Situation: The Board of a company has asked the CEO to generate to forecast of revenue for this year. Their primary technology is new and the company has just started receiving orders. An achievable revenue forecast my not please the Board. However, the company may lack manufacturing capacity to meet a higher level of demand. How do you forecast revenue for a new technology?
Be realistic in your forecast. While the Board may not like your number, the impact of setting the goal too far out of reach is potentially significant, including discouraging the team, and impairing credibility with the Board. However, if you aim realistically and significantly exceed the target you will be heroes.
How is it best to approach this in discussions with the leadership team?
Create a set of objectives and revenue targets and put probabilities around each. Also look at the obstacles to hitting the higher numbers, including manufacturing capacity and the cost of increasing capacity.
For examples if your most likely forecast is $X, then put probabilities around achievement of multiples of this number:
$X – 95%
.75X – 99%
1.5X – 75%
2X – 60%
Once your determine the objective, think through everything that must be covered to meet that goal, from sales to production, and start developing plans and contingencies to address these.
Share your probabilities with the board, as well as your plans and contingencies that may increase likelihood of reaching the higher targets. Ask for their input and assistance hitting the higher targets.
Situation: An early stage company needs to move from an engineering/R&D focus to a production focus. Cash availability and business plans dictate that this must happen very rapidly – within 4 months. How do you coordinate a rapid cultural shift from R&D to production?
Advice from the CEOs:
You will need an experienced VP of Operations.
Operations and production engineers are a different personality type than R&D engineers. The latter are creative and seek new and more effective ways to solve problems, while production engineers thrive on perfecting a process and getting it right every time. You will likely have to adjust the team to assure that you have both types.
Reorganize the current engineering team into R&D and Production engineering teams.
A core R&D team reports to the CTO.
Another team reports to VP Ops and will cover product manufacturing, process improvement and logistics and QA.
What are the most important steps to take first?
Have a heart-to-heart conversation with the individuals who you have assigned to production responsibilities.
Get back together in small groups or one-on-one with your production group and explain that to meet the company’s objectives – and everyone’s long-term financial objectives – there must be a change. Explain the cost in stark dollars of what the failure to make this change means to the company and to the team. Challenge them to assist you in developing solutions that will allow you to meet your corporate objectives.
Allow some learning opportunities to arise. Let team members make the occasional mistake and use these as coaching opportunities for the group to show what happened, why it happened, and why it can’t be repeated.
Separate standard and special order production into two groups. Each group will have to meet their own performance objectives and metrics – but all objectives and metrics must support the company’s objectives.
Early on you may want to require CEO sign-off on production sheet changes, but within a system that allows you to easily determine material from non-material changes.
Situation: A company has an engineering structure which emphasizes function over cost. As a result, there is little collaboration between design and manufacturing, and little design for manufacturability or cost control. This contributes to a last-minute mindset and expensive solutions. How do you shift design engineering and manufacturing from a craft to a lean mindset?
Advice from the CEOs:
Changing how people think and act may also mean changing people. Are you prepared for this? If not, then it may be difficult to achieve the change that you desire.
Let’s use a mindset change in another area – sales compensation – as an example. In this case, the sales team had previously focused primarily on revenue, with no incentive to drive margin. This impact was continuously eroding margins, though the company realized revenue goals. The mindset was changed by introducing a new system with dual incentives: to retain their position, a sales person had to hit at least 85% of their revenue target, however commission was based completely on the gross margin from their sales, with a bump in commissions when they hit 100% of their revenue target. This system drove both revenue and margin targets and was very successful; however, the company lost a few sales reps who couldn’t make the adjustment.
Transferring this lesson to the engineering situation, design an incentive structure that drives both function and low cost manufacturability to achieve both targets simultaneously.
Task your VPs of Operations and Manufacturing – and the key managers of your design and manufacturing teams – to create a dual incentive system that meets both function and manufacturability objectives. Measurements may include:
Actual vs. initial estimated manufacturing costs.
Margin on final product.
Once the parameters are developed, clearly communicate these to all affected employees up front to set clear expectations for the future.
Incentivize your VPs and key managers jointly on collaborative efforts and their ability to develop joint solutions.
Another solution which will speed the process – put design and manufacturing engineering in the same work space instead of separating them. This encourages the teams to work together.
Situation: A CEO is evaluating her company’s employee review process and seeks input on alternative practices from other companies. What are best practices for employee reviews in terms of frequency, format and structure?
Advice from the CEOs:
Company A conducts annual reviews. They ask for written input from the employee, peers, and manager. The review is a sit-down meeting between the employee and manager.
Company B conducts formal annual reviews, with informal 6 month reviews. The annual review evaluates the employee’s performance on 15 key variables, and is prepared by the manager. The review is a sit-down meeting between the employee and manager
Company C does not conduct reviews. They have tried several formats over the life of the company, but found none satisfactory. Instead the company continually monitors key metrics on a green, yellow, red scale. As soon as yellow appears on a metric for an employee, the supervisor meets with the employee to discuss the situation and to formulate corrective action. The result is that reds do not occur.
Company D conducts annual reviews on the employment anniversary. They request written input from both the employee, and manager. The employee, manager and President meet over lunch, off-site. The objective is to communicate plus and minus points, taking a long-term approach in a conversational setting.
Company E conducts annual reviews, with quarterly self-evaluations. Both reviews and evaluations include a key question: “what can management do for me to improve my performance?” The review is a sit down meeting between employee and manager. Results of reviews are tied to quarterly profit sharing.
All companies agreed that, generally, in evaluating the options, the most important questions to ask are:
Why are we doing reviews?
What is the objective?
The answers to these questions help to evaluate review options.
Situation: A company has historically given Christmas bonuses at the rate of 10-20% of salary in a good year. The CEO is concerned that employees may stay until their bonus is received, and then leave for another job. What are your plans for 2011 bonuses?
Advice from the CEOs:
First, what is your objective in granting bonuses? Which among the following are you trying to achieve?
Acknowledgement of effort.
Effort above and beyond the norm.
Once you determine your goal, design a structure that will effect this goal.
What practices are typical for your industry – your competitors, vendors and clients?
Background research on industry practices provides a basis for your own practice. You can then evaluate whether varying from industry practice can give you an advantage.
Company performance should be a factor in determining bonus payment. So should performance against individual employee goals and objectives.
How much discretion should be given to managers for setting bonuses for their direct reports?
Talk to your managers and get their input on how they would handle bonus evaluation.
A number of companies give managers a pool guideline, and have them produce a spreadsheet of recommended bonus distribution for executive review and approval.
Individuals should not decide their own bonuses. Bonuses for all employees/managers should be decided by their direct supervisors.
Should the CEO be concerned if an employee takes their bonus and then leaves?
If an employee has earned their bonus, then you are granting them an earned reward. Their departure likely has much less to do with whether or not they receive a bonus than other factors.
Human resource research consistently demonstrates that compensation is at the bottom of the ladder of reasons that workers remain or leave – particularly workers who exercise critical thinking and judgment in their jobs.
Situation: The Company is shifting focus from project-based to relationship-based client interactions –from a short to a long-term perspective. This is a challenge. How do you adapt employee behavior to a new strategic focus?
Assume the best intentions.
Everyone wants to do a good job. The challenge is making sure everyone knows what constitutes a good job.
Be clear on objectives, and why they are important. Be clear on the new roles.
This is most difficult when the shift is counter to a well-established company culture.
You have to have the right people.
Avoid smart people with no role, or a role for which they are ill-suited.
The organization IS the people. There must be absolute commitment to assigning the right talent on any job, and the right people to the right team.
Players must fit in terms of skill set and culture. The company is who, not what!
Focus efforts and objectives on the long-term vs. the short-term.
Paint the end state – the vision. Add tangible steps to guide people to the right path.
Don’t micromanage. Set direction and initial moves, but let staff blaze the path.
Provide feedback and recognition.
Negative feedback is always difficult, but best when delivered directly and quickly.
Recognize success and contributions both 1-on-1 and in all-hands meetings.
We hired an experienced manager with a strong track record. Initially this created discomfort; however discomfort was quickly resolved as this person produced positive impact.
We cited the wins in all-hands meetings to support the shift.
Make people feel that their opinions are heard, and their solutions.
Be clear on objectives and rationale. Assure that your perspective as leader is grounded in a credible reality that you can communicate to the team.
Conduct workshops which focus on the practical steps that will produce the desired result.
Listen to feedback from team members, and include what you hear in the agenda for future discussions. Involve the team in developing the solution. Delegate and recognize!