Power of the people Featured

8:00pm EDT May 26, 2008

Jack Welch values process over people. Ray Dalton values people over process.

This was the lesson that Dalton learned earlier in his career when he had the opportunity to work for Welch on two separate occasions after GE bought businesses he had started. While many would salivate over working for Welch, Dalton shudders.

“It was probably the most difficult time in my life from the standpoint of just commitment,” Dalton says. “It was a difficult time being committed to GE because we’re so different.”

Those differences were rooted in the people part of business and the GE philosophy of routinely cutting the bottom-tier performers.

“It was so painful to me to get another e-mail that said, ‘Get rid of 42 more people because all of your C’s had to be gone by November,’” he says.

While GE, as a whole, was growing 5 percent a year, Dalton’s segment was growing 40 to 50 percent.

“I was struggling to hire people, and he’s telling me to get rid of people,” he says. “This doesn’t make sense. You can’t have this universal application that says all C’s are bad. All C’s are bad means you hired wrong, and you didn’t invest properly. If you lay a person off, it’s 80 percent management’s fault because we never should have hired if we didn’t believe we had a job for them.”

GE’s leadership team didn’t agree. They basically said to get over it because he worked for GE now. For all that GE excelled in, Dalton knew they were missing out on more.

“They do an amazing job,” he says. “But they forget a huge, very important part of that — how they got there. It’s the people that contributed to the number. I come from the inner city, where drugs and alcohol and a lot of things were going on. I saw the power of the people, and I saw that people survived that, and people contributed to things that were better.”

In 2001, he founded his seventh business, PartsSource LLC, and from the beginning, he’s focused on that power of people. His team grew the company, which sells replacement medical equipment parts, from $40 million in revenue in 2005 to $84 million in 2007 and is projecting $125 million for 2008. They also landed a spot on the Inc. 500 list in 2006. This president and CEO credits his success to the people he’s hired, setting them up to succeed, spending time with them and keeping them happy.

“Our growth is completely centered around that we’re customer-centric, but in order to be customer-centric, you have to be employee-centric,” Dalton says. “People say, ‘We really care about our customer,’ but the question you have to ask is, ‘Do you really care about your employee?’ What is the evidence that you can point to that shows that you value your employee as much as you value your customer because you can’t have a (long-term) customer without a long-term employee. It doesn’t happen.”

Hire for passion

When a man fell off a ladder and broke his shoulder while working as a painter, he knew his painting career was over. He interviewed at PartsSource and was charismatic and passionate — but he also had a criminal record. Dalton looked at his own past and remembered an Air Force recruiter telling him how smart he was when nobody had ever said that before and giving him a chance to succeed many years ago. So despite that dark spot on this man’s resume and possessing no sales experience, he seemed driven, and Dalton took a chance by hiring him five years ago. That man grew to be the top performer for all but one month of last year.

“I never forget where I came from, and I value the person, and I value what the person can become — not who they are, but what they can become,” he says.

Sometimes, leaders get so fixated about characteristics they do or don’t want that they forget to see a person’s potential, so Dalton says to throw out “the list.”

For example, he won’t hire salespeople with medical or sales experience — the two very things his company does.

“We don’t want their bad habits,” he says. “We want to train them exactly the way we want them trained.”

While most leaders would drool over Ivy League MBA grads, Dalton doesn’t even care if his employees have a college degree — and only 17 percent do.

“A college education doesn’t really make you any smarter,” he says. “What it allows you to do is ask more difficult questions and understand the answers, but it doesn’t give you ... the personal skills. Our business is very high on the personal skills — can you address them? Can you have a conversation?”

To help discover potential, three different people interview candidates, and each person gives a “yes” or “no” recommendation. Any “no” rules a candidate out.

If the candidates get past all three people, then they get one final interview with Dalton. It’s an opportunity for him to set expectations and explain why their position is important. At the end of the conversation, he tells them to think things through, and if they want to commit to the expectations he’s laid out, to call the human resources manager the next day and tell her that. If they don’t call, he knows they don’t want to and wishes them luck.

This approach personalizes the hiring process and educates the candidate upfront, but it also requires a lot of time on his part because he’s hiring eight to 10 people every month. Despite that, it’s important and needs to be focused on.

“CEOs who don’t take the hiring seriously are building a house of cards,” he says. “They wonder why they have issues or why they’re underperforming, and it’s because they didn’t make any investment, and why should they reap the returns if they didn’t make the investment?”

Empower employees

In business, there are “yes” companies and “no” companies, and after Dalton’s past experiences, he strives to be a “yes” company.

“‘No’ companies are like GE, who will tell you all the things you can’t do — ‘Don’t do this, don’t do that, don’t send this e-mail, don’t go over there,’” he says. “They spend so much time telling you all the things you can’t do that by the time they get done with you, you’re a little nervous that you might not have heard right because they didn’t tell you not to do something that you say, ‘I’m sure they don’t want me to.’ They miss out on all this opportunity of all these people who want to do great things, but they say, ‘They don’t want me to do great things — they want me to do this, so I’ll do this.’”

Being a “yes” company is important because it empowers employees to do things their way and try new ideas.

If you want to be a “yes” company, keep the rules to a minimum. Instead of telling his people what not to do, Dalton instead says they can do whatever they want as long as they don’t intimidate or offend other employees, customers or vendors. His reasons are simple — companies are like families, and going to work is like going to a reunion. You may not like everyone, but they’re still family.

“They’re all people, and they will be respected, and they will all be respected with the same amount of dignity as the most popular person in the building because they’re all family,” he says.

Another way to be a “yes” company is to encourage them to think on their own so they don’t depend on your ideas and answers.

“If you come to me and say, ‘I have this problem,’ I’ll say, ‘What do you think we ought to do?’” Dalton says. “You know it is impossible for you to identify a problem without identifying what you would do if it was up to you. I’d say, ‘You’re smart, tell me.’”

To avoid being a “No” company, don’t create uniform processes for everything.

“You have a style, and your style is different than people out there, so if I was a big corporation, I would try to create a bunch of little Rays and have you do it like I did, and use the forms I used, and say what I say,” Dalton says. “You’ll never be me, and I’ll never be you, and you have so many attributes that are so amazing and so much better than me that if I try to make you me, then I don’t get them. ... We’ll be a lot better company if you don’t try to make me you, and I don’t try to make you me.”

Create accountability

Throw out a number for the salary you’d like to earn this year. Whatever that number is, consider it done at PartsSource. When employees start, they determine their salary, and managers break it down into monthly, weekly and daily goals to help them get there. Setting their own goals helps employees succeed and avoids the disappointment of not meeting someone else’s expectations.

“The relationship between employee and employer is pretty intimate,” Dalton says. “Everyone wants to be held accountable, but they want to be held accountable in a fair way. ... If your boss is doing nothing but pounding on you for results and setting unrealistic results, and all you do is fail at them, pretty soon, you’re just going to shut down and say, ‘Whatever.’ People who set unrealistic goals are just setting them up for failure.”

You also have to hold them accountable. Create no more than five metrics for each position.

“If we can’t get down to five, then we don’t understand their job,” Dalton says.

As an example, the metrics for someone answering phones would be accountable for how many times the phone rang before it was answered and how long the caller was on hold.

Dalton then ties everyone’s salary to these types of metrics through a variable compensation program. Depending on the position, 20 to 100 percent of someone’s salary is variable comp.

“People who have the ability to make the decision have higher variable comp,” he says.

For example, salespeople are on 100 percent variable comp because they can pick up the phone to get a sale. On the other side, receptionists can only do their job if the phone rings, so they’re at 20 to 25 percent.

People often scoff at putting low-rung employees like receptionists on variable comp, but their efforts matter, too.

“When they answer the phone, that customer, in that very moment, is deciding what kind of relationship they’re going to have with the company,” Dalton says.

It’s important that the call is quickly answered and transferred to the appropriate person, and a base or hourly salary doesn’t give them any incentive to do those things.

“So what if it rings five times?” he says. “Who knows and who cares? We said because we care, we’re going to measure. Everything we care about, we measure.”

While salary is important, you also need to reward people for a day’s work that very day. PartsSource has a program where each day employees earn 25,000 bonus points for meeting an individual metric and the same amount for contributing to corporate objectives. That 25,000 points equals $100, and employees can redeem their points anytime for anything. Last year, PartsSource paid out more than $350,000 in rewards.

“We’ve paid for weddings, divorces, day care, transmissions, down payments on houses — anything you want,” Dalton says. “It’s our way of recognizing the individual contributions if someone says, ‘I’m going to work a little harder.”

When you tie rewards to performance, everyone pays more attention to metrics, so make them available. Individual and team progress are posted online and in each team’s cubicle area every day.

“If you’re going to set expectations, then people have to be able to get to them,” he says. “One of the biggest distractions people do in business is they set goals, and people don’t know if they’re there or not. People say, ‘Here’s your goal,’ and they go, ‘Well how close am I?’ and they say. ‘I’ll let you know next month — I have to wait to get the numbers.’ People, where there are high expectations set, need to have instantaneous reward. They need to know right now how I’m doing.”

Posting progress also creates peer accountability. If someone takes a long lunch and misses their numbers that day, the team gets on them. If they miss three days in a row, then the manager talks to them about getting back on track.

“It’s the team having the conversation — it’s not HR,” Dalton says. “Your team will manage you and groom you.”

Invest time with employees

PartsSource employees eat — a lot. Each Wednesday, Dalton has a lunch meeting with a different group of employees.

“Everything is centered around food,” he says. “If you feed people, they show up.”

One lunch is with that month’s top 20 to 25 performers, and nobody from leadership is allowed. He asks them how they think the company can improve, and from that lunch, Dalton also selects three people to teach training classes for other employees.

“They may say, ‘I don’t want to teach,’ but I say, ‘You’re here today because people have recognized you as a leader in this company, and I want other people to know how do they develop those leadership qualities.’”

Personally recognizing and encouraging employees to do this improves their leadership capabilities.

Another lunch is with that month’s new employees to talk about the hiring and training process. He asks if they thought it was fair and honest and how to make it more effective.

Employees have suggested discussing other openings with candidates, as sometimes they’re not aware of different positions that may be more suited to them. They’ve also suggested shadowing employees to get a better feel for what’s involved. Both have been implemented but not by Dalton’s doing alone.

When these ideas arise, the group discusses each and chooses one to move forward with. Then one person is assigned to follow up with HR about implementing it. The HR manager listens to the ideas because 70 percent of her variable comp rides on retention.

“Her job is to make sure we have happy assets,” he says. Most leaders think their top priorities are spending time with customers, but Dalton challenges that your employees are your customers.

“They see more people in the next two hours after lunch than I’m able to see in two years, so I leverage,” Dalton says. “... My best investment is treating these people in such a way that they can treat everyone else such a way.”

If you don’t take time to truly talk to employees, then you’re wasting your money.

“It costs us $7,500 to recruit and train an employee,” he says. “If I put $7,500 on this table, and I had a trash can and said, ‘Here’s what you do when you don’t take care of your employees.’” (Dalton slides the imaginary money into the trash can and then continues.) “That’s what you do when you don’t have process. That’s what you do when you don’t become intimate with them and get to know them.’

“You take a $7,500 investment, and you say, ‘I have no idea if this is going to work or not.’ Nobody — Warren Buffett, name anyone you want — is willing to do that, but that’s what a CEO does who doesn’t ... take the time to really respect the asset.”

Reward and motivate people

When people wake up in the morning, Dalton doesn’t think their first thought is how they could make things bad for everyone else. Instead, he says everyone wants to be successful and make a difference.

While he tells employees how they affect health care and patients, it’s more important to show them how important they are through perks.

While the HR manager has a lot riding on retention, she also has 20 percent of her variable comp riding on creating two new employee benefits a year. For example, with the Aurora Farms outlet mall right next door to the PartsSource headquarters, she negotiated with the mall for employees to receive 30 percent off at all of their stores last November — just by showing a business card. Programs like this increase employee satisfaction.

“I really believe that my assets drive home every night, and anybody in a leadership role, their job is to make sure that their assets want to come back to work the next day and [that] they’re happy about it,” Dalton says.

If employees don’t feel appreciated, they’ll go somewhere else.

“The typical call center has a turnover rate of about 50 percent a year,” he says. “Can you imagine trying to keep up with that? It’s exhausting. ... I don’t want to go there. It’s way too much work to do that.”

When employees are satisfied, they’re more likely to recruit friends and family, so if an employee refers someone who gets hired, the employee gets $500. If the new hire stays on, the employee gets another $500 at Christmas as an additional thank you.

“If someone sent you a gift or sends you flowers or says something nice to you, it feels pretty nice,” he says. “Why can’t you have a workplace environment where people say, ‘I really appreciate you doing that?’”

Incentives, rewards and encouragement motivate people to do their best.

“Highly motivated people are happier employees, and they’re focused on one thing — satisfying the customer,” Dalton says.

When both employee and customer are satisfied, then you have unlimited possibilities as an organization.

“The job of the CEO is to be the chief encouragement officer and not the chief execution officer,” Dalton says. “... Don’t give up on your people. Your people are your strongest asset. It’s your employees that can get you to heights you can’t even imagine you can get to, but if you can imagine it, they can do it.”

HOW TO REACH: PartsSource LLC, (877) 497-6412 or www.partssource.com