Archive for the ‘Weblog EN’ Category

maart 25th, 2013 · by John · Weblog EN

The ancient Greeks called it Aretè, often translated as virtue, but “reaching our highest potential” or excellence comes nearer to the original concept. Excellence is about superiority in a good way, having an unusual degree of good qualities. We can strive for excellence but we will never reach it, because there will always be another business trying to outdo us. The journey for excellence therefore never ends, and we must keep on looking for new ways to improve our organization.

The Wealth of Nations

Business excellence in the sense of improving the performance of an organization started with Adam Smith. In his “Wealth of Nations” (1776) Smith recognized how division of labor could increase output. In a society where production was dominated by handcrafted goods, one man would perform all the activities in the production process. Smith described how that work was divided into a set of simple tasks, performed by specialized workers.

Scientific Management

In the last decades of the 19th century, Frederick Taylor started the scientific management movement.  Taylor believed in transferring control from workers to management. He increased the distinction between mental (planning) and manual labor (executing). Detailed plans specifying the job, and how it was to be done, were to be formulated by management and communicated to the workers. Scientific management had a huge impact on mass production principles. Henry Ford significantly improved productivity by organizing processes differently. He for instance introduced the conveyor to organize an assembly line, and standardized methods and tools to decrease variation and cost.

Toyota Production System

World War II left Japan a poor country. Scarcity of resources and technology forced companies to focus on efficiency and customer requirements. The idea of continuous improvement was one of the most important innovations of this era. These new principles became part of the most successful business case of all times, the Toyota Production System. The objectives of TPS were:

  • To design a process capable of delivering required results smoothly without inconsistency.
  • To ensure processes are flexible without stress or overburden since this generates waste.
  • To address waste (anything that does not advance the process or everything that does not increase value).

Total Quality Management

The 1980s showed the birth of Total Quality Management. TQM was a management philosophy for continuously improving the quality of products and processes. Its basic principle was that meeting or exceeding customer requirements is the responsibility of everyone involved in the creation or consumption of products and services.

Six Sigma

Two decades later Six Sigma came into being. Six Sigma aimed for an error free business performance with a rigorous focus on meeting or exceeding customer requirements. Six Sigma included the tools and philosophies of TQM, but also led to improvements.

  • TQM failed where management did not participate and backed it up. Six Sigma required management involvement.
  • TQM did not require teams to work on projects and creating a culture of continuous improvement. Six Sigma did.
  • TQM never defined a methodology for its implementation. Six Sigma provides an improvement model known as DMAIC.

Six Sigma also had more advanced statistical tools than TQM. Incorporating these tools created opportunities for bigger and better improvements.


Lean had its roots in the Toyota Production System. The core idea was to maximize customer value by eliminating waste. Lean therefore meant creating more value with fewer resources. It changed the focus of management from optimizing separate technologies, assets and vertical departments, to optimizing the horizontal flow of products and services through value streams that flow across technologies, assets and departments to customers.

Lean Six Sigma

Lean focused on reducing waste by creating efficient processes. The focus of Six Sigma was on creating perfection in the output of these processes. As both systems were complementing each other, Lean and Six Sigma were combined into Lean Six Sigma (LSS). LSS incorporates all proven tools and philosophies and, because it is open to new and better methods, it helps us in our continuing strive for excellence.

John Greijmans


januari 7th, 2013 · by John · Weblog EN

One of the most, if not the most, important activities in your company is credit management. Credit management is the process to ensure that customers will pay for the products delivered or the services rendered. Credit management is of vital importance to your cash flow: you can be profitable, but if you lack the cash to continue your business, you will either be bankrupt or taken-over by someone who knows how to deal with cash.

Customers that have not yet paid are called accounts receivables (AR). The problem with AR is that this is money owned by your company (AR is also called debtors!) over which you do not have any control. There are two huge disadvantages with AR.

  • As long as your client has not settled his amount due, capital remains tied in AR and does not even carry interest. Capital is cash, and you can use that cash for many other, far more useful and profitable purposes.
  • As long as an amount is outstanding, there is a risk that the customer will not be able to pay. The longer it takes the customer to pay, the higher the risk of non-payment. Non-payment or bad debt means a loss of 100% on that account.

At first glance the solution is simple: do not extend credit to customers. If a customer wants to purchase something from your company, tell her that she should either pay in advance or pay at delivery. In that way you will not have AR, meaning all your cash is ready available and you do not run the risk of bad debt.

If life were only that simple! The problem is that in many cases where you decide not to extend credit, the customer will go to competition. This makes credit management not only an important process, but also an interesting activity. In all your dealings with a customer you will have to weigh two risks: (1) the risk of late or non-payment, and (2) the risk of losing the sales.

Again this is easier said than done. Credit management is not only an important and interesting activity, but also an extremely difficult job. In future blogs I will therefore discuss in somewhat more detail the three important steps in the credit management process:

  • Reviewing credit worthiness and deciding whether or not to extent credit.
  • Monitoring amounts that are not yet due, but on which you nevertheless run the risk of late or non-payment.
  • Collecting the cash of amounts that are past due, but have not yet been settled.

John Greijmans


januari 4th, 2013 · by John · Weblog EN

Value is what we value. The shortest definitions are often the best. So is this one. Value is what we think is important to us and that’s why we value it. And if we value something, we will be willing to pay for it. Sometimes we will not be able to pay, because we don’t have the money or because the object of our valuation is not for sale. Nevertheless if we had the money or if the object were for sale, we would be willing to pay because it would bring value to us.

There is thus a link between the philosophical concept of value (what is important to us) and the more down-to-earth idea (cash). Here I would like to share some thoughts on how to create, or destroy, value in both senses.

Customer Value

Customer value can be created by helping the customer to solve a fundamental problem or to satisfy a pressing need. For this, you first need to understand the problem the customer is facing and then find a unique solution to that problem. Last but not least, you will have to sell that value proposition to the customer. And if she is not willing to buy, well that implies that it does not bring value to him, else it would be willing to pay.

Shareholder Value

Even In the modern theory of the firm with its emphasis on the stakeholder, creating shareholder value is more often than not the most important goal of a company. The economic value of a company is calculated as the present value of all cash flows that the business is expected to bring in the future. The more cash flows into the company (and the less flows out of it), the greater will be the value of the organization.

Creating or Destroying Value

It could very well be that a customer is not willing to buy your product at the proposed price. She might however be willing to consider buying if the price would be lower. A lower price, other things being equal, will however lead to less cash flowing into the company and thus destroy value. How to solve that?

The value proposition to the customer is produced and eventually delivered to the customer through business processes. If you want to create value, then every single activity in any of these processes has to add value. If a customer is not willing to pay for an activity, than that activity is destroying value.

If you make sure that there are no non-value-added activities in your processes, you can offer the value proposition at the lowest possible price, and still have a positive cash-inflow. In that way value is created.

But what if the customer is still not willing to pay or if producing and delivering the product costs more cash than the revenue generated? Well then you should stop altogether, because it is clear that: (1) you cannot create customer value, because the customer does not want to pay for it for a price that would cover costs, and (2) you will destroy shareholder value if you offer her an even lower price.

John Greijmans 

december 3rd, 2012 · by John · Weblog EN

We have reached the conclusion of the series on “who decides what a company should do?” In the Stakeholder Analysis phase, we have defined the stakeholders and their interest or stake in our organization. The next step in this phase was to categorize stakeholders according to their willingness to cooperate with, and their power to influence, the organization.

We will now discuss discuss stakeholder management. The first step in the Stakeholder Management phase is to decide how to deal with the various groups of stakeholders. Based on that decision, we have to make plans and actions to realize the strategies.

I will clarify the methods for stakeholder analysis and stakeholder management by using an example of the management of a company dealing with one of the most important stakeholder: the employees.

Stakeholder and stakes: The interests of the employees are jobs, livelihood, career and human capital investments, their expectation are decent wages, security, benefits and meaningful work.

Power and Cooperation: Our business is in the service industry and service is a people business. We need highly qualified and motivated staff to carry out our activities. The industry is heavily unionized. We will qualify the power and influence of this stakeholder as high. Our employees are skilled and well educated. They understand the importance of a good service to our customers. If we meet their expectations, they will be cooperative.

Stakeholder strategy: The overall score is: high on cooperation and high on power. The strategy for this stakeholder therefore is: to meet employees’ expectations, in order to keep them cooperative.

Plans and Actions: We will offer our employees meaningful jobs, which will earn them a reasonable part of the revenues of the organization. Next to that we will invest in a safe and healthy work environment and create opportunities for personal and career development.

This method can be applied for every stakeholder. Below is an example of how this might look like for some of the stakeholders:

  • Shareholders: We will create shareholder value by working hard and responsibly to achieve superior financial results. We will be honest and accurate in measuring and reporting our performance, and we will protect the assets, resources and reputation of our organization.
  • Customers:  We will treat our customers fairly and honestly. We will maintain a high product quality, and will engage in responsible marketing and consumer information practices.
  • Employees: We are committed to fostering workplaces that are safe and professional and that promote teamwork, diversity, personal development and trust.
  • Environment:  We will keep on reducing the environmental impact of our activities, and we will promote the sustainable use of the natural resources on which we depend.

And now for the answer to the question: “Who decides what a Company should do?” You might already have guessed it, it is the stakeholders. In one of my next blogs I will discuss how we can merge the “decisions” of the stakeholders into the company’s mission statement.

John Greijmans


november 6th, 2012 · by John · Weblog EN, Weblog NL

In September, I published two weblogs on stakeholders. A company exists to create value. Not only for its shareholders, but also for its customers, to keep selling its products and services, for its employees, to ensure that products and services sold are produced and delivered, and for its suppliers, to keep on having the resources needed for the production and delivery of products and services. Society, including society at large, the local community and future generations is also an important stakeholder.

The question to be answered now is: how important are the various stakeholders in affecting, or being affected by your company? Two important concepts here are power and influence, and cooperative behavior.

Power and Influence

Stakeholders have power, and thus influence if a company organization is depending on the resources they can provide. There are three types of power:

  • Coercive power is based on the physical resources of force, violence or restrain. Government (police) is an example, but organized crime also has this kind of power.
  • Utilitarian power is based on the command of financial or material resources. We can easily think of a monopolistic supplier, and also trade unions having the power to call a strike fall into this type.
  • Normative power is based on a (perceived) command of symbolic resources such as being able to command attention of the media.

Cooperative behavior

From the first paragraph, it can be concluded that there often is some form of mutual dependence between an organization and it stakeholders. The greater this dependence, the greater will be the willingness of the stakeholder to cooperate.


To determine whether a stakeholder has power and whether he is willing to cooperate is subjective. A stakeholder may not even be conscious of being either one or both. Having power and being cooperative are dynamic characteristics; they can change from one moment in time to another. At the end it is management of the organization who has to decide which stakeholder has what characteristic.

We can map stakeholders according to the two characteristics (power and cooperation) and distinguish four important types of stakeholders:

  Type Characteristic Description
  Highly Supportive High on cooperation, high on power Typically includes management, employees, parent companies, suppliers and service providers.
  Marginally Supportive High on cooperation, medium on power Normally includes consumer groups, professional association for employees and shareholders.
  Marginally Non-supportive Not cooperating, medium on power In certain case, this could include unions, media and government.
  Highly Non-supportive Not cooperating, high on power This normally includes competition and various action and pressure groups


Having discussed the stakeholder, their stake, and their level of power and cooperation, we can answer the question “Who decides what a Company should do?” in part four of this series.

John Greijmans

november 2nd, 2012 · by John · Weblog EN

According to the traditional theory of the firm, a company should only strive to create value for its shareholder. Even In the modern theory of the firm with its emphasis on the stakeholder, creating shareholder value is more often than not the most important goal of a company. There is however some confusion to what creating shareholder value is. Is it just about getting the highest stock price at the end of the quarter, or is there more to it?

The economic value of a company is calculated as the present value of all cash flows that the business is expected to bring in the future. From this amount, you have to deduct the debt the company has to get the value for the shareholder. The quarterly stock price does not seem to enter this equation.

There is however a clear relation between stock price and shareholder value. But it is not that value is created when the share price increases. It is the other way round: if a company builds value, the stock price will eventually follow. The objective of shareholder value creation thus is to create value, and then let the share price reflect that value.

To maximize long-term cash flow, a company must manage its relationships with all of its stakeholders. A company that charges too much will lose customers to competition. If it charges too little, it may have happy customers, but will be unable to meet its financial obligations or finance the resources to offer new and improved products to customers. Paying employees too little ensures a substandard workforce in a competitive world. Paying too much hampers a company’s ability to remain competitive. The same logic extends to suppliers and the government.

So a successful shareholder value-oriented company must formulate a strategy that adds value for shareholders as well as for its other stakeholders. A company cannot maximize shareholder value through systematic exploitation of its stakeholders.

oktober 25th, 2012 · by John · Weblog EN

You want to start a new business. What is the first thing you need to do? Most consultants would say, you have to write a business plan containing business goals, the reasons you think these objectives are attainable and a plan for reaching them. That no doubt is true, but I think that you always need to start with a business model.

A business model describes how your company will create, deliver and capture value for customers and other stakeholders. It is a high-level graphical representation of how the elements of a business fit together, and how they constitute a working system. Just as an architect makes a sketch of how a future building might look like before he makes detailed blueprints, you have to design a business model before thinking of objectives.

A business model contains for components: a value proposition, the customer, the organization and the money making formula.

Value Proposition and Customer

The concepts of value proposition and customer can be distinguished, but never discussed separately. An organization can create value for its customers by helping them to solve a fundamental problem. A value proposition contains: (1) a description of the issue the customer is confronted with, (2) a presentation of the product that addresses the problem, and (3) the value the product will bring, seen from the customer’s perspective.


Every organization has three building blocks: resources, processes and partnerships. All three are needed to sell, produce and deliver the value proposition.

  • Resources are assets such as people, technology, products, facilities, equipment and brand. Resources can be physical, financial, intellectual or human. They be owned by the company or acquired from partners.
  • Organizations have both operational and managerial processes. These can be activities like training, development, manufacturing, planning, sales and service, but they also include rules, metrics and norms.
  • In our era of specialization, individual firms can no longer control end-to-end value chains. They must specialize in areas where they command an advantage, and create alliances with suppliers and partners to optimize their processes, reduce risk or acquire resources.

Money Making Formula

The key question here is: how can a company create value, which basically is generating cash, for itself while providing value to the customer?

  • You have to generate revenue. By definition the value proposition creates value for the customer. The customer therefore is willing to pay for it.
  • You have to manage the business such that revenue exceeds the costs involved in deploying resources, operating processes and dealing with partnerships.
  • The profit received, after selling and delivering the value proposition should be higher than the change in working capital requirement. If you do not manage your debtors, creditors and inventory, you can end up making a nice profit but with no free cash.

Only when you have defined your value proposition for your customers, and have designed your future organization, can you start thinking of writing a business plan and setting objectives. A business model normally is a graphical representation of the company. It however makes sense to make a mathematical representation of the money making formula. Such a financial model will help you to make strategic projections and set objectives.





oktober 9th, 2012 · by John · Weblog EN

Some twenty-five years ago, in my first real job, I was confronted with quality management for the first and, I am happy to say, not for the last time. Mind you, we did not have ISO9000 yet, and not everyone was thinking in terms of quality at that point in time. Today, quality is a concept often used in business and management. Nevertheless I would like to share my ideas as to what quality stands for, and how we can achieve it.

Quality: Meet Expectations

Quality can be defined as meeting requirements or being fit for the purpose. Quality management is often associated with meeting customers’ requirements, but it has a broader meaning. There are also other stakeholders in and around the organization, and all of them have requirements. Employees might for example want to work in a safe and healthy environment, and society does want the organization to reduce its carbon footprint.

Total Quality Management (TQM) integrates the processes for achieving these requirements into a holistic system for continuously improving the quality of products and processes. In other words, TQM requires the involvement of management, staff, suppliers and customers, in order to meet or exceed expectations of the relevant stakeholders.

Apart from systems like ISO and OHSAS, which basically are certificates showing that the organization can deliver the specific requirements, I have used two methodologies to implement and practice continuous improvement: EFQM and Lean Six Sigma.

EFQM: Enable the Results

The EFQM model helps organizations in meeting stakeholder requirements. The model has organizations measuring where they are on the path to excellence; that is continuously meeting and exceeding requirements. It helps organizations understand the gap between excellence and actual performance, and it stimulates them to find the solution needed to bridge that gap.

The EFQM model actually is a simple cause-and-effect diagram. There are five Enablers (leadership, strategy, people, partnerships and processes) and four Result areas (customer, people, society and business results). The enablers cover what an organization does, the results what an organization achieves. To improve results, the organization must improve the performance of the enablers. Quality management is as simple as that.

Lean Six Sigma: Eliminate the Waste

Lean is focused on eliminating seven kinds of waste: defects, overproduction, transportation, waiting, inventory, motion and over-processing. As waste is not needed to achieve a stakeholder requirement, it should be eliminated in order to achieve quality. For the same reason, Six Sigma focusses on reducing waste in the production of goods and services to a rate of 3.4 defects per million opportunities (DPMO).

The combination of Lean and Six Sigma is called Lean Six Sigma (LSS). It uses a project methodology named DMAIC, which stands for the project phases: define, measure, analyze, implement and control. DMAIC also contains a toolkit with methods to attack and improve situations where quality is not delivered. The tool I like most is 5WHY: by asking five times why something has happened, you will arrive at the root cause of the non-conformance.

Achieve Excellence through EFQM and Lean Six Sigma

So what methodology should we use to achieve excellence: EFQM or LSS? As you might have guessed, this is not an either/or question, you have to use them both! By focusing on results, EFQM will guide you to set the objectives you want to achieve. The enablers will point out where and what you should improve in order to meet these objectives. Lean Six Sigma provides a methodology and a toolkit to achieve the improvement. When you have realized the objective, you set yourself a new and challenging target, and you are effectively improving continuously.

John Greijmans


september 29th, 2012 · by John · Weblog EN

Life could be so easy! A customer places an order, we deliver the product or service and issue the invoice, and then the customer will pay the bill. All parties end up to be happy. Quoting Shakespeare, “all is well, that ends well”. Alas, in the real world it often happens that a client, or debtor as she is called by then, does not always pay in time. Sometimes she bluntly refuses to pay. In these cases, how can we get back in the “don’t worry be happy world”?

First of all we should be careful using the word debtor. The term carries a negative connotation of someone being guilty of a trespass or sin. Under ancient law debtors could pledge themselves as collateral for a loan. If they failed to pay they would become the creditor’s slave. During the middle ages, debtors were locked up until their debt was paid. Conditions included starvation and abuse from other prisoners. The client is king, and she should behave as an emperor and pay the amount she is due. Unless she has a valid reason not to pay yet, that is!

If we issue an invoice, which the customer pays too late, or doesn’t pay at all, we are entitled to take some kind of action. Calling past due invoice management debt collection can however hinder the resolution of the situation, and endanger future customer relations. Fact is that the majority of past due customers are not trying to avoid payment. They often have good, or at least acceptable reasons why they have not yet paid.

Some customers pay late because they choose to practice cash management. Big companies use their vendors as short term finance. They want cheap credit. Other companies and many government agencies, pay slowly because they are not well organized, can’t locate the invoice, or just are lazy about taking care of accounts payable. 

Other clients have not paid because something went wrong somewhere. Think of sales or service disputes, shortages or overages, late delivery, lost paperwork, missing information, unauthorized purchases, returns, misapplied credits, damage, sales guys offering extended terms and failing to tell anyone, flood, famine, fire, oil spills, and earthquakes. The underlying causes can be on the part of the customer, we can be to blame ourselves, or even come from an outside source. Indeed everything that can go wrong, will go wrong. Murphy certainly was an optimist.

Sometimes customers are willing, but not able to pay: they simply don’t have the money. This inability can be short term, and have an understandable explanation: they bill their customers at the end of the month, they have had an unexpected loss, or their business is of a seasonal nature. These customers can, more or less accurately say when they will be able to pay. Next to that, there can be long term financial problems. Possible causes are the loss of a key person, new competition, or a new product making the customer’s business obsolete. This is often the times where the bankruptcy notices will come.

When investigating past due amounts, always remember that collection is there to complete the sale. And the sales is completed when the cash is collected. Therefore, first determine why payment has not been made, and then resolve the matter so that customers will pay and purchase again.

Nevertheless, some customers will try to avoid payment. They are out to beat us out of what they owe. They will be uncooperative, they will lie, break promises or even skip out altogether. Then it is the time for real old-fashioned debt collection. Pity we can’t enslave them anymore for not paying……


John Greijmans

september 13th, 2012 · by John · Weblog EN

On September 6th , I published a blog on the stakeholders of an organization. My conclusion was that a company exists to create benefits or, in other words “value”. Not only for its shareholders, but also for its customers, to keep selling its products and services, for its employees, to ensure that products and services sold are produced and delivered, and for its suppliers, to keep on having the resources needed for the production and delivery of products and services.

One of my readers (thanks Edwin!) posted a remark, stating that I had forgotten a stakeholder. And indeed, I did not mention that society is also affected by, and can affect the actions of, an organization. This makes society an important stakeholder on three levels: society at large, the local community and future generations.

Society at large

Having had elections in the Netherlands yesterday, the thing what immediately comes to mind is government. In a democratic environment at least, society chooses its government and government represents society. Government can affect the company in many ways. Taxation and interest rates, will have a direct influence on the costs. Legislation regulates the actions of an organization in areas such as the environment and occupational safety and health. On the other hand, successful firms are good for governments as they create wealth and employment, thereby enlarging the tax base.

But society at large can also directly influence the actions of a company. After worldwide protests and a consumer boycott in 1976, Shell had to come back for example, from its decision to sink-of the Brent Spar.

Local community

The local community will often “provide” the employees for a firm. On the other hand the organization will supply goods and services to the local area. At times the community may feel aggrieved by some aspects of what a firm does. Examples are pollution, because of expansion plans, or forced lay-off, because of plans to downsize or even close the operations.

Future generations

Both with society at large and with the community, I referred to environmental aspects. Sustainable development indeed, is at the center of the stakeholder debate. This suggests a responsibility to future generations. These generations will one day be reliant upon the physical environment, as a stakeholder group.

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