What is management
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Paradigms of Working Capital Management

INTRODUCTION

For increasing shareholder’s wealth a firm has to analyze the effect of fixed assets and current assets on its return and risk. Working Capital Management is related with the Management of current assets. The Management of current assets is different from fixed assets on the basis of the following points:

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1. Current assets are for short period while fixed assets are for more than one Year.

Paradigms of Working Capital Management

>2. The large holdings of current assets, especially cash, strengthens Liquidity position but also reduces overall profitability, and to maintain an optimum level of liquidity and profitability, risk return trade off is involved holding Current assets.

3. Only Current Assets can be adjusted with sales fluctuating in the short run. Thus, the firm has greater degree of flexibility in managing current Assets. The management of Current Assets helps affirm in building a good market reputation regarding its business and economic condition.

Now first let us discuss the paradigms of Working Capital Management.

CONCEPT OF WORKING CAPITAL:

The concept of Working Capital includes Current Assets and Current Liabilities both. There are two concepts of Working Capital they are Gross and Net Working Capital.

1. Gross Working Capital: Gross Working Capital refers to the firm’s investment in Current Assets. Current Assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short-term securities, debtors (account receivables or book debts), bills receivables and stock (inventory).

2. Net Working Capital: Net Working Capital refers to the difference between Current Assets and Current Liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It includes creditors or accounts payables, bills payables and outstanding expenses. Net Working Copulate can be positive or negative. A positive Net Working Capital will arise when Courtney Assets exceed Current Liabilities and vice versa.

Concept of Gross Working Capital

The concept of Gross Working Capital focuses attention on two aspects of Current Assets’ management. They are:

a) Way of optimizing investment in Current Assets.

b) Way of financing current assets.

a. Optimizing investment in Current Assets: Investment in Current Assets should be just adequate i.e., neither in excess nor deficit because excess investment increases liquidity but reduces profitability as idle investment earns nothing and inadequate amount of working capital can threaten the solvency of the firm because of its inability to meet its obligation. It is taken into consideration that the Working Capital needs of the firm may be fluctuating with changing business activities which may cause excess or shortage of Working Capital frequently and prompt management can control the imbalances.

b. Way of financing Current Assets: This aspect points to the need of arranging funds to finance Country Assets. It says whenever a need for working Capital arises; financing arrangement should be made quickly. The financial manager should have the knowledge of sources of the working Capital funds as wheel as investment avenues where idle funds can be temporarily invested.

Concept of Net Working Capital

This is a qualitative concept. It indicates the liquidity position of and suggests the extent to which working Capital needs may be financed by permanent sources of funds. Current Assets should be optimally more than Courtney Liabilities. It also covers the point of right combination of long term and short-term funds for financing court Assents. For every firm a particular amount of net Working Capital in permanent. Therefore it can be financed with long-term funds.

Thus both concepts, Gross and Net Working Capital, are equally important for the efficient management of Working Capital. There are no specific rules to determine a firm’s Gross and Net Working Capital but it depends on the business activity of the firm.

Working capital management is concerned with the problems that arise while managing the current assets the current liabilities and the interrelationship that exits between them. Thus, the WC management refers to all aspects of a administration of both current assets the current liabilities.

Every business concern should not have neither redundant nor cause excess WC nor into should be short of W.C. both condition are harmful and unprofitable for any business. But out of these two the shortage of WC is more dangerous for the well being of the firms.

Impact/Harm of Redundant Or Excessive Working Capital

* Excessive WC means idle funds, which earn no profits for the business, cannot earn proper rate of return on its investment.

* When there is a redundant WC, it may lead to unnecessary purchasing and accumulation of inventories causing more chances if theft, waste and losses.

* Excessive WC implies excessive debtors and defective credit policy, which may cause higher incidences of bad debts.

* It may result into overall inefficiency in the organizations.

* When there is excessive WC relation with banks and other financial institutions may not be maintained.

* The redundant WC gives rise to speculative transaction.

* Due to low rate of return on investments the value of shares may also fall.

* In case of redundant WC there is always a chance of financing long terms assets from short terms funds, which is very harmful in long run for any organization.

Dangers of Short or Inadequate Working CapitalØ A concern, which had adequate WC, cannot pay its short-term liabilities in time. Thus it will lose its reputation and should be not be able to get good credit facilities.

* It cannot by its requirements in bulk and cannot avail of discounts. It stagnates growth.

* It becomes difficult for the firms to exploit favorable market conditions and undertake profitable projects due to non-availability of WC funds.

* The firm cannot pay day-to-day expenses of its operations and its credit inefficiencies, increases cost and reduces the profits of the business.

* It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds thus the firms profitability would deteriorate.

* The rate of return on investments also falls with the shortage of WC.

* Operating inefficiency creeps in and it becomes difficult to implement operating plans and achieve the firms profit targets.

Need for Working CapitalFor earning profit and continue production activity, the firm has to invest enough funds in Current Assets in generating sales. Current Assets are needed because sometimes sales do not convert into cash instantaneously and it includes an operating cycle.

Operating Cycle: Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. Investment in current assets such as inventories and debtors is realized during the firm’s operating cycle, which is usually less than a year.

The operating cycle of a manufacturing company involves three phases: -

1. Acquisition of resources such as raw material, labor, power and fuel etc.

2. Manufacture of the product which includes conversion into work-in-progress into finished goods.

3. Sale of the product either for cash or on credit.

These phases affect cash flows because sometimes sale is done on credit and it takes sometimes to realize.

Length or Duration of the Operating Cycle: The length of the operating cycle of a manufacturing firm in the sum of the following:

1.Inventory Conversion period

2. Debtors Conversion periods.

The total of Debtors Conversion Period and Inventory Conversion Period is referred to as Gross Operating Cycle.

1. Inventory Conversions Period: The Inventory Conversion Period is the total time needed for Producing and selling the product. It includes:

a. Raw Material Conversion Period.

b. Work-in-progress Conversion Period.

c. Finished Goods Conversion Period.

2. Debtors Conversion Period: It is the time required to collect the outstanding amount from the customers.

Net Operating Cycle: Generally, a firm may resources (raw materials) on credit and temporarily postpones payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in Courtney Assets.

The length of the time in which the firm is able to defer payments on various resource purchases is Payables Deferral period. The deference between Gross Operating Cycle and payables Deferral Period is called Net Operating Cycle. If depreciation is excluded from Net Operating Cycle, the computation repercussion represents Cash Conversion Cycle. It is net time interval between cash outflow.

Operating Cycle also represent the time interval over which additional funds, called Working Capital, should be obtained in order to carry out the firm’s operations. The firm has to negotiate Working Capital from sources such as banks. The negotiated sources of Working Capital financing are called non-spontaneous sources. If net Operating Cycle of a firm increases it means further need for negotiated Working Capital.

Calculation of Operating Cycle: The calculation of operating cycle helps to know the exact period of WC turnover i.e. how long it takes to convert cash again into cash? Through this calculation one can ascertain the WC period.

FORMULA: -Raw Material Holding Period = Avg. Stocks of Raw Material

Avg. cost of consumption per day

Work in progress Conversion Period = Avg. work in progress

Avg. cost of Production per day

Finished goods holding period = Avg. stock of finished goods

Avg. cost of goods sold per day

Receivables & Debtors collections Period = Avg. book debts.

Avg. credit sales per day

Credit period allowed by creditors = Avg. creditors

Avg. credit purchase

DURATION OF OPERATING CYCLE

GOC = RM + WIP + FG + D + R

NOC = GOC-C

Where GOV = Gross operating cycle.

NOC = Net operating cycle

RM = Raw material conversion period.

C = Credit period available

WIP = WIP conversion period

FG = FG holding period

D & R = Detors and receivables collection period.

Note:

360 working days in a year are taken to calculate per day average.

Avg. means opening + closing /2

Depreciation is excluded while calculating cost of production & sales as it is a non-fund expense and does not require working capital.

Permanent and Variable Working Capital

There is always a minimum level of current Assets, which is continuously required by the firm to carry on its business operations. The minimum level of Current Assets is referred to as permanent of fixed Working Capital. It is permanent in the same way as the firm’s fixed assets are. The extra Working Capital, needed to support the changing production and sales activities is called fluctuating or variable or temporary Working Capital.

Both Kinds of Working Capital, permanent and temporary, are necessary to facilitate production and sale through the operating Cycle.

Estimating Working Capital Needs: Working Capital needs can be estimated by three different methods, which have been successfully applied in practice. They are follows:

1. Current Assets Holding Period: To estimate Working Capital requirements on the basis of average holding period of Current Assets and relating them to costs based on the company’s experience in the previous years. This method is based on the operating cycle concept.

2. Ratio of Sales: To estimate Working Capital requirements as a ratio of sales on assumption that Current Assets change with sales.

3. Ratio of fixed Investment: To estimate Working Capital requirements as a percentage of fixed investment.

The most appropriate method of calculating the Working Capital needs of firm is the concept of operating cycle. There are some limitations with all the three approaches therefore some factors govern the choice of method of Working Capital.

Factors considered are seasonal variations in operations, accuracy sales forecasts, investment cost and variability in sales price would generally be considered. The production cycle and credit and collection policy of the firm would have an impact on Working Capital requirements.

Current Assets Financing

A firm can adopt different financing policies for Current Assets Three types of financing used can be:

1. Long-term financing such as shares, debentures etc.

2. Short-term financing such as public deposits, commercial papers etc.

3. Spontaneous financing refers to the automatic sources of short-term funds arising in the normal course of a business such as trade credit (suppliers) and outstanding expenses etc.

The real choice of financing Current Assets is between the long term and short-term sources of finances. The three approaches based on the mix of long and short-term mix are:

1. Matching Approach: When the firm follows matching approach (also known as hedging approach), long term financing will be used to finance Fixed Assets and permanent Current Assets and short-term financing to finance temporary or variable Current Assets. The justification for the exact matching is that, since the purpose of financing is to pay for assets, the source of financing and the assets should be relinquished simultaneously so that financing becomes less expensive and inconvenient. However, exact matching is not possible because of the uncertainty about the expected lives of assets.

2. Conservative Approach: The financing policy of the firm is said to be a conservative when it depends more on long-term funds for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary Current Assets with long term financing. In the periods when the firm has no need for temporary Current Assets, the idle long-term funds can be invested in the tradable securities to conserve liquidity. Thus, the firm has less risk of shortage of funds.

3. Aggressive Approach: An aggressive approach is said to be followed by the firm when it uses more short term financing than warranted by the matching approach. Under an aggressive approach, the firm finances a part of its permanent current assets with short term financing. Some firms even finance a part of their fixed assets with short term financing which makes the firm more risky.

Managing Current Assets: Management of Current Assets is done in three parts. They are:

1) Management of cash and cash equivalents.

2) Management of inventory.

3) Management of accounts receivable and factoring.

Thus, the basic goal of WC management is to manage the current assets the current liabilities of the firm in such a way that a satisfactory level of WC is maintained, i.e. it is neither inadequate nor excessive WC management policies of a firms have a great effect on its Profitability, Liquidity and Structural health of the organization.

WC management is an integral part of overall corporate management. For proper WC management the financial manager has to perform the following basic functions:-

· Estimating the WC requirement.

· Determining the optimum level of current assets.

· Financing of WC needs.

· Analysis and control of WC.

WC management decision are three dimensional in nature i.e. these decisions are usually related to these there sphere or fields.

· Profitability, risk and liquidity.

· Composition and level of current assets.

· Composition and level of current liabilities.

PRINCIPLES OF WORKING CAPITAL

There are four principle of working capital management. They are being depicted as below :

(i) Principle of Risk Variation: – The goal of WC management is to establish a suitable trade between profitability and risk. Risk here refers to a firm’s ability to honor its obligation as and when they become due for payments. Larger investment in current assets will lead to dependence. Short term borrowings increases liquidity, reduces risk and thereby decreases the opportunity for gain or loss On the other hand the reserve situation will increase risk and profitability And reduce liquidity thus there is direct relationship between risk and profitability and inverse relationship between liquidity and risk.

(ii) Principle of Cost Capital: – The various sources of raising WC finance have different cost of capital and the degree of risk involved. Generally higher the cost lower the risk, Lower the risk higher the cost. A sound WC management should always try to achieve the balance between these two.

(iii) Principle of Equity Position: – This principle is considered with planning the total investment in current assets. As per this principle the amount of WC investment in each component should be adequately justified by a firms equity position Every rupee contributed current assets should contribute to the net worth of the firm The level of current assets may be measured with the help of two ratios. They are:

· Current assets as a percentage of total assets.

· Current assets as a percentage of total sales.

(iv) Principle of Maturity Payment: – This principle is concerned with planning the source of finance for WC. As per this principle a firm should make every effort to relate maturities of its flow of internally generated funds in other words it should plan its cash inflow in such a way that it could easily cover its cash out flows or else it will fail to meet its obligation in time.

REFERENCE

Anand, M. 2001. “Working Capital performance of corporate India: An empirical survey”, Management & Accounting Research, Vol. 4(4), pp. 35-65.

Bhalla, V. K., ‘Working Capital Management’, Anmol, New Delhi, 2005.

Bhattacharya, Hrishikes, ‘Working Capital Management: Strategies and Techniques’, Prentice-Hall of India Products, 2004.

Burns, R and Walker, J. 1991. “A Survey of Working Capital Policy Among Small Manufacturing

Firms”, The Journal of Small Business Finance, 1 (1), pp. 61-74

Padachi, Kesseven, ‘Trends in working capital managmenet and its impacts on firms performance: An analysis of Mauritius small manufacturing firm’, International Review of Business Research Papers, Vol. 2., October 2006, p-45-58.

Sadri, Sorab & Tara, Sharukh, N., ‘Understanding Working Capital Management’, Rai Business School, Mumbai, March 25, 2006.

Paradigms of Working Capital Management

What is Ex Works?

Well, if you are into shipping or your business is related to import exports, then it is good to pick up some shipping and payment terms that will help you get an idea of what your customer or supplier is saying. Now today I am going to hand you the meaning of EXW or Ex Works in a silver platter. So if you intend to be in international business and import exports, then do pay attention.

Ex Works simply means this:

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If you decide to buy 10 million dollars worth of plastic widget from me, and you prefer to arrange your own transport, then I will quote you my plastic widget, Ex Works or Ex Factory. Quoting you Ex Works means that the price you get from me only includes the price you pay for the finished goods I have produced in my factory. The transportation costs and other expenses related are actually yours to bear. So if you buy ex factory, you need to factor in other costs involving transportation mostly, before taking that figure as your net cost.

What is Ex Works?

So when the full quantity of plastic widgets are completed, then you just simply arrange your own transportation and have the goods delivered from my factory, warehouse, or site.

Simple isn’t it?! Sometimes, when a buyer is hurrying you for price estimation, quoting EX WORKS will help to give them an estimated price and costing reference for their projects. You should always let them know that your price is EX Works and not Delivered, FOB or CNF which I will go through with you later on.

Ex Works pricing is also more accurate as an indicator of the product’s price in any region as your perception of the local price of that product is not affected by the transportation cost.

In some cases, customers want you to quote Ex Works because they are not so sure about the status of their projects yet. By the time they want to buy, the transportation costs may have fluctuated beyond their current estimation.

So always be very clear in your terms and conditions when quoting your customer or buying from a vendor. Don’t surprise your customer later with a much higher price when you factor in the transport. If transportation is going to cost a bomb, be sure to let the customer know in advanced. Don’t ever surprise them especially if the goods being dealt actually command very little margin. Also, as a buyer, it is your responsibility to find out what are the potential transportation charges that are likely incurred so you need not be surprised or get a heart attack when you find out that transportation just inflated 60% to your total cost. It could happen to you.

Ok folks, remember, EX WORKS or EXW is buying based on a price quoted to you without transportation or delivery to your site. It just means you buy at a price where the manufacturer has the limited duty for producing and placing the finished goods at his factory or warehouse, and then you collect it with your own transporter.

What is Ex Works?

People Skills: Eight Essential People Skills

Being able to communicate effectively with others requires people skills, and here’s eight essential ones:

1. Understanding people

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People not only come in all shapes and sizes, but they come with different personality types as well. You may want to brush up on how to communicate with the four main personality types by reading this article. Indeed, dedicated students of communication could do little better than purchase Bem Allen’s excellent introduction to personality types, ‘Personality Theories’.

People Skills: Eight Essential People Skills

People are individuals, with as many similarities from one person to the next as differences. To communicate most effectively, each will require you to communicate with them in their own individual preference style, using their language, their body gestures, and their pace and intonation.

So how do you find out how best to communicate with someone? Spend time with them! Don’t expect to meet someone off the street and talk intimately with them within a minute. Understanding a subject takes time — whether that subject is an academic one or another human being.

2. Expressing your thoughts and feelings clearly

Our brains can only take so much information in at any one time. We are bombarded with messages every second of the day, so to compete with the barrage of ‘noise’ a person faces, your message needs to be clear, succinct and to the point.

It is very worthwhile taking time to plan your communication — no matter by what method it is delivered — to ensure that you are taking the least amount of time to express the right level of thought in the most receptively simple manner.

3. Speaking up when your needs are not being met

Just as important in business relationships as in domestic ones, speaking up to ensure that your needs are met is a fundamental part of any relationship.

You may wish to read this article on assertive, not aggressive, communication, but in a nutshell there are six different ways you can be assertive and not aggressive in your communication: by rehearsing your behaviour prior to the communication; by repeating your communication (the ‘broken record’ technique); fogging; asking for negative feedback; tentative agreement with negative feedback; and creating a workable compromise.

Assertiveness is a useful communication tool. It’s application is contextual and it’s not appropriate to be assertive in all situations. Remember, your sudden use of assertiveness may be perceived as an act of aggression by others.

4. Asking for feedback from others and giving quality feedback in return

Alongside assertiveness techniques, the giving and receiving of feedback is a key communication skill that must be learnt if you want to have any hope of developing long-term business relationships..

Toastmasters International teach a useful feedback and critical review technique — first give a sincere compliment, follow this with any practical suggestions for improvement, then wrap up with further sincere praise. It is known as ‘CRC’, or ‘Commend, Recommend, Commend’, a three-step model for excellence in giving quality feedback.

Remember, too, that truthfulness is a subjective view. What you may find distasteful in someone may be equally desirable from another’s point of view. As I learnt, by living through a series of IRA attrocities in England and watching the US political and media reactions, one man’s terrorist is another man’s freedom fighter.

5. Influencing how others think and act

We all have the opportunity to influence how others think and act. All the way from Cialdini’s Persuasion principles down to simple violence (of a verbal or physical nature), we are daily able to shape the thoughts and actions of those around us.

From something as simple as smiling and saying, “Hello!” as a way of influencing someone’s mood, to leading by example during an intense period of change, there are many ways of either leading to or drawing out of others required behaviours and attitudes.

Remember that an attitude leads to an emotion, which in turn leads to an action. Shape the attitudes and you have a more reliable way of predicting actions.

6. Bringing conflicts to the surface and getting them resolved

I confess: I’m not a ‘natural’ at handling conflict. It’s taken marrying into an existing family of three children to help this only child come to terms with conflict.

It’s taken me three years of living in my family to realise it’s possible to co-exist in conflict and not get personally involved. But it wasn’t an easy lesson to learn, I can tell you!

But being a step-father to teenage children has helped me learn the importance of bringing conflicts and resentments to the surface where they can be more easily managed.

Your employees might be harbouring secret resentments of you, and unless you find out what they are, bring these ‘dark secrets’ out into the light of day, you are never going to be able to successfully deal with them.

It’s embarassing, potentially humiliating and requires a strong level of patience not to launch straight into a defensive mode, but giving people the opportunity to express their concerns, disappointments and anger, face-to-face, gives you tremendous opportunity to put things right, or help them see where their thoughts and feelings are misplaced.

7. Collaborating with others instead of doing things by yourself

I’m a shocker at this, but learning to delegate and share has been instrumental in growing my own business.

The quickest way of burying yourself in excess detail and workload is to try and do everything yourself. Yet sharing the workload can be the smartest thing you will ever do. Here’s why:

‘Leverage’.

Leverage is taking your skills and abilities and allowing others to magnify your work capacity. You train them to do what you do and you do something else.

One bricklayer can only lay a certain number of bricks in an hour, but that same bricklayer can train 15 mates to lay bricks and suddenly those 15 bricklayers are building monuments while the first bricklayer is out securing more work for them.

While the 15 are laying bricks, the original bricklayer can be learning how to perform advanced bricklaying, or learn sales strategies, or learn supervision skills.

The lesson is simple: try and do it all yourself and the ‘all’ will bury you; teach others to do what you do and you build a monument.

Jesus taught 11 men how to do what he did. Then he left them to carry on while he moved on to other things. From the simple act of one man teaching 11 others, a church and the largest, most influential religious movement the world has ever known was born.

8. Shifting gears when relationships are unproductive

Sometimes you need to walk away. Sometimes you need to jettison unhealthy cargo. And sometimes you need to take drastic steps to regain balance and momentum.

‘Shifting gears’ can be as simple as changing the venue of your supervision meeting from a dark office to a nearby cafe. Sometimes it can be moving the meeting from straight after lunch to first thing next morning, when clearer heads might prevail.

Sometimes it can mean increasing the level of assertiveness in order to ensure the point you are making is being received. Sometimes it might mean bringing others into the meeting so that the other person understands the implications of their attitudes or actions.

And sometimes it can mean helping them find a more meaningful and satisfying role outside of your sphere of influence.

As a management psychologist I clearly remember one organisation I consulted to: the only way out of a staff impasse was to remove the impediments to progress. Which meant helping key protagonists find new work outside of the organisation. Sometimes culture change can only be effected in a quick way by bringing in an entire new team and throwing away the dead wood. But only as a last resort.

Conclusion

The whole idea of being people skilled is knowing or finding how to bring out the best in others in any situation, rather than their worst. By mastering these eight essential people skills you dramatically increase your chances of achieving the best outcomes out of your interactions and business challenges.

People Skills: Eight Essential People Skills

Leadership Myths and Demons

We think we understand leaders and leadership. And I suppose to some extent we do. But we also work with a lot of leadership mythology-curious ideas developed over time like urban legends-and demons-either blaming leaders for evil in the world or looking upon leadership with suspicion.

Leadership myths are pervasive and persistent. What makes them troubling is that people who believe them usually fail to reach their leadership potential-and they sometimes hold others back as well. The myths and demons get in the way like barriers on an obstacle course.

What Is Leadership

Consider these myths:

Leadership Myths and Demons

Leaders are born.
Leaders are men.
Leaders are wealthy.
Leaders are especially charismatic.
Leaders are White.
Leaders are superb communicators.
Leaders are just managers who have more power.
Leadership is authority.
Leadership is hierarchical or positional.
Leadership can’t be taught.

You may be able to cite single examples for all of these statements, but one example does not make a law. On the other hand, one example to the contrary will invalidate what someone thinks is a law and we can point to plenty of exceptions. None of these statements may be generalized to all leadership in all times and cultures.

For example, I’ve never met a leader who hadn’t been born, so proclaiming “Leaders are born” like it’s a breakthrough discovery is silly. But many people still believe leadership attributes and skills are instilled at birth and that’s it. If you didn’t get the leadership gene from the stork, so the argument goes, you’re never going to be a leader.

This idea is reminiscent of the feudal perspectives of the Middle Ages all the way back to the divine right of kings. But claiming leaders are born and never “made” doesn’t stand the test of experience.

Leaders are men, and wealthy men at that. Oh really? Joan of Arc was neither a man nor wealthy. Same can be said for Harriet Tubman and Mother Teresa. Have a disproportionate number of leaders been men and have many leaders been wealthy? Sure. But this historical fact says more about lack of access for women in certain times and cultures than it does about innate ability. And more than one wife has led from behind the scenes when her husband, the elected or expected leader, wouldn’t or couldn’t lead. Ask Mrs. Woodrow Wilson.

Leaders aren’t leaders unless they exude charisma. Wrong again. President Calvin Coolidge was a smart man, but charisma certainly isn’t a word associated with his memory. Charisma isn’t essential. Non-charismatic “Silent Cal” still got a few things done.

Leaders are as different in personality and gifts as the leaves in a forest of trees. Gifted Native American speakers Tecumseh and later Chief Joseph were leaders in a lost cause, and they weren’t White. Neither was Martin Luther King, Jr., an orator of the first rank and the most important leader of the American Civil Rights Movement. The biblical Moses, arguably one of the greatest leaders who ever lived, at least initially struggled with poor communication skills.

Leaders are just hyped-up managers. No, leaders may be good managers, and some managers may possess leadership skills. But leaders are more than just managers with more clout. Leaders lead, and managers, well, they manage. We need them both.

Leadership isn’t just for those who possess formal authority, have amassed power, or hold a position. Talent and tenacity trump titles any day. That’s one lesson from the American Revolutionary War. Ragtag colonists took nearly eight years to do it, but they succeeded in chasing the Redcoats and chastening the King. Women without power or position-yet leaders-from Elizabeth Cady Stanton to Susan B. Anthony, worked throughout the Nineteenth Century to secure American women’s right to vote, finally granted in 1920 in the Nineteenth Amendment of the United States Constitution. Even “title-less” leaders get things done.

Consider these demons:

Leaders are robber barons.
Leaders are anti-democratic.
Leadership is Machiavellian, i.e. manipulative.
Leadership is tyrannical.
Leadership is intimidation or coercion.
Leadership is controlling, dictating.
Leadership contradicts service or “servanthood.”

For some reason, our ideas about leadership get twisted up with our image of “bad guys” and their desire to conquer the world. Lex Luthor in the Superman movies. Adolph Hitler in real history. Some people can’t seem to think about leaders without wincing. In this view, leaders are self-promoters, “politicians” who can’t be trusted. Only “the people” will ultimately be in the right.

Some of this attitude toward leadership is fostered by American democratic culture. We haven’t fully trusted a leader since we threw off England’s King George and our George left the first presidency.

Some of this suspicious attitude is justifiable. A few leaders haven’t deserved the allegiance and power they commanded or usurped, and some leaders have left lasting bitterness in their wake. Richard Nixon is America’s highest profile recent example. And historically, the world has certainly endured evil leaders-from the Old Testament King Jehoram, about whom it was said, “He passed away, to no one’s regret,” to Genghis Khan to Nero to Pol Pot to Saddam Hussein to Kim Jong-il. Sadly, the rogue’s gallery is full.

Dishonest, anti-democratic, manipulative, tyrannical, coercive, and dictatorial demagogues are the bad people. Yet their record shows us morally questionable individuals holding leadership positions, not a record of something intrinsically irredeemable about leadership in general.

Leadership is a tool. As free moral agents human beings can use leadership for good or for evil. Leadership always gets back to character.

As people who can choose, we can choose to lead. None of these common myths or demons ultimately hold water and none of them should stop anyone from becoming a leader if desire and opportunity calls for it.

Part of what makes leadership so fascinating is that leaders come from all walks and byways of life. No one is excluded. For this we can be grateful to God and to a democratic and open country where individuals matter.

Tom Brokaw described an entire generation as leaders. He noted in his book The Greatest Generation that America is losing several thousand per day who survived the Great Depression and World War II. This generation was the “greatest” because they answered the call time and again. They led by example, commitment, and participation. These men and women took the measure of their challenges and in some cases gave “the last full measure” to defend what they believed in.

The question we now face is who will take the Greatest Generation’s place of leadership? It can be you, and false mythologies and demons shouldn’t get in your way.

Leadership Myths and Demons

Kaizen? – What is Kaizen?

What is Kaizen? Many people that are new to Lean Manufacturing will at some point end up saying, “Kaizen? What is Kaizen? What do you mean by Kaizen? What does Kaizen do?” Several terms and definitions come to mind when talking about Kaizen.

Kaizen is a Japanese term meaning “Change for the better” or “improvement”. It is most commonly translated into English as “Continuous Improvement”. Kaizen is one of the forerunners in Lean thinking and requires discipline and constant re-evaluation. It works on the basis that nothing can ever become perfect. There is always something that can be improved.

What Is Management

Kaizen on a company scale can mean several things. As part of a continuous improvement culture, most companies hold what are called Kaizen Events. These are generally an activity that remove people from their daily tasks and place them on a team, to accomplish a goal within three to five days. These are highly targeted projects with achievable results, such as moving machines so that they can work closer to one another for continuous flow, or designing and implementing a new queuing system for a specific purpose, or a SMED event, etc. No matter what the goal is, the process is relatively the same: Plan, Do, Check, Act.

Kaizen? – What is Kaizen?

Plan, Do, Check, Act (PDCA) was developed by W. Edwards Deming and introduced in Japan in the 1950s. It is based on the Scientific Method and is a precursor to Six Sigma’s DMAIC process (Define, Measure, Analyze, Improve, & Control). This is how PDCA breaks down:

Plan – Develop a sound, well thought out goal (that can be achieved with moderate effort) and how to achieve it.

Do – Implement the ideas and/or changes needed to achieve the goal, including training.

Check – Review what you’ve done; be critical, but not negative.

Act – Depending on how the Check step went, sustain these results or perform the whole PDCA cycle over again.

You can see that this is pure continuous improvement as the cycle can be completed over and over again. In the Toyota Production System, they have slightly changed this language to be Plan, Try, Reflect, and Standardize. Different verbiage, but same expectations of process and results.

Typically, most Lean training and resources define two types of Kaizen: System or Flow Kaizen and Process Kaizen.

A System or Flow Kaizen deals with an entire value stream being evaluated for opportunities of improvements and will usually include action from several levels of management.

A Process Kaizen is a concentrated improvement of a single process (or groups of the same type of process). This type of Kaizen will usually include a cross functional team dedicated to improving that individual process.

Both of these types of Kaizen are abundant in any successful Lean enterprise, and are at the very heart of those organizations. Working within a company that needs help implementing Lean can begin to wear on your mind, especially if you are the agent of change. For my entire professional career I’ve had to take on this role. You push and push everyday for changes because you can see the waste sitting all around the plant and office; in stacks of wasted inventory and DMR’d materials to frivolous steps in product development processes. It’s tough to keep a positive attitude.

Over time I’ve learned to incorporate the idea of Kaizen into everything that I do. I make it a habit to say this word to myself over and over again at different times during the day. While at work, it keeps me in the moment and opens my mind to thinking that everything can be made better if we just apply ourselves a little bit more. Now, I tend to Implement Then Perfect which is a good, offset definition (sort of) of Kaizen, where as early on in my career I would spend too much time pondering possibilities instead of just doing. This creates better outcomes and makes you think on a Results Driven basis, which is really the way you want to think – you will constantly grow and improve – just like a company that is maintaining a strong Kaizen mentality.

On a personal level, use Kaizen to improve you life and it will work its way into your professional career. Incorporate it into your daily life with exercise, eating habits, vices, etc. If you want to start working out, start small and build from there – add a little bit everyday. That’s small, incremental improvements that work. If you eat too much, try to eat 1 less bite at 1 meal every other day, and eventually move up to 1 bite for every meal, everyday. If you smoke and want to quit, cut back slowly and your body will respond favorably. These methods work for you and the same type of stepwise improvements drive positive changes in your company.

If you know someone who claims to be perfect – they’re not. Even a lot of the most successful people will tell you that they are not perfect and that that belief is what got them to where they are today – and it keeps them there. You maybe thinking: “Won’t that thinking just make me depressed?” The truth is, no, it won’t. Once you allow yourself to see the flaws that are holding you back, you will be much more likely to overcome them. A good motto that I try to live by is: Always be happy, but never be satisfied. That is the essence of Kaizen. That will bring continuous improvement to your life. That is Kaizen.

Kaizen? – What is Kaizen?

What Leadership Seminars Purport to Achieve

Everyone wants to be in the limelight, and wants to lead in some form or the other. Although several people opine that a leader is born and not created, leadership qualities must be detected and nurtured to bring them out and make a success of the individual.

Leadership seminars are commonly conducted today to help teach, train and guide individuals on their styles and effectiveness. This seminars are held to include several individuals who may need some guidance to be effective leaders, and also for people who need to shape and mould their personality to become leaders of the future.

What Is Leadership

Leadership seminars are extremely important in the corporate scenario. They help identify and groom people to rise in hierarchy within the organization, and also help in maximizing employee performance and increase levels of motivation.

What Leadership Seminars Purport to Achieve

Leadership seminars usually discuss and bring out the importance of various attributes required to make good leaders. It is important to have good speakers who can motivate and articulate correctly all that is required.

Leadership seminars help several companies identify people who have potential to lead. Often, companies fail to correctly gauge the leadership qualities which may be present in their employees. A third, neutral professional may sometimes be in a better position to present employees who have a brighter prospect in the organization.

Leadership seminars normally last the course of the day, while more exhaustive seminars may spill over into the second or even third day as well. They are usually intensive, but highly motivating and rewarding. On the part of the employee, it is a great chance to maximize your chances at making a success of yourself and career. For the organization, it is all about deriving the most from the employee, the greatest asset to the company.

What Leadership Seminars Purport to Achieve

Integrity in Leadership – What It Is and How to Develop It

When we think of the leaders who have made a difference in our lives, we think firstly of how they endeared themselves to us through the belief we had in their ability to lead us. They may have been politicians, schoolteachers, scout leaders, or even our bosses at work, but the trust we had in them and our confidence in their ability to lead us to our desired destination made us loyal to that person.

Is Integrity Really an Old Fashioned Word?

What Is Leadership

This trust was created because they each shared a common characteristic. They practiced integrity in their leadership style. Integrity may be considered an “old fashioned” word in today’s business environment but nonetheless, the successful players in today’s market who stay at the top are those who practice integrity in their dealings with others.

Integrity in Leadership – What It Is and How to Develop It

Sadly, there are people who have made it to the top by dishonest means and we cannot turn a blind eye to them, but as the old saying goes “be sure your sins will find you out” and their fall is often swift and sadly it claims many victims along the way. Those who lead with integrity are often unsung heroes to those who know and love them, but the world is full of such people and their leadership style deserves recognition.

Integrity is defined among other things as “being true to one’s values.” When a leader has a set of clearly defined values that determine the actions and decisions they take, a trust relationship is built between the leader and his or her term. Research has shown that staff in many work places does not trust their managers and this lack of trust immediately creates a company culture that is built on distrust. This is something that should be avoided at all costs.

Walk Your Talk and Lead by Example

How can leaders show integrity in the work place and therefore lead by example? The answer can be best expressed in three simple words: “walk your talk.” What you expect from others, expect from yourself. This produces a sense of trust in the direction you as the Leader are taking the team. The team will follow when they trust their Leader. The opposite is often true when there is distrust.

When managers work to create a culture of trust in the organization that starts from the top management down to the lowest paid worker, the effect is a teambuilding ripple that affects the productivity and output from every department.

Integrity in Leadership – What It Is and How to Develop It

What Is Pilates?

Pilates focuses on increasing strength, flexibility and body awareness without bulking up. Pilates was developed by Joseph Pilates in the 1920s. He was a physical trainer and created this form of exercise for rehabilitation purposes. His method was uses by war veterans and dancers including George Balanchine and Martha Graham. Over the years the basic tenants of the Pilates method has been preserved.

Pilates New York focuses on increasing strength, flexibility and body awareness without bulking up. Controlled movements are at the base of a Pilate’s routine. Spring-resistant exercise equipment is specially designed for use and includes the Cadillac, Reformer, Ladder Barrel, Spine Corrector and Wunda Chair. Also mats and balls are used in this non aerobic form of exercise. Considered a resistant exercise those out of condition will notice an increase in their heart weight.

What Is Leadership

Spinal alignment and core muscle strength are the two key elements in Pilates New York. The muscles of the abdomen, hips, pelvis and spine loosely define your core muscle group. During a Pilate’s session the instructor will get you to focus and concentrate on your core muscles. Breathing and muscle contraction are also key factors of your routine. The focus should be on quality of movement versus quantity. Spinal alignment and core muscle strength are the two key elements in Pilates New York. The muscles of the abdomen, hips, pelvis and spine loosely define your core muscle group. During a Pilate’s session the instructor will get you to focus and concentrate on your core muscles. Breathing and muscle contraction are also key factors of your routine. The focus should be on quality of movement versus quantity.

What Is Pilates?

Contrology is what Joseph Pilates called the coordination of the body, mind and spirit in his book, Pilates’ Return to Life Through Contrology published in 1945. Pilates New York incorporates these principals in their Pilates programs.

What Is Pilates?

What is the (Time Management) Matrix?

Stephen Covey’s book “Seven habits of highly effective people” sure was a runaway success and not without reason either. Apart from his ideas on being effective, Covey also designed something that every stickler for time would swear by: The Time Management Matrix. This matrix requires you to make a comprehensive analysis of your tasks and categorize them into four quadrants, namely, important, not important, urgent and not urgent.

How will this help, you ask? Well, for one, you will know what needs to be on the top of your to-do list and what should be right at the bottom. Consider this your crash course in prioritizing!

What Is Management

Design a matrix of four quadrants (for those of you who are artistically challenged, your PC could help). The vertical axes go from “important” on top to “not important” at the bottom. The horizontal axes denote “urgent” on the left corner, and “not urgent” on the right one. Now, label the quadrants as follows:

What is the (Time Management) Matrix?

Quadrant one (Important and urgent): Record all important tasks that command your attention right away. This could range from projects with deadlines right around the corner, to any problem or emergency that needs to be dealt with in a hurry.

Quadrant two (Important but not urgent): Cover activities that are of importance to you, such as spending time with your family, taking a holiday, maybe even expanding your business. Most of these activities might be for the long term and hence would require more time commitment.

Quadrant three (Not important but urgent): Taking calls, reading mails, engaging in pleasant conversation; these might not be important but are usually too in-your-face to be ignored.

Quadrant four (Not important and not urgent): Any odd job that can wait and unnecessary conversations over the phone are examples of two activities that would fall under this category.

We’d like to make it clear that the quadrants of the Time Management Matrix are quite broad, and can accommodate pretty much all activities, and not just those we mentioned. In order to maximize effectiveness, you need to be objective and honest with yourself and record your daily chores under the relevant categories. Depending upon the kind of activities that rule your life, the following inferences could be made:

Quadrant one: If you are always on the move, it is natural that stress is your constant companion and burnout is right around the corner. Take care and go a little easy on yourself.

Quadrant two: You have a more balanced approach to life, are plagued by fewer crises and are quite in control of your schedules.

Quadrant three: You probably do not believe in long term goals and vision, and live life by the minute. If a major portion of your life is in quadrant three, you could be suffering from a lack of purpose, especially at work. You will do well to start planning ahead.

Quadrant four: Take a wild guess at where you could be headed…nowhere! If your focus (or lack thereof) continues to be the same, you could have problems with keeping a career or even a family. So take charge and change the way you function!

For details on the Time Management Matrix, refer to “Successful Time Management: a self teaching guide” by Jack D. Ferner available at.If you need help with time management in general, you could read ” A complete idiot’s guide to managing your time” by Jeff Davidson also available at

While the contents of the Time Management Matrix vary from person to person, the above discussion applies to almost all situations. To manage your time effectively, take a balanced approach. A little bit from every quadrant can make you more effective, focussed, composed and confident.

What is the (Time Management) Matrix?

Measuring Leadership Success With Leadership Metrics

Leadership is often equated with a position of authority. In the corporate world, a company’s success could be dependent on how effective the leaders of that company are. A revolutionary way of measuring the effectiveness of an individual’s leadership has been recently formulated. Leadership metrics present a scientific and systematic way of measuring how good a leader is by a series of capital elements. A leader’s performance is graded through these elements. Also taken into account are the leadership conditions in which they operate in. The combined elements of leadership capital and leadership conditions are a surefire way to determine whether an individual is an able and competent leader or not.

The Leadership Capital Assessment is a formal instrument of measurement in this metrics. Leadership Capital refers to the six areas of competency possessed by a person in order for him to lead the company to brighter and more prosperous conditions. These competencies are innate qualities of an individual that are useful for effective leadership. He must have the wisdom, trust, courage, voice, values, and vision. Vision and values are two philosophical frameworks used by a leader in his operations. Wisdom and courage are sterling attributes for a leader to make effective strategies, come up with the right decisions, and solve problems. A leader’s trust and voice could lead others to follow the path a leader is directing them to. These qualities are needed to interrelate with others in the company.

What Is Leadership

This self-examination metrics basically measure the six competencies on a scale of 1 to 99. An ideal average of 70 is needed after all areas of competency are graded. A score of more than 90 and less than 40 indicates that the individual is displaying tendencies for anti-leadership. Anti-leadership refers to either the lack or excess of leadership capital elements.

Measuring Leadership Success With Leadership Metrics

Although a leader may possess innate qualities that are very useful for him to lead the company, it is also important to consider the environment he works on and the prevailing conditions. These conditions are important elements that would provide the individual a good opportunity to lead. Ideally, the person must be at the right place and at the right time. He must also do the right things that would move the company forward. Most importantly, he must be working with the right people. These conditions are very vital since these would foster the leadership capital possessed by an individual.

The metrics rate these conditions from the range of very poor to very good. An individual must be presented with good to very good conditions in the four areas. Otherwise, their environment is not good for them and they will have less than ample opportunity to lead.

An ideal leader is someone who exhibits the right balance in all six competencies. Deficiency and excess in these competencies could result to disastrous leadership. Metrics are very important here since these could identify problems in leadership and could save a company from the perils of disastrous leadership. More importantly, the leadership metrics used are better than a mishmash of opinions and judgments where certain elements of leadership might be left unexamined or over-baked in scrutiny.

Measuring Leadership Success With Leadership Metrics

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