Archive for September 2012

I am making a profit. So why do I have a cash flow problem?

September 30, 2012

I have just written up three reports for clients in Israel, where cash flow issues have been paramount.

In two of the cases, there was a burning question for the CEOs as to why they had cash flow problems, when their accountants were filing profits (at least on paper). Evidently, there was a confusion over the difference between cash flow as opposed to profit and loss statements. Noticeably, in all three situations, there was very little attempt to plan cash flow trends up to two months in advance. In fact, there were frequent complaints that their businesses were too complicated for such detailed planning.

Before writing this blog, I visited Mr Google and entered the phrase “cash flow problems”. On the first page alone, I found entries from New Zealand, Canada, and Italy to name just a few. And again, the common theme appears to be lack of planning.

So you have to ask the question, why do we all do it? Why do we ignore the very obvious? Why do we try to spend money, which we effectively do not have the moral right to sign away? What’s the default bomb ticking inside our minds? Why did my clients ignore the fact that multinational conglomerates plan their cash flows, with enterprises multiple times more intricate?

I have just had the fun and pleasure of reading Dan Ariely’s third book “The (Honest) Truth about Dishonesty“. Page 245 summarises ‘the forces that shape dishonesty’. Maybe somewhat surprisingly, one of the most dominant factors is not financial but the ability of humans to rationalise a truth out of fiction.

What does this mean in the horrendously practical world of commerce? If the minutiae are too complex, then it is not our fault and the money will appear when we need it. We convince ourselves that if a cheque cannot be covered, then it is the problem of the supplier, and nobody likes suppliers. Anyway, the banks can deal with it, and nobody likes banks either. In effect, we weave a spider’s web of ‘sort-of truths’ – the ultimate spin!

Judaism (and maybe other religions) determine that the main difference between humans and animals is the higher level of ability to communicate with each other. Specifically, humans have stronger mental skills.

When it comes to cash flows, we are faced with a rational choice. We can take on the responsibility of understanding  the financial flows of our company into the future – say 30 to 60 days ahead.  In other words, we can use our inherent skills. Or we can just hope and pray that it will be all right on the night. Guess which approach successful businesses use?

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Multinationals in Israel – not just high tech

September 28, 2012

Israel has a very successful history of encouraging multinationals to set up r&d centres in the Holy Land. Where Intel led, Siemens, Cisco, Motorola and many others have followed. In the past few days, John Donahue, the CEO of eBay, made his first visit to Israel.

However, it is not just the “new industries” that are interested in Israeli brawn. GM has a very sophisticated operations, open since 2007. Boots, the UK chemist retail giant, regularly sends over teams to Tel Aviv to scout for new ideas. Nestle, Colgate, IKEA are all prominent.

Pepsi arrived in Israel in 1992. One of its first major advertising campaigns upset a significant part of the population and it has been playing catch up with Coca Cola ever since. That said, Pepsi has successfully looked beyond its natural market. For a country of nearly 8 million people, Israel has provided and continues to provide Pepsi with whole new revenue sources.

The main base for this strength has been a series of joint ventures with Strauss, which was founded in the 1930s by refugees from Nazi Germany. The Strauss partnership with Pepsi has expanded rapidly in recent years. For example, Strauss’s hummus and other spreads are being manufactured in Mexico under the Obela label. And of course, Strauss is offering its know how to Pepsi’s extensive lines in crips and popcorns and other tasties.

Strauss has an extensive variety of other international partners. This includes Richard Branson through Virgin and marketing pure water machines to households in the UK.

Tom Greco is president of Frito-Lay North America, where he leads PepsiCo’s $13 billion snack and convenient foods business. His visit to Israel this week only emphasises the importance of the capabilities of Strauss. The cooperation over the Sabra label for dips and spreads was worth US$260m in 2011 alone. Next on the list? Greco is very explicit; he too is interested in water purification.

Israel’s stock exchange takes on Iran

September 25, 2012

The Tel Aviv Stock Market (TASE) has not set alight many pockets in the past 12 months. A 5% boost is fairly modest compared to some of its rivals in the leading group of world exchanges.

With the possible exception of Mellanox, there have been very few consistent star performers. Couple that with worries over the expected growth rate for 2013, the outlook may appear to be dodgy for speculators.

That said, a number of positive factors are also smiling in the face of investors. Many people, especially from overseas, are beginning to take notice. In fact, as TASE closed trading ahead of a two-day break, it finished the day up 1.6%.

The market opened in the green and rose steadily all day long, despite the losses in European markets at the same time. Asian shares also closed lower. What stood out on Monday was the trading volume, which was over NIS 1.1 billion, some 75% higher than recent averages.

So what’s going on?

It would be trite at this stage to launch in to a discussion of economic indicators. Not all of them are positive, especially export stats for July and August 2012. Unemployment is still creeping up. On the other hand, there are signs that the government is finally beginning to take back control of the budget. The new tax law to help international firms in Israel is a step in the right direction.

However, I want to look at a poke at the geopolitical aspect. This week, the President of Iran has been addressing the UN in New York. As usual, his anti-semitism has led him to predict the end of the zionist state, sooner rather than later. For all that, the investors, as conservative as they are, are returning to the Holy Land. Just look at SingTel, one of the largest telecom companies in the world.

It is difficult to explain why or how to an outsider. For nearly 65 years, the Israeli economy has continued to progress despite genuine existential threats, and that success has been singularly marked since 2000. I do not trust Iran one iota, but I believe along with investors that Israel will come through the crisis  – safer and sounder. That is my prayer, as Israel celebrates her New Year.

Israel’s economy – another miracle in town?

September 21, 2012

The past decade has seen Israel fight an Intifada, launch wars to end infiltration from Gaza, defend itself from Hizbollah in Lebanon, and sink resources into defending itself from Iran. All this at a time when the global economy has journeyed along a veritable roller-coaster of retrenchment to success and back again.

And if you check out Israel’s economic growth over that period, you will see that it has been very positive. The graph shows consistent and continuous improvement. 5% per annum has been recorded several times. In other words, the Israeli economy seems to have found a formula, which allows for betterment despite geopolitical troubles, when the opposite has been true for many in history.

That said, predictions for 2012 were far less positive, coming in at 3% or less. The initial signs were not good, as exports to Europe began to dry up. Tax revenues fell to less than anticipated. Political change in Egypt and Syria put extra demands on the army.

And yet, has Israel done it again and discovered another miracle? The growth for the first six months of 2012 was 3.2%. And this is no consumer led boom. The governor of the Bank of Israel has been reported as saying that he is “more optimistic than I was six months ago”.

Our situation is similar to what it has been for the past year. Our situation is good, but not excellent. It’s a lot better than in most countries of the West.

So what’s the truth behind the numbers? Merrill Lynch gives an interesting assessment. The report notes that the government in Jerusalem is beginning to tackle the fiscal deficit, even if this carries a price of higher inflation and that in turn impacts more on poorer sections. Further, exports have held firm, although primarily due to a quirk in the figures of one large company.

However, the trends for the second half of 2012 are not encouraging.  On an annual basis, 3% is looking problematic.

Where to next? Europe should begin to pick up in 2013. Towards the end of the year, gas will start to be produced in commercial quantities. And if a general election is called for early 2013, there will be little opportunity “to buy voters”. This in turn will help to ensure that the level of government debt will not soar out of control.

So, Israel could still keep itself towards the head of the OECD pack in terms of economic achievements. Whether that can be interpreted as a miracle for such a small country to maintain, or whether it is a result of good planning or simply old fashioned luck, I will leave my readers to gauge for themselves.

Lying, business mentoring and banks

September 15, 2012

One major aspect of business mentoring is often to encourage people to understand that what they have been doing until now just does not work. After all, that is why they have sort help in the first place.

This is became relevant when I was looking for a new piece of professional literature last month and I hit upon the latest book by Dan Ariely; The (Honest) Truth About Dishonesty. Ariely presents a very simple proposal. Most of us try to be good and decent citizens. There again, given the moment, we will cheat – exams, sports, office stationary and more.

This is not major theft. But we cheat or steal and we do so in a way that we can justify to ourselves and then move on quickly. In fact, so long as money is not involved, we often find it easier to cheat.

In political terms, George Orwell would have called this “the defence of the indefensible”, a quote I have cited before. We know that something is wrong, but ignore why we are talking rubbish. We try to cover it up and get away with it.

Ariely is an Israeli, who holds senior lecturing positions in America. He cites irregularities amongst the ethics of Ivy League students in America. His book is also full of anecdotes of Israeli taxi drivers who somehow manage to charge more than the meter or local stall holders in markets who never quite give you what you want.

It was with some ironic timing how this week, the Inspector-General of banks in Israel came out with a damming report on the way clerks are given bonuses for pushing loans to clients. In other words, the staff have a vested interest in selling a product, even if the client may not want one, need one or be able to repay it! I was stunned at this immorality.

Now look at these stats also released this week in Israel. Over 20% of adults live permanently in overdraft. 32% of bank account owners received a request in the past year from banks if they want extra credit. Up to 40% of the population may have taken an extra bank loan in the past year.

And how do the banks justify this? I do not really know. What I do know is that aside from benefiting from cruel rates of interest, the banks tend to secure horrendous charges solely for the paperwork of arranging such loans.

On page 34, Ariely writes:

I was surprised by the increase in cheating that came with being one small step removed from the money. As it turns out, people are more apt to be dishonest in the presence of nonmonetary objects.

The bank clerk deals with forms and electronic signatures. He does not count out shekel or dollar notes. The only money he sees is the bonus in his own account a few days later. In Ariely terms, this makes for an excellent arena for some discrete dishonesty.

And how can I prove this is wrong? Simple. Ask the question why clerks do not disclose their conflict of interest? Why do the banks not publish their commissions on such matters? Because if they were full honest and open about what was going on, then there may be less demand for such services, which would impact on profits. Ouch!

I guess banks do not need business mentors. Otherwise, they might change their ways.

How does a business mentor deal with the client of the client?

September 12, 2012

It is a situation that I come up with frequently. My client will ask me:

“We have made a pitch. We really want the job. However our potential client is demanding a discount, better terms, and a free car. What should we do?”

Actually these sorts of questions come up in many disguises, and they do not just apply when handling customer relations. Similar discussion can be had when handling new partners or even suppliers. Yet the questions remains; how to react to such a challenge?

Most people build into initial price proposals a certain flexibility. Thus, when their own customer threatens to walk out, they can offer a discount or a giveaway as a sweetner. Nothing new in this tactic that goes back to biblical times.

For me, the issue is more relevant to how my own client has made their initial pitch for the business available. In other words, have they stressed their USPs – their unique selling points? Is the customer fully aware that he is being offered “a winning package” that cannot be matched by competitors? And, has that offer been delivered a manner that the customer cannot fail to understand?

The point is simple. If a clear winning message has been imparted, there is less room to request a better proposal and there is less need to alter the terms of contract. To give but one simple example. Many years ago, my wife and I were looking to move to a new home. The sales manager of what we eventually bought clearly explained what he was selling and the advantages. Without exaggeration, he made the sale in five whole seconds. It became a no brainer.

I have not hesitated to quote Dr Robert Brooks in the past. He most recent writing focuses on “strengths” in a school setting. It is interesting how he quotes teachers. For example, one observed:  “I may not have a say in a number of factors that impact on my classroom, but as you emphasized in your workshop, I do have control over the relationship I develop with my students……….” Many a business person could have said the same about their standing vis-a-vis their own clientelle.

Brooks continues by discussing his vision:

At many of my workshops, I mention a dream I have; namely, that schools would develop a roster that contained each student’s name. Next to the name would be what that student considered to be his or her island of competence, and next to this information would be at least one idea generated by educators of how to reinforce and display that strength……………

To put this in a commercial setting, it is all about allowing your client to recognise their own strengths and then selling that message accordingly.

Advances in Israeli tech – September 2012

September 10, 2012

ITEM 1: (There are) “around 600 tech start-ups based in the heart of Tel Aviv, a city of  400,000 people. This compares with the 300 or so young technology companies in the “Silicon Roundabout” area of east London.”

ITEM 2: Guiliano Pasapia, mayor of Milan and currently visiting the Holy Land, has described his hosts as a leader in technology and innovation. He views strengthening cooperation with Israel as something that will help his city towards new prosperity.

ITEM 3: China signs a significant new high tech agreement with Israel this month, specifically to bolster the Shenzhen region.

It is no accident that these pieces of news have come to light in the very week that Microsoft dedicates its latest r&d centre near Tel Aviv. Look at Samsung, which employs around 200 people in Israel, and who have created around 80 patents since 2007. The Galaxy series of phones, one of the world’s best sellers in 2012, contains camera technology developed at their Israeli plant.

Flip over to LG, a smaller outfit in Israel. Its new technology is being used by Better Place, one of the leading pioneers of battery-powered cars. And all of this commerce – as well as their competitors – is using computers with Intel technology, a company that has three large where the previous, current and next round of chips were designed.

There have been concerns that seed capital and foreign direct investment to Israel have been less available in 2012. What is clear is that to date, there are many investors who have received their money back several times over.