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De Ja Vous All Over Again

March 29th, 2010

Since the days of Thomas Jefferson we have been debating whether it’s more powerful to have a strong central governing unit help us make informed decisions or to defend the right of individuals to choose for themselves. In 1830 we passed an amendment to the Constitution to protect the right of states to make decisions not specifically designated to the federal government.

It occurred to me that my business experience might be able to shed some light on this difference of opinion. In the sixties, I joined Sears who was the largest and most successful retailer in the world. Its sales were greater than the next three competitors combined. I chose the company partially because it was the text-book case for a decentralized company. Local store managers made most of the decisions concerning their store. They spent their days making sure they beat Penny’s and Wards in serving their customer’s needs and delivering the best products and service in town.  Merchandising was done by local managers who were experts in the needs of their local customers.  If a store wanted an item added to the assortment, the buying organization found it and it was made available.

In the seventies, the country was changing with complex social issues like civil rights and hiring practices becoming important. Sears was changing too. The new President was a lawyer not a merchant and the company became more risk adverse. Local management jobs were eliminated and many were created at the Chicago headquarters which was interestingly called Parent. There were so many experts, that the company had to build the world’s tallest building to house them all. 

In the eighties and nineties the store organization continued to lose management jobs and the ability to make meaningful decisions. Managers were reduced to store-runners, and told to just follow the plan. “No value adding please.”  Important decisions were made by subject matter experts who probably never stood behind the counter of a Sears store.

During the nineties I was part of an organization built to take orders for the catalog division. This front line organization was empowered to do whatever was required to serve the customer. They were not directed, but empowered. The results of their great work and feats of customer service was that the catalog was not only rewarded with customer patronage, but with literally thousands of customer letters of appreciation for the service delivered.  This experience convinced me that the model of empowering employees was more successful than  telling them what to do. I remain convinced that the secret to success is within the belief system of people. That is, people will be much more successful if they believe in the course of action they are taking.

Today Sears has all but vanished from the list of important retailers. I am often asked why this has occurred. The best answer I can offer is to respond that when an organization fails to excite its constituents’ or fails to meet their needs effectively; it begins to wither and die.

America is experiencing an administration which honestly believes that it has all the answers and that decisions should be made by subject matter experts who espouse the belief that one size fits all. It certainly feels like De ja vous to me. 

This is not meant to be a political opinion, but rather a belief that in all things, including business and government, empowered people are the critical ingredient to success.

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What Every Business Can Learn from General Motors

December 4th, 2009

It is certain that General Motors new board will replace the now-fired CEO Fritz Henderson with someone from outside the company. Fundamental change almost never comes from company insiders.

It’s interesting that Detroit’s auto makers have been known as the big three for five decades or so. I’ve personally never heard them referred to as the best three.  GM still has a 5.6% percent lead over Toyota in market share, but is losing billions, while Toyota was profitable in 2008.  Chasing market share has led the Detroit carmakers down a road to ruin. Hopefully, Ford’s recent insight will cause it to recover.

Measuring success by counting the percent of the market owned has caused a focus on production. European carmakers produce what they can profitably sell, while General Motors cranks out vehicles based on what it can produce.  Any retailer knows that too much inventory means you must mark down your goods to clear them, yet Detroit overproduces every year. They support dealer networks over four times as large as Toyota because more dealers means more places to park inventory.

The well publicized labor cost disadvantage which American car companies have brought upon themselves comes form the fear of labor stoppages. If you are not willing to sacrifice production to negotiate reasonable labor agreements over the years, you might end up with the types of cradle to grave benefit agreements and ridiculous pay rates American carmakers have. What other business owners would agree to pay furloughed workers while the workers sit around the union hall?         

Even Detroit’s lack of quality focus probably comes from its singular pursuit of market share. If you stop to innovate and re-tool, you lose production.  Who doubts that Detroit’s employee layoffs damage the quality movement? Toyota avoids layoffs.

So what is there in the troubles of the Detroit big three that can help us in our smaller businesses?

  1. Focus on being the very best in your industry rather being the biggest is a proper strategy. While this may seem obvious, many businesses attempt to acquire new customers as a singular strategy ignoring the care of the ones they already have.
  2. Design pay and benefits you can afford. Not everyone can afford to be General Motors. Even General Motors can’t afford it these days.
  3. Don’t build your production capability with 100% fixed cost, full time employees. If you do, you have no way to reduce your workforce without layoffs.  Layoffs damage your organization in ways you can’t even measure. Avoid them by utilizing a flexible organization.

A former GM President said “What’s good for General Motors is good for the country.”  Maybe knowing what’s been bad for General Motors can be good for the country’s small businesses.

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A Few Thoughts About Executive Bonuses

November 16th, 2009

So now that we the people have given billions of dollars to financial institutions, the administration is talking about curtailing executive bonuses. If we have a financial stake in the results of these institutions, that’s not a good decision for us. If the institutions do well, we the taxpayers can be a big winner so we should want them to win.  I’m not saying that the current bonus system should be maintained. Absolutely not! Paying business leaders for piling up short-term financial wins only encourages manipulation and insures the eventual downfall of the institution. That’s how we got into this pickle.

Robert S. Kaplan and David P. Norton published “The Balanced Scorecard” in 1992 and since then its teachings have been an important thought process for most businesses who want to insure long-term success. 

The core of this school of thought is that there must be balance between focusing on short-term profit and investing for a longer strategic time period. There should be wins for all business’ stakeholders not just shareholders, but employees, business partners, and customers of the business. There must be balance between productivity and quality.  Any business can produce large amounts of a mediocre product, but making a first rate product takes a bit more effort.

The key to insuring this balance is for each element to be carefully measured and economic rewards (bonuses) be made not for success only in one aspect of the business, but for balanced success. Simply, when you pay a CEO for attaining a short-term financial goal, it will most certainly do nothing for the long-term success of the organization. Kaplan & Norton would argue that you reward a balanced approach that recognizes the need for longer term success and represents the interests of all stakeholders, not just investors.

So if we have a stake in the large institutions who we have “bailed out” to return to financial good health let’s not eliminate incentives, but rather let’s just insure that they are based on a balanced scorecard.  The American capitalism system thrives when success is rewarded financially. That’s a good thing, but let’s insure that the definition of success works today and tomorrow and that neither trumps the other and that innovation, quality, focusing on customer value and the employees and partners who make these possible are all included.

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What Causes Businesses to Fail

November 16th, 2009

Reprinted with permission of Evergreen Newspapers

When the economy turns down, there is always an increase in business failures. At the same time, there are always businesses which thrive even in tough times.  I have thought a great bit about why this dichotomy exists.

I recently completed Jim Collins new book “How the Mighty Fail.” which studies the downfall of once mighty companies. He maps out a five stage formula to track the downfall and predict whether a turnaround is possible. Many smaller companies, don’t last through five stages, they simply go from viable to unable to make payroll as revenues are pushed down by a tough growth cycle.

One of the key points Mr. Collins makes is that successful companies must understand what has made them successful.  That is, even in good times, what is it that attracts customers to the company?

My observations convince me that if asked, “What is it that attracts customers to you and causes them to keep coming back” many CEO’s would struggle to give a clear answer.  Allow me some examples, please. Would the head of the post office know the answer, hmm probably not. How about Chrysler or Sears? I don’t think so. What about Southwest Airlines, Wall Mart or Fed Ex; you bet they know and they focus on the delivery every day.  

So, the point is that all business owners should focus on maintaining whatever attracts and retains customer loyalty.   If you have the lowest prices and the best deals in your industry, raising prices is a formula for disaster. If you differentiate yourself with personal service, reducing your service offering will do you in. Would Wall Mart ever give up their absolute fixation on low prices or would Nordstrom lessen its clear focus on the customer and the service excellence strategy?

In order to follow the simple idea of not giving up what makes you special, businesses must know what their differentiator is.  The weak economy may hasten business failure, but businesses that don’t understand and protect what’s special about them are on borrowed time anyway.

As the economy improves, and business cycles dictate that it will, those businesses which strengthen what makes them special will recover faster and better.  The business cycle doesn’t define business success, the ability to deliver what makes a business special does.

Jim Rohrer, Managing Partner of The Loyalty Partners is a business consultant and expert in loyalty

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Show Me The Jobs

November 16th, 2009

Reprinted with permission of Evergreen Newspapers

When times are good and revenue is rising, employers are willing to add jobs. But whenever there is a dip in the economy, and growth is not there, the first way employers are able to cut variable expense is with job cuts. This time the economy is really bad and the cuts just seem to keep on coming. It’s clear that unemployment will top 10% for the first time since 1982. 

Manufacturing jobs seem to have all but disappeared for good, and you might ask, “Will we ever start adding new jobs other than as fast food workers or Wall Mart greeters? 

The truth is that this recession is tougher than most and employers will not be adding jobs until they see their revenues showing a strong pattern of growth.  Responsible businesspeople don’t like to implement layoffs any better than we like being on the receiving end, so they should be very slow to do anything which causes a repeat of the painful and expensive process of payroll cutbacks.

New jobs will be created and although the timing is unclear, the need will insure that they will be added. Here’s how.

This recession has really caused business leaders to take a long look at their enterprise. This has not been a normal business downturn. It has caused failure in businesses thought to be able to weather most recessions. Businesses have had to ponder how they will provide long term success with more scrutiny than normal. This introspection will uncover opportunities for long term improvement, and this process will cause individuals with special skills to be hired.

Let me give a few examples. Let’s say that a company determines that their best opportunity for growth will be served by a better internet presence. They will find and hire someone who knows how to deliver that improvement for them. Let’s say that another company determines that they need strategically to bolster their service.   They will hire an experienced customer service manager and the resources to make the improvement.

So the future jobs will be jobs that today don’t even exist, but are needed to strengthen the enterprise’s ability to get and retain customers. Look for employers to add some new staff, but they will do so only when they are convinced that the new person brings knowledge and proven expertise to help the company be more effective. A payback will be required and will likely be carefully measured.    

The bottom line is that if you can’t demonstrate that you can help a potential new employer be better and more profitable, you aren’t going to get hired.   So here’s the headline. “If you add strategic value, you should be able to find a great new job.”  Employers have many choices, so if you want to be the one hired, you’ll have to bring some special promise.  “Ask not what the company can do for you; ask what you can do for the company.”

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Your Call is Important To Us

May 3rd, 2009

Reprinted with permission of Evergreen Newspapers

I’m sure you have heard these words when you called some business for which you had a question or problem to be solved. You would swear that you were hearing an accent from some far away place, but he introduced himself as Joe. Worse, you heard that your call was very important, but they didn’t invest in enough agents to answer it. The message they convey is that there is an unusually high call volume so you should consider checking the company web site. In other words, please hang up we are not staffed well enough to answer your call.

Good news, there’s another model out there. Alpine Access, a local company, and others are promoting another way of doing business. They are promoting something I call “home sourcing” an alternative model that hires American workers who work at home. These workers are better educated than typical call center workers. They tend to have many more customer service skills so companies who really care about customer loyalty are signing up for this level of telephone service.

The call center business focuses on one of two things. Some companies want to minimize expense and that’s their focus. They tend to hire offshore operations to just get through the call as fast as possible. Other companies see the conversation on the phone as a defining experience that provides an opportunity to improve the relationship between the customer and the company.

The secret of the call center business is to hire the very best people possible and empower them to serve the customer’s needs. By hiring top people the company doesn’t have to teach them to relate to the customer. Individuals whose life experiences more closely mirror the customers they are serving understand how to do that.

With their work at home model, such companies have a recruiting edge on traditional bricks and mortar operations, so they choose only the very best people. In the face of millions of lost jobs, Alpine Access is planning on hiring several thousand individuals this year whose commute is no further than to their nearest computer. They will be able to utilize the interpersonal skills they have learned over a lifetime to build better relationships for their company’s clients.

So maybe your call is important to us after all.

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Bad Service is Hard to Sell

January 12th, 2009

I recently read the quip, “Service isn’t what it used to be; it never was.” One approach to service in the auto business is to include it in the price of the car. BMW and Mercedes do this the best and they generally deliver very high levels of service. Selling prepaid service is not a particularly new idea. Sears has been doing it for years in their appliance business and may other retailers attempt to sell product protection plans just in case your product breaks or otherwise becomes inoperable. Part of what’s being sold with the prepaid service is piece of mind. I say that now, but learning this was a hard lesson for me.

As Operations Manager for the Michigan retail stores, a significant part of my responsibility was to oversee the various service departments which served the customers of the Michigan stores. Ultimately the profit or losses of these service units folded into the profitability of the stores. Actually it was a very significant factor and the poor performance contributed to the profit ranking of the stores as 39th of 42 regions within the company. Obviously, improving the performance of the service units was a very high priority for me.

Of course, there were many factors in the poor performance of the service departments, but the most obvious need for improvement was in the area of selling prepaid service called maintenance agreements. The Detroit stores were particularly bad; in fact they ranked last in the entire company. Store salespeople either couldn’t or wouldn’t sell these agreements. The high levels of appliance sales from these very large sales producing stores, made it very difficult for the service department to compete with units in other parts of the country.

I attacked this problem with vigor. We had sales contests and many other promotional events to cajole the salespeople into doing a better job. No improvement. We had our people ride with service techs so they could see first hand how the service business was conducted and how important it was that we serve the business well. No improvement. Then we got tough. We told our people that selling these agreements was part of the job and if they were not able to do this successfully, they might not be right for that important and high-paying job. No improvement. This was not a short-term problem. It had existed forever and it seemed that it would continue. It was clear to me that without significant improvement in this important area of our business, the profit improvement we needed would not occur. Other regions made millions of dollars annually in service, but we never booked even a half million dollars.

Finally in desperation I agreed to visit the Memphis Region which led the nation in the sales of these agreements. I remember that I was not eager to make this trip. I doubted that there was anything I could learn there. This Detroit problem was just something that came with the territory, and would probably never change.

When I first arrived, I was directed to the call center where customers called to describe their service need and arrange for service to correct their problem. At first, the calls sounded the same as our calls, but after listening a little more carefully, I started to hear things I never heard in Detroit. Customers were asking for next day service and the folks on the phone were agreeing. Back in Detroit, we couldn’t possibly grant such requests. If we got to the customer’s home in less than 4 or 5 days it was considered a good response.

I checked the percent of time that the service call had to be repeated because the service van didn’t have the right part on board. Their percent of this was negligible, while ours was very high. This meant that their investment in stocked parts must be much higher than ours. While I saw the differences, I was unable to translate that into profitability at first.

As I talked to the managers, it became obvious to me that their level of service to their customers was so much higher than ours. Their service levels made selling the piece of mind that prepaid service offers a short jump. In Detroit, selling piece of mind was next to impossible because of the very poor level of service we provided our customers.

Another important factor in the service level we gave was the lack of confidence our service people had in our leadership. Our technicians were unionized and the conventional wisdom was that they didn’t care about the company. The truth was that the company had not communicated to them that they cared about the company’s customers or the technicians that provided that service. We rented a movie theater and brought in all 700 of our unionized technicians. I told them that the meeting would be a short one. We had decided to be the best in terms of service, but admitted that we didn’t really know where to start. We asked for their help and told them we had instituted an 800 number to record their suggestions and had appointed a bright young assistant manager who they respected to sort through the suggestions. I promised that every reasonable suggestion would be seriously considered.

The calls started slowly, but finally they came in. Give us more technical training, have the right parts in stock, update our tools, fix our old and decaying truck fleet and many more. We did them, but we also demanded that customers tell us when they wanted us to come rather than for us to tell them when we would be there. Managers were graded on the percent of promises they kept and the number of calls that were completed with one service call.

We reported these improvements to our store salespeople, and the customers reported them as well. Gradually, the sales of the maintenance agreements began to increase. It reminded me of a rocket launch in that it took a great deal of power to see any movement. Then it rose slowly, but finally it soared.

Detroit was not the problem, poor service was. Once we began to provide the type of service our customers deserved, our people had no trouble producing at high levels. Our reward was profits over twenty times greater that the best service profit year ever.

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Picking the Right Person

January 7th, 2009

Human Resources 101

Most thoughtful businesses have a selection or hiring tool. The employment process somehow looks at the requirements of the job to be filled and try to match individuals who have the skills, interest and attributes necessary to perform the job in a very outstanding manner. This is probably the way all jobs should be filled, but I wonder if this is the way things are done in some very high profile hires we have been reading about.

To further prove the point that selecting the right people is vital to the success of any organization, just look at the firing of Mike Shanahan, the highly respected Broncos coach and General Manager. It’s apparent to most of us who follow the team that Mike’s dismissal was more because he had not made the right personnel decisions than the right coaching decisions. Somehow the defensive players he selected were unsuccessful and ranked near the bottom of the league in performance. It seems likely that our owner will select two individuals to replace coach Shanahan. One will select players and the other will coach them.

Another highly visible selection process involves our new US President. Of course, time will allow experts to judge the success of his picks. What seems clear so far is that he has tried to apply the business model selecting individuals who have demonstrated skills and achievements over pure political selections. He appears to be valuing pragmatism over ideological concerns.

Selection of the right team is perhaps the most important task any leader has. Many political observers feel that John McCain’s selection of Sarah Palin as his running mate was not the very best choice. Many viewed her selection as politically motivated rather than selection of the very best individual to replace the President should that become necessary. How one feels about this probably revolves around what they view the key Vice President accountabilities to be.

Other politicians have had varied approaches to selecting Senatorial vacancies in their states. In Illinois, it appears that there has been little concern about anything except “What’s in it for me?” Few would embrace this thought process. In New York it seems that the selection will turn out to be a popularity contest, again hardly the right model. Here in Colorado, I think the governor got the selection process right. He surprised everyone by selecting someone not even on the political radar. The governor told us that he believed that his selection was a person who had the correct attributes, personality and track record to play a part in helping solve the important problems facing our nation. Wow…what a concept!

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Happy New Year America

January 7th, 2009

 

It’s that time of the year when we become reflective making New Year’s resolutions promising ourselves that we will do better in those areas where we see reform is needed. As we watch the news unfold revealing one negative event after another, perhaps our country needs to make some New Year’s resolutions.

Wall Street and Washington share responsibility for our nation’s financial meltdown. It’s a chicken/egg call to determine which came first Wall Street’s greed or Washington’s see no evil/hear no evil pose. What’s clear is that Washington schemed to make the economy look better than it was, and Wall Street saw the caper as an opportunity to make its numbers too.

For many years the folks on Wall Street have justified ridiculously over-compensating their leaders with the notion that shareholder value justifies the practice. Now when there is no shareholder value, they still insist that the bonuses are needed to retain those who led the downfall. Haven’t they seen Christmas Vacation which teaches us those bonuses should not be totally discretionary?

Baseball, America’s pastime shows some of the same lack of integrity as it allowed the use of steroids to make the game more exciting hoping to fill seats. They, too, see no connection between salaries and excellence paying lots of 240 hitters millions. The New York Yankees, Wall Street’s team, have made over-compensation an art form. They exceed the salary cap annually accepting a 23 million dollar fine from the league as a cost of doing business. The new Yankee Godfather dismissed the practice saying, it’s our family business, and we’ll run it as we see fit.

Pro football, America’s other love, has a new sheriff running the show. There are so many criminals and thugs in football that he has come to town with a new “We’re not going to take it anymore” stance. Meanwhile coaches spy on each other and owners continue to hire more thugs. Jay Leno quipped that the penitentiary has enough pro football players to win the Super Bowl.

College athletics has become such a big business that colleges like the Military Academies, Stanford, Notre Dame and others where the concept of student athletes still remains, can no longer compete with the semi-pro programs. As you would expect, the coaches who deliver millions to the University are compensated with the shareholder value/Wall Street model.

Even in our personal lives cheating is the order of the day. The Divorce rate is at an all time high in America and spousal cheating is the chief cause. Of course, even our government officials have affairs and cheat on nearly everything. They build bridges to re-election, cozy up to lobbyists and choose party loyalty over loyalty to the country and solving its problems. Church membership is down probably because we don’t like weekly reminders of rules we should consider following.

It would seem that I’m suggesting that we are an ethically bankrupt society on a one way trip to oblivion. That’s not what I believe. I believe that the information age is bringing us the wrong information. We are a basically good country made up mostly of decent folks.

We just need a few changes to get back on track….Perhaps some New Year’s resolutions.

Think back for a minute back in the day, when integrity was more evident. We were under the care of parents and teachers who had stricter rules. They made sure we understood the rules. They taught us that winning was also about winning with integrity.

We also understood the consequences of breaking the rules. A trip to the office probably included a whack or two with a sturdy paddle and double jeopardy when word of the misdeed got to our parents. It’s highly unlikely in the day that the Government would decide that the rules governing war prisoners didn’t apply to us because we were all about rules. Businesses employed internal auditors to insure that the company complied with the accounting rules. Now even external auditors have become business consultants focusing on making the numbers rather than auditing them.

So I’m suggesting that America set some new standards or rules and spend some time and energy changing our course as it relates to integrity. So here are my New Year’s resolutions for our country.

  1. As citizens we must tell our leaders we expect integrity to be the center of their values and operations. Punish companies who cheat and throw out politicians who fail to put the country first.
  2. In our personal lives let’s make honesty, including self-talk, the “way we roll”
  3. Reject the lunatic fringe ideas that get undo publication; favoring instead ideas that support balance and are grounded in our belief that we are the United States of America

HAPPY NEW YEAR AMERICA

 

 

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Airlines are asking the wrong question….and focusing on the wrong answers.

May 22nd, 2008

David Carpenter of the Associated Press wrote in a Denver Post article on May 20th that the airline industry has almost uniformly made a poor showing on the industry’s latest satisfaction survey. His title “There’s ire in the air” resonates with anyone who has flown recently.

My take is that most airlines not only don’t know the answers, the don’t even understand the question they should be asking.

Many businesses have scraped satisfaction surveys. These companies have come to understand that no one patronizes a company because they are satisfied. In fact, high satisfaction levels may give company officials a warm feeling, but they simply don’t indicate future patronage.

Loyalty is the only factor other than price which the airlines should be measuring and busting their behinds to improve. High customer loyalty does translate into increased patronage. In fact, a Bain & company study has proven across many industries that a 10% increase in net promoter scores (loyalty) translates into a 5% improvement in revenue.

So how can the airlines turn this around? Simply by measuring their net promoter scores and then asking customers what matters most to them? Again and again, the data comes in with a few items offering the potential to drive loyalty (net promoter scores) dramatically higher.

It’s interesting that one airline has adopted this approach. You guessed it, Southwest the leader of the pack in revenue growth, profitability and customer loyalty.

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