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Hold Up a Quarter

Guest post by: Robert Whipple

Article Overview: Differences in perception often cause conflict between people. If I hold a quarter out in front of me, I will see heads and you will see tails. It is the same object, but we have very different views of it. Our perceptions lead to logical conclusions about how to react to any issue. If you see a different problem, you are going to suggest a different remedy. This creates conflict because you and I will not always agree on actions to be taken. This article shares several antidotes.

Hold Up a Quarter

This article is about perspective. No two people will see a phenomenon the same way. As our fingerprints are all unique, so is our perception of what is going on around us. A simple way to demonstrate this is for me to hold a quarter out in front of me while I am facing you. I will describe a round metal object with an embossed head on it with the word "Liberty" around the circumference. You will describe a round metal object with an embossed picture of an eagle sitting on a branch or some state-specific rendering. We are both describing the exact same object, yet we see it differently.

The same phenomenon happens when two people see any kind of situation at work or at home. They see the same thing, but it has a different appearance depending on their personal vantage point. This means they will draw different conclusions about what just happened and the significance of it. Taking the next step requires each individual to react to the stimulus in an appropriate way. Each person is free to react however he or she feels is appropriate for the situation. Even if both people perceived exactly the same thing, what would seem appropriate to one person might be the wrong thing to do for the other. All this discrepancy leads to squabbles about actions taken.

For example, let's suppose a manager is discussing an employee with a severe attendance problem with her supervisor. The manager and supervisor may have different opinions about the problem itself. Perhaps the supervisor knows the lady has a child who has special needs, and this calls for more trips to the child's doctor than would be normal. The supervisor wants to be lenient based on this knowledge. From the manager's perception, this employee needs to be treated with the same set of rules as everyone else or it will be hard to maintain discipline. The manager sees an untenable situation that needs progressive counseling, while the supervisor sees the need for flexibility.

Differences of opinion about what is happening and what should be done in response to it create a great deal of conflict in any work place. Since what I see is obvious to me and the resulting call for action is a logical consequence of that perception, I will be pretty sure my way is right. The trouble is that another person will be just as sure his perception and remedy are right. If I know that I am right, and you see things differently, then by definition, you must be wrong. In most instances my reaction to this dichotomy is to try to educate you on why your perception is incorrect. You, of course, will try to get me to realize the error of my thinking. We are off to the races in conflict.

This genesis of conflict is going on in small and large ways within each and every day. Is it any wonder there is so much acrimony in the workplace and at home? This problem is ubiquitous. What are some antidotes so we can reduce the conflicts between people?

Seek to understand assumptions - In coming up with different perceptions of what has just occurred, the root cause is often based on differing assumptions. I might assume the bulb is burned out while you may be convinced the wall switch is off. A third person may think we are experiencing a power failure. We all observe a dark room, but we ascribe the cause to different assumptions. Each of us will come up with a course of action different from the others based on our assumptions.

Try reversing the roles - If you and I are at loggerheads over an issue, it is often helpful to call a temporary truce and ask you to verbalize my argument while I attempt to articulate yours. This process can create a kind of empathy that is helpful at seeing the other perspective or it can uncover flaws in the logic of either party. This method can backfire, though. I was once in disagreement with an individual and suggested a reverse role play. He said, "Fine, you start by stating my position." I did my best to lay out his thesis. He looked at me and said, "You know, Bob, you're right."

Use Reflective Listening - Often perceptual arguments involve two people talking at each other, but neither party doing much effective listening. Reason: when each party is pretending to listen, he or she is actually spending nearly all mental energy preparing to speak. Reflective listening forces each individual to pay full attention to what the other person is actually saying. Once reflective listening is employed, it is not uncommon to have two people who were feuding suddenly realize they have been in violent agreement. They were expressing their opinions in words that sounded opposed but were really congruent.

Watch the language - Rather than say, "You are clueless, can't you see that he has no intention of picking up the mess," try, "I am seeing his actions somewhat differently than you do. Can you tell me why you're assuming he will not pick up the mess?" Asking questions rather than making statements is a technique that can reduce the inflammation in perceptual disagreements. Aggression can make it difficult for a person to hear, let alone understand. As David Halberstam wrote, "...excessive amounts of testosterone leads to a loss of hearing."

Agree to Disagree - Acrimony can easily be thwarted by simply agreeing to disagree. After arguing about an issue for a while, either party can say something like, "This issue is not worth arguing over, I am not going to convince you, and you are not going to convince me. Let's not get hung up on it. Just because we see this issue differently is no reason we cannot respect each other and work well together."

Do not blow things out of proportion - Much of the acrimony in personal disagreements can be avoided if people remember the petty squabbles from day to day mean very little in the long run. If an issue that seems worth fighting over today will be totally forgotten in a week, it is a good idea to relax and just let the other person win rather than duke it out for several days. Pick battles worth fighting and ignore the insignificant give and take issues.

Get a good mediator - Often a third person can step in and clarify the different opinions and help people sort out their differences quickly. Reason: The participants get emotionally involved in the fight and lose objectivity. A cool head that is respected by both parties can make some reasonable suggestions that at least soften the struggle.

Give in - Just letting the other person win is often a great strategy. Some people find this hard to do for reasons of pride or ego. Who cares who is right or wrong? In fact, in most arguments both people are a little bit right and a little bit wrong. The true winner of an argument is usually the one who quits the fight first.

Humans have a remarkable ability to drive each other crazy. This tendency is amplified by close proximity. It is the reason why you can appreciate and love members of your family until they come to visit for a week. At a distance, it is easy to manage disagreements most of the time, but when people are underfoot every day, the little things tend to become so irritating, the conflict begins to snowball.

I am reminded of the TV show "Everybody Loves Raymond," where the characters do nothing but fight through the whole show. I rarely watch that sitcom because I find it exhausting. As one person adroitly observed, "I don't watch TV to get an ear full of fighting, pettiness, cruelty, lack of respect, and sarcasm. I can get all that at home." Since we all see things through a slightly different lens, and we process assumptions about what is happening through our parochial brain, we are going to have conflict. Expect it and take some of the evasive steps above to keep the volume down on interpersonal differences. Life is too short to be habitually annoyed by fellow workers or family members.

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Article Tags: agree to disagree, assumptions, inflammation, mediator, opinions, perspective, Quarter, reflective listening, reverse roles



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Re: THE SECRET TO SUCCESS IS ALL IN YOUR HEAD...RIGHT NOW!!! - Self motivation is the key to entrepreneurship, without it you are doomed. Hold your head up high and don't let the small things got you down. Stay positive and persistent and you shall have prosperity.
How about discussing Costco's biz model?? And CEO - Here's a recent article that covers both.............. Costco: The 'anti-Wal-Mart' The warehouse-club retailer 'has figured out the big, simple things': Hold down expenses and prices, treat employees well, make discount shopping fashionable and keep shareholders happy. By Barron's "Membership has its privileges." That slogan belongs to American Express, but it might better apply to Costco Wholesale, the leading warehouse-club operator in the U.S., whose determination to deliver value and innovative products to its 23 million members has made it one of the country's top retailers. Costco (COST, news, msgs) has succeeded by flouting industry norms. The big-box retailer charges customers a base yearly fee, now $50, to shop in its sprawling stores, which offer quality goods at low markups. Consequently, its margins are among the slimmest in retailing. The privileges also extend to employees, who are paid well and enjoy generous health-care benefits. This formula has generated fierce loyalty among both shoppers and workers while rewarding long-term investors. Costco shares, which traded Thursday around $58, are up from a split-adjusted price of $1.67 when the company went public in 1985. True, they no longer are dirt-cheap, but in view of the company's superior management and opportunities for growth, neither are they rich. Small businesses are big customers at Costco, but the company also has managed to make discount shopping fashionable for affluent Americans by offering fine wines, books and big-screen televisions at low prices, and staples such as paper towels and razor blades in bulk. By offering one-time specials like discounted Prada bags or Callaway golf clubs at individual outlets, Costco has created what it calls a "treasure-hunt" atmosphere in its stores. Not the Wal-Mart way Costco is among a handful of retailers that has flourished despite Wal-Mart Stores' (WMT, news, msgs) onslaught; Wal-Mart's more downscale Sam's Club chain runs second to Costco. With its strong labor relations, low employee turnover and liberal benefits, Costco has been called the "anti-Wal-Mart." Its approach has paid dividends because Costco, based in Issaquah, Wash., hasn't encountered the same community resistance as Wal-Mart when it has sought to open stores. "Retailing isn't rocket science. Costco has figured out the big, simple things and executed with total fanaticism," says Charles Munger, a Costco director for the past 10 years. The outspoken Munger, 82, is better known as Warren Buffett's longtime partner at Berkshire Hathaway (BRK.A, news, msgs), where he serves as vice chairman.Crucial to the chain's success is CEO Jim Sinegal, who co-founded Costco in 1983 with Jeff Brotman, the company's chairman. "Jim would be on any intelligent list of the top 10 retailers of the past century," Munger says. Sinegal, 70, also is one of the biggest bargains among big-company CEOs: In an era of seven- and eight-figure pay packages for CEOs, Sinegal earned a salary of $350,000 in Costco's latest fiscal year, which ended in August. He garnered other compensation of about $100,000. What's more, Sinegal got no bonus last year, after the company determined that it had failed to measure properly the appropriate date for certain option grants from 1996 to 2002, although no evidence of fraud or falsification of records was found. "Jim wouldn't let the board give him a bonus. His view was that the option glitch happened on his watch," Munger says. "How many people behave like that? No wonder everyone loves him." Unlike Buffett, who draws a salary of just $100,000 as the CEO of Berkshire, Sinegal isn't a billionaire. He owns Costco stock worth about $135 million and has options on 1.2 million shares. Sinegal's compensation and demeanor offer a welcome contrast to former Home Depot (HD, news, msgs) CEO Robert Nardelli, who alienated employees with his autocratic style and whose gargantuan exit package of $210 million didn't sit well with shareholders. Video: Behind the scenes at Costco None of this has been lost on the investment community. At nearly $58, Costco trades for 22 times fiscal 2007 projected earnings of $2.58 a share. It has one of the highest price-earnings ratios among major retailers. Target (TGT, news, msgs) shares, at nearly $63, trade for 17 times estimated 2007 earnings, while Wal-Mart, at $48, commands 15 times projected 2007 profits. Though some retailing analysts deem Costco shares expensive, the company seems to qualify under one of Buffett's investment dictums. Buffett has said he'd rather buy a good business at fair price than a fair business at a good price. Berkshire owned 5 million Costco shares at the end of September. Growth and more growth This is a genuine growth story. Earnings per share have increased at a 12% annualized rate in the past five years. Neil Currie, a retailing analyst at UBS Securities, believes the company is capable of generating 13% growth in earnings per share in the next few years and an even higher rate if it gets more aggressive in repurchasing shares. The bullish Currie carries a 12-month price target of $66. With large annual buybacks, Costco could earn more than $4 a share in fiscal 2010, Currie estimates. That could support a stock price of $80. The company plans to open 36 to 40 stores in the current fiscal year and about 35 annually in subsequent years. The store base totaled 474 on Dec. 31, including 371 in the United States. Costco says domestic and international markets ultimately can support more than 1,000 stores. Outside the U.S. and Canada, the most promising markets are likely Mexico, the United Kingdom and Japan. Costco's merchandise sales in its most recent fiscal year rose 14% to $59 billion, while membership fees generated $1.2 billion in revenue. This year, sales are expected to rise more than 10%, reflecting lower prices for gasoline. Sales at stores open at least year, a key gauge of retailing success, were up a healthy 8% in fiscal 2006. Could the company be a candidate for a leveraged buyout? Costco does possess some of the key characteristics that private-equity players seek. It has a strong balance sheet, a predictable cash flow and a durable franchise. Its market value is a hefty $26 billion, but LBOs of that size are doable these days. Costco bought back $1.5 billion of stock in its latest fiscal year and $400 million in the quarter that ended Nov. 30. But it has resisted a large debt-financed buyback like the one under way at Home Depot, and to date it hasn't sought to raise funds through the sale of its real estate. The company takes pride in its impressive financial condition. "Have we gotten to the point in America that balance-sheet strength is a negative?" Munger asks.Currie argues that Costco could keep LBO operators at bay by launching a more aggressive buyback program and taking on a moderate level of debt. "The best way for Costco to protect its independence is to have a high multiple on its stock," the analyst says, adding that an augmented buyback would help achieve that goal. He believes Costco comfortably can repurchase $2 billion or more of stock annually. The dividend yield on the stock is a low 0.9%. Most income from members' fees Its cooperativelike operation makes the retailer's business model unusual. In its latest fiscal year, Costco generated pretax income of $1.75 billion, about 70% of which came from membership fees. An additional $125 million was kicked in by the interest income on the company's cash. Costco earned just $400 million from its stores, for a retailing operating margin of less than 1%. The low margin is intentional and reflects the company's commitment to low prices. As a matter of corporate policy, Costco refuses to mark up any product by more than 15% above its cost. When the company signed a new contract in 2005 with a supplier for Brooks Bros.-style men's cotton and button-down shirts, and got a significant price reduction for a massive two-year order, it immediately cut the price of the shirts to $12.99 from $17.99, notes Richard Galanti, Costco's chief financial officer. Other retailers might have phased in the reduction and captured added profit, but that's not the Costco way. The shirts now cost $14.99 because they are made with better-quality cotton. One attraction in the eyes of a potential buyer would be the opportunity to lift margins. Costco leads Sam's Club in most financial measurements, including total sales, sales per store, sales per square foot of retail space and sales per employee. But Sam's operating profit margin of 3.5% tops Costco's 2.8%. Some complaints on Wall Street If Costco were to raise its margins to Sam's level, it would translate into an additional 65 cents a share of net income -- a large amount relative to the current-year consensus estimate of $2.60 a share. Sinegal has talked in the past about lifting Costco's margins to 4%, but little progress has been made. This has led to some criticism on Wall Street. An analyst report in December, after Costco reported its fiscal-first-quarter profits, was entitled "Still No Margin." Galanti says management has no interest in going private. "The public model has worked for us. We have no plans to change," he says. Video: Behind the scenes at Costco Many Costco shareholders are also happy with the current situation. "Costco refuses to be undersold and thinks so long term that the company will not even remotely degrade the value it gives customers, even if it would fuel a healthy increase in margins and earnings and very few customers would notice," says Ken Charles Feinberg, a co-manager of the Davis New York Venture Fund (NYVTX) and Selected American Shares (SLADX), both run by Davis Selected Advisors. "That's how a great management builds a great business franchise that's built to last." The Davis funds are Costco's largest shareholder, with a 12% stake. Feinberg says that Costco's effective valuation is lower than its stated price-earnings ratio because of the company's conservative approach to depreciation. He recently calculated that Costco trades for about 16 times his projection of calendar "owner earnings." This profit measure adds to operating earnings depreciation expense in excess of what is needed to maintain the existing store base. Feinberg believes Costco is a "compelling bargain" for long-term investors. Sinegal doesn't talk much to Wall Street and wasn't available to speak with Barron's. Even at 70, he maintains a grueling schedule. He aims to visit each Costco store twice a year and is about 70% successful in that goal, Galanti says. This means he's on the road 40 to 45 weeks a year. Costco executives jokingly refer to Sinegal's weekly travels as a "death march" because he usually begins each day at 7 a.m. and finishes at 10 p.m. Dressed in sneakers, khaki pants and Costco's now-$14.99 button-down shirts, Sinegal asks store managers what's selling, what's not and how Costco prices compare with the competition. He has no set plans to retire, although he has talked casually about holding the job for five more years. Because he hasn't set a retirement date, there is no heir apparent. But Costco has a strong group of managers who share Sinegal's passion and vision. Unlike most CEOs, Sinegal has no severance or golden parachute in his contract, which runs less than a page. He insists on one-year contracts, believing the Costco board should have the opportunity to evaluate him annually to determine if he's still up to the job. Sinegal's view is that the restrained terms of his contract send an important message to employees. In the view of Berkshire's Munger, one of Costco's great strengths is that its two founders, Sinegal and Brotman, are still active. Brotman, 64, focuses on real estate. "There is no better site acquisitor in the retailing industry," Munger says. "I'd like to see Jeff get more credit. He deserves it." Costco has chosen to focus on more affluent coastal markets; California alone is home to 30% of its stores. Finding sites for new outlets in densely populated areas is one of Brotman's specialties. The company features products that offer its members large cost savings over what they would pay at traditional retailers. The chain carries just 10% of the items in a typical supermarket, which might stock 40,000 products.The formula works. Costco sold 1.5 million TVs last year and has successfully built what it calls ancillary businesses such as prescription drugs and eyeglasses, filling 26 million prescriptions in 2006. Hungry Costco members bought 63 million hot-dog-and-soda combinations last year at in-store snack bars -- priced at only $1.50 and with free soda refills. The dogs are even kosher. Costco's customer-focused strategy is apparent in its 87% membership-renewal rate. The retailer allows returns on nearly all items at any time, with no questions asked; computers are the lone exception. It doesn't even need to see receipts. This liberal policy has proved costly in the past year because the company is seeing returns of an unusually large number of big-screen TVs. Analysts suspect that many members are taking advantage of the sharp drop in TV prices to return models bought in the past 12 months so they can buy new ones at lower cost. Costco said it is evaluating its TV-return policy but emphasizes that no change will be retroactive and that it still plans to maintain the industry's most generous return policy on electronics. Low turnover among employees Workers get a relatively good deal at Costco -- a point of emphasis for the company, which contends it's also a matter of good business. Despite fewer stores, Costco's sales are about 50% above those of Sam's Clubs, and sales per employee are about $500,000 a year versus $340,000 at the Wal-Mart unit, UBS' Currie calculates. Sinegal was asked in a recent Bloomberg TV interview about the company's health-care benefits. Costco provides health insurance to its 93,000 domestic employees and pays 90% of the cost, which runs about $6,000 annually per employee. Video: Behind the scenes at Costco "We're 100% committed to maintaining this program," Sinegal said. "It works for us, and our people count on it. We think they're entitled to that security." Costco has one of the lowest turnover rates in retailing. Among employees who have been with the company for at least a year, just 6% leave annually. That may be because store employees such as cashiers can earn more than $40,000 a year after only four years on the job. Costco shares aren't a bargain at current levels, but patient investors could be rewarded because the company is an industry leader with top-notch management, a loyal customer base and solid growth prospects in the U.S. and abroad. In Street-speak, Costco may be "under-earning," meaning its profit margins are lower than they need to be. Management is loath to tinker with a successful formula, but margins probably have only one way to go: up. In time, the shares are likely to follow. This article was reported and written by Andrew Bary for Barron's


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