Under the chancellor's cosh

One of my clients wanted to discuss how to deal with the recent changes to NI and the minimum wage.  The direct impact in their SME is going to be about £50k pa off the bottom line before any increase in supplier costs is included.

We talked about operational and strategic changes that could help offset this.

We had already discusssed the operational changes in our work together to improve productivity, but the budget definitely sharpened their focus:

• Offshoring functions that can be easily defined and easily measured - PPC and other online marketing is an example, and they will move more of this to lower-cost countries.
• Clarifying, documenting and measuring processes.  Just doing this will improve productivity even before reviews, coaching and process improvements are added.
• Actively pushing prices.  They have good systems that allow them to track the impact of this on sales.
• Improving their prioritisation of system development by assessing each change against its current-year impact on net profit and making sure those benefits are quantified and managed.
• Continuing to manage salespeople up or out.
• Reducing current-year pay awards where possible (bearing in mind the long-term implications of this)
• Communicating with employees.

Strategically we talked about two possible responses:

• Selling additional, related, products to existing accounts.  This needs to be done with care if they are not to lose their carefully-crafted space in the minds of buyers.
• Designing, from the ground up, a new channel to sell their core products that has much lower, and fixed, labour costs.  They will need to be alert to cannibalising their existing market and they will need to be confident that they can sustain an advantage in what is likely to be a price-based channel.

Of course in the back of my mind during the conversation was the thought that they should have been progressing all of these things more quickly anyway.  However, most business owners are always beset by too many demands on their time, and humans generally respond more urgently to threat than opportunity.  Being coshed by the chancellor was definitely seen as the former.

If you want to learn more about improving productivity in your SME then maybe you should attend one of these events.

Quick - everyone back to the office!

Recent moves by several large employers to eliminate home working are interesting.  These are big companies, with highly-paid CEOs, lots of well-trained managers and loads of data.  Some of them even advise other organisations on how to run their businesses.

So they must be right, then?  Remote working reduces productivity?

An article by Anita Lettink summarises research that shows it's not that simple.  Broadly, fully remote working is less productive whilst hybrid working and FTO (full time office) work are comparable.

So productivity won't change if I force my staff back to the office then?  Not so fast; research by Liverpool John Moores University and others shows that doing this will reduce productivity and increase staff attrition.  It is seen as a reduction in conditions and, unsurprisingly, this leads to resentment.

The argument from the return-to-office advocates is that people must be together in order to develop or ingest the culture, spark ideas and improve communication.  It is not clear to me that having five days to do this is going to be any more effective than having three days to do it.  In fact, if an employee spends forty hours absorbing culture, generating ideas and talking to other employees when do they actually do any work?  If I cast my mind back to when I last worked in an office I can remember having a lot of fun and a lot of meetings - but most of the hard yards were achieved with the door shut or on a customer's site.

It seems to me that the two fundamental reasons underlying this forcing people back to the office full time are:

• Trust, or rather, a lack of it.
• A management mindset based on the number of hours worked and the ability to interfere, instead of one based on clear purpose, empowerment and measurable outcomes (which takes a bit more effort)

So why are all these highly-paid CEOs pursuing this course?  Perhaps because the capabilities required to become a highly-paid CEO don't include anything to do with getting the best from your employees.

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The last thing the UK needs is a 4-day week.

The election result has produced renewed interest in a 4-day week.  The results of trials show that output was maintained at 5-day levels for most organisations that took part, resulting in many of them making the change permanent.  A key point in these trials is that the reduced working hours do not result in reduced pay; this is a one-way bet for employees rather than some work-life balance trade-off they are making.  Hardly surprising then that employees were keen to make a success of it.

The trials were over a short period and very recent, so what the results don't show is whether the benefits are permanent or, as I suspect, temporary.

The big hairy assumption underlying the trials is that there is some immovable curve, some fundamental natural link, between the length of the working week and employee productivity and that organisations are on the wrong part of this curve (5 days) and will achieve better overall productivity if they move to the right part (4 days).  See the figure "Increased Prooductivity Offsets Reduced Hours" below.

But what if the true level of productivity is not set, or even heavily influenced, by the length of the working week?  What if it is set by, say, how much of a dickhead your boss is?  Or how useless your computer systems are?  Or how stressful the daily commute is?  Or how flawed your product?  Or how many multiples of your salary the CEO takes home?  Productivity in practice is a messy, unwritten compromise between employer and employee that settles out at a level where both parties are equally unhappy.

It is surely conceivable that the level of productivity is influenced by some range of factors like this which are not changed at all by shortening the working week, and that the equilibrium position remains pretty much where it was before, perhaps with some marginal improvement.  In this case, the initial improvements are simply first-mover advantage and a sort of Hawthorne effect and the long-term picture might look rather more like the figure "Long-term Productivity Reverts to Former Level", below.

Now a couple of graphs don't make this science - they just illustrate my opinion.  But companies that have already baked a 4-day week in to their employment terms based on these trials are - in my opinion - being brave.  They might argue that they are taking other steps to lock in the productivity gains.  Maybe they are addressing the computer systems and bad leadership as well.  If so, why does that sensible management action have to be tied to a reduction in hours?

Beyond the impact on individual firms, a gradual move to a lower-output 4-day week becoming the norm across the UK would be bad news for GDP growth if, as I suspect, the long-term constant is the equilibrium level of productivity and not the shape of the curve (or, to put it another way, if the problem is how awful each working hour is for the employee and not how many of them there are in the week).

If you'd like to learn more about improving productivity in your business you should attend one of these events.

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Management Teams and Evil Plots

 

Why Should Business Owners Develop an Effective Management Team?

As an SME grows it becomes more difficult for the owner to control and decide everything in the way they used to.  They start to become the main constraint on further growth.

Sensible business owners address this issue by delegating more.  They introduce a more formal structure with reporting lines and clearer accountabilities.  A layer of management starts to form –possibly even people other than the owner with the title “director”.  The organisation moves through the difficult transition from everyone reporting to the owner to something more hierarchical.

The owner introduces regular meetings where those people who report direct to her review business performance.  This is a big step forward, although at this stage the scope will usually be limited to short-term operational matters.

The owner is still the custodian of the organisation’s vision.  She still makes all the important decisions pretty much unaided. The other attendees are reluctant to challenge the owner or each other.  They understand and accept responsibility for their own areas to a greater or lesser degree but feel little involvement in setting or achieving the wider organisation’s long-term objectives.  They may be ill-equipped to contribute to strategic thinking, owing their position to functional experience and having had little invested in their development as managers.

By delegating functional, operational tasks the owner has freed up her time and is no longer a short-term constraint, with insufficient time to control people or do things.  However, she is still a constraint on sustainable, long-term growth, being the only person who sees the big picture, or able to think and plan strategically.

The business once again starts to plateau and stress to build.  The owner starts to realise that although the business is better organised and more scalable than it was, its resilience and value to anyone else is severely limited by the reliance on her to sustain and drive it forward.

To move beyond this, to become scalable, the organisation must develop an effective management team – one that runs the business.  The thing is, like Blackadder’s evil plots, effective management teams don’t just make themselves.

Creating an effective management team will:

• Improve business results by improving business strategy.  As with most things, involving different perspectives and informed discussion will almost always result in better decisions and more buy-in
• Make the business more scalable and productive by underpinning delegation and strengthening accountability
• Reduce reliance and stress on the owner so making the business more resilient
• Make the business more valuable.  Depending on the nature of the transaction, potential acquirers put a high value on the quality and performance of the management team – after all, the owner won’t be there any more

What Does a Management Team Do?

In functional terms, the management team:

• Creates the organisation’s vision
• Defines the most effective strategy to achieve this
• Sets priorities for resources and actions (the plan)
• Reviews performance against plan
• Decides and assigns actions to keep the organisation on track

Creating the Vision

No organisation can perform well without a common vision,whether that is to win the league, put a man on the moon or achieve a sales target.  It follows that a great deal of the management team’s time is spent in discussing the vision, whether that is articulating it in the first place or validating it against real-world results.

Defining Strategy

A vision can only become shared and compelling if there is a credible means to bring it about – a strategy. The formal strategy may exist as a document or a slide deck but the real strategy is a shared mental model of the organisation and its market; a model that exists in the minds of the management team.  This shared set of beliefs about causes and effects emerges not only from formal strategic reviews but also from hundreds of discussions about results good and bad.

Creating the Plan

A long-term strategy requires a plan to make it happen.  A plan requires decisions about priorities and resources.  It sets objectives and completion dates.  It assigns responsibility and co-ordinates activities across the growing business so that marketing, sales and operations budgets and targets match the required financial outcome.

Reviewing Performance

Reviewing performance against what was expected to happen serves two purposes.  Firstly, it identifies where action is required to correct things.  Secondly, it ratifies (or challenges) the vision, strategy and plan created by the management team – the shared mental model.

Taking Corrective Action

The loop is closed by the team deciding what action is required and assigning responsibility and resource to this.  Sometimes the action will lie in a single part of the business, sometimes there will be a choice of actions and sometimes multiple actions must be co-ordinated.

In practice, in an experienced team, these five tasks are not discrete and sequential but iterative and combined.  However, when you are starting to develop your team (and at regular intervals when you have established things) you should set time aside to work on the first three.  Otherwise the danger is that the team slips back into a purely operational focus.

What Makes a Management Team Effective?

A management team is an open-ended, dynamic process rather than a result.  To start with, team members may only feel able to contribute to conversations about their own area– or they may be inexperienced even in that. They may be reluctant to ask questions about other aspects of the business for fear of looking stupid or offending other members.  They may be more concerned with avoiding blame than understanding causes.

Over time, the best teams will start to demonstrate the following behaviours:

Members Are Competent Withing Their Own Functions

Trust underpins teams. Members must know that their colleagues will deliver.  This doesn’t mean that mistakes don’t happen, or that results are never impacted by external factors, or that team members must all be brilliant leaders in their field. It does mean that persistent incompetence or laziness in an individual must be dealt with if the team is to believe in itself.

Members Are Emotionally Intelligent

Trust underpins teams. Members must have the emotional intelligence to empathise with their colleagues, to challenge constructively and to accept challenge without feeling threatened.  They must be supportive of colleagues.  Destructive behaviours or a lack of respect will destroy trust.

Members Think in Terms of the Whole Organisation Not Just Their Own Function

Members accept responsibility for the overall organisational performance not just that of their own function.  This means that they must build up an understanding of the other areas of the business by asking questions of and,when appropriate, constructively challenging, their colleagues.  It means that they must welcome questions and challenge from others on their own functional areas in return.

Should the organisation be struggling to achieve its goal then this is not “Marketing’s problem” or “Operations’ problem” – it is “our problem”.

Conversations Move Easily Between Operational and Strategic Perspectives

In weak teams, regular conversations are almost exclusively operational and short-term whilst strategic conversations are separate events.  The result is that strategy is detached from reality to the point of irrelevance and operational decisions are reactive and directionless.

In stronger teams, operational decisions are informed by strategy and strategy is continuously validated against reality.  This happens implicitly in many conversations throughout the team meetings and elsewhere.

There is a Shared Conceptual Model of the Business and its Strategy

The conversations described in the previous point serve to develop a mental model of the business – cause and effect, where it is going and how – that is shared by all team members. This makes decision-making, co-ordination and prioritisation much more efficient and robust.

The Leader Coaches, They Don’t Control

A leader who dominates the conversation, wins all the arguments and makes all the decisions will be leading a weak team.  This will be the case whether the behaviouris rooted in a psychological need to control, a lack of trust in others,impatience – or simply habit.

Leaders of effective teams see their primary role as developing others.  They are more likely to ask questions than make decisions. They recognise the need to invest time and coach others to understand issues and arrive at decisions.  They balance the need to achieve today’s results with the need to develop individuals and the team for the future.

A Model for Management Teams

Patrick Lencioni, in his book “The Five Dysfunctions of aTeam”, develops an elegant model that informs many of the points in this section:

He says that high-performance teams demonstrate

• Individual accountability based on
• Commitment to the goals of the team gained through
• Challenge and constructive conflict enabled by
• Trust between members

Developing an Effective Management Team

The way to create an effective management team is not to go fire-walking together, fun as that might be. It is to work together on running the business.  We have already looked at what, functionally,this means but to develop an effective team you must work on three things:

1. Managing the performance of the business to achieve the planned results
2. Developing the team, including a common goal, shared commitment to its achievement, a shared understanding of how this is tobe brought about, trust, open communication and accountability
3. Developing the commercial, managerial and leadership capabilities of the individual team members

(John Adair in his book “Effective Leadership” calls this balancing Task, Team and Individual)

For business owners, who are accustomed to make all the decisions and whose own money is at stake, changing to run their business this way is challenging.  It is also a challenge for employees, who are accustomed to the boss making all the decisions (it’s their business, after all).

This means that it won’t happen naturally.  You, the owner, need to take steps to make it happen.  Here are some suggestions:

Prepare the Ground

If you do not already run a regular review meeting with your direct reports or functional heads then set this up – monthly immediately after your accounts are completed is the best time. Get it in everyone’s diaries as a recurring meeting.

If it isn’t already the case, make sure that each part of the meeting uses numbers presented and explained by the person responsible.  If you do most of the talking now, start to reduce this.  Encourage others to talk more and come up with solutions by making sure you ask questions rather than give answers.

Raise Their Horizons

Introduce some longer-term items under any other business or as opportunities present – “What do we think the business is trying to achieve?”  or “What do we think we are good at?”.  Don’t terrify people by saying “Right, now we are going to discuss strategy”.

Return to, reinforce and build on the results of these discussions whenever you can.

Build Trust

Encourage constructive challenge – “Fred, what do you thinkabout Jane’s proposal?” or “I’d like you all to write down the pros and cons of the suggestion I’ve just made.”

Treat performance (good or bad) as an opportunity to improve– “8 is pretty good – what would need to happen to make that a 10?”.  Make sure everyone understands that targets are to promote discussion about performance improvement, not a stick to beat people with.  Make it clear that blame and excuses are Bad Things and unacceptable by calling them out – “Tom, how could you reframe that problem so it is something under your control?”.

Improve Individual Performance

Where necessary improve the contribution of members by providing individual training, feedback and coaching.

If someone is a technical wizard but has no aptitude or desire for leadership, management and teamwork then create them a role wherethey can deliver value and put someone more suitable in charge of their function.

If someone fails to respond to support and development within a reasonable time then don’t keep throwing good money after bad (or keep trying to put in what God left out) – remove them.  Any immediate pain and disruption will be worth it.

Summary

An effective management team is one that is running the business.  Without such a team, the owner becomes a constraint on growth and the business remains fragile.

An effective management team improves business performance, promotes accountability, makes a business scalable, reduces stress and dependence on the owner and makes the business more valuable.

Developing an effective management team is an open-ended process that requires explicit development of the team and the individuals whilst working together to improve business results. 

For more insights on developing your management team you might like to attend one of these events.

Employee Wellness Bollocks

A recent article by Andre Spicer in the Guardian caught my eye.

It points to evidence that employee wellness programmes are mostly nonsense seized on by management too weak or stupid to address the real causes of employee non-wellness.

In essence, the research shows that wellness programmmes (mindfullness, stress-managment, the ubiquitous "apps", away-days, free pushbikes, pot-plants, your own guru...) have no lasting impact on the mental or physical wellbeing of employees.

What does have an impact is better managers, more flexible working arrangements, more autonomy, fewer crap systems, fewer angry customers, more job security, adequate pay...in fact all the things that good employers have known about and striven to put in place for decades.

The trouble is, these things are difficult to do - and getting more difficult as liberal democracies slide further into inequality, under-investment and precarious employment in pursuit of ever-diminishing growth.  Much easier to give everyone a mindfullness app and move on.

After all, we should never let irrelevance or lack of efficacy get in the way of a money-making opportunity or inded the chance to build a whole new industry.  Neither would we want to take away a simple way for managers and HR departments to look as if they are doing something and force the poor darlings to do some of the hard thinking and hard work that might actually make a difference.

Why business coaching is doomed

A while ago I wrote a blog ("What ChatGPT Tells Us about Human Soup") that was relatively upbeat about the future of coaching - that is, relatively downbeat about how much of business coaching could be done by AI.

Since then I have spent more time using it, pretending to be a business owner with the kind of problems I help them address (scalability, systemisation, delegation, structure and so on).  It is safe to say that my views are evolving (although not, presumably, as fast as AI is evolving).

Note:  I have been using Chat-GPT 3.5, which is not the latest version and may not represent what other AI systems can now do.

The quality of the answers really depends on the quality of the questions, and a willingness to develop a conversation.  Typically the first answer will be 10-12 short paragraphs, factually correct but too much information to be useful in a coaching sense to the questioner.  You can drill down by picking up on one of the items and saying, perhaps, "I have already done that" or "I don't understand that" and the machine will respond accordingly (but again, with a large splurge of information).

You can limit the flow of information by saying, perhaps, "I feel overwhelmed by all these answers and don't know which to do first".  This will elicit something that looks like empathy ("Understood. Let's narrow it down to....") and a more limited answer, perhaps with a homily about focus or prioritisation ("Dealing with these issues can be overwhelming, but remember, you don't have to fix everything at once...").

What I have been unable to do is to prompt any sort of questioning ("listening"?) to help with the supposed problem.  Asking it "How do you know this is addressing my real problem?" or even "Why don't you ask me some questions to help me find out my real problem?" just produces the usual 10-12 bullet points of possible causes but this time couched as questions.  A response to any one of these results in....10-12 short paragaraphs about possible causes/actions.

A coach given a problem statement would generally ask the client to expand on it, or give an example, or ask a question to check their understanding, rather than reeling off 12 possible causes.  Often the real problem or cause is hidden and questioning helps the client gain insight.

Neither is there any sense of a sustained conversation, or referring back or identifying themes (different outcrops of the same issue), although the software does have a history of all the "chats".

However, the speed and comprehensiveness of the answers remains impressive, and these bits that I am suggesting are missing from a coaching perspective should be relatively easy to programme (or perhaps teach) in some sort of front-end application (such as this one).  Emotion and mood-sensing algorithms are already in use and will only get more capable.

I thnk that within perhaps two years it will be possible to access an AI business coaching service that is indistiguishable from a human coach (apart, perhaps, from its abilty to use Zoom Whiteboards properly and the absence of a loud tie).

Shortly after that, any small business will be able to have the equivalent of the world's best business coach as a virtual but permanent part of the management team, rather then doled out in coaching sessions.

What will be left for coaches?  No doubt there will be a long tail of people who want to deal with a human, supported perhaps by some sort of Campaign for Real Business Advisors (CaRBA©) or preservation societies.  There will also be a short-lived opportunity to provide coaching input to the development of the aforementioned front-end applications.

After that...?  Well, as someone once wrote, probably about a coaching industry:

"Round the decay of that colossal Wreck, boundless and bare the lone and level sands stretch far away."

If you'd like to get some advice from a human business coach while we still exist then you might want to attend one of these events.

Cheese and the four-day week

Between unexpectedly parting company with my school and joining the Merchant Navy I spent some months working in a cheese distribution centre.  I am reminded of that experience by the current interest in the four-day week.

I worked with two ladies of indeterminate age called Flo and Madge.  Our job was to assemble pallets of cheese in accordance with customer orders, the cheese being picked as required from supplier pallets.

I was young and keen and it soon became apparent to me that we could complete each day's orders in about half a day.  My efforts to prove this did not go down well with Flo and Madge, who made it clear to me that this was not something they would tolerate.  Neither did it seem to be welcomed by the foreman, a placid man in a brown coat who had an artificial foot as a souvenir of the war.

Even at that age I had sense enough to know that being disliked by your colleagues and boss makes for an unpleasant working environment and I quickly fell into line.

I'm pretty sure that the reasons for this poor productivity, or the consequences for the firm concerned or, by extension, the country, did not at the time cross my mind.  Reflecting on it now it seems clear that:

1. The employees concerned allowed the work to expand to fill the time available in order to protect their jobs
2. There was no benefit to them in working harder
3. They saw the rate at which they worked, established by custom and practice, as "fair" - an unwritten contract between them and the firm
4. The supervisor (and presumably the managers above him) accepted this state of affairs in order to preserve the peace and maintain relationahips.

The four-day week discussion really addresses point 2 and, implicitly, point 3.  It does not improve productivity in terms of output over cost, although it may have some benefit in terms of asset utilisation and (transiently) recruitment and retention.  It requires management to say:

• By moving to a four-day week we both accept that you are producing at least 25% less than you could.
• We are rewarding this poor performance by giving you a 25% pay rise.
• We are doing this because a) it's much too difficult to improve actual productivity and b) we are in a dog-fight for staff

What will happen to actual output from the four days over time?  I think there is zero chance it will actually increase beyone what used to be produced in five days and quite a high chance that it will gradually decline to (a wild guess) about where it was before ie about the same output per day and about 80% of the previous overall output.  This is after all seen as the "fair" amount of effort.

To be clear, I can see no inherent logic other than the status quo for any particular work pattern, be it four-day, five day, six day or two-day week and the decision should be left to the organisation concerned.  Clearly a zero day week would have economic consequences and a seven-day week (although not unknown now) would have social consequences.  My concern is that this change is gaining in popularity because as business owners, managers, voters, tax-payers and politicians we are too craven to face up to the real causes of piss-poor productivity in the UK.

BTW, if you would like to learn more about productivity improvement in your business then you should register for one of these events.