 IN A NUTSHELL: Part 3 of a 3 Part Series: Your people are your most mission-critical resources, where do you have blind spots or weaknesses due to unplanned talent losses?Part 1 of this series can be found here. Part 2 of this series can be found here. |
We all know that a business doesn’t run without the people that keep it running. We also know that people aren’t a “fixed asset” in the sense that they aren’t permanent. They don’t work in one job forever — they get promoted internally, they get recruited away, they get fired, they quit, they get sick, they even die sometimes without clearing it with their manager first. Given the fact that we know intuitively that people can be a vulnerability, it’s sometimes amazing how much of the firm’s intellectual capital we allow to be concentrated into the brain of one individual, with no clear backup plan.
How many of these people work in your company? (Names changed to protect the innocent):
- Larry is the technologist who is the only one in your company who understands Technology X, which is core to your overall business model. He knows it deeper than anyone ever could because he’s worked at the company for 30 years and he invented Technology X 25 years ago. Larry is either eligible for retirement now or very soon and sticks around primarily because he honestly enjoys the technical challenge.
- Chuck is just like Larry, but was he was unfortunately downsized as part of a reduction in force back in the 1990’s and has been working as a part-time consultant since that time. Even though the company laid him off, you keep paying him to come back because he’s the undisputed industry expert in Technology Y. Chuck is unexplainably loyal to the company that laid him off, but occasionally threatens to “really” retire one day.
- Betty Sue is the administrative clerical person who over time has inherited process ownership of some arcane yet mission critical business process in your operation. Her domain could be anything from setting up new product codes to processing customer claims to managing product costing to administering the timeclock and payroll databases. Whatever it is, it’s really boring, yet really important. It is not uncommon for Betty Sue to be the curator of a legacy DOS batch file or a complex system of interlinked Access databases and Excel files running on a dedicated box off of floppy disks under Windows 95.
- Rod is a new hotshot that joined the company a couple of years ago as his 1st or 2nd job out of college. Wet behind the ears, but full of energy, he has attacked everything he’s been assigned with a ton of passion, and has voluntarily taken on multiple other projects outside his normal job assignment. He’s hitting it so hard that you are not even sure of all the areas that he’s improved. You can see a lot of runway for him in the company.
- Biff is the career sales person who has cultivated key relationship equity with decision makers at several of your key customers after years and years of selling and thousands of rounds of company-paid golf. His perpetual tan implies that he probably doesn’t really work all that hard, but when you need a favor from the customer he can usually get it and when they have a problem, he can usually do a lot to help it “go away” quickly and painlessly.
- Johnny works in the factory, either as a maintenance technician or as a production employee, as he has ever since high school (25 – 40 years ago). He is the “Horse Whisperer” for your key process equipment. He probably has female names for your key equipment and when they are sick, he knows what’s wrong just by listening to the sounds of their voices.
Now what would happen if you showed up Monday and one of these people’s chair was empty? What would happen to your business if a key piece of your talent pool was no longer part of your team, regardless of the reason? First, let’s address generically your potential backup plans that you (should already) have in place:
- For Larry and Chuck, these are long term knowledge vulnerabilities that you should identify as part of your annual organizational review. You have to develop understudies for these talents, even if it means carrying somewhat redundant headcount for some period of time. These are likely to be niche talents; assume that it will take time to find the right backup, and realize that it may take years to come close to transferring a meaningful portion of the guru’s knowledge. Get started yesterday.
- Johhny’s specialist skillset is similar to the above case, but it should be somewhat easier to identify a suitable apprentice and have him or her work along side Johnny for a period of time to learn the key skills. You are likely to lose some of Johnny’s speed of solution when a backup takes over, but you are less likely to totally shut down your business. Start a rotational cross-training or apprenticeship program to bring others up to Johnny’s level.
- Biff probably guardedly protects his key influence chips, but you have to have others on your commercial team accompany him on key strategic visits to start to spread your relationship equity around on your team. Selective forced territory / account rotations, while potentially inconvenient for the customer, can force relationship diversification while Biff is still on the payroll and can come in for support if needed.
- You should consider re-engineering Betty Sue’s work package so that it is more digitized, streamlined or transferable. Rod may be a great resource to help her pull off the redesign.
- Rod will not be in his job forever, you already know that. From day 1, you need to challenge him to document his improvements and to develop smooth transition packages for each of his projects so that his improvements can be handed off to his successors and institutionalized in the company after he has moved on and up.
There are several ways that may help you to get a sense that someone could be leaving:
- As always, the best method is to talk openly and frequently to your people. Ask them flat out: “How’s the job going?” “What are you working on?” “What could we do to make your role more challenging or more satisfying?” You maybe surprised what some pointed open ended questions may uncover, and your people will appreciate the interest, assuming you follow up.
- For people nearing retirement, you should engage in career planning with them to understand their plans and their commitment to help you secure a smooth transition. It’s a good idea to try to understand what may be going on in their personal lives as well, as spouse or family health and career issues can often have unplanned impact on your employees.
- It is usually obvious if someone has “checked out” of their job due to lack of interest or assignment scope change. Visible changes in enthusiasm or energy are a good sign that someone may be disengaging from their job. This is particularly important after any major organization restructuring. The survivors often harbor discontent which ultimately could impact their desire to work in the company long term.
- If you are connected to your folks on key social networking platforms like LinkedIn, Twitter or Facebook, you may also pick up signs that folks are evaluating other options. A rapid stockpiling of LinkedIn recommendations or a number of recent network connections to recruiters are tell-tale signs of trouble. I don’t advocate using these tools to spy on your people, but if they are in your network, remember that that information is there for your consideration.
Ultimately, you need to have a backup person for every key talent in your company. Ideally, everyone is so satisfied with working for your company that they work until a carefully planned retirement date. Neither of these dreams happens very often in reality. Careful planning can help you minimize the potential downsides of the organizational reality. Please share your experiences with managing these types of risks in your business and any tricks or tips that you have developed.
You point out one of the major issues facing businesses over the next two decades, and that's the looming exit from the workforce of an unprecedented amount of built-up knowledge and experience. I have heard many stories, especially while I was at GE, about employees at all levels of the organization leaving and an operation falling apart without their built-up intrinsic knowledge.
Here are a couple of humble thoughts that may help in mitigating the risk of employees departing suddenly. We are facing this challenge daily in my current company, as a highly cyclical business with an aging workforce.
No process should have a person's name on a process step (use a position or role description instead). It makes it too easy to become reliant on that person, with no one else learning the tools or secrets to executing the task.
Make cross training of employees in “like” roles an annual performance goal. You may have a subject expert in estimating or engineering certain types of systems, for example, but you need to have at least a minimum competence in that type of system in other estimators or engineers. One other challenge of an aging workforce is the 6 weeks of vacation that many have, so this activity can have pretty rapid payback.
As you suggest, automating (or at least documenting) a workflow can get around the reliance on an individual. An employee may feel threatened when asked to document their work processes, what with all the talk of outsourcing. To address this, emphasize that automating or documenting rote tasks will allow them to focus on more valuable, stimulating activities (or, alternatively, take their 6 weeks of vacation in a stress-free manner).
This is an important post, probably the most important one in this series, so I hope your readers take heed to the advice you offer. I look forward to seeing other suggestions as well.
Wow, Greg –
Talk about a value added comment. I really appreciate your elaborations and you bring up some great points. I forgot all about the 6 weeks of vacation!!
Maybe I was just not paying enough attention. People submitted their resignation often at unexpected time. Those who occasionally hinted outside opportunities eventually stay much longer. As a reflection, people making some noise because they want change or something better. Once giving up that hope, they'll just do their job and start to look outside. It's pretty easy to pretend for a few months.
I stumbled across this blog and I must say that I find your thoughts about risk pretty interesting. I enjoy seeing things from other people's perspectives. I like the idea of stress testing, planning for a wide range of “what if” scenarios, how to prevent them, and how to recover should the unexpected happen. I've got to say, this is some mentally stimulating stuff. Here's a scenario that you have a lot of experience with: It's about a manufacturing company that has a few factories in different locations. Each factory has it's own issues, weaknesses and strengths. Like all companies today, it's been hit hard with the economic downturn, but it's still surviving. I'm interested in your opinion on how to move forward – what's best for the company, it's employees, and most importantly: it's customers.
*Plant A is the pride and joy of the company. Out of the two plants in the country, it's the newest and the biggest. It has room to grow. There is a lot of potential manufacturing capacity here. There is so much unused space in this plant, that it would actually make sense to close down the other plant and relocate it's machines to this one. This would make life a whole lot easier since there would only be one factory to maintain instead of two. The company knows this, and will spare no expense in making sure this happens. There's only one problem – it's workforce. Plant A has a high turnover rate in terms of employees. They don't stay very long compared to the other plant. They also don't take pride in their work. Plant A has a problem with poor quality and customer returns. As a result, the customers prefer to buy from the older plant due to the fact that it consistently makes a quality product that they have come to depend on.
*Plant H is the oldest plant in the company. The overwhelming majority of it's workforce consists of people that started there right out of high school . They take pride in their work, they make sure the job is done right, no corners are cut. A lot of people in this plant compare very closely to your “Johnny” character in part 3 of your risk series. As a result, if the customer gets product from this plant, it will happily come back for more. This plant is notorious for it's unmatched quality and customer satisfaction. It's a “proven, innovative leader” in it's business, and has been for decades. Unfortunately due to mismanagement, this plant has been neglected over the years and is in dire need of repair. It's infrastructure needs attention, and it's machines and equipment are beyond outdated. Despite all this, the workforce and local management have been able to overcome the obstacles and still produce a superior product to this day.
*Plant S is the company's newest baby. Little is known about this plant's workforce or product quality, but it can't be any worse than that of Plant A. The company is particularly excited about acquiring this plant because labor can be had here for pennies on the dollar since it's located in the People's Republic of China. It also has an advantage over the other two because of it's location. Approximately half of the company's customers are located in Asia. Why ship product across the Atlantic ocean when you can just buy a manufacturing facility in the region you're customers are based in? Demand is expected to grow in China particularly because of it's exploding economy. Who can blame the company for wanting a piece of that action? I can see Plant S as the future of the company depending on how it performs in the future. If it can match Plant A in terms of quality (which shouldn't be hard to do), then it would make sense to close Plant A and make Plant S the sole manufacturing facility for the company. The only weakness I can see with Plant S is it's public image to Americans. It symbolizes more jobs outsourced to a third world country.
The company prides itself by saying that it's product quality is superior to the competition. And, thanks to Plant H, it is. But, many feel that Plant H is on borrowed time. They feel that the company really doesn't care about quality because if it did, it would show Plant H some love. Since this is all about risk, isn't it risky business to let the one manufacturing facility that produces the highest quality products, and has the best reputation with customers go to waste? Or, maybe saying we're “a world leader in high performance materials used in a broad range of markets” is nothing more than a sales gimmick. I'd like to get some insight from you on this matter. Obviously, you think about risk often. Is it “risky business” to force a substandard product on a customer when they request a higher quality product from a plant that is threatened to being downsized or shut down?
Frank –
As you well know, people are always interested in achieving as much as possible in their career and in accelerating their climb up the ladder. In an opportunity-rich market such as China, this translates into frequent unplanned defections, even in the best managed companies. It also means you probably need to spend even more of your leadership attention on this phenomenon than a Western leader. If people on your team are “making noise” you need to “listen to the noise”. If you can do something to better satisfy their desires, chase it down, if not, you better get your “Plan B” in motion, because they will probably leave soon. And trust me, when they leave, it will be at the absolute worst time.
mcorbin –
Thanks for stopping by and I genuinely appreciate your investment of quality time to pose such a well written and thought-provoking post. It’s always difficult to diagnose a complex business issue from afar (;->), but some questions I would want to dig into first might be:
From your description, I would also make a few observations which may or may not be relevant:
I sincerely hope that management in your example is making the right calls. Only time will tell. I also hope that all constituencies in your example: management, employees, customers, company shareholders can be sensitive to and understand the concerns of all the other stakeholders and accept the outcomes, even if they don’t always like the outcomes.
mcorbin –
Thanks for stopping by and I genuinely appreciate your investment of quality time to pose such a well written and thought-provoking post. It’s always difficult to diagnose a complex business issue from afar (;->), but some questions I would want to dig into first might be:
# You mention that customers prefer to buy from Plant H: Is that due solely to the turnover and lack of pride of workmanship issues that you suggest? Are both plants historically making the same products, selling to the same customers, using the same physical process and equipment? If it’s really a labor pride issue, management has it’s work cut out for it to build somehow the same attention to detail that the older plant’s reputation has been built on. Sometimes as facilities change their mission to serving customers or markets with higher expectations, it may take some time and training to recalibrate the receiving workers to their new reality. If process technology plays a component in real or perceived product quality differences, management should do whatever it can to practice “Copy Exact” mentality for any transferred production.
# I wonder what the annual cost to keep each facility open is? Is the company running at a high ( i.e. >80%) effective capacity utilization? If not, does the company have enough revenue and profit to support the annual fixed cost burden of the two distinct facilities? If not, unfortunately, a rationalization / combination may be the only viable option.
# When you look at the history of the three plants, are there any “soft issues” that could have introduced any management desire to favor one site over the other? In some situations (very common in the auto industry), plants which have not had cooperative working relationships or (in the spirit of risk) have had a history of labor upsets or work stoppages might have seen activity moved to plants with more stable labor environments.
From your description, I would also make a few observations which may or may not be relevant:
# Plant H sounds like they have a lot to be proud of if they have really built such a long history of customer satisfaction despite working with old and outdated equipment.
# In many cases, the “right answer” when viewed from the customers’, employees’ and company’s perspectives are different answers. Ultimately, it is management’s job to manage these tradeoffs.
# In keeping with the theme of risk, I would suggest that it probably would not make sense to put 100% of the company’s eggs in Plant S’s basket. Every plant, regardless of how well it’s run, will have hiccups occasionally. China’s economy and regulatory environment has many uncertainties which would increase the company’s risk profile if all operations were concentrated there.
# Each “big decision” made by a management team has an element of risk. But if companies don’t react to their changing environment, they run the even bigger risk of succumbing to “boiling frog syndrome“.
I sincerely hope that management in your example is making the right calls. Only time will tell. I also hope that all constituencies in your example: management, employees, customers, company shareholders can be sensitive to and understand the concerns of all the other stakeholders and accept the outcomes, even if they don’t always like the outcomes.
Thank you for responding to my post so quickly. I will try my best to answer your questions in order.
*Workmanship Issue – I can't explain why there is such a night and day difference in mentality with employees between these two plants. I think the employees at Plant A are “laid back” by nature and prefer to take it easy. They seem to have a careless attitude towards work. Employees at Plant H feel the need to work harder because there aren't many other jobs in the area for them to go to. Plant H is located in an industry deprived town. Both plants make similar products. Plant A has been trying to make the same products as Plant H, but has had limited success. Their intentions are to sell to Plant H's customers. They've resorted to moving machinery and QC personnel from Plant H to Plant A and has still had problems replicating the quality of Plant H. What senior leadership doesn't understand is – You can move machinery from one place to another, you can tell middle management to go to Plant A and teach the workforce there how it's done, but if they refuse to listen, the company makes no progress. And the expense of all these failed attempts becomes unjustifiable.
*Annual Cost – “Ridiculously High”. I have no idea what the cost is to maintain operations in these plants. Neither are running at high effective capacity utilization. I can say this about Plant A because there is a bunch of empty space, that without machines running – making product in them, is a waste of space. I assume the company pays to heat this space when it's cold, so that's money lost. Rooms that have machines running in them don't have to worry about heat because it's generated by the machines. Plant H also isn't running at full capacity. I struggle to think of any organization that is running at full capacity in this economy. (Except for the US mint printing money) I can't fault senior leadership for not running these plants at full capacity. It's not their fault. If customers aren't buying, they aren't buying… As far as annual fixed cost burden goes, millions of dollars have been invested/waisted on Plant A over the years and the company hasn't seen the return they expected from the investments, and nobody wants to admit it. Unless success can be made at Plant A, it will be a business nightmare. The opposite can be said about Plant H. Only the bare minimum is invested in Plant H and it continues to produce. In my opinion, it's a little gem. But, you know what they say about opinions, everybody has one…
*Soft Issues – Plant A is favored because it's at the same location as the company headquarters. Maybe they think it would be foolish to close it down instead of Plant H. It would also be hard to close Plant A because of all the past attempts at success there. As I mentioned earlier, the company has thrown an ungodly amount of money at it for this reason with little success. I guess they aren't ready to throw in the towel just yet. Plant H has been on a rocky road with the company over union contracts. That would be a valid reason for the company to want to put an end to Plant H. From what I understand, 2003 was a concession year for the union, 2006 was a concession year for the company, 2009 was a stalemate. The idea that the union and company need to do battle with each other is ridiculous. Both need to meet in the middle and not be greedy towards one another. However, I don't feel that this is reason enough to close Plant H. Plant A has a union as well and there is always the risk of them acting out. Even if they didn't, what good is a workforce that can't meet job efficiency goals and produce a product that's on par with Plant H's?
*Plant H – The workforce there is proud. They have faith in the product they produce. The customers have faith in the product that is produced there as well. Why ruin a good thing?
*The Right Answer – There is no right answer. Senior leadership is looking down from on top. Labor is looking up from the bottom. It's no surprise they don't see eye to eye. Management will want the most work for the least amount of money. Labor will want the highest pay possible while trying to get away with doing the least amount of work. As for the customers, they're always going to want the highest quality for the lowest price. I would look at the plant that has cost the company the least amount of money over the years, and focus on it.
*Plant S and Risk – You're right. Placing all bets on Plant S would be extremely risky. What the heck was I thinking? I guess I was thinking about China like it was some utopia for factories or something. Cheap labor, lax laws on pollution, etc…
*Big Decisions – I think the decision to close Plant H was made long before the company's current president joined the team. So, it would be absurd to blame him. However, the company has to live with these tough and risky decisions. And you're right – only time will tell. The company doesn't know what it's like without Plant H. It's always been there. Plant A has yet to “have the training wheels removed”. It will either support itself, or it won't. It would be smart to see if it can operate on less than what it makes before doing anything drastic. My feeling is, if the company kills Plant H, the rest of the company will die shortly after.
*Another Idea – is if the company doesn't feel that it needs Plant H, why not sell it to a company that would care about it? If it isn't feasible to operate Plant H, the company should cut their losses, sell the operation to someone, walk away from the deal with some money… I think I can answer that question myself. Because then it would have to compete against it sometime down the road. I don't think the company feels comfortable with that idea.
Thanks again for the quick response to my first post.
Thanks again for a thoughtful post. Not sure exactly where in this situation you are coming from but it sounds like you've thought through many of the angles and you “get it.”.
Only time will tell how this story plays out. I sincerely hope it works out as well as possible for all involved. Environments change around companies and around individuals all the time, and the ones that can adapt to their new realities quickly are usually the ones that survive.
Regarding your final idea, if there are valuable assets there that could be useful to others in the industry, I would be surprised if management were not thoughtfully evaluating that option as well.
Thanks again for your comments.
I was a former employee at Plant H. I had 5 years in. I worked there with the intention of leaving and continuing my education since I'm 24. In a way, I'm glad things worked out for me the way they did. If the bottom hadn't dropped out of the economy, I would still be there. I was proud to work for a great company, with great people, making a great product. They treat everyone like family there. Even though I will probably never work there again, I guess I'm still a little sad to see it go. That factory has been there for as long as anyone can remember. It's been resilient through past recessions. Customers always managed to want product from this old, beat up factory.
I reached out to you in an attempt to see if you could set me straight on this whole issue. I was hoping there were many angles that I hadn't thought through. I was hoping that I didn't “get it”. My overall goal here is to understand why this plant needs to be downsized or closed down. Is it too costly to operate? Does it not make enough money for the company? Is the building so old and dilapidated, that it will soon be unsafe to work in?
As far as my final idea goes, is it possible to leave the place intact instead of parting it out? Could it still be a manufacturing facility, or will it just be an empty shell waiting to cave in on itself?
I hope my comments here weren't too crude, as I don't want to offend anybody. It's difficult to understand how any of this makes sense from my perspective. So, I thought it would be a good idea to talk to you. One thing I have learned for sure from checking out your personal website is, you're a savvy businessman. You eat, breathe, and sleep business. Your company has a pretty good President and COO, which is something to be proud of. You are not to blame for what's about to happen to this plant. As I said before, I think the decision was made quite a while ago. There has been a lack of interest in it long before I worked there. I think they were just waiting for an important piece of infrastructure to break down, so it could be used as an excuse to close the plant. Maybe this decision was made by the board of directors. Maybe it was the CEO. A lot of people like to blame him. I guess it doesn't really matter. Like they say, “all good things must come to an end”. I guess this time, it's Huntingdon's turn.
Anyway, I wish you luck on all of your endeavors.
Thank you for your insight and speedy responses to my posts.
Jeff – thought you might enjoy this article http://www.forbes.com/2010/03/27/linkedin-sciam…, as it discusses many of the same issues you raised in your post.
Jeff – thought you might enjoy this article http://www.forbes.com/2010/03/27/linkedin-sciam…, as it discusses many of the same issues you raised in your post.