Who Is Your Company’s Worst Enemy?
January 2007 Issue
"We have met the enemy, and he is us."
This famous quote by cartoonist Walt Kelly's Pogo nails down what could be the real problem in a company crisis. Could your companys worst enemy be you-the O&P company owner or manager?
When a business is struggling, or even just not as profitable as expected, owners and managers commonly blame declining reimbursements, competition, slow payers, government regulations and requirements that increase administrative burdens, and so on. Of course, these elements do impact the bottom line. However, why do some businesses thrive, seemingly as indestructible as dandelions, despite the same harsh environment?
Various business gurus point out that the buck often stops at the top. Your beliefs, leadership style, and operating philosophies guide strategies, decisions, and actions that can impact your level of success. Elements that are intangible, and thus difficult to quantify, can translate into hard numbers. Your business philosophy, attitude toward employees, and your company culture, which is largely created by you, affect your profitability and even your company's survival.
Like a dry rot, factors undermining the company may be eating away inside undetected for a period of time. All seems to be going well for a while until an apparently healthy organism, decayed from within, spins into a death spiral.
Business thinker and consultant Gregg Stocker examines this phenomenon in Avoiding the Corporate Death Spiral: Recognizing and Eliminating the Signs of Decline. By the time symptoms of a death spiral become obvious-declining profits, shrinking market share, and mass layoffs in large companies-it may be too late.
"When you see those numbers go down, that's the end of the story," says Joyce Perrone, who with Rob Benedetti, operates O&P consulting firm Promise Consulting Inc., Pittsburgh, Pennsylvania. "When numbers go down, that's the result of things that happened months, years, even decades earlier, and now you're paying the piper."
Stocker's analysis is not all negative, however. A company in trouble still may be able to pull out of the downward spiral, get on solid ground, and thrive. Benedetti and Perrone also take a look at what many companies do wrong and what they do right.
Stocker looks at companies that have been outstanding successes even in difficult economic times when competitors were floundering. Such companies as Toyota, Southwest Airlines, and Nucor Steel "are governed by a philosophy that focuses on people-not spreadsheets, machines, or technology-to improve their ability to withstand external pressures," says Stocker. "As an example of this focus, none of these companies have a history of laying off workers during troubled times."
It has been often observed that a company is only as good as its people-its most important resource-and that its people spell the company's success or failure.
Stocker sees entering the corporate death spiral as a two-stage process beginning with a weakening of the organization's "immune system." This cycle continually minimizes the contributions of the people working in the organization.
Your Company Culture: Supportive or Stifling?
Most people are highly motivated, excited about the job, and ready to contribute when they first come aboard. Do they stay that way? That depends largely on your company culture and working environment. "It often doesn't take long in many organizations, however, for the person's motivation to begin to erode under the pressure of the policies, behaviors, and actions (or inactions) of management that result from a lack of trust in the ability and motives of workers," says Stocker.
Portions reproduced by permission of Gregg Stocker, Avoiding the Corporate Death Spiral: Recognizing and Eliminating the Signs of Decline (Milwaukee: ASQ Quality Press, 2006).
This is when the immune system begins to weaken: Management crushes the motivation of new workers and continues to de-motivate workers already on the job. Workers lose ambition, feel out of control, and fail to take initiative. This decreased motivation becomes evident through lower quality work, lack of initiative in tackling new projects, or no longer going beyond the expectations of management.
This, in turn, strengthens management's perception that workers are lazy, not intrinsically motivated, and incapable of working without direction, says Stocker. "Managers focus heavily on worker performance and can cite several examples supporting their belief that workers only respond to extrinsic motivators (positive and negative) like money, threats, and punishment, which in turn, strengthens the case for tighter controls."
However, managers fail to see that they are directly responsible for creating this situation; their philosophy about their employees becomes a self-fulfilling prophecy, and the cycle continues.
The organization can appear to function quite well with this weakened immune system-until it is exposed to an external onslaught. It has been proved many times, points out Stocker, that an immune-deficient company can remain profitable for a given period, thus creating a false sense of security for managers and owners.
However, when such external negative events as a weakening economy, a new competitor, or a competitive technology hit the company and impact profits, the next step in the death spiral swings into play-crisis-mode management.
Managers then take action to restore an "acceptable" level of profitability by cutting expenses. Often these cuts involve those that don't show an immediate dollar return, such as expenditures for training and development of people, and long-term product/service development projects.
If these measures aren't sufficient, the next step may include pressuring suppliers for price reductions or lengthening payment terms-a bad idea, since the quality of supplier products and services tends to fall, and lead times from suppliers increase, Stocker points out. Thus, reduction in supplier costs is offset by costs in other areas.
Employee layoffs may be the next step-or even the first step in some companies. Layoffs are followed by a drop in morale among remaining employees, which is reflected in decreased productivity and poorer quality dealings with customers. Plus fewer employees may not be able to keep up with the workload and customer needs.
Now the death spiral is in full swing. Preventive maintenance on equipment is reduced or eliminated due to budget cutbacks; there is a lack of worker interest because of low morale; machine and equipment breakdowns increase, further reducing quality, which leads to reduced sales and profits; and the cycle continues.
Climbing out of the Death Spiral
What can you do? At this point, is there any hope?
Yes, but saving the company won't be easy. With deep-rooted problems, "real improvement cannot occur without a fundamental change in the philosophy of the organization's leadership and a carefully planned strategy that shifts the organization from tight controls to an open, improvement-focused culture," says Stocker. In other words, the company's culture needs to change.
This solution goes deep. In fact, it goes right to the heart of a manager's deeply held beliefs about people, business, and society. "The leader must feel strongly enough about the need to change to continually evaluate his or her personal actions and behaviors.... Without this level of change, the organization's systems and overall approach will not change, and sustained improvement will not take place."
Improving the cultural health of an organization is similar to improving the physical health of a person. A person in declining health attempting an exercise program while continuing to smoke, eat the wrong foods, and maintain a stressful lifestyle will not significantly change his health. However, a person who understands the links between diet, exercise, and stress and fundamentally changes his lifestyle will improve his overall health, even though some benefits of these changes may not be immediately felt.
How does one go about improving a company's culture? Stocker lists six elements of a supportive business culture:
- Trust throughout the organization.
- The ability to take pride in work performed.
- Enthusiasm for improvement.
- More focus on the operation or customers than on financial statements.
- Continual development of people, leaders, and teams.
- Clear, consistent, and believable company purpose and values.
Watch for Warning Signs
How do you know how healthy-or sick-your company is-before major problems erupt? In their consulting practice, Benedetti and Perrone have seen some of the same warning signs that Stocker lists: lost focus, number obsession, supplier squeezing, undervalued employees, dirt, clutter, and damage, and operational fragmentation.
Lost focus: "Often people don't have a focus for their business," Perrone observes. "They take a shotgun approach, going in several directions at once. If your people can't answer the question, 'What makes our company stand out from others?'-you need to look at that."
Number obsession: Number obsession is shown when company leadership focuses heavily on financial indicators and pays very little attention to non-measurable business aspects that contribute strongly to financial performance, such as morale, culture, leadership development, etc., explains Stocker.
Squeezing suppliers: Perrone notes that O&P companies who are upset about hospitals and managed care organizations beating them down on prices may take pride in beating down their suppliers. "We're complaining about the same thing we're doing to others." She sees a better approach as finding good suppliers, developing good relationships with them, and getting the right product at the right quality and price, rather than trying to squeeze as much as possible.
Undervalued employees: An important warning sign is when company leaders do not place a high value on their people, says Stocker. Layoffs are common, there is very little leadership development of employees, and employee performance is measured without taking into account non-measurable contributions.
Clutter and disorganization: Perrone points out that when O&P shops display a general sense of disorganization, such as paper scattered everywhere, it's easy for important items to get lost or buried. "We've had some shops where receipts were stuffed in a drawer along with ketchup packets," she laughs. However, as Perrone and Benedetti note, clutter and disorganization reflect deeper problems within the company. Employees are not taking pride in their workplace, which can translate into not taking pride in their company or their job performance.
Operational fragmentation: A competitive, antagonistic spirit between individuals or departments, rather than everyone being centered on the company and its objectives-is another danger sign, says Perrone. It shows that the company overall may have lost sight of its focus and goals.
Measuring Your Company's Health
So again, how can you measure the health of your company and its culture? Perrone and Benedetti noted a landmark study by Sidney Yoshia, which indicated how management's failure to understand its processes and practices from its customers' perspectives suppressed the company's profits by as much as 40 percent. When it comes to understanding a company's problems, the study revealed that 100 percent of problems were known by frontline workers, 74 percent of the problems were known by supervisors, and middle managers knew only 9 percent of the problems. And the scary clincher: top managers knew only 4 percent of the problems.
"Open communication is so important," says Perrone. "So much filters out before it even reaches top management."
The obvious conclusion would be to ask the people who really know your company-your employees. What hampers this action? Says Perrone, "An employee may think, 'Every time I say something, I get squashed.' 'If I say something, nobody does anything anyway.'"
She continues, "Management may think, 'Why ask? All they do is whine and complain.'" An employee survey, ideally administered and evaluated by an outside company, in which employees can give feedback anonymously, is a helpful tool, she says.
However, it will take courage and a willingness to "take the hits," she adds. "You need to be willing to get rid of your ego, make changes if indicated, and then go back after a period of time and do another employee survey to see if things have improved. You need that continuous feedback from your people."
Your Leadership Skills
Uninspired leadership is a major problem that can send an O&P company into a death spiral, says Benedetti. "Clinicians who are business owners or managers often don't inspire the people who work for them, and the company just settles into a mode that is less than profitable. It's an organizational issue other than dollars and cents that can affect profitability and ultimately send the company into an economic death spiral."
Perrone adds, "If you don't have enthusiasm for your company-you don't have that 'fire in the belly'-how can you expect your employees to have it? If the owners often don't show up for work, don't do the job well, aren't excited by it, it's very difficult to get others excited about it." So, as a business owner or manager, you need to take a long look at your own attitude toward your company and what it does.
So what can you do if you just don't feel like a natural leader? Perrone offers the encouraging thought that not all leaders are born; some learn to be leaders through education and training. Although an O&P facility owner or manager may have been trained to be a clinician, he or she may never have been trained to be a leader. "You go to school to be a prosthetist or orthotist," says Perrone, "but you've never taken a class or read a book on leadership skills and management techniques. Well, you may say you don't have time for that. But if you don't make time to acquire leadership and management skills, or you don't hire someone who has these skills and let them lead, you're going to pay the penalty."
A leader listens. Perrone observes that as consultants, when they've given advice to a company owner, an employee may say, "I've been telling them that for years, and they don't listen."
"That's sad," she says. "People need to feel they're being heard, and what they have to say could help your company."
Sales and management expert Jan Stringer points out in the Business Know-How newsletter® ( www.businessknowhow.com ) that companies which pay attention to their surveyed employees end up with a much lower turnover rate, which by itself saves them millions of dollars every year in rehiring costs as well as in lost customers. According to Stringer, on average, the loss of one dissatisfied employee will result in about 150 percent of his or her yearly salary between advertising for a replacement, training the new person, lost productivity, and overtime of others to compensate while waiting for the new employee to get up to speed. When the lost employee is in management, the number increases to nearly 200 percent, says Stringer. She adds, "This isn't even taking into consideration the loss of valuable knowledge and insight provided to the customer by the employee! No amount of training will replace the knowledge that comes from doing the job every day."
From the customer perspective, lack of turnover means a more stable, responsive team to address customer needs and concerns, Stringer adds. "They want to know who they'll be dealing with when they pick up the phone or send an e-mail. Merry-Go-Rep doesn't encourage faith in a company, and the downtime during training means time taken away from providing quality service."
Perrone describes her vision of an ideal workplace. "What is beautiful is when you can wake up and go to work in a place you love, people you enjoy being with, a pleasant, positive environment, and that at the end of the day you feel good about what you did, that it mattered," she says. "To me that's what every job should be. You're giving up so much of your waking time to your job or your business that it should be a positive experience."
So how can you get there? Or at least get closer to this ideal? It helps to recognize that factors that are difficult to quantify can contribute substantially to the hard numbers of your bottom line. Working toward maximizing your company culture for optimal employee satisfaction and productivity, coupled with using technical and business tools that can aid in practical, sound business decisions, can get you there. Says Perrone, "Look at what your vision is, then look at what your current condition is, and look at what you have to do to get closer to your vision. Take all these steps, one at a time, and you'll realize your vision."
Portions reproduced by permission of Gregg Stocker, Avoiding the Corporate Death Spiral: Recognizing and Eliminating the Signs of Decline (Milwaukee: ASQ Quality Press, 2006).
Miki Fairley is a contributing editor for The O&P EDGE and a freelance writer based in southwest Colorado. She can be contacted via e-mail at email@example.com
Common Business Errors - and How to Avoid Them
According to Rob Benedetti and Joyce Perrone of Promise Consulting, Inc., Pittsburgh, Pennsylvania, these are some of the most common mistakes O&P company owners make:
"Sometimes owners try to cover every market out there," says Benedetti. "Often it's better to focus on what you do really well and make a name for yourself."
If you do consider expansion into another area of patient care or service, such as pedorthics, or if you're thinking about opening another office, analyze the projected move carefully and logically, the consultants point out. "Don't plan a move emotionally, such as 'Well, I'd like to open another office closer to where I live, so it will be more convenient,'" says Perrone. "Look at the costs involved relative to the additional revenue you reasonably can expect. Ask yourself questions such as, 'Will I get additional referral sources if I move here? Do I have a good patient base here?'"
A polar opposite to the error of overextending a company's resources is the problem of the owner being too timid about doing something differently. "If you're stagnant and don't have the entrepreneurial spirit, your competition will catch up with you and possibly pass you," warns Benedetti.
Analyzing Your Systems
This is a simple problem, but it happens frequently, according to Benedetti. "Companies often don't do due diligence on their own systems and processes to see if there's 'fat' somewhere. As consultants, we'll ask questions like, 'Why do you do this? 'Why does this exist?' They'll reply, 'Well, that's how we've always done it. Why change?' Then we point out, 'You don't have to do it that way anymore, and you can save $1,000 here and $1,000 there.'"
"Reimbursements are declining, and payers like to play games," says Benedetti. "They want 30-, 60-, and 90-day terms, and collections are taking longer. Often O&P companies fail to put enough firepower into collecting. If cash flow gets choked, this can cause a company to go into a death spiral pretty quickly, even if there's a lot of revenue on the books."
According to Benedetti the two most common problems Promise Consulting sees are poor A/R management and uninspired leadership.
Following are several business tools to help O&P business owners make sound decisions.
The first is called a cost-benefit analysis-also known as "running the numbers." For more information, visit management.about.com/cs/money/a/CostBenefit_2.htm
Another helpful concept is balanced scorecard methodology, an analysis technique designed to translate an organization's mission statement and overall business strategy into specific quantifiable goals and to monitor the organization's performance in terms of achieving these goals.
Developed by Robert Kaplan and David Norton in 1992, balanced scorecard methodology is a comprehensive approach which analyzes a company's performance in four areas:
The concept is based on the rationale that assessing performance through financial returns only provides information on how well the company performed before the assessment. However, the belief is that analyzing the additional areas as well helps predict future performance, thus aiding decisions and actions that will help create the desired future. For more information about balanced scorecard methodology, visit www.balancedscorecard.org/FAQs/index.html
Another valuable tool for making sound choices is a decision tree. Decision trees are excellent tools for making financial or number-based decisions where a large amount of complex information needs to be taken into account, notes a website about the tool. "[Decision trees] provide an effective structure in which alternative decisions and the implications of taking those decisions can be laid down and evaluated," according to the site. "They also help you to form an accurate, balanced picture of the risks and rewards that can result from a particular choice." For more information on how to draw and use a decision tree, visit: www.psywww.com/mtsite/dectree.html