6. Ignoring Your Employees

Use recruiting and retention methods that work regardless of the kind of person you can afford. There are just as many mistakes made by hiring an expensive person who can’t perform, as hiring someone without the experience or qualifications because recruiting them is too expensive. It is easier and less costly to develop internal management and key personnel then to go outside your company. In order to do that successfully, you must develop an effective process that is defined, tested, routine, and communicated to the targeted employees. Beyond defining training processes to the candidates, you must also define your expectations of them, what they should expect for themselves and what’s in it for them. That will allow you to develop the personnel who might otherwise choose to leave for a better opportunity with another company. However, do not promote someone who is great at a current job to a position for which they are not fully prepared because they will fail, and you will lose money and your valued employee. Typically, a truly performing employee should not have to be promoted to receive more pay. As described under “pay for performance”, a great producing employee could make more money than the manager who manages them. Remember, a manager is there to support those they manage and to nudge them back when their actions take them “out of bounds” of the company policies, job or business plan. If you have control processes in place, use your employees to “sell” the company; promote these policies on your website under employment opportunities inclusive of testimonials of current and past employees who benefited from these policies. Develop a rational business culture of communications that confront and coach coupled with a working pay for performance plan, and you’ll become a leader in recruitment and retention of valued employees.

Use Pay for Performance plans that work and sell others on your company. If your company is under control as defined by the previous 5 noted steps, you should introduce a pay for performance plan. I do not mean the plans that are Christmas bonuses, or subjective bonuses that become entitlements. You do not want your employee questioning what they got, why they received it, if it was enough, or if it is what they deserve. A true PFP plan establishes measurable standards attributable to the job the person performs with at least one of the measurements dealing with the link between what the person does and profit. If what they do is not measurable directly to profit, such as the accounting department, the timeliness and accuracy of what they do weekly and monthly is, as are evaluations monthly or quarterly by their internal customers in other departments. Ultimately the combination of values that comprise the bonus score is taken as a % of the pool created by the % of the company profit as defined as to what profit means, the pool available to the department or profit center, and the pool available to the individual by job classification. The PFP plan is a scorecard that shows the employee how they are doing periodically in measurable terms and money. Each company plan should be unique. Each company plan should incorporate standards that support the company goals of revenue, profit, customer branding, and internal culture. Each plan should be implemented when the company has successfully implemented the first 5 steps above. Do not begin unless the 5 controls are in place or the plan will fail and harm the company.

Include middle managers in senior management meetings. A development process for performing key staff is important. Regardless of the process, it is always useful to include non-management staff in appropriate business meetings to introduce them to the real process of managing the company. It gives them a sense of inclusion, an opportunity to learn, contribute and makes them feel valued. Of course, it is critical to hold a meeting that begins on time, has an agenda, involves participation by attendees and is followed up.

Listen to and respond to suggestions from the field and staff. Employees sometimes will state a concern or idea but there is no structured response to them. There is no response such as “great idea, good insight, won’t work and why”. The opportunity to coach the employee as to how the business needs to make decisions is lost. I recognize the issue of response is often about money…can’t afford it, not in the budget…or the like. However, the opportunity is to put the response into a “coaching/learning” moment, by explaining the need for a return on investment that is accountable to someone to do anything in business. In effect, if someone has an idea that can be measured as to ROI to an amount and timeline, and if the business is willing to take the risk, and the person managing the process or key to it (typically the one making the suggestion) is willing to “take the hit” within their pay for performance plan if it doesn’t work, then the company has the basis for making a decision to go forward with the idea. Conversely, if an employee suggests something that is beneficial to the company and has a measurable effect on the profit of the company or sales of the company, then the employee should be rewarded within the PFP plan or in addition to it based on the measurable gain to the company. In the end, it is ok to say “No” when the “No” is explained. It is important to let someone know that you listened by following up with the employee. It is the essence of good management, and it keeps the employee from “going to the well too many times and finding it dry” and “losing the emotional investment of trying anymore”. This of course is measured in lost productivity and profit/revenue loss.

1. Not Holding Your People Accountable

Know what accountability means. In very basic terms, accountability means that every critical employee knows specifically, the minimum that is expected of them each day; that their job performance is relative to the profit and sales of the company, is measurable and therefore objective to results; that the measurement is communicated to them regularly; and that their ability to exceed the company standards will impact how much they earn each year or, if performance is a standard, that they may lose their job. Standards and measurements can be developed when revenue is planned and controlled, when a plan of sales, gross profit, labor productivity, schedule, material controls, general conditions, overhead and profit is linked to what employees actually do every day, week, month and year.

Know what accountability means to sales and profit. The process of lead generation, selling, estimating, pre-construction, buy-out of materials, labor scheduling, labor productivity, project management, dispatching, parts, tools, vehicle, materials usage, job costing, punch list, post job completion reviews and marketing is linked to the selling and profit making process. It does not matter whether the standard of performance is specific to a sold job directly or to an office support function. If employees are clear about their job expectations and the measurement of their performance, and they accept that they can do the job defined for them at the standard of performance required, then accountability can and will exist when routinely managed.

Learn to manage accountability to attain it. Managers are accountable to the results of their managed processes and to those who report to them. Managers must communicate with their employees, support their achievement of planned results and get out of their way of doing their jobs. Also, the employee standards linked to the profit and sales plan of the company must be clear to the reporting employee. Managers become a resource to their employer and to the people they manage, as long as they have critical measurements available in a timely and accurate process with proactive communications of great work, problems, or potential problems provided to the company. Standards and results make the company work. Attaining “accountability” does not mean there are no problems. In construction, there are potential problems every day. Accountability mitigates problems and their effect on profit and sales. Accountability creates an open process of preventing the same mistake being made over and over again. Accountability saves the cost of those problems due to someone not knowing, not being sure sure, or not wanting to say that the problem was a problem.

Create Trust in the Workplace, Efficiency,
Greater Profit and a Culture of Performance.

Whenever our firm is implementing change in an organization, we emphasize to the executive and middle managers that truth telling and truth facing will be the hallmark of our process. If the people with whom you are working can’t trust that you’ll tell the truth, you can’t get commitment, and when you make commitment, you build hope…when you keep that commitment, you build trust, when you have trust and commitment, you get ownership of the work performed and results!. Respect guides you to tell the truth and adds momentum to doing the right things well. If you can’t establish respect, you can’t get trust. If there is no trust, there is no commitment. If there is no commitment, results are poor and time is wasted. Having said all that, simply by listening and responding respectfully to an employee and encouraging their input, all else becomes possible.

It is difficult for most to embrace changes in the way things need to be done. Business owners are naturally concerned about changes to the way the business got to where it is now. They wonder, “Will key personnel quit? What about the cost? Will it really make us better?” Thus, for our firm, we establish trust as an immediate goal. We establish trust by delivering the results intended and by accomplishing what we were hired to do on time and within budget. To establish loyalty to both the company and to the process, we always seek to acknowledge the contribution of others and promote it, both in front of them and in a public forum. Problems are discussed in private, yet we expect that “pride” will not get in the way of a manager or executive apologizing to the targeted parties and doing the obvious “right thing” when an obvious “wrong action” has been done.

Finally, don’t blame someone else when things go wrong. Demonstrate your own accountability to the commitments made to the company. “Step up”, listen completely, ask questions, clarify employee communications, make commitments, accomplish commitments, treat co-workers with respect and be completely honest in communications. As a result, you will not only “get what you measure”, but you will find a defined process for positive change, and you will create a powerful workplace, greater profits and increased revenues.

Each of our last three clients had issues that could be traced back to their previous family members’ ownership. All too often the preceding owner is a strong person, respected in the community, respected within the business, and they are the “CONTROL”. The problem is that since a “person” is the control, he or she determines what “good” is for the organization. Thus, problems can be covered over by them saying, “I’m already successful and I must be doing it right”, and the successor family member begins to learn a dangerous method of management.

Each of our clients were historically “successful”. Each experienced frustration with the successor family member. Either “they just weren’t up to it” or “they aren’t doing what we did”, therefore leaving hundreds of thousands or millions of dollars “on the table”. Upon review, the structures and individual employee accountability to “minimum acceptable standards” of action, results, and reporting were never established. Information was generally wrong or incomplete or unfocused in form to the real problems and controls of the company. Without correct information, the successor was “flying blind”, and more importantly and disastrously, was attempting to rapidly expand the business. The concept was not wrong. However, without accountable structures in place, the company simply lost more profit while revenues increased. The attitude of, “We’re making money, so it must be good” and “It is just a matter of more revenue to be great”, is just a rehash of the old style of management which the successor believed did not work.

Prior to turning over your business via buy-out or gift, get a formal analysis of the operations and personnel including the current ownership and the planned successor by a qualified outside resource. Understand your strengths and weaknesses. Once defined and agreed upon, implement the corrections prior to the business transfer. The investment in yourself and the future will almost always yield multiples of the cost shown by new profit every successive year. Formulate a plan for the next generation to be well-prepared to move the company to even greater heights.

Bonuses paid when a job or a year “goes well” or “you make money”, or worse, paid as a Christmas bonus inevitably become ENTITLEMENTS. When the incentive is not paid based on the job and/or the year EXCEEDING your planned profit and performance, when it’s not based on the employee or employee group (as applicable) exceeding their specific standards in their jobs linked to your MINIMUM ACCEPTABLE PROFIT, simply the bonus becomes a gift and eventually becomes an expected entitlement. When it becomes an expected entitlement and it’s not paid on a job or at the end of the fiscal year or in December, the reverse often occurs…productivity declines - another waste of profit and cash flow with a potential decline in business discipline, poor attitudes, and more lost profit and cash flow.

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I’ve heard the term “accountability” probably only second to cash flow/profit over my 30 plus years of working with privately held and publicly traded companies. I’m often told, “I hired them for their experience and expertise, they know their jobs, but I just get what I get…not what I want”.

The fallacy is that when you leave it up to your employees to determine “what good is”, you simply get their “good” (potentially multiple little businesses ongoing with no risk…except to you as the owner), not YOUR GOOD. Assuming that your definition of “good” is valid (keeps you in business) and achievable (not impossible or benchmarked to constant 100% performance), whether in construction, manufacturing, distribution, or services, if you can’t clearly define YOUR GOOD in terms of critical processes to be performed, financial and operational standards linked to HOW YOU MAKE MONEY, have the ability to measure those results by critical process, and link the results to how the employee makes money, you simply can’t create ACCOUNTABILITY. In simpler terms the employee has to know precisely what they are accountable for daily/weekly/by job (standards or benchmarks based on the specific job or process); when they have to look to know if what their doing is working under your definition of “good” (via reports or simple observation); and to whom they have to communicate the results of their observation of good or bad to defined timelines.

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I was speaking to my brother Sam, a partner in a CPA firm, about a mutual client requesting a “what to do” regarding controls and profit missing…and theft… at a client company. I had delineated the obvious controls missing previously, but, again, they requested “what to do”. They wanted a “to do” list. Beyond “fix it”, the client personnel didn’t understand that the question was, in fact, the problem. Management of the troubled company never recognized the problem, or if they did, they either ignored it or didn’t know how to fix it. They believe that the implementation answer is in a book…or worse…a report, not in a process of changing themselves!

I remember years ago reading a book by the name of “Reengineering the Corporation”. It was a case study, “how to” book on changing process in a company. The book was immensely popular, however within 2 years a second book came out entitled “Reengineering Management”. Changing people and process hadn’t worked as envisioned for the readers of the book who tried to change things at their companies, because management hadn’t changed the way they see and act daily.

It’s been my experience throughout my 30 plus years of working with management as a CPA partner, senior executive of a company, or consulting analyst/implementer/executive/business advisor that nothing ever changes unless senior management can be held accountable both operationally and financially to the changes envisioned. Accountability by definition in the dictionary is the state of “being obliged to account for one’s acts; being capable of being accounted/responsible”. The word account means to determine, reckon, or measure, thus management must be subject to discipline and reward if what they do, that is agreed upon (buy in) and measurable, is done to desired timelines and results, or not done by inaction or failure to perform as agreed. The concept of “buy in” means that if something is achievable by definition and by establishing its reality, so all know it can be done, then, if management won’t do it or can’t do it, nothing will be accomplished. Thus management must be changed physically or by process in those circumstances…even the operational role of a privately held company owner…if change that will measurably increase profit and ease operations is valid, achievable, and if the company is focused on continued financial success. Leadership of the company must have the continuing WILL to change and be better for their revenue growth, profit goals, customers, and retention of good and valued employees in order to assure that result.