Thursday, April 18, 2019

Strategic Benefits?

What is your planning horizon? One year? Three? Five? Ten?? Chances are we’re clear about the effects of our decisions in the near-term: mostly one year, sometimes three if it’s a general policy issue. We might even appreciate that benefit choices are enduring. I wonder if that was the case for employers during WWII and after. When wages were frozen, one of the ways to attract employees was to provide health insurance benefits—which previously had been purchased by individuals. Over the last 6 decades, those benefits are assumed by current and potential employees.

Once a benefit is given, a benefit is hard to take away. I once removed a Perfect Attendance benefit, which added a half-day of vacation for each quarter of perfect attendance, and replaced it with two extra holiday days—floating holidays freely chosen by each employee. It saved a lot of supervisory effort spent to track—and negotiate as in whether there was adequate notice for an excused absence rather than an unexcused absence—those who wanted to have perfect attendance...and instead focus on performance improvements. I received some push-back because I had eliminated a benefit. It seems benefits only have additive policy directions, not subtractive policy directions. I didn’t reverse the decision because it was strategic that we needed to redirect the supervisors’ time towards process improvements, education, problem resolution, etc.

With regard to health insurance, even before the ACA (“Obamacare”) provisions, we were re-thinking the provision of health insurance benefits. In 2008-2010, we weren’t extravagant in the portion we paid but it was a big cost. It was running close to 25% of payroll. What other strategic things could the money be used for that would better insure organizational success? I’m not talking about stock prices. I’m talking about long-term growth through investments in product development, acquisitions, expansions, capital equipment, and so on. Then and today, it was assumed that health insurance premiums were just another cost of doing business, like leases and utilities. Medical costs are out of our company’s control. There aren’t price lists to choose medical procedure, device or prescription options. Many places don’t have provider choices—either you only have one option in your area or you’re locked into one choice by the insurance plan. It’s one area that we don’t control and we have limited solution options—increasing deductibles is one of the most utilized. I’ve even seen arguments that smarter health insurance choices improve employee engagement, which in turn improves productivity. Not so sure about that. For one thing, employee engagement does not improve if organizational trust is not high; health insurance benefits can’t fix low trust levels.

Attracting employees is important. It’s why employer-sponsored health insurance was originally promulgated. What else could we do with 10-25% of payroll to attract candidates and not tie us into a system we don’t control? How much has the cost of health insurance influenced our move towards more part-time employees and how much has that move hindered our employees’ productivity, effectiveness, customer service levels, growth, etc.?

Having healthy employees is important, not just physiologically but also mentally. Peace of mind that there’s a safety net through health insurance can be important for individual productivity as well. But is health insurance the only way to do this? If the benefit/cost ratio is greater than 1, shouldn’t we offer it to the part-timers as well.

What strategies need to be executed for your company to survive, thrive and grow exponentially? How much does providing health insurance help or hinder your ability to succeed?

Thursday, April 11, 2019

What’s Your Company’s One Percent?

I’m not a big fan of Balanced Scorecard, EOS Traction’s multiple ‘rocks’ nor of other methods that try to have organizations work on a whole spectrum of goals. I’m a fan of hoshin kanri—the management tool that focuses the business on one primary goal and often translated in the US under the awkward term Quality Policy Deployment. With respect to the author(s) of books about finding ‘the one thing’ and the characters in the Billy Crystal film, I’m not suggesting you find The One Thing. I’m suggesting you find the one percent. Eli Goldratt, who helped us think about The Goal, used to say that the 80/20 rule was bogus. Instead of 20 percent determining 80 percent of the results—which is valid if the results are independent of each other—he postulated that 1 percent of your company’s activities determine 99 percent of the results because all of our processes, behaviors and activities are interdependent. He popularized a ‘reality’ tree diagram that allowed organizations to find those few root determiners (causes) of the ill effects occurring in the business.

Similarly, N.N. Taleb who wrote The Black Swan and other books about the highly improbable suggests that the 80/20 rule and a 50/1 rule are the same thing. That is, 50 percent of your results are determined by 1 percent of your activities...or other breakdowns in non-natural processes and outcomes. Mathematically, that’s correct because he presumes that the 20 percent remainder is also stratified in the same way as the whole 100 percent, i.e. the remaining 20 percent is broken down by the 80/20 rule, and so on. It only takes 3 iterations of the 80/20 to have 51% of the results (80% of 80% of 80%) related to 1% of the determiners (20% of the 20% of the 20%).

If you have your leadership and management team trying to accomplish everything, the efforts and resources are diluted. I have three scenarios that can prove this:

  • Assume you have 3 corporate goals and ask that each organizational layer have 3 goals/projects to support the accomplishment of the goals/projects above. The first tier has 9 goals now, the next have 27 and 3-4 layers down in the organization, a manager/supervisor/engineer/poor-schmuck has to help accomplish 81 projects. More than 1/week. And I say they have to support 81 because no single person or department can fully accomplish their goal or project with some cross-functional assistance.
  • It’s often instructive to map out the success diagram for corporate goals and their supporting goals. In every business, there are two predominant outcomes: 1) most of the corporate goals were accomplished while few of the subordinate goals were met; 2) few of the corporate goals were met while most of the subordinate goals were met. Either we don’t understand how well our businesses work, we got lucky/unlucky or our efforts were focused on the wrong activities.
  • When favorable results are achieved, the leadership team takes credit because it was that they emphasized the right things. When poor results occur, external factors—the economy, natural disaster, new technology—are blamed. The same leadership and management efforts occurred—the same business business processes were implemented, fed or starved accordingly. Therefore, the difference is either leadership doesn’t fully understand the business or it’s just luck (fortune) or misfortune and has nothing to do with leadership.
Thus, it’s important to understand which slim minority of activities give you most of your success and have the organization focus on them, making sure they’re not starved for capital, time, energy, etc.