Thursday, September 15, 2011


I came across this article recently and after getting permission to use it, I hope you find it as interesting as I have.  With a lot of modular home factories and new home builders having to tighten their belts more than ever this year, it just might give some a much needed wake up call.

By Bill Lee

Being successful in business is difficult enough when management is passionate and committed, but next to impossible when management is apathetic.  An example is the owner and general manager of a business many readers in New England would quickly recognize.  After 75 years in business, the firm had very little to show for all those years except their good name.  In fact, over the past five years, their sales have deteriorated by over one third. 
In an interview, the owner cited two major factors that he believed to be the cause: 1.) A strong national competitor had entered his market.  2.) A near depression was looming over the community due to the closure of a large military base. A consultant was brought in to take a look at the business and began by interviewing and testing each of the key employees and also interviewing several customers and prospects.  The owner also shared with the consultant the company’s financial statements from the past five years. 
The results should be a warning to every business: management apathy will kill a business. From the psychological tests that were administered, it was learned that the organization was not balanced.  Inertia had set in.  There was no spark, no innovation.  No one was initiating change. 
The employees were good people with excellent product knowledge and years of experience.  The problem was that they were merely going through the same motions year after year, expecting different results.  The financial statements revealed that over the past five years operating expenses had steadily increased while sales and gross margin had slowly declined, producing a lot of red ink. 
Employee interviews revealed that not one of them had a clue that the company was in trouble.  Management kept profitability a secret unto itself.  Everyone was working hard, but no one was doing any long-term thinking or planning or keeping score. The core problem was that for years management had given raises averaging 4% to 5% regardless of performance.  Gross profit didn’t keep pace, so the stockholder’s equity slowly eroded. 
The salespeople had noticed that they had lost a few accounts here and there, but had spent no time on a game plan to replace them. The operations manager realized that overtime had become a problem, but limits were never set. The buyer was achieving around five inventory turns and thought that this was a pretty good job for a business doing almost $100 million in sales. The customer interviews revealed that the business did have a great reputation for quality and service, but most of the customers who weren’t regular customers hadn’t seen one of this company’s sales reps in years.  To make a long story short, the sales force was in a rut, calling on the same customers year after year.  The sales force could be described as “content.” 
Could a similar scenario occur in your company?  By putting basic management principles in place now, any company can avoid this kind of catastrophe.  Just don’t wait until you are in serious trouble to begin.  For example, if your sales force has not produced sufficient sales for your company to keep up with the growth in your market; that is, your company is losing market share to the competition, critical thinking skills are necessary to determine why this is the case. 
It is often the case that owners and managers are so close to the business that they can no longer observe it objectively.  They are so much a part of the “day to day” that they can’t step back and see the business analytically.  If this is the case with you as an owner or manager, it would be wise to either retain an industry consultant or invite a fellow owner or manager whom you respect to take a critical look at your business and make proactive recommendations; such as:
  • If you are not passionate about sitting at the helm of your business, hire someone who is.
  • As market conditions change, alter your strategic plan accordingly.
  • Carefully assess your key people to make sure that you have the necessary talent on your business team to perform each critical function.
  • Begin managing your business against a budget your team has carefully thought through.  To achieve an optimal level of profitability, you must take time to hammer out a profit plan.
  • Keep your people informed as to how the company is performing.
  • Design a bonus compensation plan that rewards your key people for achieving both individual and team goals.
  • Prune lackluster salespeople from your sales force and replace them with hungry goal-oriented sales professionals.
The most profitable companies have a leader at the helm.  All companies have managers in place, but only the most progressive have placed an emphasis on leadership.  While leaders are also managers, they do more than direct traffic.  By merely telling their people what to do, the leaders have not developed the critical thinking skills necessary to determine why their organization is not performing to high standards. 
Executive success is measured by a leader’s ability to achieve an optimal level of profitability in good times and in times of slower business activity.  Don’t allow management apathy to rob you and your business of the success it deserves. 

Read other articles and learn more about Bill Lee.

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