Editor’s Note: The following article is the final article in a three-part series by special guest contributor Chuck Udell , a senior partner at Essential Action Design Group. The article, inspired by a popular presentation Udell has given to numerous aftermarket professionals, addresses the importance of building a sense of ownership among all employees from top brass, to floor staff. As we witness dramatic changes in the North American aftermarket, a sense of ownership and loyalty among all employees may play a critical role in the future success of our industry, says Udell.
By Chuck Udell , MAAP
Through the development and communication of the two clarities of Direction and Structure, a vision for the future has been created and is related to the overall mission and purpose of the company; all employees are aware of these. Strategy to move the company from its current state to the envisioned state has been defined. It includes considerations of the external and the internal environment. Long and short rage goals are consistent with vision and strategy. Strategic intent has been addressed in terms of market place, present and future customers and products positioned relative to competition.
The utilization and communication of the third clarity measurement is for leaders and managers who are tired of the excuses, upset by missed forecasts, and angry about missing bonuses due to employees who seem to work hard but do not deliver results.
Importance of Clarity of Measurement
Clarity of measurement is an important part of building a high-performing company. It provides clear expectations and accountabilities, clear goals and quantitative measurements of goal attainment contributions and activities.
Measurements are crucial. If you cannot measure, you cannot control. If you cannot control, you cannot change. It is as simple as that. Quantitative measurements are essential ingredients in becoming, and staying, world-class.
As critical as measurements are, it would seem that everyone would know what needs to be measured. Unfortunately, this is not the case. In fact, in most instances, it is just the opposite, and this is particularly true when you talk about business processes found in the multi-channel distribution model.
External and Internal Measurements
External measurements: Follow-up and follow through. Do manufacturers measure the return-on-investment of contributions to the marketing funds of their value added resellers? Do value added resellers measure the effectiveness of their marketing efforts and report the metrics to the “funders” of their marketing fund? Who is accountable for marketing effectiveness?
In my previous positions, whether it was with Marion ’s Contact Cold Capsules or Mobil’s Hefty Trash Bags, we measured everything for margin contribution. Including the advertising and marketing results of value added resellers and retailers. We shared mutual goals with our channel partners of market share growth. If their marketing efforts were not achieving the goal of market share growth, we needed to know, so that we could recommend an intervention or offer our company’s marketing expertise to the channel partner to increase share and margin contribution from our financial investment to their marketing fund.
Further, a company must answer the “So what?” question, which is key to clarity of measurement. What are our agreed upon metrics? How do we know this activity is making a difference? Failing to be vigilant about addressing how success is measured will undermine any company’s ability to accomplish its mission and goals.
Business consultant and author Peter Drucker wrote, “Review each of the performance measures you use to manage your company. Eliminate each of those measures that are not meaningful to the results of the company.”
Clarity of Internal Measurements
Do your employees know and understand how they impact the bottom line? Management must teach employees how the company makes money and how they contribute to the profit-making process. Companies must educate and train their employees by developing a set of financials that works for their specific business (or business unit) so that every employee can connect their work/tasks to the numbers – everyone understands how they impact business results.
Here are two examples of how powerful communicating clarity of measurements can be.
While involved in a field research/validation project, I was at a company that teaches and communicates clarities of financial “cause and effect” to all employees, and then provides the financial information the employee needs to monitor the company’s and their own performance contribution to the whole. The employees not only understand the numbers, they also understand how their work affects the numbers.
I had an opportunity to walk the floor of this company’s pick & pack warehouse and visit with their employees. One person I interviewed was a warehouse worker responsible for picking and packing orders. I asked him, “What is the most important thing you are focusing on this year?” His answer, “Besides speed and accuracy, this year my focus is on reducing warranty returns from our customers.” I said somewhat questioning, “warranty returns from customers” (Remember this was a picker/packer). He responded, “Our defective returns are too high, many of the returned products are really not defective and work fine when tested. You see,” he continued, “these returns cost us money, they lower our profits, and in turn lower my share of the year-end bonus.”
Working quickly to get my lower jaw repositioned back to the area under my nose and return my mouth to a somewhat closed position; I said, “You are absolutely correct, merchandise returned as defective that is not defective erodes profits.” Then I asked him, “As a picker/packer how can you help reduce these non-defective returns?” He answered, “If I am careless and do not handle these parts properly and the part’s box gets damaged, smudged or smashed; it gives the customer the perception that the part is damaged and they mark it defective and return it.” I was wowed. This “line” employee understood the economics of his company, and how his speed, accuracy and handling of the products impact the financial performance of his company. (Note: His company, not the company or his employer.)
Teaching all of your employees how they impact the numbers is not hard to do. By using metaphors and/or creative illustrations, we have helped companies educate their employees on the economic engine and financial drivers of the company so that each employee can relate to how their work contributes the numbers.
On another project, I had the opportunity to be “wowed” again. I was working with the senior management of a very profitable airline that has a unique and admired corporate culture. My wow came from the broad and deep understanding of the “economic engine” of the airline by all of its employees. In response to the question, “What is the key to your company’s profitability?” all employees, regardless of position or job classification would respond, “Seat miles.”
Every person in the company understood the financial overhead “costs” associated with flying a particular route, and that the costs were relatively the same if they flew with 50 passengers onboard or 100 passengers onboard. To my amazement, not just the customer facing employees, but the baggage handlers understood that an empty seat meant a missed opportunity for profit contribution. Every employee seen and unseen by the customer was committed to meeting or exceeding the customer’s expectation therefore improving the company’s chance of being chosen as the airline of choice on the customer’s next trip. Every empty seat is a lost profit opportunity. The employees understood that great customer service equals occupied seats. Full flights equal maximized profits.
The company utilizes team briefings, feedback and open communication of financial, commercial and strategic issues to all employees. When your employees know and understand what drives the numbers, how they contribute to profitability and that they are accountable for the performance of the economic engine, they perform differently. Clarity of Measurement closes the circle. If your employees know and understand: the numbers, their goals, their responsibilities and what they will be measured on; your company’s performance will increase significantly.
Your team members should be measured on agreed upon goals set at the start of each evaluation period. Everyone in your company, at all levels should be held accountable for their own performance. Goals must be clearly defined and relate directly to what a team member must do so that your business will achieve its goals. Your criteria should be both quantitative measurements (what they did) as well as qualitative. The qualitative should focus on how they did their job that is their work habits and behaviors including adherence to corporate values.
All goals should include who is accountable, when or the time they are due. Goals should stretch and challenge team members, however the goals must be attainable. We have found that most employees enjoy being challenged and that when challenged they will strive to achieve their goals.
The process for achieving this focuses on measurement and building employee understanding, ownership and alignment of their individual contribution to attaining the company’s goals, and it begins at the top. There must be clarity of measurement across multiple levels of the company, combined with leadership teams that are prepared to both lead and coach as required.
Some employee behaviors we observe from our work in assisting with measurement clarity include:
Employees prioritize work that has greatest strategic and profit impact.
Teams stop doing work that does not benefit the company’s strategy, and start doing work that does, they continue doing old things but in new ways.
Employees proactively look for ways to support the direction and goal strategies.
Clarity of measurement will direct a company’s self-examination and evolutionary development. Normally, the best-of-breed companies got there because their improvement rate was much better than that of other companies. If you measure it, you can change it improve it.
Aftermarket companies must identify the economic engine and performance metrics most important to them: sales, inventory turn, product development, customer satisfaction, channel partner relations, market share or the retention of talent, for example. Most companies track standard financial metrics, such as sales, margin and expenses.
We recommend tracking some metrics to cover operations (the company’s quality and consistency of key value-creating processes), the nature of relationships with external parties, such as suppliers, the state of the company’s product markets and the company’s position within them (including the quality of customer relationships), organizational issues (the company’s depth of talent and its ability to motivate and retain employees). Ultimately, it is people who make companies deliver results, so metrics should show how well a business retains key employees and the true depth of its management talent. Systematically identifying and tracking your economic engine metrics will reflect the strategy of your business and will force driving your profitability.
Constant fine-tuning is needed to come up with the right mix of metrics. For a typical business, top management and the board should monitor no more than three to five metrics, representing different areas of the business for short, medium and long-term time frames.
To make sure that the metrics are appropriate, the finance department or the performance-management group should regularly reexamine the way the company creates profits and are creating value for their customers.
At the process level, managers must focus on the activities that count. Managing with clear measurements allows them to manage both their people and the business using a method where they participate, rather than dictate.
The key success factor is to make sure that you and your management team is being heard in terms that can be understood and appreciated by all of your employees.
Now is the time to cease reliance or dependence on assumptions. Clear measurements allow you to keep responsibility where it belongs. Now is the time to counteract managers that over-promise, make excuses, reject responsibility for outcomes, complain and lack commitment.
If your business has reached a plateau or slowed down, if one or more of your competitive advantages has been neutralized, or if you know that there is pent-up potential in your company and its products and services, start the change process today. If you cannot breathe life back into your “flat liners” then unhook them from your company’s life support system.
Why change and commit to a renewed effort of communicating the three clarities throughout your company? Because everything around your aftermarket business is changing. The constant that you take for granted today — might be gone tomorrow.
Effectively communicating the three clarities (3C’s) broadly builds energy and momentum. The 3C’s build understanding and ownership among all employees. The 3C’s develop alignment throughout the company. The 3C’s help your people understand how to be agile, how to adapt and how to be opportunistic to take advantage of changes as they occur.
A business that focuses on communicating the three clarities will avoid workplace trauma. Through disasters, disruptions and economic downturns, the business will continue serving and keeping its customers, acquiring new customers, delivering value to stockholders and holding on to valued employees.
The kind of broad, ongoing communication of the three clarities I’m talking about would have been unthinkable, if not impossible, just a few years ago. However, new technologies and emerging industry standards are making it possible. Today’s aftermarket business arena has made this broadly communicated clarity package not only thinkable, but imperative.
The Three Clarities of Direction, Structure, and Measurement will insure your team performs at higher performance levels. In a recent Harvard Business Review article titled “Leadership Run Amok” (Spreier, Fontaine, & Malloy), the authors’ research confirmed that in companies where the three clarities are effectively communicated, those companies outperform their competitors and other companies.
The best summation I could possibly write for this article series on the three clarities, has already been written and can be found in the Monsanto mission statement: “We will all act as owners to achieve results. We will create clarity of direction, roles and accountability; build strong relationships with our customers and external partners; make wise decisions; steward our company resources; and take responsibility for achieving agreed-upon results.”
Get Clarity! Then communicate your three clarities to EVERY employee!
About the author:
Chuck Udell , MAAP, is a senior partner with Essential Action Design Group, a Charlotte, NC-based consultancy that provides research, needs analysis, design and deployment of performance improvement training programs for retail and B2B sales organizations. Udell is a veteran officer of the U.S. Air Force. He received his MBA in finance and marketing from the University of Rochester and his BS from the University of Virginia . For 10 years, Udell served as a consumer products analyst for over-the-counter products with Marion Merrill Dow pharmaceuticals. He served for more than five years with Mobil Chemicals’ Hefty Trash Bags division as its product specific financial analyst for all channels. Udell is an active member in AAIA and AASA. He is the former president of the University of the Aftermarket and is also an active member of the American Society of Trainers and Developers, and continues his research initiatives in cataloging performance best practices and maximized employee effectiveness.
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