Management Techniques

In order to effectively manage[1]

1. Employees must understand what results are expected of them;

2. Employees must understand how those results are measured;

3. Employees must know if their results have met the minimum level of expected performance;

4. The frequency that employees must report those results and be held accountable must be determined by their level of authority;

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?”

These five steps will be further analyzed in the next five posts.


[1] Effective management is getting a group of people to do something that they would not ordinarily do and enjoy doing it. (Paraphrased Douglas McArthur)

MICRO-MANAGEMENT

Everyone knows that micro-management is wrong but few people really know what they are talking about when they use this term. Micro-management takes place when the supervisor (owner) is more concerned with the process than with the result. This is a critical distinction. Employees resist being held accountable for the “way” that they do something but understand being held accountable for a result that they did not accomplish. When the emphasis is shifted to the result, then the manager can use a failing result as an opportunity to train in the process. If the manager merely harps upon the process insisting that it be done the way he or she did it then they will fail in their corrective action.

QUANTITATIVE ANALYSIS OF FUNCTIONALITY—WHO IS SUPPOSED TO DO WHAT AND WHAT RESULT DO THEY NEED TO PRODUCE?

In a quantitative analysis of functionality, each function of the business is defined in terms of the result that it must produce. As this organization has grown, it is apparent that positions were developed around people, not functions. The organization must be re-examined in terms of functions. Positions must be created and defined in terms of what the “system” requires of each position not in terms of what each employee wants to do. The proper assignment of all functions will eliminate gaps and duplication. Gaps are those functions that no one in the organization presently chooses to perform. Presently these unassigned functions all fall to the owner and interfere with his ability to do his job. Duplication is when more than one person chooses to perform the same function. This is the root of “finger pointing” and is often done be employees referred to as “empire builders.” It is critical to remember that you own the business, you own the system and you, and not your employees determine which positions perform which functions. In a small business people often wear more than one hat—which is fine—what cannot happen is more than one person cannot wear the same hat. A company, which does not regularly perform this task, ends up in organizational chaos. Duplication and gaps are the leading cause of inefficiency.

Each function is then defined in terms of a result. It is not sufficient to merely state the tasks that you expect of each person. You must convey to them the result that you expect. Job descriptions must be written in terms of measurable results, not as a list of tasks. The results for each function are determined by the results that are needed to accomplish your financial plan. When you have each position’s functions defined in terms of a measurable result you can establish accountability. You cannot have accountability without it.

Incentives now can become rational—they are bonuses paid for performance exceeding the result that you have paid them for. Cash bonuses can only be paid for results that either increase sales above the plan or reduce costs below the plan.

This is often the most important organizational exercise that a company can perform. This analysis provides a rational basis for compensation, accountability and incentives—organizational structure. This company is currently no where near able to establish systems of compensation, accountability and incentives upon a rational basis.


Organizational Structure: Making Your People Responsible for Enforcing the Cost Controls That Produce Your Minimum, Mandatory Profit

It is nice to have goals, but the goal alone is only a wish. The owner must also have systems; procedures and controls designed to deliver the planned results. This is your organizational structure—the delivery system of your plan. How are you going to do it?

First the owner develops his plan. He determines what he wants. Once defined he then must determine how to structure his people in order to deliver those results. What result does each person have to provide in order for the plan to be achieved? The company’s Organizational Structure is the delivery system for the owner’s pre-determined results. Once every job is examined in the context of the owner’s plan, the results can be defined, however until the plan is determined it is impossible to write a job description. If properly done, each person understands the result that they must produce and their results are constantly measured. The monitors provide the owner with a comfort level of knowledge and focus the employee upon their job. An employee’s job is to deliver to the owner their pre-defined result. That result is derived from the owner’s plan.

McDonalds has a cadre of MBA’s constantly identifying a better, more “idiot-proof” system of delivering a consistently prepared hamburger with the lowest possible level of employee. Compare their effort in developing and refining their systems and procedures to the time and effort that you spend in developing you systems and procedures and is it any wonder that they have better systems than you do? You cannot manage people you can only manage systems. People do what they want to do; systems do what you want them to do.

Imagine that you were going to set up the business in a city 1000 miles away. You are going to run the business from your home without ever going there. What would the jobs be? What result would each person have to achieve? How would they communicate with you each day so that you knew that they were really doing their jobs? Draw the organizational chart for that business identifying the functions rather than the people. That is the same structure that you should have at home. What is each position responsible for? Have all of the business’ tasks been assigned? How can we measure the results of each job? How can it be simply communicated so the employees really understand it? How should they report their results to me? Most importantly, how should they be held accountable for those results and what incentives can be provided for them to produce results beyond those that I am already paying them for?

People are going to do what they want to do. You must establish systems that make them want to do what you want done. First you must communicate to them what you want done and it must be done in a measurable form.[1] They must understand that those results are why they get paid. One of their results must be to provide you with reporting that you determine will give you a comfort level in the knowledge that they have actually done their job. They must also understand that something bad is going to happen to them if they do not deliver their pre-determined result—accountability. Incentives are additional compensation for producing more profit for the company than they have already been paid to produce. Since profit is only generated by lowering expenses or increasing sales, the only cash incentives that a company can have are for efforts that either lower expenses or increase sales in an amount greater than they have already been paid to produce.


[1] Even a receptionist can have job standards—answer the phone before the third ring 95% of the time, answer the phone a specific way 100% of the time, etc.

Do You Own A Job or a Business?

When the owner is spending more time doing other people’s jobs than he is doing his own he has a problem. His job is to run the company and when he is doing other people’s jobs, he isn’t doing his.  Working in the business means doing the tasks that should be done by and employee. Working on the business means doing the tasks that should be done by the owner. The owner who does employee’s jobs doesn’t own a business he owns a job.

An owner starts his own business in order to achieve his goal of being his own boss. He discovers that he may not have a direct supervisor anymore but his income is still dependent upon him performing the same tasks that he performed in his employment and in addition to that he is swamped in “paperwork” and employee problems. He may (or more likely may not) have a greater income, but his hours and responsibilities are so greatly increased that all he has is a bigger job than the one he left. If he had put in this many hours and this much effort for his former employer he would probably be ahead of where he is now. All that he tried to achieve was self-employment and he has achieved that.

There is a significant difference between owning a business and owning a job. Having a business means that he makes his money off the efforts of others, rather than off the efforts of his own. You should make money off of every employee; therefore any business with employees should make money.

Owning a job

Some people are content with a job. As long as they are content with the hours, inability to get away, and their current compensation then they need not be changed. When a person has a job they end up with excessive work hours. They are doing the job of one or more employee and trying to do their own job (run the company). They cannot get away because systems and controls have never been established that allow them to delegate the functions of operations to others. They have no way to really know that the functions are being properly done without being there. Their compensation is limited to the number of hours that they are willing (or able) to work. They have no hope of opening a second location because the operations depend upon the personal attention of the owner and he can only be in one place. They can never sell their business because they are the business. If they left, there would be no business. Eventually the assets are sold but they years of sweat equity go uncompensated. They are good at some of the tasks and not as good at others. As their business grows they are required to do more and more tasks that they are not good at. Eventually they get overwhelmed, fail to grow and die.

Owning a business

A business owner owns a few hard assets and his systems. Why does a 1000 square foot building sell for hundreds of thousands of dollars if it is a McDonalds? Because it has ironclad systems that produce a pre-determined return based upon location. McDonalds is completely SYSTEMS DEPENDENT. Most small businesses are PEOPLE DEPENDENT. McDonald’s systems allow for the least qualified person in each position and they are so strong that the people are irrelevant to the success of the business. Most small businesses purposely become dependent upon the most qualified person in each position and become held hostage by their employees. Since the value of most small business pales in comparison to the value of McDonalds, we can assume that a SYSTEMS DEPENDENT business is better than a PEOPLE DEPENDENT business. This can only be achieved through a conscious effort on the part of the owner to do his job rather than other people’s jobs.

In order to own a business you must try to own a business. That means that significant time and resources must be spent working on the business rather than working in the business.

Looking For Employees? So Is the Competition

Almost regardless of the economy, everyone who you would want to hire is working. You can no longer take the same approach to staffing that you could in a slow economy. Your next employees are currently working for someone else—and your employees are looked at as someone else’s next employees.

Turnover is one of the most expensive events in a company. When turnover occurs the costs include: the lost production when the person leaves, the cost of outplacement, the risk of legal claims by the departing employee, the cost of the time spent placing ads and interviewing, the cost of the lost productivity during the new employees first weeks, and the cost of the lost productivity from the person training the new person. Turnover is inevitable, but we want to be sure that turnover occurs in our quitters and not in our climbers.  There are four things we do with employees—we recruit them, we train them, we develop them and we retain them.  Do you have a plan for each?

Recruitment—the company needs to convey during the recruitment process the company’s mission. The incoming employee needs to understand what the corporate culture is in the business and be “sold” on being a part of that team.[1] Since the labor market is so tight, we cannot merely recruit the unemployed. The fact is we are going to be taking someone else’s employees—and they are going to be trying to take ours. The recruitment process must be designed to address this issue and get quality employees who are going to stick with the company.  First you have to determine your staffing requirements—how many people will you need to have one year from now?  Then factor in employee attrition—how many of your current employees were here two years ago?  That tells you how many successful hires you will require over the next year.  Rule number one—don’t wait for an opening to come about and then hire under duress.  Recruiting is an on-going process.  If you need 12 people over the next year you should be hiring the best one you can find each month.

Training—one of small businesses weakest areas.  Training is not only the technical aspect of the job—if they didn’t have some of those skills you wouldn’t hire!  Training is also teaching “your system.”  How you want things done in your company.  You own the company.  You will succeed or fail based upon your system.  Never let an employee create your system—teach them to use yours!

Development–a company must offer their people the opportunity to “move up.” This is why growth in a company is required. You may not want to grow, but if you don’t you will die. Failure to grow eliminates the development opportunities of you best employees and causes them to leave for better opportunities. Not all employees want to develop, but your best ones do. Therefore it is crucial that the opportunities within a company be identified and communicated to each employee.

Retention–what keeps your employees working here if someone across the street offers them $1 per hour more? This is where benefits, working conditions, and morale come into play. It can even be argued that development opportunities are really retention devices. There needs to be a plan for retention or you end up with turnover.

I highly recommend “Minding My Own Business” available for sale from this site.  The coverage of these topics is excellent.

[1] One of the first elements of team building in an organization is to clearly define how the team should function and then “sell” that attitude to each incoming employee. For example, “As an employee here we expect three things—that you at all times exhibit a positive attitude, that you at all times work as a team and that at all times you use our system. These are conditions of working here. If you decide that you cannot comply with these conditions, please do not submit your application for employment.”