October 23, 2017


















Article 5.14

BUSINESS STINKS: TIME TO SHARE THE NUMBERS ANDÖ?

Many distributors are facing a probable, long-term profit squeeze. Employee expectations and costs will continue to rise, but the inflation in manufactured goods may continue to be zero to negative for years, because of both the direct and indirect effects of the explosive growth of manufacturing of all goods in China. Without supplier price increases to pass through, distributors will have to cover rising employee costs and profit needs by pursuing one or more of the following "big three" strategies:

    1. Raise prices and fees for losing accounts. Some accounts will leave to paralyze competitors which could lower sales by 2 to 5%, but increase profits and operational slack. Excess personnel capacity may be laid off for more profits and/or they could refocus their energy on target accounts that may take 6 to 9 months to start driving profitable sales growth. (2)
    2. Achieve basic guaranteed service brilliance that can lower costs and support a last-look-plus price premium or a general price increase over mediocre competitorsí pricing. (3)
    3. Rethink employee responsibilities, education and productivity opportunities to gain their commitment to grow gross margin per employee faster than total costs per employee. (4)

None of these three strategies can be accomplished, however, without first sharing the general numbers with all employees so that they can understand:

    1. How improving company economics will measurably reward everyone in a number of ways, both in the short and long term, as long as productivity per person improves first and faster.
    2. Why and how they must all be part of the total productivity and profit growth solution.

While it may be more fascinating to discuss the how toís for the big three, the first challenge for most CEOs is to confront their real reasons for not sharing the numbers.

WHY NO SHARING TO DATE?

For 20+ years, whenever I have done a presentation on some aspect of "high performance service management", I have usually done a show-of-hands, two-question survey of the audience. The first question has been: "Who shares all the general financial numbers with all of their employees on a regular basis?" The affirmative rate has held steady between zero and about eight percent for two decades. During this same period lots of business research was done on high performing companies that always starred firms that shared the numbers and premium results with all the employees in various ways. Can anyone remember a success story that involved a company that did not share the numbers, responsibilities and rewards with all employees? Why do 100% of the star performers share numbers while 92%+ of CEOís in small, private-business America not share?

This leads to the second question I have asked audiences: "For those companies that donít share the numbers, why not?" The best feedback understandably comes when I ask audience members to write down anonymously their top few reasons for closed book management and turn them in. Three categories of reasons emerge: tactical, cultural and personal. The tactical reasons include: "We have a union(s). Everyone will want a raise. Employees donít want to know. Employees will only be confused by the numbers (most of our operational managers are already). The numbers will get to my competitors or suppliers. Employees donít really want to be more responsible and make more money. Money isnít what motivates them beyond a certain point." All of these objections can be analytically minimized to the point of being vastly outweighed by the potential upside benefits of sharing numbers. (5)

Digging deeper, some managers, in time and non-publicly, cite cultural reasons for not sharing numbers. Here is a consensus, paraphrased answer: "We have never done it before in X generations of running this company and most of are friends in this industry donít share numbers either. We hadnít really thought about it as a big problem or opportunity. It is just one of the unspoken assumptions by which we run the business without questioning whether it ever made sense or if it does today." Overcoming this cultural resistance is also analytically easy, but usually the emotional discomfort still persists suggesting even deeper, more hidden, personal reasons for not changing. (6)

TRUE CONFESSIONS

What could these personal reasons be? One CEOís recent confession to me might resonate with other non-sharers. Another paraphrasing:

"Bruce, I have heard your pitch on open-book management several times over the years and until now I havenít really been able to explain why I havenít shared the numbers. It really comes down to these personal concerns:

    1. In distribution you are always being pressured by customers and suppliers that are bigger than you are. These players may also prefer to do business with bigger, more successful suppliers so I have always played my cards very close to the vest. I want everyone to think that the company is bigger and more profitable than it really is.
    2. If I shared the numbers with the employees, they would be shocked at the low level of profitability we have, especially for the last two years. They would immediately question my competency. To get promoted, stay in a leadership job and command some respect donít you have to at least appear competent?
    3. I understand the numbers intuitively, but I could not presently teach them to the rest of the employees without looking like a stumbling fool. To maintain credibility as a leader donít you have to look like you know what you are talking about?
    4. After sharing the numbers with everyone, I wouldnít know what I would tell them to do differently than to just work harder at the same activities for the same money. That doesnít sound too exciting does it? Why give them false hope that things are going to get better?" (7)

TRUE SOLUTIONS

To be empathetic with this chap, donít all of us let personal needs for looking competent influence how we run, teach or parent something to some degree? If someone points out the negative impact of our weaknesses, donít we try to minimize, defend and even deny what we are doing? Canít we always find others that are worse than we are? Not sharing numbers, for example, is hardly as big a leadership sin as the scandals that make the daily business or political news. Right?

But, we need to get over our hang-ups to start moving toward high performance results for all of our companyís stakeholders, how should we do it? The standard psychological remedy starts by consciously seeing, describing and admitting what we are doing, just like our true confession friend did. Then, we need to accept our personal needs as being quite human and understandable. We can let ourselves off the hook by realizing that we are in good company with everyone else. Then, we might admit that most of the people around us probably already know what we are trying to cover up, hopefully, not as dramatically as the citizens of the emperor without any clothes did. And finally, we need to communicate a new opportunity to our employees. This is tough emotional work, but it is less painful than working hard without having much fun as we watch our business wither away.

How do first-time number sharing, confession sessions typically go? On balance, well! All employees can understand that times are tough and that most companies donít trust their employees enough to share the numbers and let them be part of the solution. Within the average firm, perhaps about 20% of the best, most ambitious, most responsibility-seeking employees from top to bottom will be immediately excited about the true upside. After all, it is easy to compete against competitors whose employees donít know what is going on and arenít empowered to make great service happen. Approximately 60%+ will be confused, a bit shocked, but willing to postpone any final judgement. They will quickly see that the leadership group is comfortable and confident and they will eventually join the cause. Maybe 10%+ will be eventually exposed as people who truly donít want to be responsible, but dependent and unchanging. They will eventually weed themselves from the company to find some other care-taking employer, which, in the longer run, is the best thing and easiest way to lose these employees.

EXECUTION FOLLOW THROUGH

If we can overcome our concerns about sharing the numbers, we still are faced with the educational and execution challenges involved in going open-book and pursuing the big three strategies.

Merrifield Consulting Group, Inc.

Article # 5.14 and Support Notes