Employee Retention

My editor John Murray recently sent me article on the MSNBC website that talked about employee retention in an uptick market. Now that companies are finding (rightly or wrongly) that the worst of the economic contraction is behind them (which I’m not going to debate), they’ve found that some employees who were waiting out the recession in a safe harbor are now jumping ship.

Instead of reinventing the wheel in terms of the article, I’ll do my own take on how to retain employees in a small business. In any business, large or small- employees are the engine of the company. While no one is irreplaceable, replacing even temporary part timers comes at a cost.

Retention vs Replacement

It makes cost and operations sense to retain current employees rather than replace them. Recruiting a new face creates uncertainty. Will he or she upset the apple cart in the department? Will they jive with the company? Are they reliable? Properly training a new face represents a period where the person is a cash drain for the company while they get up to speed. Even with related experience, every employee has some getting their heads around the processes of the new company.

If you have a current employee whose performance is south of legendary, it might be worth your while to take more of a chance on them if they largely fit the culture of the company.
First you have to evaluate frankly if the trouble is skill based on attitudinal based- that’s not to say that the two are exclusive, and if the two usually impact each other.

Remotivate a current employee

Sit down with them and tell them you’re not happy with their performance, but you’re not giving up on them. You want to help them, and ask if they’re game too. This is crucial that they must make the decision for themselves to bring their performance back up. It is also crucial that you hold up your side of the bargain and try to figure out how the person can become more of a revenue source than a drain.

If they happen to be bored, challenge them with new tasks in addition to their old ones to spice things up again. If they are marginalized from the project- in they are losing perspective from the whole project because all they do is one small little piece- have them sit in on more project meetings to see how their tasks integrate holistically.
If they are honestly undertrained in an aspect of their job or a task- retrain them on that particular task without judgment or criticism. People can forget best procedures when doing a task day in day out.

Recruit a new employee

While it’s all well and good to have related skills, you also have to keep culture in mind. If they come from a large bank, and you have a small software company- chances are they’re going to go through a little culture shock. There are skills and attributes that allow people to deal with culture shock better- it’s called EQ (Emotional Quotient), and it basically represents how self aware people are their ‘people skills’. The more people skills the person has, the easier it will probably be for them to adapt to new environments and new cultures. A huge aspect of that is self-awareness, so when interviewing a candidate that will be moving from a significantly different culture than yours- ask attitudinal based questions that will indicate some level of awareness they possess. Try to keep in mind- you can always train someone on the right skills for the job- you can’t train culture.

Or you could of course just stick to bringing people on board who are from companies with similar cultures to your own.

Don’t get me wrong- recruiting new new blood and new perspective will provide youthful energy and passion into your projects and allow them to take into new areas that you couldn’t before. It comes at the price of rookie mistakes, but mixing old hats in with the newbies could allow you to gleam the best of both worlds out of the project (although it could also bring out the worst aspects of both).

Firing

That’s an interesting and important enough blog that it will be covered in a future blog all on it’s own.

In Conclusion – employee attrition is normal, natural and healthy. Keep an eye on you employee attrition rates, and be aware of the industry standard. If your rates are unreasonably above industry standard, chances are you should do some reflection on your management style, as the problem might be you.

Thanks to my editor John Murray who insists on all of the blame and none of the glory.

Ernie and Bert Style of Management

Everything I know about Business- I learned from Sesame Street

Sesame Street, as Google is constantly reminding us is celebrating 40 years on the air, entertaining, educating and –let’s face it- babysitting toddlers for 4 decades.

In honor of this occasion- I thought it would be suitable to discuss the phenomenon I like to call the Ernie and Bert style dichotomy of management.

Ernie- is forever the optimist! He has crazy dreams and wild ideas. He’s the people person. The visionary. Unfortunately- his ideas are sometimes too crazy- and he sometimes needs an element to ground him and make sure that costs are kept in mind and that the project has a sufficient dose of reality. This dose comes in the form of his roommate the pigeon loving, monobrowed Bert.

In the management office- you need the Ernie to see where opportunities lie and to tackle them boldly. You need the Ernie to share his vision and get clients and the team excited about a new project. You need the Ernie to take risks- which comes hand in hand with reward.

You also need the Bert. The Bert is the accountant or cost controller. The Bert nags Ernie to keep on task when Ernie is so busy chasing new clients that his older accounts are languishing. The Bert makes sure that Ernie’s plans bring in a profit, and that there are processes in place to keep the profitability on track.

Management requires a certain level of dichotomy in their practice in order to be effective. In some organizations, there’s one who serves as the Ernie consistently and one who acts as the Bert. It’s in your own company and business unit’s best interest to be able to work both roles yourself and channel your inner fun loving snickering Ernie as well as your inner calculating, cautious and careful Bert and allow both to influence your management and leadership practice.

And just remember- sometimes even Bert can get swept up in the fun. http://www.youtube.com/watch?v=iF4HCFpbRWQ

Thanks to John Murray who wants to buy a letter S.

Thinking Small

Business Schools are traditional proving grounds for Corporations (and the firms that cater to them). The models and theories that are taught tend to focus on larger companies. More to the point- the business cases reviewed in class concentrate on larger companies and often (but not always) involving larger solutions that have less relevance to a smaller company. (Caveat: Most business schools offer some form of entrepreneurship classes and some even offer specialization in managing SME's)

I’m not wondering if someone who’s interested in smaller business can get enough relevant knowledge from the formal business training to make the investment worth it. The answer is in my opinion - most certainly. I want to opine from a new manager perspective about why working for a smaller company is a better choice- at least for some people.

While getting an MBA, HBA or a B-Comm can certainly make you a qualified candidate for Ernst and Young or Delloitt, it also makes you a prized candidate for Goldfarb and Dillard Management Accountants, with a team of all of 7 CAs.

Skill exposure
Business Schools intend to train people to be well rounded managers. It is once they start working that their skills become deeper in one function, and the skills they don’t use day to day tend to atrophy. A small company allows them to get exposure to the full spectrum of business functions.

People who work at larger companies complain that they get pigeon holed into a function, and the scope of their role is relatively limited. They are expected to be highly specialized and deep, but narrow in their knowledge. In small companies- employees- especially managers are expected to wear many hats. Because there isn’t the man power to have one person designated to (as an example) product strategy, you’re expected to do product strategy, plus design, plus account management and marketing and so on.

More Say
Larger companies are traditionally tiered and highly hierarchical. Smaller companies- while still hierarchical have fewer tiers and are thus, flatter. More to the point- each employee has a greater direct influence on the company, and their own role. If they have a great idea- they can walk into the President’s Office and pitch it, and chances are- the president will be receptive.
Try that in Verizon- I’m not certain you’ll get the same response.

Greater Exposure to the Cycle
In a larger company, it’s common to compartmentalize the offering cycle, much like the functions get compartmentalized. In smaller companies- it’s not uncommon to have someone who is the specialist and is deeply involved in every aspect of the cycle.

This not only is more gratifying in that allows people to feel more like valued contributors to the business’ health rather than just cogs that participate in an iterated process.

For the company the benefit is twofold: it lays the groundwork for ownership over the project, which is taps into the highest motivator available: Personal Pride. It also allows perspective that would otherwise be lost- and that is how each step on the cycle affects each other, for example: how design and planning stage of the cycle affects the post implementation support.

Agility
Smaller companies have ability to change direction more quickly than larger. That allows them to traverse economic downs with more ease, and add or drop offerings in its brand with greater speed.
Part of it is processes; some smaller companies have tighter processes that have smaller time frames, others have no processes at all, which allows them to practice more organically (although I do not suggest this).

Another part is clients; larger companies will likely have more clients or larger clients. Changing direction on them overnight is going to be far easier if you only content with 2 major accounts and 8 smaller ones than 200 major accounts and 800,000 small ones.

Employee number; Getting buy-in from 10 employees is going to be easier and faster than buy in from 20,000.

Salary/Compensation
I’ve sometimes heard from people that small companies tend to pay less than large ones. I’ve found no evidence to support this. One of my favorite sources for salary research is payscale.com- which shows where the range of salaries lies for different positions and levels of experience, so that allows you to see what consists of ‘competitive salary’. When investigating the salaries offered by larger companies, they often post a salary range, and it’s not always necessarily in the top echelons of the average.

Having said that- I’ve interviewed for positions at smaller companies where the salary was far below average, but that was more to do with that company and its approach to compensation rather than its size. More on compensation in a future blog post!

Another thing about salary is that it doesn’t give the whole story from a compensation package. I know smaller companies with lunch days where they buy the company lunch at the launch of a project, take your dog to work, flexible hours, negotiable vacation days, and other things that go beyond the bottom line to make it a better place to work that don’t register on the T-4 slip at the end of the year and you’d never find in a cubicle farm.

In Conclusion
Smaller companies have a vibe that are all their own. If you’re down with the smaller company culture- chances are you’re not going to happy in a larger company, but if your experience is limited to larger companies- you might not be comfortable with the expectations put on you in a smaller company.

One thing’s for sure in smaller ones companies though they can give you challenges and opportunities that a larger company never can.


Thanks to John Murray who is eagerly awaiting a blog post on pizza.

Are you a Keeper?

Customer Retention
When dealing with membership based offerings- subscription based services in the form of a gym or a mobile phone, or products in the form of term limited licensed software certain level of attrition is normal.

What the normal attrition (membership drop off) rate is- depends on the industry. What’s average for mobile phone service will not be average for a magazine subscription. This normal attrition is nothing to sweat. Consumer needs and tastes change and while your portfolio may contain a robust long view, how current day products and services match to current demand will fluctuate.

If due diligence reveals that your attrition rate is higher than average you need to improve your account management efforts. It’s always easier and more cost effective to retain a current client and make them happy than to win a new customer. Keeping the churn low is a way to minimize costs to your business unit. There is no standard ratio, but it’s generally accepted that retention (keeping a client or renewing their commitment) is far less expensive than acquisition (finding a new one).

So- how do you maximize your retention?

Honeymoon’s over!
Picking up the phone about 3-6 months after an install and just making sure they’re happy with you is easy and potentially lifesaving. Instead of waiting until the contract is coming up for renewal, touch base when the honeymoon period has worn off, and make sure you’re meeting their needs and are using your product. Remember to keep it in the client's interest- not your own. Your interest will come later (when they extend or renew). Right now- it's just about them.

Constant relationship care and feeding is essential to understanding and keeping ahead of those changes needs and demands.

By being proactive about meeting their solution needs, and how you handle it can instill a trust. A trust in the company, and a trust in the offering- that would be close to undillutable.

Upgrades
In the case of custom software, making small upgrades to the install will keep you top of mind with them. If it’s gratis, they will likely be thankful (if the upgrade or change has an impact on the function or benefits to them). Best approach to ask if they want the gratis upgrade; describe how it will affect them.

Upgrades on a gratis basis are intended to improve existing functionality or to overcome shortcomings. Upgrades which provide new functionality are a sales opportunity. Focus on continuous improvement as an enhancement to your product or service. Focus on value add in order to enhance sales.

Up sell
It’s easier to start with a barebones core solution, then approach the value add latter. Spreading out the development, or adding on the extras in a piecemeal fashion mitigates the risk in the customer’s mind that that they are making a mistake.

It’s easy to be more casual about the process behind up sells. Take the same approach as you would with a new sale. Do your needs analysis, prepare an Invoice or CO (Change Order)) and commit the changes to the next version of the master spec sheet.

Gracious Loser
Some companies have hoops they require their customers to go through to cancel services. The thought is make it harder to leave- people will stay! I remember a gym that required 2 months notice to cancel service, and you had to survive a pretty aggressive grilling by a Customer Service Representative.

You’re not doing your customer service any favors by making it harder for your clients to leave. The client will be annoyed, and in the chance they find themselves shopping in your market space again- your company will not meet the short list.

In Conclusion, proper account management goes beyond sending out a yearly Corporate Christmas card. If you can master taking care of your clients, you will not only reduce costs, but you’ll find that your referrals and up sells will increase as well, which is easy revenue.

Thanks to John Murray who told me he's listening to Muddy Waters.

The Manager's Oath

The Manager’s Oath
I read an article in HBR last year about some professors at Harvard Business School who believe that the reputation of business practitioners has been tainted by the likes of Madoff, Enron and the masterminds of the Credit Crisis. In order to recover Brand Equity (reputation) they want MBA candidates to take management practitioners Oath; much like the Hippocratic Oath medical practitioners take.

The Oath (http://www.mbaoath.org) is a series of points that basically represents the some important ideals and the spirit that I’d like to think managers share- that is, honesty and integrity. Most managers I know realize the responsibilities they have go beyond just the shareholder returns. They understand the impact their practice has on the environment, on the legal system, their reputation, the social good and finally on the moral of their team.

The Dilemma
The client needed a feature rich extranet upgrade. They wanted to put a database online.
The project was scoped into 2 parts. Part 1 was working with the current database to extract it. Part 2 was the custom development and install on their servers.

The client lead the BA to a particular conclusion about the current database the company had to work with, which was the basis for the specs, which the Project Manager used to base the Project Estimate (and budget) on (the budget was based on man hour estimates).

The database was by no means as straight forward and simple as the client lead the BA to believe. As a result- Part 1 took a great deal longer than originally estimated. It was the PM and BA's suspicion that it was more than just a simple mistake - in order to get a lower cost for the development.

My friend was the PM. Once the client signed off on the contract, and the developers dug into the database, they quickly found out the size of the project was greatly misleading, and the database was deceptively complex. The hours for Part 1 estimates were quickly burned without the forward movement in the project that was expected. She felt obligated to make a Change Order to the client to re-estimate the amount of time was involved in Part 2, in order to cover the loss for Part 1.

Her developers found out about the Change order and project momentum was affected.

To be fair, once she sat her team down and explained the larger picture on why the obligation existed- that the client was being unfair with them, and as a result the project would be a loss, and that they’re not looking to gouge the client, just looking to make things up and be fair about things in the end, and just get what’s coming to them, the team was ultimately understanding and on board.

So- was that ultimately a violation of the oath? When considering that we have to look at which specific points it potentially violates.
1 Was it a violation of Integrity?
2 Was it a violation of Good faith?
3 Was it a violation of representing the performance of the enterprise?

Integrity
On one hand- it was not because the client drew first blood so to speak. While it could be inferred as two wrongs make a right, that’s a simplistic answer that doesn’t represent the complexity of the situation. The client did in fact mislead the company and that’s why the company was at a loss, and they weren’t looking to make any level of profitability beyond what they would extract if everyone was honest from the beginning.
On the other hand, my friend willfully lied to her client.

Good Faith
On one hand - I’m not certain it was a violation of the Good Faith. As I mentioned, the intent was for a level of profitability that would be derived from the outset of the project if everything was above board, and no more than that. She could have lied and gotten a higher level of profitability, but she chose not to.
On the other, she lied. She knew she was doing it. She sat down with the intention to lie to them.

Performance of the Enterprise
On one hand, Yes.
On the other, well- ok- there is no other.

In conclusion- Ethics and morality should be in someone’s everyday practice, in their personal and professional life. I’m not certain if having an oath will make a huge difference, but it certainly can’t hurt, and management professionals should start taking lengths to repair the brand equity in the eyes of the rest of society.

Thanks to John Murray who is awfully fond of oathing.

Determining Salary: Tips for Fair Value Compensation

Salary
Salary represents something more visceral than simply the paycheck. To an employee it represents their imagined worth to the company. It’s a reflection of their perceived importance and seniority.

When calculating the salary you want to offer a potential candidate there are some things you can keep in mind.

Current Salary Comparison
Taking the current salary of the candidate and offering either a set amount (10 K) or percent (20%), is useful when trying to seduce a superstar away from their current gig. One potential hazard is that they could be exaggerating their current salary to get a sweeter deal. To quote Ronal Reagan: “Trust, but verify.” When speaking to their current or most recent employer as a referral, include verifying the salary they cited among the things you discuss with their old boss. If there’s a discrepancy- don’t take it personally (can’t blame a guy or gal for trying, right?), but set the offer compared to the true salary, not the quoted one.

Industry Standard
There are some extremely useful sites out there. www.payscale.com is one of my favorite resources for this. You put in a bunch of information including role, region, years of experience, education, qualifications, and what the job entails, and you get like for like comparison to other professionals.

Do your research. The offer should be around the 50th percentile of the scale. If the person’s expectations falls significantly above or below the average, you have to wonder if their duties were truly related to the job you’re considering them for.

If it’s a step up- there’s nothing to say they are not capable for the step up. Promotion by job movement is common, but you have to keep in mind they may be on a steeper learning curve.

It it’s a step down- you pose the risk that they may not stick around and will they take the next job that comes around which is more with on their career track. Of course- some people are willing to trade down a position and be demoted for more free time, or the right work environment, so ask the person about it in a non-confrontational way.

Ask
Ask for the salary of what the person wants, and then meet it. If they give a ballpark or range (which is what I usually do), offer the average of the low and high.

Performance Based Incentives
Bonuses based on performance go beyond commission for sales and revenues earned. More progressive models of compensation incorporate profit sharing and gain sharing (gain sharing refers to using company or business unit performance to determine bonuses beyond simple profit metrics. For example, it can be attached to increase in profit, cost management, QA etc…).

The interesting thing about performance based compensation is that it can be tied to business unit performance, or directly to the employee’s performance, or a mixture of the two. The important thing is to attach the metrics to things they directly have control over. In the case of where it’s based on a Likert scale style performance review, that the reviewer is going to be honest and fair in the numbers they’re selecting, and are not bumping up because they’re fond of the employee, or down because they’re not fond of them employee, and the numbers reflect personal feelings instead of performance of the employee.

You get what you pay for. If you compensate below what people are used to or feel they’re worth you risk two things: 1) Losing your best people to new jobs, or 2) having them lose their fire and motivation.

In summary, while it’s in the interest of business unit profitability to keep things lean, it’s antithetical to productivity of the employee. The highest quality candidates are always going to be more expensive, but worth every cent.


Thank-to-Editor: John Murray.

The Perils of Management Theory

This weekend I am helping out at my Business School. The MBA World Tour is coming to my city and I am manning a booth set up by my program to recruit potential quality candidates.
It got me thinking of my MBA experience and how it related to my experience after graduation. Granted, I think my experience was exceptional because my school stressed practicum instead theory and always tied it into real world practice through discussion and case study analysis.

In theory, the models work perfectly. The buy in is unanimous, the transition smooth and the hiccups nonexistent. Reality, however, has proven that function should dictate structure and process and not the other way around. It’s important when applying models to keep them flexible enough to adapt when reality strikes.

Don’t get me wrong, I think that the MBA is a great experience and offers a fantastic experience for those seeking a wide (and not deep) review of the management body of knowledge. More importantly, it gives you exposure to best practice for management and depending on the format, exposure to other people’s views that you wouldn’t normally get (I was in a group with a Music historian, a manager of Non profits, an engineer, a banker, a geologist and a lawyer– talk about diverse points of view!).

Some take the approach of theory as the answer. This is a mistake. Theory as a method is a better approach. Instead of using pure theory as the tool for accomplishment, use it as a road map for milestones or for best practice. Things are different when you’re talking about adherence to law. When you let the model dictate the practice entirely, you not only open yourself to the risk of failing, but you also open yourself up being thought of as trapped in theorems and dazzled by the abstract, unable to bridge the gap between the text and the application.

In closing, remember that the reason you’re doing business is for the sake of the practice, not the sake of the theory. Make sure you read the theory, and let the models influence your practice, but don’t be afraid to bend or break the rules.

Special thanks, as always to my patient editor John Murray.