This is a follow-up to the Management Techniques post. We will walk through the five criteria.
1. Employees must understand what results are expected of them.
This is not as simple as it seems and it is the foundation that most business owners miss in trying to manage. Imagine a baseball manager having a meeting with his key player—but without statistics. “You’re not hitting well enough.” “Yes I am.” “You don’t get enough hits.” “I got two yesterday.” “You should have more home runs.” “I hit one last week.” “This has to change—we will meet again next week.” And how is that discussion going to go next week? This might sound like a common meeting of owner and employee. If you have ever told an employee that they are not doing a good job and they argue with you—you have violated this first principle. How different that conversation would be if you had statistics: “You’re being paid to hit .300 and you’re only hitting .200—what’s the problem?” “I got two yesterday.” “No, you aren’t listening—you are being paid to hit .300 but you’re only hitting .200, what’s the problem?” Silence. “You are being paid to hit 30 home runs a year buy you are on pace for only 10, what’s the problem?” “I hit one last week.” “You aren’t listening. Do you need different working conditions or more training? We’ll be glad to do whatever it takes, but what we really should be focusing on is your bonus—if you hit .333 you get another million dollars, I’ll be manager of the year, the team will win more games and the company will make more money. So what do we have to do to get you to .333? I know we can’t do it in one week but next week when we talk you need to be at .250 or we will have to bring in another player and pay them out of your salary—we don’t what that do we?”
So the first rule is to establish results for each position. Where do the results come from? If you add up all of the results of all of the employees you have what it takes to accomplish your financial plan for the company—your budget. You hold people accountable for the results that are required to meet your budget; you create incentives for results that exceed your budget and produce additional profit.
Conveying those results to the employee is the critical part. It is not enough to have the standards, they are worthless unless they are conveyed to the employee in a manner that they understand. This is where effective job descriptions come in. Employers who create job descriptions that are merely a list of tasks will fail. The list of tasks is the training manual. Real job descriptions communicate to the employee the results that you are paying them to produce. And they must understand that their base pay is contingent upon the production of those results.
Examine your organization in that context—does each employee understand that their pay is contingent upon the production of defined results?
2. Employees must understand how those results are measured.
You can’t manage it if you can’t measure it. In fact, you can’t manage people. People do whatever they want to do. What you can manage is results. And you can create an environment where people are not comfortable not producing their results and therefore they actually want to do what you want them to do. You will be unsuccessful if the measurement of an employee’s results are not: (1) done in a way that is simple enough for them to understand; and (2) done frequently enough for those results to become the focus of their day. In fact, the ideal system has the employees themselves calculating their results on a regular basis. This means that the employee must have enough information to be able to calculate their results.
3. Employees must know if their results have met the minimum level of expected performance.
An effective system causes employees to calculate their results and compare them to the standards established for their position and pay grade. This ties into a system of employee reviews. There is a collateral advantage to this. As an owner the most critical information that you need is the ‘bad news.” Good news is nice—but what is critical is that you know immediately if something is going wrong. If the employee knows that they are being held accountable for a result and sees that that result is not going to be achieved, they will let you know immediately so that they can negotiate a change in the required result. At this point you have a critical juncture. You can either treat the news as an excuse or a reason. The difference between an excuse and a reason is the excuse isn’t true. If an excuse is offered you must choose to either replace or retrain the employee. If a reason is offered you must change the standard and change your plan (budget) to accommodate the new reality. Your success is determined by the excuses that you are willing to accept.
4. The frequency that employees must report those results and be held accountable must be determined by their level of authority.
Many owners fail to distinguish between the levels of authority that they grant to an employee. The lowest level of authority it the authority to do nothing—watch. The next level of authority is the authority to recommend. The third level is the authority to act and report immediately. The fourth level is the authority to act and report periodically. The highest level of authority is the authority to act independently. Not recognizing this hierarchy is a laziness driven fault that dooms many employees to failure. It is tempting on the owner’s part to “just hire good people” and trust them to do good work. This is absolutely wrong. Every employee must progress through these stages before they can reach the top—and many never will. It is also a fluid scale. Employees can move up and down this scale regularly. Ideally their base compensation is also tied to their level of authority. You are setting up an employee for failure if you just “toss them in the water and see if they swim” and even worse you are inflicting the cost of turnover and failed results upon your business. If left undirected the employee chooses their own level of authority—do you really want the results of your business left to the chance choices of new employees?
5. There must be immediate feedback for unacceptable results with a meeting where the manager asks two questions—“Why did we fail? And what are we going to change tomorrow?”
Those two questions are the key to management. If an employee knows the results that they are required to produce; they know (and possibly even participate in the calculation of) the measurement of those results; they know if their results have met the established expectations for their position; and they are reporting those results on a regular basis there are only two relevant questions to ask—why did we fail and what are you going to do about it to change it tomorrow?
The implementation of these five principles is the cornerstone of an effective organizational structure.