It has come to my attention that there are some threads common to the successful companies we’ve studied this semester. Now, there is a clear distinction between “good” case studies and “bad” case studies. For example, SAS Institute was obviously a good one, while Nordstrom was obviously a bad one. Of the case studies we’ve examined the good ones all seem to operate in a similar way, having congruous base philosophies on the way they manage their employees, their organization and their customer relationships. The Men’s Warehouse (MW) is a striking, and clear, illustration of these similar qualities, and practices, which I believe to be clutch to all the good case study companies’ thriving productivity, and include a focus on long-term value and sustainable growth, upper management participation in training the bottom rung employees, and most importantly valuing the unquantifiable and the intrinsic. These three focal points help each company go above and beyond expectations for customer service, as well as shareholder earnings, and employee satisfaction.
Akin to the SAS Institute, the Men’s Warehouse began as the brainchild of its chairman George Zimmer. At first a very modest operation, where Zimmer himself worked on the floor and served customers, it grew immensely in the 1990s because of the excellent customer service and the low prices offered. And since its inception Zimmer has always been focused on the long-term value. This is demonstrated by his statements regarding his company’s five stakeholder groups with employees being the most important with the customer, the vendor, the community, and finally the shareholder coming after. Obviously if one was only focused on that quarter, or the next, one would definitely not make a point of placing their shareholder last in their chain of focus. And in the case of The Men’s Warehouse their policies prove this standard to be valid and sincere. Versus Nordstrom who, despite a reputation for excellent customer service, espoused commitment for their employees but really instituted policies that were detrimental to employee satisfaction, possibly illegal, and whose true aim was maximizing quarterly earning numbers for investors. At SAS it was the private ownership that enabled the long-term focus, while at the Men’s Warehouse it is their hierarchy of stakeholder groups, combined with the charisma and sincerity of Zimmer and his top executives. If one is the lowliest employee at MW and hears the president talking about his appreciation and value for that individual in that position most likely because that is where they also started, that employee can believe those statements and carry it with them as they go about their daily activities. That sincerity provides a measure of inspiration to go above and beyond in one’s regularly for the customer because they know George Zimmer would do the same if he was in their position.
Hidden away within the commentary on each of these flourishing organizations is a management practice that reinforces and validates the rhetoric disseminating from the higher ranks. It is a practice common at Southwest Airlines, the SAS Institute, Harrah’s Entertainment, and of course The Men’s Warehouse. It is the direct involvement of upper management personnel in employee training in fact at the Men’s Warehouse “training was done almost exclusively by line managers and senior executives – there was relatively little specialized ‘training’ staff.” At The SAS Institute high-level executives welcomed new employees and ran new employee training sessions. Validity and sincerity in communications between upper levels of an organization and lower levels fosters an important team atmosphere and focuses all involved on the shared purpose of the organization, instead of an individual focus on my salary, my advancement, or my bonus/commission. Employees at large corporations, or even sizable regional companies, often have an ingrained skepticism or cynicism directed toward upper management personnel, almost a them versus us mentality most likely stemming from past histories of being “screwed” out of something like a bonus or benefits. Those on the Board, or the top management team, seem so removed from the daily struggle of the lowly employee, making it difficult to subscribe to initiatives that come down the chain of command both practically and intrinsically. But when that employee comes for their first day, or flies to their first Suits University, and their sales training is administered by their regions’ Vice President of Sales that employee is given the opportunity to stare that person in the face, learning from them directly, and therefore free to form their own opinion of that individual, instead of just trying to follow orders from a faceless title. It is a better utilization of power paradigms and is servant leadership in practice.
The employees at the companies we have studied this semester have all been in possession of something intangible, a quality that cannot be sufficiently described or measured, and that is never easily imitated, they all value the unquantifiable quality of human potential in their employees. At Southwest Airlines they are extremely careful to hire only those they know will fit into their culture but you ask someone what that is and they have difficulty answering they only know the type of personality required when they see it. At SAS Institute it is hiring employees with versatile skill sets, and independent streaks as micromanaging is a definite sin. SAS also provides employees with numerous benefits and perks, the effects of which on employee satisfaction cannot be quantified, and one only witnesses the effects in the continued blossoming of their stock value. This perspective of Men’s Warehouse management valuing highly the intangible and uncountable quality of human potential in their employees was fostered by the business philosophies subscribed to by George Zimmer. Zimmer is lucky enough to have an organization where he can apply his hippy liberal management style as the standard for the entire organization. He was probably ridiculed in business school for his flighty, uncountable, “soft” philosophies, but in the end he is able to laugh last and hardest because his approach proved exceptionally lucrative (especially considering the industry) and all should sit-up and pay attention, and if you want proof just look at the top line!
Friday, November 21, 2008
Thursday, November 6, 2008
Harrah's Entertainment - Use that technology baby!
Competitive advantage is often discussed in business courses but it is a relatively undefined concept that can vary widely between industries and organizations. In the gaming industry the competitive advantage was long considered to be the ability to attract “high-rollers”, or high-value customers, because they visibly spent a much higher percentage of money gambling than the average every-day gambler. Harrah’s CEO Gary Loveman stated that there was an “if you build it, they will come” attitude in large casino business practices, which couple with the concentration on high-rollers, led Harrah’s to an earnings plateau in the 1990’s. The company’s then CEO, Phil Satre, had a unique vision for his organization and through savvy use of available computer technology the company recognized Harrah’s target customer base and then revolutionized the way they serviced them on their casino floors. This diversion in customer service proved extremely lucrative. The company also established a system of tracking customer information that can be utilized for years to come in retaining customers, all whom have such positive experiences at Harrah’s casinos that through sheer word of mouth Harrah’s can grow its customer base. Though Harrah’s experience was certainly ground breaking within their industry, the lessons they learned can be easily applied to other industries, because there is a quantitative basis to their operations which anyone could duplicate.
It is easy to see why business would want to focus on high-value clientele, as those customers spend more, utilize services more, usually have influential relationships that could increase one’s business, and because it is simply a sexy concept of closing a big dollar deal or ingratiating oneself to a high net worth individual. Many businesses do this such as banks, ski resorts, hotels, universities, and even governmental agencies; and most also have a measuring stick system to see who would fall into said category. Everyone wants a piece of the big players. Now truthfully in some businesses revenue streams are enhanced greatly by these individuals, or large percentages of revenues may come from this category, but in my opinion it is probably a much smaller percentage than realized. Harrah’s began their changes by thoroughly examining their numbers and realizing that 82% of their revenue came from 26% of their gamblers, and that it was everyday/weekly patrons who made up that 26%, not big spenders. This is something that most businesses would probably find true. There is a trend in the ski industry to become a destination resort (where one stays, eats, skis, shops etc. all in one location) because all the big-boy players are destinations. However many resorts just don’t have the terrain or traffic to achieve this and have seen better results catering to pass holders (every-day/weekend skiers) than attempting to bring in whales. Resorts have begun to offer their pass holders discounts on food, shopping, and in the bar (especially important to this season pass holder) as appreciation for being a loyal customer. And it has become more important to resort employees to recognize their frequent visitors which takes real skill when most people’s faces are covered with helmets and goggles. Businesses should do as Harrah’s did and really dive into their numbers to find exactly where their revenue is generated instead of adapting service methods and priorities just because it is what their competitors are doing, or is the industry standard. Though the concept is revisited weekly it seems, it is always good to remember that no sustainable competitive advantage is ever gained through something easily copied from someone else.
Currently those who learn to use the technology available, mine it properly, and utilize it properly within their organization will be at the top of their industry, regardless of what that is. As the gaming industry is largely computerized the technology involved offered Harrah’s a way to collect information on its customers gambling habits quite easily. This is something that can be duplicated in any industry simply by committing to growing their database properly throughout its activities, by for example collecting customer information each time a sale is made or repeated. However this is only the first step. For many years Harrah’s had this enormous database of customer information but were not utilizing it properly, a problem that many businesses have I’m sure. Under the leadership of Loveman they began to take unique interesting steps to slice and dice the data in such a way to gain the maximum benefit from it. They used information technology to establish automated systems that enabled them to further the advantage of collecting all that information. One of the most unique ways I found was their practice of sending a mailer, or tagging someone for a phone call, to someone who had spent at least $1000 and had not visited the casino in three months. Also they flagged those individuals who had lost money on their previous visit and targeted them for event invitations, so that individual would return under non-gambling circumstances and then perhaps (most likely) wet their whistle to begin pulling the one-armed bandit once again.
Importantly as well Harrah’s used their data and technology to drive customer service practices, and not just on the casino floor but everywhere within their casinos from the valet parking, to restaurants, to reception all employees were rewarded for providing good customer service. Not just as individuals either but as teams, therefore placing the onus on the managerial staff to instill a culture of excellent service within each of their departments, and then within their location as a whole. The practice of having pit bosses and casino floor supervisors paged when a customer activated their membership card in a machine, or at a table, is unbelievably ingenious. As a frequent gambler my total pet peeve is when I have to wait to get my free cocktails. As soon change my cash to chips at the blackjack table I would expect a cocktail waitress shortly, and if they do not appear soon I will get peeved. Now if I gambled at Harrah’s and gave my dealer my Rewards card which he would proceed to activate, there would a supervisor over there promptly and most likely calling over a cocktail waitress so Miss Burns can get her Corona with a lime. If that happened, I would be sure to return to Harrah’s more frequently than any other casino, period. Keeping all this in mind the next time that I have the inkling to play a little blackjack, I may just have to try my hand at Harrah’s and experience for myself just how wonderful their customer service is.
It is easy to see why business would want to focus on high-value clientele, as those customers spend more, utilize services more, usually have influential relationships that could increase one’s business, and because it is simply a sexy concept of closing a big dollar deal or ingratiating oneself to a high net worth individual. Many businesses do this such as banks, ski resorts, hotels, universities, and even governmental agencies; and most also have a measuring stick system to see who would fall into said category. Everyone wants a piece of the big players. Now truthfully in some businesses revenue streams are enhanced greatly by these individuals, or large percentages of revenues may come from this category, but in my opinion it is probably a much smaller percentage than realized. Harrah’s began their changes by thoroughly examining their numbers and realizing that 82% of their revenue came from 26% of their gamblers, and that it was everyday/weekly patrons who made up that 26%, not big spenders. This is something that most businesses would probably find true. There is a trend in the ski industry to become a destination resort (where one stays, eats, skis, shops etc. all in one location) because all the big-boy players are destinations. However many resorts just don’t have the terrain or traffic to achieve this and have seen better results catering to pass holders (every-day/weekend skiers) than attempting to bring in whales. Resorts have begun to offer their pass holders discounts on food, shopping, and in the bar (especially important to this season pass holder) as appreciation for being a loyal customer. And it has become more important to resort employees to recognize their frequent visitors which takes real skill when most people’s faces are covered with helmets and goggles. Businesses should do as Harrah’s did and really dive into their numbers to find exactly where their revenue is generated instead of adapting service methods and priorities just because it is what their competitors are doing, or is the industry standard. Though the concept is revisited weekly it seems, it is always good to remember that no sustainable competitive advantage is ever gained through something easily copied from someone else.
Currently those who learn to use the technology available, mine it properly, and utilize it properly within their organization will be at the top of their industry, regardless of what that is. As the gaming industry is largely computerized the technology involved offered Harrah’s a way to collect information on its customers gambling habits quite easily. This is something that can be duplicated in any industry simply by committing to growing their database properly throughout its activities, by for example collecting customer information each time a sale is made or repeated. However this is only the first step. For many years Harrah’s had this enormous database of customer information but were not utilizing it properly, a problem that many businesses have I’m sure. Under the leadership of Loveman they began to take unique interesting steps to slice and dice the data in such a way to gain the maximum benefit from it. They used information technology to establish automated systems that enabled them to further the advantage of collecting all that information. One of the most unique ways I found was their practice of sending a mailer, or tagging someone for a phone call, to someone who had spent at least $1000 and had not visited the casino in three months. Also they flagged those individuals who had lost money on their previous visit and targeted them for event invitations, so that individual would return under non-gambling circumstances and then perhaps (most likely) wet their whistle to begin pulling the one-armed bandit once again.
Importantly as well Harrah’s used their data and technology to drive customer service practices, and not just on the casino floor but everywhere within their casinos from the valet parking, to restaurants, to reception all employees were rewarded for providing good customer service. Not just as individuals either but as teams, therefore placing the onus on the managerial staff to instill a culture of excellent service within each of their departments, and then within their location as a whole. The practice of having pit bosses and casino floor supervisors paged when a customer activated their membership card in a machine, or at a table, is unbelievably ingenious. As a frequent gambler my total pet peeve is when I have to wait to get my free cocktails. As soon change my cash to chips at the blackjack table I would expect a cocktail waitress shortly, and if they do not appear soon I will get peeved. Now if I gambled at Harrah’s and gave my dealer my Rewards card which he would proceed to activate, there would a supervisor over there promptly and most likely calling over a cocktail waitress so Miss Burns can get her Corona with a lime. If that happened, I would be sure to return to Harrah’s more frequently than any other casino, period. Keeping all this in mind the next time that I have the inkling to play a little blackjack, I may just have to try my hand at Harrah’s and experience for myself just how wonderful their customer service is.
Thursday, October 30, 2008
Evidence-Based Management – Not Just for Medicine and Business!
Reading Mr. Pfeffer and Mr. Sutton’s argument in favor of evidence-based management, I was struck by the apparent lack of the use of evidence in the implementation of systems throughout the business world. According to the authors most business management seems to institute systems, for compensation, performance evaluation, product design etc., without experimentation to test its viability or without adjustment to be successful in a specific organization. Instead they state that most organizations utilize outdated information, copy successful organizations’ systems, and regularly “buy-into” whatever is the newest trend. The cause of these tendencies, and the true aspects that needs to be tweaked in the business world to transition to evidence-based management, results from the continuing paradigm of the “hero/paternal leader” and the focus on short-term bottom-line numbers. Both of these lead to the endless circular implementation of ineffective, or less-than- triumphant, systems, and until paradigms are broken companies will continue to do this because it is quicker, and cheaper, therefore providing enough of a short-term success so that everyone involved (i.e. the CEO, the consulting company, the executive team) gets paid.
It almost seems counter-intuitive that companies employ systems without evidence of their success, but looking at the attitudes still displayed in many organizations it is not surprising. If an organization has a leader that believes himself (or herself) to be that infallible “source”, the oracle, the father to his people, than that leader will always take the approach that “father knows best.” And that individual will be negative and skeptical toward any system that he did not invent himself, or locate himself, or implement himself. Because if one is all-knowing then one cannot learn anything from evidence anyway, therefore the systems implemented must be correct and it is the people within the system that are not effectively utilizing it. For one to experiment with ideas before implementing them, seems ultra-simple, but is difficult for the oracle-leader because if the leader’s idea fails in the experiment that leader’s fallibility is then on display for the organization which could potentially weaken that leader’s mandate. The paradigm of the oracle-leader must first be broken before any movement toward evidence based management can occur, and this can be done through continued education and training within an organization, and increasing the visibility in the media of truly successful organizations that utilize the partner-leader mentality.
Pfeffer and Sutton use an interesting example for a successful organization, in the US Women’s Soccer Team. It is true they have experienced unparallel success in a competitive market, (though they did leave out the fact that growing up in the US affords our women greater opportunities to learn the game versus other countries) however when one delves deeper into the organization it is clear that there is a true partnership between players and coaches, and that no idea is discounted if there is evidence that it may be successful. For example following the 1999 win in the World Cup the team’s success began to slow, and Brandi Chastain (a valuable defensive player), had well-publicized conflicts with a the team’s head coach, and her own ideas about how the team was being run, and the system the coach insisted upon (mainly with her on the bench, but it is still valid). She voiced her opinions to the coach, and the media, and the resulting conflicts ended with her off the team. The coach making the fundamental attribution error, and putting her own ego (married to her ideas she implemented through new system design) at the forefront, and blaming the people instead of truly examining the effectiveness of her new system. However, following Chastain’s removal the team’s success was hampered by the new system and the coach’s unwillingness to amend the system, and reinstate Chastain, resulted in the loss of her position and a reinvention of the US Women’s game-play style, leading to a gold medal in Athens.
The necessity in our business world today for delivering immediate short-term results has been shown repeatedly to lead to ineffective systems that need to be overhauled every few years to keep up with top industry producers, or to jump on the bandwagon of a new performance evaluation philosophy, or simply because it is easier and cheaper than taking the time to design and conduct experimentation to determine a system that can be effective and sustainable for an organization. Becoming sustainable may also be regarded as developing a system that functions successfully while quickly and constantly adapting to needed changes (the author’s frame this as always treating one’s organization as an unfinished prototype). Focus on the short versus long-term can be compared to buying shoes. If one needs a pair of black open-toed sling-back heels one can go to Payless and buy fake leather ones that roll off an assembly line in China, are poorly stitched with inferior materials that maybe will last one a year if worn regularly. Or, one can go to Macy’s and spend ten times what one spends at Payless, but one will get a product constructed of the finest Italian leather, and hand-crafted with excellent stitching and materials. Now this shoe, if treated properly will last the owner for a lifetime. Like an organization the expensive shoe must be cared for, small adjustments such as inserts, or leather treatments, or re-cobbling, may be needed but one has a shoe for life, versus having to repurchase the same shoe every year (because one always needs a black sling-back heel in their closet). By focusing on the long term one will eventually save money on their shoes, and will have a better product to boot! Now it goes without saying that rigorous shopping trips to find the right design, and taking the time to try out the shoe in the store and at home if possible, are necessary for this system to work. And as far as following the current trend (viewed as important in shoe-buying as business) if one focuses on a classic style one will always be suitably attired, and as trends are circuitous, every five to eight years one’s shoes will again be on the cutting edge. No doubt causing all your competitors to run out and buy the same style, most likely on the cheap, therefore ensuring one continues to have the best product in your closet and on your feet.
Until businesses begin to truly employ partner-leader relationships within the hierarchies of their organizations, and not just spout the rhetoric of such ideals, and begin to focus on long-term success and sustainability evidence-based management will always be second to the cheap quick fix and newest trend. In my opinion, this may be an underlying problem with our society as a whole, with everyone in search of a quick buck so they can keep up with the Jones’, but the fact that professional educators and business trend-setters, such as Jeffrey Pfeffer, are advocating a new approach is hopeful. It will take time but these philosophies will eventually, one day, trickle down through our society so and we will reinvent our paradigms, starting in elementary school, showing the world what a successful organization looks like.
It almost seems counter-intuitive that companies employ systems without evidence of their success, but looking at the attitudes still displayed in many organizations it is not surprising. If an organization has a leader that believes himself (or herself) to be that infallible “source”, the oracle, the father to his people, than that leader will always take the approach that “father knows best.” And that individual will be negative and skeptical toward any system that he did not invent himself, or locate himself, or implement himself. Because if one is all-knowing then one cannot learn anything from evidence anyway, therefore the systems implemented must be correct and it is the people within the system that are not effectively utilizing it. For one to experiment with ideas before implementing them, seems ultra-simple, but is difficult for the oracle-leader because if the leader’s idea fails in the experiment that leader’s fallibility is then on display for the organization which could potentially weaken that leader’s mandate. The paradigm of the oracle-leader must first be broken before any movement toward evidence based management can occur, and this can be done through continued education and training within an organization, and increasing the visibility in the media of truly successful organizations that utilize the partner-leader mentality.
Pfeffer and Sutton use an interesting example for a successful organization, in the US Women’s Soccer Team. It is true they have experienced unparallel success in a competitive market, (though they did leave out the fact that growing up in the US affords our women greater opportunities to learn the game versus other countries) however when one delves deeper into the organization it is clear that there is a true partnership between players and coaches, and that no idea is discounted if there is evidence that it may be successful. For example following the 1999 win in the World Cup the team’s success began to slow, and Brandi Chastain (a valuable defensive player), had well-publicized conflicts with a the team’s head coach, and her own ideas about how the team was being run, and the system the coach insisted upon (mainly with her on the bench, but it is still valid). She voiced her opinions to the coach, and the media, and the resulting conflicts ended with her off the team. The coach making the fundamental attribution error, and putting her own ego (married to her ideas she implemented through new system design) at the forefront, and blaming the people instead of truly examining the effectiveness of her new system. However, following Chastain’s removal the team’s success was hampered by the new system and the coach’s unwillingness to amend the system, and reinstate Chastain, resulted in the loss of her position and a reinvention of the US Women’s game-play style, leading to a gold medal in Athens.
The necessity in our business world today for delivering immediate short-term results has been shown repeatedly to lead to ineffective systems that need to be overhauled every few years to keep up with top industry producers, or to jump on the bandwagon of a new performance evaluation philosophy, or simply because it is easier and cheaper than taking the time to design and conduct experimentation to determine a system that can be effective and sustainable for an organization. Becoming sustainable may also be regarded as developing a system that functions successfully while quickly and constantly adapting to needed changes (the author’s frame this as always treating one’s organization as an unfinished prototype). Focus on the short versus long-term can be compared to buying shoes. If one needs a pair of black open-toed sling-back heels one can go to Payless and buy fake leather ones that roll off an assembly line in China, are poorly stitched with inferior materials that maybe will last one a year if worn regularly. Or, one can go to Macy’s and spend ten times what one spends at Payless, but one will get a product constructed of the finest Italian leather, and hand-crafted with excellent stitching and materials. Now this shoe, if treated properly will last the owner for a lifetime. Like an organization the expensive shoe must be cared for, small adjustments such as inserts, or leather treatments, or re-cobbling, may be needed but one has a shoe for life, versus having to repurchase the same shoe every year (because one always needs a black sling-back heel in their closet). By focusing on the long term one will eventually save money on their shoes, and will have a better product to boot! Now it goes without saying that rigorous shopping trips to find the right design, and taking the time to try out the shoe in the store and at home if possible, are necessary for this system to work. And as far as following the current trend (viewed as important in shoe-buying as business) if one focuses on a classic style one will always be suitably attired, and as trends are circuitous, every five to eight years one’s shoes will again be on the cutting edge. No doubt causing all your competitors to run out and buy the same style, most likely on the cheap, therefore ensuring one continues to have the best product in your closet and on your feet.
Until businesses begin to truly employ partner-leader relationships within the hierarchies of their organizations, and not just spout the rhetoric of such ideals, and begin to focus on long-term success and sustainability evidence-based management will always be second to the cheap quick fix and newest trend. In my opinion, this may be an underlying problem with our society as a whole, with everyone in search of a quick buck so they can keep up with the Jones’, but the fact that professional educators and business trend-setters, such as Jeffrey Pfeffer, are advocating a new approach is hopeful. It will take time but these philosophies will eventually, one day, trickle down through our society so and we will reinvent our paradigms, starting in elementary school, showing the world what a successful organization looks like.
Thursday, October 23, 2008
Steve Kaufman and Arrow Electronics – Is this how they teach someone to run a company at Harvard Business School?
The troubles discussed in Brian Hall’s study at Arrow Electronics, which arose from the evaluation system inaugurated by their CEO Steve Kaufman, was even frustrating for the reader, at least for this one! The CEO was fraught with misconception in the implementation of the system. The pervasive sales culture at Arrow would have been detrimental for any type of evaluation system that involved rating employees. And the way in Kaufman reacted to the initial results from the system he instituted displayed the lack of trust, and breached any already established trust, which upper management had for their employees. All the problems encountered by Arrow (lack of loyalty, lack of trust, rollercoaster sales numbers) may result from their industry, or from their business plan, and their competitors surely experience the same problems, however no company ever gained a “sustainable competitive advantage from something that is easily observed and readily imitated” (Pfeffer).
At Arrow the root of their issues stems from the ineptitude of their CEO. First his mentality that the job of the CEO is to motivate his people, instead of the approach that people are internally motivated, is his primary mistake. This leads him to believe that he can institute a system in which the achievement of high numbers is motivation enough for people to excel at their jobs. Then, foolishly Kaufman believes he can use these numbers to make decisions on promotions and raises. He puts a system in place without sincerely conveying to his managers that are completing the forms exactly what the purpose of them is, and what the company hopes to gain from them if managers complete them conscientiously. Then when they are returned to the executive offices and Kaufman doesn’t like the results, he makes the fundamental attribution error, and blames his people. Kaufman then tries to amend the results of the evaluations by further manipulating the system he introduced. This is where I became seriously flabbergasted by Kaufman’s behavior. He touted his system as a scientific approach to determining who deserved a promotion, or a raise, thinking he would just be able to look at those with high numbers and promote away. But he makes a crucial error in when he establishes benchmark requirements for certain percentages, this being a total corruption of the basic scientific process. You cannot start with the results and work backward to data collection! Elementary school children who perform projects for a science fair could tell you that. Kaufman even held a second training session, at who knows what cost, to further instruct his managers on how to properly manipulate the evaluations to result in the numbers he thought he should be seeing. Again missing an opportunity to sincerely convey to his people what he really wanted from them.
This poor communication from the upper levels of Arrow management down through the ranks is evidence of the cultural aspects at Arrow that are detrimental to the company’s long-term success, as well as sustained growth instead of the rollercoaster the company currently rides in the realm of sales and employee retention. It is clear from listening to the rhetoric spouted by its managers that Arrow employees are motivated solely by external forces, and lower hierarchy thinking, such as commission checks, short-term guarantees, and internal competition. This is illustrated in the comments made by the CEO believing that when an employee receives 4’s and 5’s on their evaluations they would say “’Oh, I got 5s and 4s – they love me!’ You don’t see the need to improve.” Logically though if that response is true, then wouldn’t Kaufman believe someone who received 2’s on their evaluation think, “Oh, I got all 2’s – they must hate me!”This is further evidence of Kaufman’s failure to find the proper attribution of systemic problems; he blames the employee for an improper reaction. Furthermore, neither situation leads to an employee that thinks, “Here is what I need to improve on, and this is how I do it.” This should be the purpose of performance evaluations. Then Arrow has an employee that scores well on the evaluation, thinking only “They love me!” which then fails to properly utilize that person’s skills for the benefit of the whole. The employees should instead feel “I am doing really well, how can I share my successful techniques to assist my colleagues in becoming more successful, therefore making the company more successful.” This is the kind of attitude that should be rewarded and encouraged, by promoting those that think for the good of the whole. However, one cannot determine these employees by filling in bubbles on an evaluation sheet. A change to this type of thinking may not be possible at a company like Arrow in the industry it resides in but it should be the goal of every organization to function on a level like this.
Arrow functions on such shallow measurements of success and failure, the difference between a two and four on a survey for example, that is a display of the lack of trust between upper management and employees. First the CEO does not trust the judgment of his managers in recommending people for promotion, or determining raises, to such a degree that he institutes a very expensive, complicated, system of evaluations so he can rely on the numbers (which as described above he falsely believes to be scientifically sound) to drive his decisions. Second the CEO doesn’t trust the managers enough to confide in them why he truly wants the surveys, sincerely informing them why it is important to him that the surveys are done accurately, why it is important to the company they are completed accurately, and most importantly why it is important to that manager that they do the evaluations accurately. To Kaufman’s credit he does attempt to do so, but after the fact, after he returned the evaluations to the company because they were too high! And when he does so even on paper he sounds insincere. Sharing information is a leader’s first step in building a successful partner-follower relationship with his people. Thirdly this lack of trusting employees on management’s part stems from the high turnover rate, though this is blamed on the industry. Personally I was not surprised that Arrow had turnover issues with their rollercoaster sales numbers. But jumping ship during times of low returns should be expected because I am sure that Arrow would not stand by its employees in tough times. Meaning that when sales are low Arrow employees could probably expect a pay cut, a lowering of commissions, or even a lay off. If the past behaviors of the company indicate this type of pattern why would an employee trust Arrow? Management, especially the CEO, blames the employee for being money-grubbing. But the employee sees it as cutting their losses, or breaking up with Arrow before they break up with me. Evidence of suspicious minds on both sides of the desk, and as Elvis says suspicious minds do not lead to successful long term relationships.
Overall the lack of trust in the organization’s system is truly the problem that needs to be addressed. An inept CEO can be replaced, but a system of poor communication rooted in a mistrustful organization, is something that cannot be easily remedied. To fix it Arrow might actually have to sacrifice some short term earnings goals for long term success, which few in today’s business world seem willing to do. And whatever happened to “If it ain’t broke, don’t fix it!” Meaning that the evaluation system Kaufman employed was definitely not crucial, possibly not even necessary. All he had to do was to trust and inform his managers by saying, “Our Company has gotten too big, hooray, for me to know everyone personally. I am having trouble figuring out who is performing well and who needs assistance. Can you help me to understand the best way to identify top performers to promote? Can you help me to understand the best way to identify those that need some assistance to improve their performance?” A really complicated and novel approach, huh?
At Arrow the root of their issues stems from the ineptitude of their CEO. First his mentality that the job of the CEO is to motivate his people, instead of the approach that people are internally motivated, is his primary mistake. This leads him to believe that he can institute a system in which the achievement of high numbers is motivation enough for people to excel at their jobs. Then, foolishly Kaufman believes he can use these numbers to make decisions on promotions and raises. He puts a system in place without sincerely conveying to his managers that are completing the forms exactly what the purpose of them is, and what the company hopes to gain from them if managers complete them conscientiously. Then when they are returned to the executive offices and Kaufman doesn’t like the results, he makes the fundamental attribution error, and blames his people. Kaufman then tries to amend the results of the evaluations by further manipulating the system he introduced. This is where I became seriously flabbergasted by Kaufman’s behavior. He touted his system as a scientific approach to determining who deserved a promotion, or a raise, thinking he would just be able to look at those with high numbers and promote away. But he makes a crucial error in when he establishes benchmark requirements for certain percentages, this being a total corruption of the basic scientific process. You cannot start with the results and work backward to data collection! Elementary school children who perform projects for a science fair could tell you that. Kaufman even held a second training session, at who knows what cost, to further instruct his managers on how to properly manipulate the evaluations to result in the numbers he thought he should be seeing. Again missing an opportunity to sincerely convey to his people what he really wanted from them.
This poor communication from the upper levels of Arrow management down through the ranks is evidence of the cultural aspects at Arrow that are detrimental to the company’s long-term success, as well as sustained growth instead of the rollercoaster the company currently rides in the realm of sales and employee retention. It is clear from listening to the rhetoric spouted by its managers that Arrow employees are motivated solely by external forces, and lower hierarchy thinking, such as commission checks, short-term guarantees, and internal competition. This is illustrated in the comments made by the CEO believing that when an employee receives 4’s and 5’s on their evaluations they would say “’Oh, I got 5s and 4s – they love me!’ You don’t see the need to improve.” Logically though if that response is true, then wouldn’t Kaufman believe someone who received 2’s on their evaluation think, “Oh, I got all 2’s – they must hate me!”This is further evidence of Kaufman’s failure to find the proper attribution of systemic problems; he blames the employee for an improper reaction. Furthermore, neither situation leads to an employee that thinks, “Here is what I need to improve on, and this is how I do it.” This should be the purpose of performance evaluations. Then Arrow has an employee that scores well on the evaluation, thinking only “They love me!” which then fails to properly utilize that person’s skills for the benefit of the whole. The employees should instead feel “I am doing really well, how can I share my successful techniques to assist my colleagues in becoming more successful, therefore making the company more successful.” This is the kind of attitude that should be rewarded and encouraged, by promoting those that think for the good of the whole. However, one cannot determine these employees by filling in bubbles on an evaluation sheet. A change to this type of thinking may not be possible at a company like Arrow in the industry it resides in but it should be the goal of every organization to function on a level like this.
Arrow functions on such shallow measurements of success and failure, the difference between a two and four on a survey for example, that is a display of the lack of trust between upper management and employees. First the CEO does not trust the judgment of his managers in recommending people for promotion, or determining raises, to such a degree that he institutes a very expensive, complicated, system of evaluations so he can rely on the numbers (which as described above he falsely believes to be scientifically sound) to drive his decisions. Second the CEO doesn’t trust the managers enough to confide in them why he truly wants the surveys, sincerely informing them why it is important to him that the surveys are done accurately, why it is important to the company they are completed accurately, and most importantly why it is important to that manager that they do the evaluations accurately. To Kaufman’s credit he does attempt to do so, but after the fact, after he returned the evaluations to the company because they were too high! And when he does so even on paper he sounds insincere. Sharing information is a leader’s first step in building a successful partner-follower relationship with his people. Thirdly this lack of trusting employees on management’s part stems from the high turnover rate, though this is blamed on the industry. Personally I was not surprised that Arrow had turnover issues with their rollercoaster sales numbers. But jumping ship during times of low returns should be expected because I am sure that Arrow would not stand by its employees in tough times. Meaning that when sales are low Arrow employees could probably expect a pay cut, a lowering of commissions, or even a lay off. If the past behaviors of the company indicate this type of pattern why would an employee trust Arrow? Management, especially the CEO, blames the employee for being money-grubbing. But the employee sees it as cutting their losses, or breaking up with Arrow before they break up with me. Evidence of suspicious minds on both sides of the desk, and as Elvis says suspicious minds do not lead to successful long term relationships.
Overall the lack of trust in the organization’s system is truly the problem that needs to be addressed. An inept CEO can be replaced, but a system of poor communication rooted in a mistrustful organization, is something that cannot be easily remedied. To fix it Arrow might actually have to sacrifice some short term earnings goals for long term success, which few in today’s business world seem willing to do. And whatever happened to “If it ain’t broke, don’t fix it!” Meaning that the evaluation system Kaufman employed was definitely not crucial, possibly not even necessary. All he had to do was to trust and inform his managers by saying, “Our Company has gotten too big, hooray, for me to know everyone personally. I am having trouble figuring out who is performing well and who needs assistance. Can you help me to understand the best way to identify top performers to promote? Can you help me to understand the best way to identify those that need some assistance to improve their performance?” A really complicated and novel approach, huh?
Sins of Commission – Big Paychecks, Lack of Consequences, and Ethical Dilemmas
The essay written by Jeffrey Pfeffer, on the negative affects of commission based compensation systems, is a valid commentary on virtually all sales organizations that employ such a system. Most importantly he addresses the fact that these systems not only detrimentally impact customer service but also cause salespeople to compromise ethics and often legality in the pursuit of hefty commission checks. Unfortunately most of these systems are used in industries where a salesperson’s paycheck can be boosted by skirting corners, living in grey areas, or crossing black lines. I have witnessed the effects of these systems personally. It is a concept known as a “win not lose”, or scoreboard, mentality, where the goal becomes only winning and the final numbers on the scoreboard becomes the sole source of a person’s validation or failure. Often in these situations there is also a total lack of consequences as well which just exacerbates the unethical behaviors. If a business wants to run its sales departments ethically and legally, in my opinion, it needs to distance itself from this type of reward system unfortunately companies often benefit so hugely in the short run from these systems that they garner wide support across upper management, but in the long run these systems create shallow employees and therefore a shallow organization. Shallowness does not bring long-term success.
The scoreboard mentality is a concept most easily explained in the context of sports. Though I often use sports analogies in my comparisons in this instance it provides a clear illustration of the effects of such a situation. For example, a softball game is close and in late innings, a shortstop’s team is winning by one run, there is a runner on second base, and the batter hits a single through the infield that would score the runner. Now that runner must run right by the shortstop, and if that shortstop has an ethical choice; they can violate the rules and interfere with the runner stopping them from scoring thereby most likely ensuring a win, or they can follow the rules and the runner will score and tie the game. Now you couple this with the ability of the shortstop to interfere without being caught and punished, what is there to stop the shortstop from interfering? Only their own internal motivation. Following this if their only internal motivation is to win, or get a higher number on the scoreboard than their competition, the shortstop will interfere with the runner every time. Similarly imagine a mortgage salesperson paid on commission where each additional sale means a huge paycheck increase, and the crucial factor determining the closing of the sale is two points on a credit score. That loan officer is faced with the decision of following the law and losing out on thousands of dollars in commission, or whiting out and changing a credit score, which no one will ever notice and if they do no one will do anything about it because everyone’s paycheck is determined by the closing of this loan, to ensure their commission will come in huge. Too often people make the wrong choice, and as we are experiencing with our own current economy the long term repercussion of such systemic behavior are substantially damaging. Changing a credit score, or interfering with a runner, may seem like small things but they are representative of a break in values, a change in course that snowballs on those involved. The next time the same individuals are presented with similar situations there is a certainty that they will make the wrong choice again, and those small steps will become larger until one finds themselves falsifying entire W2’s or breaking someone’s leg with an unnecessary takeout slide.
Though ethically the choice ultimately comes down to a single individual the organization is responsible for the systems they institute and the effects that they create. Most organizations with ethical problems in the front line loudly spout rhetoric from the top levels about maintaining high ethical standards but the behaviors they show tell a different story. Managers know when someone is engaging in unethical behavior, or "gaming the system" to increase their paychecks, but they do nothing because often it is their top salespeople that are doing so and to punish that person or make them toe the line would be too detrimental to their own sales numbers, and so on up the chain. So the poor behavior is ignored, and often rewarded, just showing all the other salespeople (who undoubtedly know of the shady behavior) what it takes to be “successful” in this organization. They will then imitate the poor behavior (who wouldn’t? if it boosts your paycheck and gets you plaques on your desk and trips to Las Vegas for sales conferences) and like a virus it spreads throughout the whole establishment. Immediate consequences are the only way to combat this behavior. Like when a toddler hits another toddler for example, one must put that child in time out immediately or else they won’t learn that hitting is wrong, and they will do it again. Many companies have punishment procedures in place but the distance between the enforcers is so extreme that they are totally ineffective. If one waits for that same toddler’s father to come home from a business trip two weeks later before they are punished, that child will learn nothing and will adopt the attitude that they can only be punished when daddy is around if he hears about it at all. The lack of punishment, and the reinforcement of undesired behaviors, is crucial to commission systems breeding unethical and illegal behavior in a myriad of industries, and in our own government as well.
The most distressing thing that arose from my own experiences in “win not lose” environments was the total lack of realization of complicitness by the salespeople that were behaving in such ways. Organizations that utilize commission systems do a very good job of hiring those willing to compromise their ethics. Violating the law, or ethical guidelines, becomes so “old hat” for so many it is on par with speeding on the freeway. Living the commission lifestyle is like taking drugs, the high one gets when they are cut that first big check is huge, then every month after that one must get a bigger and bigger number on that check to achieve that original high. One can try and fool themselves into thinking, “I love my job because I help people buy their first homes”, but as soon as those big paychecks get removed, or decrease; one realizes how shallow and unfulfilling their working life has become. This may not be the belief of everyone, but it is mine, and by riding the rollercoaster of working commission in a booming market I experienced the extremely large paychecks, viewed and shared in the behavior compromises, and throughout was incredibly stressed, and ultimately left wanting. The best thing about my experiences was the realization that I personally require more from my career than paycheck, and this realization will drive my decisions for the future.
The scoreboard mentality is a concept most easily explained in the context of sports. Though I often use sports analogies in my comparisons in this instance it provides a clear illustration of the effects of such a situation. For example, a softball game is close and in late innings, a shortstop’s team is winning by one run, there is a runner on second base, and the batter hits a single through the infield that would score the runner. Now that runner must run right by the shortstop, and if that shortstop has an ethical choice; they can violate the rules and interfere with the runner stopping them from scoring thereby most likely ensuring a win, or they can follow the rules and the runner will score and tie the game. Now you couple this with the ability of the shortstop to interfere without being caught and punished, what is there to stop the shortstop from interfering? Only their own internal motivation. Following this if their only internal motivation is to win, or get a higher number on the scoreboard than their competition, the shortstop will interfere with the runner every time. Similarly imagine a mortgage salesperson paid on commission where each additional sale means a huge paycheck increase, and the crucial factor determining the closing of the sale is two points on a credit score. That loan officer is faced with the decision of following the law and losing out on thousands of dollars in commission, or whiting out and changing a credit score, which no one will ever notice and if they do no one will do anything about it because everyone’s paycheck is determined by the closing of this loan, to ensure their commission will come in huge. Too often people make the wrong choice, and as we are experiencing with our own current economy the long term repercussion of such systemic behavior are substantially damaging. Changing a credit score, or interfering with a runner, may seem like small things but they are representative of a break in values, a change in course that snowballs on those involved. The next time the same individuals are presented with similar situations there is a certainty that they will make the wrong choice again, and those small steps will become larger until one finds themselves falsifying entire W2’s or breaking someone’s leg with an unnecessary takeout slide.
Though ethically the choice ultimately comes down to a single individual the organization is responsible for the systems they institute and the effects that they create. Most organizations with ethical problems in the front line loudly spout rhetoric from the top levels about maintaining high ethical standards but the behaviors they show tell a different story. Managers know when someone is engaging in unethical behavior, or "gaming the system" to increase their paychecks, but they do nothing because often it is their top salespeople that are doing so and to punish that person or make them toe the line would be too detrimental to their own sales numbers, and so on up the chain. So the poor behavior is ignored, and often rewarded, just showing all the other salespeople (who undoubtedly know of the shady behavior) what it takes to be “successful” in this organization. They will then imitate the poor behavior (who wouldn’t? if it boosts your paycheck and gets you plaques on your desk and trips to Las Vegas for sales conferences) and like a virus it spreads throughout the whole establishment. Immediate consequences are the only way to combat this behavior. Like when a toddler hits another toddler for example, one must put that child in time out immediately or else they won’t learn that hitting is wrong, and they will do it again. Many companies have punishment procedures in place but the distance between the enforcers is so extreme that they are totally ineffective. If one waits for that same toddler’s father to come home from a business trip two weeks later before they are punished, that child will learn nothing and will adopt the attitude that they can only be punished when daddy is around if he hears about it at all. The lack of punishment, and the reinforcement of undesired behaviors, is crucial to commission systems breeding unethical and illegal behavior in a myriad of industries, and in our own government as well.
The most distressing thing that arose from my own experiences in “win not lose” environments was the total lack of realization of complicitness by the salespeople that were behaving in such ways. Organizations that utilize commission systems do a very good job of hiring those willing to compromise their ethics. Violating the law, or ethical guidelines, becomes so “old hat” for so many it is on par with speeding on the freeway. Living the commission lifestyle is like taking drugs, the high one gets when they are cut that first big check is huge, then every month after that one must get a bigger and bigger number on that check to achieve that original high. One can try and fool themselves into thinking, “I love my job because I help people buy their first homes”, but as soon as those big paychecks get removed, or decrease; one realizes how shallow and unfulfilling their working life has become. This may not be the belief of everyone, but it is mine, and by riding the rollercoaster of working commission in a booming market I experienced the extremely large paychecks, viewed and shared in the behavior compromises, and throughout was incredibly stressed, and ultimately left wanting. The best thing about my experiences was the realization that I personally require more from my career than paycheck, and this realization will drive my decisions for the future.
Thursday, October 16, 2008
SAS Institute - More than Gravy
The success experienced by the SAS Institute is absolutely a result of their unique practices of compensation, personnel management and the culture fostered since the company’s inception in the higher education community. True, SAS has numerous competitive advantages that would be extremely difficult to duplicate or imitate, but they also do many important small things that validate the sincerity of management’s policies and rhetoric and that other companies in any industry can learn from to improve the job satisfaction of their own employees. SAS being privately held is a huge determining factor in all the strategy and policy they utilize, allowing great amounts of freedom for management to focus on long-term goals without the pressure of immediately pleasing stockholders and a board of directors. Obviously this is a factor not enjoyed by most of SAS’s competition, but the way SAS treats its employees is crucial to its sustained success and continuous innovation in an extremely competitive marketplace. SAS enacts a few very key benefits for its employees including a health center, day care, employer funded retirement, bonuses, task autonomy, and a touted health care plan. Combine these factors with the personal contact initiated by the upper management with their front line employees and it results in a family-like work environment where everyone has pride in their personal accomplishments and in turn the achievements of the company as a whole. On their website SAS states “If you treat employees as if they make a difference to the company, they will make a difference to the company.”
The success at SAS begins at the top. The upper management sets the tone for the entire company and not just through their rhetoric but through their actions as well. The company regards its employees as internal customers, and similar to their external customers when a request is made management takes it seriously and does their absolute most to satisfy that request. Having a CEO who is also the majority owner creates positive feelings in the employees at SAS because they realize that the company is the CEO’s baby and every decision he makes will be for the benefit of that baby providing a reassurance and stability unique to employees in the volatile software industry. SAS’s CEO, Jim Goodnight, also demonstrates his commitment to the company’s success through his actions of internalizing health care, providing day care, and adopting a hands-on approach to managing all aspects of his business. Goodnight states, “If you want something done right, own it and control it.” Therefore to provide his people with the best he chooses to outsource almost nothing. Goodnight commits also to reinvesting large percentages of earnings back into research and development pursuits to keep SAS on the cutting edge. As majority stockholder Goodnight could theoretically pay himself enormous dividends, take huge portions of these earnings and put them straight into his personal bank account, but he doesn’t. These actions prove to his people that he truly cares about the company’s mission and future. And it isn’t just Goodnight. SAS has the practice that senior managers run portions of their new employee trainings, so right off the bat front-line people have personal contact with upper management, further building that stability and trust relationship throughout the company. That way lower level employees’ trust that their superiors are making the right decisions, and management can be assured their employees are working their hardest to meet their obligations. Their CEO states, when discussing performance management, that “it should be a relationship instead of an infrastructure.” These relationships allow SAS to employ far fewer testers of their programming, relative to competitors, because of the rarity of mistakes made resulting in another advantage for SAS.
In any industry where brain-power is highly valued, as it is in the software industry, companies will recruit the most intelligent and accomplished minds they can as that individual could be responsible for the company’s next multi-million dollar product development. As we have previously examined intelligent people can be extremely difficult to manage. The commitment that SAS makes to giving its employees task autonomy is a very attractive work environment for an accomplished person. Importantly here too, SAS does not just use rhetoric, they take actions like providing every employee with their own private office. SAS believes strongly in intrinsic motivation, and this is where that comes into play. They allow their employees to motivate themselves they just provide them with the tools to make that possible. Also SAS allows their employees to move sideways through departments to amend their responsibilities, sometimes radically. Employees at SAS could theoretically move from the technical support department to research and development or sales. This has to be attractive to intelligent motivated people that often have many facets to their interests and skills. This practice would also cut down on burnout and complacency, both of which lead to the withdrawal behaviors of absenteeism and turnover, again saving the company in cost, but also increasing that intangible value of employee job satisfaction that drives performance. As a self-proclaimed intelligent person, I have experienced the burnout associated with the pressure of a sales position and would have welcomed the opportunity to flex different muscles in a product development capacity for a time. This flexibility demonstrated by SAS allows them to utilize every aspect of each employee to best impact the organization. I believe these two aspects of the culture at SAS are crucial to their employees’ happiness because all the rest of the benefits, i.e. health club, day care etc., are just gravy if the employee is not engaged in an activity they enjoy with the independence many adults require. And gravy, though yummy and requisite on certain dishes, is not very nutritious and is certainly not sustaining.
SAS can be compared further to a heaping plate of Thanksgiving dishes. The turkey, the real substance, comes from the private ownership since the company’s inception. The turkey is the reason for the holiday, just as the private ownership provides the means for SAS’s unique existence. On the side as the dressing is the CEO Goodnight, who must be stuffed in the bird to taste right, and you couldn’t wholly separate one from the other, ever. And also symbolizes the reinvestment of revenue into the company. You got mashed potatoes representing the company’s product which in the marketplace is not entirely unique, but for every person there is really one style they like the best, and SAS makes some pretty tasty mashed potatoes. Then you have the tangy cranberry sauce, representing the human resources practices, and since cranberry sauce must be eaten with every bite on the plate it is the glue that ties the dish together, and gives the cook (SAS) another opportunity for uniqueness. Finally, of course you have the gravy, all the perks, and at SAS that plate is smothered gravy. Conclusively it all sounds really tasty, and also like something one could eat repeatedly.
The success at SAS begins at the top. The upper management sets the tone for the entire company and not just through their rhetoric but through their actions as well. The company regards its employees as internal customers, and similar to their external customers when a request is made management takes it seriously and does their absolute most to satisfy that request. Having a CEO who is also the majority owner creates positive feelings in the employees at SAS because they realize that the company is the CEO’s baby and every decision he makes will be for the benefit of that baby providing a reassurance and stability unique to employees in the volatile software industry. SAS’s CEO, Jim Goodnight, also demonstrates his commitment to the company’s success through his actions of internalizing health care, providing day care, and adopting a hands-on approach to managing all aspects of his business. Goodnight states, “If you want something done right, own it and control it.” Therefore to provide his people with the best he chooses to outsource almost nothing. Goodnight commits also to reinvesting large percentages of earnings back into research and development pursuits to keep SAS on the cutting edge. As majority stockholder Goodnight could theoretically pay himself enormous dividends, take huge portions of these earnings and put them straight into his personal bank account, but he doesn’t. These actions prove to his people that he truly cares about the company’s mission and future. And it isn’t just Goodnight. SAS has the practice that senior managers run portions of their new employee trainings, so right off the bat front-line people have personal contact with upper management, further building that stability and trust relationship throughout the company. That way lower level employees’ trust that their superiors are making the right decisions, and management can be assured their employees are working their hardest to meet their obligations. Their CEO states, when discussing performance management, that “it should be a relationship instead of an infrastructure.” These relationships allow SAS to employ far fewer testers of their programming, relative to competitors, because of the rarity of mistakes made resulting in another advantage for SAS.
In any industry where brain-power is highly valued, as it is in the software industry, companies will recruit the most intelligent and accomplished minds they can as that individual could be responsible for the company’s next multi-million dollar product development. As we have previously examined intelligent people can be extremely difficult to manage. The commitment that SAS makes to giving its employees task autonomy is a very attractive work environment for an accomplished person. Importantly here too, SAS does not just use rhetoric, they take actions like providing every employee with their own private office. SAS believes strongly in intrinsic motivation, and this is where that comes into play. They allow their employees to motivate themselves they just provide them with the tools to make that possible. Also SAS allows their employees to move sideways through departments to amend their responsibilities, sometimes radically. Employees at SAS could theoretically move from the technical support department to research and development or sales. This has to be attractive to intelligent motivated people that often have many facets to their interests and skills. This practice would also cut down on burnout and complacency, both of which lead to the withdrawal behaviors of absenteeism and turnover, again saving the company in cost, but also increasing that intangible value of employee job satisfaction that drives performance. As a self-proclaimed intelligent person, I have experienced the burnout associated with the pressure of a sales position and would have welcomed the opportunity to flex different muscles in a product development capacity for a time. This flexibility demonstrated by SAS allows them to utilize every aspect of each employee to best impact the organization. I believe these two aspects of the culture at SAS are crucial to their employees’ happiness because all the rest of the benefits, i.e. health club, day care etc., are just gravy if the employee is not engaged in an activity they enjoy with the independence many adults require. And gravy, though yummy and requisite on certain dishes, is not very nutritious and is certainly not sustaining.
SAS can be compared further to a heaping plate of Thanksgiving dishes. The turkey, the real substance, comes from the private ownership since the company’s inception. The turkey is the reason for the holiday, just as the private ownership provides the means for SAS’s unique existence. On the side as the dressing is the CEO Goodnight, who must be stuffed in the bird to taste right, and you couldn’t wholly separate one from the other, ever. And also symbolizes the reinvestment of revenue into the company. You got mashed potatoes representing the company’s product which in the marketplace is not entirely unique, but for every person there is really one style they like the best, and SAS makes some pretty tasty mashed potatoes. Then you have the tangy cranberry sauce, representing the human resources practices, and since cranberry sauce must be eaten with every bite on the plate it is the glue that ties the dish together, and gives the cook (SAS) another opportunity for uniqueness. Finally, of course you have the gravy, all the perks, and at SAS that plate is smothered gravy. Conclusively it all sounds really tasty, and also like something one could eat repeatedly.
Nordstrom: The Evil Empire of Retail?
A most interesting point which occurred to me when examining the case of Nordstrom’s Department Store, and the legal troubles they had with their employees in the early 1990’s, was the similarity between the behaviors displayed by “Nordies” and the employees at Southwest Airlines. At both companies employees went above and beyond to serve their customers; they worked “off the clock”, they spent personal wages on parties for fellow employees, and they made personal luggage and purchase deliveries to homes. However employees at Southwest are almost spiritually devoted to their company and at Nordstrom a large percentage of workers sued the company. The real question is why such different reactions to similar expected behaviors? Why do we praise/accept one system and denigrate another when both encourage the same types of behaviors? The answer is that Nordstrom created a system to capitalize on its employees’ hard work, evolved a culture that implemented the system to perfection, while the executives spouted shallow rhetoric about “self-empowerment” and entrepreneurship, all resulting in a work environment that became increasingly toxic as the company reached a peak of sales success toward the end of 1980’s.
First one must agree that extraordinary activities done to service Nordstrom customers, or take care of the store, were not voluntary. The culture created by middle management, where “team players” frequently worked off the clock and were rewarded for it in many ways, enabled the compensation system to continue to work despite its unfairness and possible illegality. Upper management maintained throughout that if people were working off the clock then it was voluntary and isolated, when in fact it was pressured and pervasive. Positive punishment and negative reinforcement techniques were utilized, possibly unwittingly, by department and middle management to perpetuate the poor system. What is meant by positive punishment is the rewarding of undesirable behavior. In the case of Nordstrom, employees that left hours off of their timecards (albeit to boost their sales per hour and therefore their commissions, but according to upper management and the law for waged employees this was undesired) were rewarded by their managers extrinsically with the best floor hours and intrinsically with praise for being a team player and recognition in front of their colleagues etc. Conversely, employees that displayed the desired, and legal, behavior of reporting all the hours they worked on their timecards were negatively reinforced by their managers’ withholding of certain privileged hours. This would prove especially frustrating, and confusing, for employees as they were acting properly, displaying the proper behaviors, and were never reaping rewards. These employees were never receiving commission payouts either as validly reporting one’s hours led of course to a larger denominator, and therefore lower sales per hour number. Finally, it was these frustrations that led employees to take their case to the law.
One can see how the punishment and reinforcement techniques used at the department and store levels could drive the practices of not reporting work hours, this practice though was a result of the culture created through the usage of sales per hour (SPH) as a measuring stick for the entire operation. First you have a salesperson paid commissions on sales per hour providing the surface motivation for not reporting hours (coupled with the powerful techniques employed above). Then you have department managers that are measured on the SPH numbers of their salespeople, therefore motivating them into the reinforcement and punishment behaviors above. Allegedly certain managers even put “out of order” signs on time-clocks when their salespeople came in to do inventory on the weekend, so hours could not be reported. Sales floors became so competitive with a “win-not-lose” mentality that ethics were often compromised. Meaning that when one concentrates on winning at all costs it is nothing to steal a fellow employees’ sales numbers. Then above them you have store managers who are measured on the SPH numbers achieved by the different departments of their store, and who utilized those numbers to determine promotions. Therefore if one wanted to make hefty commissions, work the more lucrative floor hours, or get promoted at Nordstrom one had simply to play ball and not report all the hours they worked.
It is clear by the statements made by upper management that they realized how this system worked because when they first attempted to rectify and settle wage grievances they reinstituted the same practices in their system. Though sales activities were clarified further for employees, it remained that to achieve a healthy SPH one was still required to not report work hours. The unfortunate thing for one to observe is the lack of true engagement with the front line employees with upper management. Upper management relied on the systems they put in place, and turned a blind eye when it was apparent it resulted in unfair wage practices, chalking it up to voluntary activities which were as explained above truly involuntary. Nordstrom used its employees while deluding themselves into thinking that they were fostering entrepreneurial behaviors when in reality they were not imparting any ownership to their front line. This is where the true difference between Nordstrom and Southwest Airlines is illustrated. Importantly first the culture at Southwest was radically different, and was built on the foundation of teamwork and success of the whole. This culture was reinforced by the compensation systems the company put in place such as offering stock options for example which gives Southwest employees true ownership in the company and the stimulus for going above and beyond. Southwest is also very specific and purposeful in its hiring processes, and clear in its expectations of its front line employees. Nordstrom however, did not offer stock options to employees, and was intentionally deceptive about its sales per hour systems. Interviewed employees stated that “it becomes clear to most Nordstrom salespeople soon after they are hired that the store’s commission-selling program effectively penalizes any salesperson who insists on getting paid for every hour worked.” Employees should work hard at their jobs that is given, however when one is being paid hourly, not collecting a salary, it is the law that those employees be paid for the time they worked. Even if one is attempting to provide extraordinary customer service by for example driving a purchase over to a customer’s home in a bid to receive an Nordstrom “Customer Service All-Star” award it is clear that all that mattered was your SPH number. Providing excellent service was just management rhetoric. One eight year Nordstrom employee stated “In the end, really serving the customer, being an All-Star, meant nothing, if you had low sales per hour, you were forced out…”
This situation is common in many retail environments that track sales this way. One particular bank whose upper management team states repeatedly that their goal is always customer service, that they want their salespeople to operate on a need-based sales attitude, and that serving their long-time customers is primary to all their branches, employ similar systems that superficially reward customer service meanwhile the time needed by their front line employees to actually provide excellent service takes away from the time that employee needs to sell products in order to make commissions and retain their position. As at Nordstrom this bank’s employees are often frustrated by their inability to make sales numbers because all their time was spent assisting customers with issues where no sale was available. The same bank handed out numerous certificates, and offered praise, for high customer review numbers, but when paychecks came out and raises were extended, those excellent reviews were meaningless in the face of raw sales numbers.
It is not the focus on sales numbers that is particularly frustrating in these two cases (Nordstrom and the bank) it is the hypocritical attitude displayed by management throughout the organization. At Nordstrom upper management decried that they would ever require someone to work off the clock, but they instituted a system that resulted in that exact behavior and used the employees in the system to boost their sales numbers and reduce their costs, basically creating their competitive advantage through unfair labor practices. The system itself led to a culture that exacerbated and perpetuated these practices. In conclusion, Nordstrom deserved to be sued for back wages and in the future they should be more straightforward with their employees about what is expected and simply offer them the true ownership they claim to anyway in the form of stock options and salaries.
First one must agree that extraordinary activities done to service Nordstrom customers, or take care of the store, were not voluntary. The culture created by middle management, where “team players” frequently worked off the clock and were rewarded for it in many ways, enabled the compensation system to continue to work despite its unfairness and possible illegality. Upper management maintained throughout that if people were working off the clock then it was voluntary and isolated, when in fact it was pressured and pervasive. Positive punishment and negative reinforcement techniques were utilized, possibly unwittingly, by department and middle management to perpetuate the poor system. What is meant by positive punishment is the rewarding of undesirable behavior. In the case of Nordstrom, employees that left hours off of their timecards (albeit to boost their sales per hour and therefore their commissions, but according to upper management and the law for waged employees this was undesired) were rewarded by their managers extrinsically with the best floor hours and intrinsically with praise for being a team player and recognition in front of their colleagues etc. Conversely, employees that displayed the desired, and legal, behavior of reporting all the hours they worked on their timecards were negatively reinforced by their managers’ withholding of certain privileged hours. This would prove especially frustrating, and confusing, for employees as they were acting properly, displaying the proper behaviors, and were never reaping rewards. These employees were never receiving commission payouts either as validly reporting one’s hours led of course to a larger denominator, and therefore lower sales per hour number. Finally, it was these frustrations that led employees to take their case to the law.
One can see how the punishment and reinforcement techniques used at the department and store levels could drive the practices of not reporting work hours, this practice though was a result of the culture created through the usage of sales per hour (SPH) as a measuring stick for the entire operation. First you have a salesperson paid commissions on sales per hour providing the surface motivation for not reporting hours (coupled with the powerful techniques employed above). Then you have department managers that are measured on the SPH numbers of their salespeople, therefore motivating them into the reinforcement and punishment behaviors above. Allegedly certain managers even put “out of order” signs on time-clocks when their salespeople came in to do inventory on the weekend, so hours could not be reported. Sales floors became so competitive with a “win-not-lose” mentality that ethics were often compromised. Meaning that when one concentrates on winning at all costs it is nothing to steal a fellow employees’ sales numbers. Then above them you have store managers who are measured on the SPH numbers achieved by the different departments of their store, and who utilized those numbers to determine promotions. Therefore if one wanted to make hefty commissions, work the more lucrative floor hours, or get promoted at Nordstrom one had simply to play ball and not report all the hours they worked.
It is clear by the statements made by upper management that they realized how this system worked because when they first attempted to rectify and settle wage grievances they reinstituted the same practices in their system. Though sales activities were clarified further for employees, it remained that to achieve a healthy SPH one was still required to not report work hours. The unfortunate thing for one to observe is the lack of true engagement with the front line employees with upper management. Upper management relied on the systems they put in place, and turned a blind eye when it was apparent it resulted in unfair wage practices, chalking it up to voluntary activities which were as explained above truly involuntary. Nordstrom used its employees while deluding themselves into thinking that they were fostering entrepreneurial behaviors when in reality they were not imparting any ownership to their front line. This is where the true difference between Nordstrom and Southwest Airlines is illustrated. Importantly first the culture at Southwest was radically different, and was built on the foundation of teamwork and success of the whole. This culture was reinforced by the compensation systems the company put in place such as offering stock options for example which gives Southwest employees true ownership in the company and the stimulus for going above and beyond. Southwest is also very specific and purposeful in its hiring processes, and clear in its expectations of its front line employees. Nordstrom however, did not offer stock options to employees, and was intentionally deceptive about its sales per hour systems. Interviewed employees stated that “it becomes clear to most Nordstrom salespeople soon after they are hired that the store’s commission-selling program effectively penalizes any salesperson who insists on getting paid for every hour worked.” Employees should work hard at their jobs that is given, however when one is being paid hourly, not collecting a salary, it is the law that those employees be paid for the time they worked. Even if one is attempting to provide extraordinary customer service by for example driving a purchase over to a customer’s home in a bid to receive an Nordstrom “Customer Service All-Star” award it is clear that all that mattered was your SPH number. Providing excellent service was just management rhetoric. One eight year Nordstrom employee stated “In the end, really serving the customer, being an All-Star, meant nothing, if you had low sales per hour, you were forced out…”
This situation is common in many retail environments that track sales this way. One particular bank whose upper management team states repeatedly that their goal is always customer service, that they want their salespeople to operate on a need-based sales attitude, and that serving their long-time customers is primary to all their branches, employ similar systems that superficially reward customer service meanwhile the time needed by their front line employees to actually provide excellent service takes away from the time that employee needs to sell products in order to make commissions and retain their position. As at Nordstrom this bank’s employees are often frustrated by their inability to make sales numbers because all their time was spent assisting customers with issues where no sale was available. The same bank handed out numerous certificates, and offered praise, for high customer review numbers, but when paychecks came out and raises were extended, those excellent reviews were meaningless in the face of raw sales numbers.
It is not the focus on sales numbers that is particularly frustrating in these two cases (Nordstrom and the bank) it is the hypocritical attitude displayed by management throughout the organization. At Nordstrom upper management decried that they would ever require someone to work off the clock, but they instituted a system that resulted in that exact behavior and used the employees in the system to boost their sales numbers and reduce their costs, basically creating their competitive advantage through unfair labor practices. The system itself led to a culture that exacerbated and perpetuated these practices. In conclusion, Nordstrom deserved to be sued for back wages and in the future they should be more straightforward with their employees about what is expected and simply offer them the true ownership they claim to anyway in the form of stock options and salaries.
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