In the first article of this two-part series, I noted that the best way to gain senior-management buy-in for EHS initiatives is to engage in a purposeful process of reputation building. To begin the reputation-building process, you need to heighten your understanding of the inner workings of the business – and apply the four “B’s.”
The four “B’s” (be brief, be prepared, be inspiring, be gone) are the keys to your success as an EHS manager and as a leader. Let’s look at what the four “B’s” are all about.
- Be brief – Get to the point. For senior managers, time is a precious resource. If you don’t utilize your time and their time effectively, you run the risk of being seen as a resource that ineffectively utilizes resources – and that’s not a good thing. Being brief but effective demonstrates to company leaders that that you possess business acumen, that you value the bottom line, that your focus is results-driven and to the point, that your organizational skills are exemplary and, last but not least, that you understand that time is a critical part of the business model.
- Be prepared – Do the research. Ensure that you have the right facts at the right time from the right resources. Consider your proposals from the eyes of the organization, including finance, human resources, performance excellence, legal, EHS, export/import compliance, engineering, operations, manufacturing, business development, internal and external communications, etc. Be prepared to answer the tough questions related to the bottom line and the overall benefits to the organization. Understand the business impact of your proposal and be prepared to communicate its short- and long-term effects on the company’s resources and the overwhelming benefits of the risk mitigation strategy.
- Be inspiring – An inspired organization spends money. An inspired organization views your proposal as a potential investment in the future financial health of the company. If presented correctly, an inspired organization will interpret your proposal as the right thing to do in consideration of business climate, risk, resources required and return on investment. Your passion is contagious. Demonstrate the future state, the milestones to celebrate and how the entire organization can be part of the journey. Publicize the EHS achievements and credit your management and the organization often for the successes. Inspire them to act through your passion. Be all-powerful in creating a common cause.
- Be gone – This “B” does not mean leave. It means make it happen now. Sell your idea, proposal, improvement plan, corrective-action plan or any other concept and immediately get to work. Go; deliver on your promises. Work with the organization and together break down obstacles. Being gone means being visible and effortlessly working toward achieving the organization’s mission through the realization of your concepts for the sustainment of effective EHS programs.
Understanding the Financial Lexicon
Let’s concentrate on a small but important element of the second “B” of business (“be prepared”). Understanding some of the most frequently used financial terms and how they relate to your EHS program is essential to your success and to the success of your EHS efforts.
There are myriad books on business finance. The purpose of this discussion is not to restate their content, but rather to place some of the most frequently used financial terms into a context that make sense to those of us who aren’t accountants or financial analysts by trade. The goal is to provide you with enough knowledge to understand the concepts when you hear them in meetings or when you’re asked to provide financial input on a project.
The following definitions are simplified to bring out the merits of their meaning within the business environment. The definitions will vary from organization to organization; you might want to follow-up with your financial experts to ensure that the descriptions here are applicable at your company.
Bookings
- The value of new orders (e.g., contracts) awarded to a company by outside customers/clients; it is used to calculate backlog.
- Backlog represents the value of work remaining that is currently under contract to perform.
- The greater the number of orders, the higher the bookings, the greater the backlog, the brighter the future looks for the company.
Net sales
- Generated when the company performs on its backlog.
- Generally equals gross revenue minus discounts, rebates, returns, promotions, advertising, etc.
Operating profit
- Gross profit minus all operating expenses, such as labor, material, R&D as well as administrative and selling expenses (profit before interest and taxes).
- In other words, sales less cost of goods sold, less operating expenses.
- Operating profit generates cash.
Free-cash flow
- The change in net debt from period to period plus any profit realized.
Return on investment (ROI)
- A measure of how effectively the company uses money invested in its operation.
- Calculated by dividing return by the investments made to generate the return. A business can influence ROI through sales and corresponding profit, working capital and any other changes to assets.
- Bookings, net sales, operating profit and free-cash flow feed ROI.
So what does this all mean? Let’s use the proverbial lemonade stand as an example.
Imagine that you, as a one-employee venture, sell lemonade on a corner stand. You work standard hours – Monday through Friday – in the rain, in the heat, in the cold and on a loud and busy street. Customers stop by and purchase your product for $1 per cup. Some customers are repeat customers; others are new to your business. Some customers love your product; some do not. Some customers pre-order gallons of your lemonade for their events at $15 per gallon.
Here’s how the aforementioned financial terms would apply to your lemonade stand:
- Bookings – This is the monetary value of the number of gallons that your customers have ordered but you have not produced. If you have hundreds of gallons on order, you have thousands of dollars in backlog and your business is doing well. Conversely, if you have zero orders left to produce, your business might not have a bright future if your day-to-day lemonade-cup sales drop.
- Net sales – This is the money you receive when your customers pay you for the lemonade they order, minus expenses such as discounts, the cost for the lemonade flyers and radio commercials, the cost of any returned unusable product, etc. If you don’t watch your costs and pricing strategy, it’s easy to see how your net sales figure can go south. If you have money left over, and depending how much is left over, you can consider your business as possibly doing well. Net sales is not your profit.
- Operating profit – This is the monetary value of your sales, minus the costs associated with making those sales, minus operating expenses. To calculate your operating profit, you add up all the money you received in a given period, and subtract: the costs associated with everything you purchased to make the lemonade; the cost of your labor; the costs associated with the lemonade stand; the costs associated with transportation; and the costs associated with any permits. If you have cash left, you’re on the right path. If not, you’re paying out of your pocket to provide the lemonade service to your customers.
- Free-cash flow – This is the change in debt from period to period plus any profit realized. Let’s say you owed $100 to lemonade-stand creditors last month, and this month you owed $50, and you earned $200 in profit during the two-month period. The free-cash flow for your lemonade business is $250 ($100 minus $50 plus $200). Life is good. If, conversely, your debt goes up this month over last month, then your free-cash flow is negatively affected.
- Return on investment (ROI) – This is a ratio of how much the lemonade stand is returning versus how much money you’ve invested in it. A high ROI is good. A low ROI means that your business probably isn’t headed in the right direction.
While the above scenario is highly simplified and might not exactly match how every organization defines these financial terms, it provides you with a good sense for what the terms generally mean. These financial terms and their meaning have a one-to-one relationship to your EHS program because there is a cost associated with anything in business, and this cost could be perceived to degrade the bottom line if there’s no apparent return. The salient questions are: How much does your initiative take away from your boss’s bottom line and how much does it add to the bottom line and when?
Understand this financial terminology, apply it to everything you propose and you can separate yourself from the pack by a country mile.
Creating a Reputation-Building Plan
When it’s all said and done, one of the most important assets you have to offer is your reputation. That’s why it’s so important to purposefully engage in the process of developing and implementing an effective reputation-building plan.
The following six steps can be tailored to virtually any individual in most situations and will assist in focusing your efforts:
- Determine what is important to your boss and to the organization.
- Determine how you can contribute.
- Develop a plan of approach and implementation.
- Make promises and keep them.
- Know what to measure and do so; share your results with the organization.
- Continuously run a self-check to ensure that the professional EHS service you’re delivering actually benefits the organization in the eyes of the organization.
Reputations are real-life entities that are created and defined by actions and perceptions. Align your actions with your organization’s expectations (the ones you helped shape) and the organization’s perceptions of your work will reward your efforts.
Earning a Seat at the Table
Answers to the elusive “why” questions often are simple. They relate back to your leadership’s perceptions of you and of your work. With a few tweaks, you’ll be able to motivate the organization to act on EHS projects of importance and be viewed as an integral partner in the business.
That said, the process of selling yourself is not intuitively obvious. You must work at it. Most of us EHS professionals typically focus on only two of the three most recognized motivators for EHS program buy-in (legal and social responsibility). We sometimes forgo the third: financial impact. Finance, however, is the universal language of the business world.
The EHS professional who can package all three motivators in a compelling fashion will be able to sell EHS by selling themselves to an organization eager and willing to buy their offerings. Only then will you have an influential seat at the table.
Be brief. Be prepared. Be inspiring. Be gone.
Dare to think differently.
About the Author
J.A. Rodríguez Jr. is the CEO of Make My Day Strategies LLC and a global senior manager of a Fortune 100 company. In 2013, EHS Today named Rodriguez one of "The 50 People Who Most Influenced EHS in 2012-2013." He is a professional keynote speaker; an elected board member of the national Voluntary Protection Programs Participants’ Association; a credentialed safety instructor at the University of Alabama at Birmingham; an OSHA Voluntary Protection Program special government employee; a professional member of the American Society of Safety Engineers; a board certified safety professional; a patented inventor; a blogger; and author of the book "Not Intuitively Obvious – Transition to the Professional Work Environment." Follow him on Twitter at @jarodriguezjr.