Does it Pay to Share an Employee? Four Points

Situation: A company has an excellent bookkeeper. However, during slow seasons cash is tight and the bookkeeper is not occupied full time. The CEO contacted a friend at another company, and that company has hired the bookkeeper for 10 hours / week. This is working well for both for both companies. Are there downsides to doing this? Does it pay to share an employee?

Advice from the CEOs:

  • If you share an employee, share at your cost – your fully burdened cost per hour. For the company using a piece of your employee, this may be a significant hourly cost, but is much less expensive than a consultant and lower risk than bringing on an unknown individual.
  • Keep a short term perspective – once the economy improves you will want the individual back full-time. Make sure that this is well understood by the other company.
  • Make sure that this is not a burden on your bookkeeper. Ask whether the individual can handle two bosses. It helps to fully segregate the individual’s time with time rules – for example, by day or half-day with clean break points in time worked for Company A vs. Company B.
  • Overall, the apparent benefits of this situation outweigh the challenges.

How Do You Get Managers to Honestly Rate Teams? Seven Points

Situation: A company is preparing for end of year reviews. They use several performance measures to evaluation employee performance, including 360 Reviews. The challenge is that both managers and peers tend to rate everyone at the highest levels – even though everyone knows that this is not valid. How do you get managers to honestly rate their teams?

Advice from the CEOs:

  • This is a common problem for companies. The central issue is that managers want to get on well with their teams, and may fear that giving someone a less than stellar review will impact individual and team performance. You have to change both the perspective and the methodology.
    • Start with the basics. Performance reviews are about communication and documentation.
    • Expectations should be based on an up-to-date Job Description for the position.
    • Job Descriptions should address skills, expertise and behavior. Clarity and specificity are essential.
    • They should anticipate growth, and include standards of performance to measure growth.
    • To prepare for a review meeting, the manager rates the employee against the standards specified in the Job Description, as well as any objectives established in past reviews. The employee self-rates against the same measures.
    • Following the review meeting, the manager must document the discussion and objectives for the next period set during the meeting. The employee reviews and signs this document.
  • For managers, a key performance measure is quality and substance of reviews.
  • Besides individual reviews, have your managers rank their people 1 to X along several metrics:
    • Team performance
    • Reliability on the job
    • High or low maintenance
  • Use zero based thinking: Knowing what I do now, would I hire this employee for their current position?
  • Align the review process with the company’s goals.
  • Do a total ranking among company employees. Tell managers that those ranking last place(s) must be upgraded. The CEO approves the final ranking.

What’s the Best Way to Renegotiate a Lease? Four Strategies

Situation: A company in a competitive real estate market has about 50% more space than they need at $2.80/sq. ft. per month – full service. The lease is up in 5 months with an option to renew for 2 years on the same terms. The company wants to both reduce its space and to reduce the cost per sq. ft. by about 25%. What’s the best way to renegotiate a lease?

Advice from the CEOs:

  • Gather information from multiple sources on current and forecasted cost of space in your market. Sources may include: other tenants, real estate agents, similar buildings, and walking the neighborhood to evaluate conditions. Look at newspaper ads and Craig’s List for both space & furniture.
  • Ask other tenants in your building whether have excess space that they would offer to you under favorable terms, or whether they are interested in your excess space. In either case ask for both price and terms.
  • Be careful with the information that you gain from real estate agents. They have more incentive to keep prices up than to find you the best deal. Balance their information with information that you gather from other sources.
  • Success in negation often is a matter of which side is best informed. Line up all of your options. Present these to your landlord and see if you can get what you need without having to move. For many landlords, a good tenant at a lower price is better than no tenant.

How Do You Address a Customer-Supplier End Run? Three Ideas

Situation: A company’s top customer has approached one of the company’s suppliers with a request that the supplier sell directly to them rather than through the company. The supplier normally does not sell directly to OEMs, and has neither the sales force nor the customer service capacity to work with these companies. Nevertheless, following the customer’s request, the supplier has asked the company’s CEO for a meeting. How should the CEO plan for this meeting? How do you address a customer-supplier end run?

Advice from the CEOs:

  • You need well-placed advocates both within the customer company and your supplier company. These advocates can help you to better understand what is behind the customers approach to your supplier, and what the true issues are. You will also better understand how the supplier is reacting to this request.
  • Talk to the boss of the purchasing manager who initiated this and let him know how this will impact your ability to supply other critical parts for their operation.
    • Ask for fast track approval as a preferred supplier.
    • Try to cut this off before the supplier representative arrives for your meeting.
  • You know from your history with this customer that you have had to make frequent delivery adjustments to meet their needs. Further, as a value add you make modifications to the parts supplied to meet the customer’s engineering specs. This level of flexibility is not part of your supplier’s business model. When you meet with the supplier, paint a picture of the downside of working directly with this customer to convince them that they don’t want to take this business direct.

Are You Planning Salary Increases This Year? Five Thoughts

Situation: A company’s staff is highly paid. Historically, annual raises have been 4-5%; however some individuals are above industry salary ranges. The CEO doesn’t want to lose key individuals who would be expensive to replace. The company is planning salary increases for the end of this year. If the level is lower than historic averages they are concerned about the impact. Are planning for salary increases this year? How will you communicate your decision to employees?

Advice from the CEOs:

  • What’s the problem? Even in an improving economy your employees are lucky to be making what they do! On top of this, you need to consider profitability compared to last year as well as historic levels. Selectively share financial data with your employees as well as financial realities – your and their top priority are to keep the company healthy.
  • Gather data on salary ranges for roles in your industry. Good sources are for national data (it may be dated) or Assets Unlimited’s Silicon Valley Survey for up-to-date salary information by industry and position. This will help you to prepare for conversations with employees who are currently paid above the range for their positions.
  • If you have employees above the range and do not want to give them raises, give them bonuses or spot bonuses for work well done.
  • Formalize your bonus system – base bonuses on performance metrics. Consider tying bonuses to net margin performance for the company or for departments that can impact new margin.
  • Whatever you decide, make announcements about salary levels a positive event.

Is It Time To Change Horses? Four Suggestions

Situation: A company has a business relationship with another firm. The relationship involves co-development of technology as well as marketing and other support. Portions of the relationship have worked, however, the other firm has not kept its part of the bargain in terms of marketing and support promised. What is the best way to approach the other firm to resolve this situation? Is it time to change horses?

Advice from the CEOs:

  • Have you have clearly communicated to the firm both what you are pleased with about the relationship as well as your level of dissatisfaction regarding lack of marketing and other support promise? To whom has this been communicated? Are you sure that your message has gone all of the way to the top?
  • Do a SWOT (strengths, weaknesses, opportunities, threats) analysis on the current arrangement and alternatives available to you to support your trade-off analysis before taking action.
  • Present a marketing option that will address the situation and ask whether the firm will support it as previously agreed.
    • If they say yes, have a contract ready for them to sign.
    • Negotiate other key items at same time.
    • Be sure to involve all parties on your side in the preparation, including the individual(s) who made the introductions that led to the relationship. Additional heads can bring more insight into the options that the firm and relationship offers. Bring the key parties involved to the negotiation, and be sure to prep them in advance.
  • Business relationships should be based on clearly stated deliverables and timelines. If deliverables are missed then it is time to make a business decision – either repair the situation or part ways.

How Do You Assess the Value of a Consultant? Four Thoughts

Situation: A company has relationship with a consultant. The consultant has approached the company for additional work with a higher dollar value. How do you assess the value of the services that are being offered? How do you assess the value of a consultant?

Advice from the CEOs:

  • Consulting is a competitive market. Look at the work being offered and tell the consultant that while you appreciate the value of her services and the relationship that she has with the company, you want to talk to others to understand the market rate for the additional services being offered.
  • Are consultants or contractors really much different from employees? How do you determine value when you are hiring? You determine this based on skills and market pay rate for skills. You’ll need to some homework to determine appropriate rates, but otherwise do the same here.
  • Look at your budget and upcoming expenses. If the proposed work is more important than other planned expenses, decide on a dollar figure and tell the consultant that this is what you’re willing to spend. If the consultant can convincingly pitch a higher value, you’ll listen.
  • Is the relationship with the consultant important to you? Is the proposed work important? If both are the case, sit down with the consultant and help them to craft a better offer.

How Do You Optimize Your Supply Chain? Six Suggestions

Situation: A company wants to improve the efficiency of its supply chain. The company produces a custom product, for which there are few qualified materials suppliers. From the CEO’s standpoint, this presents challenges, particularly when there are delays in materials and parts supply. How do you optimize your supply chain?

Advice from the CEOs:

  • In supplier negotiations, know your BATNA – Best Alternative To No Agreement. Put this in dollars and cents so that you know your negotiating limits.
  • A recessionary or slow growth environment is the perfect time to negotiate! This gives you the opportunity to work with an outstanding order on terms that either your supplier or customer needs. For example, if you are experiencing delays in shipments from your supplier, offer a purchase commitment of “x” terms for “y” years at “z” price in exchange for higher priority on their production schedule. You can work the same way with your customers.
  • If you supply a custom product, especially on a sole-source basis, tie yourself to the hip of the engineering organizations of both your supplier and your customer. This gives you leverage when either the purchasing department or a contract manufacturer intermediary tries to push you on price and terms.
  • Be a squeaky wheel on shipments or payments due – but not in an irritating way with too much pressure.
  • Europe Union RoHS and REACH regulations make it imperative that manufacturers and service companies be aware of hazardous substances in products that they design and manufacture. The list of hazardous substances being monitored and/or restricted is expected to grow to 3,000 in coming years.
  • Contracts serve two purposes: a legal tool, and a way to drive behavior. They are an opportunity to assure that both parties are on the same page and under the best circumstances serve as process documents.

Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.

Is It Wrong to Hire Family Members? Six Considerations

Situation: A small but very profitable business was founded and has been run for two generations as a family-owned and operated business. To boost performance, the CEO hired a general manager with a good background who is not a family member. The general manager has told the CEO that he feels that there are too many family members in the business. The CEO likes hiring people she trusts, particularly friends and family that she has known for a long time. Is it wrong to hire family members?

Advice from the CEOs:

  • Don’t try to change what you’ve already done – plan for the future.
  • Acknowledge the GM’s idea. Tell him that you appreciate his suggestions. Suggest that he test hiring more non-family members to cover one of your low risk market segments. Measure the performance of this team versus the other teams within the business.
  • The challenge with family members is accountability and objectivity. The question for the family owners is whether they have the freedom to act in the interests of the company. Can they put family ties aside when someone is not serving the interests of the company?
  • The essential question for the family that owns the business is – what do you want to maximize? If it’s loyalty and longevity – keeping the family together, employed and in harmony – they can be good. If it’s profits and performance – family and friends can be difficult if emotional ties cloud business objectivity.
  • The upside to family is loyalty and trust. That said, family and extended family friends are different. The latter don’t have the same ties or sense of loyalty.
  • Can you keep employees for too long? Yes. Make sure that you evaluate all employees every year. Establish job and performance standards and make sure that all employees – family and non-family – are held to the same performance expectations.

How Do You Optimize Quality Improvement? Six Suggestions

Situation: A company’s reputation is based on quality of work. The CEO notes that occasionally they have mishaps due to suboptimal documentation. They are considering a concerted quality effort.  Based on your experience, would you do this whether or not you were bound by ISO requirements? If so, would you hire an outside consultant to guide your efforts? How do you optimize quality improvement?

Advice from the CEOs:

  • Some companies have successfully used ISO to force documentation. ISO provides a structure to enforce keeping the company and employees diligent and honest.
  • Other companies have used standard operating procedures (SOPs) for field as well as internal functions to speed completion of documentation and accelerate invoicing. These companies may or may not have ISO requirements.
  • One company tried to go cheap – implementing process improvement without a qualified consultant. While the effort was eventually successful, it took way too much time and money. From this experience, they recommend hiring someone who is experienced and who already has a template to guide the process.
  • To test the experience of an outside consultant, start with a small project to get the company accustomed to the process and to evaluate the consultant’s efficacy.
  • If the choice is to work on this yourself with your employees, start by documenting what happens correctly. Once you have done this, work on improvements to address problem areas.
  • This is not a simple exercise – plan for it and use the right inside or outside person to guide the process.