Business Insider's Guide to Business Development
For almost 10 years now, I have been working with companies to improve their operations. This includes small companies with less than 100 employees up to multinational corporations with tens of thousands of employees. What I have experienced has been rather stunning to me, and I wanted to share what I’ve learned.
All of the well-managed companies exhibit the same qualities. Unfortunately, this is less than 20% of the companies I work with. I will deal with the other 80% later in this article. Well-managed companies understand that only employees who can accomplish the company’s mission are the ones that create the products or perform the company’s services. Most companies are organized in a triangular formation with front-line employees at the bottom and C-level employees at the top. Successful companies understand the company’s full potential can only be achieved when the triangle is turned upside down and customers are added at the top (see illustration). Every manager must understand, for the company to accomplish its mission, they must support the front-line employees and create policies that enable the company to understand why a customer wants a product or service and provide what the customer wants at a reasonable price, when they want it, where they want it or how they want it delivered by friendly, knowledgeable, well-trained staff. Any policy that makes it harder for frontline employees to do their job or alienates customers must be eliminated.
Well-Managed Companies have a Customer-Focused Mission Statement and Live by It
They Understand Customer Service Is King
Just about every company’s mission statement says they are customer-focused, but only the well-managed companies live by it. Amazon has decimated the retail sector by offering exceptional customer service. Wal-Mart was late out of the gate but is making great strides to catch up.
Now you would think once evidence of this was brought to management’s attention, they would make efforts to change, but the resistance to change seems to be so ingrained with most of these managers they will defend their policies and allow the company to go bankrupt before admitting they’re wrong. There has been a parade of business failures among iconic US companies resulting from this failure to listen to customers and frontline managers. Blockbuster, Toys “R” Us, Borders, Kodak, Sears, Circuit City, and Payless Shoes, to name a few of the companies that have failed because of poor customer service. All of these companies failed while senior management sat around and refused to adapt to changing customer demands.
I recommend every person at every staffing level be trained in customer service, especially senior managers. View customer service classes.
Well-Managed Companies have a Sales and Operations Plan
Just as critical as the mission statement is the S&OP. The mission statement is what the company wants to accomplish. The S&OP is the company’s plan to get there. To understand the importance of the S&OP, let’s say you wanted one of your employees to go from California to New York. You don’t tell them what transportation to take or how to pay for it, where in New York you want them to go, where they will stay and for how long, and what you want them to do when they get there. What do you think their chances of success are? Trying to accomplish the company’s mission without an S&OP laying out management’s vision on accomplishing the mission will result in similar results. Everyone in the company should have access to this document.
Our Leadership Essentials for Policymakers and Senior Managers course covers the mission statement and the S&OP plus more.
What Is the Other 80% Doing?
Understand it’s rare these problems occur in isolation. Companies in trouble will display most or all of these problems to some degree.
The number one problem I have encountered causing the operational problems are policies created by senior managers who are out of touch with their front-line managers and, most importantly, their customers. When sales decline, instead of addressing poor customer service’s real problem, the first thing senior managers will do is reduce the front-line workforce and close stores. What got them in trouble in the first place was poor customer service. This move only exacerbates the problem, and the steady decline to business failure has begun.
The offending policymakers and senior managers do not understand one of their primary duties is to support the front-line workers and managers. They become too comfortable in their position and provide indifferent leadership. The concept of being in a support role is foreign to most senior managers. The prevailing attitude is I have paid my dues. I’m a senior manager now, and you will do as I say. They create policies with little regard to how it affects the employees impacted by them.
No Defined Company Mission Statement or S&OP
Rarely do front-line managers know what the company’s mission is. When I ask the question, I usually get something like, “I guess it’s to make X product.” Without a clear understanding of the company’s mission and how the company wants to accomplish the mission, managers are essentially directionless with no guide for decision-making. Without this critical guidance, companies fall victim to the strategy du jour. They are sold a widely used strategy or one popular at the time, but it does not fix the underlying company problems.
Policies that Drive Away Customers
Policies created by senior managers only concerned with the bottom line put front-line employees in the position of having to tell customers one of the things customers hate hearing most, “I’m sorry there’s nothing I can do about this; it’s company policy.” There is no better way to drive away customers than to have restrictive return policies, arbitrary deadlines, or anything else that makes the buying experience problematic.
Poorly Trained Front-Line Employees
Poorly motivated front-line managers and employees that do not understand the importance of customer service due to a lack of customer service training. Remember to the customer that surly, indifferent worker is the company. Research has shown it costs a business six-seven times more to attract a new customer than to keep an existing one. A typical dissatisfied customer will tell eight to ten people about their problem. Seven of ten customers will do business with you again…if you resolve the complaint in their favor. If you resolve a complaint on the spot, 95% of customers will do business again. Of those customers who quit, 68% do so because of an indifferent attitude by the company or a specific individual. No employee should be allowed to interact with customers until they have been trained in customer service!
Fear of Technology/Fear of Change
The business community is uncomfortable with change because we can’t anticipate the outcome. Still, staying put can be even riskier than changing; ask any of the now-defunct iconic companies. A business resistant to change risks being left behind.
It’s human nature to resist uncertainty because our brain prefers a predictable negative outcome over an uncertain one. Many senior managers and business owners can’t wrap their minds around embarking on an entirely new and different direction. Managers counting down the months to retirement convince themselves the status quo is preferable to the risk of striking out in a new direction.
Many senior managers and business owners have a fear of technology, also known as technophobia. The fear or dislike of advanced technology or complex devices, such as robots, 3D printing, artificial intelligence (AI), and the internet of things (IoT), to name a few, is surprisingly common, with some experts believing we all suffer at least a small amount of nervousness when confronted with new technology. In today’s rapidly changing world, it can be easy to feel out of touch.
With senior managers and business owners, one of the most basic technology fears is rooted in losing control. We don’t necessarily understand exactly how a new technology works, so our imaginations fill in the details. It’s human nature to want to be in control of our environment, and it’s scary to think that we might not have as much control as we had hoped.
Ivory Tower Effect
Another question I always ask is, “Do you see senior managers walking the work area talking to you and your co-workers every few days?” There is usually some laughter, and someone will volunteer the information they rarely, if ever, get to talk with a senior manager. Senior managers who hole up in their office and fail to interact with the only people who can actually accomplish the company’s mission are missing a tremendous opportunity to understand the problems and challenges faced by front-line workers.
Walk on Water Behavior
I see a lot of this type of behavior. Senior managers who feel they are always the smartest person in the room and no one could have better ideas than they can decimate the morale of a company. This my way or the highway mentality creates an absence of trust and leads to communication breakdown. Front-line employees give up trying to improve things because they know any suggestions they make will be arbitrarily dismissed. This behavior can have various root causes: an obsession with individual success, obsessive-compulsive behavior, and withdrawal.
Policies that Handicap Front Line Managers/Silo Mentality
This problem develops when senior managers are only rated on their department’s performance. What develops is division, secrets, and mistrust of other departments. Doing what’s best for one department can harm other departments. For example, the production manager that overproduces because larger lot sizes reduce his or her per piece costs while creating a serious problem for the warehouse manager that must cope with all the extra inventory and associated costs. Senior manager KPI (Key Performance Indicator)s should include evaluations by other department heads to identify actions that are detrimental to other departments.
What are some of the warning signs leadership problems exist in your company?:
Declining or Stagnant Sales
This one should be obvious, but many managers rationalize the problem away. One metric every senior manager should monitor religiously is the Net Promoter Score (NPS), in addition to watching sales figures. NPS is a management tool that can gauge the loyalty of a firm’s customer relationships. A decline in the NPS is a clear warning sign you are losing your customers due to poor customer service.
High Employee Turn-Over
The most obvious warning sign is high employee turnover. Do you know why employees leave your company? Does your company require exit interviews? There are very few reasons why someone would leave your company if it is properly managed. In most cases, companies with high turnover rates fail to meet the motivational needs of their employees (see Herzberg’s Theory of Motivation and Maslow’s Hierarchy of Needs). For example, if you ask your customer service representatives and front-line employees to enforce policies that upset your customers, who, in turn, express their displeasure in a harsh and demeaning way, why are you surprised when employees quit? Policies should never be created without input from the people expected to implement them.
No Accountability for Senior Managers
Senior managers must understand they are responsible for everything that happens or fails to happen within their area of responsibility, and they need to be held accountable. Blaming poor performance on front-line workers is just an excuse for the failure of senior management.
The best way to hold managers accountable is through bottom-up evaluations. Along with traditional forms of employee evaluation, frontline managers should evaluate the departments they interact with on how well they support the frontline effort. Three to five KPIs should be established for each department that reflects its performance in supporting the company mission. The department doing the evaluation should help create the KPIs. For example, the warehouse manager should suggest KPIs evaluating their interactions with production, purchasing (to include supplier ratings), and 3PL logistic services. The production manager would provide KPIs evaluating their purchasing, warehouse, maintenance, and HR interactions.
One of the most important KPI for every manager is employee turn-over. This should be measured in every department for every manager. A serious review of any department with a high turnover rate should be initiated.