries.
A majority of business opportunities arise from the recognition that one or more of these resources can be leveraged to add value to existing offerings. How can we intentionally and systematically identify and define opportunities based on this principle?
The process that leverages this knowledge comprises 4 steps:
1. Define your company’s value relative to others.
2. Define other companies’ value relative to yours.
3. Leverage individuals gifted in identifying and defining new opportunities.
4. Discover opportunity in the gaps.
Valuing Your Company
A crystal clear picture of your company’s value is a critical enabler of systematic opportunity discovery. What resources does your company have, and which ones does it need? Well-understood strategic positioning affects the bottom line positively. It minimizes investing in opportunities that deliver little or no return while enhancing the chance of finding richer opportunities.
Valuing Other Companies
The second step depends upon the first. Knowing clearly what your company offers, you can view other companies through this lens: if another company were to acquire mine, what would be the increase or decrease in the value of the combined companies? An exit strategy approach is a proven way to identify value in other companies, and you’ll learn what resources you may have that they need.
Leveraging Gifted Individuals
Some individuals are naturally gifted in identifying and defining opportunities. Harnessing this strength by including the right individuals in your company. If your team lacks this strength, augment your team with advisors who possess vital insight into opportunity discovery.
Opportunity in the Gaps
Opportunity is driven by accurate perceptions of value, so clarifying your understanding of what others find valuable versus what you find valuable leads to discovery. The gaps between companies represent potential opportunities.
To systematically discover opportunities, the CEO must to set the right tone. Leading your company to an opportunistic frame of mind is less tangible but vitally important. Set the right example by staying curious and remaining open to new possibilities, then follow this four-step process!
A frequent and costly pitfall in dealmaking is unconsciously giving away an “elegant negotiable” i.e. something you don’t value that could be of high value to the other party. Identifying and leveraging elegant negotiables will dramatically shift the outcome of dealmaking in your favor.
While recently discussing deal points with a client, I suggested using elegant negotiables to our advantage. The term wasn’t familiar to him, even though he may employ it instinctively. I first encountered it 20 years ago in negotiation training that I’d arranged for my work team, and I’m continually surprised that such a useful concept is not more widely known and used.
Suppose you’re engaged in a discussion with a potential partner to distribute your product with their product suite. Growing incremental revenue from a currently inaccessible set of customers is your goal. One issue is branding: should your product be “white labeled” as part of their suite, or should it clearly carry your logo and be represented as your product?
In this specific case, you don’t care as long as the product gets distributed and generates incremental revenue, so you quickly agree to let your product be shipped without your logo. In doing so, you may have given away a significant bargaining chip that could be used to extract something of high value - for free.
Before defining the distribution agreement, you should have discussed the branding issue to understand how important it is to the other party. Discovering the other side’s strong aversion to having your brand in their suite, you could then “reluctantly” trade your branding in exchange for something of high value to you, e.g., a stronger endorsement from them and online access to their CRM to enable your company to track sales in real time.
Uncovering the other side’s interests is a key starting point. My favorite book on negotiation, 3D Negotiation by Lax and Sebenius, contains a complete treatment of the entire negotiation process. While it doesn’t talk specifically about elegant negotiables, it will increase your understanding of all aspects of the process, and in particular, how to develop a clear picture of the interests of all parties..
Identifying and clarifying interests is critical in spotting elegant negotiables. Stop yielding valuable negotiating power!
“…the availability of information about a threat or opportunity has little influence on who wins and who loses. What makes the difference is what a company does with that information.”
— Clayton M. Christensen, Scott D. Anthony, Erik A. Roth in Seeing What’s Next, 2004
Business challenges come dressed as high-impact threats and opportunities, and each demands a response. The strength of your ability to respond is the primary determinant of your next move, whether you opt to: 1. compete (fight), 2.alter direction (flight), or 3. develop an alliance (unite).
The authors of Seeing What’s Next suggest that asymmetries of skills or motivation play a critical role in determining our next moves. “Asymmetries of motivation occur when one firm wants to do something that another firm specifically does not want to do. Asymmetries of skills occur when one firm’s strength is another firm’s weakness.”
In focusing businesses on growth-accelerating strategies, our consistent guidance has been to adopt a three-phase approach: “clarify, comprehend, connect.” Assuming that the CEO has aligned the company around a crisp, clear view of its own skills and weaknesses (i.e. clarify) as a foundation for effective execution, the second step is to evaluate the relative strengths and weaknesses of the competition (i.e. comprehend). When one firm demonstrates strengths in markets in which another firm’s capabilities are weaknesses, and vice versa, a self-fueling partnership (i.e. connect) may be an alternative to fight or flight.
The choices of responding to a significant threat or opportunity are:
Fight (asymmetric analysis highlights your company’s relative strength)
When your company’s processes and offerings are much stronger than competitors, leverage your unique capabilities to increase market share at the expense of competition.
Flight (asymmetric analysis highlights your company’s relative weakness)
When the cost is prohibitive of overcoming a competitor’s strengths that far outweigh your own, refocus on other markets or submarkets where your company can be a dominant player.
Unite (asymmetric analysis identifies complementary strengths and weaknesses)
If it’s clear that combining your resources with those of another company could make both stronger by compensating for weaknesses, the oft-overlooked third option is to create a symbiotic partnership.
The bottom line for any CEO? Develop an eye for asymmetries, then make a rational decision between fight, flight, or unite!
(A more detailed discussion of these alternatives are found in the excerpt ”The Innovator’s Battle Plan” that is drawn from the book.)
In the classic Steve Martin bit from early Saturday Night Live days, he’s a pitch man with a compelling hook: “How to make a MILLION DOLLARS and NEVER PAY TAXES!” After dramatically repeating the offer several times, he pauses to reveal the answer: “First, get a million dollars. Then…”
This post might be called “How to BUILD A VALUABLE COMPANY and SELL IT FOR A FORTUNE!” The first easy step? “Build a valuable company.” Assuming that you’re already doing that and your exit strategy centers on being acquired, four factors will impact success:
- Strategic importance of your product/technology/service
- Intensity of the competitive environment
- Existence and visibility of urgent, unsolved customer problems
- Presence of an insider relationship
Gauging the strategic importance of your offerings to a potential acquirer’s portfolio of capabilities is critical. Imagine all acquisitions resting along a value continuum. On the left end are low value (for the seller!) types of acquisitions like asset sales. Moving toward the right are transactions whose value is based strictly on financial parameters (e.g., discounted cash flow).
At the extreme other end of the continuum are companies whose value is so strategic to the acquirer that revenue and profitability are of little consequence. An example I’ve seen is a small software company with technology that uniquely solved an urgent problem for a multi-billion dollar enterprise. The valuation received was such a high multiple of the acquired company’s revenue that its financials were almost irrelevant to its value.
A common mistake in identifying potential acquirers is casting too narrow a net. Try listing 20 potential acquirers. Listing the first half dozen will be easy, but most of those are likely more financially-driven than strategic. Building out the list of 20 can lead to a discovery of previously unrealized strategic value in adjacent spaces.
A company in a highly competitive environment is motivated to move quickly to close gaps in its offerings. The trick is connecting during the time when the potential acquirer begins to realize it has to act. Wait too long to engage, and they will solve their competitive challenges through internal efforts, or by partnering with or acquiring another company. Getting on their radar at the right time is critical.
Urgent Customer Problems
An acquirer with a strategic competitive need is caught in a situation characterized by two attributes:
- A high-impact opportunity or threat exists.
- The company has a weak ability to respond.
Nothing will drive the acquirer forward faster than demands from customers having problems solvable by the incorporation of your company’s products, technology, or services. An effective way to validate value to the potential acquirer is to engage them in a proof of concept to solve a real problem.
The presence of an insider relationship is often the single most important success factor in getting and staying on the acquirer’s radar. Developing an internal champion who is already convinced that the companies should be working together for mutual competitive reasons optimizes the odds of success.
If you have an insider relationship with a target acquirer, use it; if you don’t, get one. Having already built a strong industry network will pay huge dividends at this point.
When to Prepare
Early in the life of a company, management has to focus on building a strong business. Deep analysis in preparation for an exit can be a distraction at this point.
Waiting too long to apply exit strategy thinking, however, is also a mistake. Once the business starts to prove itself, begin investing for the future by creating a valuation framework for your company. Build and maintain a list of 20 potential acquirers. Understand what clusters of acquirers need in order to grow. Fill gaps in your offerings to fill those needs and increase your value to potential acquirers.
Start building your exit strategy 12 to 24 months in advance of searching for an acquirer. By the time you decide to enlist an investment banker’s help, you’ll understand the universe of potential acquirers, you’ll have moved into a strong position that maximizes your valuation, and you’ll arm your investment banker with maximum ammunition and motivation.
Competing too hard will kill your business. If you see competition everywhere, you may be strangling your company’s growth.
Working with CEOs and management teams to create growth strategies, I watch for existing practices and attitudes that may hinder growth. It’s challenging enough to launch a new venture or a restart a faltering business without creating internal obstacles that weigh it down. An unrealistic view of competition can severely limit or slow the company’s rate of growth.
A famous CEO mentor was fond of telling me, “If you don’t have a competitor, you don’t have a business.” Competition is a great motivator. If you have a company in a market with no competitors, either the market you’re pursuing isn’t really viable, or you lack the constant competitive motivation needed to keep you at the top of your game, or both.
The diagram above illustrates how your perception of competition can affect your company’s rate of growth. Perceiving no competitors suggests that you haven’t yet identified a winnable market worth pursuing. In this situation, a company constantly chases one-off deals, is too inwardly focused, and may be in too weak a position to accelerate revenue by leveraging external assets through partnering.
The converse obstacle, defining competition too broadly and seeing it everywhere, leads to a lack of focus and an obsession with growing market share one percentage point at a time. A “quarter-inch deep, mile wide” market approach precludes finding a repeatable sales model that leads to higher margins and greater working capital. A better path is to pick one or two close competitors to focus all your competitive energy on.
The bottom line is that an unrealistic view of your company, its capabilities, and its relative strengths and weaknesses vis-a-vis other companies will impede growth. The reality deficit can come from many places, but it falls to the CEO to recognize and remove this obstacle whenever it exists, especially when the CEO is the source. Carefully consider whether you are encouraging your team to view the company through rose-colored glasses (no competition) or constantly raising the specter of competitive doom to motivate them (competition everywhere).
How then do top-performing management teams compete effectively?
- They realize that focusing on competing against too many others weakens their company by draining its resources, so they choose instead one or two closest competitors and focus on winning against them.
- They prioritize “growing the pie” over increasing the size of their slice.
- They stay outwardly focused to learn what the market is telling them about customer demand.
- “Know thyself.” They understand their company’s strengths and weaknesses so well that, when a high-impact threat or opportunity arises that can’t be addressed organically, they create self-fueling partnerships that enable them to respond quickly.