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Posts from category "CEO Desk"

Lessons from C-suite on handing over the baton

Sample this: A CEO's time to leave an organisation comes and a new one takes over but the process is muddled by internal company politics like the CFO being passed over for the post and the absence of goodwill in both the incoming and the outgoing CEO, especially in cases where the outgoing boss is being bundled out due to non-performance or other such issues.

The company is listed on the stock exchange and this information becomes known to the market. What follows is a free-falling of the value of the company shares and t>veryone suffers. This is how a first time transition between county governments could unfold if not managed and coordinated properly.

The elections of the new county goverments in the just concluded 2017 general elections has presented kenyans, with a new constitutional experience. It is the  first time that county govemnents are transiting from the first crop of governors to newly elected one whether re-elected or newly elected. As is expected with a new experience, this transition has left Kenyans guessing and second-guessing on what should or should not happen.

In corporate leadership, this type of transition at the C-suite level is more often than not characterised by a well- coordinated and structured handing over in a defined transition period, mostly a month or two. In politics however and where public resow-ces are concerned and the complication of a first time experience, there were bound to be hiccups.

While the county government handover was supposed to be guid-ed by a law that fulled to pass in the ~ Parliament, the changeover could benefit from lessons in effective suc-ession at the C-suite level.

Literature on effective CEO transi-tions exist and the most cited include that from Havard Business Review ( HBR), US HR firm Russell Reynolds Associates and the Canadian HR Council. About four strategies are cross-quoted in these sources and they include the following:

One, there must IJe·a transition plan a11cJ the executors should include the board and senior management. An article appearing in the HBR notes that in the US, presidential candidates typically name a transition team and begin planning for a new administra-tion months before a single vote is cast on election day, because· they want to be prepared in the event they win. In corporate life, however, too many CEO transitions are infonnal or impro-vised. In a 2010 survey conducted by the executive search firm Heidrick & Struggles and Stanford's Rock Center for Corporate Governance, half the companies surveyed reported pro- viding no fonnal transition plan for a new leader.

Secondly, some critical questions must be answered and HBR talks of three variables which are: first, is the new CEO from inside or outside the company? Second, will he or she take on that role immediately or spend time as a "designated succes- sor," working along side the outgoing CEO while typically carrying the title of president or chief operating officer? Third, whether or not the transfer of power is immediate, will the outgoing CEO continue to be a presence in the company, as chairman of the board or as an adviser?

Thirdly, most succession planning experts agree that there must be an intensive knowledge sharing. The Canadian HR membership asrocia- tion, HR Council proposes that the outgoing and incoming CEO meet frequently for in-depth discussion re-garding the operating styles, histories and expectations ofboard members and senior management, as well as other stakeholder constin1encies, in-cluding investors, creditors, customers analysts and regulators.

Muriithi Ndegwa OGW, HSC, MKIM.

KIM Executive Director/CEO

Email: mndegwa@kim.ac.ke

Twitter: @MuriithiNdegwa.

Efficient transport crucial to business cost - cutting efforts

Stories of countries that have experienced rapid economic growth are inter-twined with the development of high speed passenger and cargo train service. A research by World Bank report in 2014 shows that the high-speed rail service in China introduced on April 18, 2007 had become immensely popular with an annual ridership of over 1.44 billion in 2016, making the Chinese High Speed Rail (HSR) network the most heavily used in the world. Notable lines include the world's longest line, the 2,298 km Beijing–Guangzhou High-Speed Railway and the Shanghai Maglev, the world's first high-speed commercial magnetic levitation line and the only non-conventional track line of the network.  As of early 2017, about 12,000 miles of high-speed rail track have been constructed for a total cost of around $25 million per mile (around $300 billion). Another 12,000 miles of track are planned to be built out through 2025 alone.

China’s HSR has already had significant impacted traveler behavior and economy. According to a World Bank Consultant, there are many productivity and economic gains from the high-speed trains in China including time savings for travelers, reduced noise, less air pollution and fuel savings.   High-speed trains are not only allowing business managers from deep inside China to reach bigger markets but also prompting foreign executives to look deeper in China for suppliers as wages surge along the coast.The new inner suburbs are rapidly expanding and attracting large numbers of residents, partly because of China’s rapid urbanization and HSR. These positive effects are critical for economic growth and development.

According to Nikkei Review (2014), when Japan launched its first bullet trains and the high-speed line that connected two massive economic hubs, Tokyo and Osaka, about fifty three years ago, travel time between them was cut from about seven hours to four. The ‘shinkansen’, as it’s called in Japanese, has carried roughly 10 billion riders since then, with a pristine record of safety and dependability: There haven’t been any fatal train derailments or collisions, and the average delay is 36 seconds. The shinkansen has long been a symbol of Japanese efficiency, but its importance in shaping Japan’s economy is much more than symbolic. Most of Japan’s population lives in a surprisingly small number of places—only 20 percent of the country’s land is habitable—and a high-speed train is an elegant solution for shuttling workers from one dense city to another.

Kenyan’s perspective

One of the biggest management headache of a business that operates in a developing country like Kenya is transport. About a month ago, on this same column, I attempted to highlight the transport plight of a Kenyan employee working in a city where the cost of transport both fiscal and timewise are astounding. Now, a business whether small or large contends with the same problem but in a grander scale when trying to move their human resources or cargo within the country.

Allow me to paint a picture; a training and consultancy institution like The Kenya Institute of Management (KIM) that works with a battery of consultants and equipment that need moving around between major towns from their headquarters in Nairobi could easily end up spending ten times more again in both time and money using road and air transport compared to a speed rail train. Two consultants travelling on a return trip from Nairobi to Mombasa by air would need a minimum of KES. 50,000 broken down into KES.  20,000 air tickets for each passenger adding up to KES. 40,000 and KES. 10,000 for their equipment if they do a late booking.

They would also spend at least five hours broken down into two hours check in time, one hour of the almost guaranteed flight delay, one hour of flight and one hour of check out time.  Compare that with the five hours one would need to cover the same distance using the SGR train at KES. 4,000 which is 10 times cheaper and unvarying ticket price irrespective of how late a booking is done.

As a management professional, you don’t appreciate the extent this scenario has on cost management until you have to do this for about 20 consultants at least 12 times a year and realize the saving could add up to KES. 10 million easily. This, in Lean Six Sigma, a management methodology highly championed by KIM in the East African market, is the aspect of lean. In this regards, Standard Gauge Railway is a major boost towards a more developed economy.

 

Muriithi Ndegwa OGW, HSC, MKIM.

KIM Executive Director/CEO

Email: mndegwa@kim.ac.ke

 

Twitter: @MuriithiNdegwa.

Diversity in the workplace: Governance composition and effect on performance of corporate firms

Diversity is quickly gaining prominence in today’s corporate world. Fundamentally, diversity means respect for and appreciation of differences in age, gender, ethnicity, religion, disability, sexual orientation, education and national origin. While the term diversity and inclusion are sometimes used interchangeably, the later depicts a state of being included or embracing all people irrespective of their race, gender, disability or any other attribute.

Gender diversity is still a mirage in Kenyan corporates but, like elsewhere in the world, there exists concerted efforts to address this imbalance, a 2017 report by the Kenya Institute of Management (KIM Leadership and Diversity Survey Report 2017) has established. 

Women representation in boards of listed companies stands at 21 per cent in 2017 up from 14 per cent in 2012 and 18 per cent in 2015. Board chairperson’s positions are also heavily skewed towards the male gender, with 7.7 per cent being women. Only 5 companies out of the 52 that participated in the survey have female chairpersons, which compares well with the global average. Like in the boardroom, the study found, women representation in senior management is a quarter, meaning there is one woman for every three men in the senior management teams. In fact, four organizations of the 44 that participated in the senior management teams survey have no single woman in the team.

The Report determines that listed companies with female representation of at least 25 per cent have had a positive influence on the organizations’ performance. This, however, is still below the one third gender rule.

While no market among those surveyed or compared with has achieved a 50:50 gender balance in the boardroom, Kenya emerged a trailblazer in not only developing markets, but even in comparison with developed markets. This is good news and we appreciate the journey we have travelled as a country. We believe that more can and needs to be done. 

Recent data from Egon Zehnder 2016 survey of 1,491 public companies with market caps exceeding EUR 6 billion across 44 countries across the globe shows that gender parity in the boardroom continues on an upward trajectory, with slow but positive progress. In 2016, nearly 19 per cent of seats on the boards of the largest companies globally were held by women, up from about 14 per cent in 2012, with 3 per cent of this growth coming in just the last two years. Another survey by Equilar a leading provider of board intelligence solutions predicts that at the current rate, gender parity will be achieved in 2055.

Companies that have more women in boards and senior management benefit from diversity of thought, varied creative ideas and in-depth insights which result in better decision-making. Teams that are gender-balanced bring greater industry knowledge and help the company access multiple channels of information and more resources.

According to the KIM report, age diversity is also far from being achieved, with Kenyan boardrooms recording an average age of 56 years (baby boomer generation). While this is three years younger than the global average of 59 years and compares even better than developed markets like the US and Canada, it is far from the ideal in an era where the workplace is composed of three generations - millennials, generation X, and baby boomers.

A number of notable surveys from Financial Times, Harvard Business Review, Egon Zehnder and Deloitte concede that age diversity at the top is progressing at a nonagenarian’s pace. Recent data shows that newly appointed board members are broadening age diversity. Nearly 9 per cent of all new board members appointed since 2015 are under 45, and new female board members are more likely than males to be under 45 – 11 per cent to 8 per cent, respectively. The countries bringing the largest pool of young directors onto boards are those in Western Europe where quotas have been instituted: France, Spain and Italy.

It is widely believed that older board members bring more experience to the table, but younger members have more energy. They are tech savvy, bold, and are armed with new outlooks and innovative ideas on new products and markets.

Other diversity variables are not very well researched and the scanty data available indicates low diversity in professions, education, nationality and ethnicity.

According to the KIM Report, in Kenya, finance based professionals are more present in boardrooms, with accountants, auditors, bankers, and investment sector professionals taking over 40 per cent of the slots. Legal and business management professionals also have high representation. Science, technology, engineering and mathematics (STEM) based careers have less than 10 per cent representation. Of all the professions quoted, 85 per cent are in only 10 areas  - the largest being finance which includes accounting, banking, audit, investment, insurance, and actuary professionals.  Others are business management, economics, engineering, education/academia, trade, energy, marketing and manufacturing. The remaining 25 professions cited only contribute 15 per cent.

Nationality diversity in Kenya was also measured and 62 per cent of the listed companies have at least one non-Kenyan in their board compared to 74 per cent global average.

As organisations seek to recruit qualified members to their boards, one of the challenges cited in Kenya is inadequate supply of qualified candidates especially in relation to skills, gender and age. In fact, for a long time, we have had a small number of people sitting in very many boards, which not only stretches their capacity to meaningfully contribute, but also denies others the opportunity to participate. To overcome this hurdle, organisations should take advantage of the existence of professional membership bodies such as KIM and extend their search to ensure more diversity in boards.

 

 

Muriithi Ndegwa OGW, HSC, MKIM.

KIM Executive Director/CEO

Email: mndegwa@kim.ac.ke

 

Twitter: @MuriithiNdegwa.

Evolving Management Approaches

Management systems like fashion have gone through periods of trendy approaches through eras, with businesses dynamically abandoning some in favor of newer ones in the course of time. Today, there is a wide range of management trends/philosophies, including: Theory of Constraints, Just in Time, Six Sigma, Lean Thinking and Total Quality Management (TQM), among others. Most of these methods tend to focus on quality and efficiency as well as cost reduction as their primary method of improving productivity. In today’s business world, TQM is named the philosophy of a broad and systemic approach to managing organizational quality. It has led to the introduction of quality standards such as the ISO 9000 series and quality award programs such as the Deming Prize and the Malcolm Baldrige National Quality Award which specify principles and processes that comprise TQM. Let’s delve into some of these a bit deeper.

Total Quality Management

TQM began in the 1920s with some of the first seeds of quality management being the principles of scientific management that swept through the U.S. industry. During this time, businesses clearly separated the processes of planning and carrying out the plan, and union opposition arose as workers were deprived of a voice in the conditions and functions of their work. Subsequently, the Hawthorne experiments in the late 1920s showed how worker productivity could be impacted by participation. During the 1940s, TQM gurus made major contributions to the subject. First, W. Edwards Deming who is easily considered the father of TQM, taught methods for statistical analysis and control of quality to Japanese engineers and executives. This can be considered the origin of TQM. Secondly, Joseph M. Juran taught the concepts of controlling quality and managerial breakthrough. In 1968, the Japanese named their approach to total quality companywide quality control. It is around this time that the term quality management systems arose.

The late 1980s and early 1990s saw a global realization of the strategic importance of TQM and many countries established programs to recognize quality and excellence. These initiatives followed the earlier example of Japan, which started to recognize quality practices with the launch by the Japanese Union of Scientists & Engineers (JUSE) of the Deming Prize in 1951. The structure and criteria for these award programs elevated quality to a strategic level and resulted in some of the concepts of business excellence which we are familiar with today. Despite all these positive initiatives, the uptake of the quality management tools lags. McKinsey&Co. did a study in 2007of 30qualityprogramsand foundthat two-thirdsofthemhadstalledorfallenshortofyieldingimprovements.Interest in TQM as a tool to improve practice has all but disappeared.

Six Sigma

On the other hand, the “Six Sigma,” which is one of the still new quality management innovations in the Kenyan market that several companies have implemented, with the aim of enhancing business performance and customer service, was first introduced in 1987 by Motorola in USA. The “Six Sigma,” is a methodical and data-driven approach to implementing process improvement in an organization and serves the purpose to improve organizational performance by reducing process output variation. It was registered in June 11, 1991 as a U.S Service Mark.  From literature, numerous companies have gained substantial benefits from the Six Sigma program, though not all are successful. For example, in 2005 Motorola attributed over US$17 Billion in savings to having adopted it. Its other early adopters include Honeywell and General Electric, where Jack Welch introduced it. By the late 1990s, about two-thirds of the Fortune 500 organizations had begun Six Sigma initiatives with the aim of reducing costs and improving quality. The Kenya Institute of Management (KIM) was the pioneer trainer and champions of Lean Six Sigma (a combination of Lean and Six Sigma methodologies) in Kenya and has so far facilitated over 20 organizations to introduce it into their systems.

Business today

In 1995, USA Today posed the question, “IsTQMDead,”whenitfeaturedanarticle announcingthe1995BaldrigeAward.Another WallStreetJournalarticleraisedtheissue, Is TQM yesterday’snewsordoesitstillshine?” Further anarticleonmanagementfadsinBusinessWeek(Byrne,1997)proclaimedthat“TQMisasdeadasa petrock.” Amongotherthings,TQMhasbeenlabeledasthebiggestfadincorporatemanagementthat isnowfloundering orsimply asafadofthe monthwhosetimehascome andgone.

Consequently, in recent years, some practitioners have combined Six Sigma ideas with lean manufacturing to create a methodology named Lean Six Sigma. This methodology views lean manufacturing, which addresses process flow and waste issues, and Six Sigma, with its focus on variation and design, as complementary disciplines aimed at promoting business and operational excellence. Companies in USA, such as GE, Verizon and IBM, among others use Lean Six Sigma to focus transformation efforts not just on efficiency but also on growth. It serves as a foundation for innovation throughout the organization, from manufacturing and software development to sales and service delivery functions. To this end, the International Organization for Standardization (ISO) published in 2011 the first standard "ISO 13053: 2011" definition of Six Sigma, as collection of process improvement techniques and tools which can be used to improve the processes, and can be applied to processes within the quality management system. It is noteworthy that in Kenya, KIM is the sole licensed agent of the Institute of Six Sigma, UK to deliver Lean Six Sigma training. At present there are a number of companies some of whom have reported good results, who have embarked on this process such as KENGEN, KCB, National Bank and KEBS, among others.

 

Finally, according to Global Management Practice survey, report (2014), of the managers interviewed, 68% of them believed that change is constant and present in every decision they make, 59% noted technology as the key source of change. In 2016, organizational design rocketed to the top of the agenda among senior executives and HR leaders worldwide, with 92 % rating it as a key priority (Deloitte Report, 2016).We are therefore very likely to continue seeing many other fads come and go and as is often said, “the only constant is change and if you don’t change, then change will change you.”

 

Muriithi Ndegwa OGW, HSC, MKIM.

KIM Executive Director/CEO

Email: mndegwa@kim.ac.ke

 

Twitter: @MuriithiNdegwa.

Who is becoming a CEO these Days?

Every professional hopes to start their career at the low level and then grow through the rungs to occupy the corner officer. The question then is among the many professionals in the C-Suite or the Executive Team who is likely to ascend to the CEO position or a better question would be who would make a great CEO?

Typically the executive team will mainly comprise of a Chief Operating Officer (COO), Chief Human Resource Officer (CHRO), Chief Finance Officer (CFO), Chief Marketing Officer (CMO), Chief Strategy and Planning Officer (CSPO) and probably a few other functions such as Chief Engineer depending on the business and the industry it is in. The aspiration of each of the members of the senior team is that they will succeed the CEO within their organisation or they will move to another business and perch at the top.

A recent survey by Forbes (2016) revealed that almost 70% of the 29 chief executives appointed at the biggest 250 companies in the S&P 500 last year had been with their companies for at least a decade, and one-third had spent more than 25 years there. “Overall, nearly 90% of new CEOs were promoted from inside the company,” the report notes 33% of them had 'engineering undergraduate degrees while only 11% are in business administration. However, the functional role that led to becoming a CEO was most commonly finance at 15%, followed by general management at 9%. 

 

To note is that each of the roles in the C-Suite requires a set of critical technical skills as well as soft skills. According to a renowned researcher, Dave Ulrich the next generation of CEOs will lean towards having a strong people inclination and diversity and cultural background. His research suggests that the Chief Human Resources Officers (CHROs) are more likely to take over the CEO’s function.

According to another survey by Forbes (2011), about 30 percent of Fortune 500 CEOs spent the first few years of their careers developing a strong foundation in finance. This is by far the most common early experience of today’s CEOs. As the second-largest constituent, CEOs who started out in sales and marketing roles account for about 20 percent of the current big company CEO population. The prevalence of CEOs with a strong financial background points to the fact that large companies prefer CEOs who can create value for the company and who understand the company’s financial drivers. Typically, companies are looking for CEOs who can develop a strategy and understand the financial ramifications of business decisions. A foundation in finance is an important building block for a career. However, only about five percent of these CEOs were promoted directly from the role of CFO – more than half were appointed from the role of COO or President. Though the prevalence of Fortune 500 CEOs with strong financial backgrounds underlines the importance of developing financial acumen, above all, companies value a strong operator.

 

My experience is that the technical background of a CEO is important to his or her understanding of the business but the moment he or she takes over the office, his technical background starts to take a back seat immediately and he or she starts to become a generalist who must appreciate every aspect of the business from a very strategic level. This of course does not mean that the CEO starts learning everything pertaining to every technical area but he or she must increase his knowledge levels to a place where he or she can ask the right questions, access situations, form informed judgements and make prudent and strategic decisions.

The question as to who is best suited to take the CEO position is also dependant on other factors such as leadership and management style, character, ability to connect with teams and of course strategy and business acumen, among other aspects. All these factors as seen during interviews may reside in any professional regardless of their technical or professional background. The call for senior teams who aspire to be the next CEOs is to enhance not only their business appreciation beyond their technical area both in terms of day to day work experience and input but also in terms of knowledge and skill. A course in business management for example will help an Engineer appreciate general fundamentals of a business and increase the chances of top leadership. In this regard, it is noteworthy that KIM offers such fundamental and practical training for professionals.

  

Muriithi Ndegwa OGW, HSC, MKIM.

KIM Executive Director/CEO

Email: mndegwa@kim.ac.ke

 

Twitter: @MuriithiNdegwa.

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