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.