Keep People Longer - Reduce Turnover Costs and Lost Institutional Knowledge

I was recently chatting with a friend, a former GM at a Fortune 50 company on the topic of human resources; how this department fits into most organizations, and how they are often, unfortunately, sidelined as a department more focused on handling benefits, firing and disciplinary actions.  The conversation then jumped into some of the trendy things companies do to in the name of excellence such as letting go the bottom 10% of the employees, and he raised some examples of how what might in theory be a good idea, gets quickly perverted, and defeated the intent of the idea.

• Hiring Managers regularly hired staff that they intended the next time the purging took place, as they had their favorites that they were not about to loose.  This practice resulted in a lot of churn and unnecessarily drove up on-boarding expenses.
• Managers regularly released those employees that were older than themselves, and sacrificed a lot of experience and institutional knowledge as a result.
• Managers made sure to keep those of the same race and nationality, and let go of others that did not look like them.
• While the company stated the intent was to release the bottom performing 10%, there was no metrics, or measures that were applied.  The decisions were subjective, and as the previous examples show, many of the factors used to select the unlucky individuals had nothing to do with performance.

Turnover is a natural part of any organization, but I challenge the benefit of creating a policy that embraces a revolving door for employees.

Numbers vary by organization, but I've seen about $7,500/employee, at a financial services firm I worked with, as the cost of replacing a departing employee.  Are you curious as too what it costs in your organization? This employee turn over tool will give you a good idea. The cost of replacing an employee is not cheap, and this tool only touches the tangible costs, it does not cover, the loss of institutional knowledge, the learning curve to bring the employee up to the same level as the previous employee, the loss of productivity of other employees who are disturbed/disrupted by the release of their colleague and friend.

Some tips for reducing employee turnover:

Have a Kick the Tire Period: Make sure the new hire is a good fit for your company improves retention, having a trial period allows both you and the new hire to assess whether the relationship works, and what you both signed up for is what you're getting.

Create Advancement Opportunities: Employees become frustrated if they do not have the opportunity improve their skills or pay grade. Provide access to training opportunities such as workshops, seminars, conferences, and even certification courses. Once they’ve mastered new skills, offer raises and promotions.  Align these training opportunities with future potential for both the employee and the firm and not based on past performance.

Offer flextime: Working parents are especially likely to leave a company if they cannot fit family obligations into their schedules. By offering eligible employees flexible work hours and telecommuting when possible, you are increasing job satisfaction and your ability to attract a wider pool of talented candidates.  An internal survey from PricewaterhouseCoopers (PwC) found that 93% of workers who made use of flextime considered it a major factor in their decision to remain with the firm.

Keep your team happy and healthy: In addition to a traditional benefits package (health insurance, retirement plan, paid vacation), consider offering sponsorship to sports events, and other networking, and cultural events, that allows people to connect outside of the work environment and share experiences together.  Create opportunities that the team might not otherwise be able to participate or do on their own.

Create a Sense of Community:  PwC they had non-profits such as Habitat for Humanity that they committed to, their leadership took work days and bused staff to the sites to work together and connect outside of their regular jobs.  These opportunities created great bonding for the employees and goodwill for the firm.

These are just a few ideas, do you have any to add?

Stress Testing Your Business

The start of the new years is invariable time for reflection on lessons learned.  The past few years have offered some doozies for companies seeking to understand the challenging and shifting landscape.  Along with that reflection, managers are resolving to find ways to improve in the new year, and ensure their companies are equipped to cope with whatever might come their way.  The following article appeared in Open Forum - Why You Should Stress Test... and I thought the wisdom it provided bears repeating.  Ask the last few years bore witness, events beyond a company's control (and beyond its borders for that matter) can have direct and lasting impact to the company.  To help mitigate disastrous consequences, companies should understand what impact potential events might have on them.  An easy and direct way to see the impact is to perform a stress test.

The goal of a financial stress test is to determine how your business will react under simulated strains while under the protection of a controlled environment. The effort offers rich data as to the true health of the business and reveals underlying problems before they become acute crises. A stress test also helps leadership determine where resources should be allocated to prevent future problems from occurring.

As Peter Drucker stated, “The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong questions." An effective stress test measures your company’s ability to respond to plausibly acute situations. The “acute” part is important because the scenarios being stress tested could significantly impact your company, and as usually is the case, they do not offer ample warning.  The article also emphasizes the fact that the plausible part of the requirement is equally important, as these sorts of efforts cost time and money, and you want both resources focused on potentially critical challenges.   Remember these are ideas to get you thinking; ask your team what keeps them up at night.

The article offered a few good examples based on recent events:

Global stressors

• The Euro as a currency collapses, leading to a global disruption of financial markets, a significant increase in interest rates and a severe credit crunch as U.S. banks rigorously try to compensate for their exposure to European sovereign debt.
• China decides to suspend its purchase of U.S. Treasury securities, favoring instead domestic investment to prevent a severe recession.
• A flare-up in political tensions in the Middle East sends oil prices skyrocketing

National stressors

• An inability to reach a consensus on appropriations due to political tensions leads to a major (but not complete) shut down in government services.
• As the budget deficit reaches unprecedented ... levels, corporate income tax marginal rates increase significantly.
• After another financial shock wreaks havoc among large banks, business credit completely freezes while a deadlocked Washington, D.C. fails to agree on a solution.

Industry stressors

• In an effort to placate organizations and movements deemed anti-business, the Executive branch of government significantly expands regulations and slows down the permitting process for your industry.
• After failing to reach a consensus on a new collective bargaining agreement, your factory workers go on strike.
• A raw material used in the development of your product is found to contain hazardous materials and its use is banned by Federal regulators as a result.

Company-level stressors

• An unexpected earthquake in California destroys your main source of raw materials with no expectation of the company returning to operations in the near future.
• A routine audit discovers that several managers and employees colluded to defraud your company of $3 million while also falsifying financial statements that were subsequently used by investors to evaluate an investment in your company.
• After a new technology launches, your company is forced to compete with a solution which offers customers the same results for one fifth the cost of your solution.

Some good pointers identified in the article include:

Record everything for internal training purposes. Similar to a case study, stress tests provide great learning opportunities for future managers at your company. Make the copies available as part of a formal management training process and as a resource on your company’s intranet.

Use a cross-functional team.  You want to have a broad of a perspective as possible, and to make the results realistic, and inclusive.

Remove the org chart from the team so everyone feels free to participate, and not hold back, or only speak if it puts them in a good light.  If its not a complete effort, the results are not much better than if it had not been done in the first place.

Consider making this at least an annual exercise and add new people to the mix.  New people = new ideas,  so that the process does not get into a rut and more people continue to think of the business in terms of these risk mitigation tactics.

May the results of these exercises and the subsequent responses your company has allow you to sleep better in the new year!

5 Mistakes Entrepreneurs Make

I thought it might be nice to bring in a fresh perspective, so Adelaide Lancaster, and entrepreneur, speaker and newly published author graciously agreed to write a post on some of the mistakes she's seen entrepreneurs make.

The beauty of entrepreneurship is having the freedom to create meaningful and satisfying work on your terms. The allure of this alone drives millions of people to abandon their corporate gigs each year to pursue something that is “theirs.” But the truth is that it’s astonishingly easy to create a business that is unsatisfying. Despite clear goals and the best of intentions lots of entrepreneurs make big compromises in order to do what they think it best for the business. They end up feeling overworked, underpaid, stressed out, and alone. Not exactly the beacon of fulfillment they were hoping for.

As consultants we’ve worked with thousands of entrepreneurs who have experienced this disenchantment at point or another. We help them prioritize their own satisfaction and harness the amazing opportunity that entrepreneurship affords them – the ability to craft a business that is designed to meet their needs. While each entrepreneur’s particulars are different, the mistakes they make are similar. It is almost always the same things tend to get in the way of success and satisfaction.

These are the 5 most common mistakes that entrepreneurs make:

1.     Over extend themselves.

Saying no may be one of the hardest things for entrepreneurs to learn. I suppose this makes sense considering just how much time we all invest chasing the next big opportunity. Plus most of us are naturally optimistic, willing to just try something to see how it goes.  Plagued by the thought, “you just never know,” we are inclined to say yes even when we know we shouldn’t. After all, we have all experienced the side-effects of saying yes too much: being over-committed, wasting our time, feeling burned out. Instead of looking for reasons why you should say no, look for reasons why you should say yes. Clear and tough criteria will make it harder for you to get off-track or mired in unhelpful opportunities.

2.     Compromise on their goals.

Do you remember why you became an entrepreneur in the first place? Was it autonomy, creative freedom, the ability to do something that had never been done before? Do you still derive that reward from your business? Once they have a few years of experience under their belts many entrepreneurs find little if any trace of their original motivations. No matter how you slice it, entrepreneurship is a lot of work. Given that, it matters that you are able to get the benefits you want. So ask yourself, what’s in it for me? What makes all the work worthwhile? Then figure out how your business can deliver.

3.     Give up their dream job

Your job as an entrepreneur is not simply “the doer of things that need to be done.” With a to-do list that never stops multiplying it’s tempting to just dive in. The problem is that times passes and once you pick your head up, you’re likely to realize that the work you’ve been doing is neither enjoyable nor matched to your unique skills. This is a loss for both you and your business. Think of how many people would kill for the ability to write their own job description! Don’t squander the chance to do work you love every day. Instead, consider where you’re strong, and consider where you’re not. Restructure your schedule to do what you enjoy at least the majority of the time. And, have a good reason for doing tasks you don’t like.

4.     Become isolated

Entrepreneurship can be a lonely experience. Many business owners work primarily from home, allowing most of their “social interaction” to happen online. Not only is this emotionally challenging, but it also creates a huge opportunity cost. Your community is your best secret weapon and the most direct route to more support, inspiration, ideas, feedback, and sales! The better connected you are the stronger your business will be. Even if you’re a small shop find ways to regularly engage with a community. And make sure to keep it up! It’s easier to be diligent about this in the beginning when you’re building your business but harder once you start getting busy. However, I guarantee that you’ll never outgrow the need for a strong network – so don’t let it atrophy.

 5.     Forget to pace themselves

Running a business is a marathon, not a sprint, and it can take a while before you see the financial fruits of your labor. That’s why it’s imperative to maintain your stamina. Sure, you can work around the clock and sacrifice everything else in your life for the sake of your business, but is that sustainable? Bolstering your endurance requires you to adopt a “work smart” mentality and commit to valuing yourself as much as the business. However, common best practices also help, such as learning to set boundaries, delegate work, keep a clear focus on goals, and employ small steps towards progress.

Adelaide Lancaster is an entrepreneur, speaker and co-author of The Big Enough Company: Creating a business that works for you (Portfolio/Penguin). She is also the co-founder of In Good Company Workplaces, a first-of-its-kind community, learning center and co-working space for women entrepreneurs in New York City.

In addition to this screen, how many do you have open now?  I have eight websites, a Powerpoint presentation, a Word document, and oh, TweetDeck least I miss any bleeding edge news on operations (I was trying to be funny).  We are bombarded with information everywhere we turn, but does it do us, or our company, any good?  Chances are the answer is  "no."  We are getting information out of a fire hose and do not know how to use, it in what context to take it or determine its validity.  Yet we are compelled to try to act on it all, because heaven forfend we are not the ones in the know.

Debates continue on whether companies should monitor websites, but that's not the point, for a variety of reasons, since memory and communications got cheap, we feel compelled to capture and send amazing amounts of data.  Not only can we not handle it, this "data asphyxiation"  impedes our ability to perform.

Search for the term “information overload” and you are immediately overloaded with information: more than 7m hits in 0.05 seconds.  This information overload, a phrase popularized by Alvin Toffler in 1970 is one of the biggest irritations in modern life, with e-mails to answer, virtual friends to poke, YouTube videos to watch.  Back in the physical world, we have meetings to attend, papers to file, and relationships to maintain. A Reuters found that two-thirds of managers believe that the data deluge made their jobs less satisfying or even hurt their personal relationships.  One-third think that it has damaged their health. Another survey suggests that most managers think that the majority of the information they receive is useless.

Writers on this topic have coined a profusion of phrases to describe the anxiety caused by too much information: “data asphyxiation” (William van Winkle), “data smog” (David Shenk), “information fatigue syndrome” (David Lewis), “cognitive overload” (Eric Schmidt) and “time famine” (Leslie Perlow).  Johann Hari, British journalist, suggest that there is a good reason why “wired” means both “connected to the internet” and “high, frantic, unable to concentrate”.

The problem is two fold, the dizzying increase in the volume of information (the amount of stored data doubles every 18 months), coupled with the omnipresence and fragmentation of said information.

The data fog is thickening at a time when companies are squeezing more from their staff.  Spherion Staffing performed a survey which revealed that 53% of workers have assumed extra tasks since the recession started. This dismal trend only continues as companies remain reluctant to hire. So there will be little respite from the dense data smog, which some researchers fear may be poisonous.

Researchers raise some concerns that managers should consider:

1. Information overload makes people feel anxious and powerless (multitaskers have more stress hormones)
2. Information overload reduces creativity. An HBS study found that focus and creativity are connected. People are more creative if they focus on something for some time without interruptions. If they are constantly interrupted or forced to attend meetings, the opposite is true.
3. Information overload makes workers less productive. People who complete certain tasks in parallel take longer and are more prone to errors than people who complete the same tasks sequentially.

Curbing the Din

What can be done to reduce the roar of noise to a manageable hum? One answer is technology, as searches produce more personalized results.  The second answer, and the focus of this post, relates more to willpower; be selective with the information and quick to unplug PDAs and the internet.  Everyone needs to realize that the 24x7 access is counter productive - yes, people still want to talk to you, your emails will not go anywhere.  Managers, is it really necessary to have instant communication with your team?  How productive is it to have them drop everything to take your call?

Most companies are better at giving employees access to the information superhighway than at teaching them how to drive (defensively).  Derek Dean and Caroline Webb of McKinsey suggest people should:

1. find time to focus
2. filter out noise
3. forget about work when possible

Business leaders jumping on the bandwagon: David Novak of Yum! Brands urges people to ask themselves whether what they are doing is constructive or a mere “activity.”  John Doerr, a venture capitalist, urges people to focus on a narrow range of objectives and filter out everything else.  Cristobal Conde of SunGard, an IT firm, preserves “thinking time” in his schedule when he cannot be disturbed.   All these suggestions are steeped in common sense.

Ironically, too much information can also seem like a dearth of it as employees struggle to find the information required to perform their jobs.  The MIT Sloan Survey on Intelligent Enterprise had some great corroborating facts (link to article below):

Some points include:

Almost 60% of the respondents do not feel they have access to the information they need to be successful at their job. - 60% and that despite being fed information of all sorts through a fire hose.

"Organizations look at analytics as a tool for strategic decision making, not just for tactical choices and activities."

More Reading

Chief Executive - Overcoming Information Overload and Gaining Productivity

The Economist - Too Much Information

MIT Sloan - The Second Annual New Intelligent Enterprise Survey

As managers you may recognize some of these challenges in yourselves, and it pays to be sensitive to the impact it has on your team.  Be sensitive to the impact all this information has on your team's ability to perform and their quality of life and help them set realistic expectations.

The Challenges of Going Global

The small and medium sized companies I work with see global expansion as a natural way to grow their business such as gaining access to new markets, new talent and leveraging economies of scale.  However, doing so is not without its own risks involving: added complexity, increased workload for employees back home, increased complexity in doing business, culture clashes, less than receptive local responses from competitors and governments.  These challenges are just a few of the less than favorable responses, that can take companies by surprise.

Recently, McKinsey published some findings that I thought should be looked at in more detail, specifically, they showed that high performing global companies consistently score lower than more locally focused ones on several critical dimensions of organizational health—direction setting, coordination and control, innovation, and external orientation.  Companies need to understand the causes and work to reduce the impact.

Weaknesses

McKinsey surveyed over 600,000 employees, and assessed the health of nearly 500 corporations.  From this research they identified 20 “local champions” that outperformed their industries over the past ten years, and 18 “global champions,” which did the same.  They compared these companies across various elements of organizational health that they defined as the ability to align around a strategy or change program, to execute, and to renew a company faster than their competitors.  They found:

• High-performing global organizations are consistently less effective at setting a shared vision and engaging employees around it than are their local counterparts.
• These global leaders also find maintaining professional standards and encouraging innovation of all kinds more difficult.
• Because they do business in multiple countries, they find it more challenging than local leaders do to build government and community relationships and business partnerships.

These findings are not encouraging for global expansion as the  weaknesses hit three major areas of organizational health—alignment, execution, and renewal.  McKinsey pointed out that related research from Scott Keller and Colin Price indicates that at least 50% of an organization’s long-term success is a function of its organizational health, this globalization penalty should cause concern for any company with expansion goals.   McKinsey also emphasized that the companies interviewed were at the top of their game with strong financials and significant global scale and scope.   Given that fact, they rightly asked, "Can any company overcome the challenges and enjoy global growth?"

Where to Focus?

Almost everyone interviewed struggled with the tension of balancing local adaption with global scale, scope and coordination.  Naturally the question arose of which portions of the operations should be standardized and which should remain adaptable to the local needs.  The companies struggled with finding the answers to such questions as:

• To what extent does managing high-potential emerging markets on a country-by-country basis make sense?
• When is it better to leverage scale and synergies across business units in managing governments, regulators, partners, and people?

Many of the companies interviewed indicated that existing internal networks and linkages are ineffective for managing global/local trade-offs, and only add cost and complexity.  For example, many companies cannot transfer lessons about bottom of the pyramid consumers in one emerging market and apply them in another.   Others struggle to generate focused responses to local competitors who undermine previously successful strategies and traditional business models.

Many executives are just wrestling with delineating the headquarter’s role in increasingly globalized institutions.  Successfully centralizing three traditionally main office functions, specifically human resources, finance, and marketing (including brand and reputation management) was considered a key challenge.  "Can it be done?", and "Should it be done?" are two questions well worth considering, and are best answered on a case by case basis as companies assess the trade offs for such decisions.

With these challenges in place, never mind daily activities its easy to see how global companies can be at a disadvantage against their local competitor, as they still have to struggle to achieve the basic business fundamentals of clear strategy, building alignment and sustaining innovative thinking.  Given that globalization is not going away, and if anything will become more pervasive its important to recognize the challenges and then develop ways to overcome them.

Addressing the Challenges

While there are no easy solutions, that can be universally applied, part of the answer is knowing where the potential pitfalls lie, and developing plans to address the challenges.  Let's face it, any company entering a foreign markets brings baggage.  Specifically, they bring the cultural values from home.  However, the firms that are most successful in international expansion consciously limit this influence and focus on adopting approaches that fit the local culture, even if it runs counter to their beliefs.

In the study,  Strategic Decision-Making Processes in Internationalization: Does National Culture of the Focal Firm Matter? (more details below) researchers surveyed CEO's of over 500 global SMEs based in the United States, the United Kingdom, Greece, and Cyprus, across a wide swath of industries.  The countries were selected because of their diverse cultural groups that placed different values on decentralized decision making, strong individual personalities, and the willingness to let employees think creatively.  For example, the US and UK cultures prize decentralized decision making, strong individual personalities, and a willingness to let employees think creatively. By contrast, Greek and Cypriot cultures follow a more autocratic management style with better teamwork and group decision making, and more formalized training for their employees to follow.

Each country assigns different values on individualism, uncertainty and authority, all critical to strategic decisions.  The companies all had international ventures they were engaged in that consumed significant resources, and portions of these projects were often “unplanned or spontaneous,” with managers making decisions on the fly.  Those decisions, frequently reflected the managers’ cultural values, which sometimes put the companies at odds with their new markets.

The best companies adopted approaches from a variety of cultures, cherry picking might be a more apt term.  Decentralized power companies had the highest performance (in line with Anglo-Saxon values), where managers must communicate across a variety of departments, so locally hired managers contribute insights into a foreign market’s challenges and opportunities.  But wait there's more.  According to the study, the most successful firms also used, (aligning with Greek/Cypriot values) a formal decision making process — thus reining in the propensity for local managers to revert to their cultural roots when calling the shots.

The researchers found that when firms used this blended approach, they could analyze information, create common goals throughout the company, and implement strategic decisions. What’s more, the researchers said, enhanced international performance offered longterm effects on strategic decision-making processes throughout the firm, leading to successful future international efforts.

Bottom Line

The results summed up below come from a study published in theApril 2011  Journal of World Business, called Strategic Decision-Making Processes in Internationalization: Does National Culture of the Focal Firm Matter? by Pavlos Dimitratos (Athens University of Economics and Business), Andreas Petrou (Cyprus International Institute of Management), Emmanuella Plakoyiannaki (Aristotle University of Thessaloniki), and Jeffrey E. Johnson (St. Mary’s University).

Simply put, one secret of success for companies that have expanded internationally is to control the impact of national culture on operations abroad.  The word to focus on is intentional, otherwise the inclination is to revert back to what is familiar which are the cultural norms of the home country.  The most successful global firms adopt a blended approach that recognizes different cultural values. They decentralized power and formal operating guidelines to limit the impact of their culture on their new environment.

Further Reading:

McKinsey's Understanding your globalization penalty

strategy + business:  Optimal Decision Making in Foreign Markets