Small changes to your processes can have a big impact

BY RICH SCHMITT
Management specialist

On a recent flight to an assignment, I boarded in the first group and asked the flight attendant how their passenger load looked for the trip. She said that they had about 80 passengers on a flight that had a capacity of 137. I said that was good news for us passengers but bad news for the airline. She responded that it was actually okay because their breakeven load was at 72. She said that the company should breakeven on the trip depending upon the number of “non-revs.” (A non-rev is non-revenue passenger who is a guest, an employee or a member of the employee’s family who is flying for free or at a greatly reduced fare.) She added that the airline may even do better if their fuel purchases had been done wisely. I sat down a little stunned by her grasp of the situation and by the simplicity of her explanation.

As we flew toward our destination and after she had completed her duties, I told her that I was impressed with her understanding of the company’s operating performance. I asked how she came to that level of understanding. I asked if the airline had provided training or seminars. She said that the company simply made the information available on the company’s internal website. She just liked to log in to see how things are going. She also added that she participated in the company’s profit sharing plan, so her interest was more than casual.

That conversation reminded me that another focus area for wholesalers is to give people information that will help them to know whether they are performing doing a good job. As I have said before, I believe most people come to work every day to do a good job. Companies often fail those people in several ways:

• They provide bad supervisors who end up beating all the good intensions out of the team through their Neanderthal people and supervisory skills. We have all seen the cartoon where a supervisor is yelling at an employee, “If I want your opinion, I’ll beat it out of you!!!” I am not a proponent of a soft, laissez-faire approach either. Great talent deserves great leaders using good techniques. The first job is to find supervisors who are smart and like working with people.

• They create stupid policies that cause the team to become demotivated and demoralized.

1. You are at risk when you hire a great person then in the orientation meeting say, “Our company has a two-year training program to learn our warehouse operation.” This may be wrong on several fronts. First, any warehouse operation that takes two years to learn is probably too complicated, thus a problem since you cannot afford to staff your warehouse with “rocket surgeons.” Second, assuming that you have a normal warehouse operation, if the people you hire take two years to learn your warehouse procedures, you are not hiring sharp enough people. And third, sharp people don’t take two years to learn a warehouse operation, even if it is overly complicated. Forcing a smart person to endure two years of warehouse training is a good way to get them motivated — to leave at their first opportunity.

2. When processes are designed using a lowest-common-denominator approach, the tedious procedures can be insulting and demoralizing to good people. Ideally you will hire sharp people and your training programs will allow individuals to progress at their own pace. Of course, tests of skills and proficiency are required to insure that the progress is real and meets established standards.

3. When processes and policies are implemented with the basic fairness of fraternity hazing it is demoralizing. When the senior employees pick on new or less senior employees, it causes the good people to look elsewhere and only the lesser people will stay because they have no better alternative.

• They don’t provide a set of goals or guidelines that properly describe top-level performance. As I mentioned last month in more detail, it is critical to define processes in writing to ensure consistency and to get everybody operating from those procedures. Everyone should be singing from the same sheet of music.

• They don’t provide the information to allow employees to self-evaluate their performance and to improve. I have seen instances in my career where the simple act of providing performance data resulted in better performance by the team. There was no implied threat of punishment. It wasn’t the “Hawthorne Effect” where people’s performance improves when they are observed and measured. It was their desire to do good work. Of course there are people who don’t give a hoot, but most people are not wired that way. Simply establishing fair measures often results in better and more consistent performance.

• They don’t provide measures to supervisors so they can evaluate, coach, reward or remove people from roles. Supervisors who don’t have information can use their “gut feeling” to evaluate performance. This can allow personal relationships both good and bad to bias evaluations. Or at the other end of the spectrum, supervisors without data may feel uncomfortable evaluating performance resulting in little coaching in either direction and never feeling comfortable removing a person.

Performance measures

• Overall company performance – I have mixed emotions about providing this information since it can result in mixed reactions by your team. Knowing that the company is doing badly can be good since it can also create a sense of urgency. Until this economic crisis, many wholesalers suffered because their team thought that the company was “rolling in dough” since they were mov­ing a lot of product. This “rolling in dough” misconception caused people to offer ob­scene discounts, towork with less intensity, to care less about efficiency and to be less concerned about waste. Seeing performance numbers can help focus the team on operating efficiently. On the other hand, knowing that the company is really struggling may also result in good people seeking other jobs. If you provide this information, it is critical to help your team understand and react properly to the results. So I guess I end up with the following advice: Look at your team and determine how the information will be received and used. It is probably better to provide some high-level numbers but you must take the time to explain and interpret the information. Important Note: Whenever you do provide information, always mark it as confidential, explain to the team that you expect it to be kept confidential (but expect that some or all of it will be leaked.)

• Measures related to the individual’s job and to areas that the individual impacts – Knowing the company’s delivery errors are up is critically important to the operations team because their performance may be a direct cause of the errors. That same information may cause a salesperson to emotionally feel that he needs to reduce his price to compensate for the service issues — even when the problem was promptly corrected and your delivery accuracy is far better than anyone else in the market area.

• Keep it focused and trimmed – Most people can only assimilate and understand a limited amount of data. The flight attendant I spoke with may have been a genius, but I’ll bet most FAs can understand that the company makes money when there are more than 72 passengers on the plane. They also understand that satisfied customers use the airline more regularly and that their efforts are directly related to happy customers. The company’s fuel arbitrage and futures activities may be interesting but of little relevance to the way the FA does her job.

• KIS (Keep It Simple) – Most companies that share, share too much to too many. It is not that the information is a secret. It is that too many details can distract attention from the “critical success factor” activities that an individual has direct and maybe exclusive control over. To a shipping guy the EBITDA for the company has no meaning on his daily activities. The number of mis-ships is spotlight on his department’s performance.

• Spend time to help people understand the measures and what their reactions should be to various values — Even better, work to develop “pro-actions” that prevent problems or are early-warning indicators that can reduce the impact of a problem. Example: If the inventory quantity on hand for a “Never-Be-Out-Of’” item is zero, we expect you to treat it as an emergency replenishment situation. That means that you are to get this item into your warehouse ready to sell in the most direct and immediate manner possible to prevent lost sales and poor service to customers. You are expected to immediately initiate one or more of these actions: 1) Transfer stocks from another branch, today; 2) Buy the product from another wholesale, today. When the product arrives, you will insure that any markings with the competitor’s name are removed prior to sale; 3) Buy the product from a big-box or other retailer in the area, today. The same expectations regarding markings on the product apply.

• Falsification of or “gaming” measures – Measures must be legitimate and trustworthy. The company must not game the measures and employees must not play games either. There must be a clear understanding that falsification of any company records or data is a serious action that may result in various actions by the company ranging from a reprimand, to dismissal, to prosecution. (As always, talk to your labor attorney first.) Further, companies need a base policy stating that employees are expected to honor the letter and spirit of the company policies and to do their jobs with the best interests of the company.

1. I have heard of instances where a company had a strict never-be-out-of policy. The president personally reviewed how each occurrence was handled. Some misguided branch staff “gamed” the measure by never selling out of an item. The unwritten branch rule was that nobody ever sold the last item off the shelf. The branch team thought it was better to disappoint the customer than to tell HQ that they ran out. The customer might have been mad, but nobody had to go through the fire-drill to get the product back into stock and answer to the president about the situation. Or someone would sell out of an item, but create a “pretend” receipt to simulate that the product was back in stock so HQ wouldn’t be on their back. These falsifications are very bad; plus, they can really mess up the company’s inventory management data.

2. I have seen salespeople change the cost of a product so their gross margin based commissions were “enhanced” or to avoid triggering a review by management of their aggressive discounting. Both are inappropriate and should not be tolerated. (It is important to understand that this is fraud. Both fraud and theft cannot be tolerated.)

3. Over the years, I have seen salespeople do really dumb things to meet their quota. Selling product at or below cost. Falsifying orders in order to “book” business knowing that the company was not smart enough to figure it out and recover the overpayment of bonus monies.

Some companies take a “boy-will-be-boys” attitude to people who game the systems, performance measures, commission plans or bonus programs. I think the company must be clear that these fraudulent activities will not be tolerated.

So the assignment for this month is to look at whether you have the right team, the right supervisors and the right processes in place. If not, start evolving your company. Even small changes can have a huge im­pact on your future. Next month I’ll suggest some of the base measures that should be available to people to manage their part of the business.