Turning a Competitive Advantage into an Entitlement

The Affordable Care Act is here to stay. Although Republicans have voted to repeal Obamacare dozens of times, the “debate” over its implementation has taken on a sense of theatre. The Federal behemoth continues to chug along. Cancelled policies, the Healthcare.gov website disaster and increasing premiums for private coverage are all just hiccups in a process that appears to be unstoppable.

One facet that has received little attention is the effect of “universal” care on the employer/employee relationship. I know many small business owners who take great pride in their decision to fund health insurance for employees. They see it as a differentiator, especially in industries where employer-provided coverage isn’t the norm. If everyone has insurance, what will take its place in the quest to attract good workers?

The full impact of ACA will take years to be felt by individuals. The Internal Revenue Service does not currently have the capacity (or the mandate) to follow up on those who are uninsured. Technically, they have to pay a penalty and sign up for one of the exchanges, but enforcement has been postponed, and will require a much larger IRS and a massive database before it can really happen. For those workers who do seek out coverage, subsidies will ameliorate the pain of actual premiums, at least for the first few years.

Employers who have traditionally provided health insurance are accustomed to it being an expensive but underappreciated benefit. Healthy employees generally ignore the thousands of premium dollars being spent on their behalf. Those who need care are more appreciative, but copays and deductibles give them the impression that they are carrying a large part of the burden themselves.

healthcare costsThe rapid inflation in US health care spending is in part due to this disconnect between the consumer and the payer. Physicians treat patients, but bill insurance companies. Those companies in turn submit their costs and coverage models to government agencies who approve their rates. Since those rates are expected to carry a profit margin, higher costs often lead to greater profit dollars. Attempts to control expenses are perceived by both the provider and the consumer to be indicative of the greed of the carrier, so most have given up on strict controls.

Insurers pass on the higher costs to employers, who hold the actual checkbook in the final analysis, but have little say in the rates, the coverage or the usage of the product.

The decision to cover employees is becoming a Hobson’s choice among unpalatable options. A small business can pay the employee’s premium (say $300 a month), and face questions as to why they can’t just add that sum to the worker’s paycheck, since the worker could purchase subsidized individual insurance for much less. They can share the pain of premium increases up to the limit of the law (9.5% of the employee’s gross salary) and force their workers out into the subsidized government market. In the employee’s eyes, that makes the boss both stingy and uncaring. Finally, they can offer no insurance and stop thinking of themselves as a “better” employer.

Regardless of the option chosen, the halo effect of paying for employee coverage is going to lessen. It isn’t a differentiator if everyone has it.

 

My new book, Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.

Posted in Management, Thoughts and Opinions | Tagged , , , , | 1 Comment

One Response to Turning a Competitive Advantage into an Entitlement

  1. A agree that it will cease to differentiate in the small-medium size business market.
    Recently I have been dealing w the issue if health care w my clients even though it isn’t a focus of my services, they are truly in the dark as to what is the best method to employ going forward.
    I fully believe the new standard will be for owners to push the employees to the exchanges. Pressure to provide insurance (in the past) had been from two points directions; 1- the desire to benefit the employee and 2- competition for the better employee. What we see larger size companies taking advantage if lower hours eliminating the required costs for a all vs the providing for the ones owners deem worthy.
    New world will be where small to medium size employers will cease providing insurance as a benefit because as you have said it no longer sets them apart and there is no residual value.

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After the Goal

Why do employees have to “rest” after accomplishing a goal? When most human accomplishment required manual labor, taking time to recuperate after a final push, whether it was harvesting a crop or completing a building, was a natural way to physically recharge before starting another project.

http://www.dreamstime.com/-image24241030Today, most of the energy expended in the workplace is mental. Do employees really require “down time” after a flurry of emails or telephone calls?

For simplicity, let’s take sales goals. When goals are monthly or quarterly, any sales manager knows that a disproportionate amount of effort (and results) will occur in the last few days or weeks before the end of each period. I can’t count the number of times that I’ve heard “If they would just work in the first week of the month like they do in the last, my salespeople could be making twice their current commissions.” (“And my company would be twice its size.”)

We had a client who employed sales teams in multiple states selling home installation of security systems. Each sale required a subsequent installer visit, usually scheduled within a week of the sale. In the last few days of each month, the salespeople worked feverishly, while the installers sat around waiting to be dispatched. At the beginning of the next month, the installers were putting in overtime while new sales fell to almost nothing. His installation labor swung wildly between underutilization at the end of each month and lack of capacity at the beginning of the next.

Rather than try to change the psychology of the salespeople, he hit upon a simpler solution. Half the salespeople where shifted to commission cycles that began and ended on the 15th of each month. Having 50% of his salesmen always in the last two weeks of their commission cycle smoothed installation scheduling dramatically.

Other organizations try to jump start each cycle with a new incentive or contest. The smarter ones mix up the rewards, or focus on varied versions of a goal (new products, gross margin or customer satisfaction). Where the sales cycle is very short (as in telemarketing) employees are often bonused according to hourly, daily or weekly objectives.

No one, however, tries to change the basic human nature of resting after a goal. The expectation of an “extra” reward of lesser effort, above and beyond anything monetary, is so deeply ingrained that it seems pointless to fight it.

I work with one CEO who recognizes this, and builds it into his management team’s goal setting process. Each quarter the executives determine their “rock,” a major priority for that quarter. (The term “rocks”is part of both Verne Harnish’s Gazelles and Gino Wickman’s EOS planning systems, and is grounded in the exercise popularized by Stephen Covey of fitting rocks, pebbles and sand in a jar.)

Here’s the difference. Rocks are accomplished in a ten week “sprint.” At the end of the quarter, there is a scheduled two week rest period, during which there is no discussion of goals. That is followed by a week of goal setting, and then another ten week sprint.

Rather than fight the natural tendency to rest following an accomplishment, he has built in specific limits to that rest. It isn’t different rest periods for different people, nor does his team have to pretend that they are really starting on a new set of goals when they aren’t. He recognizes that downtime is unavoidable, and makes it part of the process.

Does it work? His company was just named to the Inc. 5000 for the third straight year, so it seems to have some value.

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My new book, Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.

 

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What is Mentoring?

In a recent meeting of one of our groups in The Alternative Board®, the business owners discussed mentoring. One member, a partner in a large professional firm, has been tasked with mentoring a partner in training. He asked what the mentoring process should look like, and how it differed from merely sharing knowledge and experience.

Each member’s opening comment was identical. “I’ve never been formally mentored, but there was one person who taught me a lot.”

Is mentoring a special process, or is it merely a teaching role? Most of us teach our employees on an ongoing basis. On the most basic level, we want them to learn the processes and systems to do the work in our companies. We communicate our core values and visions for our businesses. We develop their skills in hopes that they can assume more responsibility.

Is that mentoring, or is it simply normal employee development? In larger organizations, mentors are assigned mentees who are expected to rise through the management ranks. Many public company CEOs credit a mentor who worked with them over a long period of time as their career progressed. The mentor helped direct their progress through positions and assignments intended to broaden both their knowledge and exposure in the organization.

mentoring chartDefinitions of mentoring vary, but all of them describe a relationship where the mentor shares experience and skills, coupled with personal guidance and advice on applying those skills and challenging the mentee to stretch for new levels of accomplishment. Mentoring, therefore, couples the skills of teaching with those of coaching. The mentor not only imparts the knowledge, but also helps the mentee understand how and when to utilize that learning in practical application.

From the responses of the owners cited above, we all accept that teaching and coaching are normal parts of a business owner’s role. None of the participants, however, apparently considered that “real” mentoring. It seems we expect something more before we apply the mentoring label. What raises the bar to this level?

I believe mentoring requires a specific goal, which is agreed at the outset between the participants. It is coaching with a clear objective. It focuses not on ongoing improvement, but rather on a specific set of improvements to be accomplished in a certain time frame.

The professional whose assignment is mentoring a partner in training is an excellent example. She is expected by the firm to learn “partner level skills” before further promotion, and failing to do so in a specified time will damage her chance for advancement. Those skills aren’t technical, she can already do the work of a partner. They are instead the application of her technical abilities, communicating them to clients, and teaching them to subordinates. The goal is Specific (learn how to apply her skills beyond personal production), Measurable (new clients, successful subordinates), Achievable (she has already demonstrated her core abilities), Resourced (the mentorship assignment), and Time sensitive.

Raising normal employee development to the level of mentorship requires that both parties agree on a SMART goal. They formalize the objective, set aside time for regular communication and progress checks, and identify the steps needed to accomplish the desired outcome.

Most importantly, mentoring requires a special commitment by its participants. “Unofficial” mentoring is merely teaching, where the employee may or may not learn successfully. Mentoring includes a pledge by both parties to make the process successful.

 
My new book, Hunting in a Farmer’s World: Celebrating the Mind of an Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.

Posted in Entrepreneurship, Leadership, Management | Tagged , , , , , , | 4 Comments

4 Responses to What is Mentoring?

  1. David Basri says:

    I would argue that coaching and teaching are part of mentoring when there is a strategic goal of developing an employee. We have a small software company. Since not long after PEI was founded in 1996, we have had a Service Item set up in QuickBooks called “Mentoring”. It is used in many contexts.

    When an employee is assigned a project that requires new skills and I assist, my time is marked as Mentoring / Non-billable and their time is booked to the client project (billable or not). When I have to coach or teach a new skill that is booked to Mentoring. If I review internal work that an employee did (company website or whatever) and then discuss different techniques or strategy than they applied, that is Mentoring. However, the review process or asking them to fix something goes to Administration or Marketing or whatever normal business process is involved.

    It may be correct that if an employee is simply shown who to complete a specific task so that they can perform that duty, you might call that “merely” teaching. When efforts are part of a long-term strategic goal to develop an employee into something more than a cog in the machine, then the deliberate work to accomplish the goal is legitimately mentoring.

    David Basri
    Point Enterprises, Inc.
    http://www.pointent.com

    • Pam Ruster says:

      David, the idea to capture a mentoring role as a ‘job cost’ data point is an interesting one. We capture management consulting with our clients, which falls under mentoring with the teaching and coaching dynamic as discussed. With my own company staff I have not captured that in any way. Thanks for the eye opener!

  2. I have experienced all the three levels of “learning” with a person: I am mentored in a public speaking club. I have a direct and personal relationship with my mentor. She was my choice from the start. I felt that we clicked and I feel comfortable with her. She teaches me things in a focused and condensed way: all about public speaking and how to convey my message to an audience. My lessons are small assignments in the form of a speech formed in such a way for me to learn important elements of a successful speech but one at a time.

    However, I think a trainer is teaching you something much more specific rather than a mentor which connects elements from different lessons and goes a second level. The sessions can be more relaxed and a bit generalized though having one special assignment due to the varied topic of the speech and the many objectives that need to be met.

  3. Off-topic: I have just noticed the name of the blog is awake at two o’clock. It is 2.15 AM.

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When is a Bonus Not a Bonus?

We refer to many different types of payments to employees as bonuses. They range from very modest amounts paid for specific activities to substantial components of a worker’s total compensation package.

Merriam-Webster defines “bonus” as “money or an equivalent given in addition to an employee’s usual compensation.” That’s seems simple enough, but what constitutes “usual” compensation? Is a holiday gift that’s pegged to length of service a bonus? Is a specific share of the profits set aside to be divided among the employees a bonus? Since both are expected and delivered according to formulae, they are arguably part of usual compensation.

None the less, most business owners would refer to both those situations as a bonus. I have one client who celebrates any record sales month with a bonus of several hours of extra vacation for each employee. Although non-monetary; that is also clearly a bonus. It is irregular, typically outside the control of any individual employee, and can’t be anticipated.

Full bucket of golden coins / Полное ведро золотых монетThe misuse of the term bonus occurs most frequently when the amounts are a normal and contractual part of an employee’s compensation package. When the payments are regularly scheduled (monthly or quarterly), and are determined by an employee’s individual achievements, it is pay for performance.

Bonuses have a natural cut-off point. I think it’s between 10% and 20% of an employee’s total compensation. Once you exceed that level, an employee begins to budget the expected amounts into his or her lifestyle choices. A failure to reach individual goals that results in adjustments to their household budgets isn’t missing a bonus, it’s taking a cut in pay.

Commission isn’t a “sales bonus”, it’s compensation. Pegging 30% or 40% of an executive’s annual compensation to profit performance isn’t a bonus, it’s part of his pay package.Production incentives that arrive in every paycheck aren’t bonuses for the same reason.

Using the term bonus for all flavors and varieties of incentive and performance compensation isn’t by itself bad, but it is sloppy. The problem comes when some employees start to ask why they have to achieve individual objectives to receive their bonuses, while others in the company receive them without such requirements. It confuses what bonuses are really for, which is to express your appreciation for a job done well.

Pay for performance isn’t an expression of appreciation, it’s part of a deal.

 

My new book, Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.

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Can You Outgrow Customers?

When you start a company, it’s like shopping at the supermarket when you are very hungry. Everything looks good. Any suspect might be a prospect. Any prospect is worth pursuing, and your ideal customer is anyone who is willing to pay you for your product or service.

As your business grows, you begin to differentiate between good customers and bad customers. Those who don’t deal with you fairly, pay late, are always denigrating your product in hope of extra discounts, or demand extra services above what they pay for are allowed to fall by the wayside. Their departure is noted with a “good riddance,” if it is noted at all.

If you are fortunate, and keep your promises, a few of your first customers become your best customers. You develop relationships. They depend on you as a trusted vendor, and you show appreciation for their loyalty by serving them as well as you can. Your company grows, based in no small part on these steady accounts.

outgrowingCan you outgrow these loyal customers? Is there a point where their business is no longer worthwhile to you? For most of us, the instinctive answer is “no.” Someone who has supported us on those first crucial steps up the ladder deserves our gratitude. But gratitude doesn’t address the other issues that come with a customer/vendor mismatch.

One of my clients owned a commercial general contracting company. When he started, they took in a few million dollars a year doing tenant improvements for strip centers and restaurant remodels. The company developed a reputation for bringing in jobs on-time and under budget, and after a few years he had built up a steady clientele of property owners.

His skill in project management landed him progressively larger jobs. He became a specialist in building bank branches, private schools and churches. Each of those jobs was about the same size as his entire revenue in the first few years, and eventually he was contracting for a dozen such buildings a year.

He remained loyal to his first customers, but fitting in a hundred thousand dollar remodel between multi-million dollar commitments grew more challenging. Each job now involved an estimator, a project manager and a supervisor, where he had once filled all those roles personally. The smaller jobs couldn’t carry the overhead. Where he once gave the restaurant owners a daily progress report by telephone, now they were scheduled between his meetings with CEOs and Boards of Directors.

Not surprisingly, his long-time customers began to complain. They didn’t have the access to or the attention from the owner that they once enjoyed. His pricing was getting more expensive. They sometimes had to wait weeks or months for a spot on the schedule.

He tried his best to address the issues. He dedicated special staff to smaller projects, and put his most senior project manager in charge of them. He couldn’t change his overhead costs, however, and that division relied on the support of the bigger jobs to cover expenses.

After years of trying to address the problem, he finally notified his small customers that he was no longer able to quote projects of less than $1,000,000. Many reacted as you might expect, perceiving his decision to be based on self-importance and greed, without any regard for their needs.

In reality, he had to let them go. He was no longer able to give them the type of service that he was known for, and that they had a right to expect. He had tried to roll back his company to a version of its earlier model, but in fact he was just subsidizing their work for old times’ sake, and still delivering at less than the expected level of service.

You’ve outgrown your customers when you can no longer serve them profitably or well. You can show your gratitude by helping them find a vendor who better serves their needs.

Picture Credit

My new book, Hunting in a Farmer’s World: Celebrating the Mind of an  Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.

Posted in Marketing and Sales | Tagged , , , , , | 1 Comment

One Response to Can You Outgrow Customers?

  1. Steve Wells says:

    Great article on growth and customer “FIT”. Your reference to going to the supermarket when you are hungry is dead on when starting a business from scratch. Anything and everything is a good opportunity and job. As we have grown, we have been fortunate enough to improve the quality of our customers, replacing some of our original customers for many for the reasons you mentioned. As we have grown, we have also made changes for one other important reason.

    As our business has matured, we have a much clearer Vision, Mission and Strategic Plan and unfortunately, some of the customers that helped us start our business no longer align with our current and future plans. While many of us strive to support them for too long, when a customer no longer fits, it’s typically not a fit from either side and prolonging the inevitable isn’t in anyone’s best interest. It’s just a tough decision to let go of good customers that no longer fit your business!

    I totally agree with trying to match the good customers with another provider, one that better fits their needs and whom they better align with.

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