Rarely do employees have to be removed because they committed a crime or showed some ethical flaw. They are usually nice, and letting them go isn't easy. So we procrastinate.
Recently, I ran into a business owner who'd attended a seminar where I'd spoken. He told me he had followed advice I gave him with regard to an employee, and a month ago replaced him. The problem was that the seminar was 10 years ago, and it took a little too long to pull the trigger.
As tough as it is to let people go, it is sometimes necessary. The company should benefit, and it is often better for the employee. He or she is not prospering and may have a better opportunity in another organization.
But there's always rationale for not following through. Sometimes it is the devil you know versus the devil you don't know. Or you are concerned how other employees will feel.
Jim Collins, in his book "From Good to Great," stresses the importance of having the right people doing the right jobs. Great companies become great only after they have the right people.
He describes it as "getting the right people on the bus, the wrong people off the bus and the right people in the right seats." Until this happens, the chances of becoming a great company are not good.
Companies strive to achieve great things. They set their sights high, then wonder why they have difficulty getting there.
The answer is often their people. They want to achieve great things but don't have the best people. They endure mediocre performance and expect great results. It just won't happen.
Should you fire everyone and start over? No. But the situation does require removing those who are not right for your organization, then looking for talented people who are right. Businesses should continuously recruit, finding people who can improve the organization and removing those who are not contributing.
A good company with a team of good people can always attract more good people. Why not take advantage of the economy and make someone else's loss your gain? Joel Strom (email@example.com) is director of Joel Strom Associates LLC, the growth management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing their profitability and value. Contact him at (216) 831-2663.
They're easy to spot. They complain about their business, but when asked what they have changed to address the issues and ease the pain, the answer is typically "not much."
It's doubtful they actually enjoy the pain. Instead, they probably have a difficult time with change.
But innovation and change can fix problems, breathing new life into a stale or dying business. They must be implemented throughout a business -- operations processes, management and corporate structure, sales systems, products and services, and even target clientele.
I recently worked with a family-owned company that had been in business for a few generations. It had grown and earned family members and employees nice livings. But over the last few years, it hit a plateau.
Every time a quarterly statement was issued, management discussed the situation. What could they do to get rolling again? How could they jumpstart sales and regain the good old days?
Their conclusion was always the same -- do more of the things they had been doing for years, but do them better and work harder. Unfortunately, they failed to recognize that this wasn't the problem. No matter how hard they worked, the situation would never get better.
Finally, the pain reached an unbearable level and they agreed to leave their comfort zone and consider making major changes to the entire operation.
In theirs, as in so many other industries, the basic model needed to change. They re-examined their operating, sales and financial models, asking one key question -- "Why do we do it this way?"
They also asked customers what they liked and wanted, then over several months, restructured the company. They changed their sales and marketing focus and methods, modified product offerings to better meet customers' needs and altered pricing and purchasing practices.
Once they accepted that what worked yesterday was not working very well today, change became exciting and fun. Joel Strom (firstname.lastname@example.org) is director of Joel Strom Associates, LLC, the growth management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing their profitability and value. Contact him at (216) 831-2663.
Given the grim outlook for near-term growth in top line revenue and the cost-cutting that has already taken place, what more can be done?
Very little. Your time is better spent focusing on maximizing the return from your company's remaining resources. Your organization can no longer afford underperforming or misappropriated resources.
Reallocation of resources can maximize your return and help you survive, and even thrive, in lean times. By ensuring that resources are utilized where they provide the greatest benefit, better decisions can be made when budget-driven cutbacks become necessary, as well as when expansion is under consideration.
Assessing current resource utilization and return requires questioning how and why nearly every activity in the organization is performed. Your mindset throughout the process has to be two-pronged -- "There must be a better way" and "Nothing is sacred."
Start by establishing objectives. Make sure you understand what you are trying to accomplish and what outcomes equate to success. Then make sure objectives and expectations are shared with and understood by everyone in the organization.
Employees need to understand why it is being done and what the alternatives would be if no action were taken. If not done carefully, the process could create a stressful and unproductive corporate environment. For the best results, consider giving employees the opportunity to take an active role.
Assuming your objective is to direct more of your limited financial and personnel resources to activities that directly serve the customer rather than to activities that indirectly support activities, then this is the place to start your assessment. Organizations tend to get fat in indirect support areas when times are good. Mining these areas usually results in excess or underutilized resources that can be reassigned.
This process is intended to maximize the return on resources. Its primary objective is not to cut overall costs and resources but rather to reassign them to more productive activities. Keep this in mind and you're well on your way to increasing top line revenue and strengthening your organization. Joel Strom (email@example.com) is director of Joel Strom Associates, LLC, the growth management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing their profitability and value. Reach him at (216) 831-2663.
These rules focus on getting the planning process off to a good start. For most business owners, successful growth is no accident. Its the product of hard work, but more important, strategic planning. This month, we look at the next four rules, which address plan development.
4. Never let them laugh at your mission statement
Many companies take their mission statement and proudly display it on plaques hanging in their offices for everyone to see. Im not the only person who has read one of these while waiting in the foyer of a company and thought that I am either in the wrong company or they hung up some other companys plaque by mistake.
These experiences have led me to believe that the mission statement although believed by many to be a soft and fuzzy waste can actually be useful and important, providing it reflects reality. A mission statement can help a company define and maintain its focus and culture.
Anyone who reads the mission statement (whether it is management, employees, customers or vendors) should be able to tell what kind of company it is and that it reflects reality. No laughing out loud, no snickers, and no comments like, Who are they trying to fool?
5. Dont shortchange investment in internal and external analysis.
Once the mission statement is developed, assess current and future situations. Include a thorough analysis of the internal and external environment that could affect the future success of the company. Unfortunately, the importance of the information gathered in this process is often underestimated. Understanding gained about the companys internal strengths, weaknesses, critical success factors and core competencies are critical to a successful plan. Knowledge of the external environment, competitors, markets and customers can help avoid missing the mark with the companys competitive strategies.
6. Develop strategies that build on your core competencies
Since this is strategic planning, you need to develop strategies. There is certainly not room in this column to try to discuss strategic options a company has, the types of strategies that need to be defined and developed, or even the definition of a strategy (which is no simple task). But I can say that your strategies should combine some of the results of the internal analysis to the strategy. The analysis should have confirmed what the company is good at.
With the lone exception that what the company is good at is not what the customer wants, doesnt it make sense to develop strategies around those strengths? Core competencies that are truly valued by the market can be the foundation for establishing sustainable competitive advantages that differentiate the company for years to come.
7. Provide a report card with measurable performance objectives
How do you define success? An integral part of every planning process is establishing performance measures that will enable you to know if the plan is successful. If sales increased 10 percent last year, is that good or bad? If the plan was to increase by 20 percent, your company certainly missed the mark.
Without performance objectives that can be measured, you could be celebrating a win when you should have been analyzing the loss. In order to measure success, first you need to define success.
The biggest complaint from companies who feel their strategic planning process was not worth the effort is that the plan was never implemented. The last three rules, which will be presented next month, are intended to help ensure that your plan becomes more than a dusty book on your shelf.
Joel Strom (firstname.lastname@example.org) is president of Joel Strom Associates Inc., Growth Management. His firm works exclusively with closely held businesses and their owners, helping them set and achieve their growth objectives while maximizing profitability and value. He can be reached at (216) 831-2663.
Seven years ago, I worked with a struggling manufacturing company located in a very old and small building on Cleveland's near east side.
The first time I met the owners, I got a very special feeling that certainly didn't come from their facility or their financial condition -- they were definitely struggling. The combination of low sales and low margins made cash very tight. Paying the owners a decent salary was not even on the horizon.
Yet, they were so positive and obviously committed to making this business successful that I knew this client had real potential.
Today, the company is located in a beautiful new suburban facility and is the market leader in its niche. It has a motivated and dedicated work force and has met its sales projections while achieving an envious bottom line. It is one of those companies and success stories that make a career in consulting rewarding.
So what makes a company like this become a star performer and achieve such lofty successes?
Many factors come into play. But if you analyze any star company, you'll find two common underlying elements: commitment and focus.
Committed to succeed
When I first met the family owners, I could tell they would do whatever it took to succeed. Despite the struggles, they had a true commitment to their vision and eschewed all opportunities to leave the company and take higher paying jobs elsewhere.
They reinvested in the business even when they were taking meager salaries.
Today, that commitment remains. They continue to reinvest, to build the best team possible, to strive to be the market leader and to not rest on their laurels. They develop new products and invest in R&D. The family spends more money on marketing and product development than most manufacturers of their company's size.
Considering their commitment level, I would have been surprised if this company did not succeed.
Focused to grow
But its leaders didn't quit with commitment. When they added their strong focus, they became a sure bet for star status. I have heard it said that no growing business can have too much focus. But to reap the benefits of a strong focus, a company needs to truly understand itself and its environment. Our star manufacturing company really understands who it is, what it wants to accomplish and what it's good at.
To really have focus, an organization needs clear vision. It must understand its niche. That's important because when leaders veer off course into areas outside the company's core competencies and vision, if they know their niche, they will recognize the situation and get the focus back.
Five years ago, we helped the new ownership team of a long-established contracting company develop a strategic plan for the rebirth of the company. Last month, we held a five-year review and update session.
We looked back at the success that the company had achieved over the last five years. It was evident how the team members commitment and focus helped direct and enable its success.
The original plan helped them define their focus. They identified their vision for the type of company they wanted to be, the type of work they wanted to pursue and the growth path they wanted to follow. During the initial planning process, the team made a commitment to that focus, then reconfirmed that commitment throughout the next five years.
At last month's session, as we reviewed the progress of the company, we found that it had achieved nearly every one of its targeted growth goals (including profitability targets). Everyone agreed that the organization functioned today as they had envisioned it would and that overall, the partners were very pleased with where they were and what they had accomplished.
As an outsider who had witnessed their progress over five years, it was clear to me that a good part of their success came form their total commitment, individually and as a team, to stick to the plan and remain focused on their vision.
These are just two examples of star performers that stand apart and have a brighter future than many others. It's not because of their products or markets but because of a total commitment to their plans and to their goals and a clear focus on their visions. Joel Strom (email@example.com) is president of Joel Strom Associates Inc., Growth Management. His firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. Reach him at (216) 831-2663.
Companies today are verbalizing their visions and missions.
Some, like Continental Airlines -- "Work Hard, Fly Right" -- have even made them part of their advertising strategy. In a few simple words, it's obvious how the company thinks about its business and its customers.
There is, however, a potential downside. Once you announce it to the public, you have set high expectations.
But problems occur only when a company can't convert the theory of the vision into reality. When this happens, it's usually because the theory has originated at the top of the organization and no one remembered that the employees are the only ones who can make it reality.
Unless employees buy into the theory and are committed to it, simply putting the vision into an advertisement will not make it happen.
Get the message to the troops
Our firm was once called in by a large service-oriented company with outlets nationwide that had spent a considerable sum of money and management time developing its new corporate vision and mission. Its intent was to become much more of a customer-driven organization.
But according to the CEO, the efforts had not had the effect on the company that he had envisioned. As he put it, "It doesn't matter how much time or dollars have been put into this effort as long as the cashier in Houston still treats our customer with indifference."
This company had done a poor job of getting the message through to the troops. These were the only people within the organization who ultimately had the opportunity to turn their theories on improved customer service into reality.
The CEO had an excited management team in the Cleveland office and a nationwide group of employees in the field with little or no interest in the whole exercise. The most important part of the company's well-intentioned exercise was not given the effort it required.
The company failed to get the field troops, those that patrol the border of the company and its customers, to understand the vision and mission and to get them excited about implementing it.
Customers have a choice
I recently returned from a business trip and can attest, as I am sure many of you can, to the fact that there are many good case studies of this situation in the airline industry. As you stand there dealing with a truly nasty airline employee, you are looking right at a sign touting the airline's customer service focus and "we care attitude" slogan.
I've heard arguments that the employees' attitude should be blamed more on overwork and frustration than on poor communication of the company mission. That may be true, but isn't their frustration just another indication of vision and mission coming more from the ad agency than from the heart of the company?
In the case of an airline, we have few choices. With travel demands, we are often forced to frequent certain airlines in spite of how we are treated or how well their employees understand or buy into the vision. Unfortunately, smaller businesses rarely have that luxury.
If the promises you make as management do not translate into reality at the border with the customers, your competition is waiting to grab those customers.
It depends on understanding
To ensure the desired delivery at the border, employees must understand the company's mission, its vision and its desired way of doing business. Even more important, they must understand the importance the company places on these statements and practices.
The salesperson at Nordstroms who cheerfully waits on you and graciously gives you a refund when you return a purchase has obviously gotten the message. This person understands how Nordstroms does business and how important this type of behavior is to Nordstroms' success.
The bottom line is that everyone in the company must buy into the message and execute upon it. Otherwise, your company's strategy will be doomed from the start to fail.
Joel Strom (firstname.lastname@example.org) is president of Joel Strom Associates, Inc., Growth Management. His firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. Contact him at (216) 831-2663.
There seems to be increased interest in performance-based compensation programs, a result of the difficulty many business owners face in attracting and retaining employees.
The right performance-driven compensation program can be a powerful tool for achieving both objectives. As with anything affecting employees' earnings or their sense of security, a program needs to be well thought out and carefully designed.
Many academic explanations and justifications have been written in support of performance-based systems. However, the reason for implementing a program simple: To motivate employees to think and act like owners.
These programs should be designed to give employees a feeling of ownership by rewarding them for behavior and performance that is directed toward achieving the vision and goals of the company. The program can, by defining the requirements for bonuses and added compensation, clearly communicate to employees what is important to the success of the company.
One size doesn't fit all
As with most management tools, performance-based compensation must be customized to fit the company, the type of work performed, the level and skill of employees, the overall culture of the organization and the ultimate objectives of the program. If you are considering an incentive program, the first step is to clearly define the objectives of implementing the system.
Is it intended to reward employees for specific job-related performance or reward them for overall company performance on a monthly or annual basis? Is it intended to reward individual performance or build teamwork by rewarding overall team performance?
Next, determine what type of program to pursue. Is the organization ready to convert its overall compensation program to a performance-based one or would it be better to move slower by trying smaller, more specific incentives as add-ons to your existing system?
Implementing a total performance-based compensation program will require more initial effort to ensure the system achieves the objectives. It also requires much more effort directed at the organizational and employee issues associated with changing a compensation structure.
A less extensive specific reward program can be implemented more quickly with less risk.
One of our clients took a pioneering leap into a companywide performance bonus program nearly 10 years ago. The company was young and had few employees, but management wanted to reinforce its desired company culture and provide a tool to retain key employees.
Today, with a company that is four times larger than it was 10 years ago, the system is still based on annual payouts for every employee in the company. Over the years, it has been adjusted to fit the company's growth and to enhance it by utilizing improved information systems.
The annual bonus is now based on achieving three key performance indicators in addition to the original profitability targets.
What hasn't changed is the employees' excitement and enthusiasm for the end-of-year bonus and their commitment to the company's vision, goals and the bottom line. They have ownership.
Factors to consider
A performance based compensation system can make your employees behave more like owners and stop asking themselves questions like, "Why should I work harder? What's in it for me?"
But, it must be done right to achieve your objectives and avoid major turmoil. It will require considerable time and thought but will be worth the investment. Here are two important factors to consider before starting the design of your system:
- A performance-based system cannot be a solution in itself. It should only be a part of the overall culture of the organization.
- Performance goals must be realistic and the employees must be able to directly affect their outcome.
With that in mind, you're well on your way to determining what's best for your organization. Joel Strom (email@example.com) is director of Joel Strom Associates LLC, the Growth Management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. He can be reached at (216) 831-2663.
Whether or not the current economic slowdown has affected your business, there will be times when change -- whether economic or in your industry, technology or market -- will have an impact on your business.
These are changes that are essentially out of your control. If your biggest customer goes out of business or decides to replace your steel components with plastic ones, it doesn't matter whether the economy is in a growth mode; your company will face a critical time.
Last month, I indicated that not only could companies survive external changes such as an economic shift, but they could actually get stronger. I listed strategies for making this happen and this month will discuss these in detail.
Awareness and action
In 1996, Andrew Grove, president of Intel, published a book entitled "Only the Paranoid Survive." That may be a little strong, but the truth is that for companies to survive and prosper through changing times, management must stay awake and stay aware.
It needs to identify and pay attention to indicators that things outside the company which could affect the business may be changing. To do that, you need to know what those indicators are and what they signify for your business.
Once an indicator has given you a sign that something is changing, you cannot ignore it. You need to react quickly and decisively.
You'll likely never be completely sure what the cause of the indicator is or that your actions are the right ones. As Colin Powell was quoted as saying, "Go for it when you are 40 to 60 percent sure." If you are less than 40 percent sure, you probably don't have enough information. If you are more than 60 percent sure, you've probably waited too long to take action.
Flexibility, momentum and creativity
Many of our clients are reviewing their strategies in light of recent economic changes. They developed strong strategic directions and practices over the past few years when growth opportunities abounded, and now, many of those strategies need to be adjusted.
But because their overall strategic approach was one of flexibility, they are able to easily adjust. They are experienced in developing strategies and in managing them, so reassessing those strategies and modifying them are simply part of their process. In doing so, they are able to keep up their momentum and keep moving forward.
In rough or changing times, although aggressiveness may need to be tempered, a business owner cannot afford to go into a defensive mode. He or she needs to continue to move forward and identify new opportunities for sales, improved operations and growth.
Major changes in a company's market may require out-of-the-box thinking to create those opportunities. The strongest managers will watch for and take advantage of opportunities that may be created by weaker competition. If it is an industrywide situation, opportunities may be abundant.
Stay in control
Finally, management needs to stay calm, think clearly and not panic. It is impossible to make logical decisions when you have gone into irrational panic mode. Your calmness -- or lack of it -- will also affect your organization.
If employees see a calm, methodical process being utilized to deal with the situation, they'll have a much higher level of comfort and confidence. Employees can sense the mood of the company, and a crisis-driven panic mood may cause some employees to panic as well and find other opportunities.
Operating in a boom situation, when everything is positive and opportunities for growth abound, is certainly more fun than dealing with an economic downturn or major industry or market changes. However, being prepared, following basic strategies and keeping everything in perspective can not only make it easier to survive, but can actually make your company stronger and poised for even greater growth. Joel Strom (firstname.lastname@example.org) is president of Joel Strom Associates Inc., Growth Management. His firm works exclusively with closely held businesses and their ownership, helping them set and achieve their growth objectives while maximizing their profitability and value. Reach him at (216) 831-2663.
As an entry-level employee, I was directly involved with the factory workers. Along with my first taste of manufacturing, I received my first real lesson in employee incentives and behavior.
The company was very proud of its incentive system. Production employees, in addition to a base wage, received a piecework incentive. It established standard times for the manufacturing operations required to make every part. The incentive system paid off if employees beat the standard time to complete their operation -- if machine operators making a part with a 10 per hour standard made 12 parts that hour, they received 120 percent of their base hourly rate for that hour.
This seemed to be a win-win situation -- the company achieved improved production rates and the workers could make more money. However, I discovered productivity was not very good, parts were still late, quality issues were abundant and costs were high.
The system failed. The intentions were good, but the design was flawed. It was actually encouraging the wrong behavior.
One of the more obvious flaws was that operators were paid incentives based solely on the quantity of parts produced. Nothing ensured quality. This often resulted in operators being paid incentives for producing bad parts. And once the bad parts were discovered, they were often sent back to the same machinist, who could earn incentive pay to fix his own mistake.
The key to a successful system is in the design. It must ensure that, unlike that piecework system, it doesn't inadvertently reward the wrong behavior. Making that mistake is easy. You have a problem, and an incentive program seems like a good way to solve it. You want a quick fix, so you don't spend the time you should to think through the ramifications and the behaviors that could be encouraged by the plan.
Following simple guidelines can help ensure your design creates the results you intend.
Rules of thumb
In designing a plan, don't focus on only one aspect of the process; that will likely create unwanted behavior in another part. An incentive plan that rewards speed of manufacturing or delivery may create quality issues.
Don't be too general. If the plan doesn't identify specific objectives, it enables interpretation that could hurt rather than help the company. A plan designed to reward sales increases without specifically stating target products or price points may result in increased sales of lower margin, less profitable products and a reduction rather than an improvement in company performance.
Play devil's advocate throughout the design process. Involve managers and employees to get their input and discuss pros and cons of the plan. You need to feel comfortable that it will provide an incentive for the behavior you intend before you implement it.
Designed and used properly, incentive programs can be a powerful management tool to help solve short-term problems, mold behavior and develop the company culture. Joel Strom (email@example.com) is director of Joel Strom Associates LLC, the growth management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing profitability and value. Contact him at (216) 831-2663.
Companies experienced unprecedented growth during that time. Smaller companies became larger companies and large companies got even bigger.
But was all of this growth good growth? Did the top line growth equate to growth in the bottom line? Did organizations grow with sales or did they remain static or perhaps become dysfunctional? How many companies, after all of this growth, looked like stars on the outside but remained rookies on the inside?
For years, I have seen companies plan or simply experience sales growth while ignoring ways to continue to support those sales. Strategies focused solely on top line growth often create support gaps. These occur when a company's sales grow beyond the capacity or ability of the organization to support them.
Once support gaps are created in an organization, growth crisis is usually not far behind. The larger the support gaps, the greater the crisis. The greater the crisis, the less the company is able to continue to operate effectively and profitably, continue to satisfy its customers and continue to grow successfully.
When dealing with growing businesses., one basic truth is that support gaps and the growth crises they create cannot exist in an organization for very long. One of two things must happen -- either the company increases support levels to match the requirements of its sales, or its sales will decrease to the level that can be supported.
When support gaps occur, a company can no longer provide customers with what they have come to expect. Dissatisfied customers go elsewhere, and sales decrease.
Infrastructure = support
Support comes from the infrastructure of a company. It's the right combination of management, employees, structure, systems, processes, organizational culture and ownership.
Gaps are created when the sales growth of an organization outgrows the ability or capacity of these components. They are created when twice the number of orders are processed with the same number of people on the same overstressed system.
Gaps are also created when managers who did a good job when sales were at a much lower level are now struggling to manage today's larger operation. They are created when entrepreneurial owners are still trying to directly manage every aspect of their business, like they did when the company was a fraction of the size it is today.
Gaps can be eliminated, or better yet, avoided, by planning support growth along with sales growth, then investing in people and processes. Sales plans and business growth strategies are not complete unless they include plans for building infrastructure support.
Now is the time
This may seem like a strange time to be writing about the effects of rapid growth and growth crisis, when nearly every business seems to be struggling with the effects of the economy and experiencing declining or stagnant sales.
But now, when things are slower, is when problems created by the company's growth become more evident. Now is a perfect time to get back to basics.
Now is the time to objectively assess your company's performance over the last few years and to identify the support gaps and search for symptoms of support gaps throughout your organization.
Were profits where they should have been? How well is the management team performing? Have your systems been outgrown? Ask the questions and then develop and implement infrastructure improvements designed to close those gaps.
The economy will improve. Finding and closing support gaps now, or at the least developing the plan for closing them, will ensure your company is ready for the next round of growth.
Joel Strom (firstname.lastname@example.org) is director of Joel Strom Associates LLC, the growth management practice of C&P Advisors LLC. The firm works exclusively with closely held businesses and their ownership, helping them set and achieve growth objectives while maximizing their profitability and value. Contact him at (216) 831-2663.