Friday, June 20, 2014

People are our Biggest Asset

In the world of distribution, people really are our biggest asset. Depending on your line of trade, people costs can range from 60 to 70 percent of the operating spend. When I speak to Distributors involved in acquisitions, the first thing they examine is the list of people involved in the business and their likelihood of “coming along” with the new owners. So not only do people represent our biggest outlay of cash, they are seen by others as our biggest asset.

Think about it for a moment, a Distributor without people is really an empty warehouse, a stack of outdated office furniture and a customer list; all of which sell on the open market for much less than a well running distribution business. But there is a problem with the people as an investment picture. If people were our warehouse, the building would be surrounded by tall weeds, the sign would be missing letters and the whole thing would cry for a fresh coat of paint.

Think about this. According to the top economist covering the world of knowledge-based distribution, we have moved from recovery to growth mode. He recommends investing in our business.

The problem is most people interpret “investing in our business” as buying things. I wonder if we shouldn’t spend a little time thinking about investing in people.

As with any kind of investment, the wise business person thinks about and develops a prioritization around their investment strategy. We’re not advising to spread money like a thick layer of peanut butter over the top of every single employee on your list. Instead, let’s think about a couple of issues.

Distributors tend to underinvest in the right people.
Part old-school American management style and part human nature, leaders invest massive time and money trying to turn low performing employees into successes. But looking at the situation with a jaundiced eye, we may be making a poor investment. Often low performers are really not performing to expectations and all our time and treasure goes to getting them up to mediocre. Maybe even temporarily mediocre at best.

A better investment strategy might come via investment in top performers. Think about how your top salesperson might benefit from a high level negotiations class. Imagine giving the top two or three folks in every department additional training in distributor finances. Wonder what might happen if your warehouse managers were exposed to state of the art facilities in other parts of the country.

Anybody with direct reports would benefit from investment in fundamental management skills. Things like conflict resolution, employee reviews and setting appropriate goals could pay major league dividends.

What productivity tools would your top performers like to try? What do they see as the potential gains in productivity? Often we hesitate to put tools into the hands of our star players because we’re worried the rest of the team would expect the same. It’s high time we get over this “perceived fairness” issue. Top performers deserve more tools and greater investment.

Cutting losses with the wrong people
Do you have someone onboard who isn’t performing? How long until they will get to acceptable levels? If you don’t have an improvement schedule with measureable milestones, you may have an issue. Here’s why. Most poor performers are nice people. They have families. Some can give you a zillion excuses as to the slowness of their progress. It becomes very easy to get allow emotions to stand in the way of making the right business decision.

Not to harp on a sore subject, but I regularly see workers who have not performed to expectations for 3, 4 or even more years. Their management gives them a periodical “pep talk” but nothing substantial is accomplished. Frustration builds on both sides. What’s worse their continued presence assures coworkers there is no penalty for doing a shoddy job.

If you have someone like this on your staff, I suggest setting some improvement dates. Examples might be as follows:
• Creates 200 new invoices per month by August or terminated.
• Opens 5 new accounts per month for the second quarter or terminated.
• Drives gross margin percentage 1 percentage point higher by October or repositioned.
• Receives daily shipments without error for third quarter with less than 1% error or terminated.
Some tough language; you bet. But the point is, management is forced to move on deadwood now.

Invest at the top too…
Building skills at the top level is more difficult than with line employees. Even though a “Google Search” returns 71 Million “leadership” training resources, I wonder if class room training is the best answer. First, many of the folks who could benefit most are “up to their necks in alligators;” classroom training is often sabotaged by emergency issues in the office. More importantly, any kind of generic training is fraught with information which is either review or not pertinent to our business. A solid distributor sales manager probably isn’t going to benefit from war stories (case studies?) from the world of real estate or insurance.

So if leadership training for top management doesn’t come via classroom training, where does it come from? Here are a few thoughts:
• PriceWaterhouseCoopers and the Association Resource Center found the mean Return on Investment in coaching was 7 times the initial investment and over a quarter of the coaching clients report a stunning ROI of 10-49 times the cost. Even if a distributor can only squeeze out half the value as others, it’s a good investment.
• Networking with others in our industry is my personal favorite. Networking can be fun but when it comes with a planned agenda and preparation, it drives massive ROI. To this end, we hold several sessions called “Meetings of the Minds” where non-competing distributors share best practices in their business.
• Benchmarking with others drives value. This takes networking to a new level. We are big believers in the power of distributor association reports.

Let’s go back to the economists and their reports. Now is the time to invest in business process. Any efforts made today will pay off with smoother sailing when the next recession hits; and recession is a certainty. If you wait till the stormy winds are beating down the door, it’s too late.

No comments: