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Lean Your Ladder On The Right Wall

What wall have you leaned your company’s ladder on? 

What is the key number, the focus or the goal that you are focusing your employees on achieving?  Whatever it is, are you certain that you’re focusing on the right measure?  Here are two examples.

Organizational Strategy Example #1

In “Good to Great” by Jim Collins, Collins talks about how Walgreens moved the ladder from one wall to another.  Walgreens for many decades was focused on profit per store.  Think of this as a math formula.  How do you improve profit per store?  More profit in as few stores as possible.  That formula worked for Walgreens for many years. 

But, growth stagnated.  They struggled to find the right model to jumpstart growth again.  Then they realized they had the ladder leaning on the wrong wall.  Their key number should be profit per customer visit, not profit per store.  What’s the implication of that new measure on the number of stores?  You guessed it.  They began a building spree that continues today to improve profit per customer visit.  With more stores, there are more customer visits.  And, because there are Walgreens stores everywhere, customers are focused more on convenience and less on price.  As a result, profit per customer visit increases.

Organizational Strategy Example #2 

Another quick example.  In a recent Harvard Business School article, Novartis (a large pharmaceutical company) leaned its ladder on a new wall.  Traditionally, the goal in pharmaceuticals is to develop a drug that treat conditions that are common to a lot of people.  So, drugs were developed for cancers, high blood pressure, Alzheimers, cholesterol, etc.  And, this approach has been a successful one. 

However, Novartis recently decided to take a different approach.  Instead of trying to create drugs that target the largest conditions, it now focuses its research and development  investment on creating the most effective drugs - regardless of the size of the potential market.  Novartis hopes that over time Doctors will regard Novartis drugs as more effective and, therefore, prescribe them more.

What’s Your Strategy? 

So, how does this apply to you?  Is your business plan for your company this year based on doing marginally better than last year?  Or, is your plan for this year based on some serious industry niche analysis and internal soul searching to discover your companies unique opportunity not just to compete, but to dominate a particular industry niche? 

When you dominate a niche, you become the go to company and competing strictly on price is less of an issue.  

I don’t know what your experience with strategic planning has been (see article Strategic Planning or Root Canal - Which Would You Prefer?), but an effective strategic planning process will provide the opportunity for a significant financial return for your company.

The Problem With Strategic Planning

Most strategic planning efforts fall far short of their objectives.  And, most of the time, it’s human behavior that get’s blamed.  “We just let the plan collect dust on the shelf.”

The reality is that most strategic planning processes are flawed.  I don’t get much fan mail from strategic planning consultants, but after having studied the results of strategic planning efforts for years, I’ve concluded that most planning processes are flawed.  Flawed processes result in flawed results.  Here’s what I mean. 

Most planning processes start with establishing mission and vision.  “Who are we and where are we going?”  Then comes strategies, goals, objectives and action plans to support achieving the mission and working toward the vision. 

However, this process only works if the marketplace wants what the company has declared it will provide.  What if no one wants the products/services that the company provides?  The planning process will fail to deliver the promised results. 

Further, what if many other companies are already providing similar products and services?  There may be a demand for your products and services, but there will also be competitive pressure to lower prices and erode margins.  

We recommend a process that starts with gathering external data about what the market wants and who’s currently providing those products and services.  The risk is that you may end up with data that suggests that your current products/services are missing the mark.  The upside is that you’ll discover prime opportunities to win in specific market niches.

I clearly understand why many companies avoid strategic planning.  But, done right, there are phenomenal opportunities to improve your organization’s performance.  Remember, if you keep doing what you’ve been doing, you’ll continue to get the results you’ve always had in the past.

Is Your Business Model Being Wrecked By Outside Forces?

After a very exhausting day, we watched three television shows last night.  That’s very unusual, but I couldn’t handle much more than that.  During the second show, three things struck me.  We had recorded all three shows on our DVR system, we didn’t have to schedule our lives around what day/time the programs aired and we didn’t watch any commercials.  Many of you may have done the same thing last night.

The point for the advertising industry is that DVR technology and whatever else comes next are wrecking their business model and will soon destroy it.  The internet is doing the same thing to daily newspapers.  Now, apply that awareness to your company.

What technology, economic force, generational expectation, political swing or customer preference could wreck your business model?  I don’t know about you, but if I see a light up ahead, I want to know if it’s a light at the end of the tunnel or an oncoming train. 

Granted, some industry changes take place so slowly that they sneak up on us.  I hear that a lot from clients.  In spite of that. watch ahead for what’s next.  The lesson is to use innovation, strategic planning, organizational restructuring and leadership not just to keep up with your industry, but to set the standard for what’s next in your industry.  If you do this, your organization will be more stable, more flexible and more profitable.

From Goals to Meaningful Change

In spite of best thinking on change management, most efforts to improve organizational results still fail to achieve the desired results.  What is the missing link between setting the goal and seeing meaningful results?

Long before I learned about change management, I studied the psychology of human behavior.  In my opinion, the missing link in our contemporary change models is failing to understand how patterns of predictable human behavior can either support or derail our efforts to improve organizational results.

Building effective change efforts does require a commitment from the top of the organization, a clear goal, excellent project leadership, etc.  However, three human behavior components are critical to achieving meaningful change.  We call it IAC. 

• I - Individual Performance Rules: Understand that individual performance determines organizational results. No amount of yelling or hours and hours of meetings will change organizational results. An organization’s results are an outcome of the collection of every individual’s performance. So, our goals have to be focused on improving each employee’s performance.

• A - Acknowledge Human Behavior: When employees are presented with a new goal, human behavior can be predicted. Stages will include: 
  • “What happened?
  • “Why?”
  • “What about me?”
  • “Who else should be involved?”
  • What about…..?”

Meaningful change only occurs when an employee comes into your office and says “What about adding Y to your X plan?  By doing so, I think we can improve upon the original idea.” At that point, they have fully embraced the change, they own it and they are productively supporting it.

The goal is to understand this human behavior process and get more of our employees to that point.  So, resist the temptation to yell “Shut up and go back to work” or “Just do it the way I said,” and help move them toward the “What about?” stage.  If you do so, their increased commitment, productivity and support for your goal will quickly result in meaningful change.

• C - Cement New Habits: So many of our well meaning efforts to drive meaningful change fail because they are not well implemented. New habits are not cemented into the fabric of the organization and the old habits choke off the new habits.

Part of the supporting the goal has to be a commitment to investing the resources necessary so that there is a return on investment.  If the new behaviors, skills and practices that will achieve results are not developed to the point that they become habit, we’ll end up with just one more flavor of the month program.

The process of managing change is simple and straightforward.  Implementing desired change successfully is the hard part.  Apply the IAC model and your success rate will improve. 

The Speed of Change

If we assume that all of the knowledge that mankind had accumulated by the year 1 AD equaled 1 unit of information, how long does it take to double that knowledge?  Keep in mind, this original 1 unit of knowledge includes Aristotle, Plato, Socrates, Homer, etc.

According to Dr. Daniel Johnston, a Clinical Psychologist practicing in Macon, Georgia:

• The original 1 unit of knowledge took 1500 years to double
• The next doubling (2 units to 4 units) took only 250 years (1750 AD)
• The next doubling took 150 years (1900 AD)
• The doubling speed has now reached 1 - 2 years

We wonder why we have difficulty keeping up.

The Disease of Seniority in Compensation Decisions

I love to work with clients on employee performance and compensation planning.  It’s a great measure of whether a company is truly interested in building a culture of accountability with a focus on performance and results.  One of the compensation issues indicative of whether a company will truly commit to building a culture of accountability is how they deal with the issues of seniority in their compensation decisions.

I’ll be honest.  I’m not a fan of seniority as a factor in most any decisions, but especially in compensation decisions.  I believe that seniority was once worthy of the weight and emphasis that was once placed on it.  And, in a practical sense, I understand why seniority is used nowadays as a factor today in determining, for instance, in what order employees get to choose their vacation time.  However, as a factor in who gets paid what amount, I can no longer conceive of seniority being a reasonable factor in determining compensation.

In this age of technology advancements, global competitiveness and market reinvention, there is no longer any correlation between paying people more because they’ve been here longer and their skills or job performance.  For instance, companies send out their transcription to Taiwan while technical assistance calls to computer manufacturers are being handled in India.  Outsourcing may be a hot political topic, but it isn’t going to go away in the global economy.  These are issues of technology and global competitiveness, not seniority.  In terms of market reinvention, ask some former travel agents who had many years of seniority how much their seniority helped them when consumers in droves began making their own reservations on-line.  Almost overnight, the concept of working through a travel agency was gone.  The reality is that the number of years of experience doesn’t mean what it used to mean in the marketplace.

So, as you make decisions this year in your company about compensation, why should seniority not be a factor in your compensation decisions?  The most basic answer is that your customers don’t care about the seniority of the employee who is helping them.  Sure, customers want to deal with someone who is skilled and competent, but seniority has no correlation to the customer’s expectation to be served well by your company.  If your company won’t serve them well, customers will go elsewhere without regard to the seniority of the employees.

Let me give you a recent personal example.  We recently went to a very popular local restaurant.  While waiting to be seated I could hear one of the owners (lots of seniority) and a long time waitress (lots of seniority) sharing similar stories about waking up that morning and dreading the day ahead and looking forward to closing time.  The owner then pasted on a smile, turned to us and walked us to our table.  Now, did I feel warm and fuzzy about how appreciated and valued I was as a customer of this restaurant?  Will it make me more likely to go back again compared to the numerous other restaurant choices I have locally?  And, what did seniority have to do with the level of service I received?  The point is that I could just as easily have received poor service from a brand new employee for a whole host of reasons.

The notion that employees who have been here the longest are the most skilled and are the best performers is obsolete.  There’s an old saying that asks whether a twenty-year employee has twenty years of experience or one year of experience twenty times.  I’m not saying years of experience won’t make an employee more helpful to customers.  What I am saying is that the correlation is not automatic.  An employee’s job performance in serving the customer will depend on their knowledge, skills, initiative, level of service, responsiveness, etc., not on how long they’ve been employed with your company.  So, if your customer doesn’t consider employee seniority as an issue in their level of satisfaction with your company, why do you?

Most companies use multiple factors in determining compensation.  So, what factor should be used to replace seniority as a factor in compensation decisions?  The answer is skills.  The key question is “How has the employee made themselves more valuable to the company than they were last year, last month, and last week?” 

At performance review time, give the employee a list of skills they could learn to become more valuable.  Then, tell them how their compensation will increase as they demonstrate proficiency in their new skills.  And, no, I’m not talking about giving them a raise every time they learn a new skill.  For instance, a new employee who works part-time will get more hours as they are cross trained in multiple positions.  More hours will mean more compensation.  Of course, some new skills will certainly mean a raise in their compensation.  New skills make employees more valuable in the marketplace and, if you want to keep them, you’ll want to pay them competitively.

So, as a manager of one or one-hundred, make a positive impact today in your organization.  Make your company more competitive by using skills as a basis for compensation decisions in your organization instead of seniority.  It will build accountability and encourage a focus on performance and results.  It’s also a great cure for the disease of seniority.

It’s Time To Fix The Holes In The Boat

You’re the Captain of the boat.  Yet another day you steer the boat on the choppy waters.  All of your crew members are busily completing their tasks and doing them well. 

“I have a good team,” you think to yourself.  Then your mind returns to those nagging issues that are dragging the performance of the boat down.

“What are we going to do about the holes in the boat?”, asks the most junior member of your management team.  You wonder if he drew the short straw and was sent by the rest of the team.

“There’s no time to fix the holes in the boat.  Besides, we’re doing fine,” you say authoritatively.

“If we can’t fix the holes in the boat, could we speed up the engine?  Or, maybe we could bring along some more people to bail water.  Or, maybe even get bigger buckets”, suggests the junior manager a bit sheepishly.

You instantly realize two things.  First, you realize that those three suggestions are foolish and more costly compared to fixing the holes in the boat.  And second, you realize that you’ve been doing those same three things for months in an effort to solve the problem. 

Then the real revelation hits you.  You’ve been addressing the symptoms of the problem, not the real problem.

“Let’s make a plan to fix the holes in the boat,” you announce.

A sense of relief creeps across the face of the junior manager as he heads off to gather the team and make a plan.

What are the “holes” in your organization’s boat?  Isn’t it time you dealt with the real issues?  Yes, opening up those issues might be painful.  But, 2010 will be a better year if you “fix the holes in your boat.”

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Strategic Planning or A Root Canal – Which Would You Prefer?

As the leader of a small or medium sized business, strategic planning is one of those time consuming efforts that only Fortune 500 companies have time for, right?  Besides, there’s real work to be done instead, right again?

Granted, strategic planning looks simple on paper, but is difficult to do effectively.  When done well, strategic planning will multiply your efforts, focus your teams and achieve results that are not possible without thinking strategically about the future of your company.

There are many benefits to developing a strategic plan for your company.  Here are four primary benefits of strategic planning:

• First, an effective strategic plan allows your organization to chart its own course instead of allowing your competitors to decide what customers they will take while leaving you with the leftovers.
• Second, the goal of the strategic planning effort is to identify not only markets where you can compete, but also to identify market segments in which you can dominate.  If you can dominate a market segment, you are driving what happens in that segment.  You’re not one of the “also rans” left to compete for business solely on the basis of the cheapest price.
• Third, an effective strategic planning process focuses your company on its strengths instead of trying to be all things to all people.  In addition, it relieves you of the temptation to be consumed by fixing your company’s weaknesses.  The real return on investment is not in fixing your weaknesses.  The real ROI is achieved by focusing on your strengths.
• Finally, the strategic planning process forces you to live in the real world.  If a train is headed right for you, an effective plan gives you the time to see it and do something about it.  Do your customers see the strengths that you say you have?  Is the market opportunity as large as your sales manager says it is?  Will there ever be a return on investment for a product that requires a capital intensive investment on the front end?

No doubt, strategic planning is challenging.  It takes time, energy, focus and resources.  However, when it is done well, the organizational and financial benefits will far outweigh the cost of the process.

Improving Organizational Results

Our days are full.  Our to-do lists never get any shorter.  And, time is passing faster and faster every day.  Life as a business leader seems rather complex.

In some respects life is complicated.  However, when you think about your organization’s performance and how to improve it, it really comes down to two questions.

First, are you underperforming your industry?  Are there competitors who are setting new benchmarks for high performance in your industry?  If they can do it, you can too.  Forget the excuses and just focus on how your company can become a high performing company.  First place does not preclude any other company from also achieving the same results.  They’re in first place because you’re not in first place.

Second, are you committed to do something about the fact that you’re not outperforming your competitors?

If not, don’t worry about it.  You’ll continue to be fodder for your competitors to feed on, taking your best customers and leaving you with the high maintenance, low margin leftovers.

If you are committed to do something about not being the industry leader, focus on closing the gap between the results you would like to achieve and the ability of your organization to deliver those results.  What’s working?  What’s not working?  Why is it not working?  Get involved in the execution details to point your company in the direction of delivering improved results.  This means that improving your company’s organizational execution should show up on your calendar in a significant way at the expense of some of the things you’re doing now.

Apply your efforts over time and you, your employees and your shareholders won’t regret it.

The Link Between Employee Performance And Organizational Results

The results that an organization achieves are directly correlated to individual employee performance.

When I share this truth, audiences will often say, “Of course!”  But when I ask them why we, in business, are preoccupied with:

• the quarterly number (results)
• the performance review (results)
• the quota report (results)

more than:

• the quality of the weekly report (performance)
• the way the employee led the meeting (performance)
• the number of sales calls this week (performance) 

they see this truth in a new light. 

Your Choice 

If you want to impact organizational results in your company, you can do one of two things:

• Wait for the the results to be reported and then yell and scream about the lack of results.  You may feel like that’s your job, however, that won’t change the results at all.  And further, no amount of yelling, meetings or memos will change the results.  Only White Out or typing over the cell formula can change the results directly…and that’s a recipe to get fired or, in a public company, be sentenced to serve jail time at a white collar country club with a large severance package.
• The more effective way to improve organizational results is to improve individual employee performance.  It’s more work than just yelling about the results, but improving individual employee performance across the organization is the most direct way to improve organizational results. 

The truth is that high performing employees will deliver high performing organizational results.  Is your company leadership focused on the results or the performance that determines the results?

For more information on how to improve employee performance, see our recent post 3 Steps To Get More ROI From Your Employees.