Here are two dramatic examples, representing two actual companies, tracing how two opposite leadership driven cultures went about solving the same issue. For simplicity sake both had $10 Million in sales/revenue, a 10% profit margin and 200 employees (20 management and 180 line and hourly employees). They both had a projected 1 – 3% decline ($100,000 – $300,000) in income for the coming year. At the time both company’s starting wages were near the state and/or federal minimum and already experiencing recruitment and retention problems. The details were modified to protect identities, but actually occurred during the same period of time, after the end of the Great Recession, 2013 – 2015.
The Financially and/or Poorly Led Organization Culture Thinks:
Projections are currently for a 1 – 3% reduction in revenue? How much will we have to cut and still produce our products without lowering our prices to adjust for a 1 – 3% decrease in income? They decide to reduce the line staff by 6 – 7 people hoping the reduction won’t be as severe as projections, but this requires other department cost reductions.
The sales staff meets and decides they need more intensive advertising in the hopes of offsetting projected traffic and sales. They increase portions of the advertising budget and compensate by cutting out other parts. The head of the organization, hearing similar stories and solutions from the industry approves the plan, but wants additional moves ready if it gets worse. Layoff notices go out, explaining if down markets (sales) continue to decline they will have to look again.
Upon reading and/or hearing of the layoff notices, one of their production leaders and the sales manager gives notice, taking jobs at other companies with better stability, numbers and income potential.
Leadership begins re-assessing the impact of these unexpected management changes. They will now have to promote an existing sales person to sales manager, most of which have been there only a short time, or hire an unproven outsider They will also need to hire another salesperson. A line staff will have to be promoted to replace the production leader that left….most of whom are fairly new and will have to be thoroughly trained. The bright side is that’s one less line staff.
For unknown reasons (possibly listening to the loudest voices?), but unconfirmed, the organization’s leader promotes a finance leader to operation’s head (second highest paid); lays off one of two HR staff, leaving one with the least experience, and promotes a unit manager to a new managerial oversight position. They now need to hire a replacement in the finance department, fill the unit manager’s old position and, after promoting a line person to a management role, fill that vacant position. None of these moves increased revenue or address employee’s wages (already an issue) and, in fact, increase costs by 2+ equivalent managers!
The Well Led Organization With a Great Culture Thinks:
Projections are currently for a 1 – 3% reduction in revenue. How can we increase sales and performance and be more competitive? Can we get more or better products with the great people we already have? We don’t want any layoffs!
In a company meeting all 200 employees are asked for ideas and solutions, focusing all 200 diverse company minds on the same challenge. The 180 line people immediately knew a way to change the work and order flow, on-hand parts requirements, eliminate waste, on-call requirements and other changes that actually increase output by 5 -10% using the same staff. Having been hired within the last 6 months, the new head of the organization, says, “Great!”, and asks, “Now that we can produce more, can we sell more?”
In a sales meeting open to all employees, the sales staff knew of clients who are underserved; potential clients who were using competition products that were inferior or higher priced and might be receptive given the economy. Other employees had relatives working for other companies having supply problems and wondered if their company could solve this. Four office people suggest they could share their duties allowing them to work half days each and 8 production people see the same opportunity. This frees up almost 6 full-time equivalent people in case sales should lag, but it also means the company may have to hire 6 more people if sales don’t decrease, let alone actually increase! The sales team follows up to find additional sales and leads, refocusing the advertising dollars on their best products and best movers. Over the course of a few weeks more suggestions and ideas come in. New projections estimate a 10% increase in sales!
The new head of the organization, present and involved during all these meetings, was elated but not surprised. Explaining to the entire company its people knew more about what they do than than Management, the company want to help insure success and reward that growth. Management meets and proposes if these changes produce the anticipated increase during these hard times, 10% of total sales (10% of $11,000,000 = $1,100,000) will be shared at year’s end. A one-time bonus equal to 1 share per employee of 5% of sales ($550,000) will be divided equally, or $2,750 each! The remaining $550,000 will be used to kick start a profit sharing plan, plus 10% of any profits for the year as well (after the bonus and profit sharing kick start funds). From then on 10% of annual gross profits will go into a profit sharing plan benefiting everyone! If there is no increase no bonus will be paid, but the profit sharing plan (already in the design phase) will be enacted.
Year End Results:
The first company’s revenue decreased by 2+%, costs increased by almost 3+% (*) and they projected another 1 – 3% decrease for the coming year. They meet and determine where more costs can be cut and where more people, services or benefits eliminated. Due to the projected ongoing implosion they were seeking a merger or purchase with another organization in an effort to continue operations. They continue to have major problems attracting and retaining help.
(*)During the end of the calendar year they also experienced a total cascading systems and workstation failure, primarily due to a lack of maintenance, lack of technical investment and ignored warnings of this very possibility. It cost an additional “unexpected” $40,000 – $50,000, two weeks of manual operations and 4 – 6 more weeks to get back to an operational state (the total costs for this were not even calculated).
The second company’s sales didn’t decline, but instead increased by 12%, or $1,200,000, meaning a $3000 bonus was paid to each and every employee! They came up with new and improved products and a new product line. Next year’s sales were projected to increase 20 – 25%! Wages were increased by 15% for the coming year. For those who elected to job share, some continued and some went back to full time, so an additional 4 people were hired. To handle the business growth and additional income, benefits and regulatory compliance another HR person was hired. When others learned how employees were included in the company decision process and were rewarded for their input and efforts with a bonus and the addition of a new profit sharing plan, they had no trouble hiring 10 great people. In fact they have a waiting list! There is no talent gap or shortage here.
These examples are typical of the results for high engagement cultures versus those without.
The larger the organization the greater the potential return in performance, retention, attraction, revenue and profits.
GREAT CULTURES, WAGES AND BENEFITS PRODUCE MORE SALES AND PROFITS, NOT LESS!!