CHAPTER 12

Enabled Employees Are Tooled

Tool(ed): To equip with the means for production.

The people who are doing the work are the moving force behind the Macintosh. My job is to create a space for them, to clear out the rest of the organization and keep it at bay.

—Steve Jobs

Tools, Not Rules

Organizations don’t become Contented Cows purely on the strength of their human resources practices or their managers’ leadership skills. All of the policies, methods, systems, habits, and procedures that comprise your organization’s operating environment work together to have a positive or negative impact on your workforce and its members’ willingness to part with that most precious commodity: their own discretionary effort.

It does no good to hire talented people who fit well within the organization, get them all fired up about the voyage, equip them with a capable leader, and train the stew out of them, if one or more forces within your organization’s system are going to prevent them from performing.

One of the biggest motivators is being able to see progress made at the end of each shift or day. Most of us want to work in an environment where we can do our very best work, and it makes us crazy when dumb (or poorly executed) leadership actions or systemic obstacles keep that from happening.

Training people well and then standing in their way is analogous to spending a half million dollars to build a NASCAR race car, another half million to get a backup car, hiring a top-name driver and pit crew, paying for months of practice—and then sending your crew chief out to put a governor on the engine 30 minutes before the race. While none of us would knowingly do something this stupid, we somehow manage to pull it off on a fairly regular basis. We do it by providing incentives that encourage people to do exactly what we don’t want, establishing policies that are misguided at best, utilizing systems that treat intelligent people like they’re complete morons, and developing cultures that ensure that no mistake goes unpunished.

Ninety percent of what we call “management” consists of making it difficult for people to get things done.

—Peter Drucker

Be Careful What You Incent; You’ll Likely Get It!

At the risk of offending some of our friends in the compensation profession, we’re going to say that most pay systems suck a big egg. They not only fail to motivate people to do their best; they actually induce them to do a poor job in many cases.

Perhaps the most obvious example is the system of paying someone based on how long they take to complete a task—a notion that is fundamentally bankrupt in nearly every case (and could have the same effect on your fortunes). Anybody with a pulse can figure out pretty quickly what they need to do to make more money under such a time-based scheme, and it’s not in your customers’ or stockholders’ interest for them to do it. So why in the world do we pay people that way? Some would have you believe that it is required by law, but that’s not true. Companies like Worthington Industries and Chaparral Steel have known this for a long time, as their employees are all salaried.

You must be especially careful about what you incent people to do, because that is exactly what they’re going to do. Sears realized this in the early 1990s, when, as the result of a new pay plan for its automotive service people, they wound up with a public relations nightmare when the company was accused of systematically defrauding car repair customers by making unneeded repairs.1

Conversely, Cleveland-based manufacturer of electric motors Lincoln Electric has enjoyed immense success over its 100-plus-year history. This is due in part to its unique piecework pay system, which incents employees to do exactly what they’re supposed to do and earn above-average compensation in the process. In a book about the company titled Spark, author Frank Koller explains, “Lincoln Electric has always operated under the assumption that an energetic pursuit of corporate profits is not inhibited by an equally determined commitment to raise the fortunes of its employees; in fact, the two are interdependent.”2 This idea seems to be working pretty well for Lincoln Electric, which scored an average annual growth rate of 19 percent during the tough Wall Street years of 2005 to 2009, provided its investors a yearly return on investment of 16 percent during those years, and grabbed the number one global market share in the industry.

While we’re on the topic of broken systems, let’s talk about sick days, this rather curious system, based on a traditional model and some rather convoluted logic. Under most plans, employees (the lucky ones) are given a finite number of days during which they’re permitted to call in sick and still be paid. Although we’ve made some progress toward more sensible solutions to the need for time off in the past decade, we’re amazed at how widespread the old practice remains. The intent of such plans is obvious, but given the way most of them are designed, people feel compelled to use up their allotment of days each year—regardless of whether or not they actually become ill.

The way we choose to handle paid time off is a little bit like the different approaches a bank or other financial institution could take in protecting its customers against overdrafts. One approach would be for the institution to simply “stake” each customer to an additional $1,000 each year—using real money, deposited by the bank into the customer’s account, with the caveat that the money should be used only to protect against overdrafts. (We’ve got a pretty good idea how this scenario would play out.)

Alternatively, they could take a different approach and tell credit-worthy customers that they will temporarily “cover” account overdrafts (within reason)—and, as my own banker put it, “If you abuse the privilege or use it too often, we will have to revisit the relationship, or perhaps terminate it altogether.”

A body of evidence is beginning to develop suggesting that companies that take this latter approach with the issue of sick days are experiencing significantly fewer unscheduled absences. In some cases, they’ve averaged unscheduled absence rates of less than 1 percent of scheduled workdays versus a mean of around 1.6 percent for all employers.

It’s not our intention to tell you how you should allot time off; rather, we encourage you to evaluate whether or not your current system prompts the behavior you’d like to see from employees. Instead of allocating x number of days (or even hours) for sick leave, family leave, so-called personal leave, and vacation—with complicated formulas for disbursing and accounting for each—why not consider a simpler approach? Some of the more sensible plans deposit time into a PTO (paid time off) bank and let people use the time as they see fit. Employers budget for it, and managers work it into their resource planning. In some cases, employees can cash in unused time or carry it forward to subsequent years. Better yet—although this might be too far a leap for many—truly treat your employees like fully responsible adults, as Bazaarvoice and Netflix do, and throw out your time-off policy altogether (see Chapter 9).

Help Not Hinder

Contented Cows go to elaborate lengths to develop and implement not only policies but procedures and support systems designed to make heroes (not scapegoats) out of their employees, especially those who serve on the front line.

Established in 1954 in Cincinnati, LaRosa’s Pizzeria is a regional chain of full-service Italian restaurants that offers dine-in, carryout, and delivery from 65 stores in Ohio, Kentucky, and Indiana. On a visit to a LaRosa’s, you’re as likely to see a family celebrating a special occasion as you are a mom taking a night off from the kitchen with her kids or a Little League team enjoying a victory dinner. What you’re not likely to see, although they’re in full operation in the background, are lean manufacturing processes. Despite the fact that this approach is more often used in the huge national high-end chains than in smaller, family-oriented restaurants, LaRosa’s has embraced it. Based on a philosophy that enhances customer value with more targeted work that minimizes waste, the company has improved the experience for the customer and the team member, while saving money and increasing margin.

“We used to have, like, six ice scoops in some stores,” LaRosa’s executive director of HR Steve Browne told us. “You only need one. But it would get lost, so we’d order another one. Now, there’s a designated place for the ice scoop, and people are trained on that, and every time you need it, guess what—it’s there! Simple things like that [are what make a difference].” And it’s more. Rather than prepping some food items in advance, a process that was thought to increase efficiency, LaRosa’s has reengineered the process with a just-in-time flavor. They don’t lose a second from order to serving and manage to enhance quality and minimize waste at the same time. They accurately match labor supply with demand at every hour of the day so that they waste neither their customers’ nor their team members’ time. Since “going lean,” LaRosa’s has increased gross margin, brought labor cost down from 35 percent to 25 percent, and improved employee satisfaction scores substantially. And their customer service consistently remains in the 99th percentile on a comparable industry-wide basis.

Likewise, our friends at the Plantronics headset factory in Tijuana have capitalized on the power of process to vastly improve their ability to respond to customers’ needs. They are simplifying workers’ jobs and allowing them to focus on more productive and fulfilling tasks, rather than on the minutiae that tends to grind people down. The company’s challenge was to reflect its corporate vision of “Simply Smarter Communication,” with “Simply Smarter Manufacturing.” Relying on their considerable brainpower alone (not PhDs from MIT or Stanford), they annihilated the complexity inherent in a system that produces more than 16,000 different products using 50,000 raw materials and ushered in a process that allows them to change their product line up to 30 times a day with ease and produce from 1 to 10,000 units of any given item. There was a time when it took up to six weeks to fill special orders. Today, they can fill virtually all orders, special or routine, in 48 hours. And the scrap rate is perhaps the lowest in the industry, plummeting to 0.14 percent of material cost, against an industry standard of 1.0 percent of sales price.

A Tale of Two Brands

It was the best of service; it was the worst of service. Well, not really the worst, but with this heading, I couldn’t resist.

Not long after Amazon introduced its third-generation Kindle e-reader, my business partner, the coauthor of this book, gave me one of the new gadgets as a gift—thereby telling the younger of us that I really needed to transition my reading platform to something a little less fifteenth century.

Although it surprised me (but not him) a little, I was an instant convert. And so I was positively disconsolate when the reader stopped working several months later, on the first day of a three-week-long international trip.

As soon as I discovered the problem, during a layover at New York’s JFK Airport, I logged into my Amazon account from my laptop, clicked “Support,” and typed in my mobile number. My phone rang almost immediately. Yep—they called me! I didn’t have to look up a number, dial it, navigate through an infernal scheme of menus, listen to hold music, and plead for a real human. One called me!

By virtue of my having logged into my account before I requested the call, the Amazon rep knew everything I wanted her to know (and probably more). She didn’t ask me for my account number once, let alone twice. She grieved in sympathy with me (momentarily) over the device’s demise, told me that it was irreparable by telephone troubleshooting, and without even suggesting that I might have done something myself to damage it, said she’d “send me a replacement by 2nd Day Air.”

“I hate to sound ungrateful,” I said sheepishly, “because I really do appreciate the offer, but I’m getting on a transatlantic flight in two hours and I’ll be kind of a moving target for the next three weeks. My wife, however, will be home until tomorrow afternoon, and then she’s flying over to meet me.”

“Then I’ll just send it overnight!” the rep countered, as though I were doing her a favor. “Your wife will have it by 10:30 in the morning. Will that work?”

Of course it would work! And it did. Two days later, I met my wife in the Rome airport. She’d been kind enough to load the replacement Kindle with my content before leaving home (international downloads are pricey!) and pack it in her luggage. She and the Amazon rep—enabled by the company’s policies, systems, and customer philosophy—allowed me to have an almost limitless supply of reading material on the combination vacation and business trip. Bravo, Amazon!

Unfortunately, I can’t say the same for Panasonic. While on the trip, I took lots of pictures with my new Panasonic Lumix digital camera—a great camera that takes terrific pictures. But I was surprised when, shortly before my trip, the camera arrived without the software disc described in the manual—the piece of equipment that lets the camera communicate with a computer. Not a big deal, but an annoyance, especially if you want to do any of the cool things designed into the software, like stitching together panoramic shots, or making it appear as though you visited exotic places that you never actually saw.

Packing CDs in a box, I thought, is so first decade. Surely it’s a download these days, and they just haven’t updated the manual. That explains the empty slot in the box, obviously designed to hold a compact disc.

Wrong. After I got home, I went to Panasonic’s website but got no help there. I then picked up the phone to give them a call. After a long wait, during which I was reminded ad nauseam of the importance of my call to them (if it’s that important, then call me, like Amazon did), customer service sent me to tech support, which sent me back to customer service, where a snippy woman who didn’t believe my story of the missing software gave me the number for the parts department, like I was calling a Honda dealer or something. (I’m not making this up.)

Twenty minutes later, someone from parts answered. They wanted my name, phone number, e-mail address, account number (again), and—get this—the serial number of the item I was calling about—before they’d entertain any questions.

I asked how I could download the software. I learned that I couldn’t; that they’d have to send me a CD. Oh, please do. I learned that it would cost me $15. An argument ensued, and I surrendered the credit card number to cut my time losses.

Ten days later, I hadn’t yet received the CD. However, I did get a paper receipt in the mail from Panasonic, documenting my $23 (including shipping) purchase. Someone actually cut down a tree, refined its pulp into paper, printed a receipt, stuck it in an envelope, put it in a truck, took it to the post office, transferred it to a jet, put it on yet another truck, then a van, and then a nice man who works for an inefficient quasi-governmental agency walked it to my house.

Five days after that, the CD turned up on my front doorstep.

Both Amazon and Panasonic have now burned their respective brands into my psyche. I associate Amazon with terms like pathfinder, state-of-the-art service, friendly, impressive, and exceeds customer expectations.

Panasonic now means something different to me, and it’s not very impressive.

What does this have to do with compelling your employees to expend their discretionary effort? In short, everything. Product and service brand extend to workplace brand. I wonder (not really) which company’s getting the best candidates turning up on its front doorstep and which of the service reps I spoke to went home at day’s end more fulfilled.

The Meaning of Mistakes

3M is a Contented Cow that knows a thing or two about making mistakes. With 50,000 different products on the market and an internal requirement that 30 percent of each year’s sales must come from products less than four years old, they’ve undoubtedly experienced lots of missteps along the way. They realize—perhaps better than most—that the relentless pursuit of innovation is anything but a straight path.

Former 3M president William L. McKnight explained the company’s approach in a paper titled “Philosophy of Management” published in 1941:

[If the] men and women to whom we delegate authority and responsibility are good people, [they] are going to want to do their jobs in their own way . . . Mistakes will be made, but if a person is essentially right, the mistakes he or she makes are not as serious in the long run as the mistakes management will make if it is dictatorial and undertakes to tell those under its authority exactly how they must do their job. Management that is destructively critical when mistakes are made kills initiative, and it is essential that we have people with initiative if we are to continue to grow.3

We must be careful to find the right balance between having the procedures, standards, and routinization that are necessary to a high-performing organization and avoiding the impediments that frustrate ideas and best effort.

The hustlinest team makes the most mistakes.

—John Wooden, legendary UCLA basketball coach

Mistakes Must Absolutely, Positively Not Go Unpunished

We said early on that we’re not holding the Contented Cows out as models of perfection and that occasionally, they, too step in some “cow chips.” However, they’re usually very fleet of foot at both recognizing and learning from these errors.

For instance, throughout much of the 1980s, the nature and characteristics of the average package tendered to FedEx changed. Packages became smaller and lighter in weight, grew in number, and contained vital correspondence rather than goods and materials. The company responded beautifully with the successful marketing of the now ubiquitous FedEx Letter. However, some new and different operating problems accompanied the precipitous growth in letter volume.

One of the more vexing problems resulted from the size and dimensions of the Overnight Letter envelope (as it was then known), and the envelope’s propensity for getting lost in the back of the company’s delivery vans. As they picked up packages throughout the day, couriers would return to the van, put the freight in the back, and drive off to their next stop. Over the course of the afternoon, these loose packages—particularly, the Overnight Letter envelopes—had a nasty habit of sliding around and finding their way into small crevices in the cargo section. This of course made them invisible to the courier who unloaded the truck at the end of the day.

The net result was that the overlooked letter(s) remained in the van overnight (or perhaps several nights) before someone discovered them—meaning that countless customers weren’t getting what they had paid for. At the time, the company had more than 30,000 couriers and carried approximately a million packages per night, roughly half of which were Overnight Letters. It doesn’t take a rocket scientist to figure out the huge potential magnitude of the problem—and that a lot of packages were practically begging to be misplaced on any given day!

Despite all the things they’ve done well over the years, FedEx management uncharacteristically reacted in a shortsighted manner. (And since one of us was one of those managers, we’re pointing the finger at ourselves as much as anyone else.) We took the position that these overlooked packages were obviously the result of a careless or uncommitted workforce. Therefore, we decided to impose formal, written disciplinary action in any (and every) situation where an employee overlooked a package. The warning letters soon began to pile up by the hundreds, giving birth to new expressions (“Leave a letter, get a letter”), and over time, these reprimands actually became something of a status symbol. In the eyes of many couriers, you were nobody unless you had at least one written warning.

But it was no laughing matter, because a lot of otherwise good employees lost their jobs due to an accumulation of warning letters in the process. (FedEx believed in the three strikes and you’re out approach). Moreover, the overlooked package problem didn’t get better; it got worse! Some couriers may or may not have been lazy, but they certainly weren’t stupid. With foreknowledge of exactly what would happen if they ever did discover an overlooked package in the back of their van, many took direct measures to ensure that no such package was ever discovered. It wasn’t until the company backed off the “every mistake will be punished” approach and began actively soliciting courier ideas that we began to solve this problem.

“Good Faith” Mistakes versus Errors of the Heart

Our research and experience suggest that the Contented Cows (including FedEx) have done a better than average job of reducing the level of fear within their organizations. Somewhat consistent with the views espoused by former Intel CEO Andy Grove, they’ve focused not on the fairly healthy fear of survival, but the paralyzing fear that stems from the capricious exercise of power.

Contented Cow companies reduce some of this unnecessary fear by establishing systemic measures that minimize the possibility of arbitrary or capricious treatment; by taking a longer view of the expected length of the employment relationship; and by permitting (and even encouraging) their people to actively experiment and make some mistakes.

They make a broad distinction, however, between the types of mistakes that busy people are inclined to make when they’re really leaning forward and doing their level best to produce, versus the errors of the heart in which a person knowingly violates one of the organization’s core precepts. And they don’t suffer “sinners” very well in the latter cases.

Chapter Summary

Better Practices:

Notes

1. “State: Sears Defrauds on Auto Repairs,” San Francisco Examiner, June 11, 1992.

2. Frank Koller, Spark: How Old-Fashioned Values Drive a Twenty-First Century Corporation (New York: Public Affairs Books, 2010).

3. William L. McKnight, “Philosophy of Management,” 1941.