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The CEO Partner Series: Two Shocking Facts
I was recently reading a Consulting Magazine article entitled “The Cloistered Corporation” and found the following interesting and troubling. According to the article;
If your company is within your industry’s top revenue quartile today, there is a 30 percent probability that in five years’ time, it will no longer occupy such a position.
And what’s more, such mortality has shown an accelerating trend for decades. During the 1960s and ‘70s, about four percent of the Fortune 500 – the largest U.S. industrial companies – turned over annually, but by the 1980s, the average annual rate of turnover had doubled to eight percent. It would hardly be surprising to find that this rate of turnover has increased significantly in subsequent, and particularly recent, years.
The second issue, that has been extensively documented, is the fact that the most successful companies are those with “engaged” employees.
This second issue was highlighted in an article in Chief Learning Officer Magazine by Theresa M. Welbourne, Ph.D. She discussed how a private company grew from 100 to 1,500 people in two years and then went public. At the core of this initial success was what she called the employee voice. Going public increased the level of bureaucracy and cost the company that employee voice. When that collective employee voice was lost, performance declined and ultimately the company went out of business. This led Dr. Welbourne to research the performance of IPO companies and resulted in her documentation of the fact that winning companies balance a high sense of urgency with highly valuing their employees.
I was also reminded of something I consider a basic truth – You cannot solve a symptom and expect meaningful change or lasting results – You must identify the root cause or core issue before you proceed. An example may help clarify. I was asked to help a client reduce turnover which she attributed to a problem with her compensation system. As we began analyzing the problem it quickly became evident that the base salaries and incentive compensation plans were consistent with both the industry and geographic practices. Further analysis revealed that the core problem was the fact that she was hiring the wrong type of employee.
A review of the files of employees who had recently resigned and some supporting exit interviews showed that most of the employees who had left had stated that they wanted to work for managers who were very strong at nurturing and developing subordinates. The company culture and the style of most of the managers are such that new employees are expected to “hit the ground running” and never look up. Once these facts and core issues were identified we implemented interviewing and pre-employment testing procedures to clearly document the preferred management styles of all new applicants and then limited our job offers to those individuals whose preferred style matched the existing management style of the company. Turnover was significantly reduced which resulted in cost savings and increased profits.
In other instances, we have documented that compensation issues were a major cause of employee disengagement and subsequent lower levels of profitability. When compensation issues were identified as a core issue or problem we conducted extensive analysis, investigation, and employee interviews to define and codify the scope and true nature of the problem and then developed new or revised compensation programs. By designing and implementing total reward programs that linked employees to management goals, motivated significantly improved levels of performance, and answered the employees’ question “what’s in it for me?” we have been able to show outstanding results and deliver improved profits.
The evidence is overwhelming – your employees are the single most critical key to your operating results. Your employees will either make or break your operation and in today’s waning baby boom era they continue to become even more critical. All of the demographic analysts report that in the near future there will be two individuals leaving the workforce for each one joining. This will only exacerbate the need to maximize your employees if you are to not only maintain your current levels of profitability, but also grow and outpace your competition.
So, the questions remain – will your company be as profitable in five years as it is today? Will it be more or less profitable? Will your company even exist five years from now? What about your industry? What impact will the computer have on your business? How will you educate your employees so they can take full advantage of the increasing power of the computer?
And finally, the really big question, how will you go about engaging your employees to insure that you are a winner five years hence and not just a footnote in the historic registry of corporate entities?
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