Is it better to be truthful or authentic as a leader?

Is there a difference between the two?

Should one be a priority over the other?

Is one a function of the other?

Before today, I don’t think I would ever have given these questions a moment’s thought. However, after a rich and deep discussion as part of a business leadership workshop, I discovered some great material to share in this blog.

Origin of Conversation

In debriefing a scenario of Accountability in one of our digital Business Leadership simulations, one of our participants disagreed with the feedback we had provided that suggested one of the most important behaviors of a leader is to be authentic. In the context of holding others accountable, being authentic means being natural, engaging in proactive coaching and feedforward, and having an unparalleled sense of realism. Our participant argued that while that is nice and helpful, a good leader must start with a foundation of truthfulness before anything else. She suggested that being truthful is different than being authentic.

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Thanksgiving weekend is my favorite time of the year. It’s a time for reflection and giving thanks, family gatherings, and a chance to catch your breath before the year’s final Q4 stretch and the obligatory beginning of Q1. But Thanksgiving’s influence goes well beyond the dinner table and gathering with friends and family. Thanksgiving is a significant driver of the economy, carrying a major impact across food, entertainment, travel, and retail.

According to data from Statista, the period from Thanksgiving to Christmas is a significant time for U.S. retailers. Historically, retail sales during this time have accounted for a whopping 26.8% of the total annual retail sales in the United States.

It's interesting to look at and learn from "the business acumen of Thanksgiving." Let’s dive into what makes this holiday such an economic powerhouse.

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One of the primary tenets of Advantexe’s Business Acumen training programs is that in order to be successful, a business must choose an aspirational value proposition for its customers and be the best at it in its market. There are only three different types of aspirational value propositions; Product Leadership (best product), Operational Excellence (lowest price), or Customer Intimacy (best customer relationships).

In choosing an aspirational value proposition, you must then align that proposition through execution which means operational decisions.

And there will always be very hard choices. Do we invest in more R&D or do we invest in more customer service training? The aspirational value proposition MUST be the guide to making the decision. If you want to be the product leader, you must prioritize R&D over customer service as a great product will sort of “sell itself” and shouldn’t have a lot of technical and service needs. Of course, it must be a great product even to have this conversation.

Which brings me to dinner last night…

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This week takes me to one of our long-term clients in the defense industry. Now that the US election is over and the new administration is formulating, we are in a different place from a geopolitical perspective. This week, our client focuses on some good old-fashioned back-to-basic financial acumen learning through a customized business simulation.

One of the topics we are teaching is analyzing and assessing their long-term return on equity. Although it has been a few years, I am excited to dust off the DuPont Chain of Profitability as a key teaching tool. I figure it’s an interesting topic to share in a blog.

History

The name of the tools comes from the great DuPont company, which began using this formula in the 1920s, over 100 years ago. A DuPont explosives salesman, Donaldson Brown, submitted an internal efficiency report to his superiors in 1912 that contained the first version of the financial formula and it was embraced internally and at leading schools like Wharton where I first learned about it in the 1980’s.

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I was a little anxious to present my ideas to the CFO and VP, of Finance for an up-and-coming medical device company as a review of an intensive business acumen program I am running for them in a few weeks.

I was thrilled to hear their positive feedback and best of all they were very complimentary of one section they wanted me to create for them on the concept of operating leverage. The review went so well that I figured I’d turn the content into a nice, practical blog that first defines operating leverage and then provides 10 things everyday managers can do to drive it.

What is operating leverage?

Operating leverage is a financial metric that measures the extent to which a company's operating income can increase due to an increase in revenues (also known as “sales”). Operating leverage reflects the proportion of fixed costs relative to variable costs in a company’s cost structure. When a company has high operating leverage, it means that it has a larger proportion of fixed costs relative to variable costs. This setup can lead to a larger impact on profits when sales volume changes.

How Operating Leverage Works

High Operating Leverage: Companies with high operating leverage have higher fixed costs and lower variable costs. As sales increase, more of each additional sale contributes directly to profit because the fixed costs are already covered. However, if sales drop, profits can decline sharply because those fixed costs still need to be paid.

Low Operating Leverage: Companies with low operating leverage have higher variable costs compared to fixed costs. Their profit margins may not increase as much with additional sales because more of each sale goes toward covering variable costs. However, in a downturn, their profits tend to be more stable since they have fewer fixed expenses.

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