Balancing Growth and Culture– April 25, 2016 by Randy Myeroff

This year’s Executive Focal Point offered a forum for clients to discuss two very important, and very different, areas that contribute to the success of any business: the state of our economy, and how to create and sustain a great culture as your business grows. Our presenters addressed these areas to provide local entrepreneurs and business owners with practical guidance for their organizations in the coming year and beyond.

A Fragile Economy in 2016

Russell Moenich of Sequoia Financial Group addressed our still fragile economy. Specifically, he discussed the milder and longer-than-average business cycle expansion we are experiencing, highlighting the “disaster myopia versus noise” (aka the “post-traumatic stress” syndrome many seem to be suffering from since the Great Recession in 2008). The fear of another recession at every hint of market volatility is playing a large part in market fluctuations, according to Russell. He pointed to the recent media buzz citing China’s “economic woes” as a prime example, reminding us that as China transitions from an infrastructure-building economy to a services and retail/consumption-based economy, the slow growth and turbulence the country is experiencing is to be expected and monitored — but not necessarily feared.

Looking ahead, Russell reviewed our place in the current business cycle and beyond. Our less-than-robust recovery from the happenings of 2008 — much like all the other major economies, including Europe, Japan and China — continues to be weak on the whole. In fact, according to Bloomberg, this is the fourth longest cycle on record for the U.S. since 1900, the weakest by far since 1948; and the U.S. gross domestic product (GDP) growth is only approximately 2.1%, which is below the average in a recovery cycle. When looking at the U.S. aggregate profit versus GDP, Russell cited a Bloomberg report that says the U.S. economy peaked in early 2015, which puts us on the downside of the cycle with our economic potential slowing to around 2% per year and the potential to dip lower over the next couple of years.

What is the biggest risk to watch for currently in the business cycle according to Russell? Keep a close eye on the Federal Reserve Bank (the Fed) and its tightening of monetary policies. As the Fed raises interest rates, expansion (even the little we are experiencing) could end. Based on recent comments (read Sequoia Financial Group’s blog post, “On Wild Rides”), it’s likely the Fed won’t raise rates again until at least the end of this year, but the models used to make those decisions are never perfect, so only time will tell. (Read Sequoia’s blog post, “On Problems with Models.”)

And, knowing the market doesn’t like uncertainty, keep your eye on the geopolitical risks in 2016 that likely could have an impact. From the U.S. presidential election, Brazil’s impeachment threats and the Brexit Referendum, to ISIS, Syrian migrants into the European Union, OPEC in Middle East and Japanese elections, the rest of the year should be interesting for sure.

Bringing Together Culture and Business Growth

Jim Boland, MBA, of Cohen & Company, and Anne Marie Thomas of Bella Crescita spoke on the benefits (and the necessity) of balancing culture and growth. This becomes an issue for many companies as they transition from a startup business focused on cash management and “putting out daily fires” to a more mature business that needs to find operational efficiencies and new growth strategies. Jim and Anne Marie pointed out that this is where many entrepreneurs find themselves also transitioning into the business executive role.

With growth generally comes an increased need for management rigor — processes, management teams, procedures, etc. But our speakers urged the audience to consider how to create a more structured approach while keeping the culture intact. Stating that culture equals productivity and profitability, Jim and Anne Marie cited supporting statistics such as happy workers are 2% more productive than the average worker and unhappy workers are 10% less productive.

“At some point you need to find right balance of passion and discipline for your business so you don’t erode the culture you have in place, but so you also aren’t focused on putting out fires every day,” said Jim. “And once you determine what the company needs, you need to bring your employees with you and include them in the solution. You simply can’t implement corporate strategy if your employees don’t believe in and understand the company’s mission.”

Below are a few best practices from Jim and Ann Marie to bring culture and business growth together:

  • Strategic planning and alignment. Develop an annual strategic plan, and a three-to-five-year vision, to align goals with actions and decisions. Then cascade objectives and metrics to departments and eventually individuals to translate into operating metrics, sales, etc. All-in leadership, with executives getting out of offices and communicating the strategy directly to employees, is critical.
  • Trust and transparency. Trust is culture’s backbone and can help a company through adversity. The executive team should be talking about culture and engagement, communications strategy, corporate engagement platform and internal collaboration tools to build trust and then sharing that information openly with employees.
  • Rewarding success. Accountability is the biggest challenge for business leaders and can erode a culture if not managed. Practicing leading compensation practices can help: tie incentive compensation plans to performance, measure and reward alignment on values, define attributes that drive success and share profits with employees (via vehicles such as ESOPs or profit-sharing plans).
  • Learning and development. Build job loyalty. Give employees the tools they need to grow and excel in their jobs and everyone wins: define an organizational chart and roles, establish scalable yet flexible processes, develop a learning environment and implement enterprise knowledge management systems.

We would sincerely like to thank all of our speakers and attendees for bringing us these insights and many more in our annual executive event.

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.