What High Performing Companies Have In Common

I could never be a full-time professor, but I enjoy teaching one class per semester at a local university. I value the interactions with my students and the discipline required to prepare a meaningful course each semester.

While preparing for my class this Spring, I came across some interesting research from the Institute for Corporate Productivity (i4cp). They found that among large companies (think Fortune 1000), high performing companies have fewer HR resources per 100 employees than their lower performing peers. But the exact opposite is true with small and mid-sized companies. The top performing companies outspend their industry competitors in HR.

Why do well-performing large companies need less HR?  

My guess is that those companies have solid, healthy cultures, they value management skills and train their managers well. They recruit and retain the right people for their organizations. Their competitors over-value technical skills and under-value people management skills, so they get weaker management at every level. This leads to lower engagement, higher turnover and more employee relations issues. Those extra HR people are recruiting and cleaning up messes!

Why do well-performing small and mid-sized companies spend more on HR than their lower performing peers?  

Visionary owners see HR resources as an investment rather than an expense. They hire HR resources earlier in their growth cycle and implement good HR platforms sooner. They are actively engaged with the HR team in the development of these platforms. And they reap the benefits.

What is HR doing for these companies?

1. These companies make better hiring and promotion decisions. They utilize proven HR tools to aid in selection and promotion. The underperforming competitors tend to make snap hiring decisions based only on interviews and promote based on tenure and technical skills.

  

2. These companies communicate better with employees, define what good performance looks like more clearly, have better performance management tools, and give better feedback. 

3. These companies have clearer policies and enforce them more fairly, keeping them out of trouble and wasting fewer resources reacting to charges of misconduct.

4. These organizations have a built-in pressure valve - a place employees can go to be heard and receive coaching when they're unhappy, rather than going straight to the boss and perhaps making things worse.

5. These organizations have a more engaged workforce as a result of good people management practices.

Does this mean throwing money at the HR function will make a small or mid-sized organization more profitable? Of course not. Just like with any investment, they must be wise investments.  Adding full-time people to a support function is a difficult and expensive decision. That's why some wise owners choose outsourced solutions. They get a higher level of expertise at a lower investment as they begin building that platform that's going to help them develop that solid culture when they're small, so they will need less HR when they're large!

Flood Zones and Wind Tunnels

Flood Zones is an apt description for those periods where there is an abundance of work and never enough staff to get it all done. Wind Tunnels describes those periods where management methods and tools that used to work, are no longer effective.

One or the other of these periods, according to James Fischer in his excellent book, Navigating the Growth Curve, typically occurs as growing companies approach the 10, 19, 34, 57, 95 and 160 employee mark.

The need to invest in new management or supervisor roles occurs precisely when the company is at its busiest and most productive - in a Flood Zone. Management often waits too long, makes hasty decisions, and puts people into roles they are not properly prepared for. 

The way to avoid the costs associated with those mistakes is to have talented individuals identified before the flood hits.  And, have them prepared for their new role before they assume it.

I recommend companies track productivity in ways that tell the most accurate story (rev and/or profit per employee, rev and/or profit per labor hour, etc.).  A good productivity graph that shows historical results can also be projected into the future allowing for some analysis. "What happens if our business grows faster than we expect?"  "What happens if we lose a key customer and shrink by 10%?"  "When will we need to add people or when must we cut?"    

Having identified triggers for when you need to add a supervisor or manager and planning for the short-term productivity impact in order to prepare for longer-term productivity gains allows management to identify and train those new supervisors and managers before they are needed.

Without a productivity target, owners and managers may get addicted to artificially high productivity numbers and ignore the risks associated with working the team too hard, for too long.

Manager response to Wind Tunnels is similar.  These also typically occur during periods of growth, which is the hardest time to reorganize the company, redesign work flows or implement new technologies.  It takes a lot of discipline (and confidence) to reorganize, reengineer or invest in new technologies when business is flat, but it is a lot easier to execute a plan in a Wind Tunnel if that plan was well-designed during less turbulent times. 

Tiger Woods and Employee Handbooks

Tiger Woods was recently named the 2013 PGA Tour Player of the Year, but many golf fans will remember 2013 as the year he was involved in 3 famous rules controversies.

The first incident occured at the Masters. Tiger simply forgot the fine points of a rule and made an illegal drop after hitting his ball in a pond. In the other two instances, high definition video cameras showed different angles at slow motion which resulted in split opinions on whether or not Tiger had violated a rule.  

If your organization doesn't have an Employee Handbook, it needs one.  If it has one that has not been updated in the past two years, it should be. Here's why: 

1.  A well-written handbook defines what the company expects from its employees. The rules that governed Tiger's drop at the Masters are clear. He violated them and was assessed a penalty, which he accepted.

2.  A well-written handbook defines what the employee can expect from the company.  High Definition television has changed the way viewers watch golf action. The USGA published a rule change in November regarding the use of high definition, slow motion video in enforcing penalties.  This is a policy change that directly resulted from a change in the environment.  Jack Nicklaus and Ben Hogan didn't have to deal with that level of scrutiny.  The environment at your company has changed to.  Policies that made sense five years ago, may not make sense today.  Employee Handbooks must be updated as the world changes, too.

3.  A well-written handbook can protect the company when challenged.  If an employee or former employee accuses your company of wrongdoing, the first place their attorney and yours is going to go is to the Handbook.  The USGA has a thick rule book. Yours doesn't need to be so thick, but you need to have one.  The courts and the regulators expect companies to have reasonable policies and they expect them to follow them.  The absence of a written policy and/or clear precedents leaves you at risk. 

My advice to each of my clients: have a handbook that is written in plain English (not lawyer-speak) that has good, fair policies, and follow them.

The Bogeyman and Bicycle Helmets

"What bogeyman is going to get me if I am out of compliance?" This was a great question by a client when we were discussing his HR audit results.

Think of HR compliance like a bicycle helmet.  According to the Insurance Institute for Highway Safety, there were 776 bicycle deaths in 1974, and only 429 in 2010.  The National Highway Traffic and Safety Administration reports a similar reduction in bicycle related injuries, dropping from 61,000 in 1995 to 38,000 in 2011.  These reductions are linked, in part, to the increased use of bicycle helmets during those periods.  

However, with millions of kids (and adults) riding bikes every year, the risk of not wearing a helmet seems pretty low.  Yes, if you are in an accident without a helmet, the risk of injuries associated with the accident are much higher, but the odds of being in an accident at all are not really that high.  But who wants to be the parent of a child injured unnecessarily when something as inexpensive and easy to implement as a helmet might have prevented it?  No one! That's why virtually every kid (and adult) I see ride by in my neighborhood has on a helmet.  

Even though the Department of Labor has added auditors since 2010 and has increased its audit activity, the odds of your company being hit with an audit by the DOL or another federal, state or local agency responsible for HR compliance are relatively low.  But the costs associated with remaining in compliance are low as well.  The costs of being out of compliance could be painfully high.  And paying these costs can be extremely frustrating when thinking back on how easy it might have been to avoid them.  

A simple HR audit can help determine your risk and the steps to mitigate the most common sources of fines and penalties are relatively easy to mitigate.  Why ride your bike without a helmet?

How to Guarantee Mediocre Performance

A manager only considers candidates with industry experience for technician roles. Even though the required skills to be a technician in his industry are not very difficult to master, he's convinced sticking with industry veterans will save him on training and ramp-up costs.  He thinks assessments are a waste of money, believing he can spot a good technician as well as anyone.  Over time, his operation evolves into a mediocre performing business unit filled with B and C talent cast off from his competitors.

A company executive meets someone at a networking event that impresses her. She decides to bring him on as a sales rep.  When he takes the required company assessment, his results are not ideal. The executive decides to hire him anyway, preferring to trust her instincts over what a computer says. Four months later, she terminates his employment, telling colleagues that he over-sold himself.

Both of these are examples of the same phenomenon. The manager starts with the candidate, then rationalizes why the candidate will be a good fit for the organization. Managers with really good hiring instincts will achieve a decent hiring success average using their instincts alone, but many overestimate how good those instincts are.

A better way is to start with the job, not the candidate.  Let the job speak! The way to let the job speak is to conduct a benchmarking exercise with a broad range of stakeholders. You'll want to include some people who currently do the job well, someone who supervises the people who do this job well, and some other stakeholders who depend on this job to do their jobs well. Really dial-in the job description and then benchmark a good set of assessments to the job, not to individuals.

I loved Jim Collins' Good to Great, but his advice regarding getting the right people on the bus, first, and then deciding what seats to put them in has been misinterpreted by some to mean, hire people you like and hope they do well. You still have to get them in the right seats!

If you want to guarantee mediocrity, let most managers make hiring decisions based on their instincts alone.  But if you want to avoid mediocrity, enhance good hiring instincts with good interviewing skills training along with a properly benchmarked set of assessments.

The Performance Review Paradox

Every survey I've seen shows that both managers and employees hate performance reviews.  Every survey I've seen shows that employees wish they received more feedback about their performance, not less.

How do we reconcile this paradox?  They crave feedback, but hate the systems we use to provide it.

Some think the solution is to simply eliminate the performance review.  But that's like saying, "Every time I go to the dentist, I have a cavity.  If I stop going to the dentist, I'll stop having cavities."  

If your organization is communicating at a level where the formal review is no longer necessary, great!  But if your organization is communicating that well, then employees probably don't hate their performance reviews either.  If they hate the reviews, eliminating them won't improve communication, it'll just create a vacuum where the little communication that employees received goes away. 

The core cause of these horrible performance review experiences is linked to the truth that effectively managing people is not considered a value-added activity so much in today's economy.  Most managers are carrying nearly a full load of productive work while also being responsible for the performance of others.  Since they are often evaluated primarily on their own work as a producer, they treat management activities as a distraction.  Their mantra to their team is, "Keep doing what you're doing unless you hear from me."   

If you really want to eliminate the performance review, then teach your managers and supervisors how to give timely and helpful coaching and feedback.  If they can do that well, employees will get better, more frequent feedback.  And, they'll stop hating the formal performance review as well.