5 Key tips to assist in growing your business
Murray has selected a chapter from Scaling Up that personally appealed to him: The Managers – Keeping & Growing (Educating) the Team.
The executive summary reads:
"Once you've hired your team members, it takes great managers to keep them happy and engaged. Failing to develop these managers throughout the organisation can become a major growth barrier. We identify five critical activities that distinguish great managers and the routine s they use to educate their people – and we suggest that the term manager be replaced with the word 'coach' which more accurately describes the role."
To assist in keeping your talent (e.g. staff) engaged, Verne has developed 5 main activities that successful managers regularly employ. In reverse order of importance:
5. Hire Fewer People but pay them more
4. Give Recognition and show appreciation
3. Set clear expectations and give employees a clear line of sight
2. Don't demotivate; "dehassle"
1. Help people play to their strengths.
Over the next 5 weeks we will take an excerpt from Verne's book on each of the 5 points listed above and use this as a discussion point in the hope that together (we are here to help you) we maximise the growth potential of your businesses.
MURRAY'S KEY POINTS - From excerpt point 5 - Hire Fewer People but pay them more...
- Money does not necessarily motivate all employees (consider flexi-time or work from home arrangements)
- Have a documented, well thought out and rigorous hiring system in place to minimise time wasters and provide the best opportunity to scoop the best talent from the available pool (consider external HR consultants and/or self-educating via Top Grading or similar)
- Match your remuneration structure to fit the company's culture and vision (are you service focused or sales driven?)
- Be flexible in your approach to employing staff
Excerpt - Hire Less; Higher Pay
Daniel H. Pink, in his best-selling book Drive: The Surprising Truth about What Motivates us, shows why compensation is a lot less effective as a motivational tool than we thought. Extrinsic motivators ("carrots and sticks'') have been overrated and become less effective in a world that needs more and more well-educated, right-brain knowledge workers. And people will sacrifice certain perks to work with a firm with a worthy purpose that's making a difference.
Does that make compensation irrelevant? Of Course not! If companies aren't competitive, it becomes challenging for them to attract and keep the best talent.
The key to affording higher wages (we're talking frontline employees, not senior leadership) is a lower total wage cost as a percent of revenue. You have to remain competitive, and the best companies know that one great person can replace three good ones. Through rigorous selection (i.e. Top Grading https://topgrading.com/) they get the absolute best talent in the door, pay employees above-market rates, and then invest heavily in training and development to make them more productive.
Take storage-product retailer The Container Store, which has been named to the Fortunate list of Best Companies to Work for 14 years in a row (and counting!). Its Foundational Principle #1 is "1 Equals 3" – one great person equals three good people in terms of business productivity. "We have to be selective when interviewing potential employees because of the Brand Promise we've made to our customers to provide exceptional customer service," notes the company's website. As a result, the Texas-based chain hires only about 3% of all who apply. In turn, the company says it pays salespeople as much as a 50% to 100% more than the retail industry average of seven hours. To paraphrase what the co-founders said when they launched their innovative retail concept, "Do we want bunch of low-paid dumb folk; or would we rather have a whole lot fewer, better-paid smart folks?"
Costco pays its employees roughly 7% more per hour than Sam's Club, yet needs almost 40% fewer employees per dollar revenue. And with a 6% employee turnover after one year vs. 21% for Sam's, Costco saves a tremendous amount on recruiting training, and development. In general, competing on low labour and training costs is a slippery road and usually not sustainable.
And if you think this pattern holds only for low-wage jobs: Goldman Sachs pays its employees an average compensation package almost twice as big as the competition's, yet it has fewer than half the number of employees on a per-revenue basis and almost three times the profit per employee. Again, fewer people paid more, with higher productivity.
How you structure the compensation – variable vs. fixed – should fit your culture. If you r culture emphasizes rugged individualism, like Nordstrom, you might want to have a high-commission/ bonus-based compensation plan driven by internal competition among employees. Given the culture of teamwork at The Container Store and its emphasis on customer service, paying store employees a straight (and high) hourly wage without commissions makes sense. Look to your Core Values, your business model, and your Brand Promise, and let them instruct you in the design of your compensation plan. Don't copy somebody else's system.
Last, when it comes to the key people who absolutely drive performance, great managers simply do whatever it takes to keep them on board, including offering a customised compensation package. If one person wants less base and more inceptive-based pay, so be it. If another wants more time off, let it happen. "Fairness" does not mean "sameness". You need to be creative and flexible in order to keep your top talent happy, from a compensation-package perspective.
Wages are one of your biggest expenses and should be used strategically to differentiate your firm from the competition, as in the examples above. Purchasing a compensation comparison study and paying people the same as everyone else will relegate the company to the heap of average firms.
If you would like to discuss this article or ways to grow your business,
contact Murray Kilpin on 5592 3644
Verne Harnish is an author (Mastering the Rockefeller Habits, Scaling Up, and The Greatest Business Decisions of all Time); lecturer in entrepreneurship at Massachusetts Institute of Technology (MIT) and co-founded Gazelles Growth Institute, a strategic planning and executive education company.
Reprinted with kind permission: Scaling up: How a Few Companies Make It….and Why the Rest Don't, Verne Harnish and the team at Gazelles, 2014