Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today (9 page)

Y
our question is sort of like asking, “Are doctors good or bad?” The answer is, some are good and some are bad—but either way, you want to spend as little time with them as you can.

Look, the problem with consultants is they’re fundamentally (if surreptitiously) at loggerheads with the managers they want to work for. Consultants want to come into a company, solve its mess, and then hang around finding and solving other messes—
forever.
Managers want consultants to come in, solve their specific problem fast, and get out, also forever. The tension between these conflicting goals is what makes the use of consultants intractably problematic.

There are, of course, situations when consultants are useful. Sometimes a company needs fresh eyes to assess an old strategy or a new product. Sometimes a company simply does not have the in-house skills needed to make an informed decision. Private equity firms today, for example, use consultants very effectively to quickly evaluate the markets and industries of potential acquisitions.

But the byword with consultants is “Be careful.” Before you know it, they could be doing the ongoing work of your business. After all, that’s what they want, even if you don’t.

S
ince you’re from Silicon Valley, it seems to us that you probably know the answer to your question: the survival game stinks, perhaps no place more than the technology sector. In fact, sticking it out in a low-growth technology business is a fast road to commodity hell, where you will be forced to endure a painful eternity of low-cost slugfests with offshore manufacturers. What a way
not
to go.

Clearly, then, you would be better off finding a new area where you and your team can grow and flourish.

It appears your company has a business model where survival, at least for the foreseeable future, is an option. That’s good news. It means your immediate challenge will be harvesting the living daylights out of what you have to keep the cash flow coming. Meanwhile, you can figure out the new game, allocating the resources to acquire a business or start one from scratch.

Now, none of this may seem particularly easy or particularly pleasant—exiting a business rarely is—but you can take solace in knowing that your situation is entirely common. The environment starts to change under your feet, and suddenly your business doesn’t make that much sense anymore. This happens every day, all over the world, not just in entrepreneurial start-ups. In fact, it’s particularly common at older, established companies, where new competitive dynamics emerge seemingly out of nowhere to upend the status quo. Unfortunately, all too often in these big companies, certain businesses have become such shrines that managers do not react with the kind of clear-eyed realism that your letter suggests.

Look, change requires leaders to overcome all sorts of completely human dynamics, like inertia, fondness for tradition, and hopefulness that things will get better. But strategic moments require a kind of courage, or at least a lack of sentimentality, which is rare. It is in these moments that the best leaders find a mirror and ask the defining question that the late, great Peter Drucker posed nearly fifty years ago: “If you weren’t already in your business, would you enter it today?” If the answer was no, Drucker said, you needed to face into a second tough question: “What are you going to do about it?” Every leader today should heed his advice and, if need be, follow it through to its conclusion, whether it is to fix, sell, or close the business.

Congratulations for having done that already. Your decision may be tough in the short run, but it will ultimately release your people from a losing work environment and give them a chance to find a future filled with opportunities, perhaps even with your new venture.

E
very type of business, not to mention every type of manager, has a different set of vital statistics that really matter. For manufacturing people, it could be inventory turns, on-time delivery, and unit cost. For marketing people, it could be new account closings, market share, and sales growth. For call center managers, it could be time to answer, the number of dropped calls, and employee retention.

But if you’re running a business, whether it’s a corner store or a multiproduct multinational, we’d say there are three key indicators that really work: employee engagement, customer satisfaction, and cash flow.

These measurements won’t tell you everything you need to know, but close to it. They get right to the guts of a company’s overall performance, now and in the future.

Employee engagement first. It goes without saying that no company, small or large, can win over time without energized employees who believe in the mission and understand how to achieve it. That’s why you need to test for employee engagement at least once a year in anonymous surveys where people feel completely safe to speak their minds.

But watch out. Do not fall into the common trap of letting these surveys devolve into the little stuff, with questions about the quality of food in the company cafeteria or the availability of parking spaces in the company lot. The best, most meaningful employee engagement surveys are a world apart from that. They probe how employees feel about the strategic direction of the company and the quality of their career opportunities. They ask, “Do you believe the company has a set of goals that people fully grasp, accept, and support?” and “Do you feel the company cares about you and that you have been given the opportunity to grow?” and “Do you feel that your everyday work is connected to what company leaders say in their speeches and in the annual report?”

Basically, the best employee engagement surveys are getting at one question: “Are we all on the same team here?”

Of course, growth is the key to long-term viability, which is why customer satisfaction is the second vital sign for general managers. Again, this measurement can be obtained by surveys, but those are rarely enough to give you the gritty data you need for a real read of the situation. No, you need to make visits. And don’t just go chat with your “good” customers. Go to see the most difficult, the ones whose orders are inconsistent or dropping. Go to see the ones your salespeople don’t like to see themselves.

Make these visits about learning. Find a dozen ways to ask, “What can we do better?” And don’t leave without finding out if each customer would recommend your products or services. That’s the acid test of customer satisfaction.

Finally, there’s cash flow, which is valuable because it just does not lie. All your other P & L numbers, like net income, have some art to them. They’ve been massaged through the accounting process, which is filled with assumptions. But free cash flow tells you the true condition of the business. It gives you a sense of your maneuver-ability—whether you can return cash to shareholders, pay down debt, or borrow more to grow faster, or any combination of these options. Cash flow, basically, helps you understand and control your destiny.

Without doubt, there are plenty of measurements that give you a pulse of your business. But if you have employee engagement, customer satisfaction, and cash flow right, you can be sure your company is healthy—and well on the way to winning.

B
ecause at too many companies, unfortunately, HR gets it wrong—either operating as a cloak-and-dagger society or a health-and-happiness sideshow. Those are extremes, of course, but if there is anything we have learned over the past five years of traveling, it is that HR rarely functions as HR should.

That’s an outrage, made only more so by the fact that most leaders aren’t scrambling to fix it.

Point blank: HR should be every single company’s killer app. What could possibly be more important than who gets hired, developed, promoted, or moved out the door? After all, business is a game, and as with all games, the team that puts the best people on the field and gets them playing together wins. It’s that simple.

You would never know that, though, to look at the companies today where the CFO reigns supreme and HR is relegated to the background. It just doesn’t make sense. If you owned the Red Sox, for instance, would you hang around with the team accountant or the director of player personnel? Sure, the accountant can tell you the financials. But the director of player personnel knows what it takes to win: how good each player is and where to find strong recruits to fill talent gaps.

That’s what HR should be all about.

And as you point out, it’s usually not.

That was never as painfully clear to us as it was several years ago when we spoke to five thousand HR professionals in Mexico City. At one point, we asked the audience, “How many of you work at companies where the CEO gives HR a seat at the table equal to that of the CFO?” After an awkward silence, fewer than fifty people raised their hands. Awful!

Since then, we’ve tried to understand why HR has become so marginalized, and as noted above, there are at least two poles of bad behavior. The cloak-and-dagger stuff occurs when HR managers become stealthy little kingmakers, making and breaking careers, sometimes not even at the CEO’s behest. These HR departments can indeed be powerful but often in a detrimental way, prompting the best people to leave just to get away from the palace intrigue of it all. Just as often, though, you get the other extreme: HR departments that plan picnics, put out the plant newsletter, and generally drive everyone crazy by enforcing rules and regulations that appear to have no purpose other than to increase bureaucracy. They derive the little power they have by being the “You can’t do that” police.

So, how do leaders fix this mess?

It all starts with the people they appoint to run HR—not kingmakers or cops but big leaguers, people with real stature and credibility. In fact, they need to fill HR with a special kind of hybrid: people who are one part pastor, hearing all sins and complaints without recrimination, and one part parent, loving and nurturing but giving it to you straight when you’re off track. Pastor-parent types can rise through HR, but more often than not, they have run something during their careers, such as a factory or a function. They
get
the business—its inner workings, its history and tensions, the hidden hierarchies in people’s minds. They are known to be relentlessly candid, even when the message is hard, and hold confidences tight. Indeed, with their insight and integrity, pastor-parents earn the trust of the organization.

But pastor-parents don’t just sit around making people feel warm and fuzzy. They make the company better, first and foremost by overseeing a rigorous appraisal and evaluation system that lets every person in the organization know where he or she stands, and monitoring that system with the same intensity of Sarbanes-Oxley compliance.

Leaders should also make sure that HR fulfills two other roles. It should create effective mechanisms, such as money, recognition, and training, to motivate and retain people. And it should spur organizations to face into their most charged relationships, such as those with unions, individuals who are no longer delivering results, or stars who are becoming problematic by, for instance, swelling instead of growing.

Now, given your negative experience with HR—and you are hardly alone—this kind of high-impact HR activity probably sounds like a pipe dream. But given the fact that most CEOs loudly proclaim that people are their “biggest asset,” it shouldn’t be.

It can’t be. Leaders need to put their money where their mouth is and get HR do its real job: elevating people management to the same level of professionalism and integrity as financial management.

Since people are the whole game, what could be more important?