In the preceding chapters, we have looked at companies from three different perspectives. First, we looked at the anatomy of a business, the five components-people, technology, market, capital and organization-without which no company can come into existence, survive or grow. Then we looked at corporate physiology, the process by which companies generate and release energy, harness and channel it, and convert it into practical results to achieve their goals for growth and profitability. Finally, we looked at how by focussing on corporate values, companies can raise the process of energy generation and conversion to peak levels for maximum growth and maximum profitability.
We said earlier that the five components are the engines that propel the growth of any business and that each of them contains within itself hidden and untapped powers and potentials which any company can utilize to dramatically accelerate its rate of growth and increase its profitability. Each of the five engines consists of an ascending scale of lesser and greater powers. Some companies tap one or a few of these powers to a considerable extent, but ignore the rest. Other companies release many of them, but to only a very limited degree. The full development of each engine is achieved by harnessing all its powers, just like the full development of a company requires the balanced development of all five components.
Many of these powers are quite well-known. Yet we still say they are hidden, because most companies recognize only a small part of their potential and utilize only a tiny fraction of their power. If, as psychologists say a man utilizes only a small part of his intellectual capacity in normal life, it is equally true that companies use a very meager portion of the resources at their disposal. In the next five chapters, we look at some of the hidden powers of the five engines and at practical strategies that can be employed to release them in your company.
In this chapter we will explore the varied powers of the engine people. In virtually every fast growing company we have visited, we heard testaments to the enormous power of people. "People have made this company grow," says Robert Dobkin of Linear Technology. "People are #1," says Randy Angelocci of AMRE. Since the goal of this book is to generate rapid growth in your company, we begin with the engine that has propelled most fast growing companies to where they are today. The next chapter explores the powers of the engine organization. If people have been the greatest driving force for growth, organization has unquestionably been the engine which has most commonly stalled and retarded the growth process. Organization is the Achilles' heel of most growth-oriented companies. Strategies to unleash the powers of the other three engines are presented in subsequent chapters.
The powers of people are most dramatically expressed in revolution-the Boston Tea Party, the storming of the Bastille, the flower power of the 1960s. In these rare moments of inspiration (or exasperation), some of the latent powers that lie hidden below respond to an idealistic call and explode upon the placid surface of social life.
Suppose for a moment that a force of this intensity could be released and constructively utilized by an organization for its growth? That company might arise phoenix-like out of nowhere and generate revolutionary shockwaves in its industry-like Apple Computers emerged out of its garage and grew against all odds into a tremendously innovative, competitive and profitable business. Or it might spring out of a dream and create an entirely new industry overnight-as Federal Express created the overnight delivery business. Or it might suddenly rocket from the middle ranks of obscurity to become the undisputed leader of its field and soar on into the future opening one new vista after another, year after year, decade after decade, commanding a pre-eminent position in its field worldwide-the way IBM rose from fifth to first in the punchcard machine industry during the Great Depression, then moved into computers, where it has reigned supreme for four decades. Each of these three companies has grown phenomenally by unleashing the powers of people. Yet, however dramatic and impressive these examples may be, they are partial and inadequate, for even these great corporations have tapped but a little of the hidden potentials of this engine.
TEN POWERS OF PEOPLE
It was not too long ago that man (or woman) was looked upon by industry as a physical resource to be utilized like any other material resource to the maximum of its physical capacity for work. Labor was regarded as a commodity like oil, a source of physical energy. Over the last century, we have come to realize that men and women possess a productive potential that extends far beyond the limits of the their bodies and physical energies. We have seen in Japan a nation that has generated a formidable productive power by releasing and harnessing the social and cultural energies of its people-which are expressed as dedication, patriotism and loyalty to the company and the national economy. The progress of the U.S. over the last 200 years can be traced back to the unique ability of this country to awaken and release the creative energies of the individual and to become a nation of entrepreneurs seething with more creative energy and activity than any other in the world.
Thus we can identify three types or levels of energy in man-the physical energy of his body, the social energy of a common member of the group, and the psychological energy of the unique individual. Every human being possesses these three levels of energy in some measure. Every company taps and utilizes these different energies to some extent. Our aim is to release all of these energies to the maximum extent possible and channel them to achieve maximum results for your company.
The extent to which these energies are tapped and utilized for work depends on three other important factors: attitudes, skills and values. For each of the three levels of energy-physical, social and psychological-there are attitudes, skills and values which determine how much energy is released and how effectively it is channeled into work. These attitudes, skills and values depend directly on the way we recruit, train, motivate and direct the activities of our people. Together they combine to generate a multitude of powerful levers for energizing your company through people. This chapter examines ten graded powers of people. Let us begin with the known and the obvious and explore the ascending powers of people.
What is the first thing you look for when you recruit new people? In the old days when railway contractors were hiring labor to lay tracks across the country, the bosses naturally looked for the biggest and strongest men available to cut the timber and lay the gauge. Few jobs these days demand that type of physical size or strength, but the physical health and energy of a person is just as important as it ever was. Yet it is surprising how few companies consciously look for energy when they recruit new people. Try thinking creatively, being enthusiastic and inspiring other people when you have a 102 degree fever, and you will understand the importance of physical energy.
That energy is the foundation for all physical work. The more abundant it is, the more lively and resilient the work. When that energy is lacking, work becomes a drag and a strain. It slows to a crawl and leads to frustration, errors and waste. Add a little burst of fresh energy and work that was grinding picks up and is easily accomplished. Recruiting people with high levels of energy and good health makes everything a company does that much easier and more successful. How are you going to have a high energy company without high energy people?
The first thing that struck Neal Amarino when he joined Vipont Pharmaceuticals was "the energy of the people. There is a different feeling...an excitement...an air of expectation about what is to come." Many of the fast growing companies we have seen go out of their way to look for people with the energy needed for quick action and non-stop change. AMRE looks for high energy sales people. Linear Technology wants chip designers who are not only technically qualified, but who have the energy and persistence to push their designs all the way through and make sure that they get translated into products. "In order to make these products successful, you just have to pour your energy into them," says designer Tom Redfern. "We look for people whose designs are translated into production, not just those that like the work they do," says Carl Nelson. "Did he get his products out into production. Does he have the energy and drive to make things work." Gartner Group even selects computer industry researchers for their energy level.
According to Jim Perkins, Chief Personnel Officer, from the beginning Federal Express "attracted people with a very high energy level." High energy starts at the top with the management team, says Fred Smith.
"You have to put high energy people in the key positions. You've got to have an enormous amount of energy...The watchword at FedEx is action. God knows you can get a lot people who can identify problems. The trick is to find that one jewel who can solve one. That's why you need that high energy level, a penchant for action."
Getting energetic people is the first essential step. Getting them to express that energy in work is the second, and that has a lot to do with compensation. There is a great deal of truth in the old adage, "You get what you pay for." We have seen companies invent many clever ways to get more from their people than they give, but very few prove more resourceful than their people in maintaining a fair balance between work and rewards.
Federal Express wants every employee in every department to go that extra mile to cut an extra minute off delivery times. The company pays well across the boards for that effort. "Our people concept is simple," Perkins says. "If you take care of the people, they will deliver the service efficiently with a smile. We believe that the profits will somehow come as a result of that." Couriers in major markets earn between $30,000 and $40,000. "We review our pay structures constantly," says vice president of hub operations, Karl Birkholz. "You can lose key people by insensitivity. We share the profits with all employees. We even treat part time employees the same as full-timers in terms of the benefits they receive-medical, profit sharing bonuses, etc. This policy has really reduced absenteeism and turnover." In a company that employees about 18,000 part-time people, that policy represents a sizable commitment.
In order for compensation to release people's physical energies for work, it must be perceived as fair. We have been in companies with high absenteeism, high turnover and low morale that never seem to make the connection between pay and performance. Even when companies realize they are losing people because they pay poorly, many think "Why should I pay more when I can always get new people to take their place?" The real cost in terms of money and management time spent in recruiting and training new people almost always exceeds the savings from keeping salaries low. But the real cost is in morale and the energy output of those who accept low pay.
Compensation should be perceived as fair, which means it is not enough that it is fair. Some companies offer low pay and excellent benefits which more than make up for the low base. But offering good benefits along with low base pay usually does not work. Employees tend to look on base salary as the measure of their worth and bonuses and profit-sharing as something extra, based on their performance and the company's. Other companies offer excellent benefits but forget to "sell" them to employees, who often do not fully realize the value of what is offered unless it is fully explained. Rich Pagliari of Elizabeth Carbide in Pennsylvania explained how he was losing skilled workers to his competitors who offered higher base salaries, only to have many of them come back to reapply for their old jobs after they realized that the benefits Elizabeth offered were far superior. Now Pagliari educates all his employees about exactly what the benefits package contains and what it is worth to them.
Pay & Performance
Beyond fairness, there are higher dimensions to compensation, which can release many times greater energy than equal pay for equal work. These dimensions are linked with people's social aspirations to rise in life and their psychological aspirations for personal growth, of which income is taken as an outward expression. Though these dimensions are more rightly categorized higher in the progression of powers, they are discussed here for the sake of completeness.
Compensation releases a lot more energy when it is directly tied to performance. Many successful companies have gone through periods when their top sales people earned more than their top executives. Aggressive 30 year old sales people at Gartner Group take home an average of $100,000 to $150,000 a year. Gartner's sales people receive a fixed salary which represents roughly 35% of their pay. The balance two-thirds is based on sales performance. The company says their sales people outsell competitors two to one.
But even more interesting is the pay package for the information researchers creating useful ideas in the bowels of Gartner's research division. "We pay more for analysts and get high quality people," says senior vice-president of Sales, Rick Smith. Analysts' pay is based on 65% fixed salary and 35% performance-related bonus, which is directly linked to the financial success of the information services which each analyst works on. Gartner's rationale is that a researcher paid on the success of the information services he or she produces will be much more attuned and sensitive to customers' needs.
High pay is not confined to hi-tech industries. AMRE is only too happy when a commissioned sales person reaps an executive-size pay check. "The first thing we do to energize our people is make sure they have a chance to make a lot of money," says Bedowitz. The top AMRE sales person last year earned $140,000, and the average was around $55,000 to $65,000. "A sales person should make a minimum of $40,000 a year or he or she probably shouldn't be here." Randy Angelocci, vice president of sales, says, "Our sales people are on straight commission. They have no limits. That brings out the best in everybody. The sales people love the challenge of being able to make whatever they can."
Share The Wealth
The greatest power of compensation is released when the growth of the individual and the growth of the company are very closely linked with one another. If there is one belief that fast growing companies hold in common, it is the dictum, "Share the wealth." This principle has had a lot to do with Expeditors International's explosive growth over the past five years. Every branch manager has invested personally in the local branch company he or she manages and receives, in addition to salary, 22% of the pre-tax operating income of the office, to take home and/or distribute to employees as an incentive. One implication of this arrangement is that if the branch office fails to collect payment from a customer, 22% of the loss comes out of the manager's incentive pay. Dave Lincoln, controller, stressed the importance of this system. "We haven't lost any key people that we wanted to keep. The reason is the branch compensation program. If you are successful, you are rewarded. We reward those who have produced."
A point often comes in the growth of a privately-owned company, when the founders are tempted to take their company public in order to raise additional capital or simply to capitalize their own assets in the company. A less common motive, but one which can have considerable impact on the future performance of the company, is the ability of public corporations to offer stock options to employees that may appreciate rapidly as the company grows.
Many private corporations that do not need the capital may still benefit immensely from opening up ownership to a larger number of employees. When Vipont Pharmaceuticals started to grow rapidly in the early 1980s, the company was not in a position to offer lucrative salaries to attract top talents. So it coupled a modest pay package with an aggressive stock-option plan that has made many employees shareholders and some of them quite wealthy. Today 30% of the shares are owned by Vipont employees. Michelle Morgan, Director of Marketing, at Vipont Pharmaceuticals summed up a feeling frequently expressed by people in these companies: "Sharing in the profits, we not only make make money for shareholders. We also make money for ourselves. This has had a big role. It gives people a common goal and purpose."
"It is no secret," says Linear Technology's Robert Swanson. "Successful companies are companies that share the wealth. We drive our people here. This is a big time business with big money to be made. Financial rewards are a big part of what this company is about."
Until two years every Linear employee owned stock in the company. Every employee was given 100 shares of stock at the end of their first and second year with the company. "We wanted everybody to have a piece of the action." Last year the company funded a profit-sharing program based on salary in which everyone participates as well. It also gave bonuses to both hourly and salaried employees. Linear's vice-president of Operations, Brian Hollins, says, "Profit-sharing has been a very important incentive. We give stock options which make people feel like they have a piece of the rock."
When Gartner Group was founded, one third of the equity was set aside for distribution to employees other than the founders. "Typically the entrepreneur is sole proprietor and over time he might provide some equity shares to key people," Gartner explained. "But we allocated a third of the equity from day one to a broad spectrum of partners beyond myself. That's a big chunk of equity that was reserved for people who had nothing to do with founding the company." At the time of our study, virtually every analyst in the company was a shareholder.
Think about the structure of compensation in your company. How effectively does it release the physical energies of your people for hard work? Does it sufficiently motivate them to perform at peak levels of enthusiasm? Does it create a direct and proportionate link between the financial success of the company and the financial rewards for your people?
Exceptions to the Rule
How simple the world would be if everything were that simple. But there is a corollary to every good principle, and a good corollary often contradicts the principle it is intended to modify. Such is the case with "share the wealth." Good compensation is not only or always energizing. There are at least two fairly common situations in which it can also be de-energizing. The first is a well-known phenomenon in fast growing public companies which have done exactly what we have described so far in this chapter. It is the phenomenon of satisfaction. Some people who join a company before or during the early stages of its take-off reap such enormous financial rewards from being in the right time at the right place that they become satisfied and level off.
Most of the fast growing companies we have been into have either had that experience or are now in the midst of it. They find they have promoted people to high level positions at an early stage who either do not have the skills to support the further growth of the company or do not have the drive to make it happen, because they are satisfied. One CEO was frank enough to raise the question as to whether he or any of the original founders were really competent to take the company to the next plateau. Another expressed his frustration at not being able to motivate his second level executives to take up part of the burden of energizing the company for further growth.
Yet in most cases we found that the loss of motivation was not entirely or even primarily due to the enormous rewards. There are many senior executives of fast growing companies who have become millionaires in their early thirties, yet still enjoy their work immensely and feel highly motivated to grow the company further. Very often the problem is not too much money, but too much stress from an under-organized organization or too much pressure and too little freedom from an over-bearing CEO. Sometimes it is simply because the demands of growth have left no time for the executive to acquire the skills needed to keep up with it. Any of these situations can be remedied, if the people involved recognize their source and are willing for the effort.
The second exception to the principle of paying more is not so easily resolved. The corollary states: if a person is paid more than his capacities or his sense of responsibility justify, he may not only level-off but even become a disturbing and troublesome influence in the company. We have seen this phenomenon time and again at every level from senior executives to clerks and laborers. Yet surprisingly few managers recognize the danger. When a person is paid more than their abilities or commitment justify, some individuals work that much harder in order to compensate and justify the higher pay. But others consciously or unconsciously justify it, not by working harder, but by finding real or imaginary grievances against the company and its management. They complain and foment discontent among their colleagues. We once asked a personnel consultant to think back over all the cases he could remember of problem employees and ask himself whether they were individuals who were paid more or less than they probably deserved. To his own surprise, he replied that virtually all were paid too much.
Think of the last time you attempted a task for which you lacked the necessary skill-cooking a meal if you are not a cook, calculating your family's tax returns, struggling through a computer program you have never used before, typing a letter when your secretary was out sick or trying to figure out how the new phone system works! You are asked to interview a job candidate and feel awkward or uncomfortable, because you have never been trained in how to conduct an interview. You are asked to make a presentation before a large group for the first time. You are asked to develop a strategic plan and are ashamed to tell your board or your boss that you do not know how. Life can suddenly become frustrating, annoying, grating on the nerves, even terrifying.
Now think of the last time you were taught or taught yourself a new skill. You took a day off to read the software manual and really understand how that program works. In half a day you are up and running and humming along like a pro. You read the instructions for the phone system and discovered to your surprise that the world is rational after all. The system does more than you ever dreamed of. You took a course in interviewing or presentation skills and learned enough small tricks the first day to feel relaxed and fairly proficient. Learning a new skill is energizing. It can even be exhilarating. Exercising a skill in which you are competent generates a sense of confidence and mastery. It makes any work enjoyable, even exciting.
Now think of all the people in your company who have never been trained to do all the things they are doing. How much agony could have been avoided? How much energy could have been released by creating a structured situation where learning generates a sense of accomplishment and mastery, instead of frustration and failure? Think of all the people even now who are doing tasks for which they do not possess all the knowledge and skills needed to do it perfectly and feel good about their work, even if they will not admit it out of pride or insecurity. A tremendous amount of energy can be released in these people by giving them training to make the exercise of their skills perfect and enjoyable.
Dave Gray is a middle aged middle manager at Nedlloyd Lines' London office. When Rick de Rooy was transferred from San Francisco to become CEO of Nedlloyd's U.K. operations, his predecessor described Gray as a troublesome, pessimistic, complaining type who was a thorn in everyone's side, a poor worker and a bad manager. Six months later de Rooy meet his predecessor at a corporate gathering and their conversation came to Gray. The previous CEO was surprised to hear that Gray was still with the company. But he was down-right shocked to hear that de Rooy considered him one of the company's best motivated and most productive employees. De Rooy went on to explain that over the last six months, he had reassigned Gray from his administrative position to assume responsibility for installation and operation of the company's new worldwide computerized information system, a job for which Gray had absolutely no prior training or experience. When we met Gray a few months later, we found an exuberant and enthusiastic individual behaving like he had just had a wonderful time on his first date with a beautiful girl. He had just completed a training course on the new computer system and could not say enough about how much he loved the company and his new job. Learning a new skill has that much power.
Dave Gray's experience is one instance of a truth which IBM has known for decades. Last year while we were at Marriott's 1,500 room resort hotel in San Diego for a conference, half of the hotel was filled with IBM production workers and managers being retrained for positions in marketing. A total of 10,000 IBM employees went through the program. IBM spends more on corporate training for its people than the entire budget of Harvard University-$750 million or 1.5% of sales last year-and probably generates more professional managers than all the business schools put together. Ex-IBM people occupy high positions in both mature and fast growing companies in virtually every industry, because they train their people so well.
Embassy Suites Hotels is rated extremely high by consumers for quality of service and the efficiency and courtesy of their staff. A guiding principle of the company is that minimum wage employees possess the ability to perform well in higher level positions, provided they are given proper training. "Historically hotel managers have believed that minimum-wage workers aren't smart or ambitious," says president Harvey Feldman. "With training and experience, they all have the curiosity and intelligence to go beyond making beds."18 Embassy Suites has a pay system that is based on skills to encourage continuous training. The company offers a variety of skill courses and awards pay increases to those who pass them. Thus, the company mobilizes two powerful levers-compensation and training-for releasing greater energy from their people.
Training not only energizes people. It makes good financial sense too. A few years ago Motorola substantially increased their investment in training production workers on quality and problem-solving. Overall the expenditure on training rose to $90 million, equal to about 2.6% of payroll or close to 1% of sales. The results have been dramatic, says the company's training head, Bill Wiggenhorn. "We've documented the savings from the statistical process control methods and problem solving methods we've trained our people in. We're running a rate of return of about 30 times the dollars invested." 19
Three Levels of Skills
As there are graded levels or methods of compensation, there is an ascending gradation of skills that can release and direct the expression of people's energies. The first level consists of physical skills (e.g. driving or typing) and technical skills (e.g. product knowledge, repairing a product, operating equipment) which release and direct people's physical energies. Interpersonal skills (e.g. selling, negotiating, communicating, motivating) and organizational skills (e.g. systematizing, coordinating) are of a higher level and are more powerful energizers. The highest level skills are mental (e.g. managing, planning, problem-solving) and psychological (e.g. understanding and judging people, giving attention, pleasing others). Although the interpersonal, organizational and higher order skills possess a greater capacity to release and harness energy, for purposes of completeness we refer to them all at this point in the progression of powers for energizing people.
Which skills should we train for? Train for every physical, technical, interpersonal, organizational, managerial and psychological skill required to be the very best in your business.
How much or how often should we train our people? As much and as often as possible, and keep on training them. There is no more powerful way to energize your people and your company for non-stop growth.
Run down a quick checklist in your mind. Just list all the problems-big ones and small ones-which you encounter in day-to-day business with your employees, your managers, your customers and vendors. Nothing is too small for the list. If you scrutinize that list, a vast majority of those problems can be traced back to someone who is not properly educated or trained. Take basic things like documentation, for instance. Listen Up was being constantly harassed by its inability to maintain accurate inventory records. No matter how often they re-counted the inventory and set it right, it quickly got out of balance again. On investigation the company traced a major part of the problem to the fact that nearly 25% of the sales receipts filled out by its sales people contained errors, so the inventory system was continuously being fed with erroneous information. What the company needed was not a new inventory system, but better training on basic documentation skills for its technically qualified sales staff. Physical skills are that critical to every business.
Think of the best sales person in your company. Think of other sales people who perform at an average or below average level. What would be the impact on the profitability of your company, if every average sales person could be raised to 80 or 90% of the level achieved by the best and if every poor performer could be lifted to the level of today's average? Wayne Puntel of Audio Craft runs one of the most profitable retail chains in his industry. He completed the exercise described at the end of this chapter and was shocked by the answer he came up with-a potential 100% increase in profitability. Actually, during the next six months Puntel's profits soared 40%. What about for your company?
Now suppose you completed the same analysis for your production workers, design people, marketing, finance, and managerial staff. What would be the impact on their energy and morale? What would be the impact on corporate revenues and profits? Double like Audio Craft? Or 30 fold return on investment like Motorola? Or more?
No Time for Training
As we went from one fast growing company to another, we were somewhat surprised at how uncommon formal training programs are and how seriously they have retarded the growth of these businesses. Time and again we heard people say, "There is no formal training," and in the next breath remark, "My biggest fear looking at our growth is how are we going to continue to get the types of people and the numbers we need." In our surveys of American and European companies, a shortage of skilled people and no time for training were among the most frequently cited characteristics of rapid growth.
Companies which continue to grow over long periods of time put in place the training systems needed to generate highly skilled people from within, rather then remain dependent on the whims and fluctuations of the marketplace. Otherwise, sooner or later they discover that the pace of growth outstrips the availability of qualified and experienced people. Federal Express had such systems in place from day one. "The easiest thing that management can do is put training on the back burner," says Birkholz. "But training should be right up front ahead of everything else. I am only as efficient as my people make me." Every new employee goes through an extensive training program. In order to provide a high quality of training effectively and efficiently, the company utilizes interactive video. This enables employees to learn at their own pace and guide themselves through learning sessions simply by touching the screen. The same method is used for constantly updating the skills of more experienced people. Flight crew members are required to complete a training course every time they change positions on a plane. Normally the course requires about 21 days of training time. By putting the course on interactive video, that time is expected to be reduced to 16 days. If Federal Express has found ways to train its people while in the process of growing from zero to more than $4 billion in 16 years, other fast growing companies can too, and need to if they really want to keep growing.
One common attitude regarding training is summed up in the words, "We cannot train the people we need. Our business is unique. The only way for people to learn our business is to spend two or three years on the job and learn it from the bottom up." In a country where we train physicists to smash atoms and physicians to give us new livers and hearts, it is surprising how many companies believe that their business is unique. Yet the most successful companies in every industry are companies that believe that they can teach virtually anyone their business, given the time, interest and minimum capacity.
If you have been thinking that your's is a business that defies formal training, think about this. The fundamental principle of education is that it is possible to teach the next generation in a few years the essence of what the entire society or world has learned about a subject over many centuries. The fundamental principle of formal training is that it is possible to teach any capable person in a relatively short period of time the knowledge and skills for a job which others have acquired through long years of work experienced-if not completely and 100%, then at least to the point where they will be functionally competent with a minimum of on-the-job experience. Formal training is not only much faster. It is also more complete and comprehensive in scope than learning from experience. When you learn from experience, you only learn about those things which are presented to you, not about all the other problems or solutions that are possible; and you only learn from those who are physically near you, not from all those who have acquired knowledge on the subject who you do not know or cannot meet.
Even on-the-job or apprenticeship training can be much more or less energizing, depending upon how it is done. Many companies look upon a long apprenticeship training as an indispensable tradition, when often it has degenerated into a dead habit. Kennedy and Bowden Machine Co. found that this is exactly what had happened to their apprenticeship training program for toolmakers. "The apprentices were demotivated. They were never given tasks beyond their capacity, which means beyond what they had already done before. They were getting all the grunt jobs that nobody else wanted to do," Ray Kennedy explained. Under heavy pressure to speed up deliveries, Kennedy assigned each apprentice to an experienced toolmaker and asked the toolmaker to provide the apprentice with challenging tasks that were within their level of competence to perform. Kennedy said, "I walked around the shop and was really surprised at the work the apprentices were able to do under supervision. I myself probably would not have had the confidence to assign those tasks to such inexperienced people. But the toolmakers knew what they could do better." The attitude of the apprentices changed dramatically overnight. They felt stimulated and challenged. Employee turnover stopped. The result was a vast increase in the productivity of the shop, a steep fall in overtime costs and better on-time delivery to customers. Kennedy released some of the latent capacity that was in his people all the time.
Buzz Zsitas is chief financial officer at C & J Industries. Recently Buzz stood up in front of a few hundred members of his industry and told them: "You have probably never heard this from a financial person before. But my advice to all of you is to go back to your companies and spend a lot more money on training your people. The returns are really phenomenal." Buzz speaks with conviction, because he speaks from experience. When Harold Corner was engineering C & J's turnaround, he hired a director of human resources and carried out an in depth analysis of the skills required for every job in the company. The director then compared the job requirements with actual skill levels of employees and developed a training needs analysis for each individual. He found that most of the skills needed could be acquired through courses at the local community college at very low cost. This aggressive training program has enabled C & J to grow from 185 to 325 people over the last two years.
In Chapter Seven, we classified corporate values under three different categories according to the dominant type of energy which they release when implemented. Among the physical values are listed cleanliness, orderliness, punctuality, regularity, safety, quality and several others. When an individual or a company focuses intently on the implementation of any of these values, a tremendous amount of physical energy is released.
There is something about cleanliness which defies explanation. With rare exception, companies which sustain high rates of growth and high levels of profit seem to have an obsession with cleanliness. It is not a matter of industry or even country for that matter. We have observed the same phenomenon in India and Indiana, in computer manufacturing and shoe making. Anheuser Busch, Coca-Cola, Disney, DuPont, IBM, Intel, Marriott, McDonald's and Merck are just a few of the companies that have lost all sense of proportion when it comes to cleanliness.
Paul Maestri insisted on cleanliness even back when the company was operating out a trailer and doing repairs under an oak tree. Today you could almost eat off the floors in P.A.M.'s repair shops. The company's 700 trucks and 1,500 trailers are maintained the same way. Everything is immaculate. The same is true of the offices. Everyone is expected to leave their desk clean every night. How do people respond to cleanliness? Nancy Johncox, one of P.A.M.'s four original employees says, "It gives people a sense of pride. It makes the drivers feel like professionals."
"Cleanliness has been a value at Federal Express since the very beginning," says Carole Presley, senior vice president of Marketing and Corporate Communications. "It generates a feeling of security and confidence. You have to work hard at it every day." That effort releases energy.
But even more striking and more inexplicable is what we have observed in companies which make an effort to dramatically improve the level of cleanliness in their facilities. People get energized and money pours in. That is what happened to Listen Up when Walt Stinson ordered a wholesale cleaning of all the company's showrooms, offices and warehouses a few years ago. "The whole company got charged up, energized. And quite unexpectedly we received a lot of money from different sources which we really needed at the time but had not counted on receiving." Sounds ridiculous? Why not try cleaning and see.
Examine any work area where quality is poor, accidents frequently occur or morale is a problem. Chances are it is also dirty. When Iacocca took over at Chrysler, the company's plants were seething with every variety of trouble-labor unrest, gambling, prositution, even a murder. And they were filthy too!
A few years ago we met a consultant who specializes in turning around near bankrupt companies and making them solvent again. What is the very first thing he does when he goes into a new company? He has the entire place painted and made spotlessly clean. Imagine spending precious dollars on painting the walls when creditors are knocking at or down the doors. But it works for him.
Orderliness is another physical value with a great power to energize work and people. Remove a little orderliness and watch what happens. Work gets bogged down and loses momentum. You spend time searching for a file or an object and end up exasperated or exhausted. Add a little orderliness to a chaotic situation and it feels like a breath of fresh air. People relax, cheer up and work flows more smoothly. Orderliness has a greater power than cleanliness, because it requires mental as well as physical effort to put things in a rational order. How many companies have we been in where a sales person cannot find a product brochure for the customer or the service technician cannot locate a repair manual he needs to fix a machine.
An inspector from the U.S. Department of Transportation, who asked the service manager for the maintenance file on one of P.A.M.'s 700 trucks, was virtually speechless with amazement when it was produced in less than thirty seconds from a well-ordered filing system. That is how unusual orderliness is in the companies he visits. "Cleanliness and orderliness help to coordinate work. They are good for morale. They also give a good impression to the customer," says P.A.M.'s manager of vehicle maintenance, Roy Strode. From the office of the chairman and CEO down to the level of the repair shop, from the files to the secretary's drawers and the executive's briefcase, orderliness is hard to come by. Install it where it is absent and energy flows.
Safety is another powerful value that can release abundant physical energy, but which also has the capacity to release higher energies as well. Safety requires a clean and orderly environment, as well as well-timed and disciplined actions. It takes a lot more effort to maintain an accident-free environment than it does to maintain a clean and orderly one, but the resulting release of energy is even greater. One of the strategies that Waltz Brothers employed to energize their company for a quick turn-around was to focus on improving safety in the plant. They established a safety committee, on which every employee in the company was asked to serve for three month periods. The committee got everyone actively involved, brought down the accident rate to almost zero and resulted in lower insurance charges.
Some companies, like P.A.M., have made safety into a real motivator. P.A.M. presents safety awards to drivers who maintain accident-free records. Those that go a year without any accident join an exclusive club called "Randy's Rangers" and get diamond rings. Each additional accident-free year, another diamond is added to it. When new trucks are purchased with more comfortable driver compartments and other improvements, the rangers are first to get them. The most energizing thing about safety is that it says to employees "we care." That releases not only physical energy, but psychological energy as well.
How much energy does your company release in its people by implementing values like cleanliness, orderliness and safety or other physical values? Why not increase the level of commitment and implementation to raise corporate energies to their peak?
Physical energy, material compensation, training on physical skills and implementation of physical values form the foundation. By themselves they can be great sources of energy. Yet by comparison with what lies beyond, they are limited, the least powerful of the hidden potentials of people. But if this foundation is not properly laid, it is difficult for the higher powers to emerge and express in work. Physical energy and skill ensure that the people have the basic capacities needed for work. Fair compensation provides the motive for expressing those capacities in work. Physical values raise pride and precision in work to a far higher level.
But the individual is more than just an animated and intelligent machine functioning independently of others. Each person has a social personality that responds to attention and recognition from others, that cares-whether we admit it or not-what others feel and think about us, that wants to be accepted and appreciated, that is motivated to equal or excel with reference to our peers, that aspires to be more than it was today. Companies that recognize the social needs of their people and create opportunities for the fulfillment of those needs release powerful energies in their people, energies which material incentives alone cannot bring out.
The simplest way to tap these energies is to create an external standard by which people can evaluate their own performance. Regardless of the level of compensation, people like to feel that they possess the competence to a do a good job. Yet surprisingly often they have no clear indication of how they are performing at all, because no one has ever told them or created a measure by which they could assess themselves.
Jerry Kowitz, the owner of Jerry's Audio chain in Phoenix, was quite unsatisfied by the performance of one of his salesmen and took great efforts to try to improve it through training programs and frequent personal discussions. In spite of these efforts, the salesman continued to perform far below the level of his peers. After some time Jerry started posting a list on the bathroom wall every week of the sales made by each sales person. To his great surprise, in a few weeks the poor performer started improving. He rose from the bottom to the middle ranks and then to within the top 25% of the sales force. Perplexed by this sudden change, Jerry called him in and asked for an explanation of his remarkable improvement. The salesman replied: "I was really quite satisfied with my earlier level of performance. I was making enough money to be comfortable. But when you started posting that list, I just could not stand to see my name at the bottom week after week."
Some time ago, Walt Stinson introduced a sales person of the month award at Listen Up. The award consisted of a bonus and a letter from Walt to the salesman's family informing them of what a great job the salesman was doing. For the first nine months the same salesman won the award every month. Then Walt decided that writing home every month to the same family had become a little redundant, so he stopped sending the letters. The salesman later complained how disappointed he was when the letters stopped going home. "You just don't know how much it meant to me and my family to get that letter every month. It made them proud and me happy."
If a list on the wall or a letter home can have that much impact, how much more powerful can be awards and celebration programs that generate widespread social recognition for high achievement. As AMRE grew bigger, management found it more and more difficult to keep in touch with people through informal means. So the company has established a host of social programs to recognize and reward high performance, including a President's Club, plaques and diamond rings for top sales people, awards and prizes for production and administrative personnel. They also go to considerable expense to bring together many employees and their spouses-some 1,300 people last year-from offices around the country once a year for a lavish annual Christmas party.
The recognition and celebrations at AMRE are not just hype. They reflect a basic philosophy and understanding. Bedowitz explains:
"Ideas and organization are worthless without the people to carry them out. People got us to where we are today. People are going to take us to where we will be tomorrow. Our value is to take care of the people...One of the keys to our long term success is that we have fun and we encourage our people to have fun. We look at the better performing offices and see that they are the ones that are having more fun. If the receptionist isn't smiling, we know there is a problem in the office. We try to make sure that everyone has fun. We like to think we are a family."
Entrepreneurs are often the independent type. Some have difficulty appreciating just how important social recognition can be to their employees, little realizing how much they appreciate the nod of recognition from the Board of Directors, the smile of appreciation from their own family members or even a complimentary word from their own subordinates! The power and appeal of that recognition are so great, that every year a good number of highly successful businessmen are lured by it to accept honorary posts as presidents of industrial associations, so that they can tour the country and lobby in Washington without pay on behalf of their own competitors, while their own businesses suffer from neglect back home! That is the power of social recognition.
We referred in Chapter One to the close relationship between the growth of a company and the opportunities which it creates for the growth of its people. Companies that take conscious efforts to help their people grow grow the fastest, the farthest and the longest. Linking personal compensation to corporate profits is one way in which this is accomplished. Creating opportunities for continuous promotion and career development is another.
Federal Express excels at growing people. "I think the best thing we do for our people is the program of promotion from within," says Perkins. "Those promoted from within understand the culture and have been able to grow with the company. There is a tremendous amount of pride. Employees realize that they can achieve their personal objectives by helping the corporation achieve its objectives." The company never looks outside for people until it has conducted an exhaustive search for qualified company employees. More than 85% of the jobs are filled in house.
Searching for talent among 65,000 employees is no easy task. If you visit the Memphis hub late in the night, you will find employees glancing at the bulletin boards which list job opportunities in the Federal Express organization. Any qualified employee is free to apply for any job. The company also has a system called PRISM, which enables a manager to access information about an employee from any computer terminal. Via the terminal, the manager can update employee information or even effect a promotion. The idea is to eliminate the burden of paperwork, which often spoils performance appraisal systems, so proper attention is given to employee career development.
Employee expectations can be a serious bar to proper career planning. How many talented performers are promoted to managerial positions before either they or their supervisors realize that their talent for sales or production does not necessarily mean that they have the talent to make good managers. To minimize this problem, Federal Express offers a course on what it is like to be a manager. Any aspirant to a management position can take the course and decide if being a manager is really what they want. After taking the course, some decide that it is not, and save both themselves and the company frustration down the line. Even if the path to management is barred, there are always opportunities in other departments. In fact, Federal Express sometimes moves people around to introduce variety and reduce the burnout from job monotony. Customer service agents can apply for anything from an hour a day up to two years full-time work in other departments for a change of pace.
Organizational Values & Skills
Organizational values such as teamwork and communication bring out higher level energies, both because they demand considerably greater effort and skill to establish and maintain and because they appeal to deeper seated sentiments in people and generate more intense satisfaction. The effort required to implement physical values is partially physical, i.e. based on hard work, and partially organizational, i.e. based on discipline, systematic functioning, coordination, etc. The skills required are also partly physical-knowing how to clean a window without leaving streaks or how to properly design and manufacturer a product for quality and reliability and partly organizational-knowing how to organize information or design an effective system.
By comparison, the effort required to implement organizational values is primarily organizational or social-dealing with groups of objects, activities, departments, systems and people. It is also partially psychological-instructing, guiding and motivating people. The skills required for implementing organizational values are of a higher order. They are not only organizational, but also interpersonal and psychological, for example giving a suggestion, receiving an instruction, and understanding people's attitudes and motives, and the dynamics of group interactions.
Implementing organizational values is also more rewarding and enjoyable. When communication and cooperation between people, departments and levels of the company are better, people feel closer, more united and harmonious, more secure and more identified with the organization. These values touch deeper springs of energy in people and generate greater intensity.
Implementing organizational values has the power to release and channel great energy, regardless of how large or how small your business may be. John Stoneback, CEO of J & M Incorporated in Cleveland, is a zealous proponent of teamwork. John founded this precision machining company 23 years ago. Until three years ago, J & M had sales of just a few hundred thousand dollars a year, but was profitable enough to make John quite comfortable. Then John's daughter and son-in-law joined the company and suddenly the little nest egg was not big enough any more. So John decided to grow his company. One of the main instruments he used was teamwork.
Stoneback implemented teamwork through all the five stages outlined in the previous chapter. First, he made teamwork the first and highest priority-commitment. He got all his people involved in improving the company and working together in partnership-structure. He introduced a profit sharing plan that gave his employees a concrete sense of ownership in the company and a 40% share of the company's net income. He also conducted a survey asking his people to rate each other on their spirit of cooperation-systems. He drew up a plan to develop the interpersonal skills of every manager and supervisor and conducted training programs on team building. As a result of all these efforts, absenteeism decreased dramatically, while productivity, quality and on-time delivery improved. Over the last three years his company has grown 5.5 times in size to $1.5 million and has business in hand that could double its size again over the next two years.
Bill Hockenberger is president of Precision Grinding and Manufacturing Corporation in Rochester, New York, a $10 million company with 125 employees. Over a three year period Bill struggled to put together a management team that really worked. In the process he made three separate attempts to bring in people who could work together and he failed three times. Finally he hired two psychologists to assist him with the task of building a solid management team. They started working with the management team and later extended it to include other managers and supervisors. Bill believes that this successful effort is directly responsible for his company's 25% increase in revenues and 50% increase in profits over the last one year.
Teamwork was also the engine that propelled the growth of Elizabeth Carbide over the last one year. The company employees 170 people and has sales of $13 million. In recent years it opened several new production plants. A year ago, owner Rich Pagliari became concerned that the growth was having a negative impact on morale and people relationships. "As you get bigger, communication becomes a problem," says Pagliari. So he sent 21 managers and supervisors to a Dale Carnegie course on team building and made efforts to improve communication and cooperation within and between his three plants. During the year his company's sales and profits both grew by another 25%. Pagliari attributes it directly to the team building effort.
All the evidence suggests that high levels of teamwork and rapid growth go together. In our survey of U.S. companies cited earlier, high energy and high levels of teamwork were the two most common characteristics reported during periods of rapid growth. In addition, 76% of companies surveyed reported that during the period when teamwork and cooperation were at peak levels in their company, the company was also growing very rapidly. In other words, teamwork is not just a characteristic of rapid growth, it can generate that growth.
Communication and teamwork go together. They are both powerful energizers. Communication is a key value at Federal Express, where a corporate television network-system-has been established to facilitate rapid and direct communication between top management and every employee of the company about new products, competitive information, policies, plans, etc. One feature of each 30 minute to one hour TV show is a live phone-in segment in which employees' questions and comments are answered by senior executives-structure. There are also daily 5 to 7 minute newscasts that relate current company news. Fred Smith explains the company's commitment to communication this way.
"We try to empower our employees by keeping them well-informed. But just as importantly, by listening to them. We've found that they have really terrific ideas about ways to improve productivity in their jobs, and about shaping policies that affect them. But we've also found that the company must provide the opportunity for employee input or we'll never benefit from it. So we've developed a variety of channels for listening to our employees."
For example, Federal Express conducts an annual employee attitude survey, which is a vital tool for helping managers surface potential problems in their work groups. Within six weeks after survey results are distributed, managers must meet with their staff and develop an action plan for dealing with every problem. Problems surface and problems are solved through survey feedback. The company's Guaranteed Fair Treatment policy is also designed for surfacing employee grievances. Any employee that is not satisfied by the response of his supervisor can pursue a path of appeal that ultimately leads to Fred Smith. Smith and Barksdale meet every week to review cases, many of which are referred to a board of review composed of the employee's own peers and empowered with the authority to overturn management decisions.
In-house studies at Federal Express have shown that employee morale is directly linked with quality of service. Stations with the highest service performance records are those which have high morale, low absenteeism and few accidents.
Real communication takes place only when people fully understand the why and wherefore for the instructions they receive and are given an opportunity to respond with questions or comments. At Federal Express "We explain to our employees why we do things," Perkins says. "Our employees understand and are motivated beyond the point where they perform activities just because the boss said do it. They understand why they are asked to do something."
The Mirror Approach
When Paul Maestri came back to restore the values at P.A.M., communication was at the center of his strategy. He reopened the direct lines of communication with his drivers and made himself personally accessible to deal with serious grievances. But even more important, he took steps to institutionalize this value at lower levels of the company through appropriate standards, structures, systems and skills.
Maestri selected a new operations manager, Randy Berry, who was a very embodiment of the values Maestri believed in, particularly the value of teamwork. Berry understood the importance of listening to the drivers and started out by conducting training programs for all P.A.M. dispatchers to teach them the importance of listening and to provide them with the skills to do it effectively. For 30 to 60 days at a time, the drivers' only link with the company is over the phone. So Berry trained the dispatchers to listen carefully to the drivers' tone of voice and mood on the phone. Whenever the dispatchers detect the slightest problem, they have been trained to ask the drivers whether they need any help. Berry explains:
"You have to be a good listener. You have to listen to hear-not listen to argue. When we lost that approach for ten months, we had no lateral control of the the drivers. The new management pressed the dispatchers for higher volumes and didn't care about the people-only the results. We weren't picking up and delivering on time. Driver morale went down and turnover increased. The dispatchers were not routing the drivers to ensure that they got home to their families every three weeks. The dispatchers were not relating to the drivers as people. I told the dispatchers to treat the drivers the way you would want to be treated yourself. Earn their respect. The general attitude of the drivers to the customers depends on how he feels about the company. Its a mirror image. The best way we can service our customers and be on time is to treat drivers well and see they feel good about P.A.M."
Berry also changed the structure of his department, assigning each driver to a specific dispatcher regardless of which territory the driver moved through, instead of shifting responsibility from one dispatcher to another as the drivers moved to different parts of the country. This fostered closer and more personal ties. In addition to defining a clear structure of responsibility and accountability from the dispatcher all the way to Maestri and to imparting the skills needed to make it work, P.A.M. also put in new systems to foster better communication. A voice mail system enables drivers to call in and leave or receive messages without tieing up their time on the phone waiting for their dispatcher to be available. The result of focusing on teamwork and communication has been a dramatic reduction in P.A.M.'s problems and a fresh burst of energy and rapid growth.
THE HIGHER POWERS
The first six strategies have focused on releasing the physical and social energies in our people for maximum productivity and involvement in work. We now come to the third and highest category, strategies designed to bring out the psychological energies of every individual and encourage each of them to grow personally through their work. These strategies have the power to take any company to the top of its field and keep it there for decades.
Individuals are more than just physical workers or members of the group. They each possess their own unique talents, capacities, skills, aspirations, values, ideas, attitudes and feelings. The truly people-oriented company is not the one that treats everyone alike, even in a family sort of way. It is the company that recognizes the uniqueness of every person and provides ample opportunities for each individual to express that uniqueness creatively in their work-for their personal growth and for the growth of the company.
Recruiting for Higher Capacities
Recruiting people with good physical health and energy energizes the company's physical operations. Recruiting people with cheerful, expansive, outgoing personalities and good interpersonal skills energizes the company's relationships with its customers and vendors and relationships between people and departments within the corporation. Recruiting people with higher levels of education and mental energy energizes the company's creative activities in research, marketing, strategic thinking, organizational development, and other areas of innovation.
It is true that only a small part of what is taught or learned in college has even the faintest application in business. But it is also true that education builds up the personality of the individual. Mental training in critical analysis of problems, exposure to a phenomenal range of information on a wide variety of subjects, stimulation and development of mental faculties by the effort to learn, and development of skills acquired for oral and written communication of ideas and information broaden the scope and intensify the energy of personality of the educated person. Therefore, recruiting for education, even when it does not bring with it greater practical knowledge or job-related information, almost always brings greater capacity of the person for understanding, problem-solving, adaptability to change and personal growth. These are great resources.
Many companies recognize the irreplaceable contribution of education to the capacities of their people and encourage their employees to continuously seek further and higher levels of education throughout their careers. One medical representative we interviewed at Merck, Sharp & Dohme was in the process of acquiring his third masters degree since joining the company. AMRE not only encourages education, but has made it in some sense mandatory for its sales force. Every sales person is required to read at least one book a month and submit a summary of it to management.
Unfortunately, not too many CEOs act on their own understanding of the importance of continuing education. Yet, those who do have acknowledged it as among the most important management decisions they have made. When Listen Up started to grow explosively, Walt Stinson realized that the business was growing beyond his capacities to manage. He took a decision which perhaps very few could bring themselves to. He decided that however much it might slow down the company's short term growth, he was going to take time off to complement his technical background with an MBA, so that in the long run he would be able to keep growing as the company grew. After completing the MBA, Walt commented that, apart from proposing to his wife, it was the best decision he ever made.
Many other executives have expressed similar sentiments about their decision to attend a course to augment their knowledge and skills. Buzz Jensen, founder of Sound Advice in Phoenix, was feeling intimidated by the numbers on his company's balance sheet, because he did not have any formal training in accounting. So he enrolled in a night school course on accounting for non-financial people and felt absolutely exhilarated by the sense of competence and accomplishment it gave him. Gary Ross, Chairman of Ross Incineration Services, and Bill Cromling, President of Ross Transportation, expressed similar feelings after enrolling in a Dale Carnegie course to help them improve their interpersonal skills and ability to communicate with their people.
Generalizations risk sounding simplistic or self-evident, but our observation of fast growing companies prompts us to make one. Companies which are able to grow rapidly and sustain high rates of growth for considerable periods of time are companies managed by people who have been through it all before. Companies which encounter innumerable problems in the course of their growth are usually those who are unable to anticipate the demands of growth and provide for them in advance, because management lacks the previous experience to know what is coming.
Before founding AMRE, Steve Bedowitz worked for one of the largest construction companies in Texas and ran his own advertising agency, which gave him a broad exposure to the operations and problems of other growth companies. Robert Levin came as a CPA with nine years experience in the wholesale end of the home improvements business, which gave him a good understanding of inventory management and financial controls. This experience has enabled them to visualize the company's future growth, anticipate its needs in advance and act to provide for them in time.
In 1985 when Bedowitz and Levin saw that business would double in a short period of time, during a slow period they decided to put in the next layer of management they would need six months down the line. If they had not done so, they figure they would have lost one year's growth. At the time of our visit to the company, they had recently recruited a new manager to head up the introduction of a new product group before the product had even been identified and at least half a year before it would be introduced into the market. That is the value of the experience they gained before starting the company.
Both education and experience have their place. The best strategy is to recruit for education and experience wherever both are available; recruit for experience first wherever you desperately need it to get started or sustain growth; and recruit for education first wherever you are building for a bigger and better future.
Managerial & Psychological Skills
To be an effective manager you have to understand people and how to motivate them. You have to understand organization and how to develop it. In fact, you have to understand all five components of the company-how they work, how they interact with and depend on each other, and how they can be energized. How many managers really qualify for their jobs on these criteria?
Many talented sales people have been promoted to managerial positions, because they were the best in sales. Many engineers have been promoted to become managers of R & D or production, because they were technical experts. Many accountants have become controllers and even chief financial officers, because they were excellent accountants. Many senior executives have reached their positions, because they have been with the company for a long time and know all about its operations. All of these people may possess a high level of knowledge and technical skill in their particular fields of specialization. But what exactly does being a dynamic sales person, a talented designer, a good production engineer, a brilliant accountant or a long time employee have to do with understanding and motivating people? The same applies even to the CEO. On many occasions in the privacy of an executive office, we have heard CEOs ask questions like "What is my job?" and "Am I really qualified to run this company?" and "How do I learn how to be a good CEO?"
Regardless of whether it is the job of the production superintendent or the sales manager or the CEO, being a manager requires a wide range of skills that are not physical or technical in nature. A manager needs a host of mental and psychological skills like planning, prioritizing, analyzing and solving problems, goal setting, scheduling, exercising authority, decision-making, time management, seeing work from a wider perspective, listening, coordination, understanding and judging people, which he or she may have acquired in the course of his specialized job or through long experience, but equally likely not at all. That is why IBM requires every manager in the company, including senior executives heading large divisions, to undergo a minimum of 40 hours a year of non-technical training in interpersonal and managerial skills.
John Kaiser of Expeditors International has recognized the challenge which he and his company face as it continues to grow:
It is difficult to find well-trained professionals in this industry. We try to educate our people and ourselves. We've tried to broaden our horizons. Our challenge is not to know the business better, but to manage it better. We are very much aware of a need for greater managerial sophistication. I am not sure that our present staff could run a $500 million company. We hope that as managers we will be able to grow. If you are top management, you have no one to nurture you. Possibly some of our younger managers have a better chance at running the company as a $500 million business, because they have formal education. When you get this big, it may be necessary to have both experience and education."
Earlier we cited several examples to document the obvious importance of experience in managing a business. But what happens, as in Expeditor's case, if experienced people are not available in your company's specialized field or in the numbers required to fuel further growth? Our response is-if you cannot find experience, create it!
Accelerated Management Development
Small entrepreneurial companies suffer from a perpetual shortage of skilled and experienced managers to fill the new positions they create as they grow. Fast growing mid-sized companies are continuously hampered and constrained by a lack of talented managers to fill their growing ranks. Nor does this situation exist only in companies up to a few hundred million dollars in size. Among the largest and most admired companies in the U.S., there are many whose single greatest limitation to growth is a shortage of competent managers. Yet despite this fact, surprisingly few, even today, act on the truth which IBM proved half a century ago-any capable individual can be made into a competent manager through appropriate training.
Suppose just for a moment that every managerial position in your company could be filled by a person with the managerial competence of the CEO or senior executives? What would that do to the performance of your business? What would be the impact on product quality? service? punctuality? morale? decision-making? revenues? profitability? Where would your company be today and a year from now if it possessed managerial expertise of that calibre? Think about it.
These questions are not as academic or utopian as they may at first seem. Ask yourself, what is the difference between a highly experience senior executive and a young, well-educated MBA occupying a junior managerial position in sales, marketing or product development? What does the experienced person have which the others lack? Three things: information, skill and values. The experienced senior executive has acquired a tremendous amount of information about the industry, the history of the company, competitors, technology and the like. The experienced person has also by sheer efflux of time and practice acquired a range of skills in understanding, communicating and motivating people, analyzing and resolving problems, managing time and materials, etc. Finally and most importantly, over the course of many years the executive has learned by experience the importance of corporate values like cleanliness, orderliness, punctuality, systematic functioning, coordination, respect for the individual, integrity, and so forth.
The question is whether these qualifications of the senior executive can be acquired all or in part through formal training. Information? Most certainly. Our entire educational system is geared up to cram us brim full of information, relevant or irrelevant, on virtually any subject under the sun. Just because the information which the senior executive possesses is not taught in any business school, does not mean it cannot be taught formally by the company itself. Skills? Most surely. If physicians can learn how to operate on the brain in medical school and aspiring actors and actresses can learn how to feign any emotion in drama classes, then basic managerial skills like problem-solving, planning, decision-making, delegating, giving instructions, negotiating and managing time can be acquired through formal training-and they are by many people. Then what about corporate values? Definitely. Cultural and social values have been taught for millennia at home and by the church. The importance of corporate values like cleanliness, speed, teamwork and service are being taught every day-only not to everyone, and not systematically.
Now suppose every young manager in your company could acquire in a year or even two the information, skills and values possessed by your senior executives to the extent of 90%, 80% or even 70%. How much more efficient, dynamic, energetic and profitable would your company be? How much greater would be its potentials for growth in the immediate future? Certainly to speak of a mere doubling or tripling of sales or profits grossly underestimates the potential this represents for most companies. Yet, the cost and effort required to build up that competence is well within the means of most companies to accomplish at their level. And if they do, they will certainly not be at that same level very long.
This is the guiding principle behind Federal Express's management development programs, which it first introduced in 1976, and the Leadership Institute which the company established to accelerate the development of managers to keep pace with the growth of the company. Federal Express has even conducted research to determine the profile of the successful manager and leader in its corporate environment. This program has enabled the company to promote relatively young managers to vice-presidential positions.
Pygmalion Effect: The Power of Attitude
Education, experience, managerial and psychological skills are tremendous strengths. Yet as great as these powers are, every CEO, every executive, every manager and supervisor possesses a capacity infinitely more powerful, which they can utilize without cost any time they choose or all the time, if they choose. This capacity by itself is enough to energize any business to double its performance. It is the power of personal attention.
Educators and psychologists have given a lot of thought and study to this power, because it is so important to the process of learning and personal development. They have even coined a phrase to describe it, the Pygmalion Effect. The name is derived from George Bernard Shaw's play, Pygmalion, which formed the basis for the Broadway musical My Fair Lady. In the play, two linguistic experts, Professor Higgins and Colonel Pickering, successfully undertake an experiment to instruct a poor common flower girl, Eliza Doolittle, how to speak and conduct herself as a lady and member of the aristocracy. After the miraculous transformation has taken place, Eliza remarks with some bitterness to Colonel Pickering:
The difference between a lady and a flower girl is not how she behaves, but how she's treated. I shall always be a flower girl to Professor Higgins, because he treats me as a flower girl and always will, but I know I can be a lady to you, because you always treat me as a lady and always will.20
In other words, our attitude and attention have the power to create in other people or bring forth from them capacities no one ever imagined they possess.
About 25 years ago two social scientists conducted an experiment in an elementary school to test for the Pygmalion Effect. They told the teachers in the school that they had developed a test which could identify late bloomers, poor performing students with a high aptitude who would flower as high performers in later years. Actually the test was a measure of IQ. At the beginning of the school year, they administered the test, went back to their offices and randomly selected the names of 20% of the students in each class. Then they informed the teachers that these students were late bloomers. Eight months later they went back and measured the IQ of the students again. Guess which students showed the largest increase in IQ? Those whom the teachers had been told were late bloomers.
This experiment shows that the expectations or attitude of the teacher toward the students had a significant impact on the students' performance and even on their intelligence! Over the last quarter century, the same experiment has been administered in many different settings, including a training institute for welders in Sweden. Here the instructors were informed that their test would identify students with an innate talent for welding! Sure enough at the end of the year, the students which had been randomly identified had made the most progress.
If the power of attention can raise the IQ of young students and improve the skill of welders, it can improve the performance of every employee in your company. You as a manager, as an individual, possess that power and can exercise it to bring out the hidden potentials and develop the capacities of your people. Your managers and their subordinates also possess that power and can in turn use it to help their own people flower. In fact, if you look closely at companies that continue to perform at high levels year after year, you will find that these are companies which knowingly or unknowingly believe in the power of attention and encourage their managers to shower it on their people for the growth of those people and the growth of the company.
Federal Express's Karl Birkholz describes just such an attitude: "One thing that has helped us throughout all this pressure of rapid growth has been an undying dedication to making sure we pay attention to the needs of our people... You have to teach your managers to know your people. The better you know them, the better you can motivate them. That is the manager's job." Jim Reidmeyer, former senior vice president of Air Operations, put it this way: "My job is to make sure that everyone who works for me is successful."
But you may say, I am always and forever giving attention to my employees. True, but there is a subtle and important distinction that should be made between taking interest in employees for the sake of accomplishing work and taking interest in them for their own sake as individuals. That is the difference between social recognition and personal attention and the reason why personal attention is so much more powerful. Far greater power emerges when we shift the focus from the work to the individual and shift the motive from getting things done to just plain giving attention to another human being. Attitudes have extraordinary power. Changing an attitude can release phenomenal energy.
Every industry and every economy goes through phases of growth and recession. Most every company goes through similar phases of expansion and contraction or leveling, and the large majority disappear after some time. Based on past trends, out of every 100 companies started this year, less than 20% will still be in business five years from now; and of those 20%, only 20% will be in business five years later.
Yet despite these facts, there are companies that not only survive Great Depressions, major and minor recessions, economic cycles for the nation and their industry, but continue to grow through it all, year after year, decade after decade, even when their industry is taking a tail spin or the economy is in a dive. That is because these companies have succeeded in tapping and releasing some of the deepest springs of human energy-the energy generated by commitment to psychological values like respect for the individual, personal growth, harmony and service to society.
In 1932 when 25% of the workforce was unemployed and companies were casting off workers as unwanted liabilities, Tom Watson made a commitment to every IBM employee guaranteeing them their jobs as long as the company remained afloat. That commitment to a high corporate value powerfully energized people throughout the company from the production floor to the sales counter and drove the growth of IBM from fifth to first place in its industry within seven years . Respect for and commitment to the individual are so powerful.
Even more powerful is commitment to the value of personal growth for your people. Much of what we have been discussing in the last part of this chapter relates to the personal growth and development of people, not so much in the external sense of the term-which is commonly understood as increased compensation and promotions-but in a deeper, more inward sense-which relates to the development of their physical, social, mental and emotional capacities.
Personal growth of this description occurs all the time in work. It takes place unconsciously and very gradually. Each new experience, positive or negative, broadens and deepens the personality. Each new skill acquired increases our sense of competence and self-esteem. But this unconscious process is usually so slow and sporadic that the amount of energy generated is not significant. The process can be accelerated and magnified by a conscious corporate effort and programs, so that individuals are continuously acquiring new mental and psychological skills, being exposed to new learning experiences, and being given opportunities to grow by taking on challenging responsibilities like Dave Gray at Nedlloyd.
Unleashing the Creative Powers of Individuality
In this chapter we have been examining strategies to release people's physical, social, emotional and mental energies in work. The greatest of these energies is the inner urge or aspiration in each person to develop his or her own unique individuality. It is that energy which provides the driving force for the entrepreneurial spirit that has made this nation so creative and productive. Presently organizations are so structured that one or a few people at the top release the creative energies of their individuality, while tens, hundreds or thousands of other people are only permitted or encouraged to express the lesser energies of their personalities.
Imagine, what would be impact on your company if these creative energies, which lie within every person, could be released in all or many of those who presently follow the dictates and execute the inspiration of one or a few leaders? Then instead of the company being propelled forward by the force of a few people at the top, it could develop 10, 100 or a 1000 engines of growth powerful enough to propel it to 10, 100 or 1,000 times its present size. That possibility is the essential truth behind the concept of "intrapreneurship"-creating entrepreneurs within corporations-but so far it is more an idea and far less a reality in American enterprise.
The keys for that achievement are right attitude and freedom. The attitude required is one of genuine, deep appreciation for the incredible creativity and resourcefulness of the human being and the willingness to give people the freedom to express that endowment. Individuality can only flower in an atmosphere of freedom. Companies that function from above downward through authority may be very efficient, but they can never match the vitality and intensity of a company that releases even a little of this ultimate power. Glimpses of this power can be seen in companies like Apple Computers during the first flush of their growth. Any company that succeeds-even to a small degree-in sustaining an atmosphere where every individual has an opportunity to flower can plan to double itself, not once or on occasion, but double every year.
ACTION PLAN FOR ENERGIZING PEOPLE
Use the strategies listed below to develop action plans to unleash the powers of your people. Estimate the impact which these actions will have on your company's revenues and profits over the next three years.