Leadership, HR, Marketing Lessons from HP’s Executive Turmoil
Updated Aug. 9, 2010 – 10:00 a.m.
Hewlett-Packard will find it advantageous to address three salient corporate issues following the sudden exit of senior executive Mark Hurd. At issue, are leadership, human resources and marketing quagmires.
Mr. Hurd was widely credited for HP’s recent success. But his forced resignation over a sexual harassment case and inconsistent expense-account reports is the company’s third tumultuous event involving key executives in just five years. Analysts were unimpressed with his lack of vision.
His accuser, Jodie Fisher, is a 50-year-old actress and former reality television contestant who was hired has a marketing consultant, introduced him to key customers and kept him company. She said she was sorry he lost his job.
The first unsavory HP event, of course, was the 2005 firing of CEO Carly Fiorina following her lack of financial success and her questionable, contentious merger with Compaq resulting in heavy layoffs.
Then, there was the 2006 controversy surrounding Patricia Dunn, who as chair of the board, hired firms that used illegal methods to try to stop leaks of proprietary HP information to reporters.
So, it’s not surprising that published reports indicate employees now have huge morale issues after Mr. Hurd’s recent tenure.
His critical replacement will need substantial leadership skills because HP now has to improve the employee morale and marketplace position.
HP’s share price plummeted by 10 percent in just the first day after Mr. Hurd’s firing. It fell another 8.4 percent the following Monday to a 52-week low. Obviously, many investors are nervous.
Certainly, employees feel betrayed. Improving employee morale necessitates a strong internal communications program with empathy and appreciation for the employees’ contributions to the company. Certainly, from the C-suite on down, HP’s HR and training initiatives are being tested.
It might seem like a bit of a stretch, but the marketing should tout the rich, storied legacy of the company’s origins in a garage. That’s what occurred to me after being reminded that Americans love an underdog following release of a 2010 study by the Simmons School of Management in Boston.
“Across contexts, cultures, and time periods, underdog narratives have inspired people,” according to the study co-authored by the school’s Jill Avery. “Stories about underdogs are pervasive in sports, politics, religion, literature, and film.”
In using the term, credibility, she implied in an interview with BusinessNewsDaily that trustworthiness and integrity are salient principles to inspire customers to buy.
“Underdog brand biographies contain two important narrative components: a disadvantaged position versus an adversary and passion and determination to beat the odds,” wrote the study’s authors.
In addition to Dr. Avery, the authors include Neeru Paharia and Anat Keinan of Harvard University, and Juliet B. Schor of Boston College.
They found that the respondents identified with underdog brands and were more likely to buy them.
“The American Dream, the fabled American myth, is built on the stories of underdogs who came to the United States with virtually nothing and pulled themselves up from their bootstraps to achieve success,” wrote the authors.
When the study of products that included the branding term, underdog, they were preferred in 89 percent of the cases by participants. Companies with a humble history are very appealing to consumers.
In fact, as a reward for participating in the study, respondents were given their choice of a chocolate bar. Seventy-one percent chose the underdog candy bar.
What a great country this is, right? Right!
Meantime, HP makes great products. My firm has had numerous laser printers; both black and white, and color. Some have only lasted a year or two. But two of the most reliable are the discontinued HP LaserJet 4P model printers from the early 1990s. They’ve produced reams upon reams of quality documents without fail.
Let’s hope HP finally gets this leadership problem corrected. It’s past time for inspiration and vision.
From the Coach’s Corner, if you have customer loyalty issues, don’t worry because you’re not alone. Consider this resource link: Bank Woes Provide Lessons for All Companies Seeking Growth.
Healthcare Reform Increases Costs to Workers, Study
Updated July 13, 2010
If you work for a large company, your healthcare costs will likely increase and your coverage will decrease as a result of the new healthcare law, according to a new study.
Ninety-four percent of 661 companies surveyed by a human resources firm, Towers Watson, believe the healthcare reform law will increase costs. So, employees will pay the price. The firm surveyed companies in several sectors. The median company employs 5,600 workers.
This means 88 percent believe it will increase costs to workers.
Seventy-four percent will see their benefits and programs decreased. That likely means higher deductibles or co-payments.
“While many employers have not yet assessed the full impact that reform will have on their businesses, they do realize that the responsibility to hold costs down will fall primarily on their shoulders,” said Towers Watson North American Health and Group Benefits Leader Mark Maselli in a statement.
Ironically, 96 percent of the companies surveyed indicated that preventing increased costs was a priority.
Almost 75 percent anticipate paying for subsidized health coverage for their current employees. Forty-three percent, however, will cancel or reduce benefits to their retirees.
Well, unfortunately, such news is to be expected. There have been numerous warnings here about the law’s unconstitutional mandates.
From the Coach’s Corner, any further erosion of personal freedom and economic freedom is not to be tolerated. Don’t expect the law to stand. Small business is heading the opposition.
Here’s why: How Healthcare Law Would Affect Small Business
Companies Plan Higher Salaries, but No Increase in Benefits
May 23, 2010
Twenty questions of business: What are companies planning in employee management? A lot depends on how they feel about the marketplace and their future profits, according to a human resources study.
“Companies recognize the importance of retaining valued employees but are more likely to incentivize employees with more money rather than more benefits,” said David Turetsky of the HR firm, Workscape, in a statement.
That’s the summary of results from his firm’s 2010 survey of 519 HR professionals.
“And while salary increases were at the top of the retention strategies, offering flexible work schedules and implementing greater employee/management communications are also being considered,” Mr. Turetsky added. He is Workscape’s director of Total Rewards Strategy.
The study shows two-thirds of respondents plan merit increases and 52 percent are eyeing bonuses for performance. Aside from performance, about a quarter of respondents anticipate making adjustments for market/equity. Fourteen percent will allocate stock and 12 percent will make a lump-sum payment.
Even though 71 percent know that health insurance is a high priority for employees, 64 percent will not enhance the benefit packages.
What about the healthcare law? One hundred percent of respondents expressed wariness.
Healthcare law worry
At least 33 percent anticipate company growth this year, but most respondents believe growth will take longer to achieve.
However, among larger companies with 5,000 to 10,000 employees, 25 percent forecast flat revenue for 12 months. Forty percent say it will take longer than a year.
Eighty-two percent will step up internal communications.
The most optimistic sector: technology. Fifty percent look forward to growth in 2010; nearly 80 percent believe it will take place by Q1 in 2011.
As expected, Mr. Turetsky’s an advocate of complete employee reward management.
“Total rewards management means managing an employee’s total relationship value,” he said. “This includes pay, increases, short and long-term incentives, benefits as well as corporate culture, mission, opportunities for growth and other environmental factors”.
And as in every downturn, it’s important to plan for recovery.
“As competition once again intensifies for qualified talent, employers need to take a comprehensive view of employee rewards,” he concluded.
No argument here. That’s my Biz Coach take, as well. Companies are successful when they employ the best workers to implement strategies to complement the CEO’s vision.
The Workscape study: www.workscape.com/totalrewardsstudy.
From the Coach’s Corner, considering the source is Cornell University, the grammar is a little surprising in the title, but here’s a related study:
3 Key Human Resources Questions in Terminating Workers
At least two people are uncomfortable in terminations and layoffs. Certainly, the employee feels stressed. That’s true for the boss, too, assuming she or he has a conscience. After all, it’s a very arduous event. If multiple employees are laid off, it’s really strenuous and tiring for the employer.
Assuming as a boss you’ve been diligent in evaluating your employees and the welfare of your company, there are normally three reasons for a layoff. They include poor performance, unproductive behavior and insufficient profits.
But the termination process doesn’t have to be a rancorous occurrence in meeting standards for employer responsibility.
Keep in mind that if you’re forced to terminate workers, there are normally three questions to ask yourself:
Are you following all applicable laws?
Make sure you’re aware of your obligations in your region. State officials often require notification. So do union agreements. You should be diligent in your human resources paper trail before terminations. That should include progressive discipline and counseling. Be careful in what you do, say and write. If there’s any doubt, check with an expert. Actually, it’s a good idea to do it anyway.
Are you using facts and irrefutable information?
Make sure you’ve dotted every “i” and every “t” in your paperwork. Take and use copious notes. Don’t allow yourself to be embarrassed from poor human resources practices. Document poor sales, customer service complaints or harassment of co-workers.
Employees are entitled to know the answers to three questions:
- What’s expected of me?
- How am I doing?
- What’s in it for me?
Make sure each employee gets equal, objective treatment. Don’t allow your behavior to become less than polite.
Are you fair and compassionate?
In a nutshell, remember the Golden Rule. Treat employees as you would like to be treated in a termination by a world-class employer. Againl, if an employee is not expecting to be terminated, remember the fault does not entirely lie with the worker. It’s your fault if you have not been diligent in communication as a supervisor.
From the Coach’s Corner, for related reading on terminations, here are three other Biz Coach columns:
- How to avoid EEOC Discrimination Suits
- Human Resources: 12 Errors to Avoid in Evaluations
- Human Resources: How to Fine-Tune Management of your Staff
Otherwise, for employees, job-hunting, and bosses, here are other numerous HR strategies.
Are You Successful In Keeping Female Talent?
Enlightened marketers know that women make 80 percent of household buying decisions. And in most cases, even when a husband goes to make a purchase, he often defers to his wife. Whether it’s a suit or a computer, she usually prevails on choosing the color and the price.
So, if you want to be successful in attracting female customers, enhance your odds by making your company a great place for women to work. That means making a commitment to giving back in your communities from where you derive income. Why?
A 2009 study provides a warning signal to companies finding it difficult to retain female talent. A survey of women managers indicates they’re happier with their employers, if social responsibility is practiced. Ironically, however, many females aren’t aware of it even when their companies are socially responsible.
Such were the findings in a survey of 380 women managers by the Simmons School of Management in Boston, which was underwritten by Hewlett-Packard.
The study indicated socially responsible companies benefitted three ways: Their female talent had a higher rate of job satisfaction, they were less inclined to think about resigning, and they were more likely to speak highly of their companies outside of work.
But again, many women were unaware of their employers’ corporate socially responsible initiatives.
Some of the survey’s conclusions:
- 75 percent preferred “making a positive impact on society” and “expressing and acting in line with my values.”
- Only 45 percent were of their employers’ social responsibility activities.
- Only 35 percent participate in such initiatives.
The study also provided some recommendations:
- Increase communications about social responsibility efforts.
- Discuss the level of commitment in terms of resources
- Mention the success of the programs
- Provide occasions for women to participate without the activities interfering with their jobs.
View the study here.
Incidentally, in my experience, the insight about corporate social responsibility and preventing turnover with quality managers holds true for both genders.
From the Coach’s Corner, while you’re at it, you might review this column:
Cause-Related Marketing Can Increase Sales by Double Digits.
Are You Using Best-Practices in Human Resources for Growth?
With all the cost-cutting – mainly in layoffs and cutbacks in marketing budgets – it’s obvious many companies have struggled. “Duh,” you’re thinking. Unfortunately, many companies have focused on the wrong priorities.
Cutting costs is vital. But operating efficiently with best-practices in management and marketing should be the top goals.
Where to start? The best way to achieve optimum efficiency is a management-performance audit, development of solutions and implementation of best-practices in management.
So, I was delighted to spot the results of a study by RainmakerThinking, Inc. (www.rainmakerthinking.com). The study is entitled, “Increased supervision and management was the #1 most effective business strategy.”
To cope with the adverse effects from the recession, the study shows companies implemented one or more of three strategies in 2009. They included:
- Cost-cutting
- Other innovations, such as processes of production or delivery
- Improved management
As expected, the companies that implemented all three strategies performed the best. And if none was implemented, the financial performance was dismal.
Here’s what happened when businesses implemented just one of these strategies:
- Cost cutting – “…were the most likely to report that their bottom line financial results (at the level closest to the manager’s control) in 2009 were ‘bad,’ ‘very bad,’ ‘worse than expected,’ or ‘much worse than expected.’”
- Innovation “…other than cost cutting’ did better than those who pursued only cost-cutting, but less than half of these managers reported that results were ‘good,’ ‘very good,’ ‘better than expected, or ‘much better than expected.’”
- Improved management – “more than half reported that results were ‘good,’ ‘very good,’ ‘better than expected,’ or ‘much better than expected.’
Not to be sarcastic, but what really brought a smile for me was seeing the results for those companies that did not improve management.
By not upgrading management, here are the reported consequences:
- “too much time” solving “preventable problems”
- “too much time” solving “small problems that got out of control” “
- “too much time” on “salvaging wasted resources”
- Nearly 50 percent reported their employees appeared “demoralized and worried”
- An unspecified high percentage suffered from “increased turnover among high performers”
My comment: Amen. I’d also add some big-picture strategies for how to improve management.
Here’s a typical client case study:
A public agency was regularly pummeled by negative publicity in the newspapers because of a$250,000 embezzlement by a longtime employee. The agency was worried about its poor image from the embezzlement, not to mention many unhappy ratepayers who were alreadydissatisfied with the agency’s customer service.
Of course, the senior manager was apprehensive about hiring a consultant. But she knew her board of directors was restless. To persuade her to hire my firm, I stressed that she would receive full-service, confidential solutions. She agreed to hire me.
A public relations campaign was deemed insufficient. In just walking through the offices, I sensed an inefficient workplace culture. Fear and negativity were rampant. Embezzlements were likely to reoccur and customer complaints would continue.
Because the agency’s budget was problematic, I suggested focusing on the internal issues and the PR would take care of itself.
The agency adopted my recommendations:
- Assess the extent of issues in human resources.
- Solutions included interviewing each employee with open-ended questions.
- We issued a press release containing empathy toward ratepayers, and reassured the public that steps were being taken to prevent future embezzlements and to improve customer service.
- I designed a comprehensive training program for all workers. Many employees were apprehensive and hostile to management. I told them that my dialogues with them would confidential. However, I would provide senior management with a report on the general status of the training, and whether any employees were un-trainable.
- I trained managers in what the non-exempt staff would be learning. Managers were deficient in soft skills, too. Afterward, I taught them how to be good supervisors. In that way, the managers would be able to reinforce my principles as I trained their employees.
- Once managers were trained in the two modules, I trained the non-exempt staff. Because of the negative attitudes, many workers required mentoring.
- Management reports – I notified management of a popular employee who was not trainable.
Management ignored my warning, and a week later my client received a phone from a uniform vendor. My sheepish client then called me. I was told the vendor complained about the agency’s employee in-question – accusing him of sexually harassing a teenage employee.
While it served as a validation for my firm’s process, it was an urgent problem and we immediately developed a strategy. When informed of the accusation, the agency employee vehemently denied sexually harassing the the vendor’s employee. Instead, he blamed me for the problem. But two hours later, the accused employee abruptly resigned and left the state.
As for the training program, it worked and the agency became a model for efficiency and great customer service. But the No. 1 key is always strong management.
From the Coach’s Corner, you might consider other HR strategies.
If Mergers & Acquisitions Tempt You, Consult HR Pros
If you’re contemplating a merger, be very careful about your human capital – whether you’re in government, a small business or a global company.
Investment bankers will probably salivate over the prospect of new mergers when economic conditions improve, but senior finance executives need to listen to human resources experts to insure success.
From 2005 to 2008, more than 50 percent of the largest mergers should not have been consummated, according to a 2010 Bloomberg report, M&A Losers in $10 Trillion Takeover Binge Led by McClatchy, Sprint Nextel.
The 53 largest businesses were considered sub-par just 24 months afterward. They include Boston Scientific Corp, McClatchy, and Sprint Nextel – now, they’re valued less than for what they when the deals were struck.
Yes, any financial decisions about mergers should be based on input regarding human resources. There is another precedent for this precaution.
Actually, when I was contemplating this topic, I was reminded of my 2002 column warning about the unproductive merger of Hewlett-Packard and Compaq when I spotted online videos by the Carly Fiorina campaign for U.S. Senate in California.
Her videos: Her biography and her attack spot, conservative in name only ad.
One spot touts her business experience at HP, but it did not mention her dismal record, especially her merger of HP with Compaq. The merger was highly controversial because she merged two cultures that were not compatible. She was eventually fired.
Later, it was difficult for me to refrain from writing a “I told you so” piece in 2004.
Merger fever peaked in 2007. But the next year mergers plummeted to $1.97 trillion.
Finance pros are naturally concerned about money. Also at-risk are credit ratings and the improbability of profits after a merger.
But that’s not stopping Kraft from acquiring Cadbury or Comcast from trying to acquire NBC Universal.
If you’re contemplating a merger – it doesn’t matter how big or small or whether you’re in the public or private sector – there are several precautions to take.
Yes, crunch the numbers. Perform forecasts. But conduct an HR risk analysis – strengths, weaknesses, opportunities and threats. If you decide to proceed, plan and execute your strategy.
The big five pitfalls
There are at least five questions to consider:
- Are the cultures compatible?
- Will senior managers be compatible?
- Will you lose key talent?
- How can you be sure about financial sustainability?
- What about productivity?
Note: 60 percent of these pitfall questions are HR-related.
People-related issues are paramount. Employees are your human capital and should be treated as assets. If you don’t pay early attention to human-capital issues, you’re risking failure. There are many elements to investigate, such as employee morale, benefits and payroll management. Not to mention information technology issues.
Remember, your customers buy from you because of their relationships with your employees. If your employees are uncertain about their future, then your customers will become apprehensive about their relationship with you.
That’s because all customer-buying decisions are made on five value-motivating perceptions. My research shows 53 percent of customer buying decisions depend on what customers think about your organization’s leaders and employees, and their attitudes. (For more on these perceptions, they’re included in this column, “The Seven Steps to Higher Sales.”)
Thwart your competitors who will be savvy predators in recruiting your best workers.
And understand when and what to tell your employees about possible layoffs.
Fiorina case study
HP’s difficulties after merging with Compaq include:
Its stock price dropped significantly despite good revenue and market share. It served one billion customers in 160 countries worldwide. Ranked no.14 among the Fortune 500, it employed 145,000 people and budgeted $4 billion for research and development.
HP was proud of its No. 1 market share in several products: Laser jet printers, disk storage systems, ink jet printers, UNIX servers, Windows servers, storage-area network systems, Linux servers, and notebook computers. Its printer market share was 47.1 percent. It ranked No.2 in handhelds, external RAID storage systems, and desktop computers.
But HP’s share price had dipped about 25 percent and the company did not appear robust.
Prior to the controversial merger, Ms. Fiorina was exposed to red flags. Along with director Walter Hewlett, a son of one of HP’s founders, and 49 percent of HP shareholders, this column raised questions at that time about the merger’s feasibility.
The concerns: Merger opponents were extremely vocal, the HP and Compaq cultures were vastly different, and the latter’s reputation for quality wasn’t strong as HP’s. I had products from both companies and that was my assessment, too. In fact, my firm has had a myriad of printers – black and white, and color – the two 15-year-old HP printers still work well with any computer.
As Forbes’ top-ranked businesswoman, HP CEO Carly Fiorina was a charismatic salesperson. She had her ups and downs, including criticism for purchasing a $30 million corporate jet and her unsuccessful bid to buy the consulting business of PricewaterhouseCoopers for $18 billion a few years previously.
Pundits complained HP had lost its focus in competing with Dell and IBM.
HP’s $586 million profit for the fiscal third quarter ending July 31, 2004, which was announced on Aug. 12, was below Wall Street’s expectations. As Dell began its larger foray in the printing business, HP’s profit in its core strength, printers, dropped.
Ms. Fiorina made another misstep: She was openly critical of Dell’s approach in not investing in research. Ms. Fiorina touted HP’s niche as being between Dell’s so-called low-cost products and IBM’s emphasis on costly consulting and information technology services. However, Dell’s profit jumped 29 percent and IBM was also growing and announced plans to hire 18,800 workers in 2004.
HP was vulnerable because of its broad strategy in taking on such venerable foes, especially when corporate and consumer spending on technology, in general, wasn’t robust. Plus, Dell had hired away Alex Gruzen, a HP senior vice president, responsible for HP’s notebook, tablet personal computers, and personal digital assistant division.
Merger Solutions
Here are the three A’s for merger success:
Awareness. Properly assess the risks. As in the merger of HP and Compaq, it’s important to note it isn’t feasible to achieve success after launching such endeavors for five reasons:
1. Strategy and focus – public agencies and companies lose focus when the merging cultures aren’t compatible.
2. Synergy – firms at the opposite ends of the spectrum culture-wise, don’t function well as a unit, no matter how much overtime the CEO works. This also means employees don’t respond well to new leadership, which leads to a breakdown in communication and infrastructure.
3. Apathy – such internal challenges lead to ennui in company initiatives; nothing great has ever been achieved by a lack of enthusiasm or passion.
4. Decrease in competitiveness – marketplace forces seemingly weaken a company, such as HP, as it learned in facing its opponents, Dell and IBM.
5. Effects from macroeconomic events – terrorism and recessions, for example, hover as challenges. As a result, consumers and businesses will spend less on technology. Ask any government agency or business about 9/11 and the impact on their revenues.
Acceptance. Just as analysts were adamantly opposing HP’s focus and its inability to discern challenges accurately and to adapt accordingly, customers will likewise become indifferent about a merged company’s products and services.
The concept behind the principle of acceptance also requires resourcefulness in creating solutions to deal with reality, hidden or not.
Action. To sustain performance, implementation of an action plan requires a checklist of six key elements:
- Analysis by an astute analyst to ascertain strengths, weaknesses, opportunities, and threats
- Close monitoring and participation by top executives, especially during periods of change or unrest by stakeholders
- Prudent assessments of strategy and tactics combined with implementation by an outside participant – an assertive, objective traffic cop – to monitor and insure success in sustaining performance
- Due-diligence and patience so that not even small details are overlooked
- Accurate anticipation of the needs of customers
- Performance-based compensation
The three A’s for merger success will insure any company adapts extraordinarily well in a climate of change and uncertainty.
Oh, if you’re contemplating the possibility of joining such employers, do your due diligence.
From the Coach’s Corner, whether you’re an employer or job-seeker, caution is also advised in the use of social media such as Facebook, LinkedIn or Twitter.
Employers should be careful in using social media in checking the backgrounds of applicants. If you find derogatory information and use it as justification of not hiring a worker, you will face legal hassles if applicants learn about it.
The protected classes: race, gender, religion, disability or sexual orientation.
Conversely, if you’re looking for work or networking for customers, a post showing any sign of unprofessional behavior will haunt you when decision-makers spot it.
Management and HR for higher performance
Part three: How to grow your small business
In analyzing the growth rates of small businesses – every great entrepreneur has one salient quality – the ability to be an effective manager.
An effective manager efficiently allocates resources for achieving goals. Quality management usually results from an independent SWOT analysis – assessing internal strengths and weaknesses along with evaluating external opportunities and threats.
Self-employed people need to carefully inventory their own strengths and weaknesses as business personalities. They should also assess how to maintain their good health because they’ll suffer if they don’t. Larger companies should focus on several factors in a strength-weakness analysis of their human resources, such as recruitment, training and development, compensation, culture, leadership, reliability, and salespeople.
Once a business owner looks in the mirror to assess management strengths and weaknesses, then he or she is ready to analyze opportunities and threats for a strategic plan.
Even if a strategic plan is well-written, beware: Management practices that work well in the early growth of a small firm often cause problems later, according to a series of articles in the Harvard Business Review (HBR) by Dr. Larry E. Greiner. He believes such managers fail to take into account “present events or market dynamics.”
“Creative activities are essential for a company to get off the ground. But as the company grows, those very activities become the problem,” Dr. Greiner wrote in a 1998 HBR article, “Evolution and revolution as organizations grow.” His thesis is still accurate.
Red Flags
Business expert Neil Delisanti agrees that managers often fail to solve red flags: “There are forces inside the organization that they control; forces outside the organization over which they have little, if any, control; and probably most important, red flags in themselves, about which they may or may not be aware. A good manager must be constantly aware of the impact of all these forces. One of the common failings in managers is that they blame all sorts of things for their failures, rather than admitting they didn’t have a good handle on what’s happening.”
Mr. Delisanti has gifted insights because he speaks from both an academic and solid mentoring perspective. He was a faculty member at both the University of Puget Sound and The Evergreen State College. As the guru for the Small Business Development Center in Tacoma, he counseled more than 2,000 companies.
Mr. Deslisanti believes too many small business owners micro-manage: “Many folks start a business and believe it is their inspiration that made it a success. Although this is sometimes true, what we find on closer inspection is that it was their perspiration and natural management ability that was more responsible. They have invested a lot, money, time, and sanity, in their enterprise and find it hard turning it over, often even small parts, to someone else to possibly blow it. Any business can grow to where the owner just cannot physically, mentally or emotionally, do it all.”
Does he believe managers limit their business growth by poor human-resource management techniques? “Often, yes. This is particularly true of a company that starts with an owner and spouse sitting at the dining room table. Not only are there innumerable government restrictions on what is legal, we have to look at what the workforce expects from employers today. The management of people isn’t as simple as the old my way or the highway anymore. Diversity in all areas requires that SBOs have to look at differences in age, gender, race, ethnicity, education, background and experience – just to mention a few facets that have to be considered.”
When to start HR function
“I strongly recommend that as a business gets above the 15-20 employee range, the owner set up some sort of human resource function, and get some assistance in designing job descriptions, recruitment policies, pre-tests, application forms and very importantly – interview policies and procedures,” he suggested.
To underscore his concerns about HR precautions, I agree. I’ve been called upon to help two businesses:
1. A cable TV company was fined $15,000 by U.S. District Court for sexual discrimination of an applicant. The company’s law firm asked me to provide a three-hour seminar on Equal Employment Opportunity laws as part of the sentencing to close the case.
2. An interstate trucking firm was fined $100,000 and required to design a new wage and compensation plan (Note: the company’s pay system worked fine when it was smaller).
In both cases, the bosses were nice people unaware of the dangers in a litigious society.
Because small businesspeople often seem to feel they’re under siege, Mr. Delisanti suggests: “Have a vision or goal and incorporate it into a strategic plan, which is different than a business plan. This can come in many forms, but it should be organized and written. Identify your vision and then develop a list of goals that will let you succeed, quantify them, put some time frames on completing them. Most important – assign some responsibility to someone to get it done. This will have you on a course of your choosing and let you become proactive instead of reactive.”
Premature growth
He says some companies grow too fast: “This happens when growth gets out of control when you can’t fill the orders, due to a lack of materials, equipment, people or cash. This can also happen when the company gets too big for the owner to handle.”
Others grow too slow to cover added costs and expenses: “Usually, this is a result of overly optimistic forecasts that bring about expenditures that far exceed revenues. Many reasons cause this, such as an SBO’s enthusiasm; level of success with business on a smaller scale; and non-credible or insufficient marketing research,” he said.
Mr. Delisanti warns about unforeseen situations in the external environment: “Even the best forecasting can’t predict a tsunamis, earthquake and the level of destruction that natural disasters can wreak upon an industry. Consider skiing in the Pacific Northwest some seasons – there can be a bad time to open a new ski shop.”
He says challenges result from miscalculating factors in what he calls an “uncontrollable” industry environment: “When a business conducts an opportunity-threat analysis, it should look closely at a number of factors and make its decision, based on what it thinks will happen and how the chain of events will impact its goal attainment. If the business thinks incorrectly, it might lose the competitive advantage over somebody thinking correctly. Remember: Everybody can’t win. If you look at all the data and think that interest rates will go up 9 percent and take the actions that will best help you achieve your goals under those conditions, but if they only go up 2 percent, other companies will probably have an advantage over you.”
So, there you have an overview – how to grow your small business – in a three-part series.
The two previous columns:
Marketing Essentials on a Shoestring Budget
10 Scholarly Solutions for Selling More Products
From the Coach’s Corner, for more free counsel, he suggests that you contact the nearest SBDC office.
Stunning News: Eliminate Sales Quotas to Make Profits
In every industry since the Great Recession began in December, 2007, it’s become twice as hard to make a dollar. But as a sales manager, you already know this, right?
All things being equal, there are four reasons for your sales demise:
- The economy – there are no more boom times – markets aren’t expanding. Competition is tough. You really have to hustle.
- There are simply too many products chasing too few dollars. Most of your sales come at the direct expense of your competition.
- Technology and social media. If your salespeople are not harnessing social media – for customer research and word-of-mouth sales – they, and by extension, you, are behind the times. Web sites, radio, TV, newspapers, direct mail and the telephone directory to a certain extent no longer suffice to create a buzz. The Digital Age has created a mega consumer and businessperson information-overload. Not only are companies expected to brand themselves, so are salespeople. Generally, that means getting on MySpace to create sales opportunities if you sell inexpensive products and Facebook for higher-end inventory. And don’t forget possibly using Twitter, LinkedIn, Digg, Flickr and YouTube.
- Not enough face time and customer appreciation. You need to ramp up the in-person exposure to customers. Too many salespeople do not see enough of their prospects and customers. And they commit a bigger sales-sin by showing too-little appreciation to customers. Seventy percent of customers buy elsewhere because they feel taken for granted.
For these reasons, sales have become a zero-sum game. In this downturn – more than in any other economic cycles – you can only gain when your competition loses.
So how do you motivate your sales team?
Unless you hand them sales leads, you need top performers to prospect and convert leads into profitable business relationships, and continually develop solutions to solve customers’ business problems. That can only come when they find needs to fill, target the right prospects, and create a happy buying environment while showing enthusiasm for their customers.
There are two other important considerations: How do you compensate them? How do you set goals?
All of these factors make sales forecasting more challenging.
OK, you’re thinking, “Tell me something I don’t know.”
New Sales Research
Sure, let’s consider research by a pair of marketing professors: Harikesh Nair of Stanford University and Sanjog Misra at the University of Rochester. Their research concludes that profits come easier if you end sales quotas. What? That’s tantamount to blasphemy in sales management, right?
The professors’ 2009 research at an unidentified Fortune 500 company – a contact lens manufacturer – shows a compensation plan sans quotas “resulted in a 9% improvement in overall revenues, which translates to about $1 million of incremental revenues per month,” according to a press release from the Stanford Graduate School of Business.
“The fundamental problem is that managers never know exactly how much time and effort their salespeople are putting into their work,” says Stanford’s Dr. Nair. “In the absence of such knowledge, they can only base payment on agents’ output, not their input.”
The school says an aggregate $800 billion is paid each year in sales compensation – nearly 300 percent higher than companies spend on advertising. But is it a good investment? Perhaps not. The professors’ test-subject company enjoyed a $1 million a month increase after dropping sales quotas.
You have been paying commissions and possibly bonuses based sales-quota performance. The idea, of course, is that salespeople are incentified to work harder to achieve goals.
But let’s face it: Salespeople sandbag – they game the system, and often postpone sales to look good later. So do sales managers.
Sales Confession
Yes, I also sandbagged in the 1970s as a young field representative for a group insurance company in California. I recall being the company’s No.1 producer in the northern California sales territory for nine consecutive months. One month during that stretch, I sensed my sales would be slower the following month. So I held off in submitting some car and home insurance policy applications. I turned them after the first of the following month, and led again. Why? I felt pressure to meet sales quotas.
My sales track-record earned the attention of two other well-known insurance companies that recruited me, and I quit seeking to climb new sales mountains.
As a new insurance agent at a competing company and despite a sterner sales quota system, my enthusiasm helped me to sell a surprising large number of policies in my first month on the job. My two managers were beaming. Then, I was very pleased when my regional boss bought a $100,000 whole life insurance policy and gave me credit for the sale by naming me the agent-of-record. The commission would be huge. I naively thought he was rewarding me for my first month’s sales achievement. I was overjoyed and salivating over my anticipated commission.
But I soon plummeted toward earth. I forgot the company was in the middle of a life-insurance sales contest. When the contest was over and within the 30-day free-look window, the manager canceled the policy. Then it hit me: Even C-level executives sandbag. But this time, it disillusioned me because it hurt my pocketbook – one of my early lessons in “what goes around comes around.”
Also, I learned too late about the quota differences between the two companies, and the impact on my performance. With a lower morale and reduced respect for the company, my sales decreased.
In the Professor Nair and Misra approach, they developed models in relation to the behavior of the manufacturer’s salespeople. The mathematical models determined the design of the compensation plan to forecast sales while evaluating the costs of inefficiencies associated with sandbagging.
The net result was the 9 percent increase in revenue. Whoa!
Motivating Salespeople
A side-benefit: Salespeople loved the new compensation model. “Most salespeople do not like quotas,” says Dr. Nair.
Amen.
But he admits the elimination of sales quotas may not work for every business. “What managers need to do is evaluate more carefully how the system is functioning for their own organization,” says Dr. Nair.
He suggests companies research the salespersons’ responses to various facets of the compensation plan and that they determine the impact on sales. “That can give a company a good base by which to evaluate what can happen if they do change the compensation system,” he explains.
“Dynamic programming” is what they call their mathematical approach in increasing profits.
“Firms now operate in an increasingly complex and data-rich environment,” says Dr. Nair. “Those that understand how to harness the power of this data to cut through this complexity will enjoy a lasting competitive advantage.”
Agreed.
From the Coach’s Corner, ever wonder why your customers feel like a number?
Here are some Biz Coach strategies on compensation and motivation techniques:
- Keep your compensation plan simple.
- Make it easy for your salespeople to track.
- Keep an open mind – test, test, and fine-tune your sales program’s effectiveness as conditions warrant.
- Instead of a set quota for sales numbers, emphasize footwork. That’s right, emphasize footwork over quotas.
In requiring a certain number of sales calls each day along with a high-level of customer service, there has always been a noticeable difference whether I was in sales, management or as a consultant to clients. That’s been true in different economies – good or bad. Specifically, 15 sales calls a day – in-person as much as possible – have always improved morale and dramatically increased sales at the expense of competitors.
Related reading: The Seven Steps to Higher Sales, a link to the Biz Coach secrets for sales success.
This includes seven steps to higher sales, five value perceptions that motivate customers to buy, and the three-step process for overcoming sales objections.
Leadership Strategies to Profit from Employee Respect
Even though Wall Street is ecstatic over productivity growth, merely slashing costs and jobs to create profit is not sustainable for profits. I know investors mistakenly believe the earnings for such publicly held companies are good, but it will not last.
Workers are realizing they’re not sharing in the wealth. Poor morale will cause profits to plummet, and consumer demand will continue to plunge. What will investors and CEOs do when it gets much worse?
So try a new strategy with a vision for growth.
The key to long-term profits is organizational cohesion. Some businesses are profitable simply because employees trust and implement management’s vision. Let’s consider how to increase worker productivity and reduce labor costs.
If you want to increase worker productivity and reduce labor costs, here’s a question: Are your employees buying into your vision for growth?
Leadership style is important. Earning respect is paramount.
In fact, mutual respect is the first step in getting employees to share your vision. That results from implementing strategies for healthy worker satisfaction, which might seem like an impossible dream for some employers in this economy.
When a company underperforms, do employees blame managers? In all probability, the answer is yes. At a lot of businesses, the workforces are unhappy with management. And the majority of employees want their bosses to invest in them.
Is your business suffering from poor morale? If so, take steps to increase your profits by communicating better with your employees. Generally speaking, employees who are satisfied with their jobs perform at higher levels, which is really a result of their satisfaction with their employers.
A study from a 2006 Biz Coach column confirmed this supposition. That’s when I reported Deloitte Consulting concluded that the 56 public companies included in Fortune’s list of “Best Companies to work for” had a 78-percent higher stock performance than the S&P 500. And I’m betting a similar study about profitability would have the same result today – in either big or small companies.
So what do workers want monetarily? They want what is probably impossible for cash-poor firms.
The top worker preferences:
- Competitive wages
- 100 percent paid health-care
- 100 percent company-funded 401(k) plans
- A compressed work week
- Flexible schedules
- Bonuses
Great profits or not, you can tap into other worker emotions that satiate them. Do your workers respect you? Do they feel treated with respect? Companies failing to take the necessary employee-motivation measures can expect employee turnover – whether or not the economy improves.
Here’s a leadership checklist for success with employees:
- If you’re new to the job, earn your stripes and demonstrate humility. Unless it’s a crisis turnaround situation, take several months before implementing changes. New bosses inherently intimidate workers – give them a chance to like you or least feel they know you.
- New or not, be accessible. Walk the floor twice a day. Spend five minutes a week with each employee whenever feasible. Show interest in them. Ask open-ended questions to get them to talk with you. If you do, they’ll conclude you’re a brilliant conversationalist.
- Actively listen to your employees. When you’re approached put down the pen or turn away from your computer. Employees rave about bosses who give their full attention.
- Encourage workers to suggest ideas for business success. If an employee makes a suggestion – even if you’re not in full agreement – look for reasons to be accepting of the idea. The worker will give 1000% to make an idea work, and the person’s morale will skyrocket. If it doesn’t work, the employee will endeavor extra hard to fix it in order to save face.
- If you’re not the top person in the company, use your influence to help employees to achieve their career goals. If you are the top manager, do whatever you can.
- Recognize top performance publicly. Praise immediately.
- If you must criticize an employee, try to use the layered-sandwich approach – two positives, the negative and a positive.
- Avoid criticizing an employee publicly.
- Ask questions before you start reprimanding. Sometimes there are good reasons for negative surprises. So avoid unnecessary embarrassment for your employee and you.
- Consider the Pareto principle when you honor workers – the top 20 percent deliver 80 percent of top performance.
- Maintain a steady disposition. Otherwise, when you’re under duress about a business matter, many employees will take it personally and mistakenly think you’re unhappy with them.
- Try to get key employees to buy-in to your new initiatives before implementation.
- Use good technique when implementing instructions. That means being direct, low-key but firm and maintaining strong eye contact. Explain the reasons whenever possible, but don’t be tentative or apologetic.
- For complex projects, be careful in how you give instructions. Take adequate time to list and document your wishes and deadlines. Recap in memos or emails. Like good meetings, everyone should know who will do what and when they’ll do it.
- Follow up and inspect your employees’ work or deliverables. Show your interest.
- Be courageous, especially in unpopular positions, but be cool under fire.
- Give your employees freedom – don’t micromanage. Make certain your subordinate supervisors do the same.
- Assess your strengths and weaknesses as a leader. Take appropriate steps to alleviate weaknesses and hone your strengths.
If you execute these ideas, you will profit from good labor relations and you will be in a position to leverage the perspective of your company’s human capital.
From the Coach’s Corner, here’s a question from a reader about proper etiquette:
Q: Lately I’ve attended several business meetings where I have already met the other attendees, but my bosses have not. When introducing the vice-president or president of our company, (I am a manager), should I use his title, “John Doe, President of ABC Company,” or simply say “John Doe, also with ABC Company?”
A: That’s an excellent question. It’s refreshing that your company employs such a conscientious person. It’s proper protocol to introduce guests to your boss first, such as: “This is John Doe, president of ABC Company.” Then, introduce your boss to the other person.