<a href="http://www.linkedin.com/in/balajikrishnamurthy" rel="author">Dr. Balaji Krishnamurthy</a> - <em>Chairman</em>, <strong>–Think.Shift.</strong> has been recognized by TIME,CNN, Wall Street Journal and other national publications for his unique and innovative style of corporate leadership. TIME magazine included him in their list of 25 Global Business Influentials for his influence on corporate leadership. Unlike most consultants, he is an operating executive with 30 years of experience as a corporate leader in both large and small corporations, during which he has personally modeled his innovative leadership principles. Food for Thought is our way of sharing interesting concepts on corporate leadership and management with others who might find it useful. The thoughts offered are intended to be controversial and thought provoking. They are intended to help our readers intentionally realize their potential, what we call <a href="http://www.youtube.com/watch?v=UpdnkilG8Uk&feature=youtu.be">Potentionality</a>.

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When Does Empowerment Become Entitlement?

Do you sometimes feel that some of your employees exhibit a sense of entitlement? Have you questioned whether it’s you or them? Did you do something to cause it, or are they just inherently that way? Or do you just chalk it up to the nature of the current generation? All of these generalizations might be missing the point – I’d like to posit that it might be your fault!

Let’s start with a simple analogy. Imagine a sausage factory with two kinds of jobs – sausage-stuffing jobs and sausage-counting jobs. Sausage stuffers come to work every day and are told to stuff sausages working on this machine or the other for eight hours. They take breaks when they are allowed to and stop for lunch during their lunch hour. At the end of the day, they go home and don’t think about stuffing sausages. When they take their allotted vacation time, they expect that somebody else would’ve stuffed those sausages when they were gone. They really don’t care who was stuffing them. It isn’t their job. They expect to come back and stuff new sausages for the new week.In contrast, sausage counters have to count the sausages, make sure they are making enough to meet the demand, ensure that the stuffers are stuffing enough sausage to meet the specifications (but not too much to drive down the margins), and the like. Sometimes they have no time for lunch, and sometimes they have plenty of time to discuss the previous night’s ballgame. When they go home at night, they take their job home with them, worrying whether they had ordered enough casings for next week’s sausages, whether they have too much capacity for the slowing demand and what they should do about it, etc. When sausage counters return from a vacation, all of their sausages are piled on the floor to be counted. Nobody counted them when they were gone. They have to count the previous week’s sausages and the current week’s sausages. I suspect you get the point.

Most companies have both sausage-stuffing jobs and sausage-counting jobs. However, identifying which is which might not be as simple as it may appear. A common misconception is to equate this distinction with workers and management. For example, a software developer, who is considered a worker-bee at a digital design shop, might still take her work home and be brooding over a menacing software bug all night long. Conversely, a shift supervisor at a construction site might leave his work at the construction site when he goes home. Additionally, two individuals with the same job description might treat their job differently: one as a sausage stuffer and the other as a sausage counter.What does sausage stuffing and counting have to do with entitlement? A lot. Sausage stuffers are committed to doing a very good job of stuffing sausages. They don’t want more responsibility. Sausage stuffers expect that for a job well done, they will receive their negotiated slate of compensation, including their pay, benefit plans, vacation and sick time, etc. If they are due five sick days in a year, and by the end of the year they have not utilized all five, a sausage stuffer is likely to find a way to use the remaining sick days they’re entitled to. After all, they do a good job for the employer and they expect to receive the entire slate of compensation they were promised. You might view that as entitlement, but the sausage stuffer views it as their implicit contract.

Sausage counters view their jobs differently. They’re committed to the success of the business and are willing to do whatever it takes, whenever it needs to be done. They look for increased opportunities to contribute and view their compensation beyond that of monetary and benefit plans. For them, part of the compensation is the challenge in the job, growth of themselves and their career, and the freedom to operate independently rather than be supervised. Sausage counters value the freedom of independence and associated empowerment. They also recognize that with it comes an obligation: the success of the company.To illustrate this, imagine one of the machines in the sausage stuffing plant is leaking sausages. The conscientious sausage stuffer working at that machine might yell out to his supervisor, “Hey, Counting Boss, this machine is leaking sausage grind. You need to do something about this.” After simply reporting his observation, the sausage stuffer feels that he has completely discharged his responsibility. In contrast, the Counting Boss is up all night thinking about whether the machine can be fixed, or if she needs to buy a new machine, how much the new machine would cost, whether there is room in the company’s capital budget for the new machine, and so on. Does the sausage stuffer want to deal with the headache? Absolutely not. Does the sausage counter like the challenge and independence of being able to make that decision? Absolutely.The ownership of the company might want to empower and provide greater autonomy to their sausage counters in terms of how they manage their time, when they take breaks and if they can go to their child’s afternoon soccer game. But, afraid to label people as either sausage stuffers or sausage counters, they might provide that autonomy to their entire staff. Lo and behold: for the sausage stuffer, this is now part of the overall slate of compensation – their ability to manage their own time. A few months later, ownership looks at the behavior of their sausage stuffers and complains that they seem to feel entitled. Of course they are entitled: the owners enabled them.

So how do you solve this distinction? In the old days, manufacturing companies had a clear demarcation – hourly employees and salaried employees. In fact, the U.S. government then defined the concept of non-exempt and exempt employees (other governments have similar concepts). This worked well as long as we had sausage factories where the stuffing jobs were distinctly different from the counting jobs. But with the decrease in manufacturing companies and the increase in automation, most of the employees in your companies are now either service workers or knowledge workers. In other words, they are either serving a customer or using their thinking to create value. Both types of jobs appear to be sausage counting jobs. But are they really? Even if they are, do the individuals behave as sausage counters?

Interestingly, most new-economy companies have taken the position that all jobs are sausage-counting jobs and expect their employees to operate with the associated level of autonomy and obligation.

Now look at it from the employee’s point of view. If you gave them a choice, what do you think they would want to be? Of course, you would have to explain the limited responsibility and authority that comes being a sausage stuffer and the broader privileges and obligations that are associated with a sausage counter. What would likely happen is that everybody would want the privileges of a sausage counter, yet not everybody would sign up for its obligations.

Here is an illustrative example. At Think Shift, we have a simple vacation policy: “Vacation is good, take some. End of policy.” Is this a privilege or an obligation? It’s both. Yes, the employees get to decide when and how much vacation they take. However, their job remains their responsibility even when they are away. So before they go on vacation, every employee makes sure that all of their tasks are either completed ahead of time, or negotiated with a colleague to complete while they are gone. Even after that, do you think they have full peace of mind that they had covered all the bases? No. During their vacation, they worry that they might have missed something. Every employee checks their email when they are on vacation. Management doesn’t ask them to do so. The employees feel a sense of obligation to do so. Is our vacation policy a privilege or an obligation? It’s both. We find that this policy works well as long as all employees view themselves as sausage counters – with the attendant authority and obligations. But if you administer such a vacation policy to a group of employees, some of whom behave like sausage stuffers and others as sausage counters, it might be ill-advised.

At the end of the day, your desire to give people authority and to empower them requires that they rise up and accept certain obligations. Have you communicated those obligations? Have you empowered the right kind of people? Or are you unwilling to distinguish between sausage stuffers and sausage counters, and have thus empowered a few who will never rise up to fulfill their responsibilities? Has empowerment led to entitlement?
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We welcome your comments on our Food for Thought mailings and encourage you to explore the Food for Thought archive. We hope your business is doing well. We’re happy to chat about the content in this article or anything else with which you’d like assistance.

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Culture is What You Walk Past

culture-walk-past

I generally try to avoid politically-motivated topics in this Food for Thought series. Even though it has been particularly difficult to resist this election season, this month’s topic is more inspired by a news story than the current political climate and should be viewed as such.

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Don’t sell donuts

dont-sell-donuts

Let me describe a company and see if you can guess its name. I will quickly narrow your choices by revealing that this company is what the industry calls a QSR (Quick Service Restaurants, aka a fast food place). This company has thousands of locations the world over. Customers walk up to the counter to order, they experience speedy service and either take their order to go or sit down in the restaurant. What company name comes to mind? I suspect you are thinking of McDonald’s, Burger King or some other burger place, or maybe even Subway or Chipotle. Chances are you did not think of Starbucks, even though the description above totally fits. Why is that? Because Starbucks doesn’t want you to think of them that way! They don’t view themselves as a QSR. Dunkin’ Donuts, Krispy Kreme and Tim Hortons think of themselves as a QSR, but Starbucks doesn’t. Why? Because they don’t sell donuts. More on that later.

Imagine I started a business serving people who hate to do grocery shopping, so I hire people to do the shopping and to deliver it to your home. Assuming you were interested in that service, you will probably pay me a meager amount over and above the cost of the groceries and my cost in employing people to do the work. In other words, my gross margin on that business would be paltry. Said differently, even though I might amass large revenues, passing the cost of the groceries through the revenue line, the quality of my revenue would be poor. If, in addition, my staff were to unpack the grocery bags and stock your pantry and refrigerator, you would receive more value. Further, if I were to install detectors in your pantry and refrigerator that automatically determined your supply needs, and if I gave you an app on your smartphone with your needs all filled in for you to edit, you would appreciate that value even more. With each of these additional features, I improve my quality of revenue. The quality of your revenue – best measured by the gross margin you command – is a measure of your customers’ perception of the value you provide compared to their alternatives. How good is the quality of your revenue? How can you improve the quality?

Value is created by the use of capital and the use of labor. For example, a manufacturing company uses capital to procure raw materials and uses labor to turn the raw materials into a finished product that somebody finds valuable. A warehousing company might use capital to procure a warehouse and forklifts and use labor to store and retrieve warehoused products. An accounting firm uses very little capital but has considerable use for talented labor to provide their services. During the industrial revolution, when source of capital was considerably restricted, value was created using both capital and labor. But, today, when reasonable amounts of capital is much more readily available, there is a commoditized minimal premium for value created through the use of capital. So, to create quality revenue you must create significant value through talented labor.

What the customer is willing to pay for your goods and services is a function of both the real and perceived value of your offering in comparison to the alternatives they have. For example, McDonald’s cost in providing a hamburger to a customer – including all the cost of the store, furnishings, labor, etc. – is about $1.50. Interestingly, that is about the same as the cost incurred by Starbucks in providing a customer with one of their craft coffees. Yet, McDonald’s seems to need to sell its hamburger for $2.50 while Starbucks charges almost $4.00 for its coffee. Starbucks enjoys a much higher quality of revenue than McDonald’s does.

Why is that? Because, Starbucks doesn’t sell donuts. And, if they ever do, they won’t be your ordinary glazed donut for 99 cents, intended to be bought by the dozen. Rather, they’d be craft donuts, to be devoured and savored, and sold for at least two dollars and change. Starbucks doesn’t sell coffee; they offer you a coffee experience. If that experience requires that they offer pastries, they will do so. But it is the experience that is important. McDonald’s sells you food. Starbucks offers you an experience. That brand positioning allows them to create higher quality revenue.

Having grown up in the high tech world, I have always been amazed how Dell, Cisco and Intel are all $50-60 billion dollar high tech companies, but with distinctly different quality of revenues. Dell, for the most part, neither designs nor manufactures their computers — they market and sell them. For that service, they enjoy 20% gross margin. In contrast, Cisco hires talented engineers who design advanced servers and routers, but farms out the manufacturing to Asia. They, too, market and sell their products. But, for that extra work of their talented engineers they enjoy 60% gross margin. Intel does it all – they design, manufacture, market and sell their products. It invests billions of dollars in manufacturing plants and employs people to run them in two and three shifts. For all that work, it enjoys 65% gross margin. Which of these companies enjoy high quality revenue? Clearly, both Cisco and Intel do. But Cisco seems to have figured out what creates quality in their revenue.

Quality of revenue is achieved by providing value that is unique, maintaining a perception of that value through a brand proposition that includes pricing. If you sell your products cheap, you might increase volume, but you will harm the quality of your revenue. It is a tradeoff. The same is true if you discount your products. I ran a number of electronic instrumentation businesses. These high tech instruments often sold for tens of thousands of dollars. Additionally, we would sell software that would analyze the data gathered by the instruments. The software packages would often sell for equal or higher value than the hardware, and customers would often ask for a discount. I had a simple policy: I would never discount the software; and if I felt obliged to discount the hardware, I would give some of the hardware away for free. Why is that? Nobody asks for another piece of hardware for free the next time because they know there is a real cost to manufacturing the hardware. However, they will be tempted to ask for more copies of software for free.

Quality of revenue is achieved by brand positioning (what customers think of you), product positioning (what customers think of your product) and price positioning (what customers think of your value). You must actively and intentionally manage all three. There is nothing wrong with a business like McDonald’s or Dell. If that is the nature of your business, you must be operationally excellent. However, if your business is like Starbucks or Cisco, and you want to maintain the quality of your revenues, make sure that you don’t get tempted to start selling donuts.

Originally published on ThinkShift.com

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This Tango Takes Three!

This tango takes 3!

This month’s article is an attempt to change the conversation with a non-performing employee from one of blame to one of collective responsibility. We are happy to point out that, in keeping with the provocative nature of these articles, there is probably plenty here with which you might take issue. We welcome your critical review.

We start with our definition of Stewardship, as offered by our friend Glenn Mangurian: the responsibility to protect, preserve and enhance assets that do not belong to you but have been temporarily entrusted to you.

As an employer and a manager, you have been entrusted with the human capital asset of your employees. You have a responsibility to protect, preserve and enhance that asset. You must leave behind a richer set of assets at the end of the year than what you inherited at the beginning of the year. We discussed this in recent articles on performance reviews (Employee Performance is not just about Results and Put an End to the Annual Performance Review).

In this article, we discuss the implications of this stewardship responsibility. When you hire an employee, you are making a commitment that you will grow this employee to be a richer person each year – not just financially richer, but richer in their craft, in their profession and as a human being. You, as an employer, are accepting this obligation, knowing everything you know about this employee you just hired. So, in a job interview with this potential employee, not only should you ask if the individual can perform the duties of that job, you must also ask if you have the skills to enrich the individual, if your company has the capacity to enrich the individual, and if the individual has the potential and willingness to be enriched. It takes the combined efforts of the employee, the manager and the company for the individual to be enriched. In other words, it takes three to tango.

Does every employee have to grow each year? What is wrong with Joe, the welder in the machine shop who just wants to be a welder? Joe is a darn good welder. That is what he wants to be, he doesn’t want to do anything else, and I want to keep him. Joe is happy. He gets a good paycheck. He has a good life. Joe has been with me for a decade and I want to keep him for a couple more until he retires. What is the problem with that approach? Why shouldn’t I just let Joe be?

Well, there are actually two problems: The first is an economics issue and the second is a philosophical issue. Your company is expected to grow and improve each year. Not only is your revenue expected to grow, but you are expected to generate at least as much profit per dollar of revenue in spite of your expenses growing with inflation. How do you do that? By doing what you used to do even better and more of it. This economic reality requires each individual in your company to do more and do it better each year. So, you can’t just let Joe be. Joe has to become a better welder each year, weld more per unit of time, weld it for a lower cost, etc. But, wait a minute. Is it possible to do that forever? Don’t you reach a point where Joe is performing at maximum capacity and it cannot be done any better? When you and your employees peak, your company peaks as well.

The second problem is philosophical. An attitude of “let Joe be” instills a level of complacency that will permeate the entire organization. If you let Joe be content with doing what he did last year, you have to let the entire company be content with what they did last year. Will that be acceptable to you? Your organization’s excellent performance this year must become the benchmark of mediocrity for tomorrow. So, as a company philosophy you must require each employee to grow each year.

Now for a bit of reconciliation. Growing each year does not mean that Joe has to become a supervisor. Each employee has to constantly grow in his or her craft and profession. Even better, each employee should constantly expand their skills, knowledge and interest into related disciplines – neighboring disciplines to their craft and profession, neighboring disciplines of interest to the employee, and neighboring disciplines of relevance to the company. This growth responsibility falls on all three parties: the employee, the manager and the company. Although, in this day and age, no company guarantees lifetime employment, collectively, the three parties should guarantee lifetime employability.

How well do most companies fare on this score? Most companies will philosophically accept this position at the point of hiring an employee, but they quickly back pedal within a few years. Let’s point out four typical scenarios that companies and employees face.

First, a non-controversial and positive scenario is the performing employee with a growth trajectory. This is the case of an individual that performs exceedingly well. The individual grows in their job, takes on new and expanding assignments, assumes greater responsibilities and is generally successful. The employee, the manager and the company all discharge their stewardship responsibility. Well, that was the easy scenario where the dance and the music make for a beautiful tango.

The second scenario, still positive but uncomfortably so, is the performing employee for whom the company cannot offer the needed growth opportunity. This employee performs very well. He or she grows in their job. The individual is critical to the company. The boss depends on this individual. After a few years, the employee needs new assignments or additional responsibilities in order to grow. But, in your small company, there are limited growth opportunities. You just don’t have that next position for this employee. They are ready for it, but you are not. What should you do? What is your stewardship responsibility? The company has a responsibility to act selflessly and work with such individuals to position them for their next career growth opportunity, which will likely happen elsewhere (see Small Companies Must Turnover Good People). The employee, the manager and the company are usually hesitant to face this situation. And, in that hesitancy, all three fail to be a steward. In this tango, the music stops but the dancing continues without the gusto.

The third scenario represents the performing employee whose personal growth does not keep up with the market and environmental growth. This is where many companies get stuck with a “used-to-be-performing” employee who hasn’t kept up with the fact that you don’t use a calculator anymore but have to make an Excel spreadsheet. As in the case of Joe, the welder, this is an employee whose consistent excellent performance many years ago has slowly but surely become below mediocre by today’s standards. Who is at fault? All three: the employee, the manager and the company have been complicit in allowing the employee not to grow. In this tango the manager and the company have moved on to the new song but the employee is still dancing to the old song.

Finally, the fourth scenario involves a non-performing employee. The company and the manager often ignore the non-performance as an act of kindness when, in fact, it is gross negligence of their stewardship responsibility. When you hired that individual, you accepted a stewardship obligation to grow that individual. You have two options: either to discharge that stewardship responsibility or absolve yourself of that obligation. You do not have the choice to ignore it. If you approach the conversation with the attitude, “I (the manager) am unable to find ways, and create an environment in which, you can grow as an individual,” then the conversation becomes less about blame or judgment and more about stewardship. Both the music and the dancing stops in this tango.

You, as a manager, have an obligation called stewardship and a privilege called management authority. The former requires you to care for your assets. The latter allows you to acquire and dispose of your assets. The more diligently you discharge your stewardship responsibility, the more impenitently you can exercise your management authority. But, remember, this tango takes three.

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The Price of a Collegial Atmosphere

collegial-atmosphere

In the U.S. we do not discuss politics at work. And if somebody expresses an opinionated position, we simply smile, nod and move on to the next topic. Why? Because politics polarizes people and we want to maintain a collegial atmosphere at work. I grew up in India and I have spent a fair amount of time in Europe and Asia. Political discussions are not considered to be as polarizing in those regions of the world; they are viewed simply as a healthy debate.

Does a collegial atmosphere require lack of disagreement?

In a collegial atmosphere, can people disagree, express their opinions with passion and conviction, and close the conversation agreeing to disagree? We tend to believe that discussions must end in agreement or some sort of resolution. This tendency results in inauthentic conclusions to discussions.

Diffuse speakers relax their convictions and specific speakers dig in their heels for an argument. (Read article: Are You Specific or Diffuse?) Do all disagreements have to be resolved one way or the other? Can people maintain healthy relationships knowing full well that they disagree on certain important matters?

Healthy relationships are not measured by the number of hugs, but rather by the number of fights that end in hugs.

It is the ending in hugs that is important, not the lack of fights. Healthy relationships should foster healthy debates. Lack of debates might well be an indicator to the relationship not being healthy.

In creating an intentional corporate culture, you might strive to create a collegial atmosphere. The shadow side of this strength is fear of conflict – where people are reluctant to express their opinion because it is not aligned with the opinion being otherwise aired.

Fear of conflict leads to the loud and obnoxious shouting out the quiet and thoughtful. It leads to the multitude of subordinate opinions deferring to the single opinion of the superior. It leads to the new and different ideas being overwhelmed by the status quo of tried and true practices. In a culture of collegial atmosphere, it is important that you empower, encourage and enable people to face conflict and have healthy debates.

How do you teach people to have a healthy debate?

We offer three common causes for debates to turn ugly, and from it, three ways you can turn debates healthy.

The first cause is Aristotle’s principle of the excluded middle. The belief that there is a right and wrong. Something is good or bad. It is either true or false. Either you are on my side or you are with the enemy. This polarization of thought causes debates to become personal. What is the solution? Try throwing in expressions like, “I believe…” The more you use the term “I believe,” the easier it is for the other person to receive your opinion. So, do you turn everything into a belief?

That naturally leads us to the next reason debates turn ugly – facts versus interpretations.

In a wonderful book called The Communications Catalyst, my good friends and colleagues Mickey Connelly and Richard Rianoshek explain how people co-mingle facts and interpretations. By separating facts (that can be observed and measured) from interpretations (that are your way of looking at the facts and drawing conclusions from them), they argue that you can have more “accurate” and more “authentic” conversations. Instead people pursue “sincere” conversations where, by co-mingling facts and interpretations, they pursue “their truth,” convinced that it is the truth. So separate facts and interpretations and preface your statements with those labels.

Finally, ignoring the old adage, people fail to seek to understand before they seek to be understood. In our opinion, the most important aspect of a healthy debate is the ability to understand and advocate the other person’s point of view. (See our January 2013 Food for Thought, Coaching through Advocacy.) Showing that you can argue the other point of view demonstrates mutual respect for the individual(s), concedes the existence of multiple points of views, acknowledges an appreciation of the strengths of the other side, and in the process, expresses a recognition that the parties at play are not good or bad, right or wrong, based on which position they hold. It leads to hugs at the end of fights.

Following the practice started last month, we will be holding a telecon on this topic.

On February 20, we will hold a complimentary webinar at 8 a.m. (PST) where we will discuss this article and the fear of conflict shadow side of a collegial, friendly work environment. We encourage you to sign up and attend; please visit our event registration page here for more details.

We welcome your comments and encourage you to explore the Food for Thought archive. We hope your business is doing well. We’re happy to chat about the content in this article or anything else with which you’d like assistance.

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