Riddell: Thinking and acting like a business owner
Not Business as Usual
Effective managers have one trait in common — they are all pretty good problem solvers. Inherent in their problem solving is their ability to separate problems from symptoms, causes from effects.
For example, for golfers a ball going uncontrollably to the right is both a symptom and an effect. It is a symptom of a swing flaw and it can be caused by a significant number of factors, not the least of which might be a lack of talent. For today’s manager, ever-changing customer requirements are the main cause; for organizational effectiveness, changing compensation plans should be the main effect.
As long as people continue to be the major impactor on customer satisfaction, then how these impactors are compensated will continue to be a major component of a business’s sustainable success. Organizations that understand this also understand that a compensation program is the single biggest factor in influencing employee behavior.
Yet when you take a step back and try to discern where most companies spend their time and energy, it appears to be quite disproportionate to the detriment of compensation plans. Said differently, most companies spend a considerable amount of resources trying to read customer causes but significantly less energy in changing those things or behavior that affect these same customers. Compensation programs should be initiatives that are designed to change as required. Sadly, many organizations have comp plans that haven’t changed in years, and managers can’t seem to understand why they are losing customers.
One of the major goals of any compensation program is to somehow instill in employees the feelings and attitudes of a responsible owner. The logic is if an employee truly felt like an owner, someone with a vested interest in virtually every business outcome, then the employee would make better decisions and treat other employees and customers better.
This is largely true, but fails to take into consideration one very important difference: Unless the employee goes to sleep at night with the knowledge that his or her signature is on the line for a financial obligation of repayment, the full impact of ownership can never happen. So the goal has to be to get as close to this point as possible.
Many compensation gurus have recommended that a key major step in moving into this “ownership mentality” involves taking a hard look at just what activities any employee can truly control. Said differently, what are the decision nodes that will have a direct impact on the task’s outcome? Once these are identified and the employee is sufficiently trained on what constitutes “right” vs. “wrong” decisions, then it is simply a matter of attaching positive dollars to “right” decisions and negative dollars to “wrong” ones. The key is always the trust the employee and the manager both have in the veracity of the measuring process.
In other words, am I (the employee or manager) confident that these “right” decisions ultimately result in higher customer satisfaction and do I believe that higher customer satisfaction ultimately results in higher profitability?
The upshot to all of this is that with a properly structured compensation program, talented employees can make substantially more income than their peers at similar organizations. This promotes low employee turnover and assures a ready pool of interested candidates. In addition, the organization will enjoy higher profits as the central feature of this type of compensation program pays this significant increase in compensation from the increase in revenues. The program then is variable based on the organization’s success.
So how does a small business owner figure out and implement such a common sense approach to his or her business? Our next column will lay out a plan any business can follow to come up with its own unique solution to this ongoing challenge.
Following a successful international business career, John Riddell turned his attention to small business/entrepreneurial pursuits that included corporate turn-arounds, start-ups, teaching, authoring business and sports columns and serving as VP for the Chattanooga Chamber of Commerce directing its Center for Entrepreneurial Growth.
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