IIA Magazine June 2017 Issue

Courage under Fire. Public sector auditors need to have the courage to raise issues despite the political agenda in the public sector. Audits provide a cornerstone of good public sector governance. Targeted relationship building is very important. Courage is a pre-requisite of being an internal auditor.

Terrorism and Geopolitical risks. Violence and political uncertainty threaten business interests internationally. Overall, terrorism and political violence have been at high levels. Businesses need to have strategies to deal with the geopolitical climate.

SWIFT has improved their security standards via a customer security control framework, where banks must comply annually. SWIFT will report banks which don’t comply with the new standards.

Corruption usually happen because of a poor tone from the top. The younger generation seems to be more lax when it comes to ethics and to managing others. There needs to be strong leadership from the top to tackle bribery and corruption. The board has oversight of the company’s culture but management has the best position to shape culture. Firms can get insights from departments like HR, finance on the company’s culture. Companies that allow employees to store personal information in emails etc is asking for trouble.

Key stakeholder surveys. Internal auditors should look to get feedback from their most important customers. A QAIP is a requirement but surveys are rarely given to the AC and executive management. Audit should have the habit of surveying at the end of each assurance or advisory activity. The respondent should be able to make comments as well. If the scores are not satisfactory, the CAE should recommend some course of action. Survey results should be shared with AC etc. These results can enter the QAIP as well.

‘It is common for audits with satisfactory ratings to receive high opinion scores while audits with unsatisfactory ratings receive low survey scores despite efforts to adhere to department policies and the Standards.’

Application Control Testing. Control reviews can help ensure critical software applications function effectively and securely. To audit effectively, it is necessary to audit application controls too. This covers every feature and function of the application. Next, one needs to identify the key application processes and the application controls. If necessary, an integrated audit should be performed. One can use the GTAG 8 to help. Auditors can validate input and output controls. Are the processing controls accurate? Are there critical errors in computations? There is a need to examine interface controls as well. IA needs to examine: output controls, storage controls, monitoring controls, configuration management, change controls and patch management.

The Risk in the Control Environment. Auditors need to think beyond check boxes to provide assurance that control processes are addressing risks. The control environment is difficult to measure. IA should not cover up control weaknesses to management. Policies change over time and become less applicable, hence the control environment shifts. SOD is useful, but in cases where the firm is too small, alternative measures need to be made. When there are personnel change, there might be an urgent need to re-train.

‘IA needs to ensure they have authority to analyse and communicate the situation beyond just the existence of policies. Ensure management understands the difference between a control gap and a control failure. It is important to know whether the gap has created a failure, but just because it hasn’t failed to date should not minimize the impact of the gap.’

The ‘Free Trail’ Scam. Data analytics uncovers a sales force fraud using pre-paid credit cards to boost commissions. Be wary of pre-paid credit card usage among commissioned sales forces. There is a need to check credit card transactions against a BIN database. Understand how many customer accounts are associated with a single credit card number. Companies should request for customer credit scoring and upfront payment to prevent customer defaulting on payments.

Under Siege. Public sector auditors can face intimidation, isolation, retaliation, suspension – even termination – just for doing their job. For instance, if the audit conflict with an agency’s head’s political agenda, the agenda usually wins. CAEs might have to sue the government in the end. Targeted relationship building is important. Retaliation might reduce in a reduction of CAE’s duties. Sometimes, they are told to cease investigations. Sometimes, the CEO will tell you want to audit but you are not allowed to listen to the Board. Sometimes, the CAE has to supress facts in a report. The CAE needs to drive an open and ethical environment with the AC to prevent such things from happening. If you want to be the CAE, you need to establish clear reporting lines and ensure you have access to the Board right from the start. If you are not comfortable, walk away. Auditors should build relationships with those they work with. Start by winning over staff and explain your audit charter to them. Keep open lines of communication. Document and verify any disagreements and understand the root cause. Learn to create a paper trail for your findings. Sometimes, resigning is the only option. It is still better to do the right thing.

‘It’s very difficult to make a change if the organization is dysfunctional. Sometimes you can make renovations to a house that will improve the functionality, but sometimes you just have to declare the house condemned and start over.’

How to Audit Culture. Culture audits can help practitioners gain insight into the causes of poor organizational behaviour. Not enough firms are auditing culture. It can be challenging because it is subjective and complex. Culture is shaped by values that influence everyday behaviour within the organization. Management’s create sub-cultures among their teams. Different departments have different cultures and risk tolerances etc. There is no defined criteria for each aspect of the business too. One can start with a model to audit culture. Employees are the best source of information about the culture. Culture is largely perception based. The problem is that employees might be fully honest, they work in silos, they may like to complain etc. The Board and management need to believe that the IA team has what to takes to audit culture. Some of the questions to ask are ‘Do our HR and talent practices reinforce the desired behaviors throughout the organization?’; ‘Does your business manage risk appropriately and in line with our risk appetite?’; ‘What do our leaders communicate to us about risk, ethics, and how we should be doing our work?’; ‘Does the company’s environment promote accountability for desired risk behaviors?’ The audit report must be worded in not a sensitive manner. IA needs to obtain evidence via appropriate engagement techniques. Sometimes, soft evidence can work as well. Structured interviews can be conducted for auditees. It is good to gather evidence from many employees. It is possible to add questions on ethics and culture to the annual employee survey. IA could present a monthly dashboard etc on data like customer survey results, customer complaints, turnover statistics etc.

A smarter approach to third-party risks. Adopting a focused collaborative strategy can help improve management of outsourced service providers. Third-party risks are very real, especially functions which have been outsourced. Banks are to held responsible for their third-parties’ performance. Data breaches in recent times have made this even more important. It is important to manage the risk from third-party vendors. It is good to map a list of third-parties you work with and the risks to be assessed and monitored. It may be useful to develop key risk and KPIs for areas where risk is increasing. It could be useful to send questionnaires to the third party to understand their risk exposure and risk appetite. Some companies are looking at group intelligence as a means of sharing due diligence data. Some firms have already set up risk consortiums. Managing outsourcing risks is vital to protecting shareholder value.

The Innovative Internal Auditor. As businesses strive to find opportunities in a world driven by technological transformation, internal auditors need to continually innovate to stay ahead of the game. IA cannot be static if they want to survive in the environment. Change is part of modern life and IA needs to adapt to changing needs. There is a need for IA to be more forward looking. Because of this, IA needs to innovate in the areas like audit automation, data analytics etc. One needs to adopt a continuous improvement mindset. It takes courage to innovate, but the team will reap the rewards. Get someone on your team to be in charge of innovation. Robots might be able to perform routine control testing. We need to embrace technology to its fullest capacity.

The Dynamics of Interpersonal Behavior. To be successful, auditors need to cultivate their soft skills just as much as their technical abilities. Soft skills like listening, understanding, questioning etc are just as important as hard skills. Sometimes, audit reports are not in sync with what stakeholders want. IA people need to form effective interpersonal relationships. People-centric skills are not easy to master. Auditors need to build trust over a few days. IA needs to keep to promises on deadlines, listen to feedback and deliver their goals. Auditees might feel there is a big difference between themselves and auditors and tend to look down on auditors. IA must approach from the angle that you are trying to help. Having a good mentor will help. Ultimately, IA needs to meet stakeholders’ demands.

Opportunity from Disruption. IA should try to understand emerging risks. Be forward thinking, via a strategic planning process and have more internal audit’s risk assessment process. It is also important to create flexibility in the audit plan. Be inclusive and communicate with the other lines of defence. Be business minded and hire from a wide variety of sources and ensure they have different types of training. Be flexible by design. Evaluate the nature and timeliness of IA’s procedures. Be talent ready.

It is important for IA to issue audit reports and follow-up on corrective actions taken soon after. Although IA reports to the AC, it still has to administratively report to the CEO. Having no time is not an excuse.


audit financial company tax investigation process business accounting


IIA Magazine Jun 2016 issue

A toxic culture is present when your work negatively affects your health – physically and emotionally. An example of such could be a change in management or management through fear and intimidation. The two options are to leave or to name the problem and discuss to make it better. Payroll should have continuous checks and balances. It is not good to report risks on an ad-hoc basis. Talent issues and development need to be addressed. There is a strong need to fight corruption. However, whistle-blowing hotlines might be underutilized, as employees fear retaliation after reporting. There are some companies which do not trust enterprise cloud deployments still.

The Fire Drill. Auditors can learn to deliver a focused message that results in management action. Effective planning of our work is the key. For instance, we can look at past audit findings. Next, one should compensate with competence, meaning backing up observation with data and experience. Sell with the passion of a champion. Findings should be sold to address a control weakness that is causing an unacceptable risk. One needs to communicate the big risks well. In the end, we need to deliver a focused message that can result in management action.

The Tech-Savvy Auditor. Effective use of audit technology can enable audit departments to provide valuable insights. Most IA staff are not familiar with IT or have weak IT backgrounds. This is not acceptable. Technology can lead to a more efficient audit and also might cut fraud losses. There is a need to improve the audit software. There should be a data analytics centre in-house. There is a need to review software usage.

Integrating Key Risks and Performance Indicators. IA can leverage its risk knowledge to improve operational performance and reduce risks exposures. IA can provide assurance on the achievement of objectives. IA can encourage the formalization of KPIs and KRIs. KRIs can serve as an early signal of increasing risk exposure. There needs to be a formal project charter. There needs to be a KPI framework with proper planning, reporting, monitoring etc. The key metrics need to be identified and a dashboard can help to present graphically the results. The KRI should be closely linked to the KPI.

Toxic Leaders, Toxic Culture. IA can identify unhealthy behaviors that may undermine the organization. Culture will affect an organization’s success. Therefore, identifying the toxic leader is important. Toxic leaders want power and control. These tend to be autocratic leaders. They could have a strong sense of entitlement and focus on themselves and not the organization. Exerting power through fear can undermine morale. They do not like to be challenged and seek to manipulate others. Closed-minded leaders think of ‘My way or the highway’. There is no need to confront the toxic leader. IA can refer the person to compliance or legal counsel. One can use behavioural psychology to analyse. For a more objective method, one can look at the reasons for turnover and examine turnover rates. One can also look at employee engagement survey results. One needs to use experience and facts as much as possible.

Analytics and the small audit department. No matter the size of an audit function, analytics can be implemented for big gains. How to go about using analytics? Some simple ones to consider are benchmarking, variance analysis, ROA, turnover etc. The analytics must have goals and performance measures. Selecting the right data source is the key and there is a need to verify the accuracy of the source. Brainstorming can help to identify key data. It is crucial to have a plan that will allow IA to continue to improve its analytics capability. It is important to attain small wins in analytics.

Business Risk. Keynote speakers for this year’s IIA International Conference identify emerging risks facing organizations. Cyber risks is at the top of the priority list for many. Ransomware is a big threat to hospitals nowadays. Other threats include politics, the economy and terrorism. Social media risks sometimes aren’t within an organization’s control. Auditors should use corporate culture to work in their favour. An organization must monitor the external environment closely. There should be a common understanding of what the risk appetite and risk cultures are. Audit needs to adjust fast and invest continually in education. IA now also needs to learn to be innovative.

An Anti-corruption Check-up. Capability maturity models can help organizations assess the effectiveness of the anti-corruption programs. This model was developed at Carnegie Mellon University. One can use the model to identify strengths and weaknesses. There are basically 4 levels of maturity. There are 7 components that form the basis of anti-corruption maturity model. There is a need to tally the scorecard too.

Craft Our Role. IA should create the role for themselves that is best for both the organization and their own personal development. IA needs to be ingenious, use creativity and resourcefulness when developing their role. Do not limit the scope to be too small. It is important to be familiar with the business in order to value add properly. The control environment needs to be evaluated properly. One can develop business acumen. It is crucial to ask the right questions. IA should network more with the other departments to build rapport and also to get a feel about the management style in the department. Learn to practise combined assurance. One can work with another dept for a joint review. This is the way to maximize external resources.

Fraud and related-party transactions. IA can identify red flags and reduce the risk and impact of related-party fraud. IA need to be able to recognize related-party fraud risks. Providing loans at below market rates is a red flag. Failing to disclose the related-party nature of the loan is a red flag. IA should try to identify related party transactions. Try to identify whether employees have link to companies that transact with the organization itself. It is also possible to compare cost variations among vendors to see how they differ from the average cost. The organization should not pay costs significantly above market prices.

Communicating Results. Sharing audit observations is one of the most important tasks auditors perform. Communicating properly can help enhance rapport. Make sure the observations are correct and are not challenged by management. Plan the timing of issue dissemination, which is as soon as possible. Try not to surprise management at the end of the audit. Write clearly. Exercise diplomacy.

‘One of the quickest ways to lose management’s respect is to make it clear that IA does not understand what is has been auditing. The answer is to take the time to learn the business, processes, and risk associated with the audited area.’

Care and Feeding of The Company’s Culture. How can IA help to ensure a healthy organizational culture? Auditing culture is certainly work examining. Healthy organizations should have guidance on norms and expectations and a healthy tone at the top. Transparency is important. Management should think long term and have a sound strategy. Ask yourself whether the root cause is behavioural or cultural in nature. The problem with culture is that it is not clear cut and might be hard to evaluate. Those who are toxic in nature might be held accountable and be responsible.



IIA Magazine Dec 2016

One potential failure of ERM is that of green-washing, this is when crucial risks are pushed down into the larger collection of more trivial risks. Cybercrime is a current buzz risk. The first line of defence needs to take on better accountability for sound risk management and control.

Investors are pushing for more accountability and transparency behind decision-making. Shareholder activism is playing a big role nowadays.

The EU has released new general data protection regulation (GDPR) which intends to strengthen and unify data protection for individuals within the EU. However, most organizations say that they are not well prepared. Organizations should start preparing for this as it will kick off in May 2018.

Client Feedback. Audit performance can be fine-tuned with the right input from stakeholders. Feedback should aid audit performance. Feedback should be to the point and be specific and timely in order to be effective. Useful feedback can increase audit effectiveness. Feedback can be provided during the opening meeting, during the audit or during the closing meeting. The client should take the opportunity to clarify any concerns that they may have. During the closing meeting, IA needs to present the supporting documents and records. A post-audit questionnaire can be sent to the client after the audit.

Must-have Controls for Small Medium Enterprises. 5 controls can help SMEs protect themselves against cyber breaches. Sometimes, they do not have sufficient resources to deal with threats. Firstly, scan the network quarterly and identify vulnerabilities. Train employees on IT security. Protect sensitive information by inventorizing sensitive business processes and reviewing access to information. Learn to segment the network. Deploy extra protection for endpoints and encrypt the data. Learn to monitor the network, manage service providers, protect smart devices and monitor activity related to sensitive information.

A Holistic Approach to IT Risk. The COBIT framework can help auditors understand and address their organization’s technology risks. IT can be very complex but IA needs to evaluate the full range of IT risks. COBIT is valuable for the whole process, from end to end. The 5 key principles are meeting stakeholder needs, covering the enterprise end-to-end, applying a single integrated framework, enabling a holistic approach, and separating governance from management. Internal auditors can use COBIT to understand the nature of IT risks that are unique to their organization.

A Toxic Culture. A department leader creates a hostile work environment by promoting friends and abusing employees and company assets. When many employees leave, there could be a sign of a toxic culture. There was an inadequate internal control system as no one tracked expenses. Critically review turnover data as this is a big red flag. Exit interview results should be reviewed regularly. Access control over reports should be reviewed and approved.

On The Rise. Learning is the key to do well in IA. Get students involved early and you can volunteer as a guest speaker on internal auditing topics. IA an get involved in many projects and act as change agents for the organization. Projects can allow one to build and develop business relationships with stakeholders. One can use data analytics during audit engagements. IA can add as a trusted advisor and perform consulting work. One can learn SQL, which is a tool for managing data. One could take others under their wing and mentor them so that they can grow. Interaction between auditee and IA must be positive. Spread the good word that your team does. IA should be innovative in addressing solutions. It is helpful to distinguish the different roles of EA and IA too. Communication skills are the key for IA’s success.

Growth through challenge. Current and past emerging leaders discuss the tough assignments that helped propel their careers forward. Challenges faced in your career can propel you to be a better auditor. It is good to share with others what are some of the common mistakes. See auditors as people and go in with a customer first mentality. Be client centric. Be prepared when you go for meetings and interviews. Get a mentor, build relationships, learn from your mistakes and learn to network. It is important to preserve independence and objectivity. Influencing mindsets are tough. Building relationships with auditees can be tough when you are new. It is important to have a good audit methodology. The learning curve can be steep especially if the industry is new for you. Some departments are resistant to let the IA perform audits on operations. Talent auditors are always in demand. Once you are good, you can engage the C-suite management easily and without fear. Young auditors are always eager for more opportunities.

It’s all in the delivery. Sharing difficult messages is an unavoidable part of the job for internal auditors. Some audit observations can be difficult to convey. You should always build the relationship before telling the bad news. Telling the bad news right away is unlikely to work. Using weekly updates once the exceptions are noted is the key. Preparation is the key to accomplishing objectives. It is important to be fair and factual. Focus on the process as well as content. If you can, you can tailor the response to the personality of the recipient. During the discussion, one can seek opportunities, offer to help, make it clear and maintain open body language. ‘If the audit report is the first time a client is seeing something in writing, that is the first and biggest mistake. Verbal updates are great, but periodic written updates go a long way. Auditors might get into trouble over their poor soft skills. Focus on the problem, include some positives, have a face-to-face meeting etc. The key is not to beat around the bush. EQ is important in helping good delivery. The key is to deliver bad news but still build a good relationship with the auditee.

Breaking Through. Women in business are taking on the barriers to advancement, and that’s good news for everyone. Diversity is good for the workplace. More women need to be in leadership positions. However, women might face issues like lack of support, exclusion, apathy. There needs to be sufficient support from male leaders. Men should be interested in achieving gender equality. Be You. Seize the Moment. Integrate Your Life. Earn Respect. Stay Behind Facts. Be realistic and practical. Forget silos. Think context before issue. Rethink reporting. Aim at destination with gratitude. Women may also face the motherhood penalty.

Mapping Assurance. Internal auditors can facilitate efforts to document the organization’s combined assurance activities. There are a variety of assurance providers. CAE can use an assurance map to co-ordinate assurance activities. It can also aid to prevent gaps in coverage. IA is well positioned to provide combined assurance. The plan should start with the organization’s strategic plan and the key risks that are associated with the strategic objectives. There should be 3 tiers of defence to provide assurance. IA need to assess the quality and quantity of assurance received.

A Winning Pair. Governance and automated controls must work in tandem to achieve maximum results. Good governance is the key. IA needs to access the current risk profile, mitigation activities and residual risks. Good behaviour requires time and employees should receive reminders in order to conduct good behaviour. Desired behaviour ultimately stems from the top.

The High-Performance Audit Team. Today’s complex, evolving business environment demands more of internal auditors. The world is changing and stakeholder expectations are increasing. IA can also rotate and fill other operational positions. An integrated internal audit function can boost performance. There is a strong need to invest in training and learning. Verbal, leadership, communication skills are very important. A high performance team can evolve to meet new challenges and reinvent itself. We also welcome constructive feedback from staff.


Option B by Sheryl Sandberg & Adam Grant (Part 2)

Taking Back Joy. When I listened to a happy song from childhood and started dancing, I felt happy. Survivor guilt can rob you of your joy. After his passing, I tried to have fun with my children. We took things that reminded us of Dave and made it part of our lives. Allow yourself to be happy and be kind to yourself. Joy has to come your within yourself and no one else. How you spend each day matters more than only the big moments of joy. Do the small things that make you happy. Write down the moments of joy each day. Happiness does require work. Humans are wired to focus on the negative as compared to the positive. The cool breeze could be a positive moment for gratitude too. Happiness can equate to peacefulness too. Try to engage in something challenging and engrossing that can give you that flow state. Exercise can help you to achieve that flow state quickly. Joy can give us strength too. You can find joy in the small moments that you seize and create for yourself.

Raising Resilient Kids. One way is to respond to embarrassment with humour. It is wise to just announce the sad news to your kids directly. We owe it to our children to make them as happy as possible. Early intervention is critical. The school needs to protect a safe environment for kids. Disadvantaged families should be provided with home visits and counseling. Resilience is a lifelong project. Children must develop these few beliefs: they have some control over their lives; they can bounce back from failure; they matter as human beings; they have real strength. It is important to help them understand that they are in control of their lives. Pre-school has a huge role to play in this. Allow your kids to share their dreams with others. It is important to get an education. Kids should adopt a growth instead of fixed mindset. Sometimes, complimenting too soon doesn’t work. Rather, one should comment ‘I’m glad you tried your hardest’. Adults need to tell the kids that they matter. In Denmark, children are encouraged to share their problems in class. Help your kid identify his strengths by making him pick up skills. For instance, you could encourage the kid to pick up a musical instrument. Respect your feelings and try not to suppress them. Sleep matters even during times of adversity. Learning how to forgive is also extremely important. Do not afraid to ask for help and encourage your kids to do so. Sometimes, I still talk about Dave as it helps to keep Dave’s memory alive. If your kids can have a strong understanding of your family members and their parents, they have been coping skills. Nostalgia is usually good as it reflects a pleasant state most of the time. Make the most out of Option B. Keep photos and videos of your loved ones as these help to create happiness.

Finding Strength Together. Hope is the key to resilience. It is possible to bond over hope and create a shared identity. People can pray together. It is important to change tragedy into a miracle. Keep your faith at all times. There is unity in strength. Collective resilience is also dependent on shared experiences etc. Attending support groups can also help you deeply. It might be wise to join a community after a tragedy. Asking for help is actually not a sign of weakness. Shared narratives can play a big part. It is also useful to be lifted by positive ‘stereotypes’ right at the start. Support circles help to build collect resilience. It can certainly be difficult to forgive a gunman who killed so many people. As a community, we can gather together to tackle the tough problems in life. Empowering communities can be the key sometimes. As a community, we can learn to support vulnerable groups.

We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one directly affects all indirectly. – Martin Luther King Jr

Let no man pull you so low as to hate him. – Martin Luther King Jr

Failing and Learning at Work. I took my kids to visit SpaceX. We need to learn from our failures. Often, we are too proud to admit that we made a mistake. The majority of things that people regretted was the actions they failed to take. Move fast and break things. At Facebook, we go for teambuilding and often fail at challenges. Failure must be seen as a learning opportunity. You could ask colleagues what their biggest screw-up is and everyone could compete to see who the biggest screw-up is. Resilience is needed in all organizations of all sizes. We need to all focus on learning from failure. Ask for feedback on how you can improve. Learn to gather and act on negative feedback. We all have our own blind spots but often ignore them. Feedback is hard to take. Sports teams often learn from their mistakes. Learn to take suggestions from a coach too. Try not to treat the feedback personally. People are afraid of criticizing others. Everyone should have at least 1 hard conversation in the past.

The more times a government or company had failed, the more likely they were to put a rocket into orbit successfully on the next try. Also, their chances of success increased after a rocket exploded compared to a smaller failure. – Sheryl Sandberg

When it’s safe to talk about mistakes, people are more likely to report errors and less likely to make them. Yet typical work cultures showcase successes and hide failures. – Sheryl Sandberg

To Love and Laugh Again. Being alone can be an empowering decision indeed. Getting married increases one’s happiness just by a bit. I wanted to find love again after Dave passed on. If you date too soon, people may judge you. Men are more likely to date after their spouse has passed on. The responsibility of caring for children and aged parents seems to fall on the women more. Widows in some parts of the world are cruelly treated. Do not listen to others. When your heart feels like you should date, you should go ahead. However, dating does not erase the grief and that is perfectly fine. When we fall in love, we have a great sense of energy and euphoria. Dating helps brings back the humour. Eventually, one will even learn to joke about death. Joking about Dave now helps to break the tension. Humor makes situations less stressful. It is still very much possible to love someone even after they have died. It is crucial to pay attention to the everyday interaction with our partners. You must turn towards their bid. One way to re-ignite the spark in a relationship is to try new activities. Partners have to be able to overcome conflict. You can’t control whether you fall in love. There is always Option B and we can still find joy.

Resilience in love means finding strength from within that you can share with others. Finding a way to make love last through the highs and lows. – Sheryl Sandberg


Made in America (My Story) by Sam Walton (Part 2)

Building the Partnership. The managers work extremely well with the employees. He gave the employees autonomy to make certain decisions on their own. W-M seeks satisfied, loyal and repeat customers. Sam regretted not including the employees in the profit scheme back in the 1970s. Helen was the one who proposed higher salaries for employees. Unions were divisive and Sam didn’t feel the need for them. The employees have always believed in the company. Take care of your people and treat them well. The unions won’t bother you. Sam started calling employees ‘associates’. He wanted to give them more fair treatment. In 1971, the profit sharing scheme started for the associates. This plan amount to at least 6% increment on the salary. Employees are also rewarded if there is less inventory theft in the particular store. People are now rewarded for honesty. Sam was also transparent with W-M’s figures to his employees. W-M has a good trend of sharing information with others. Learn to praise others. If people did something wrong, let them know. Sam Walton tries his best to visit the other employees. There is an existence of an open-door policy.

What you’ve created here is better than communism, better than socialism could ever be, better even than capitalism. I like to call what you’ve got here ‘enlightened consumerism,’ where everybody works together as a team and the customer is finally king again. – Paul Harvey

You see, no matter how you slice it in the retail business, payroll is one of the most important parts of overhead, and overhead is one of the most crucial things you have to fight to maintain profit margin. – Sam Walton

The more you share profits with your employees – whether it’s in salaries or incentives or bonuses or stock options – the more profit will accrue to your company. Why? Because the way management treats the employees is exactly how the employees will then treat the customers/clients. – Sam Walton

The truth is, once we started experimenting with this idea of treating our employees as partners, it didn’t take long to realize the enormous potential it had for improving our business. And it didn’t take the employees long to figure out how much better off they would be as the company did better. -Sam Walton

I think that anytime the employees at a company say they need a union, it’s because management has done a lousy job of managing and working with the people. – Sam Walton

Lip service won’t make a real partnership – not even with profit sharing. Plenty of companies offer some kind of profit sharing but share absolutely no sense of partnership with their employees because they don’t really believe those employees are important, and they don’t work to lead them. – Sam Walton

I learned this early on in the variety store business: you’ve got to give folks responsibility, you’ve got to trust them, and then you’ve got to check on them. – Sam Walton

But I truly believe that people anywhere will eventually respond to the same sorts of motivational techniques we use – if they are treated right and are given the opportunities to be properly trained. If you’re good to people, and fair with them, and demanding of them, they will eventually decide you’re on their side. – Sam Walton

All of us like praise. So what we try to practice in our company is to look for things to praise. Look for things that are going right. We want to let our folks know when they are doing something outstanding, and let them know they are important to us. – Sam Walton

Partnership involves money – which is crucial to any business relationship – but it also involves basic human considerations, such as respect. – Sam Walton

Stepping Back. At 56, Sam was quite successful and was happy with the way things were going for him. His other hobbies were quail hunting and tennis. He gave up on golf long ago. He was extremely competitive in tennis. However, he played fairly and by the rules. You know you lost to a good player. Sam loved training dogs and the great outdoors. Sam started taking a backseat and let his other colleagues run part of the business. However, there were employees which formed alliances with either of the executive vice-presidents. Sam let Ron be the chairman and CEO of the company. However, Sam realized he could not give up the business and kept giving suggestions to Ron. The company was split into two. As this issue was dividing the company, Sam needed to offer Ron a lower position. Ron declined and decided to leave. Some of Ron’s friends also left the firm. At least one-third of the senior management had left the firm. David was brought in and he proved to be a huge success. Sam believed very strongly in the power of teamwork.

What I really love about hunting is the coordination and the training of the dogs. You have to develop a partnership with them. You have to motivate them, and they have to do their work reasonably well. – Sam Walton

Creating a Culture. He often gathers executives to talk about business on Saturday mornings. He has a W-M cheer. People can voice out their problems every Friday. It is a very friendly community. Sam even dressed up in Hawaiian outfit to dance. Sam is okay with crazy ideas to boost morale. Every shoppers had a chance to play shopping cart bingo etc. The games at the stores try to thrive on American tradition as well. The Saturday meetings is to discuss about problems and company strategy. Even guests were invited to the meetings. Meetings were always spontaneous as well. Very often, there would be no agenda. Sam hates people who flaunt their wealth and lead extravagant lifestyles. Sam encourages his staff to pursue further education.

But if you get too caught up in that good life, it’s probably time to move on, simply because you lose touch with what your mind is supposed to be concentrating on: serving the customer. – Sam Walton

My feeling is that just because we work so hard, we don’t have to go around with long faces all the time, taking ourselves seriously, pretending we’re lost in thought over weighty problems. – Sam Walton

Whether it’s Saturday morning meetings or stockholders’ meetings or store openings or just normal days, we always have tried to make life interesting and as unpredictable as we can, and to make W-M a fun proposition. – Sam Walton

Making the Customer Number 1. There was plenty of demand in the small towns for W-M to grow and they took advantage of it. W-M were so good that their competitors had to shut down. W-M actually provided savings for small towns and created jobs as well. The media accused them of destroying small towns. Unless you have a monopoly, you will do well to serve the customer’s needs. Small merchants, in order to survive, have to target a niche of customers and create that personal touch. Some tried converting variety stores into craft stores. It is possible to compete with W-M if you can find a particular niche. Do not compete on price. W-M tries to get involved in the community as well. They are not all just profit-driven. W-M hated going through middlemen and developed their own distribution system. They did away with distributors. W-M is very demanding of vendors and want the lowest price possible. They even drive trucks to pick up the items. You might fight well with these vendors. Even P&G was afraid of them and took W-M seriously. P&G and W-M worked together on a partnership and starting sharing information to one another. It was great and helped to drive costs even lower. The supplier is a very important partner. With this system, the supplier can estimate demand trends even a year in advance. The customer comes first and are treated like a boss.

For my whole career in retail, I have stuck by one guiding principle. It’s a simple one, and I have repeated it over and over and over in this book until I’m quite sure you’re to death of it. But I’m going to say it again anyway: the secret of successful retailing is to give your customers what they want. – Sam Walton

When you start out as an unknown quantity with just a dream and a commitment, you couldn’t buy a mention of your company in any publications. When you become moderately successful, they still ignore you unless something bad happens to you. Then, the more successful you become, the more suspicious they become of you. – Sam Walton

‘If American business is going to prevail, and be competitive, we’re going to have to get accustomed to the idea that business conditions change, and that survivors have to adapt to those changing conditions. Business is a competitive endeavor, and job security lasts only as long as the customer is satisfied. Nobody owes anybody a living. – Sam Walton

Meeting the Competition. ‘Sam was notorious for looking at what everybody else does, taking the best of it, and then making it better.’ Instead of avoiding the competition, it was necessary to face it head on. Sam was always trying to learn from competitors. Sam spent a lot of time in K Mart trying to understand how they worked. K Mart realized that W-M was getting too big and tried to expand aggressively. Some of other competitors gave W-M feedback on how they could improve. W-M was never one to shy from competition. Some analysts doubted W-M’s future. K-Mart was also resistant to change and were expanding too fast. W-M started acquiring smaller discount stores. They then ventured into Mississippi. ‘We are going to do this’. Sam sometimes uses his gut to make decisions. He tried the hypermart concept in the US. However, they only turned out to be marginally profitable.

Our competitors have honed and sharpened us to an edge we wouldn’t have without them. We wouldn’t be nearly as good as we are today without Kmart, and I think they would admit we’ve made them a better retailer. One reason Sears fell so far off the pace is that they wouldn’t admit for the longest time that Wal-Mart and Kmart were their real competition. They ignored both of us, and we both blew right by them. – Sam Walton

I like to keep everybody guessing. I don’t want our competitors getting too comfortable with feeling like they can predict what we’re going to do. And I don’t want our own executives feeling that way either. It’s part of my strong feeling for the necessity of constant change, for keeping people a little off balance. – Sam Walton

To stay ahead of those challengers, we have to keep changing and looking back over our shoulder and planning ahead. – Sam Walton

Distribution and transportation are seen as competitive advantages for W-M. Sam invested a lot in technology. Computers have helped them achieve economies of scale and better efficiency. Mechanized distribution was the way to go. The distribution centres are strategically located. There was extreme time saving and much greater flexibility. W-M does its own distribution, and this helps to reduce lead time. W-M has its own fleet of trucks and trailers. The drivers are also model professionals. They are extremely loyal people. The drivers also feel that they have to take care of the customer. There are even customized delivery plans. Sam heard about the satellite system which would improve communication between stores and the distribution centres. Instead of calling one another, people could pull data from the system.

I guess we’ve always known that information gives you a certain power, but the degree to which we can retrieve it in our computers really does give us the power of competitive advantage. – Sam Walton

But when you see all those satellite dishes outside our building, or hear about all the computers inside it, or look at some videotape of our laser-guided distribution centers, don’t let anybody kid you. Without the right managers, and the dedicated associates and truck drivers all across the system, all that stuff is totally worthless. – Sam Walton

Thinking Small. If you know how to grow and stay profitable, then you should do it. Sam always wanted to be the best retailer. Being big tends to mean being slower to respond. However, suppliers tend to ignore small players in the market. W-M is big, but it things like a small company. It treats the customers well and does not ignore small towns where the markets are smaller. Thinking small is a way of life. There are 6 ways in which W-M tries to think small. Principle 1: ‘Think one store at a time’. Keep the prices down and offer superior customer service store by store. Saturday meetings are used for that. Management has to listen to the merchandizers in the stores. Principle 2: ‘Communicate, communicate, communicate’. The importance of this can’t be over-stated. If you find out something good, you would want to let your stores know about it. Sam wanted staff to pledge that they will greet customers and smile. Principle 3: ‘Keep your ear to the ground’. Sam always wants his managers to visit the stores. W-M has a fleet of private jets for their use. Usually, these managers should be able to come up with ideas for how to improve the stores after their visit. Principle 4: ‘Push responsibility – and authority – down’. Store within a store concept. Information was shared to the department heads. These department heads were then give the opportunity to manage a store by themselves. There a fine line between autonomy and control. Principle 5: ‘Force ideas to bubble up’. Associates are allowed to share ideas with the management. The (Volume Producing Unit) works well. Associates who have money-saving ideas can attend the Saturday meetings. When there are so many staff, there will definitely be many great ideas lying around. There were also people greeters in each store. Principle 6: ‘Stay Lean, Fight Bureaucracy’. Be as lean as possible to cut down on expenses.. Their offices were quite plain and not very showy. Even if you don’t want bureaucracy, it will naturally build its layers. There should not be so many layers of bureaucracy.

A computer is not – and will never be – a substitute for getting out in your stores and learning what’s going on. In other words, a computer can tell you down to the dime what you’ve sold. But it can never tell you how much you could have sold. – Sam Walton

If you don’t zero in on your bureaucracy every so often, you will naturally build in layers. You never set out to add bureaucracy. You just get it. Period. Without even knowing it. – David Glass

A lot of this goes back to what Deming told the Japanese a long time ago: do it right the first time. The natural tendency when you’ve got a problem in a company is to come up with a solution to fix it. Too often, that solution is nothing more than adding another layer. What you should be doing is going to the source of the problem to fix it, and sometimes that requires shooting the culprit. – David Glass

I guess one reason I feel so strongly about not letting egos get out of control around W-M is that a lot of bureaucracy is really the product of some empire builders’ ego. – Sam Walton

It has been our heritage – our obsession – that we would be more productive and more efficient than our competition. – Sam Walton

Giving Something Back. Sam was never interested in creating a huge personal fortune. Sam still holds some of the company stock. He has never liquidated much of the position he has. Sam does believe in worthy causes. His family usually focusses on causes like education. They support schools, hospitals, environmental groups, conservation groups. They also sponsor scholarships to students so that they can study in University. They plan to give at least 50% of their wealth to worthy causes. Sam is very concerned about education. They want the organizations to remain accountable for how they spend their money. Educating and training the workforce is very crucial. W-M likes locally directed charities. They are giving back just by allowing customers to save money. The shareholders also have some say in what kind of community projects they would like to invest in. W-M wanted to groom the local manufacturer in order to produce quality goods which they could purchase. Because of this programme, W-M has managed to purchase more of such goods. Rather than importing. W-M is still thinking of different ways to give back to the community.

I believe that every right implies a responsibility; every opportunity an obligation; every possession a duty. – John D. Rockefeller Jr

We have never been inclined to give any undeserving stranger a free ride, and we will never change our minds about that. Nor do we believe that because we have money, we should be called upon to solve every personal problem that comes to our attention, every problem of the community, the state, or, for that matter, the country. – Sam Walton

We are going to see if we can’t shake up some of the time-honored assumptions about what you can teach people, about what you can do with people whose self-esteem has been beaten down, and about how you can motivate ordinary people to do extraordinary things. – Sam Walton

Running a Successful Business: Ten Rules that Worked for Me. There is no one key to success. It is a culmination of many different ingredients. Most of the values have stayed the same. Sam thought about a list of rules for success. Hard work is crucial. If you are not willing to work hard, you won’t be successful. In the end, Sam came up with 10 Rules. Rule 1: Commit to your business. Rule 2: Share your profits with all your associates, and treat them like partners. Rule 3: Motivate your partners. Think of novel ways to push them and challenge them to move forward. Don’t become too predictable. Rule 4: Communicate everything you possibly can to your partners.  Rule 5: Appreciate everything your associates do for your business. Learn to praise their good work. Rule 6: Celebrate your successes. Loosen up and have fun. Learn from your mistakes. Rule 7: Listen to everyone in your company. Figure ways to make your associates talk and give feedback. Rule 8: Exceed your customers’ expectations. This will lead to repeat customers. Make good on your mistakes and learn to apologize. Rule 9: Control your expenses better than your competition. Rule 10: Swim Upstream. Don’t follow others but go the other way. You might be able to locate a niche.

I don’t know if you’re born with this kind of passion, or if you can learn it. But I do know you need it. If you love your work, you’ll be out there every day trying to do it the best you possibly can, and pretty soon everybody around will catch the passion from you – like a fever. – Sam Walton

‘The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. – Sam Walton

We like to hear praise often, and especially when we have done something we’re really proud of. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free – and worth a fortune. – Sam Walton

To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you. – Sam Walton

You can make a lot of different mistakes and still recover if run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient. – Sam Walton

Those are some pretty ordinary rules, some would say even simplistic. The hard part, the real challenge, is to constantly figure out ways to execute them. You can’t just keep doing what works one time, because everything around you is always changing. To succeed, you have to stay out in front of that change. – Sam Walton

Wanting to leave a legacy. Sam was having the time of his life at W-M. If he had to start all over, he would probably have made the same decisions. The associates have felt a certain sense of satisfaction when working at W-M. Many people are now better off with W-M’s arrival. Sam wants W-M to continue expanding, but also give back to the community. Sam knew since young that he would do something in retail.

Go check the new store out. See what they’ve got to offer, see how they treat you, and decide for yourself if you ever want to go back. Because this is what it’s really all about. In this free country of ours, that shop owner’s success is entirely up to you: the customer. – Sam Walton

If I wanted to reach the goals I set for myself, I had to get at it and stay at it every day. I had to think about it all the time. – Sam Walton

I’ll tell you this: those companies out there who aren’t thinking about the customer and focusing on the customers’ interests are just going to get lost in the shuffle—if they haven’t already. Those who get greedy are going to be left in the dust. – Sam Walton

Great ideas come from everywhere if you just listen and look for them. You never know who’s going to have a great idea. – Sam Walton

But I feel like it’s up to me as a leader to set an example. It’s not fair for me to ride one way and ask everybody else to ride another way. The minute you do that, you start building resentment and your team idea begins to strain at the seams. – Sam Walton


Panel Discussion: What are the Boundaries?

This panel discussion was held on 14 April 2016 and featured the following speakers: Loh Chin Ee, Suzanne Choo and Zhou Decheng.

Some of the important questions to ask are the following: Should literature even be taught? Which approach should be adopted? What kind of materials should be covered? The discussion is focused on literature that is taught in the secondary school curriculum. From surveys, over 25% of Singapore’s have heard of local authors like Catherine Lim, Russell Lee, Low Kay Hwa etc. There is a category of works known as canonical works. Should they be introduced? They are essentially a series of books chosen by a select group of people that reflects popular local culture. Should students be made to study such books? Should you choose a popular work or less popular works that reflect societal values? There are 3 possible approaches that be adopted. The first is the heritage view. This is a view that works chosen should reflect the national identity and should have cultural value. This is in line with social studies. However, should controversial books like those on race/religion be chosen as well? The next approach is the multi-perspective one. This is where important issues are raised. These include issues like ‘home/belonging’, ‘cost of living’, ‘family’ etc. Books chosen based on this approach should contain issues where students can relate to. The last approach is the world-lit view where both local and world literature should be studied. By world literature, it does not only include UK and US publications. This approach allows the student to develop a global perspective on issues. Ultimately, there are many questions that still need to be answered. Such as, who selects the books? Should some works be made compulsory or do teachers have some freedom to decide? Should more shorter works be selected, or just one or two long works?

The next area of discussion was on cosmopolitanizing literature education. Arts for arts sake? Oscar Wilde once commented that ‘All art is quite useless.’ In secondary schools, there are many questions in exams that are focused on style. This is closely related to aestheticism. However, this is a dangerous trend and could be the trend of why the number of students studying literature is declining. Formalism is the study of the text alone, without taking account author’s background or the students’ emotion. There is basically nothing beyond the reading of the text. This is the idolatry of the text. Is there no social value in the works? Does the text really no meaning beyond the words used? Is literature really useless? In Singapore, there is a heavy emphasis on American and British works. Instead of formalism, we could introduce cosmopolitan ethical criticism. This encourages students to think about ethical issues, morals and philosophy. This makes them better able to empathize with others and makes them better citizens of the world. Greek ethics is useful and can certainly improve students’ lives. Text could be chosen based on their underlying ethical issues and concepts. Literature could be a good way to introduce simple ethical concepts to students. Some of the text covered in the secondary school syllabus include ‘George Bernard Shaw – Pygamalion’; ‘Arthur Miller – Death of a Salesman’; ‘Mildred Taylor – The Road to Memphis’; ‘Where Angels Fail to Tread – EM Forster’. The books are heavily Western centric. Is there room for more controversial text?

The last discussion was on Chinese literature in Singapore and why we need a paradigm shift in thinking to improve it. The current syllabus covers about 50% classical works and 50% modern works. There is much emphasis on Chinese poetry. The syllabus is also classified according to genre. Both translated works and analysis are tested. Li Bai’s war poems are included as well. In addition to poetry, there is also fiction works like short stories and flash fiction that are covered. Martial arts novels are included too. Even sensitive areas like Gender issues could be themes covered in books.


The Business Book (DK) (Part 2)

Culture is the way in which a group of people solves problems. Tradition, culture and structure are important for a company. Culture is a shared history of what the company has. It is a narrative. There are basically 5 dimensions of culture. They are 1) power distance; 2) individualism vs collectivism; 3) uncertainty avoidance; 4) masculinity vs femininity; 5) long vs short-term orientation. Power distance refers to distance in authority between managers and executives. Culture matters a lot. Organization culture is non-static and can change over time.

Emotional Intelligence is the intersection of heart and head. EQ is the ability to perceive, control and evaluate emotions. There are 5 domains to EQ. It is an essential trait in highly effective business leaders. They are 1) self-awareness; 2) self-regulation; 3) motivation; 4) empathy; 5) social skills. EQ can grow with age and experience. Emotional balance is a key factor in commercial success.

Management is a practice where art, science, and craft meet – Mintzberg’s management roles. Management roles fall into these 3 categories: 1) informational; 2) interpersonal; 3) decisional. Effective managers must use all three and know when to use them appropriately. Management is both an art and a science. Management is complex and multi-faceted.

A camel is a horse designed by a committee – Avoid Groupthink. We tend to nod in agreement even if we disagree. This is because we want to feel like we ‘belong’ to the others. Groupthink can be so strong that proper analysis might not be conducted at all. It encourages extreme risk taking. Managers must encourage all to talk and encourage dissent in order to avoid groupthink.

The art of thinking independently, together – the value of diversity. Males have the tendency to employ other males. Greater diversity means scope for creativity. Diversity can combat groupthink.

Making money work: Managing finances. Finance strategy has emerged in importance nowadays. Leverage is a double-edged sword. Is it the director who is responsible when things go wrong? Learn to ignore the herd instinct. There may be wisdom to listen to your customers. For instance, China has a huge potential. Management accountants work hard to derive accurate costing. ABC is a good way to do this. Financial accountants must play by the rules and abide by FRS and their principles. Often, companies are trying to make ‘money’ from ‘money’ rather than concentrate on their core operations.

Do not let yourself be involved in a fraudulent business. Learn to err on the side of caution. Consider rules plus morality as well. Do not inflate profit figures if you are an accountant. Prudent approaches must be made with regards to the provision of bad debt. Directors must be alert to any creative accounting being employed. IFRS relies more on principles as compared to rules-based US GAAP. Is mark-to-market accounting misleading in times of economic boom? No set of rules can govern ethical behaviour.

Executive Officers must be free from avarice. Managers can act in their own interests. They must not be opportunistic and simply interested in personal gain. Shareholders are now even more concerned about governance and gain.

If wealth is placed where it bears interest, it comes back to you redoubled – Investment and dividends. Dividends are more rare nowadays. Share buy backs are more common. In periods of high growth, companies should reinvest a great amount in order to grow the business. When growth is slow, companies should pay dividends. Apple only started paying dividends in 2013.

Borrow Short, Lend Long – Make Money from Money. However, this is a short term strategy. Invest in financial products. The treasury function emerged in the late 1970s. Speculation via derivatives can be risky indeed.

The Interests of the shareholders are our own – Accountability and Governance. Governance must be proactive and ethical in nature. Lines of responsibility are clear. Board members must be fully informed and work in the long term interests of business and shareholders. Board members must be alert. Many board members had no idea what risks the company faced. Good governance is necessary.

Make the Best quality of goods at the lowest cost paying the highest wages possible – your workers are your customers. Sale of stable groups are growing rapidly. Sometimes, your workers will also be your customers. This will be good. China is the biggest market for consumer spending. There is a lot of potential in this market. Bosses need to focus on workers’ delight and fulfilment more than ever. Encourage the workforce to manage themselves.

Utilize OPM other people’s money – Who bears the risk? In the event of liquidation, shareholders tend to lose out as they are the last to be paid. Staff might lose their job when the company fails. The pension funds might be wiped out and hence affecting employee welfare.

Swim upstream. Go the other way. Ignore the conventional wisdom. You need to have a contrarian view to make money. Public shareholders should not follow mass trends. Do not stampede to make takeover bids. This is because the company will tend to overpay. Do not buy other businesses for diversification sake when others are doing so. Avoid followership and imitate market innovators. Learn to swim upstream

Debt is the worst poverty – Leverage and excess risk. In the long run, taking leverage is not good. However, in the short term, it might help the company to grow. The optimal debt should be about 25 to 30%. Leveraged buy-outs exist in the market. For instance, LBOs rescued MGM Grand.

Cash is King. Profit vs Cash Flow. For fast growing companies, cash flow is more important than ever. Profit is an accounting concept. Those with weak cashflows can use overdrafts and supplier credit. However, in times of recession, cash is king. Companies must be able to tie over the period of negative cashflow in order to survive unscathed.

Only when the tide goes out do you discover who’s swimming naked. There is off-balance sheet risks. Not all liabilities may be reflected on the BS. Losses can be parked with subsidiaries or SPVs and not consolidated.

ROE is a financial goal that can become an own goal. ROE is vital. Share repurchases help to boost ROE. However, this results in a risky capital structure. Hence, ROE can be misleading at times.

As the role of private equity has grown, so have the risk it poses. PE involves loading debt onto the business, similar to LBO. Debt has inherent risk. Managers are pressured to perform to pay off the debt. Hence, there is more incentive for short term performance rather than long-term gain. Those who make PE purchases are usually institutional investors. The trick is to try to turn the company such that it becomes profitable.

Assign costs according to the resources consumed. Use ABC. Overhead costs can be vague in nature. ABC calculates the actual overhead costs. This allows the company to make better decisions. This is good for non-standard products. To do this, one needs to identify the cost drivers for each activity.

Working with a Vision – Strategy and Operations. Everyone should have a common objective. Strategy is vital. Companies must be nimble and change course if necessary. There is a need to balance long and short term objectives. Flexibility is important. Regulation is taking centre-stage now.

Turn every disaster into an opportunity. There are many success stories that emerged because of failure. There are opportunities in disasters. Analyze every failure and learn from them.

If I had asked people what they wanted, they would have said faster horses. The company that leads the way can dominate an industry even if they are copied. This is because people associate the concept with them first. This is known as first-mover advantage. Do things that no one else is willing to do. Being the first is everything. You need to get into the mind of your customer. Toyota created the Prius car.

The main thing to remember is, the main thing is the main thing. Protect the core business. Diversification usually does not bode well for companies. A business should focus only on what they are good at. Outsourcing some non-core functions is possible. The outsourced function must be managed well.

You don’t need a huge company – Just a computer and a part-time person (Small is beautiful). Internet had disruptive power. Google was phenomenal. eBay is a very successful auction house. Anyone can sell unique items on such platforms. Internet allows business to be run at a much cheaper cost. Cost and speed of delivery are important too. Customer service is increasingly important in this modern age. Feedback is always useful for business owners. Customization is possible for small businesses.

Don’t get caught in the middle – Porter’s Generic Strategies. Companies generally choose between cost leadership or differentiation. This is how companies develop a competitive advantage. For low cost strategy, companies might be worried that their idea will be copied. Bose is a company that pursues a differentiation strategy. A focus strategy is good to target a niche market. Ryanair is a typical low cost carrier. SIA pursues a differentiation strategy.

The essence of strategy is choosing what not to do – Good and bad strategy. Choosing what not to do is as important as choosing what to do. Good strategy should be developed from SWOT. Kodak is an example of a company which used bad strategy. They neglected the potential of the digital camera.

Synergy and Other Lies – Why takeovers disappoint. The purpose of merger and acquisition is to create synergy. The most reason why things don’t work is because the two companies cannot agree on a common strategy. There might be a mismatch in organizational culture.

The Chinese word ‘crisis’ is composed of two characters: ‘danger’ and ‘opportunity’. Crises can strike anywhere. Crisis management is important. Leadership must be swift and decisive. It is always crucial to care for the well-being of your customers. Sometimes, product recalls are necessary.

You can’t grow long term if you can’t eat short-term. There is a need to balance the two. It is a delicate balance. If you only think long term, you might not have the immediate capital to fund your business. It is important to preserve the core of the business and yet stimulate progress.

Market attractiveness, business attractiveness. MABA is a business framework. It is also known as the GE-McKinsey Matrix. This helps to plot the relative profitability of business units or products.

Only the paranoid survive. RIM did not innovate. It is normal to relax when things are well. Every business faces change. Intel had to reposition themselves when Japanese companies could produce memory chips at a lower cost than them. This is known as a strategic inflexion point. Leaders must make the right decisions during inflexion points or the business has a high chance of failure. Leaders need to look out for black swan events that might hurt the business. Keep asking ‘why’ till you get to the root of the problem. Managers must question processes. They need to constantly ask whether there is a better way of doing things. Victorinox started selling watches after its business for pocket knives were hit.

To Excel, tap into people’s capacity to learn (The Learning Organization). Companies need to be devoted in development and education. The community will benefit as a whole. Peter Senge made headway in his research. The two traits are discipline are personal mastery and mental models. The other three are team learning, systems thinking and building a shared vision. Turnover is a big problem in major organizations. This could be due to poor management practices. Honda is an example of a good learning organization. Those organizations which focus on learning have better hope for the future.

The future of business is selling less of more (The Long Tail). This means low volumes of an increasing large number of products. Customers are now buying niche items from online sellers. iTunes offers a wide range of music that no one else can compete with them. Physical stores can only offer a limited variety of items.

To be an optimist, have a contingency plan for when all hell breaks loose – Contingency planning. One must have an adequate plan to tackle a crisis. It is important to be able to manage disasters well.

Plans are useless but planning is indispensable. Ask what is likely to happen the next few years. Shell managed to diversify into other energy sources when there was an oil embargo.

The strongest competitive forces determine the profitability of an industry. They are the power of suppliers, buyers, rivalry among existing firms, threat of new entrants and threat of substitutes.

If you don’t have a competitive advantage, don’t compete. Companies can add value at any stage of the value chain. Companies must know how to analyse their value chain.

If you don’t know where you are, a map won’t help (The capability maturity model). Processes must be proactively applied and then managed and monitored. Continuous process improvement is crucial.

Chaos brings uneasiness, but it also allows for creativity and growth. Companies need a flatter structure with more flexibility. A company has to re-visit its strategy frequently. Workshops and team briefings are important.

Always do what is right. It will gratify half of mankind and astonish the other. There is morality in business. Companies may cheap because they want to boost performance. Some companies engage in price fixing etc.

There is no such thing as a minor lapse in integrity – Collusion. There is a fine line between collaboration and collusion. Accountability is important and must be emphasized.

The Business Book