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.

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.

Business Owners, Drivers and Lovers

Research by HBR¹ shows that many managers (and by extension, business owners) are unable to judge objectively how well or poorly their business is run. In fact, the research found zero correlation between self-perceived management quality and actual performance.

The same report finds that only 6% of businesses are well run, and that the difference between them and the worst-run businesses equates to 25% in growth rate and 75% in productivity.

Now it could be that, like Captain Mainwaring, you are a pretty shrewd judge of these matters. This delusion does not apply to you and you really are one of those 6% of businesses.

But what if you aren’t?

Just think about those figures. Let’s take a modest business (say £1m turnover, 10% net margin, 5% annual growth) and assume the owner is in the middle of the pack (12.5% potential improvement in growth, 37.5% potential improvement in productivity). Over 5 years, the gap is over £200k of net profit.

£40k per year. Just for getting the basics right. No fancy strategy or miraculous new product required.

Curiously, the same skewed perception occurs in self-assessments of driving ability and sex. I can’t help you with those, but I can help you run your business better; take a look at https://www.thescaleupformula.com or contact me direct to find out how it works.

¹Why Do We Undervalue Competent Management?, Raffaella Sadun, Nicholas Bloom, and John Van Reenen, October 2017

Formulating your beliefs

If asked what is critical to their business, most leaders and managers will include “employees” in their reply. They understand that business is about people.  With the right people, a clear and worthwhile aim and good leadership you can achieve anything.

If business is about people, how can it be reduced to formulas?  More to the point, why would you want to do such a thing?

Well of course business is measured using formulas; profit margin, growth, return on investment, customer retention and so on.  Used with intelligence and insight as key performance indicators these measurements can drive action and improve life for business owners.

But that’s not the kind of formula I’m talking about.  I’m thinking about meta-formulas, “belief formulas” that capture a belief about business.

A good example of this is the formula that links employee satisfaction to customer satisfaction to profitability explained by Heskett, Sasser and Schlesinger in “The Service Profit Chain”.  There are data supporting this linkage but in essence it describes a way of managing a business based on beliefs about people.

The Scaleup Formula© captures another belief; that owner-managed businesses all reach some revenue ceiling when the owner cannot find the hours to spin any more plates and for a business to grow beyond this point it must fundamentally change, and so must the owner.

Scalable businesses consist of repeatable processes operated by autonomous employees, with some kind of feedback and improvement loop using reviews.  The role of the business owner is to create and nurture this system, rather than being the person that makes all the decision and deals with all the problems.

The Scaleup Formula is:

Standardised processes * accountable employees * regular reviews = a scalable business

What are your belief formulas and how do they help you achieve your aims?

www.thescaleupformula.com

Generalising from the Specific

An old client contacted me recently. He was feeling stuck again and thinking about getting some more coaching.

Thanks to his drive and ability his business has grown by about 500% since we last worked together three years ago. He has overcome the barrier of just expecting employees to know what to do, and has sorted out his back office structure, processes and systems so he can delegate, let go and focus on growth.

So why more coaching? It seems as if his operational stuff is performing inconsistently and lacks visibility compared with his improved back-office. One of his long-time employees is leaving. He is slipping back into thinking that systems solve problems rather than leadership solving them. He lacks confidence in approaching this problem and can’t see a clear plan or way forward.

We talked for an hour or so about this. I felt slightly uninspiring as we went over the same ground: Clear accountability, unambiguous targets, simple written processes, routine review, measurement and improvement. I think perhaps some business owners struggle to generalise from the specific, to see that every business is a chain of essentially similar flows and balances, blockages and leaks, and that a solution in one area is portable to another.

Of course, it is easy to see this from outside and far more difficult when you are the one trying to keep all the cogs spinning. The point of using a coach is I suppose only partly in the answers (most of which are blindingly obvious anyway). The main benefit is in having someone to provide that view from outside the machine.

(If delegating, letting go and focusing on growth is something you’d like to do more of you might be interested in this course.)

Leadership Traits?

Traits as a leadership model is a bit passe but…

I was talking to a business owner recently. She wants to improve her leadership skills. She asked a bit of a googly: “What inspired you about people who led you?”

All the great managers I have been lucky enough to work for flashed in front of my eyes and I said, without thinking too much about it:

“They were all passionate about what we did. They were all good at what they did. They were all funny. They all let me know that my contribution was important and that I was doing a good job.”

So perhaps behaviours rather than traits. Nothing very complicated.

What do all the good bosses you’ve worked for have in common?

All That HR Stuff

I was talking recently to a client about delegation and helping staff take more responsibility. Like many owners, she has become something of a bottleneck in her business, with most decisions and some critical activities reliant upon her.

I explained how implementing things like organisation charts, job descriptions, processes and objectives helps to empower employees, by making their responsibilities and authority clear. Her immediate reaction was “I can get our HR consultant to do that.”

I commended this piece of delegation but had to point out that, while an HR consultant was exactly the right person to create the templates, advise on best practice and record and publish the results, the actual discussions with employees were far too important to be left to a third party and should be the responsibility of the manager of each employee (my client in this case).

As I anticipated, her immediate response was “I haven’t got time to do all that HR stuff!” I asked her to expand on this and, of course, the perfectly rational answer was that she wants to spend as much time as possible on selling and delivering service in order to grow her business. Discussing someone’s job description was not, in her view, as important as winning more business or raising more invoices.

Of course, on one level (or perhaps, on one timescale) she is right. The business will not survive for long without sales and cash. However, looking longer-term, failing to also invest time in developing employees and delegating responsibility to them means that the business will run out of steam. It will reach a revenue ceiling when the owner is working as many hours as they can and is simply unable to sell or control any more.

I explained that the job descriptions, orgchart and other HR artefacts were simply records of the underlying process, which was one of two-way communication about the organisation’s purpose and the employee’s part in achieving it. Only in this way will employees become accountable for their results, and only then will she have a scalable business.

I left her with a challenge. There are two types of business owner: One type focuses on doing and deciding things day by day. The other focuses on developing their employees and systems. Only one of these types build scalable businesses and every business owner has a choice about which type they want to be.

If you’d like to find out more about leadership and scalable business then these events may be of interest.