In simple terms, you can measure your business success by how well you get customers, keep customers, and the efficiency of your operations. Many companies measure their success by revenues, income and other traditional accounting yardsticks. The problem is that the accounting approach measures how you did but not how you should have done. For example, take a company that grew 20% last year, and had $10 million in revenue. Its management team was weak, so it lost an additional 20% growth, missed out on another 5% in net margin, and had unnecessary turnover of 10% in client base. So this same company (assuming a 10% net margin) could have seen another $800K added to their bottom line. The one secret ingredient was “people.”
While I like the idea of coaching, training, and other means to develop people, these tools will never replace the sheer power of hiring the right people in the first place. You can not turn a chicken into a duck or a pig into a cat, which is what many owners try to accomplish. Much more effort needs to be put into hiring top performers in every seat and promoting the right people. The cost of not doing so is huge. There are all kinds of forms to calculate the cost of mistakes out there. In Brad Smart’s book “Top Grading” the cost of a mis-hire was calculated to be 14.6 times base salary. So to put that in to real terms, someone making $100,000 is going to cost your firm $1.5M over the lifetime of their employment in lost opportunities and mistakes that happen.
In tangible terms we can always see the difference between “A” players and the rest. The “A” players’ productivity is 3 times the productivity of the others. The higher the “A” players are in the firm, the better the consequences. The easiest place to look is in your sales department. The top sales people do far in excess of your average and bottom producers. Go into programming departments. The top producer outputs far more than anyone else. You can go in to any department and position and measure the same difference; the top producers will give you 3 times the output.
Before I move further, let’s clarify the definition of “A” player because many owners say they cannot afford them. “A” players are those people in the top 10 percent of talent available at the pay grade you have defined, for the tasks you want them to do, and willing to do it in your market. In many cases organizations are already paying for “A” players, but the lack of discipline in their people processes allowed them to hire “B”s and “C”s.
Here are some signs their might be a problem with discipline around people:
- There are no measurable key performance indicators in place to know whether each person is achieving “A” performance.
- 90% of employees are not considered “A” performers.
- “B” and “C” players are not fired or redeployed when they cannot become “A” players.
- There are no talent reviews of people to see who are “A,” “B,” and “C” people.
- People are almost never fired, and loyalty is the most important value of the company.
- When there is an open position, the candidate pool has no “A” players.
There are a lot of justifications offered regarding the lack of performance. The reality is companies are making big mistakes in their hiring practices. They say things like “I have gotten my money back on this salesperson because we got enough deals to cover his/her salary.” This ignores the fact that the person did not reach quota, sucked up a lot of management time and energy, hurt company reputation, and created a hole in the organization when they suddenly left. Had the company hired correctly, the ”A” player would have met quota, still be there, and have a lot of momentum right now. Here are some good ideas to follow to dramatically improve your people processes:
- Move away from behavioral interviewing and use the “Top Grading” process for interviewing.
- Use assessment tools in your hiring process.
- When promoting employees use the “Top Grading” process.
- Have at least 2 KPI standards for every position, and if people are not able to meet them, redeploy or replace those people. For help on KPI there is a website www.kpilibrary.com.
- Do performance reviews annually and define whether someone is an “A,” “B” or “C” player. If they are a “B” or “C” decide how they can become an “A.” If they can’t, it is time to let them go.
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