Business Book Review

Saturday, November 04, 2006

Thinking Inside The Box - by Kirk Cheyfitz - The People Box

The People Box
Successful corporate acquirers make M&A a core business activity; they master it and execute it based on a tried-and-true process.
Empowered employees can and should take control on the job; management and non-management employees should collectively act as if they were all in command together. Employees who are most likely to do the right thing are those who work with a previously formed consensus, who work in small units with well-defined goals, who have been taught to understand their mission, and who have the incentive to do the job well. They also need freedom in deciding how to perform their duties, and they must take collective responsibility for getting the goal accomplished.

It is impossible for managers to be everywhere at every moment making decisions for people and supervising every detail. No manager has the time, energy, knowledge, or judgment; further, talented, capable employees do not need to be micromanaged. Further, micromanaging reduces the chances of building a constructive relationship between managers and employees. In a Gallup research study conducted over a twenty-five year period, the single most powerful discovery was that talented employees needed great managers, and that the single greatest determining factor in employees’ longevity and productivity was their relationship with their immediate supervisors.

The primary question, then, becomes how to find and keep the best people. William C. Taylor, founding editor of Fast Company, once said, “Hire for attitude, not skill,” an opinion echoed by Cheyfitz. It is more important, when evaluating a prospective employee, to look at personal intrinsic personal qualities, such as intelligence and honesty, than to rely solely on a resume of past jobs. A person’s knowledge can be increased and broadened fairly quickly. A person’s basic human qualities and characteristics usually cannot be changed greatly. The success of Southwest Airlines, one of the world’s most successful companies, can be directly attributed to its single-minded focus on finding employees with certain fundamental personality traits, traits that ensure that Southwest keeps its commitment to making flying “fun” for its customers. Southwest has consistently earned the top rank as the U.S. airline with the smallest number of customer complaints.

Hiring good people—people who are well suited to their jobs—is only part of the equation. The other part is providing the environment necessary to enable these people to do what needs to be done. This includes providing pleasant places to work, creating units small enough to function cohesively, and making sure that management does not get in the way—in short, to treat people decently, for its people and their expertise, are, very often, one of a company’s greatest assets.

At first glance, a company’s real assets should be easy to identify. The key assets, in many cases, however, turn out to be unique, abstract assets that can include the company’s structure, its expertise, reputation, and its relationships—all direct results of its employees and management. If anything happens to these abstract assets, the hard assets lose their value rapidly. Recent examples include Enron and Arthur Andersen, which prove that even very large corporations can be victims of damage to their reputations. These two highly publicized corporate scandals, combined with other smaller, less well-known scandals, have, without doubt, had a negative impact on the public perception of corporate America to such an extent that they affected the stock market in the early 2000s, and therefore the entire U.S. economy. This occurred even though the only assets being impaired were abstract ones of reputation and trust. No ‘real’ assets were destroyed.

The idea persists, however, that hard assets (factories, real estate, equipment, machinery, etc.), are somehow more important than abstract ones and hold absolute value that endures no matter what happens to the company. Particularly in knowledge-based industries, where the real assets are always abstract, hard assets can quickly become worthless if they are separated from the moneymaking ideas or relationships. However, the same can also be true for industrial ventures. Take, for example, Samsung’s disastrous entry into the auto manufacturing industry in the 1990s. Samsung’s state-of-the-art manufacturing plant turned out to be essentially valueless without the design expertise to create marketable automobiles, the reputation and goodwill of a strong dealer organization, and trusting relationships with customers.

All companies should, on an annual basis, review each major segment of their business and identify the true sources of their revenue. This analysis will point to the key assets that produce the company’s revenues and profits. Once key assets have been identified, a plan can be created not only to best exploit the asset long-term to increase profits, but also to protect these key assets.

Management theory holds that it is a good thing to have processes—established ways of doing things. Processes exist, or should exist, to help ensure some degree of management control over results. For it is the end result that really matters. Processes that become detached from results tend to produce no results. Processes can become detached for several reasons: when needed results are not clearly defined, or when the company fails to exercise control, and to measure results. The results a company achieves are more important than how it got there. Adhering to this fundamental rule, Cheyfitz has discovered, is an essential part of success, while ignoring it leads inevitably to disaster.

Focusing on results is, in essence, the endless repetition of a five-part process: first, determining a goal and defining it precisely; second, creating a plan for achieving the goal; third, creating measurements that will tell management what progress has been made toward the goal and when the goal has been reached; fourth, capturing and reporting the results regularly so that progress can be continually assessed; and finally, starting over again with new goals once the a goal is achieved. Measuring results, or outcomes, is all about improving performance. Research confirms, according to Steven Kelman, a professor at Harvard’s John F. Kennedy School of Government, that giving people a goal improves their performance by serving as a motivator.

It is often a tough task to get companies to focus on results rather than on processes. Because processes are internal and familiar, they are controllable. Focusing on process is very attractive for an organization. Results, on the other hand, involve interacting with the world beyond an organization’s walls, so results are never completely controllable and are always seen as involving risk. To shift the focus from processes to results, the author counsels setting goals that can be measured—goals that are ambitious, but achievable, explaining both the results needed and the measurements that will be used to measure progress, and paying and promoting employees based on results.


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