How to Spend Too Much for Stuff You Don’t Need

Oh, you’re doing that already? And you’re wasting time managing accounts payable every day, tracking down approvals for purchases you don’t understand? Here’s how small companies can tackle purchasing inefficiencies.

CFO.com
David Rosenbaum

Image via CrunchBase

… When [Mark Verbeck] started working at Blade Network Technologies as CFO in 2008, the company, … was a 50-person operation. Like many smaller businesses, it relied on tribal knowledge to manage its spending: everyone knew (or believed they knew) what everyone else was doing, and when anyone bought anything, everyone knew (or thought they knew) whether it made business sense.

…Because the company was small, it had little leverage with vendors and limited ability to negotiate for lower prices or early-payer discounts. Therefore, focusing attention on processes and spend — for supplies, services, and the like — didn’t seem worth the bother; it wouldn’t much affect the bottom line. So no one focused.

But by 2009, when Blade had tripled to about 150 full-time employees, its paper-based process — people throwing requisitions over Verbeck’s wall for approval — forced him to start asking questions and saying no more frequently. …

Image via CrunchBase

The growing problem at Blade, Verbeck says, was not so much that money was being misspent as that the work was burning up his and the finance department’s time. Requests and invoices piled up on his desk, distracting him from more valuable tasks, while employees were either waiting to purchase the stuff they needed to do their jobs or buying and expensing it.Verbeck looked for a better way to do things, and in 2009 found the Coupa Software purchasing and expense-management platform. Last January he became Coupa’s CFO.

Sweating the Small Stuff
When times are good, when credit easy to come by and everyone is fat, no one sweats the small stuff. …[Today] the small stuff looms large, especially in small businesses trying to grow at a time when investors and customers are wary.

The savings that can be retrieved by automating and rationalizing approval and purchasing processes are palpable (a 2009 Aberdeen Group study estimated that “improving the percentage of all non-payroll, tax, tariff, and fee-related spend” — that is, indirect, nonstrategic expenses — brought under the management of a dedicated group can help enterprises “achieve a 5% to 20% cost savings for each dollar brought under spend management”). But the real value, says Kristen Lampert, corporate-services manager at specialty-investment bank Ziegler, is de-risking organizational spending by making sure the approval chain has the right people weighing in on the right things.

Workflow/Business Process Management (BPM) Service Pattern (Photo credit: Wikipedia)

When Lampert took over the corporate-services department at Ziegler in 2010 — a team responsible for managing logistics, purchasing, and events — she couldn’t afford to waste time and effort on inefficient processes: the unit had been downsized to three full-time employees. In addition, Ziegler’s approval and bill-paying processes were all paper-based. … There was no visibility across the firm, she says. Expenditures were authorized by the wrong people, and the company didn’t have a risk-management component in place.
She describes an invoice for a software service “that should have had oversight by the IT director,” but instead was approved by multiple, siloed business units. The lack of communication lead to the bank paying for some services that were supposed to have been cancelled.

Lampert established a work group to design a request-for-proposal for a software service to rationalize the company’s processes. Her argument was that if the company could save 1% of the $16.5 million she managed annually, getting all spending in one bucket, the return on investment would be positive.

The group began by defining the organization’s must-haves: something easy to use …; the ability to manage contracts; an easy-to-configure approval chain; supplier network capability, and electronic links from Ziegler’s system to its suppliers’ e-commerce sites for electronic catalog purchasing (known as punch-out support). After researching 18 solutions, Ziegler chose [vendor], a software-as-a-service tool Lampert expects will be easy to integrate with the new general ledger the bank is in the process of picking.

English: Business Process Reengineering Cycle (Photo credit: Wikipedia)

Ziegler implemented [vendor] last March, and Lampert says the bank has already recognized $42,000 in second-quarter savings because managers now reach out to multiple vendors to get multiple bids on goods and services. Besides saving money, the managers get recognition for renegotiation successes that previously “were lost in a million e-mails.” And the visibility the platform provides, says Lampert, helps the company manage risk. For audit purposes, she says, “We can now track every contract, point to who approved what, and better understand our contractual obligations.”

Navigating the Vendor Landscape
According to a 2011 Gartner report, the e-procurement vendor landscape is “fragmented and rapidly evolving,” so finance executives need to perform due diligence when choosing a vendor and service that fits their organization’s budget and needs. Vendors in the space include Ariba, with its relatively large-company clientele and broad supplier network; Basware; and Coupa, which grew up in the small-to-midsize business space, and ranked highly in Gartner’s study for ease of use and customer satisfaction. And that’s only the A-B-C of the list of 42 vendors Gartner analyzes.

Coupa’s Verbeck asserts that the company’s cloud-native DNA enables it to evolve rapidly and allows users a great degree of freedom in creating “dynamic approval processes.” “That’s hard to do in a paper-based world,” he says.

With paper processes, a staffer is more likely to just circumvent the procurement system, as did one manager Verbeck spoke to who, when he discovered the purchase of a stapler was going to the CFO for approval, just bought the item off-contract and expensed it.

“Part of the miracle of the SaaS model,” says Verbeck, is that users can extend the functionality of the software — configuring it to their needs — without having to rework the software’s base code. In practical terms, that means users can alter the approval chain as needed without calling in the vendor to redesign (at great expense) the software.

But software doesn’t solve business problems: people solve business problems. “I could have put Coupa in place and not solved the problem,” says Verbeck, recalling his Blade days. The software would have just “paved the cow path” (automated a business process without addressing whether it was efficient). Instead, he began by blowing up Blade’s existing processes.

“Instead of requisitions going through the management hierarchy, we created approval chains based on who was buying, what they were buying, who they were buying it for, how much they were spending, and whether the item had been bought before. This process ended up with people approving things they had knowledge about. I explained to the managers that in this new world, they were accountable. If something landed on my desk that I had to reject, that was their problem.”

And Verbeck was no longer the bad guy.

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Blank Checks: Unleashing the Potential of People and Businesses

How an unusual management technique inspires business teams to envision — and achieve — breakthrough results.

strategy+business magazine
by Sanjay Khosla and Mohanbir Sawhney

Illustration by Jack Unruh

English: (Photo credit: Wikipedia)

In 2007, Kraft Foods Inc. was facing a major challenge with Tang — the powdered breakfast drink that had long been one of its iconic brands, made famous in the 1960s when the National Aeronautics and Space Administration included the drink in the rations for U.S. astronauts. The brand was caught in a cycle of underperformance … In 2007, the leadership team of Kraft’s developing markets identified Tang as one of their top 10 focus brands, and came up with an unusual strategy for boosting the brand’s sales …: Tang leaders in key countries such as Brazil were given a “blank check,” essentially urging them to dream big and not worry about resources. The results have been astounding. In the last five years, Tang has doubled sales outside the U.S. and become a profitable, US$1 billion brand there (in comparison, it had taken Tang 50 years to reach the $500 million revenue mark). …

IN SPACE - JULY 15: In this handout image provided by the National Aeronautics and Space Administration (NASA), Expedition 28 crew and the STS-135 Atlantis astronauts (L-R, front) NASA astronaut Mike Fossum, NASA astronaut Chris Ferguson, Russian cosmonaut Andrey Borisenko and NASA astronaut Ron Garan; (L-R, middle) NASA astronaut Sandy Magnus and Russian cosmonaut Alexander Samokutyaev; (L-R, back) NASA astronaut Doug Hurley, NASA astronaut Rex Walheim, Russian cosmonaut Sergei Volkov and JAXA astronaut Satoshi Furukawa pose for a portrait aboard the orbiting complex's Kibo laboratory of the Japan Aerospace Exploration Agency on the International Space Station July 15, 2011 in space. Space shuttle Atlantis is on the last leg of a 12-day mission to the International Space Station where it delivered the Raffaello multi-purpose logistics module packed with supplies and spare parts. This was the final mission of the space shuttle program, which began on April 12, 1981 with the launch of Colombia. (Image credit: Getty Images via @daylife)

The secret of Tang’s turnaround was to free the team from resource constraints that could limit their imagination, inspiring them to achieve unprecedented results that would create a virtuous cycle of growth. … Managers have always been taught that they have to work with the limited resources available. Unfortunately, resource constraints … also limit the creative potential of people.

…  We believe that business leaders can unleash tremendous untapped potential by unshackling their people and their businesses from resource constraints (while still, of course, holding them accountable for results). The key insight is that business leaders, … should focus on defining ambitious goals, while leaving it to their managers and their teams to ask for whatever resources they need to achieve these goals. When teams decide their own budgets, they act as owners and are inspired to achieve the impossible. At Kraft Foods (where coauthor Sanjay Khosla is president of the developing markets group), we call this idea a “blank check” initiative.

The Concept of a Blank Check

A blank check is a metaphor for the freedom a team is given to determine for themselves the financial resources they need to achieve a set of agreed-upon goals within a defined time frame. … However, blank checks are not a license to spend without limits, without guidelines, or without consequences. Teams have to define the resources they need — they must fill in the amount of the blank check. Every blank check initiative needs to be consistent with the company’s overall business strategy. And it needs to have the potential to produce sustained, profitable growth. (See “Driving the Virtuous Cycle of Growth.”) Blank checks are not meant to produce “one-hit wonders” ... The idea of the blank check is to empower big ideas that drive a virtuous cycle and change the business’s trajectory for the long term.

Moreover, teams that sign up for blank checks are held strictly accountable for quantifiable results. Blank checks represent freedom within a framework ... For example, the framework might include a set of company priorities or areas of focus, innovation platforms, big bets, or even an acquisition strategy that guides the company’s overall strategy or vision. At Kraft Foods, for example, the company’s developing markets business has a focused growth strategy that concentrates on five key categories (e.g., biscuits and chocolate), 10 power brands (e.g., Oreo, Tang, Trident, and Cadbury), and 10 priority markets (e.g., Brazil, India, and China); the strategy is called 5-10-10. (See “Growth through Focus: A Blueprint for Driving Profitable Expansion,” by Sanjay Khosla and Mohanbir Sawhney, s+b, Autumn 2010.) The company uses this strategy as its framework, and gives freedom to select teams in the organization to drive the 5-10-10 growth agenda with blank checks.


Tang’s localized flavors are boosting sales. Photographs courtesy of Kraft Foods Inc.

How Blank Checks Work

To put the blank check idea to work, business leaders need to go through a systematic process of picking the best bets, selecting the team, defining goals and plans, kicking off the initiative, and monitoring the results. Here’s what happens at each of these five steps.

1. Picking the best bets. The first step …is … to choose the business domains that should be targeted for growth. … Business domains can be defined in different ways or viewed through different lenses — a geographic market (China, for example), a brand (Tang), a channel (food service), a category (beverages), or a consumer segment (teenagers). …We recommend selecting two or three definitions for the domain, at most, and using these definitions to shape the larger strategic context within which to look for blank check projects. The objective is for the initiative to be performance-driven and values-led ...

As the business leaders choose the domains for the blank check initiatives, they need to keep three criteria in mind …“the three Ms.” First, the business should ideally have significant Momentum. It is always easier to build on a business domain that is working well than to fix a domain that is broken. ... A second key success factor for driving a virtuous cycle of growth is Margin potential in the business. ... Third, the business initiative should be Material — something that produces high impact with the least possible effort. …

2. Selecting the team. Blank checks are ultimately bets on people, ...
Team leaders selected for blank check initiatives need not be the most senior or the most experienced — more important is for them to be the people with the most potential. …

The business leaders must ask themselves a series of questions about the blank check candidate. Is this person a natural choice for the challenge based on his or her current responsibilities and span of control? Will this person be willing to take on the responsibility and not be frozen by fear? Is this person capable of being stretched to think in new ways? Does this person have the capacity to inspire others to do things differently? Does this person have a track record of delivering results? … And if one cannot be identified, leaders may determine that the area of the business they were targeting is not appropriate for a blank check.

3. Defining goals and plans. … Targets need to be quantified, aggressive, and time-bound. Quantified targets are unambiguous, so everyone clearly understands the nature and goals of the game. Targets should be measurable on well-defined metrics like revenues, gross margins, and cash flow from the business.

Targets also need to be aggressive, to the point that they should not be achievable simply by making incremental improvements. Teams should be forced to question all their assumptions about their business and to confront orthodoxies that have been blindly accepted by the company. Blank check initiatives also need to have a short time frame, limited to a few years at most. It is absolutely essential to have a clearly defined set of goals for the first 12 months. The short time frame forces the team members to produce results quickly. …
At this stage, the team leaders are asked to submit a short business proposal … that reflects the three Ms.

The time given to the team to develop the proposal is relatively short. This prevents the team from becoming paralyzed by overanalysis. …In a few cases, the team will decide to turn down the blank check. This is fine, because undertaking a blank check initiative must always be voluntary.

The business proposal needs to define the initiative and the key steps that the team will take to produce the agreed-upon results. This includes … steps detailing how the plan will be executed, key milestones and deliverables, and financial projections. At the early proposal stage, the initial execution steps may be outlined, but the full project need not be fully fleshed out.

Along with the proposal, the team also must fill in the amount of the blank check — the financial outlay that they are asking for. … The amount should be more than enough for the team to carry out the initiative without worrying about running out of money to invest.

4. Kicking off the initiative. Once the business plan has been agreed upon, business leaders need to formally “issue the check” by approving the amount the team has asked for and transferring it into an account that can be accessed by the team leaders.

The typical first reaction to a blank check challenge is skepticism. … Once the team realizes that their business leaders are serious, skepticism can easily give way to fear — fear of failure and fear of being in the spotlight. Fear is often followed by frenetic activity, when the team tends to focus on doing more of the same or doing the same things better. But the team quickly realizes that this linear and extrapolative thinking will not produce the breakthrough results that they need to achieve. This, in turn, leads the team to powerful insights because they are forced to focus on the essence of the business, the brands, and the market.

5. Monitoring results. As the blank check initiative begins, it is important to set milestones for key deliverables, and then to monitor them closely as the initiative proceeds. … As is true of a company’s startup phase, blank check initiatives rarely go according to plan. The team will run experiments and take risks, and some of these experiments will inevitably fail. Failing is part of the learning process. What is important is to fail early, fail cheaply, and learn fast from the failures. Metrics for blank check initiatives should be kept simple enough so that progress can be measured on a single-page report. …

Dealing with Failures

Blank checks produce spectacular results when they work. However, … a certain percentage of them will be unsuccessful. Business leaders need to be prepared for some of these initiatives to fail. There are two important lessons in dealing with failures — learn from the failures and overcome the fear of failure.

Kraft’s Royal affordable nutrition program in Latin America is an example of how to deal with a blank check initiative that doesn’t work out. Kraft believed that there was a large opportunity to drive growth at the “bottom of the pyramid” by developing nutritious yet affordable products for low-income Latin American consumers. … However, the products failed to sell well, and the gross margins were lower than expected. Kraft decided to pull the plug on this initiative.

The team learned many important lessons from this failure. The product involved changing consumers’ attitudes and behavior — a difficult and lengthy process. … And the business model was not sustainable: Costs were too high, and the company could not meet the affordability target it had set while still earning an acceptable gross margin. Importantly, the team leading the initiative was not penalized; the team leader was promoted to head the snacks business in Brazil despite the failure, because he took a risk and then learned from his mistakes.

Tips for Managing Blank Checks

Through our experience with several blank check initiatives in different product categories and markets, we have identified some important principles for improving the odds of success.

Focus on what matters. … In the case of Kraft Foods, blank checks are linked to the company’s “winning through focus” strategy, which allocates resources in line with its 5-10-10 strategy.

Create a virtuous cycle of growth. …Business leaders should be careful that teams don’t undertake initiatives that can boost revenues in the short term but that will hurt the business in the longer term. To ensure sustainable profitable growth that drives a virtuous cycle, blank check initiatives need to be gross-margin accretive. Margin expansion can come from increased revenues, from cost reduction, or from productivity improvement.

Innovate broadly. To harness the full potential of their business, teams need to take a broad view of innovation that goes well beyond creating new products. They need to innovate with packaging, promotions, advertising, distribution, and partnerships.

Simplify everything. … Complexity adds cost and slows down decision making. … Simplification can be achieved in the product (for example, by reducing performance or features to “just enough” levels desired by consumers), in the process (manufacturing, distribution, sales), in the organization (removing layers and moving decision making closer to local markets), and in administration (faster decision making and fewer meetings).

Don’t overdo it. … Blank checks are powerful tools, but they are very demanding in terms of both financial resources and leadership bandwidth. They will produce revenue and profit increases in the long run, but they require significant investments in the short term. They also require a lot of personal attention from business leaders. Just as venture capitalists limit the number of startup investments they make and the number of company boards they serve on, business leaders need to limit the number of blank checks they issue simultaneously.

Create a family spirit. Blank check initiatives require every team member to put the collective good of the team above his or her ego and personal point of view. … This attitude can be fostered by adjusting incentives so that team members win when the team wins as a whole. It also helps to host “family dinners” before every major leadership team meeting. Each dinner has a clear agenda focused on two or three business issues that need input from the family. At the end of the dinner, the team arrives at a consensus on the business issues. This practice gives the team clarity on what they need to do and also promotes a sense of shared ownership of the outcomes.

Driving Organic Growth

It is not easy to find profitable organic growth. Faced with stagnant demand, intensifying competition, and greater pricing pressures, business leaders feel that their growth is constrained by the environment in which they find themselves. However, the constraints are sometimes of their own making. Even seemingly sleepy businesses hold tremendous untapped potential. If business leaders can liberate their people from the limitations of budgets and resources, they will find that their people will surprise both leaders and themselves with what they can achieve. This is the power of blank checks.

Driving the Virtuous Cycle of Growth

Although blank checks are designed to create a step change in the growth of a business, it is important that the growth in revenues and profits is lasting. … [True] shareholder value is created when the profitable growth is sustained over the long term.

To ensure that blank checks produce durable profit and revenue growth, it is important to embed the blank check initiatives within a well-defined process that ensures checks and balances on the initiatives. We call this the Virtuous Cycle of Growth. The virtuous cycle is based on a seemingly simple insight — the more you grow revenues and cut costs, the more resources you have available to invest in future growth. The essence of the virtuous cycle is that growth generates resources that drive more growth. The virtuous cycle consists of five steps; each step emphasizes an outcome and the means to achieve the outcome. These steps need to be followed rigorously to ensure that blank check initiatives remain on track.
— S.K. and M.S.

Author Profiles:

• Sanjay Khosla is president of developing markets at Kraft Foods Inc.
• Mohanbir Sawhney is the Robert R. McCormick Tribune Foundation Clinical Professor of Technology and director of the Center for Research in Technology & Innovation at the Kellogg School of Management at Northwestern University.

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Triple tax advantages touted for HSAs

Employee Benefit Adviser
By Bruce Shutan
August 7, 2012

Are health savings accounts simply better than 401(k) plans?…

“HSAs are the only investment savings vehicle in America that has triple-tax advantage; namely that the money contributed goes in on a tax-free basis, the earnings on that money are not taxed and the money that comes out of the account is not taxed,” explains Kimberly Sexton, vice president of Total Benefit Communications, LLC. In contrast, she notes, 401(k) distributions are taxed and Roth IRA contributions require an upfront tax….

In the event that there is no 401(k) plan company match, Sexton says plan participants are better off putting their money into an HSA whose balance can be rolled over from one year to the next than a 401(k) because of the aforementioned tax advantages. …

HSAs can serve as a substantial rainy day fund that supplements the ability of taxpayers to deduct medical expenses that exceed 7% of their annual gross income. The magic of compound interest can certainly help account holders walk away with a substantial sum at retirement. For example, she notes that a $5,000 annual contribution earning 6% a year for 25 years would generate $290,782 in savings.

HSAs represent “a wonderful way” to pay for medical expenses considering that Medicare doesn’t kick in until age 65, according to Sexton.

So why isn’t every employee taking full advantage of an HSA whenever it’s offered?

She believes these accounts are “a harder sell for employees who are not saving for retirement in any way, shape or form because they just don’t have that kind of money,” while highly compensated individuals understand and appreciate the concept.

There are some other interesting selling points about HSAs that need to be communicated, Sexton says. One such issue involves covering an adult child who is under the age of 26 who is married and has a child.
“The husband and wife may contribute the family contribution to the HSA, including catch-ups as appropriate,” she explains. “The adult child may also contribute the family limits. And it doesn’t have to be the adult child that puts that money in; it can be the parents who put that money in on behalf of that child to be used for their spouse and child as well.”

For more information, visit www.benefits-forum.com.

Bruce Shutan, a former EBN managing editor, is a freelance writer based in Los Angeles.

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Three habits that drive down productivity

Smoking is one unhealthy behavior that increases the likelihood of lost productivity, according to a new study.

Memphis Business Journal

Cole Epley

Staff writer- Memphis Business Journal

Date: Tuesday, August 7, 2012, 10:39am CDT

Thinkstock.com





Productivity model (Saari 2006) (Photo credit: Wikipedia)

Treating employees to in-office rewards like donuts and candy may sound like a good way to incentivize productivity, but a new study to be published in the October issue of Population Health Management found that a carrot — either off or on a stick — seems to be a better choice.

Researchers from Brigham Young University, the Health Enhancement Research Organization and the Center for Health Research at Franklin, Tenn.-based Healthways surveyed 19,803 employees working at three large companies across the country and found that any one of three unhealthy behaviors — poor diet, infrequent exercise and smoking — increased the likelihood of lost productivity.




Statue of Brigham Young on the Brigham Young University campus (Photo credit: Wikipedia)

Employees with an unhealthy diet, for example, were 66 percent more likely to have experienced lost productivity than their cohorts who regularly ate healthy foods like fruits, vegetables and whole grains. Smokers were 28 percent more likely to suffer lost productivity than non-smokers and those who exercised only occasionally were 50 percent more likely to be less productive than their more physically active counterparts.

While a less-healthy work force can lead to higher costs of health care and insurance, the productivity factor is a shockingly expensive one, according to Brigham Young professor Ray Merrill.




Health (Photo credit: 401(K) 2012)

“Total health-related employee productivity loss accounts for 77 percent of all such loss,” Merrill said in a release. “And (it) costs employers two to three times more than annual health care expenses.”

The study also showed losses in productivity were higher among employees ages 30 to 39, while productivity loss was lowest among employees ages 60 and older.

Click here to see a release about the study.

Cole Epley covers banking and finance; health care; law; insurance; and economic development. Contact him at cepley@bizjournals.com.

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The Weakness of Positive Thinking



When an upbeat management style becomes excessive, it wards off reality and asks for trouble

strategy+business magazine
Published: July 27, 2012

Title: Prozac Leadership and the Limits of Positive Thinking (Fee or subscription required)

Author: David Collinson (Lancaster University Management School)

Publisher: Leadership, vol. 8, no. 2
Date Published: May 2012


Fluoxetine HCl 20mg Capsules (Prozac) (Photo credit: Wikipedia)



There is such a thing as too much positive leadership, according to this paper, which finds that a blind allegiance to organizational optimism lies at the heart of many of the financial miscalculations that drove the Great Recession. Countering the widely held view that positive thinking by leaders invariably challenges and inspires subordinates, the author coins the term “Prozac leadership” to describe how optimism tends to resemble a well-intended but addictive drug: It promotes artificial happiness and discourages critical reflection, leaving companies ill equipped to deal with setbacks.

Drawing on an analysis of nearly 200 studies of leadership, positive thinking, and organizational dynamics, the author acknowledges that the ability of supervisors to be persuasive is a key skill, and that optimism is one of the most effective communication methods. …



Optimism (Photo credit: hynkle)



But several recent studies have critiqued the positive thinking movement, highlighting the negative personal and organizational effects that can result from “excessive optimism,” “irrational exuberance,” “gambling against the odds,” and the “tyranny of positive thinking.” In short, Prozac leaders can wind up believing their own narrative that everything is going well. As a consequence, they ask fewer and fewer questions and become deaf to feedback that is “off message,” leaving them, and their companies, dangerously insulated from economic and social realities.




Royal Bank of Scotland (Photo credit: Wikipedia)

A 2003 study coined the term delusional optimism, which the author uses to describe the circumstances surrounding the acquisition by the Royal Bank of Scotland (RBS) of the Dutch bank ABN Amro in 2007. … It was completed with insufficient risk analysis, little due diligence, and a disregard of red flags.

Because ABN was significantly exposed to the U.S. subprime mortgage crisis, the sheer size of the deal fundamentally weakened the balance sheet of RBS, which was bailed out by the U.K. government. Companies that “reward optimism and discourage pessimism are likely to undermine the capacity to think critically,” the author writes, ...




Diagram of the Subprime Mortgage Crisis (Photo credit: Wikipedia)

“By insisting that subordinates’ upward communication [be] exclusively positive, Prozac leaders and the uncritical cultures they encourage can silence committed and concerned followers,” the author writes. In this context, employees may hold back on their views as a way of protecting their career, reputation, salary, and job security.

Indeed, leaders’ upbeat perspectives are not always accepted or internalized by their followers, the author says, and Prozac leadership can generate a wide range of responses and types of dissent. In addition to outright whistle-blowing or quitting in protest, disenchanted employees can engage in less overt subversions such as absenteeism and foot-dragging, studies have shown, or simply be at odds with the dominant workplace culture, creating tension.

For example, despite an oil company’s descriptions of its safety commitments as “unremitting,” “all-embracing,” and “our number one concern,” many workers on two of its North Sea oil rigs did not disclose accidents or near misses because of a “blame culture,” one study found. The workers complained that those who reported safety-related concerns were given poor assessments, affecting pay and employment security. “Assuming that concealment could not occur since this contradicted the learning culture,” the author writes, senior managers remained in the dark about safety problems on the rigs, a reflection of “their excessive optimism and distance from offshore practices.”…




Image via CrunchBase

Of course, customers can also react negatively to hollow corporate promises, the author says, citing the case of a musician whose guitar was severely damaged in transit by a major airline that touted its customer service. After failing for nine months to convince the airline of its responsibility, the musician recorded a song about the incident that went viral on YouTube and became a public relations nightmare for the carrier.

Shareholders, too, can express resistance to Prozac leadership. A 2011 study found that executives’ use of overly optimistic statements (especially in relation to corporate earnings) increased the firm’s risk of being sued by shareholders. In analyzing 165 lawsuits from 2003 to 2008, the study found that the statements of sued companies were markedly more optimistic than those of similar firms that weren’t sued. …

“Regardless of whether Prozac leadership is fuelled by wishful thinking, naivety, hubris or more deliberately manipulative motives (or a combination of these),” the author writes, “subordinates can perceive Prozac leaders to be contradictory, remote and unwilling to consult, and may dismiss their excessive optimism as insincere and manipulative.”

Bottom Line:
Leaders can become excessively positive, making them reluctant to listen to alternative viewpoints and leaving their firms unprepared to deal with unexpected problems. This so-called Prozac leadership ultimately results in resistance from employees, customers, and shareholders.

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