How to build a business – Net Promoter Score

Two things have always been crucial in the assignments we do for our clients: what are the benefits we create (expressed in Economic Value or Cash Value Added) and are they truly excited and delighted by what we do. Over qualified resources, continuous support by peers and validation of the results are key in accomplishing this. But at least as important: are we able to measure and prove it? benefits Management has developed into something of a specialism, especially if you do not only measure in financial or quantitative terms, but also in areas like Risk, Scalability, Agility, Motivation.

Customer satisfaction, or even Client Delight is another challenge. Luckily this topic has been addressed some twenty years ago, by Fred Reichheld, a consultant from Bain & Company. He spent years researching enthusiasm, loyalty and commitment in customer relationships. Surveys did not seem to provide the answers he was looking for, partly because the answers from dissatisfied, undifferentiated and enthusiastic customers were so different that they could not drive any management decisions on improvement.
For answers he focussed on the happy customers only and decided to measure their enthusiasm by asking them one question, that he thought related directly to their loyalty: how willing were they to recommend the firm. We see this unpaid marketing department at work every day, nowadays through recommendations on the internet, and more than anything else, by the Like button of Facebook.

Back then, it was a new concept, which he called Net Promoter Score, or NPS. More than the financial benefits our clients have, and definitely more than the revenue we generate, the level of loyalty created is key to success, and yes it is similarly important to measure the level of frustration and disappointment of those who might become active detractors.

With growth come more formalized processes, more dashboards and reports. close relations and intuition alone is no longer enough to keep track of our performance, and the time has come to also implement this process: Basically all that is required are three steps

Step 1.: ask each and every client one question: “How likely are you to recommend us?”, and have them score the likelihood on an eleven-point scale from 0 to 10

Step 2: Break the results up in three categories: those  that gave ratings from 0 to 6 are “Detractors”, the one that logged a 7 or 8 are “passively satisfied”, and only the score of 9 and 10 represent the “Promoters”.

Step 3: Compute the score by only looking at the difference between the Detractors and promoters: %Promoters – %Detractors = %Net Promoters.

So far so good. That is to say: there is potentially a lot wrong with NPS. A 0 score and a 6  have the same impact on the score, but from the client’s perspective there is probably a large difference. Also 0% detractors and 60% promoters gives the same result as 20% detractors and 80% promoters. So we want more: we want to know what are the reasons behind the score, and we want to be able to act on specific cases if there is reason. It is a one-question-only thing some say. If you do not understand the data you cannot act others argue. It seemed so simple

Now, three decisions need to be taken. Do we ask this question only, or do we ask more to find out what drove the score? Do we ask the questions ourselves, or do we get more honest answers if someone else asks them, and do we ask face-to-face, by phone, or by mail/online?

More discussions. We asked for advice. The specialists gave us options. One question, a few questions, many questions. Open questions, closed questions. Damn.

We asked more advice. some of the reactions were outspoken, almost emotional:

On line surveys are no more effective than written… only difference is the envelope.

The problems with written/on-lines include…

•  Only outliers are motivated to respond… those who are very happy or very unhappy… so you get skewed results.
• You don’t know who actually responded (the VP’s emo-punk daughter? An Admin? The dog?
• The spontaneity (and any associated honesty) is lost.

Why in the world would anyone follow-up by phone to a written survey?

Respondents should NEVER be “followed-up” on unless they specifically request it.

Even if their responses are negative!

No respondent wants to justify their response or discuss it further… unless they ask for it.

The right way to do it is to be sure you ask enough open-ended questions in the survey to get the info you need without follow-up.

When you follow-up (and especially if you quiz them on any response), you bias or destroy their future cooperation.

Phone is best, 3^rd party, brief is good.

Okay, we got the message.

So this is what our survey looks like. Two questions, preceded by an e-mail, asked by phone, by someone the client does not have a personal relation with:

1. Based on the work Qhuba did for you, how likely is it that you would recommend Qhuba, on a scale from 0 tot 10?

2. What factor had the most impact on your answer

• the character and behavior of the resource (like integrity, cooperation)
• the competences of the resource (knowledge, execution power)
• the benefits realised versus the cost
• the cooperation with other people in our firm
• the relation and connection you have with our network
• something else

Now I have one last question: How likely do you think it is that the NPS score we log and the answers to these questions will help us create more value for happier clients?

How to build a business – Ten Questions

We have been in business for several years, we have more than sixty world-class people working with us, worked for eighty-eight world-class clients, held one hundred and fifty-three management meetings and published numerous internal and external documents. At some point it seemed to make sense to bring it all back to ten basic questions. The answer to those questions should describe all the major aspects of our business. Answers that all of our people should be able to give, when the questions are asked.

 

Here are the questions:

1. Where do we come from?

2. Why do we exist?

3. What do we look for in our resources ?

4. How do we behave?

5. What do we do?

6. How will we succeed?

7. What is the one most important thing right now?

8. Who must do what?

9. How are we organized?

10. How we make decisions and deliver on them?

 

And here are the answers

 

1. Where do we come from?

Qhuba, founded in 2007, is a fast-growing network organisation with more than sixty Partners, Staff and Associates (‘Qhubans’). Qhuba means drive, the drive to work together, to learn, to grow and to succeed.

 

2. Why do we exist?

We exist because we believe running companies can be fun and strategies can be implemented successfully when people of character and competence work together.

Qhuba believes that strategies are best executed by a multi-disciplinary leadership team that takes collective responsibility.

 

 

3. What do we look for in Qhubans ?

Regardless of whether they are Clients, Candidates, Network Partners, Prospects, Associates, Staff, Associate Partners, Partners, Managing Partners, Equity Partners, Practice Directors, Shareholders, or Friends, we expect:

• Character (Integrity and Intentions)
• Competencies (Hard and soft skills)
• Network
• Track record
• A drive for Autonomy, Mastery, Contribution and working with Peers.

 

4. How do we behave?

We are Independent, Reliable, Uncompromising, Connected

 

5. What do we do?

When organizations look for support in the successful execution of their strategies, we provide (introductions to) people with the right character and competence. We can do this based on Client Value Pricing, on temporary assignments, on the client’s payroll, for a success fee or without a fee.

 

6. How will we succeed?

Together Qhubans use conversations to build a network of world-class professionals to make clients successful by providing capable people and by arranging introductions, opportunities and exposure, meanwhile building a highly recognised organisation as a platform for professional and personal growth.

 

7. What is most important right now?

Increasing Reputation in our network

• Increase NPS with clients by delivering results
• Increase credibility with prospective clients through content-marketing, sales and references
• Increase Trust within Qhubans through growth and success
• Increase Reputation with candidates through marketing

 

 

8. Who must do what?

Strategy, Structure and Reputation:   Wouter Hasekamp

Network:                                              Tjibbe van der Zeeuw (Liesbeth Hans)

Knowledge and Research                   Liesbeth Hans

Publications:                                      Hotze Zijlstra

Marketing:                                           Wouter Hasekamp, Rachelle Nall

Enablement and Support:                  Dennis van Alphen (Tom Kisters, RikJan Kruithof)

Portfolio:                                             Partners and Practice Directors (Peter Rappange, Mohammed Chaaibi, Gerard Kok, Evert-Jan Tazelaar)

Sales:                                                 Mario School (Susanne van Kleef, Gerard Kok, Evert-Jan Tazelaar)

Delivery:                                             Tjibbe van der Zeeuw (Beatrice Friebel)

 

 

 

9. How are we organized?

Qhuba is organised in Practices that address specific areas of expertise, without losing sight of the collective goal: strategy implementation across disciplines. Practices in the portfolio of Qhuba are:

• Interim Management
• Recruitment & Executive Search
• Programme and Portfolio Management
• Lean and Transformation
• Finance and Benefits Management
• Sourcing Support
• Lean IT
• Cloud Consulting
• The Qloud Company

 

 

10. How we make decisions and deliver on them?

We believe in Collective Leadership: given our values and despite different intentions and goals we want to be able to operate as a tribe of peers, each contributing as a person and as a professional, without giving up our autonomy. Starting points for this ‘Tribal Democracy’ are:

• Freedom of Thought
• Freedom of Speech
• Freedom of Choice
• Freedom of Dissent
• Radical Transparency

 

 

Conditions for participation in decision-making are:

• Trust, which consists of Character (Integrity & Intentions) and Competence (Capabilities & Results)
• Transparency of Information and Opinion. Silence equals disagreement. This is our first rule of engagement.
• Commitment, both active commitment and formal commitment. This is the second rule of engagement
• Accountability; there is zero-tolerance for lack of Trust, lack of Integrity, lack of Transparency, lack of Commitment, but also for Passivity, broken promises, non-performance
• A shared definition of success made measurable and a focus on results. One team, one goal.

 

Success is measured by:

• Client Benefits Realized and Nett Promoter Score
• Staff retention en recruitment
• Revenue – Margin – Profit

How to build a business – Employees and Contracts

Building a business requires creating and activating a network of Partners, Associates and Employees. We are striving for a healthy mix of people who share a DNA and a sense of purpose, but who might have different needs and possibilites, depending on their personality, the stage in their career, the desire for short or long term reward (cash versus value) and the appetite for risk.

For capable people with skills and ambition who want to be surrounded by people they can work with and learn from and who prefer or require a monthly income, becoming an employee can be the most appropriate choice. We call them intrapreneurs. This relation needs to be formalized in an employment contract. Contracts are not pretty. Despite network organisations, work2.0 and despite all good intentions basically they arrange and exchange of time for money.

The good intentions are that we want all our people to be independent, that is: responsible for their own choices and their own success, we know they are reliable professionals, who do not compromise on quality, and who are connected to a network of peers they like to work with and work for. This is our DNA. The intention is also to make sure they have an adequate monthly income and that there is no limit to what they earn, based on how successful they are.

Now try to stick all that in an agreement. What we did is: we offer all our professionals on the payroll a basis salary, and then we make a budget available that is equal to 50% of what their personal turnover is. Out of this budget they can make choices on for instance education, a company car, laptop, et cetera. The difference between salary plus costs and their personal budget will be paid as a bonus, if a set of OKR’s (Objectives and Key Results) are met. A nice combination of security (for the employee), limited risk (for the employer), freedom of choices on personal development and reward and intrapreneurship. Or so we think.

Of course a contract describing this level of freedom and responsibilities within the boundaries of the labor laws results in quite an extensive document. You would think that the more experienced employees, with several previous employers, would be most critical, especially because in their case the base salary usually is lower than what they were used to – be then the upside is higher than anywhere else. The opposite is the case. Last week we lost a prospective employee, who seemed really talented and a perfect fit, due to this contract.

The base salary was higher than what she earned in her previous job, we explained the model, the role, the responsibilities, the budget, the holidays, the risk, the fiscal implications. All better than where she came from. She did not sign. I am confused. Either she was not what we thought she was, and she did not understand it, or it was too good to be true and she became suspicious that their might be a snag. Or maybe we are a more average company than we think we are, or than we want to be, and people just expect a salary in exchange for their time.

The last option a refuse to accept.

Researchers like David Marsden (Professor of Industrial Relations and a Senior member of the Centre for Economic Performance) at the London School of Economics will tell us that in the Network Economy their is not only the contract between employer and employee, but also the psychological contract and the economic or incentive contract. Maybe I should go to London and try to understand. Or better, let me go to Brazil and visit Ricardo Semler. He did it the other way around in his company Semco, letting his employees choose what they do, where and when they do it, and even how they get paid. He wrote a book about it called Maverick, the success story about the world’s most unusual workplace.

So that’s where I will go if only because the weather in Sao Paolo is more attractive than in London.

How to build a business – What’s Qooking

In our search for what is cooking in the Qhuba network and in the world of Strategy Execution we have organized What’s Qooking events: a combination of content and cooking in a workshop format. With small groups of twelve to fifteen people we have listened, cooked, discussed and eaten. To take this one level higher – and because cooking with a group involves quite a few concession in timing and results – we have decided to look for top chefs to do the cooking for us. Where to find the chefs?

The Michelin Guide seemed a logical starting point.

Since the weather was nice and I was in town anyway, I decided not to use Amazon for once, but to walk to the good old-fashioned bookstore. Not the most efficient way to buy a book as it turned out. The first bookstore did not stock Michelin Guides, but was kind enough to direct me to a colleague which they assured me would have them. So I walk further into town. On my way to the second store I passed my tailor. He called me in for an espresso, and enquired about the suits he had sold me earlier. As I explained why this was not a day to buy suits (too warm to try on anything, and besides the suits he makes last too long) and where I was going, we came to talk about three star restaurants. He warned me not to try to visit them all, because the last guy who tried – probably – did not survive.

In the summer of 2008 the Swiss gourmand Pascal Henry executed his plan to visit all sixty-eight top chefs in Europe in sixty-eight days. Everyday he ate at a different restaurant, drank a few glasses, and spoke at length with the chef. Henry kept a diary with notes, menus, and occasionally a note from a chef or sommelier. On the fortieth day of his journey he was in El Bulli. As usual he had ordered the Chef’s menu which here consisted of many small courses. His hat, his notebook and wallet where – this was also usual – on the table. Towards the end of the meal he walked out, never to be seen again. Maybe he jumped of the cliff, maybe the idea that he would for the rest of his life have to make the concession of having to eat less exquisite meals, maybe he was abducted by aliens who wanted to know how eartheners eat. We don’t know. This story is written down in a book by an author who has also written a book about etiquette together with my tailor.

intrigued, but not deterred, I continued to the next bookshop, and then to the next. A good time to reconsider the merits of e-commerce, with their long-tail strategies. Online you will find it all. But what you mostly find is transactions, less interaction. And that is exactly what you get with people, in shops.

The last shop I visited did stock the Michelin Guide. The guy behind the counter advised me to also have a look at a book called “In search of the Stars”, written by a Dutch chef, Paul van de Bunt, who undertook, with his wife Sandra, a similar journey as Mr. Henry. The differences are clear: they took a year to visit all fifty-four three star restaurants in Europe, and they lived to write a book about it. The book was not the goal by the way. Paul just wanted to learn, to see and taste the innovations, and to talk about them with his colleagues. Then for every restaurant he visited he created a dish, inspired by the chef he talked to. Obviously, he did not see them as the competition, but as people with a shared passion.

Cooking appeared to be a passion shared by the bookseller, too. When I told him about my “What Qooking” plans, he suggested that our first stop should be a new restaurant in Utrecht, called Podium. The chef Leon Mazairac worked for Alain Ducasse in Paris.His style he described as “no pretentious but lots of ambitions”. That sounds about right for us.

He just happened to have the chef’s business card in his pocket, and – talking about innovation – invited me to come to his bookshop next week where the chef would prepare insects, which are not only an answer to food shortage, the inefficiency of raising cattle for consumption, but are apparently quite tasty, too. I asked him if he would eat them, and of course the answer was yes.

 

To prove his point he produced a package of dried grasshoppers that he was going to prepare that night. Quite interesting. Probably coincidence. Wonder if he would have produced as double edged commando knife if I had asked him about the “SAS Survival Guide”. Quite a useful little book, by the way.

Anyway, I have all the information to plan our next What Qooking event, and however convenient e-commerce portals may be, they do not offer the Power of Conversations. As I said: the network enables interaction rather than the transaction.

How to build a business – Themes 2012

The year is almost finished. That makes it time to look forward. We had some discussions in our management team, in our network, and with external media partners to talk about what themes will be or should be on the agenda in 2012.

Below the result

Themes for Professionals

• Intrapreneurship: Most professionals – capable talented people who are on the payroll of companies – we speak to are looking for opportunities to develop themselves and their careers, and believe the most important steps they have to take involve development from professional to entrepreneur (or intrapreneur). Wikipedia about intrapreneurship: In 1992, The American Heritage Dictionary acknowledged the popular use of a new word, intrapreneur, to mean “A person within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking and innovation”. Intrapreneurship is now known as the practice of a corporate management style that integrates risk-taking and innovation approaches, as well as the reward and motivational techniques, that are more traditionally thought of as being the province of entrepreneurship.

 

Independent Professionals: Once a professional has taken the step to become independent, and thus in a sense an entrepreneur, the themes highest on the agenda are

• Growth: on the one hand there is growth as in; Personal Development, on the other hand the growth of their business through more professional services, such as acquisition or sales, personal marketing and risk mitigating services on the fiscal, legal, and pensions side.
• The Shift: another theme we picked up is the interest of especially independent professionals, to make the move from ambition to Purpose & Mastery.

 

Entrepreneurs: among entrepreneurs the prevailing themes (next to “what the impact of the economic crisis, the credit crisis and the euro crisis really is”) are

• Network: how to operate as network companies in a networked society
• Content Marketing: how to use permission marketing (thinking as a publisher) versus bug and beg marketing,
• Effectuation: The theories of Saras Sarasvathy of Carnegy Mellon University on how her research of successful entrepreneurs uncovered five basic principles these people shared. Her 2001 publication “Causation and Effectuation: Toward a theoretical shift from economic inevitability to entrepreneurial contingency” was the start of a whole series of publications on the subject.

 

 

CIO

• Business Execution: IT is now beyond the first two phases (more efficiency through IT in the backoffice, and more efficiency in IT), and can now become in integral part of a business strategy. Technology and Information deployed to create value. IT needs to build better cases for business value, it needs to play a role in driving customer centricity (and track customer sentiment, usage, and profitability through analytics), and it needs to leverage business analytics to foster innovation.
• Business Technology Integration: Making money with technology. CIO’s need to be much greater strategic partners for the businesses they support Business Model Transformation. CIO looses and business takes control.

And then there are the technology driven themes like:

• Mobility: Bring your own device, Client/Consumer interaction, Mobile payment
• Consumerization: the trend for new information technology to emerge first in the consumer market and then spread into business organizations, resulting in the convergence of the IT and consumer electronics industries, and a shift in IT innovation from large businesses to the home. For example, many people now find that their home based IT equipment and services are both more capable and less expensive than what is provided in their workplace. The term, consumerization, was first popularized by Douglas Neal and John Taylor of CSC‘s Leading Edge Forum in 2001 and is one of the key drivers of the Web 2.0 and Enterprise 2.0 movements
• Social: Social Media, If you don’t have a strategy by now, you’re behind. Globalization and tech savvy millennials are forcing firms to rethink how relevant current and future customers will find their firms. Put together a social media panel or team, Think about how you can effectively manage the data you collect
• Cloud: ‘nough said, but still a theme for years to come.
• Big data: ‘Big Data’ is a term applied to the rapid growth of data that has resulted from more automated collection methods and greater capacity for storage and processing. This exponential rise is driven by the proliferation of sensors for gathering data automatically, including those in mobile phones, and more activity taking place online, which can be more easily recorded. Although the use of large data volumes for business is not new, some things have changed, creating new opportunities for innovation. There are three key changes that have brought the issue of data onto many more agendas. Firstly, data storage, processing power and cloud services continue to make large scale data analysis more and more accessible. You no longer need to build your own data centre to use this technique, expanding the pool of users. Secondly, there are many more opportunities to capture data, from sensors in phones and RFID tags in products, as well as a greater social acceptance of contributing manually entered data to social services. Thirdly, it is now possible to analyse unstructured data, so it is not necessary to run your business with detailed customer forms or electronic point of sale terminals to benefit from this form of analysis. Natural text in emails, photographs and sound can all be analysed and ‘mined’ for insights, rather than only structured, coded information that needed to be captured electronically or manually coded.

 

CFO

• Cash: CFOs believe they should play lead roles in managing financial risks, designing the capital structure, optimizing working capital, and managing investor relations. They also think they should more frequently play lead roles in managing capital investments and revising the dividend policy
• Growth: Growth remained the top priority for CFOs globally in the first quarter of 2011. With capital supply and efficiency gains largely accounted for, companies now appear focused on growth in a post-recession environment. New products and services, acquisitions and foreign market expansion are expected to be the key drivers behind this growth. Across EMEA (Europe, Middle East and Africa)2, growth through product and market expansion tops the agenda for the majority of CFOs, with a focus on both raising capital expenditures, as well as making strategic acquisitions.
• Refinancing
• Acquisitions: With improved access to capital in most economic regions, and with the risk appetite of CFOs consistently increasing around the world, it is no surprise that strategic acquisitions top the priorities list for many CFOs globally. However, despite expectations of increased M&A activity in 2011, there is concern that activity will be constrained by several key factors. In North America, CFOs are wary of unleashing the more than USD 2 trillion in collective balance-sheet cash that has remained on the sidelines since the recession. This limited spending appears to be the result of concerns about the economy and consumer demand, industry regulation, and a shortage of attractive investment opportunities. In EMEA, CFOs continue to expect M&A activity to increase in 2011, with the improving economic outlook and availability of financing. However, the ability for companies to secure targets with the right strategic fit and at the right price is increasingly becoming the limiting factor for CFOs. A similar story is unfolding in Australia, where the majority of CFOs intend to pursue M&A opportunities in 2011 but cite that the greatest hindrance to undertaking an acquisition has been the inability to identify a suitable target.
• Emerging Markets: Investing in emerging markets

 

 

 

CHRO

• Performance Management: Move from administrative role (hire to retire), HR directors can play a boardroom role by identifying the decisive factors that play a role in strategy execution.
• Commoditization of HR: HR services will turn into commodities. HR resources will be outsourced together with the payroll activities, or replaced by do-it-yourself tools from the cloud. Before the term “Chief HR Officer”  has become widely accepted, he or she will have the same fate as the CIO… early retirement. Recruitment can be done online, the Linkedin network will offer plenty opportunities to interact with candidates. References, assessments, salary benchmarks and training can be obtained online. So unless the CHRO becomes Chief Talent Officer, Chief People Officer or Chief Performance Officer, with a direct relation to the company’s strategy, he will be commoditized, or outsourced.
• Workforce Analytics: Workforce Analytics and – Planning
• Talent: Will there really be a war for Talent?

 

 

CEO

• Growth: Growth in an uncertain economy
• Customer retention: Customer retention: In a world of eroding customer loyalty, customer retention must be a top-down, high priority, company wide mission
• Reputation: Guarding your reputation
• Technology: Technology and Innovation
• Talent:
• Risk: Risk management and investments, Contingency
• Strategy Execution: Strategy Execution (Strategy consulting is dead…)

 

 

ExComm

• Steering Teams: ExComms as teams: cooperation/interaction between boardmembers
• Value Creation: Strategy is not about power and money, but about Value Creation – and not only shareholder value. Strategy development and execution with value and purpose in mind will be a theme
• Innovation. in order to survive, companies – especially those operating in an increasing dynamic and digitalized environment, with knowledge being the most indispensable and important resource for innovation – need to establish trusted relations to aligned communities, networks and stakeholders. The notion of “embeddedness” is introduced to mark the increasing challenge of substantially integrating firms into their surrounding communities so as to assure the absorption of their exploitable knowledge. Innovation 3.0 (social Innovation) goes beyond Technological innovation, or Open Innovation (defined as “Innovation 2.0”) and clearly beyond Closed Innovation (defined as “Innovation 1.0”).

Non-execs: Consultancy, Contingency and Contacts instead of control and advice.

We expect to read and write articles about these themes – especially those that are on the agenda of different stakeholders –  and we will no doubt see them pop up in conferences and seminars. And just maybe there will be some others, like “how to grow after the crisis”, or “the next Big Thing after Social Media”.

 

Building a Business – Conversations

Sharing information and intelligence is one of the key drivers for people to join our company. We regularly organize What’s Qooking events, where we have conversations about interesting developments in the world of Business Technology Integration, while cooking.

 

The last one was in a Ferrari showroom, with a guest speaker – Dave Lamereis – who gave us an insight into what’s qooking in the technology labs around the world.

David believes that scientist have already started to transform humans to become living gadgets, with electronics embedded in our bodies to supplement human intelligence and emotions. Depressed? Push a button instead of popping a pill. We will wear contacts with augmented reality displays built-in and we will be able to print anything we want on our 3D printer. Need a new organ? The doctor will print one for you.  Experimental beating hearts and functioning kidneys have been printed.

Sounds a bit scary. The fact that it is possible does not mean that we will all use this, though. We are still autonomous people, making our own decisions.

The people we are working with strive for personal growth, professional growth, expansion of a network of peers, possibly also financial growth. I have the impression that rather than only focusing on the virtual, most of us also want to make something, Make a tangible contribution. Not only consulting, but also execution. Maybe with 3D printing the age of creation is back again.

Still the most important word for us might be growth. We expand our knowledge, our network, we increase the relevance of what we are doing, and for this purpose, our company has to grow as well. There is safety in growth in numbers, in optimization based on data and KPI’s. This is what we could be characterized as puzzles: more pieces, more chances. More data to be analyzed by experts, more solutions to be designed and implemented. A good start, but it gets really interesting when we are not looking at puzzles, but at mysteries. If you don’t know what the pieces are, if you don’t know how to measure success, experts are of little use. Here you need teams, with an open mind, who want to explore rather than exploit, who are ready to work together in an agile manner, striving for effectuation rather than for cause and effect.

We had the experts, and we have the challenges that they can sink their teeth into.

Our next challenge was to create and put to work these teams. Have them, using their collective knowledge, experience and creativity, come up with executable ideas, opinions, products, ventures that would genuinely excite our clients. That is much more in the area of idea to market, or market to order processes, than on the order to cash (production, supply chain, delivery) process, where most of the effort of most of the companies is directed at.

Teams having conversations. Amongst themselves, with clients, with everyone. In marketing speak what they deliver is consultancy, contingency and contacts. But what they really do is have conversations. Not easy for most conditioned professionals, but very enjoyable and valuable. We formed one such team for a prospective client, Travix International. Travix – a billion euro company – is the result of the merger of five online ticketingcompanies (Cheap Tickets, Vliegwinkel, Flugladen , BudgetAir and Vayama). It is run by capable entrepreneurial people who are focusing on the integration of the hitherto independent operating companies, and all core activities but at the same time having conversations all over the world with people from different industries to shape ideas, exchange experiences and connect to people who will increase the chances of growth and success. Last Thursday we sat with Gerhard van der Bijl, Jos Schreurs, Dave van Stijn, Willem van Groenland and Tjibbe van der Zeeuw. Next Thursday we will meet again with the board of Travix.

Real conversations between real humans. That seems difficult in a business world full of processes, models, frameworks and things. This is our ten-step approach:

1. Relax
2. Have a sense of humor
3. Be curious
4. Listen
5. Find your own voice
6. Tell the truth
7. Enjoy yourself
8. Be brave
9. Don’t panic
10. Go home and think, then go back to 1.

How to build a business – Growth and Conflicts

This morning we had our weekly Qhuba board meeting. We are trying to look at what we should keep doing, stop doing and start doing.

It is never that black and white of course, though. A small group of people running and company together with a larger group of partners have the tendency to focus on what needs improvement and on the sub optimal. I start every meeting with the Good News:

We are growing and have welcomed three new Associates in our company in the past week. Great news.

We have started using Yammer for collaboration, communication and knowledge sharing (or microblogging as it is called). At least half our people have become active users within two weeks. Great news, too.

We have a some new clients in the Mobile Telecom market (Vimpelcom, Ziggo), Technology market (Xtilton), Private Equity and Banking (ING). Excellent news.

We have also lost a partner. Or at least we lost him as a partner, and will for time being continue to work with him as an Associate.  This sparked a discussion about people leaving, and about the level of conflict involved. Since we started some ten people left, or were asked to leave

Dennis mentioned: “Without going into the specific of this case: is this an incident or is it an issue? Can we regular people “situations” and can we afford it that Associates, Partners or Staff leave the club? If they tell a story that is not consistent with the message we want to propagate in our internal or external network that might do more damage than any marketing agency can repair.” A commendable comment. Dennis started as an intern almost two years ago, ran the backoffice for the whole company within a year, and became part of our management team this year. Besides being an indispensable asset, Dennis is doing research for his thesis. The subject: successfactors in the governance of network companies. We expect more guidance from him when he is done.

Tjibbe – always the diplomat – responded: “We are in the people business. Two things: One: engagement with anyone in any structure is something of an experiment. Two: we have to look at each case separately. I am not worried about an Associate of employee leaving because of lack of performance. We are not in a static environment, where people do not know exactly how they can be successful. Sometimes they over-sell themselves, sometimes we look more at the cultural fit than at the motives – which are much harder to discover. With partners it is probably much more complex and has to do with the expectations. They expect, we expect, and we are all only going to find out what is realistic when we have started working. You will probably see a difference in outlook and commitment in the period where they join without an assignment, and in the period when they are deeply embedded in a client organization.”

Dennis: “I understand that we are in the people business and that people change with the circumstances, but I cannot understand how someone made conscious decision six months ago commit himself fully to a company like, wants to claim part of the proposition, has ambitions as a professional, as an entrepreneur and as a future shareholder, and now cannot wait to leave.”

My answer: “You’re right that there is too often a mismatch between mutual expectations at sign-on time and the expectations a few months later.

It seems that people are too enthusiastic in the beginning, or that we are too enthusiastic and that after a while the focus changes to the short-term and to cash, away from the long-term, the value, and entrepreneurship. Maybe we have a tendency to overrate the network. Knowledge and capacities, and they overrate over commercial capabilities. This makes perfect sense, because in the end almost everyone wants to spend most of his time on challenging client assignments, and earn an income, and only a few can afford to invest in the long-term entrepreneurial side of things.”

We have decided earlier that we should treat the relation with other Qhubans the same way as we treat emotional relations in our private lives: first we start dating, then we get engaged, than we get married. So we should always start working with people as Associates, and focus on the assignment, and only in a second stage (for example, after a year at the earliest), after he or she has met all the conditions, and he is convinced that it is in his long-term interest to join the company, should we consider a partnership. At the same time we have to make sure we address some of the things people find important. Remember the mindmap with changes and conditions:

I agree with Tjibbe that entrepreneurship is a bit of trial and error. It involves risk. You can’t foresee everything, and if it doesn’t work it is better to make a decision and not waste each other’s time.

However much we want to be a network of entrepreneurial professionals, the majority of people are attracted by assignments and our external network (Associates), a smaller group is attracted by our internal peer network, support, exchange of knowledge, and the possibilities to create business value (Partners).

Perhaps Dennis’ research will provide new insights in motivation and decision-making.

When coming back from holiday he Yammered: “After a summer period back in university library: what was it really about startup network enterprises? Is it trust, a common purpose, exchange relations? What about interdependencies or knowledge sharing? And reciprocity? Let’s find out…”

I can’t wait until he does (find out);

“What are critical success and failure factors of network governance regarding a startup network enterprise, whereas the social dilemma is taken into account?

 

Network governance is (interfirm) coordination that is characterized by organic or informal social systems, in contrast to bureaucratic structures within firms and formal contractual relationships between them (Gerlach, 1992:64; Nohria, 1992). Network governance is increasingly used to coordinate complex products or services in uncertain and competitive environments (Jones et al., 1997).

In case a network enterprise is a startup, a company with a limited operation history, governance of such an organization is even more defiant. These companies, generally newly created, are in a phase of development and research for markets and therefore faced by possible difficulties and challenges in their first phase(s). For network enterprises it could be more challenging because there are more dependencies compared to more traditionally organized or centralized organizations; e.g. a network is a pattern of social relations over a set of persons, positions, groups or organizations (Sailer, 1978). An extra important factor here could be the Social Dilemma. Social dilemmas are situations in which collective interests are at odds with private interests. Such situations arise when faced with prioritizing either short-term selfish interests or the long-term interests of a group, organization, or society.”

I am sure he will translate the academic English in business English for us. One thing is for sure: running a business involves tough decisions, but does it involve conflict? 
Martin Zwilling of Forbes.com believes it does:

Many entrepreneurs are not prepared for conflict, or actively avoid it. Their vision, passion, and focus are so strong that they can’t imagine someone disagreeing, much less fighting them to the death. But the reality is that startups are composed of smart people, with emotions as well as intellects, working in close proximity under much pressure, so conflicts will occur.

In fact, most business conflict is constructive and should be embraced in steering through the maze of innovation and change that is part of every successful business.

Good to hear. We are prepared and do not avoid it. Now learning how to deal with conflicts. Some tips from Peter T. Coleman in his book “The Five Percent: Finding Solutions to Seemingly Impossible Conflicts:

• Know what type of conflict you are in. The first step is to assess whether the conflict is win-lose, win-win, or mixed (some competing and some shared goals).
• Not all conflicts are bad. Most often, conflicts present us with opportunities to solve problems and bring about necessary changes, to learn more about ourselves and the business.
• Whenever possible, cooperate. Research has consistently shown that more collaborative approaches to resolving work best.
• Be flexible. Try to distinguish your position in a conflict from your underlying needs and interests in the relationship
• Do not personalize. Try to keep the problem separate from the person when in conflict (do not make them the problem).
• Meet face-to-face and listen carefully. Meet in a neutral location, and work hard to listen to the other side in a conflict. Accurate information is critical, and careful listening communicates respect. Don’t mistake sending text messages and emails as listening.
• Be fair, firm, and friendly. Research shows that the process of how conflicts are handled in usually more important than the outcomes of conflicts.
• Conflict occurs when individuals or groups are not obtaining what they need or want and are seeking their own self-interest. Sometimes the individual is not aware of the need and unconsciously starts to act out. Other times, the individual is very aware of what he or she wants and actively works at achieving the goal.

If goals cannot be aligned it is best to separate. But then out of mutual interest, and without conflict. Mental note to self.

How to build a business – Procrastination and Return on Relationships

My daughter has just started DP1. That is the Diploma Programme of the International School. Her tutor Mrs. Chowdhury has warned both students and teachers that time management is the biggest challenge, and social networks are the biggest threat. “That and procrastination” my daughter told me. I was going to tell her about the limited value of all these superficial friends sharing all these hardly relevant pieces of information. Mere distractions and reasons to shift focus away from serious study and school work. Apparently she was a step ahead of me.

And are we not on Facebook, LinkedIn and Twitter, too? Aren’t our most valuable assets our network, our knowledge and the intelligence we can gather about people, the companies they work for and the trends and themes affecting our markets? Aren’t we persuading our people to do what I am trying my daughter to dissuade from doing? Maybe we run the risk of procrastinating, too.

Great word… I looked it up.

The American Heritage Dictionary, for example, defines procrastination as “To put off doing something, especially out of habitual carelessness or laziness,” while Merriam-Webster Collegiate Dictionary calls it “To put off intentionally the doing of something that should be done.”

Some psychologists have suggested three criteria for a behavior to be classified as procrastination: it must be counterproductive, needless, and delaying. And while all procrastination is delay, not all delay is procrastination. It is “to voluntarily delay an intended course of action despite expecting to be worse off for the delay.”

Now I noticed a funny juxtaposition: where teenagers delay schoolwork because of relations and information, independent professionals often have the tendency to postpone networking and intelligence gathering to focus on the content and on their proposition. We see that in some of our partners. When on an assignment there is a tendency to focus on the job and to submerge in the pressure of the assignment, sometimes forgetting to actively maintain connections and share knowledge and opportunities. In between assignments productivity goes down, and although high on the to-do list, phone calls and research are postponed, or done at the last minute.

On the other hand, others – like myself – with more time for network- and research related activities run the risk of becoming addicted to meeting ever more people, to digesting more and more information in thousands of little pieces of information from RSS feeds, headlines, Twitter and LinkedIn updates and to storing and distributing contacts, opportunities and intelligence through applications like Salesforce.com and Yammer.

What makes sense, what does not, and how do we invest our time wisely?

Rolf Dobelli has written an interesting article, which was translated into Dutch and published last week by NRC-Next on how this constant stream of information affects us. In his view news (information) is to the mind what sugar is to the body: not very healthy, but difficult to resist. He calls it “small bites of trivial matter, tidbits that don’t really concern our lives and don’t require thinking. That’s why we experience almost no saturation. Unlike reading books and long, deep magazine articles (which requires thinking), we can swallow limitless quantities of news flashes, like bright-colored candies for the mind.”

According to Dobelli “At core, human beings are cavemen in suits and dresses. Our brains are optimized for our original hunter-gatherer environment where we lived in small bands of 25 to 100 individuals with limited sources of food and information. Our brains (and our bodies) now live in a world that is the opposite of what we are designed to handle. This leads to great risk and to inappropriate, outright dangerous behavior.”

There is some encouraging news in there: humans are suited for working in tribes, for thinking and Dobelli encourages us to take time to dive deep into he content. That sounds familiar: relations (a network), and content (knowledge). That sounds like us. But how do we strike a balance?

The 1970’s the management theories focused on Product Life Cycles. Companies were organized around how products were conceived, designed, tested, developed, approved, manufactured, sold and distributed to the market.

Of course customers made up the “market” and therefore in the 1980’s the focus shifted to customer-centric theories and the Customer Life Cycle.

Still, what defined the seller and the buyer was a transaction, when a product or service changed hands in return for payment. The customer life cycle provided a way for a seller to look at a buyer as not just a single transaction but as a series of “one-off” orders. Thus we moved from focusing on “getting the order” to “serving the customers needs” in the hope that the same buyer would return to the seller for more business.

However, due to the one-directional information flow, there were still some significant benefits being left on the table. The most visionary and innovative companies wanted to steal a lead in the Value Chain race and to do this the Relationship Life Cycle was developed.

The transaction thinking is replaced by interaction thinking, and instead of only measuring Return on Investment, and focusing on the bottom line, or on “What’s in it for me”, network companies like ours should focus on Return on Relationship or “What’s in it for everyone involved”. In other words, the measurement is on relationships and determining how everyone has benefited from the relationship, as well as how everyone can continue to benefit from it.

It is not easy to measure what investment is required to build a network of serious relationships. Let alone what the return is. This is abundantly clear for people who are active in the executive search business: it takes years to get to know, assess, and interact with a network of people, that at some point in time might be candidates for jobs at your client. To be able to determine who is the perfect candidate for a role in a company requires that you not only have an excellent idea and an expert opinion about someone capabilities, but also about how they would fit in the clients environment, in the longer term ambitions, in the personal situation. And then it takes a relationship build on trust to approach and convince someone to change jobs. What the clients sees is a few phone calls to someone you already knew, not what is involved in knowing. That is why we do not charge our clients based on the hours we spent, or on a percentage of the annual salary of the hired candidate, but leave it to the client. He can base the reward on the value he perceives, on how satisfied he is.

Return on Relationship is a term most often used by Ted Rubin.

Rubin makes a case for establish social networking metrics based on “conditions of satisfaction” (a concept promoted by Jeffrey Hayzlett, former CMO of Kodak and the author of The Mirror Test). In other words, what are the specific outcomes that will bring satisfaction to you, your brand, your business, and your customers? Engage, Educate, Excite, Evangelize. Evangelizing by your users is the end goal. To get there concentrate on building relationships and not numbers of viewers or visitors. Most measurements and statistics that are used with regard to relationships (such as number of Facebook fans, Twitter followers, retweets, site visits, video views, positive ratings and vibrant communities) are merely indicators that a brand is doing something that is creating value. That is only a starting point for RoR.

I cannot say we are able to measure our RoR. A metric like Net Promoter Score could give an indication on how clients look at the relation, and the satisfaction it brings to them. What we do know is that relations are not only established with clients, but – and equally important – with candidates, partners, suppliers, staff, thought leaders and others. We also know that metrics should include words like “trust”, “engage”, “authentic conversation” and “reputation” – all things that are at the heart of what a network company stands for. And possibly these things can be defined by setting up conditions of satisfaction, based on our purpose, vision and values.

So if Relationships are the new currency, and if we continuously invest in them, and want to be able to measure them, should we reward our staff and partners also on how they create value from their relationships?

In all three areas of focus we distinguish: reputation, structure and performance relationships play a role. We used to make the interaction transactional in all here areas, by allocating to our partners (besides a large portion of their personal turnover) a percentage of turnover based on how effective they were bringing new people into the partnership (Reputation), but we recently decided to change this and now allocate only percentages (but a larger percentage than before) for commercial activities that lead to revenue (Performance).

Instead of rewarding for RoR we decided that the knowledge and the network are assets that are so integral to who we are that we select partners on both.

Information and access are no longer scarce commodities. Attention is. On a personal level we should be careful what information we pay attention to, and then it should better be serious attention. In the network it works the same we, we can organize access to anyone, but our success will be determined by being able to decide with whom the interaction will lead to a relationship that is authentic, meaningful and beneficial for all.

How to build a business – Partners, Practices, PPM

Apparently it is a mixed blessing to be a partner in our company. We have a structure wherein partners are by and large responsible for their own success in the context f our organization. The Partner profile has several components, but in the end we are most interested in the motivation of potential partners. Usually we have known them for a longer period and are already convinced of their professional and intellectual capabilities, as well as of their management and interpersonal skills. More difficult to fathom are the real value of their network, the leadership skills, and most difficult to assess is the motivation.

Although there is a list, (which I have attached as Profiling) of fifty skills and competences that we find relevant, in the end it all boils down to what drives the candidate. Mastery is probably the most obvious motivator, and the one that stands out. Partners are without exception the ultimate specialists in their fields, have had success and recognition in the past, and…    And then what? Do they want to cash in on that capability? Then there is an issue, and they are bound for disappointment, because there are many capable professionals. Are they on the other hand also driven by a sense of purpose, a desire to make a relevant contribution, then we get more excited, and if that contribution extends to a group of peers they want to work with, then we might be enthusiastic. Now if the potential partner has what we call Autonomy, that is to say, if he convinced that he can be successful himself, wants to take the risk and responsibility for his own and our collective success, and has the characteristics of the entrepreneur than we are convinced.

Sometimes it does not work out that way, and a partner that seemed to have it all, turns out to be primarily focused on “the next assignment” and on “what is in it for me”, and we have to go our separate ways.

And sometimes it works out much better than we could have hoped for.  A partner like Peter Rappange was always recognized for his expertise in the area of programme and portfolio management (PPM), but instead of pursuing roles for himself he decided to organize a circle of professional around that expertise, spend time and effort – based on his vision of how companies can benefit from it – on developing the content and material that will enable a larger group of people to help clients implement processes and to define, execute and control a portfolio of projects.

He started our first Practice, and with us will make it a success. When you work with Peter, you cannot help but think about Napoleon – in the good sense. No success is not an option. His leadership style was considered unorthodox at the time but today we see that he had all of the major and minor characteristics that make a strong leader. Not only on the battle fields, where most of the opposing armies where perplexed but his military strategies, but also internally where Bonaparte with his hands on approach, was able to connect with the people he was leading.  Knowing that your boss is willing to jump in and help out when you need it as opposed to judging you if you aren’t able to handle it, is very reassuring.

Peter deserves respect for giving up considerable short-term revenue and recognition, and trading it in for longer term content, connections and value.

And clients do need what he has to offer.

I sent this tweet yesterday:

The article behind it is from Harvard Business Review and sketches a dreary picture of cost and schedule overruns: “1 in 6 IT change initiatives such as ERP and CRM systems turn out to be money pits, with cost overruns averaging 200% and schedule overruns of almost 70%, according to Bent Flyvbjerg of Oxford and Alexander Budzier of McKinsey, who studied 1,471 such initiatives worldwide”

In the ‘90s I worked for Shell, and this phenomenon was one of the reasons for me to leave and put all my energy in a company called ICE. ICE delivered ERP projects for clients like Reliant Energy and Philips Medical systems on budget and time. All we had to do was work with good people. Our company thrived.

Project Delivery capability alone means nothing, though. After ICE I joined Samas, an office furniture manufacturer, as CIO to run their IT department. We could deliver IT projects, too. And we did, almost killing the company. While we successfully rolled out SAP in Germany and Switzerland, the CEO saved France from bankruptcy, and the CFO refinanced the enterprise and started reorganizing The Netherlands. Then, we all landed on the Dutch organization at the same time. Samas was organized in the typical silo manner: strategy, technology, finance, human resources, marketing and sales had their own goals, targets and responsibilities.

The Samas disaster taught me some valuable lessons, and I decided to start Qhuba, a company focused at Strategy Execution across disciplines.  In my view the old stovepipes should all come together in an orchestrated Strategy Execution effort, and the organization should be adapted to serve the short-term and long-term needs with regards to strategy definition, execution and control.

Some of the decision making and activities will be performed by centralized, permanent bodies, some by temporary needs-based bodies, and some by participative bodies (for instance on a part-time basis).

Strategy Execution

Portfolio and Programme Management is a capability crucial to Strategy Execution, and a PPO (Portfolio and Programme Office) is a typical example of such a centralized permanent body.

At clients where Peter and his team where able to share their ideas, and take responsibility for execution they were met with interest, sometimes skepticism, and often enthusiasm. Now that the results become more visible, benefits become tangible, and the approach has matured from “bringing capable people on board to deliver on projects and programmes” to “implementing the process, adapting the organization, taking responsibility for the results and anchoring the approach in the culture of the organization”, we have seen his attitude change from selling and converting to sharing.

I have asked Peter to make all of his ideas, successes, lessons learned and material available, and I know that he is preparing to do this in blogs, articles, whitepapers. Below I will already sketch some backgrounds on this, an forgive me for all the beautiful jargon: Wait until you see him jump from his chair, run to the whiteboard and explain what it means to be Ranking value and benefits, Determining the size of the portfolio pipeline, Assessing the impact of uncertainty on projects and portfolios, Understanding the benefit and risk relationship, Establishing a portfolio governance capability, Managing the portfolio to maximize benefits and Implementing PPM and a PPO.

The process from Idea to Realisation is fairly straightforward:

PPM

Key to the success of this process is being able to rank the ideas is a way that ensures that only the ideas that are critical to strategy realization are funded and executed.

The Flow

When defining a Portfolio and Project management Process (PPM) the most important questions to address in the organization are the WHY and HOW questions. No rocket science, but still:

The Why is supposed to address the question of  Purpose: Can we ensure we do those projects that are adding to the implementation of the corporate strategy and bring us most value.  It is a focus on effectiveness, or: doing the right things

The How process looks at the way an organization implements the Programmes and Projects they have selected.  Here we look at the efficiency or doing things the right way. How well can an organization plan, execute and monitor the Programmes and Projects.

The Enterprise Portfolio & Programme Office plays a role in managing the process.

Central PPO

Peter will start sharing his approach and the whole body of knowledge in more detail soon, and hopefully especially the client stories.

Apart from enthusiasm, is there any evidence that this is an answer to where we started: are projects – and especially IT related projects – simply bound to fail or at least have significant overruns in budget and deadlines?

Industry research by Gartner, Forrester and others report cost savings from applying project portfolio management in the order of ten to twenty per cent of the total IT budget – but are such reports supported by reliable research?

An MIT study of more than 300 organisations in 23 countries found growth and agility was linked to a portfolio approach. They also argue that governance is crucial and that organisations ‘with superior IT governance have more than 20% higher profit than firms with poor governance given the same strategic objectives’.  The results of this study were published in a book by Harvard Business School Publishing.

In another MIT study more than 100 Fortune 100 CIOs were surveyed and interviewed. They found that 65 per cent believed IT project portfolio management yields significant business value, although only 17 per cent appeared to be realising the potential value in practice.

An a four-level IT portfolio management maturity model (ad hoc, defined, managed and synchronized) in the lower maturity level significant benefits were reported– from removal of low value, duplicate, redundant and poorly performing projects, but enterprises at the synchronised stage showed a substantial improvement on asset performance – they achieved cost savings of 40 per cent, better alignment of IT budgets and business strategy, and greater central coordination of IT investments across the organisation. Other benefits identified by interviewees included: wider support from senior business management; the process was perceived to be fair and objective; and it resulted in increased investment in IT.

In the Netherlands Chris Verhoef of the Free University came to similar conclusion. I cannot advise you to read his article on Quantitative IT Portfolio Management though, unless you are fond of almost hundred pages of formulas.

Funny that the better the performance, the more money is invested in technology. I am not sure if the last one is good news:. There must be a break-point… If you look at it from an asset optimization point of view it makes sense though: best invest where the return is high.

Still good news for clients, and for us: there is a lot of room for improvement, and we do not have to accept failure. Way to go Napoleon! Just steer clear of Waterloo.

How to build a business – Crisis? Crises!

We have started our business at the end of 2007. So we have always operated in times of crisis. But what is this crisis? Four years later we can make some sense of it, and determine what the impact on building our business has been. But first: What crisis or crises are we really talking about?

There is a sequence of crises: the housing crisis, the credit crisis, the banking crisis, the liquidity crisis, the economic crisis, the debt crisis.

Crisis

All together they are probably called The Financial Crisis or “the greatest financial crisis since the Great Depression” as the Wall Street Journal called it. It began with a boom-bust scenario in real-estate, or better: it really started with another boom-and-bust: the dot-com bubble of the late 1990s. When the decline of the stock markets in 2000 marked the beginning of a recession, interest rates were lowered to limit the economic damage. These low interest rates where a good stimulus to consumption, but also for the mortgage market. A lot of people were able to buy properties. The housing market boomed and anybody fit enough to put a signature under a contract could buy a house as banks and other financial institutions came up with mortgage products for anyone, including people who really where not financially fit enough to buy. The subprime mortgages kept interest rates low for the first few years (ARM (Adjustable Rate Mortgage) only to be increased in the following periods.

Housing crisis (2007)

In the US, the housing market peaked in 2006. Banks and other investors had devised complex financial instruments to slice up and resell the mortgage-backed securities in an attempt to hedge against any risks. More and more home-owners, over-leveraged, and now unable to pay defaulted, banks foreclosed and housing prices started to fall. The pyramid started to crumble, starting in 2007 when two hedge funds owned by Bear Stearns that had invested heavily in the subprime market, collapsed.

Credit crisis (2008)

Instruments with names like “Mortgage-backed securities” (MBS) and “Collateralized Debt Obligations” (CDO) suddenly posed grave problems for banks that had bought them, and at the same time more and more people were unable to pay their mortgages. Banks started to distrust each other, and credit was hard to come by, which was not only harmful for the housing market, but also for businesses. Hundreds of billions in mortgage-related investments went bad, and once mighty investments banks had to write off substantial amounts.

Banking crisis

Some of the largest insurance companies and banks had to be saved by government. Some were not. In March 2008 the Fed staved off a Bear Stearns bankruptcy by  buying $30 billion in liabilities and engineering an acquisition by JP Morgan Chase. Fannie Mae and Freddie Mac were bought by the US Government to save them, Lehman Brothers went bankrupt. Merrill Lynch sold itself to the Bank of America to prevent bankruptcy. In September 2008 AIG (American International Group) had to be bailed out for $85 billion because it was exposed to securities known as CDS’s (Credit Default Swaps, a financial instruments designed to protect against a default by a particular bond or security)

In The Netherlands losses from those investments and the effect of the tightening of credit caused ABN and Fortis to be bought by the Dutch Government.

Stock markets plunged and credit markets froze. Injections of government funds were used to strengthen balance sheet, not to lend to businesses. This causes a shortage of liquidity.

Liquidity Crisis

Central banks tried to inject liquidity in the markets, but still, the crisis spread more banks got into trouble and countries like Iceland and Pakistan had to seek emergency aid from the International Monetary Fund. A vicious circle of tightening credit, reduced demand and rapid job cuts set in, and the recession was a fact.

No doubt this period also created opportunities, especially on the longer term: banks will not be seen as they were seen before, and refinancing as well as mergers and acquisitions will be a different business then until now. I do not think we would have been able to play the role that we did in the Mobile Telecom industry if the traditional investment banks where in the same position as a few years before. Also, companies restructuring debts, reorganizing, and adjusting their strategies to the new market situation created chances that we might not have had otherwise.

One of the most interesting aspects of this crisis: it will take a long time before confidence in banks will be restored, and I can see the whole Financial Services industry changing. As Brett King, the author of bank2.0 wrote: Consumer (and business) behavior and technology will chance the future of Financial Services. And: why call it Financial Services if no service is provided? Would we have been approached by an American investor who wants to create an online B2B bank in Europe. Maybe, but an Economic Crisis could be the right time for companies to engage in ‘Disruptive Innovation’ and new business models.

Economic crisis (2008)

During 2008 and 2009 many countries tried to provide stimuli for their economies, injected cash, reducing interest rates, and sometimes buying industries. In the US  General Motors and Chrysler went bankruptcy with the US Government investing more than $60 billion. Thousands of jobs were lost. While banks seemed to recover and were returning bailout money to governments, unemployment rose to the unprecedented levels in many countries. In The Netherlands unemployment was relatively low with less than 6% in 2008 and less than 5% in 2009. On average in the Euro zone there was a 10% unemployment rate, But then, in the Netherlands a large portion of the workforce are independent contractors (6,5% or 500.000 people). This provides flexibility in terms of unemployment, but large numbers of professionals without an income.

Our company had (and has) a risk profile suited for situations like these. With relatively few people on the payroll, and more working with us in a network-setting as partner or associate, we did not feel the pressure of having to take assignments at ridiculous rates. At the same time we were able to recruit some of the most capable people around. Also, it became clear who our real clients were, and which companies were opportunistic enough to offer rates that were below what they would pay their own staff. We saw it all: low rates, ninety days payment conditions, and competitors that could not say no.

Debt crisis (2010)

By the end of 2009 the financial crisis seemed to have faded away, companies were hiring again, and the Dutch stock market (AEX) had risen more than 35%. In 2010 though a new crisis came to the surface as information about the size of Greece’s debts reached markets in Europe. After Ireland and Portugal turned to the European Union for a bailout, Greece came to the brink of default in June 2011. Support for the euro started to erode, markets began to sink worldwide and signs of a renewed credit crunch in Europe appeared.

Also in the US deficits that had risen sharply since the recession began in 2007, and unemployment levels that remained high even as the economy began a slow recovery. Although in August, hours before America would have defaulted on its payments, an agreement about a debt ceiling, and associated cost cutting was reached, Standard & Poor’s downgraded the government’s AAA rating, and, four years after the crisis began, the economies of the United States and the countries of Europe continue to struggle, confidence is not restored and markets fear the possibility of a double-dip recession.

In the “real economy”, companies perform worse than expected. Looking at our clients, companies like Tata Steel, TomTom, KPN-Getronics and E.on are facing lay-offs, Vattenvall is writing off on Nuon, RWE on Essent. Still, they are turning to us for talent and ideas. It is a good time to find out who are long-term thinkers, who are reliable and uncompromising. Just today, we spoke to an independent contractor who turned down what seemed like a once-off opportunity to help reorganize the IT Department of a major Dutch telecom company. Instead of engaging in what would no doubt have been a long and profitable assignment, he turned down to assignment because after a few weeks it was clear that internal politics as well as the strategy and lack of commitment made the chances of success, without collateral damage to the people involved, slim. He put ethics, his good name and long-term value above short-term financial gain. We cannot wait to start working with him.

We have grown, and in this crisis many new players emerged and became successful.

At the same time, we can see another bust and boom scenario coming our way. Although we are paying customers – of LinkedIn and Google, and enthousiastic users of Facebook and Twitter, some of these social network companies are sold or at least valued at astronomical amounts, without the stability or the profits to justify them. That is a bubble waiting to burst.