Tuesday, 26 July 2022

Fill your pipe

 I was helping my client use their computer systems to provide useful management information. We were talking about project tracking and how, by recording the status of each project and the date that it changed they could create a simple traffic-light system that would show at a glance where things were going awry.

We went on to extrapolate from the specific to the general.

  1. All businesses can be thought of as a series of flows and balances (or pipes and buckets if you prefer). Management information tracks the speed of these flows, the volume of flow and the level in the buckets.  Examples of flow volume are number of new enquiries per day, value of invoices issued per month or, in my client’s case, projects completed per week.  Examples of flow speed are average project duration, sales lead-time or quote turnaround time.  Examples of levels are debtors, or quote bank, or cash in the bank.
  2. Every part of your business can be thought of in this way.  When think of it in this way then you can identify the volume, speed and level measurements that tell you how it is performing.  You can spot leaks, blockages and levels that are too low or too high and fix them.  You can improve things.
  3. Efficient management focuses on exceptions.  Your management information at the top level should be designed to highlight exceptions.  If the reports you use are long and detailed, with the issues that require attention hidden amongst lots of other stuff, then the reports need fixing.  If the only way you can control a process (or your whole business) is by checking on every project or transaction then you need better management information.
  4. Once you have applied this approach to one process then you can apply it to all your processes.

If you’d like to know more about thinking differently about your business then you should register for this event.

Friday, 24 June 2022

Productivity improvement at gunpoint

I heard a well-known economist and speaker being interviewed on the radio this week.  He was asked about the effect of wage increases on inflation and the risk of an inflationary spiral.  His answer was that increased pay would not lead to inflated prices if productivity increased to match the increased cost.

By chance, a conversation with a client at around the same time resonated with this.  We were talking about how he could afford to give a key employee a pay rise.  He wanted to recognise the employee's contribution and hang on to him but his manufacturing business, like many other businesses, is under pressure from increased material and labour costs and aggressive competition holding down prices.

The employee concerned is willingly (and competently) taking on more responsibility and as a result my client is able to spend more time winning new business.  We were able to construct a simple business case that shared this continued improvement in productivity (that is, profitability) in the business with the employee concerned.

A couple of points struck me:

Firstly, I think my client only talks about productivity when I raise it.  Certainly the economist's point would not to him seem relevant to his business.  The concept of making increased reward conditional upon increased productivity, whilst not startlingly new, would be seen as contentious and likely to upset employees.  In this case it worked because the pay increase followed the productivity increase.

Secondly, the increased productivity of the employee concerned, and more generally across his workforce, has come about after years of effort by my client to manage people differently, dozens of incremental process improvements, implementing structure and standards...and the occasional backwards step.

Sustainable productivity improvement is not something that can be achieved overnight, by fiat, or (I suggest) as part of a pay negotiation.

You can get help, information and resources to improve the productivity of your business here.

Tuesday, 24 May 2022

Small Business Productivity is Poor

The individual wealth of business owners, and the overall wealth of the country, is being damaged to the tune of billions of pounds each year because many small businesses suffer from low productivity.

This article makes the case that the main reason for this low productivity is poor leadership.  The owners of small businesses do not generally set out with the ambition of employing lots of people, often have no formal management training and are unaware of the principles and advantages of good leadership.  Many are also oblivious to the problem; 80%of business owners rate themselves as average or above average managers, a result that has echoes of similar surveys about sex and driving.

The article suggests some leadership behaviours that business owners could adopt to make their business more productive.

Small Business Productivity is Poor

We have seen a flurry of reports in recent months thataddress the UK productivity gap when compared to our peers in the developedworld.  Two, from the IoD and the House of Commons, refer to the “Long Tail”; the distribution of productivity bycompany size that shows our smaller businesses are less productive by comparison with both larger UK firms and similarly-sized small companies in the rest of the G7.

Another House of Commons paper provides further evidence as illustrated in Figure 1.


Figure 1 – Productivity by Business Size – Source:  House of Commons Briefing Paper 06152, 12 December 2018 “Business Statistics”, Chris Rhodes.  Ratios and graph by the author.

The difference in height between these bars represents billions of pounds lost from UK GDP, billions of pounds lost by business owners and billions of pounds lost by employees.

Suggested causes for poor productivity include difficulty accessing finance, lack of innovation and sluggish adoption of technology.  Since the opportunities to take advantage of these things are the same for all businesses, good or bad.  It must instead be some internal factor specific to that organisation but common across that size of company.

My hands-on advisory work with this type of business leads me to the conclusion that the difference between high- and low-productivity SMEs has a simple root cause; the quality of leadership.

(I am comforted that my hypothesis, whilst developed by the entirely unscientific method of coaching hundreds of business owners and comparing the results, is supported by research, for example, this article.)

Small Business Productivity Depends on Leadership

I should perhaps at this point define what I mean by “leadership”.  It is fashionable to differentiate between “leadership” and “management”; the former being touted as the sexy business of vision, motivation and innovation whilst the latter being rather sneered at as the menial task of organising things.  My experience is that to be successful at leading any size of business you need to be good at both; I have worked with visionaries who never completed anything whilst at the same time reducing their employees to charred embers; I have worked with business owners whose employees,whilst organised like the Brigade of Guards, had no clue where the organisation was going or why.

If we accept that good leaders must also be good managers, we cannot fail to be depressed to learn that 37%of UK business owners were “too busy” to measure the productivity of their company – and that 29% don’t even know how to measure it.  This ignorance of, or sometimes disdain for, basic management concepts is widespread amongst the owners of small businesses in the UK.  Research is limited but at least one paper suggests that management styles and effectiveness differ across countries – suggesting that bette rproductivity in other countries may be related to a different attitude to leading.

What Do Effective Leaders of Small Businesses Do?

The short answer is: “Not much”.

The slightly longer answer is:

  • They help employees define the purpose of the organisation.
  • They help employees decide how to achieve that purpose.
  • They help employees become accountable for results
  • They let go
  • They share the rewards

I should add a couple of caveats here.  Firstly, the next few paragraphs are presented as a tidy linear sequence. Real life isn’t like that.  The process is messy, iterative, fragmented and never ends.  Secondly, none of my clients (and no busines sowner of my acquaintance) has ever “finished” this or achieved anything like the leadership nirvana set out in the above bullet points.  However, those that have made even baby steps along this route have transformed their businesses and how they run them – and their productivity.

Help Employees Define the Purpose of the Organisation

I suggested to one client that he could talk to his employees about his vision for the business. The next time I saw him he announced that he had “Done the vision.”.  Sure enough, every noticeboard had a sheet pinned to it with the new vision statement.  When I asked him if his staff had found it a useful exercise, he said “Oh I haven’t got time to involve them – nor have they.”.

I had clearly failed to properly explain the point of the exercise – to involve and engage the staff in creating for the organisation a purpose that they own and find motivating.

Now a typical  business owner might be thinking “Hang on – I run a plumbing business.  What if my staff decide that our mission is to cure cancer?”.  In fact, her problem is more likely to be getting them to express any kind of opinion in front of the boss.  Effective leaders make it their business to find a way to engage staff, for example, using a workshop format that is fun and non-threatening, perhaps run by an external facilitator.

The key point is that if the purpose of the organisation is to be shared and motivating then it can’t just be the owner’s purpose.  He must give some of his vision up in order to make space for what his employees believe and want.  Most business owners care as much about reputation, legacy and staff as they do about money, so even if their personal vision is to sell and retire in a few years there will still be benefits in developing a shared business vision of the future.

Help Employees Decide How to Achieve the Purpose

The vision on its own is worthless.

People will start to believe in it when it begins to turn into action.  How is the business going to win, what is its competitive strategy or secret formula, what hurdles need to be overcome and what changes need to be made?  This is usually called a strategy but once again, the leader recognises that it is the process, and involving employees in that process, that matters, not the result. I could make a case for the actual strategy being almost irrelevant; if you have everyone wanting it to succeed and believing it will succeed – you will succeed.  Good leaders are not precious about their strategy, they are precious about involving and developing their people.

Success needs to be defined. Often the start point will be financial outcomes, but these must be translated into measurements that are both relevant to the strategy and a basis for action; how many sales, how fast are support calls solved, how many hours per week do consultants need to be charged out, what is an acceptable level of incomplete customer deliveries and so on.

Help Employees Become Accountable for Results

Strategy is executed by people.

Leaders find a way to transfer accountability for a business result to an employee who is willing and able (or has the potential) to take that responsibility.  The start point for this is to have a compelling and credible shared purpose to which individual activities with measurable outcomes clearly relate.

In almost all small businesses, roles are ill-defined or not defined at all, success (that is, desired outcomes) are not agreed or are so woolly that it is impossible to decide whether they have been achieved or not.  Just clarifying these things will improve productivity.  Leaders go beyond this to help employees develop a sense of ownership for their results based on the sense of shared purpose.

That sense of ownership is used by leaders to encourage employees to understand and document their processes, to develop quality controls and embark on continuous improvement. The need for new computer systems (or better use of existing ones) may emerge from this.  Simply implementing new computer systems, on the other hand, will certainly not create accountability and may make things worse.

Let Go

Business owners have trained themselves and all their employees to believe that they, the owner, must make all the decisions.  They will often control or even carry out administrative tasks such as invoicing or creating sales proposals in order to “avoid mistakes” or so they “know what is going on”.  Their psychological need to do this is reinforced by a belief that employees “don’t care as much as me” or “don’t use common sense”.  It is not difficult to see the self-fulfilling or circular nature of this mindset.

Leaders see it as their job to delegate everything, including decision-making.  They also understand that this doesn’t mean letting employees sink or swim, or abandoning them to their fate.  They understand that successful delegation is a planned and controlled process designed to ensure success.  An essential part of this process is capturing and transmitting the way the current experts do things, through process documentation, checklists, training and coaching.

Letting go requires management information – usually completely absent in small businesses where the owner manages by making every decision and checking every sheet of paper. Process outcomes must be translatable into reviewable data that supports performance reviews, coaching and management by exception.  More broadly, leaders understand the value of information and learn how to use data to drive decisions.

Share the Rewards

Effective leaders understand that money does not motivate people, but a perceived absence of fairness and recognition will quickly demotivate.  They also understand that pay, bonus or other incentivisation schemes can send powerful messages about what isimportant.

If the organisation’s purpose is to be truly shared then the results and benefits of achieving that purpose must also be shared.  This does not mean that everyone gets paid the same, or that everyone gets paid the same as the owner (although there are examples of extraordinary generosity in high-performing businesses).  It does mean that the financial benefit of more productive, accountable employees should be recognised and shared.  If an employee asks “What’s in it for me?” then a good leader sees this as a buy signal from someone who is thinking through the implications and starting to see the big picture.

Conclusion

The low productivity of many small businesses is costing the owners of those businesses, their employees and the country, billions of pounds each year.

The main cause of this low productivity is the leadership of those small businesses.  Many business owners don’t recognise the problem, or don’t think of the problem in terms of productivity, or don’t see changing their leadership approach as a potential solution.

The leaders of more productive small businesses understand that their role is to get things done by others, by creating a shared purpose with accountable, motivated employees and then delegating as much as possible.  Achieving this is an open-ended, iterative and sometimes messy process that requires sustained effort and skilled support;however, just starting it can deliver immediate and tangible productivity benefits.

Find out how to improve the productivity of your business here.

This article originally appeared in the September 2019 edition of International Accountant.

Tuesday, 22 February 2022

Watchng the detectives

Once again we are indebted to covid for shedding light on the state of UK business management.

At a breakfast meeting today I was talking to someone who runs an IT business.  He mentioned a trend he is seeing;  his clients are asking him to monitor the activity of their employees who work from home.  He said it is relatively simple to use email server and telephone system logs to assess how active employees have been and when.  He believes that his findings sometimes lead to disciplinary action.

This story reflects an anxiety some of my clients are feeling about the productivity of their remote staff - although as far as I know none of them has resorted to spying on them.  Having said that, one has instituted a daily morning videoconference "...so I know they are out of bed and working".

Leaving aside any moral or legal aspects of spying on your employees, what does it tell us about management?  It certainly throws up a couple of fundamental management beliefs:

  • Management is about controlling hours worked and activity levels, not helping people achieve results
  • Left to their own devices, employees are shirkers

I have no doubt that every business owner will be able to point to evidence from their own experience supporting the second of these two beliefs (and of course, some employees are lazy and/or stupid).  The problem is that shirking is brought about even in good employees by a management style based on the first belief:

  • In the old office-based organisation it is far easier to control the hours employees are in the office and the way they spend their time than it is to build trust, engagement, alignment, capability and motivation.
  • In the old office-based organisation it is not necessary to expend effort on developing a compelling purpose for the organisation, a purpose that employees can believe in and want to be part of.
  • In the old office-based organisation it is not necessary to have meaningful conversations about how success in a role is measured, or to invest time in coaching employees to achieve this.

It is difficult to change management style, organisational culture and employee attitudes at the best of times, let alone in the teeth of a pandemic, over Zoom.  Those organisations who were mostly doing things right will have coped well with remote working and those who weren't will not have coped well (and be devoting time and resources to spying on employees instead of addressing the real issue).

The old office-based organisation may come back.  If it doesn't, remote or hybrid workforces will need a different (and better) management style in order to succeed.

More on this and other management issues at https://www.nickbettes.co.uk

Tuesday, 25 January 2022

Er...um...doh

 My client had hired, at significant expense, a new Operations Director.

After a month he was already unhappy with his new hire’s performance.  I asked him how he was assessing this and the answer was, in essence, based on what he saw and heard; how he felt about what she was spending her time on.  It became apparent that this was the approach he was going to use at the end of her probation period to make a decision that would have serious consequences for both of them.

I asked him how he and his new employee had agreed what success in the role looked like.  This time the answer was, not to put too fine a point on it, that they hadn’t.  My client looked rather shame-faced as he described his communication to her (and his other staff) as “stream of consciousness stuff”.  When we discussed the way he might measure success for this role he readily identified one key number: Net increased hours of service delivered.  He also identified contributing numbers in recruitment, staff retention and new hours sold.

It wasn’t obvious to me how the Operations Director could control all of these outcomes; parts of recruitment and sales in particular seemed to be outside her control.  When I asked where recruitment reported the answer was “Errr…both of us, I suppose”.  After further discussion my client decided that actually recruitment should report to the Ops Director and the only reason he was involved was that he always had been.

It also transpired that the way they ran recruitment was, whilst effective, completely undocumented.  This craft-skill approach applied to sales and indeed every process in the business not subject to external compliance.  Different branches and different employees did their best but in different ways and with different results.

He agreed that it didn’t seem sensible (or fair) to fire someone for not achieving a target they didn’t know about by relying upon someone they didn’t manage following processes that existed only in other people’s heads.

The bad news is that lots of growing businesses have this problem.  The good news is that there is a solution.  You can find out about it at these events

Friday, 26 November 2021

Home to roost?

Is low productivity built-in to UK small businesses?

If there was any sense to Brexit then perhaps forcing UK business to address its woeful productivity was it. Particularly in the SME sector our productivity is far worse than that of our competitors and there is a school of thought that says ready access to cheap labour contributed to this (although opinions vary of course – these are economists. In particular, countries such as France and Germany have had the same access to labour without it depressing their productivity in the same way).

Be that as it may, many UK businesses are now facing labour shortages and wage increases.  The news bulletins are full of interviews with under-pressure business owners, most of them saying:

  • I cannot get the staff so I am limiting capacity and turnover
  • I have had to raise wages to get or keep people and I can’t pass that on in prices
  • I am paying higher wages but that doesn’t translate into more productivity

The gist of these opinions (from albeit a tiny and edited sample) is that a) paying people more doesn’t increase productivity it just increases costs and inflation and b) the likely outcome of labour shortages will be reduced production not increased productivity.

I am not surprised by this. From my own experience advising business owners, productivity is not something that many business owners try to improve – or even measure.  It is seen as peripheral to the main event; winning more business and then hiring more people to service it – and who could argue with that focus if the result is steadily increasing net profit?  The fact that if the business was in the US it would be making more money and growing faster is irrelevant if your business is in Dagenham.  The problems of inequality, low wages and creaking infrastructure belong to government, not to business owners.

Furthermore, improving productivity is tough.  It requires levels of management and leadership way beyond that required to run some more Facebook ads and then recruit someone through Indeed to fill the boxes.  It requires analysis, planning, negotiation, coaching, vision, communication…in fact all the things that are anathema to your average entrepreneur who thrives on doing and on crises.  This leads me to wonder if the very culture and business environment that makes it easy to create new businesses in the UK has the seeds of low productivity built into it.

To finish this post on a less philosophical (and gloomy) note, here is an ebook to help business owners improve productivity.

Wednesday, 20 October 2021

Unknown Unknowns

I help business owners make their businesses easier to grow and run. I am working with a copywriter to develop some new marketing collateral and he asked “What have your clients tried that hasn’t worked before they come to you?”.

A thoughtful question that required a thoughtful answer. Having spent time producing one, I thought I would get a blog out of it and so I reproduce it below:

What have my clients tried that hasn’t worked before they come to me?

Many business owners believe that the stress, frustration and limited growth they experience is just the way it is – it comes with the territory. They don’t know what they don’t know and so don’t think about changing things.

Others, perhaps more enlightened or more unhappy with their working life and business performance, try to change things when they come across something that looks like a solution. Here are the most common:

  • Vision-building sessions with staff. Often these result in a mission statement or pictures on the wall of people rock-climbing and so forth. These efforts lose momentum quickly as staff engagement and belief are low to zero from the outset; they have little say in the vision, little impact on the outcome and little stake in its achievement.
  • HR initiatives. Implementing job descriptions, appraisals, team meetings – maybe even Investors in People. After the first rush of excitement the lasting legacy for employers and employees is bureaucracy. The whole thing is seen as a bolt-on unrelated to the real business or what really matters. At its worst, I have seen appraisal objectives invented for the sake of completing a box whilst the things that actually matter to the business go ummeasured.
  • Computer systems. Often this will be something glamorous and new from the cloud that is implemented to track performance or co-ordinate projects (“collaborative working”) or even something major like an ERP/MRP system. Even when such systems are needed and functional, they are seen as an imposition and a handicap by everyone affected, who think they just add layers of data and inputting and reports. In the worst case they are seen as Big Brother, removing independence and autonomy and threatening jobs.
  • Some business owners develop fantastically complicated strategies and plans on their own using dozens of spreadsheets or Powerpoint slides or similar. If they present the results to employees no one else understands them or feels any ownership (see Vision above). Often employees don’t even even know these ideas exist. Either way their utility is limited to providing the besieged business owner with the illusion of control and a brighter future.

The problem with all of these approaches is that they do not focus on developing people and accountability as the core belief and the enabler of growth, which is the only way to sustainably grow a business. They are imposed from the top and glued on to the outside of the mess instead of addressing the root cause. They often won’t survive the first operational crisis and so lose any faint credibility they might have had with employees. That is not to say they aren’t sensible and useful things to do once you have the necessary clarity and accountability in place – you just shouldn’t start there.

For an insight into what my clients do after they come to me and how that changes the way they run their business you could do worse than book a free one-hour taster session.