Leadership

yet another thing they didn’t tell you in business school

Conventional wisdom holds that: Profit = Income – Expense. Formulas don’t get much simpler than that. Increasing income or reducing expenses increases profits. Intuitively, that sounds right and LOTS of business decisions are made on this basis. Stock analysts and the companies that pander to them love this formula. Announce significant expense reductions (perhaps through massive layoffs) and stock prices jump up in anticipation of the profits to come.

The problem is, this formula is nice in textbooks but a gross oversimplification in the real world. It pretends there is no relationship between income and expense and makes the implicit assumption that the other variable is being held constant. But that’s not how it works. The real interpretation of this formula is this: Increasing income while holding expenses the same OR reducing expenses while holding income the same increases profits.

Income and expense are connected in a very real way and cannot be completely isolated. Why? Income is determined by your customers, not by you. Let’s play with some “what ifs”:

What if you cut your inventory on hand to zero? Your overhead costs would drop tremendously. You’d save a ton of money and your profits would go through the roof, right? Nope. Your customers would get torqued off that you had nothing in stock and they’d go shop elsewhere. Cutting expenses cut income.

What about maintenance expenses? You’ll save a bundle by “deferring maintenance” for a year or two. Bingo! Except you’re going to have a hard time convincing your best customers to shop in a dingy, dirty, broken down building. They go across the street to your competitor’s modern, bright, clean store. Cutting expenses cut income.

What if you laid off all your employees? No salaries or benefits to pay – there’s a major expense gone. Big time profits, yes? No. Without employees to help customers it won’t be long before there aren’t customers. Cutting expenses cut income.

What if you just forced all your employees to take a pay cut or cut benefits? You’ll save some money then, oh yeah! Um, well, no. Disgruntled employees don’t take care of the customers. Your best employees have other options and they leave. Your customers are now consistently receiving poor service. Wait, I mean your former customers. Cutting expenses cut income.

What if you invest heavily in technology and facilities that make shopping easier, convenient, pleasurable, and more fun for the customer? What if you spend more to find, hire, train, and reward outstanding customer service driven employees? Is it possible that increasing expenses could actually increase income? Only if the variables of income and expense are in some ways interconnected.

It’s worth saying again:

Expenses and income are often directly connected. They are not independent variables because your customers determine your income, not you. Customers have choices of who they give their money to so income can never be assumed to be constant. If you cut expenses in ways that negatively affect the customer, your income will go down. Likewise, if you increase expenses in ways that positively affect the customer, your income may go up.

Some expenses are worth reducing, but all expenses are not equal. Choose wisely.

it takes a strong leader…

It takes a strong leader to…

…realize that refusing to lose can prevent you from winning.

…hire people who aren’t anything like you and to appreciate them all the more for it.

…develop others past the leader’s skills and potential.

…give glory to the team and carry the responsibility of failure alone.

…be wrong.

…hold others accountable while still seeing and supporting their potential greatness.

…be silly, look foolish, or by joyful.

…recognize, admit, and correct a poor decision.

…be transparent.

…continuously strive to improve their leadership skills.

…shut up and let others talk.

…let others shine.

…not confuse authority with self-worth.

…seek collaboration.

…believe that their way may not be the best and seek to learn from others.

…be authentic.

…understand that people laugh louder and longer at the leader’s jokes.

…wonder where they are getting in their own way.

…support without smothering and empower without abandoning.

…not be defined by their wins or their losses.

…understand that business gets done by and through people.

 

What else does it take a strong leader to do?

follow the money

Detective shows sometimes say that they need to “follow the money” to see who is behind the crimes they are investigating. The phrase makes sense in the leadership/HR world too. Whenever people are consistently doing something different than intended, it makes sense to follow the money to see why. Chances are, somewhere along the line, they are being rewarded for the behavior.

I mentioned this a couple of months ago when a co-worker bought a car and was pestered, hounded, and bullied to give the salesperson top scores on the follow-up customer service survey. The company’s emphasis on measuring customer service and ultimate reward/punishment for the salesperson was creating behavior exactly opposite of what the survey was supposed to create. How do you explain an emphasis on customer service creating really poor customer service? Follow the money.

On a lighter example, my son participates in Tae Kwon Do. One day while they were doing light sparing, the instructor kept complementing my son’s punches and then telling him to work on his kicks more. However, the instructor was so complimentary towards my son’s punches, that it was little surprise he kept using them, even when he was supposed to be working on kicks. Why do people do something other than what we ask them to? Sometimes it’s because we ask for one behavior and reward another. Follow the money.

As a third and final example, I recently purchased a new car and ended up buying an extended warranty. I think extended warranties are generally unnecessary and a waste of money, so why did I buy it? The sales and finance managers were so insistent on selling it to me and I resisted for so long that they finally dropped the price to where it was silly to say no. What started out as being $2500 for an extended warranty to 100,000 miles, ended up being $216 for an extended warranty to 75,000 miles. I find this example interesting because: 1) the purchasing experience was pretty mellow and friendly and low-pressure except for the warranty; and 2) the price dropped by a factor of 10. How is this possible? Follow the money.

I nixed the extended warranty early on and then the sales and finance managers brought it up again near the end: “If you could get it for $X, would you do it?” No, no, and no. They tried the prudent / concerned approach: “These cars don’t break much, but when they do it’s expensive and I want you to be taken care of.” The you owe me approach: “I’ve come down on all these other things, why won’t you get the warranty?” The subtle emasculation: “It’s only $10 more dollars a month, but if it’s a matter of money, I understand…” Every “no” brought them back with a different approach and a lower price until it became almost comical.

Why? How? I’m guessing at this point, but the warranty is through a third party. I suspect the sales and finance managers get a bonus for each warranty they sell (and I suspect it’s a flat bonus, unadjusted for the price the warranty sells for). I also suspect that there is a lot of margin built into the price of the warranty so there’s room to negotiate. Finally, I suspect that the dealer ended up subsidizing the warranty. That is, I’d bet that on paper the price of the car was reduced to account for the warranty and keep the monthly payment almost the same. Again, I’m completely guessing, but if all my guesses are correct then two managers worked together to increase their income at the expense of the dealer’s profit. Counterproductive behavior, so why do it? Follow the money.

It makes me wonder how often poor behavior and performance is a nearly direct result of how we choose to praise, reward, and compensate our employees. People do what you reward them for. Are we rewarding them to do the right things?

Follow the money…

the work ethic that never was (kids these days)

Kids these days… No one gives an honest day’s work anymore… Not like when I was coming up in the organization… What ever happened to people’s work ethic…

You’ve heard these words before. Maybe even said them. I suspect each generation will say these words about the next generation until the sun flares out and the earth dies several billion years from now.

I was recently re-reading Elbert Hubbard’s “A Message to Garcia” and it made me consider the possibility that the work ethic isn’t dead, that it isn’t dying. Perhaps it never really was alive.

Hubbard’s short pamphlet was originally written as rather inspired filler for a magazine and created such demand that it went on sell forty million copies in 37 languages. Clearly, his message struck a chord. It’s a great short read that’s less than three pages long. I came across it here, but you can find it all over the internet.

In it, the author laments how few people are willing to go above and beyond or even do the very basics of their job reliably and without coercion. And how surprising it is when someone does a job and does it well on their own initiative. Speaking of the man who delivered a message to General Garcia without hesitation, without question, and at great hardship, he exclaims:

By the Eternal! There is a man whose form should be cast in deathless bronze and the statue placed in every college in the land. It is not book-learning young men need, nor instruction about this or that, but a stiffening of the vertebrae which will cause them to be loyal to a trust, to act promptly, concentrate their energies; do the thing – “carry a message to Garcia!”

 

His frustration with the work ethic he saw displayed throughout society is clear. But it wasn’t written about the Millennials. Or Generation X. Or the Baby Boomers. It was written in 1899.

Kids these days…

idiot previous manager

In my life I’ve owned many, many cars and motorcycles. Most were used and some were practically used up. If you’ve ever bought a “pre-owned” vehicle (particularly a cheap one) you know you may be buying someone else’s problems. The previous owner may have ignored maintenance or made modifications and repairs that didn’t make much sense, were stupid/silly, or just unexplainable. Sometimes, the previous owner was – I’m being generous here – an idiot.

Some car-types call these people DPOs, which stands for Dips**t Previous Owner. As in, “I’m spending this beautiful Saturday afternoon replacing the seatbelts that the DPO removed.” Or, “How did the DPO manage to crack the frame on this motorcycle in three places?” Or, “How did the DPO get so many cigarette burns in the upholstery without setting themselves on fire?” [true stories]

Deep down I know two things: 1) the behaviors that created these results made sense to the person at the time; and 2) when buying used vehicles you always need to factor in the time, money, and effort that may be required to find and fix any possible weirdness caused by a DPO.

Which has me wondering if we need to carry this concept over into the business world. How often do leaders come in excited to manage their new team only to discover that they need to clean up the mess, carnage, or general dysfunction left behind by the previous manager? How often are leaders blindsided by issues the previous manager created and then left behind to be mopped up by someone else? How often are leaders stuck with the legacy of the person they are replacing?

The previous leader may have been great or they might not have. There are many, many terrible managers in the world. Even those with the best of intentions don’t always do a good job. I like to give people the benefit of the doubt and assume that they are doing the best they can with what they have, but it’s worth acknowledging that the previous manager may have made mistakes. Might have done some things that don’t make sense to anyone else. Perhaps they were – I’m being generous here – an idiot.

Maybe we call them DPMs or IPMs (Idiot Previous Manager). As in, “Thanks to the IPM’s tyranny, no one on my team is willing to make a decision or even voice an opinion.” Or, “Because the IPM refused to hold anyone accountable, I’m stuck dealing with several people who should have been fired years ago.” Or, “The IPM ran this place like a fiefdom and it’s going to take months to rebuild relationships with other departments.”

Just like buying a used car that may have had an idiot owner in its past, it’s useful to recognize that the previous manager may have been an IPM and plan time, money, and effort to correct problems and issues they left behind.

Thoughts?

it’s not my fault

“IT’S NOT MY FAULT! I’M NOT TAKING THE HIT ON THIS ONE!”

Few things are more awkward than being in the presence of people who are arguing. Except maybe when they are arguing about you.

“THEY CAME IN AND SAT DOWN WHEN SHE WAS ON BREAK. SHE DIDN’T NOTICE THEM.”

We were at a “travel center” (which is a vague marketing euphemism for truck stop) in the middle of somewhere New Mexico. It had been a long day of driving and we were trying to decide whether to push on despite an ugly storm brewing to the east or find a hotel and not arrive home the next day until several hours later than planned. Right now we needed food.

The gentleman tending the buffet told us we should get our meals, have a seat, and our waitress would get our drink order. Easy enough, except she didn’t. One waitress was tending the booths on either side of us and was able to completely block out our presence from her consciousness. Another focused on customers on the other side of the room.

Eventually, we stopped the waitress working near us and mentioned that no one had come by to take our drink order. She went off and hassled the other waitress. Waitress #2 came by, seemed apologetic, and we told her we were ready to go but would like to get some water in to-go cups. She disappeared and we could hear her talking to a third person who I’m assuming was the manager.

Cue the yelling. Start the blaming. They were behind a thin wall that blocked the kitchen from view but did nothing to dampen the sound. The argument was focused on blame, finger pointing, who was going to be in trouble, and who had dropped the ball by not getting us drinks.

And we still didn’t have any water. They were too busy fighting over who should have been helping the customer to actually bother to help the customer.

Mistakes happen, things get overlooked, processes fail, the customer / end user does something unexpected or unanticipated, etc. etc. What happens next tells me a lot about the company, the employees, and your leadership abilities. In the event things don’t go right, do your employees: 1) solve the immediate problem; 2) solve the immediate problem and then fix the underlying issue so it doesn’t happen again; or 3) make sure they don’t get blamed for it?

easy or great?

It’s been said that you become like the five people you spend the most time with. Is that good news?

Did the last person you hire make you think, “Man, I’m going to have to raise my game! I love being around people who inspire my best!” OR did you think, “I’m glad that slot’s filled. Next.”

The people you’re filling the company with – the people you’re surrounding yourself with – are pulling you up or dragging you down. There is no neutral, there is no holding steady – they are forcing you to be better or letting you slack. Do you go for easy and comfortable or do you go for greatness?

48-second leadership lesson

“I can’t motivate people because I don’t control how much they make.” “People have to be self-motivated.” “The work ethic is dead.” “Kids these days…”

Managers often complain about being unable to motivate or get the best out of people. It’s not always easy, but let’s turn it around and think about it a different way.

Is there anything that you could do right now that would demoralized, demotivate, and disengage your employees?

Could you easily lead in a way that would cause them to not want to give their full effort?

If you really wanted to, could you communicate in a way that resulted in confusion, misunderstanding, and mixed messages?

The answer to all these questions is: absolutely YES!

Take a moment to think about all the easy, simple, and inexpensive things you could do to destroy performance. Got it? Good, now go do the opposite.

leadership free throws

Here’s where many leaders go wrong: they don’t acquire, practice, and develop leadership skills.

It’s been said many times before, but leadership is not about the job. At its most fundamental level, the ability to lead is the ability to influence others. Your job position or title doesn’t make you a leader – it merely gives you the formal opportunity to lead and the responsibility to lead.

Leadership isn’t a title, it’s a skill set. But, for some reason we don’t tell managers and supervisors that. We keep it a secret and they flounder either blaming themselves for not being a genetically gifted leader or they blame their team for being so stupid and difficult. Unfortunately, both approaches are just playing the victim and keeping the solution outside of the leader’s control. Effective leadership isn’t innate and it’s not something that only works with the employees we like. Effective leadership is simply a well-honed skill set.

If leadership is a skill then it is something that can be taught and improved. As with any skill, some people are probably more naturally inclined than others, but all of us can improve through practice and effort. The challenge is that we don’t. We don’t study. We don’t practice. We don’t obsess about what went right, what went wrong, and how to do it better next time. We don’t work really stinkin’ hard to get better as a leader. It seems easier not to.

Professional athletes relentlessly practice the fundamentals of their sport. Why? So in the difficult moments, they can react correctly and deliver results reflexively. They spend hours mastering the most basic skills of their sport over and over and over again. You will never hear a successful pro-athlete say, “I never practice – I know that stuff already. I just like to go out there and wing it – keeps it more natural.” But you will hear amateurs say it.

It’s the same with leadership. I’ve met plenty of leaders who seek to improve the fundamentals, who strive to find better ways to communicate, give feedback, coach, develop, hire, discipline, align the team, adapt and adjust to different personalities, influence without authority, etc. Leaders who are always looking for new ways to become even more effective.

I’ve also met plenty of leaders who say, “I already know this stuff. Why should I have to learn this touchy-feely junk?”

Guess who gets better results?

We can choose to do the work to become better leaders or we can choose to make right now as good as we are ever going to be. Do you develop the skills to get better or do you settle for getting by? Your call.