Situation: The CEO of a service company is concerned about lost income from uncaptured billing. He has identified the cause – failure to capture extra hours that haven’t been billed – but is struggling to get employees to monitor this more effectively. How do you implement a process change?
Advice from the CEOs:
The group presented two options for growth: bring in experienced outside people to develop additional systems to run the company, or a hybrid model using internal resources, augmented with outside expertise.
Bring in Experienced Outside Resources: Hire an experienced outsider with a track record in your industry to design and implement the needed systems.
Pros for this solution: the outsider will bring a fresh vision and new energy, plus the experience and know-how to make the desired changes.
Cons: impact on current business culture. This may generate resentment among employees who can no longer make decisions on the spot and may remove a path to management for existing staff. Possible negative impact on customers who receive larger bills due to change orders.
Hybrid Model: Outside person creates model and trains employees to implement it, then monitors the system and progress long-term. The key is to change expectations and behavior within the team.
Pros for this solution: more opportunity for current employee participation; involves employees in the design of the system, providing better buy-in to the solution.
Cons: as with any change, this won’t provide the full expected return. Just the fact that things are being changed impacts the efficiency of implementation. Unanticipated blocks and resistance may hinder progress – don’t be surprised by this, it is predictable.
Implement SOPs that facilitate rapid response to change orders – starting now and with whichever option is chosen.
Generate a pick list of all possible change orders with pre-calculated costs to guide employee choices and keep customers informed.
Whatever solution is chosen, be sure to communicate frequently and consistently with employees to facilitate the change.
Situation: The CEO of a specialty component company wants to standardize documentation of company procedures covering sales, production and ISO documentation. This will take time and effort, and employees are concerned about accountability for poor results. How do you incentivize employees to document SOPs?
Advice from the CEOs:
Are employees are being asked for accountability without being empowered or rewarded for performance? Currently, there is nothing about employee performance that is directly tied to:
Dollars in raise, or
Share of the bonus pool.
Everything is determined at the CEO’s discretion.
Why would anyone want more accountability if they feel that they have little control over their jobs or future at the company?
To increase accountability and drive, employees must be given control over the factors tied to retention, pay and bonuses.
To create an effective system for employees to document standardized SOPs they need:
Incentives that are under their control to achieve the objective – creating standardized SOPs.
Objectives that are achievable with clearly stated rewards for performance.
Performance evaluations tied to clearly stated objectives, discussed with and agreed to by each employee, which drive raises, bonuses and rewards.
The messaging about these changes must be delivered with energy and passion. Employees must feel excited by this opportunity.
Understand that this may cost 10-15% in increased overhead but will boost the value of the company way beyond the cost.
Employees need to know the vision for the company and must be empowered to achieve the results to fulfill this vision.
The why behind the desire for standardized SOPs is just as important as the incentives created to achieve them.
The why must be clear, simple, and must be understood by the employees for everything to work.
To further motivate the team, involve them in designing the incentive program.
Ask what they want. Maybe it’s something as simple as a fun day with the team.
If they aren’t asked, the danger is that they will not respond to the incentive offered. Money is not the only, and in many cases is not the most effective incentive.
Situation: A technology-based company has a very successful product in a niche market. The team has been brainstorming about additional markets into which the product could be introduced. The only experience that the CEO and team members have is with the existing market. While other markets are appealing, they lack the experience and contacts to penetrate new market opportunities. How do you introduce a product into a new market?
Advice from the CEOs:
Hire someone, either an employee or a consultant, who intimately knows and can introduce you to the new market. If you have more than one good candidate consider hiring them both.
Start with clients that you already serve in your current market but who also serve the new market. This can provide quick wins and proof of concept. Overlap is important because you will have a shorter sales cycle with these clients.
Another company moved from on-site consulting to turn-key services. They found the purchase process to be completely different. Originally, they were unprepared for this, so the transition took longer than it might have.
Talk to existing customers and learn about their companies’ purchasing processes to organize your fact gathering and strategy.
Read case studies of other companies’ experience moving a single platform between markets.
Another company moved from niche photography – holiday photos – to photos for Fortune 500 companies. This was the same expertise, but the market and decision processes were different.
Key to the successful move was understanding the people in Fortune 500s who were making the buy decision and the structure of their decision process. The CEO of this company registered for conventions attended by client prospects. This provided a quick way to meet and learn about key people and their decision processes.
Situation: A company has built a solid core business and wants to expand its product portfolio by adding new business. Core functions can serve both existing and new business, reducing overhead on individual businesses. What pitfalls must the company avoid? How do you balance core and new businesses?
Advice from the CEOs:
New business activity cannot impact core business. The core business is the company’s bread and butter. It is important to make this clear to both employees and clients and to structure the handling of new business opportunities accordingly.
From a staffing standpoint, new business opportunities cannot impact marketing, service and operations staff supporting the core business. New business development activity and operations cannot result in a pull from their focus on the core business. This separation may be facilitated by placing the staff supporting new business in separate facilities, or in an area separate from the staff supporting core business.
In the case of support functions that will serve both existing and new business, recruit and hire staff to support the new business to assure that both existing and new business receive proper support.
Hire a new person, one with experience and contacts, to develop the new business opportunities. Look for a sales person who can bring in significant new business. This will pay for the individual quickly.
How does leadership communicate these changes to staff?
Meet with key managers to identify potential concerns. These may include impact on company culture and client focus. Use the responses gathered to develop a communication plan to allay employee concerns.
As new business opportunities are added, it will be necessary to bring in new, experienced personnel. Previously, the company brought in experienced personnel to build the current business. Be open and up-front about this and explain that as the company grows there will be new opportunities for existing employees.
The company’s objective is to improve the quality of the organization and to raise the boat for all. Current owners and managers will automatically benefit from the efforts of new people to expand the business.
Building new business opportunities as separate businesses diversifies the company and reduces the risk of overdependence on existing clients and key vendor relationships. This enhances the job security of current employees.
Situation: The CEO of a privately held company wants to share company success with employees. An option that she is exploring is phantom stock. The objective is to engage employees in company success. Does a phantom stock plan make sense?
Advice from the CEOs:
Why would you use phantom stock options instead of real stock?
Phantom stock options are popular in the tech sector. Phantom stock confers the right to receive cash at a future point in time, typically a share of the proceeds received upon the sale of a company.
The principal difference between phantom stock and real stock, is that real stock must be issued in exchange for cash, property or past services. There is also a tax consequence to the receipt of real shares. When shares are issued in exchange for past services the employee must recognize taxable income, just like wage compensation. Employees may be disappointed to learn that they may face taxable income based on the fair market value of their shares received without compensating cash to pay the tax.
Let’s assume that the objective is to increase employee engagement as they observe the value of the shares increasing with company success over time.
Under phantom stock programs the value of the company is pegged on a periodic basis, based on a pre-set formula developed by the company.
In some cases, employees can “sell” their phantom stock back to the company for the differential between the price when they were awarded the stock and the current pegged price.
The structure of the program is determined by management based on company objectives.
Employees frequently don’t have the cash to purchase real stock or options at a fair price given the value of the company. Using a phantom stock plan, a company can offer the rewards of stock ownerships without a purchase requirement or tax implications at the time of award. Employees can be apprised of the value of their phantom stock based on a periodic internal accounting exercise.
Situation: A software company relies on in-house expertise to both position itself and come up with unique solutions to clients’ problems. The CEO wants to significantly scale up the number of clients served per year. The challenge is that it is difficult to find software engineers who are experienced in a wide range of code languages. How do you scale with scarce talent?
Advice from the CEOs:
Start by looking at the load carried by your current employees. Do they have the capacity to significantly increase the number of clients that they serve? Do you have sufficient back-up to serve existing and new clients should something happen to a key employee? It’s one thing to have ambition to expand, but another to assure that you have the capacity to serve both existing and new clients.
Take a close look at your org chart.
What happens and where are the exposures when you double the current service volume? Where will the greatest stresses occur? These are the first areas in which you should start to build redundancy.
From an HR standpoint, you need a leadership development plan that extends down your organization chart. Use the stress analysis just mentioned to identify the areas in greatest need of additional resources and leadership development.
Look for areas where you can off-load current responsibilities to support staff to increase the capacity of your current talent. This increases potential capacity as well as the overall value of the company.
The lack of redundancy may prove to be detrimental to your ability to attract new large clients. Large potential clients and partners will use whatever means they have at their disposal (including stealth visits to your offices by local reps) to vet your organization before they make a commitment to you.
New client and partner relationships are like new product introductions.
A few early adopters will jump on your opportunity.
Many of the most established clients or partners will sit on the sideline to monitor the experience of early adopters.
If you trip in your service delivery early in your scale-up, most of the remaining targets will be slow to support your offering.
Count on the first two years of building additional clientele to be very intensive. It will distract you from many of the functions you perform today, unless you have additional personnel to support this.
Situation: A CEO is concerned that there is insufficient fairness and accountability within her company. One manager is paid hourly and the CEO is thinking about shifting this person to salary plus bonus both to put them on par with other mangers and to create more accountability. How do you create accountability?
Advice from the CEOs:
What exactly are you trying to achieve? An operations manager is paid competitively at hourly rates, even compared to salaried employees. The issue is that this person has no responsibility for results as they relate to the P&L. Given this, the group consensus is that it is better to have this person on an incentive program that ties compensation to the performance results that you want.
One objective is that you want this employee to contribute more to planning, strategy or the company’s attempts to develop solutions to the challenges that they face. Have you spoken to the employee about your expectations? Does the employee realize that you want or value their input? Direct communication with the employee is important.
While the employee understands his responsibilities in the operations area, be sure that he is aware that he is also important to the profitability of the company, and managing operational expenses which are contributors to that profitability. Depending upon the individual’s background, he may need training about the links between expenses and the P&L.
Given these factors consider the following options:
Adjust the employee’s compensation by switching from hourly to salary. Make the base livable, but not comfortable, and tie the bonus (which will make the total compensation package comfortable) to the profitability of the business. This will have an immediate effect.
Clearly explain to the employee that you value his creativity and input. Give this person the freedom to contribute and make it clear that his contribution is expected. Early on encourage this and acknowledge contributions in meetings.
You may want to make this person a part owner of the business. This will have a long-term effect.
Situation: Historically the management of a company has been family and a few long-term managers who’ve grown with the company. Some of these managers have reached their limit. Over the last couple of years, the company has added new, high capacity management. Who do they do with existing managers who can’t keep up? How do you facilitate management change?
Advice from the CEOs:
This is why packages exist. Employees, even key managers are not forever. As a company grows both its needs and culture must grow. There comes the time in the life and growth of most every company when certain managers are unable to accommodate this growth or adapt to the changing culture. You may well find that these managers are not very happy and no longer feel at home. Whatever the case, it is better that they move on.
Who creates the package?
You or your HR manager come up with the outline.
Get professional advice if you have none in-house.
Is there a moral issue – our commitment to our employees?
If an individual is demotivated, they are not contributing – this solves the moral issue.
If the individual is terminated amicably this can be for the best – for both parties.
How do you ease the pain of separation, both for the individual and the company?
Packages can be adapted to the situation.
Take the example of a manager who has made important contributions in the past, and who has good relations with others in the company, but doesn’t have the skills to adapt to the next level. Include a generous term of job search assistance. If the separation is amicable, offer them space, computer and a telephone to facilitate their job search. This can ease the separation.
Situation: A company is a professional organization with exempt employees who sometimes work extra time. Some employees are fine working 50-60 hours per week, others are not. The latter want comp time in exchange for the extra hours worked. What are appropriate policies for comp time?
Advice from the CEOs:
When weekend duty is called for based on company needs, one company swaps dates to give the affected employees time off during the week. On the other hand, if they need extra hours to get their normal job done, this is part of the job and does not merit comp time; particularly if other employees manage similar work during regular hours.
What about on call duty? If this is a regular part of the job, particularly if it is not frequent, it’s just part of the job. However, you may want to consider a spot bonus for special duty.
Do not allow employees to accrue unlimited personal time off – PTO. Start limiting what you allow them to rollover and give them time to use it or lose it.
Look at the individual, what is happening and their work processes. Help them to save time if their processes need to be improved.
People sometimes feel that they are “entitled” with no justification. Rate your employees A, B and C. Inform them of their rating, and the reasons for it during their regular reviews. In a tight job market C’s either upgrade their performance to B or A, or they become candidates for replacement.
Situation: A CEO has hired a banker to advise on the potential sale of a privately-held company. What else should she be doing in advance of the sale? How do you prepare to sell a company?
Advice from the CEOs:
Prior to moving forward with a banker, it is necessary to prepare a privately-held company for sale. Get an advisor – not a banker – to assist you. Search online for a good mergers and acquisitions advisor. If you know CEOs from other local companies, network with them to discover high quality advisors.
In selling a company, the final deal must provide for the survival and continuing effective operation of the company. A buyer may want assurances from you, or assistance in the transition. This can have a significant impact on your final payout.
Be prepared for the reality that you or someone else within the company will have to remain with the company post-sale. If this is to be another person, this individual will be very important to you during the negotiation process with potential buyers. Keep this individual up-to-date with your intentions and plans.
A company is more than numbers – it is a story. The story must be very crisp and compelling.
The buyer will want to perform due diligence before offering you a price and setting conditions on a purchase. This may involve more than you and your top managers. Communications within the company will be critical to keeping managers and employees informed and on-board.
You will want to have two or three potential buyers, both in case a top prospect fails, and to assure competition and a higher sale price.
Think carefully about your next move from a personal standpoint. Being at leisure may not fulfill you. What do you really want to do for the next segment of your life? This is far more important for you, personally, than you may estimate.