Back to the Future: Firms Knuckle Down after Shake Up
By Sheffield Consulting Group director John Martins
National Business Review
Wednesday, 13 March, 1991
After redundancies, restructurings, plant closures, and loss of household brand names, the good news is that companies are finding a new sense of direction.
As a research exercise on the recent shake-up in business, I contacted 12 of our clients who are doing well. I chose companies representing a cross section of businesses: five manufacturers, three retailers, two transport companies and a marketer of computer systems. I asked about the changes they have introduced as a result of the tough trading conditions, and found their replies much the same.
One chief executive had worked through a receivership. “You have to run your business today as if it’s in receivership,” he said. “You must control the chequebook and the order book and get all the staff on your side questioning costs in every area.”
Other companies were involving all their people in the war against costs. They were recycling paper rather than ordering new stationery and in one instance, in which the staff were brought together to put the Christmas party to a vote, the unanimous agreement was to cancel. Clerks, secretaries and receptionists were being drawn in into the management process. They were looking at ways of improving invoicing procedures, following up debtors and reducing inventory to improve cashflow, saving on the purchase of office consumables and evaluating new telecommunications systems. The budgeting process was being driven down through the structure to include everyone in the cost review process.
To reduce fringe benefit tax, several of the companies were taking a hard look at remuneration packages, particularly company vehicles. Gone are the days when an employee’s seniority can be judged by the company car. An increasing trend to total cash compensation rather than providing salary plus benefits such as company vehicle and medical insurance recognises that companies can’t continue to offer blanket benefits. A total cost to company remuneration level enables employees to choose the mix of salary and benefits which meets their particular needs.
I spoke to a chief executive of a retail company who has developed his own ‘road show’ which takes him to all branches. He visits two branches a day, spending an hour and a half before business starts, and an hour and a half after business finishes at the other, sharing the company’s plans and getting every front-line employee enthusiastic about servicing the customer.
Another company regularly employs university graduates to telephone customers asking them how satisfied they are with the level of service. A retailer sends questionnaires to customers inviting them to comment in some depth on the company’s level of professionalism and service.
The head of a computer systems company summed up this approach by saying: “We are putting the customer first now and with this attitude we can see lots of opportunities. By talking to people we identify customers who are prepared to try new ideas and spend money doing it. It’s the marketplace that calls the shots now and it’s reading the marketplace that’s important.”
Another CEO of a multi-brand retail business said: “At last the New Zealand customer is becoming discerning. People are no longer prepared to accept mediocrity. They demand products and services which meet international standards. This is good news because by focusing on service we can gain the advantage over the competition.”
A company which has traditionally supplied metal manufactured products to the market with modest exports to Australia, described how, with the local market declining, they went all out to meet customers overseas. In one year, the chief executive visited Hong Kong, Bangkok and Malaysia four times, Singapore six times, Indonesia three times, Australia 11 times and the US once. The result was that, last month, exports were greater than their total volume of exports in the whole of 1988. They are now the largest supplier of their products to the Hong Kong market.
The tough times have forced companies to do basic planning work, to define a mission statement, to decided where they are going and how they are going to get there, to be selective in choosing their market and then highly focused in winning the business.
A company had merged three manufacturing and marketing companies to create a group to dominate their industry. Then with six months’ notice, import restrictions were removed, opening the market to Asia products. They rationalised their product range, reorganised manufacturing and restructured the business to become internationally competitive. They now compete effectively with Asian imports – beating them on quality and delivery and getting close on price. Their business has grown 20% in a total domestic market that declined 22% last year. “We decided that the day of the generalist was over,” the chief executive said. “We planned to be specialists in a particular market and have committed our resources to achieving that.”
There is an increasing acceptance that people must perform and demonstrate their contribution. Companies are much more astute in measuring performance and creative in developing incentive programmes. An educated workforce with rising expectations in a competitive employment market craves feedback on performance.
A finance company has introduced an effective incentive programme into its collections department so collection clerks can earn substantial bonuses. People are being encouraged to reach out and stretch themselves, to question the rules. “You do not have to think by the rules. It would be a huge mistake if people confine their thoughts to the way things have always been done. People who think by the rules confine themselves to mediocrity,” said one finance company boss.
Employment contracts allow employers to work more effectively with their people and increase productivity. A retailer believes that with employment contracts they will employ people more flexibly to meet the unpredictable demands of their service business. Another company is overhauling its performance appraisal system as staff wish to be paid on performance with the introduction of employment contracts.
In the past companies have paid attention to the recruitment and development of people at senior management levels but have been satisfied to accept weaker middle management and in particular, employ unskilled people at the customer contact point. In the 1980s there were too many people with highly mobile employment backgrounds who may have looked promising but in the end, didn’t deliver in terms of performance.
Employers have begun to realise the need to recruit talented people at junior level for long-term careers and train them well. A retailer is spending 3% of the total salary and wages budget on formal training. This excludes the informal training normally given by the person’s manager. “We are giving people training in motivation and attitudes as well as sales and product training,” the chief executive said. “We want to employ people who feel good when customers have said ‘no’ to them three or four times in succession, who don’t run away and hide when they experience rejection.”
By focusing on training front-line staff in this way, another retailer had achieved 40% growth during a year which saw its total market increase by just 2%.