Please ensure Javascript is enabled for purposes of website accessibility

Tag: ceo

CEO Coaching: Treat People Like Gold and You’ll Have More Gold

A recent Wall Street Journal article (“How Higher Wages Can Increase Profits”) indicates that higher wages can not only reduce turnover and increase recruiting of talented people (no real surprise there) but also increase productivity in existing staff.

So higher wages in this example (expense for the business) can achieve higher profit—pretty cool! Mysterious altruism at work? As a CEO, it’s worthwhile exploring the science behind this as too often compensation is done on the fly.

I cut my teeth in a multiunit retail setting where payroll was one of the top expenses companywide. If you threw in general and administrative (G&A) labor, it was the largest expense (stay with me so we can get through the dry stuff to get to the point). We tightly monitored payroll-as-a-percentage-of-sales but let local management determine how to handle it. In fact, even if that line item seemed high, but the store or region produced a high level of unit profitability, we typically ignored it.

Some stores achieved high profit margins with low payroll costs (we eschewed the terms “labor” and “employee”), because they had fewer people. But they were damn good and worked hard, supporting the notion of “gift exchange” that economists espouse (i.e., treat people better than market forces, and they’ll reward you with more and better work). It also turns out that when and how you increase wages makes a big difference.

I’m not a fan of government-imposed wages for several reasons, but I am a big fan of businesses that can create wealth and happiness for their people. The fact that it’s good business to treat them better than the company down the street delights me. It’s not about minimizing rewards; it’s about optimizing them! When you are pondering compensation, it is prudent to look not only at the field of accounting, but also psychology and behavioral economics!

The research in the above-mentioned article tries to isolate compensation as a factor, and the message is that more expense in this area on your income statement might achieve higher profits.

But if you think about the sum of all rewards, the conversation gets much richer and more fun!

If you can create a supportive, inspiring, high-energy culture that’s challenging and rewarding and provides higher compensation, you have a real competitive advantage! Think about managing your culture as carefully as you manage your expenses.

There are a lot or reasons to treat your people like gold that have nothing to do with profit and for you that may be good enough. But the fact that capitalism (done right) and humanitarianism are often aligned is a pretty cool thing.

 Todd Ordal is president of Applied Strategy®. Todd helps CEOs achieve better financial results, become more effective leaders and sleep easier at night. He is a former CEO and has led teams as large as 7,000. Todd is the author of Never Kick a Cow Chip On A Hot Day: Real Lessons for Real CEOs and Those Who Want To Be (Morgan James Publishing, 2016). Connect with Todd on LinkedIn, Twitter, call 303-527-0417 or email [email protected].

Hurricane Andrew

Andrew got me pumped up today! He found me on the web and wanted advice about planning for business growth. He’s just getting started, growing rapidly, and I’m not the right resource, but I pointed him toward a couple of solutions to help. Our 30-minute phone call was probably more helpful for me, however, than him.

Capitalism hums when entrepreneurs find an addressable market and throw their energy into it! Andrew knows a lot about what his customers need and what technology will satisfy that need. He must, however, learn how to run a business. Based on his enthusiasm and courage to ask for help, he will.

With so many large-scale problems right now (COVID-19; a blockhead who wants a permanent residence on Pennsylvania Avenue; people struggling while Congress fiddles; etc.), it’s easy to forget what made our country and economy strong. People like Andrew did.

Andrew will survive in a Democratic administration just about as well as in a future Republican administration (if the party doesn’t self-destruct by then). He’ll provide employment for more and more people, and their families will prosper. He’ll pay increasingly more taxes that will help build infrastructure. The service he provides his customers will help them grow, and they’ll provide the same benefits to us that Andrew does.

Good business is good for everyone. It wasn’t an inconvenience to talk to Andrew today; it was an honor.

Stand up for capitalism and well-run business! Support those voices that encourage business as well as environmental and social reform. (They are not mutually exclusive!) Many people don’t understand the relationship between business, GDP per capita and all the good things that come from it. If you’re willing to look, there’s a lot of information proving that the Andrews of the world do more good than “do-gooders” do.

Go get ‘em, buddy! I’m rooting for you!

CEO Coaching: A shocking look at strategy

Of all the questions a CEO must answer, “What’s our strategy?” is one of the most daunting. If you can’t explain it in a few sentences, how can your people execute it?

Significant changes to company strategy (e.g., “Where do we play, and how do we win?”) are frequent in startups but less so in established companies. Why would you radically change a working formula? You shouldn’t! That’s why most CEOs are adept at executing and less so at crafting strategy — they don’t do it more than once or twice (if at all!) in their career.

So, I’m always looking out for good examples of what a significant change in strategy looks like. Often, significant pain drives a significant change in strategy. If you ran the Kodak of old and your business went to hell, you’d look for something to sell besides film, right?

The recent COVID-19 pandemic has forced “creativity” into many companies, because they had a metaphorical gun to their head. Although many small distillers may have turned to making hand sanitizer, and GM used their manufacturing expertise to produce ventilators, those aren’t terribly instructive scenarios for most CEOs.

A better example was a recent story in the Wall Street Journal about the Taser manufacturer, Axon Enterprise. The company had already penetrated 95% of the law enforcement agencies in the United States (a shockingly high percentage!) so needed to expand their addressable market. They were driven by a need for future success, not because they had a gun (or Taser!) to their head.

Here is Axon’s CEO in a proxy statement (a worthwhile read, by the way), April 15, 2020:

“In 2008, as the financial crisis gripped the world, we decided to transform our entire business from being a simple TASER devices manufacturing firm into an integrated technology company making wearables and cloud software. The transition was anything but easy — we had many difficult learning curves to overcome. As competitors in the public safety space retreated, we advanced into new opportunities and established ourselves as the clear market leader in cloud-hosted digital evidence management and camera sensors.”

This market-driven strategy versus the previous product strategy may sound simple, but the internal changes required are significant, and their financial results indicate they have executed well.

Let me know if you have a good example to share. We often learn best by stories.