Are you frustrated when: Your employees don’t always do what they say they will do?
When your employees make decisions that have a negative impact to your financial results and probably don’t even know it? Perhaps it’s not entirely their fault.
While speaking to a group of business leaders about creative ways to improve shareholder value, I had an exciting and humorous experience.
Amongst the various topics that I addressed during my presentation, I included the impact of discounting and how much volume needs to be sold to offset the loss of profit. (I had them work through the calculation, and most were shocked to learn the result).
Soon afterward, when I addressed the topic of cash flow, a participant commented that he had a constant battle collecting accounts receivable in a timely manner.
A few heads nodding in agreement.
An idea came to mind, and I asked this question.
“How many of you would risk losing your paycheck in favor of your client with the promise that the client could keep your paycheck if they did not receive the product or services that was promised?” There was a deathly silence for a few moments, and then someone said: “ARE YOU KIDDING ME?”
Someone started laughing, and before I knew it, everyone was laughing.
After the laughter settled down, I asked this question: “If you were so certain that your organization consistently delivered what was promised: do you believe that you would earn the right [in most cases] to charge premium prices without having to discount?
Would there be a decent likelihood that you could collect monies owing to you in a timely fashion?”
After some hesitation, a few hands were raised, followed by almost everyone in the room. (It came as no surprise that there were a few who still needed some convincing).
My response: “Then why don’t you just do it”? The group stared at me like a deer looking at headlights.
My point was this. While it may appear that many of the businesses in the room suffered from many problems (discounting, decreased profits, lack of cash flow, etc.), their issues, for the most part, boil down to only one point. Just deliver according to your promise, and many of your problems will go away.
This may be very simple, but I didn’t say it would be easy.
Solution: Work with your people to identify and fix the bottlenecks that stop your organization from delivering what is promised (The Theory of Constraints – Eliyahu Goldratt)
Educate your people to understand the financial implications of performing according to commitments (Impact on resources, profits, and cash flow)
Create appropriate incentives that will influence the right decisions always with profits and cash flow in mind
Not everything interesting is useful. Keep evaluating the value of information you share with your people and ask yourself: “how does this information help move the profit needle?”
Don’t keep doing the wrong thing more efficiently. A process that worked years ago, may not work today. Encourage a culture of creativity, and remember that there are acres of diamonds of knowledge and wisdom amongst even your lowest ranking employees. Manage expectations by being realistic.
By following the above principles, you will be amazed how your financial results will improve dramatically in a sustainable way.