BERKONOMICS – Business insights from Dave Berkus

Archive for April, 2010

Hire each employee as if your survival depends upon it.

by on Apr.28, 2010, under Depending upon others, Growth!, Surrounding yourself with talent

Second to visionary leadership, this is your most important job. 

               Many of us go through the motions of hiring to fill a position, trying to use our intuition and skills to find the best candidate for the job.  Sometimes we use consultants or recruiters; many times we use internal talent to fill most positions. 

                And over the years, we students of business success have learned that there is a science to the hiring process that continues through the life of an employee’s tenure with the company.  Bradford Smart captured this succinctly in his book, Topgrading. His thesis is that “A” players amount only to the top ten percent of the talent pool at any given time, and that your job is to find, recruit and retain only “A” players to make a successful business.  It is hard to argue with that.  What is hard to find, is the rare CEO that makes the process of hiring top recruits such a priority that he or she spends personal time deeply involved in the specification, resumé review, interview and selection of top employees.  Most of us are “far too busy” to do all of that.  And yet, aside from managing the vision of the enterprise, the most important job of a CEO is to find, recruit and make productive “A” players for the team.

                As an investor and board member for numerous companies, it is increasingly easy for me to quickly evaluate the quality of senior team members in an organization as I probe for strengths and weaknesses in the enterprise.  Teams where the CEO is comfortable enough to delegate to “A” players and manage the strategies for growth stand out as rare and powerful.  Conversely, it takes very little for a CEO to derail what could be a great team and company, by ignoring the details involved in finding the right talent for each senior position, and by failing to communicate the strategies and empower the team to execute.

[Email readers continue here...] A successful hire is not just the responsibility of the recruiter and manager to whom the recruit will report.  Many companies require that finalist candidates be interviewed by a number of contemporaries, good employees who fill similar level positions. Some even encourage interviews with those the candidate would manage.  Agreement among the interviewers becomes an empowering experience for those conducting the interviews and agreeing to the decision to hire, and paves the way for a quicker assimilation of the new employee into the organization whose cohorts are already prepared to receive and encourage the new hire.  This is not an inexpensive process when considering the cost in time and productivity of the interviewers.  But finding “A” players is not an easy job, requiring a stretch of resources at each stage of the process.

                Earlier, we explored strategic planning within the enterprise. We spoke of developing strategies and tactics that are measurable for each department.  Now is a good time to complete that chain by suggesting that paying significant incentive compensation to the people empowered to execute those strategies and tactics is critical to the success of the plan as well as to the organization.  Aligning everyone toward the same goal and using the practice of rewarding for achievement of milestones defined by the tactics from planning, makes for a great business, managed by a leader who understands the process.

                What makes a great leader great?  Of course, it’s great execution by great employees acting as a unit in the best interests of the enterprise.  No-one can do this alone.  No CEO can do this with “B” players or less.

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Know and avoid “time bankruptcy.”

by on Apr.21, 2010, under Growth!, Positioning, The fight for quality

Time bankruptcy results from the deliberate over-commitment of core resources. 

          I created the term “time bankruptcy” almost thirty years ago when the computer software business was young, and I was a software developer building a young company based upon quality first.  Asked to speak at a number of software industry events, I found my voice and immediate audience understanding as I described variants of the following problem to my audience. The insight became clearer as I was hired again and again to pick up the pieces of failed programming efforts by other software companies in this then young industry.

          A developer would take on a new customer, customize programs as needed, and install perhaps an 80% completed system upon the customer’s brand new minicomputer system.  The customer would pay for all or at least 90% of the system, perhaps holding back a retainer awaiting completion.  Burning through the payment and needing more to cover fixed overhead, the developer would do the same for the next 80% customer, moving on to the third.  About that time, the first would call asking for completion of programming or training, firmly but politely.  The fourth installation was interrupted as the first customer suggested that he would stop giving glowing recommendations for the vendor, insisting upon a completion date, while the second customer interrupted with its first call for completion.  By the fifth or sixth (who keeps count for these stories?), the first threatens suit, the second becomes demanding and the third makes that expected call for a completion date.  So the vendor stops work on the newest installation to complete earlier installations.  Revenues dry up while overhead continues to burn though the developer’s pockets.  It’s a classic case of time bankruptcy.  The developer deliberately overcommitted his prime or core resources (in this case his personal time) leading to a loss of income and reputation that it could not recover.

[Email readers continue here...] The same story could be constructed for any company selecting a limited number of test customers for a new product. Select too many, and pay too little attention to each.  Commit all of your core resources to solving the resulting problem, and new work stops.  Time bankruptcy. Not a pretty sight, and completely avoidable.

          Be aware of this trap.  No-one but yourself can be blamed for allowing core resources to be overcommitted, even if by subordinates.  That’s because you now know the term and the impact of such an error in judgment, and understand that the simple but important remedy is to slow the commitment of those most critical resources to the front lines.

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No second chance to create first quality.

by on Apr.13, 2010, under The fight for quality

                Let me illustrate this insight with a personal story.  As my enterprise computer software company which produced innovative lodging systems for hotels and resorts grew quickly, we found ourselves straining to keep up with the hiring and training of good customer support representatives, a critical part of the equation then and still so today in the 24 hour environment of hotel front desk operations.  If a front desk clerk called support at 11.00 PM in the evening, it usually meant that there were guests lined up waiting to check in, anxious to pass beyond this necessary but inconvenient bottleneck between a tiring plane ride and a comfortable bed.  The result would be very frustrated clerks facing angry guests if the wait were to be long.  It was simply not acceptable to be backed up in customer service, forcing either a ten minute wait or a call back from support.

[Email readers continue here...]  It took several months to hire and train enough new support reps to keep up with the rapid growth of our company.  But the problem was solved, and response times returned to “immediate” for at least this class of customer call.  There was no wait, and the quality of response was rated as “excellent” by callers later surveyed.  But “There’s the rub” (the snag) wrote Shakespeare in Hamlet. It took two long years for the company to fully recover its lost reputation after the actual problem was fixed to the satisfaction of all.  Aided by salespeople from competitors and long memories from unhappy customers, the myth of continued quality problems in customer support bounced around the industry for those years, until finally good press, great experiences and a marketing campaign together overwhelmed bad memories to put this issue to bed.  

                If the problems had been in product stability and customer service together at the same moment, there might not have been enough time and resources to recover.  There are plenty of young companies that died trying to recover from such a combination.

                Your reputation hinges upon delivering a quality product at the moment of release, and maintaining product quality throughout its life.  The smaller the company, the more is at stake.  There are fewer resources and much less of a reserve of good will among the customer base to absorb a problem release or in the example above, inability to fill the void in customer service created by rapid growth.

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Haste makes waste; but to lag is to sag.

by on Apr.07, 2010, under Growth!, The fight for quality

                 Here we examine the relationship between time, quality and competitiveness. If you are getting the impression from these many insights that complex relationships cause simple problems, you are right.

                We have heard the “haste makes waste” ditty since childhood.  There is little need to reinforce the obvious.  On a larger scale, there are epoch stories of giant companies eating massive losses in a recall of product, often based upon limited testing before release. 

                A marginal example was the Intel release of the Pentium Pro and new Pentium II processor to rave reviews – until a math professor found an obscure error in the chip’s code that made a rare floating point calculation error.  Posting that finding on the Internet, quickly Intel found itself defending against fears by others using the processor for math work that the processor could not be relied upon.  Intel rushed to fix the bug and offered to replace the processor to anyone requesting such a replacement.  At a cost of millions and a reputational hit, Intel recovered.  The lesson here is a bit obscure, since it is not clear whether the kind of testing then common in processor design would have surfaced the error.  It is quite clear that such an error would be found immediately today based upon changes in testing procedures made by all processor manufacturers after that event.

[Email readers continue here...]  The waste from haste in this example was in not pre-thinking of enough testing scenarios for a new product.  There is always a trade-off between cost for testing, time to market and risk of problems. 

                 Perhaps better examples to point to are easy to find in the toy industry, where recalls because of small parts that could be swallowed by infants or lead-based paint or flammable components make the news on a regular basis.

                And the other side of this coin, “To lag is to sag”, addresses the two issues of loss to the competition because of delays in release of a new product, and burning of fixed overhead while products are redesigned.  

                It becomes obvious then that there must be a balance somewhere between rushed release and too much rigor in pre-release planning and testing.  Perhaps that balance can be measured in estimating what a company could endure in lost overhead and hits to reputation before becoming crippled and unable to recover.  With that measure based upon pure estimates, the balance point changes between companies, with the largest, most profitable companies able to suffer the most risk as to resources, and the smallest suffering by far the most when measuring reputation.

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