Improving Employee Productivity on Christmas Eve... Or, An Exciting Christmas Eve at Corporate

It was a Christmas Eve in the mid-1970's. I was a senior IT auditor in the corporate offices of a large publicly-held corporation based in the northwest suburbs of Chicago. It was the typical lazy day before a holiday break, without a whole lot to do on deadline. In fact, I was usually out at a remote divisional location and did not spend much time at headquarters. The workday was particularly dead for me and the 20 or so other staff members who were not taking the day off. It did not appear that there was anyone onsite with a title north of "Manager" and we all were pretty much on our own best behavior. The only background excitement that day was the weather which was a mixture of rain and snow with plummeting temperatures. It was the kind of day where pilots earn their pay. The weather was of particular concern for me. It was a family tradition for my wife and me to jump into the car on Christmas Eve and drive to my parent's home where we would celebrate Christmas. It was a long drive to the south side of Chicago (the East Side of Chicago to be exact which lies in the land between the refineries and the steel mills). My office was still another 30 minutes away. In bad weather it was a particularly testy adventure. And in the dark no less. Lunchtime passed without any particular notice, and everyone began to wonder and comment regarding when "they" would close the headquarters office and let us venture into the wintry mess outside to celebrate the holiday. A few brave souls were even talking about taking matters into their own hands and leaving early. Who would know anyway? My desk was right outside the office of the Corporate Controller. It was still another year before they would give me my own. At about 2:00 PM I turned around to hear a commotion and saw the President rushing up to the Controller's secretary. Before she could turn he demanded: "Where is Jerry?" Ginny slowly turned and told the President that the Controller was in fact on vacation that week, was 1,000 miles away and unavailable by phone. Not liking that answer, the President asked to now speak directly to the Chief Financial Officer. The CFO news was even worse. Ted was 2,000 miles away (rank has its privileges) and was less available than even Jerry. He turned around and left in huff. Ouch! I technically was the senior on-site employee in the finance department that afternoon (that rank had no privilege), and thought that perhaps I was about to be summoned to the 10th floor where I would be required to answer some esoteric accounting or finance question for the Operating Committee or Board of Directors. I was ready. Ginny and I chuckled at the very thought of it, but after about 15 minutes we figured the crisis (and danger) had passed. We never did find out what had caused the stir. Just then who appeared but the Corporate Office Manager carrying an official-looking clipboard with a legal pad. She looked troubled to say the least as she rapidly walked past. Pausing to say hello, she told me (in a tone that anyone within earshot could hear), that the President was upset that the office was open for business on Christmas Eve, and nobody had showed up. So she was sent to take attendance, but was unsure what would be done with her findings. She was to bring the results back to the President's office promptly (I think his secretary was 3,000 miles away that day), and he would handle it. In passing, I asked what would have happened if I had gone to the restroom during her audit (always the wiseass when bullets are flying); she smiled and mumbled something about my career—or lack thereof. A hush fell over the assembled corporate masses, and all thoughts of sneaking out early passed for fear of some unspeakable punishment. Who knows, maybe they would take attendance again? Heads went down and people went back to work doing whatever they were doing before, only looking more sincere. Time passed slowly and the weather worsened significantly. Now it was dark. I called my wife to tell her I would be a bit later than expected. Corporate headquarters closed officially around 5:00 PM, but no one was taking any chances that day. As I recall, the Office Manager once more appeared about that time and told all 20 of us to go home. ("But do not be too far from a phone.") We all saluted and promptly left. From that point on, the evening and holiday was uneventful. The drive was indeed testy, but the visit with my parents and the old neighborhood was very special as always. I miss those visits as the years have passed. Is there a moral to this story? Why, yes indeed! If you are scheduling your employees to work on Christmas Eve, do not tell them the office will close early (let them guess) and then, without warning, take attendance at about 1:00 PM. In my experience they will work real hard until dismissed at quitting time. (And yes, you will probably have to tell them to leave.) Of course, their afternoon's work product will likely be gibberish. But who cares, it's the holidays. But better yet, skip steps two and three and give them (and yourself) Christmas Eve off.

The Cost and Cure for Lack of Civility in the Work Place

I was recently sent an article from the New York Times entitled: Incivility Can Have Costs Beyond Hurt Feelings (Nov 19, 2010). The article generally discusses rude or offensive behavior in both a personal and a business environment. How can such rude behavior be defined? A few examples were mentioned: Ignoring employee or peer requests or outreach for assistance; Not acknowledging a colleague (actually ignoring them) when meeting or passing in the workplace (such as in a hallway); Denigrating an employee or peer behind their back verbally or in writing; or Showing general disrespect for an employee or peer—their person, their opinions or their property. It seems that there is a consensus that this type of rude behavior has been sharply on the rise for the last two generations; although not all quoted in the article seemed to agree. It seems fairly obvious to this frequent walker and long-time operator of a motor vehicle. Research on this subject was also presented in the article. I found three findings of particular interest to the CEO: Many workers have reported to researchers that they have left companies and jobs because of continuing incivility, but rarely report it as the reason for leaving; 60% of disrespectful behavior observed comes from above (organizationally—the boss) while the rest is split equally between peer (the same level) and subordinate (from below); and Half of affected employees said that they had generally decreased their efforts on the job after experiencing ongoing rude behavior—and further have declined putting in any extra effort for the company. In short, bad behavior reduces productivity (and profit) and it seems to be highly controllable from the top of the organization. As with most corrosive situations within an organization, the top executive can either cause it or stop it. Let me suggest five things you can do starting today to avoid or stop it (without writing any new policy statements). Smile and your employees will smile back at you and at other employees. Listen to your employees as a demonstration of their continuing worth and importance to you and the company. Get out of your office and go to where the money is made or lost. Touch each employee and take an interest in their job and lives—at all levels of the company. Drastically limit the use of electronic communications (What!—reverse 2 decades of "progress"). If you have something important to say speak directly to your employees, even if (and particularly if) it is bad news. And if someone in your organization is disrespecting another employee (and particularly a subordinate or another powerless to punish the offender), the top executive must act to stop it—with the same tact and elegance used to put down a coup d'état in Central America. We were thinking about writing a series of articles earlier this year on the subject of leadership. Perhaps the five above actions is our way of starting to speak to the subject. Leaders understand the cost of incivility, do not allow it and know that their employees will follow their example. Are you a leader?

So, Your Sales Bonus Plan Has Not Paid out for Two Years. What to Do in 2011?

I guess the above title line says it all. It has been a tough two years for many companies and their sales forces. During that same period Wilkening & Company has provided ideas and advice on what to do when your sales compensation plan is not working due to lower-than-expected results, or other factors. But many of these steps have been exceptional (or discretionary) in nature and provide little direction on what to do to restart your sales-pay plan (and your sales force) for 2011. Let's look forward today. So why not leave all of your current sales processes in place? Won't the market just recover like always and everything will work again in due time? We do not think so. We believe that it is quite possible that markets and customer needs and requirements, have drastically shifted during this most-recent recessionary cycle (more in every box, faster delivery, hold more inventory, lower cost, better than theirs...). We now see some of this in our business and we would bet you also do in yours. Further, we also believe that there is a greater focus than ever on Big-account marketing, and intense competition to steal your Big accounts from you. This is what we believe you will face as this recession winds down. It sounds like 2011 will be a good time to retool both your sales processes and sales pay systems—under any circumstances. And, you also should take the opportunity to begin to rebuild the confidence of your sellers. What should be done? We suggest a two-step plan—re-plan & pay. First, re-plan your market and accounts. Identify the accounts that you want to own (and we mean own). Generally, these will be the market leaders and current or prospective buyers with the greatest upside opportunity. Decide what you need to do to retain, grow or gain their business. Define such actions in discreet and measurable actions or steps—sell them new Product A, improve delivery performance, double order size, become the specified supplier on their new line of business... Put 2011 annual sales or profit-dollar amounts on each action taken in the above step, and develop a real (we mean achievable and likely uncomfortable) sales forecast for each and all accounts in your portfolio. By doing this, you are breaking the standard-operating-procedure mentality and are zero-basing your sales book. Have each sales representative create their own sales plan (as above), and then commit to do what they have just said. By the way, if everything is scheduled to happen or be completed in the Fourth Quarter, it likely won't happen at all. We have talked about sales planning in the past and we urge you to go back to basics for 2011. Use our approach—or any other approach—but you need a 2011 plan and the commitment of the sales force to execute it. No less is acceptable. Then, let's gently put a wrench and screwdriver to your 2008-10 sales-pay plans. How so? Only make changes in salaries or draws if you believe that they are significantly under the market, are undermining the efforts of your sellers, or risking the loss of key players to competitors; at the first sign of an upturn. If salary changes are needed, there are simple actions that can be taken to fix the problem. But, it will cost some money (but who cares, if we sell more in 2011 than last year and keep our key people in place). Many sales-pay plans primarily compensate based upon annual (or more short-term) sales or profit results. Often these are commission-based or incentives with or without annual goals or objectives affecting the total amounts to be paid. A large portion of the sales-representative's compensation is generally tied up in this type of pay arrangement. Commissions or incentives can account for anywhere from 30% to 200% of annual salary. If you use such a model, and it currently pays out (say) 50% of salary when the sales representative meets company expectations—however defined—cut the incentive amount in half (to say 25% of salary) for 2011. Be calm, we did not just tell you to cut pay; only to redirect it. Read on Take what you have just removed from the traditional annual incentive or commission component of your sales-pay plan and channel it into a series of two or three bonuses for the sales force that are tied directly to their newly-written sales plan. Pay them to achieve the 2011 objectives, goals or events they said they would. A few examples that we have seen used are (of course, ultimately adapted for your metrics and goals): Number of new accounts with over $100,000 in potential acquired by year's end and having active orders; Total number of all accounts with over $100,000 in potential having active orders at year's end; Sales growth from total account portfolio at or exceeds 10% year-over-year; Gross margin (in dollars) at or exceeds $1,500,000 for the year; Sales of product A for the whole account portfolio is at or exceeds 20% of all sales; Average order size is increased by 10% by year's end; and ………… There is no magic in the above listed examples, but they generally represent things that can be done to help the company succeed; whether total sales goals are met or not. This does not diminish the importance of the sales goals, but recognizes the need for the sales force to do a variety of things to succeed in the long term; and compensates them for it. Traditionalists will likely reject our prescription for changing your sales pay for 2011 out of hand, but may fail to recognize that it focuses on paying the sales force for doing the "right" things and gives them a half-dozen ways to be a success in the coming year. While we are recommending this "new" and revised approach for 2011, we are also finding that balanced plans of this type are becoming more common and may represent a path you want to take beyond 2011 as well. If your sales force and its sales-pay plan have been struggling since 2008, consider making the changes of approach we have outlined. You may have little to lose. Or, if you just do not like your sales plan for other reasons, consider this roadmap for shaking up your sales force in the coming year.

Wilkening & Company has designed and implemented over 75 incentive pay plans for the sales force and sales managers. Feel free to call or write as you look at your sales-pay challenges. You can bet we have seen your problem in the past.

"Eighty Percent of my Sales Force are not making their numbers! No one will earn a bonus this year! What should I do?"

As we reach the end of 2010, the difficult economy continues and times are generally tough for sales forces. As with 2009, we are hearing that some sales forces and representatives are again not achieving expected results and will not receive normal incentive payouts. In this environment, we are reminded of some advice on this subject we included in our June 2009 Corner Office Gazette. I thought it might be a good idea to revisit it again.

From 2009

In a recent workshop that I taught on the subject of sales force compensation at the University of Wisconsin, one of the participants outlined a dilemma he faced—80% of his sales force would not earn a bonus due to factors beyond their control. His question: What to do? Many executives are facing similar situations today and while the "rule" says that no bonus should be earned, common sense suggests another course of action. We recommend that executives faced with such a dilemma make a conscious decision to write new sales-payout rules for 2009. These new rules should assure that the top players will all get a payout—in spite of bad luck or poor economic times. It should work something like this:

Top 1/3 of the sales force earns a uniform bonus payout (say $15,000—the amount is your choice—but usually less than a "par" bonus) The next 1/3 will earn half of the top 1/3 (say $7,500); and The bottom 1/3 earns no bonus.

What is the benefit? You have told your best sellers that they mean a great deal to the company and we want then around in 2010 and beyond—and you can be assured that they will be inclined to stay. And, you have also sent a message to the poorer performers. We have often told clients that a badly-designed sales pay plan becomes a discretionary plan in the end. Well, I guess this fellow has a discretionary plan this year. Can you rank your top performers high to low? I bet you can. Do it today!

What To Do Now That You Have Written Your Strategic Statement.

During the last two months, we have discussed the strategic-planning process. We have previously outlined: Using unique and tested methodologies for determining what your company is today and what it can be (September); and, How to create a clear and concise statement of your company's strategy (August). Once you have been successful with the above two steps in the planning process, it is now time to actually put pen to paper and write the company's strategic plan. With some companies, writing the strategic plan becomes a long-winded exercise wrapped in flowery prose and spreadsheets. Wilkening & Company believes that—like any other successful business enterprise—it should be short and to the point. We believe that a successful plan will be divided into only four simple sections. Let's look at each in terms of the questions to be answered: What are the key things that need to be done? Generally there are never more than four to six major actions that need to be taken to achieve a successful business outcome; if that many. It may be an acquisition, an expansion of manufacturing capacity, development of new technologies or staff expansions in such areas as the sales force. These should be simple and easily described—use the 50-word rule (i.e.: if you cannot describe it in 50 words then you do not know what you are trying to do.) Who is going to do it? Each of the above items should be assigned to an executive-in-charge (other than the CEO; unless unavoidable), who works toward a hard completion date (within the next two years) and who has a funded-capital budget to finish the work.  This is an obvious but often overlooked step. How will we know we have succeeded with the strategic plan? As steps toward achieving its strategic goals are achieved, a company will begin to see and measure results and progress. We believe that a company and its management must decide on the onset how it will know its plan is begin fulfilled; or not. What are the metrics, and when will the results be seen? The best way to do that is to establish a multi-year measurement scheme. As an example, consider the company whose statement of strategy you read about in the August Corner Office Gazette. Their "strategic" metrics are shown below. What must we do to build the foundation for future strategic success?  We believe that one of the most important things a company must do in creating its strategic plan is not to lose sight of its continuing need to improve its productivity, its quality and the strength of its people. We consider this part of any strategic plan.The last section of the strategic plan should outline what the company will do and invest in to improve productivity, quality and its people. Some purists would not consider this part of a strategic plan. Wilkening & Company considers such a discussion and outline essential to the plan. One of the pivotal challenges in creating a true strategic plan is avoiding the compilation of a thick set of successive annual budgets (with all of their underlying spreadsheets and charts); and calling it the strategic plan. We find the trick is to keep it simple and say it in words. That is what the above format tries to accomplish. During the last few months we have tried to provide assistance and help to the company preparing for and creating its strategic plan for the coming years. I hope we have done that. However, what if you are not in the strategic planning process this year? How can you apply these ideas and recommendations? Well, just take the dip. We suggest you do the following. Take our planning outline—as shown above—and write your own plan before year's end. (Of course, feel free to modify it if you like.) Do not worry about research. Do not convene a bunch of meetings with the usual suspects. Just sit down and write your own four-step 2011-14strategic plan—and call it a draft. It will be a very revealing exercise and well prepare you, your company and the Board for future strategic planning. We think you will enjoy doing it.

Wilkening & Company has assisted clients in the formulation and implementation of business strategy. If you like overall assistance with your strategy or want to write your plan (today), give us a call. We would be glad to help.

It's Salary Planning Time Again..........

In October, most companies begin to plan and budget for the coming year. Two questions are always asked:

• How large should salary-raise budgets be for the coming year? and
• How much should salary ranges increase this year?

To help answer these questions, I asked two colleagues who are experts in this area—Andy Mosko and John Larkin—their forecasts for 2011. Additionally, we collectively reviewed reliable published sources of market information for guidance. These forecasts follow.
Salary-raise budgets—After a couple of years of salary-raise budgets of 2.5 to 2.7% (or less); it appears that most sources now forecast pushing or reaching 3.0% for 2011. Remember this is a budget, and some raises will be higher and others lower based upon merit-increase criteria. Further, we are not seeing historically forecast salary-raise premiums for executives when compared to other employee groups. We have not seen budgets in the 3's since 2007-8.
Salary range (market job rate) increases—Salary ranges typically increase at a rate slower than that of salary-raise budgets. Again, after slow progression in grade increases for 2009-10, it is forecast that structures will increase 2.0-2.2% in 2011. It should also be noted that executive positions were particularly hard hit during 2009-10 and small salary-range increases were seen. In 2011, executive salary ranges are forecast to increase at the same rate as other jobs.
As noted, the last two years have generally been quite disruptive and negative—both pay structures and physical employee salaries have been held back. As you go into 2011, we suggest that you take the time to insure that your pay practices and salary ranges remain competitive with the marketplace.  Our advice: take 12 key jobs and compare both salary ranges and actual salaries to valid and appropriate market practices (no internet surveys, please). It is a bit like testing a convertible top for leaks after the big storm.
Make sure you have no leaks as you begin to plan for 2011!

Employee Participation in your Strategic Planning Process

In our August 2010 E-Notes we spoke about the need for a clear and concise statement of a company's strategy. We consider writing such a statement to be the middle of the strategic planning process. At the point the statement of strategy is written, you are at the midpoint of strategy creation. We believe that because— Before you can write the strategy statement, you must decide what your company is, what it can be and what it does well; and After you write it, you must figure out how you are going to do all of that stuff you wrote—i.e.: getting from today to Point B. Let's talk about the first step in understanding "today" and creating your firm's future strategic direction. Many people call this work the "strategic planning process." There are very well documented steps in the process. Go to the business section of your local bookstore and you will find 20 books on the subject. They pretty much say the same routine, but correct, things about what needs to be done— Identify opportunities and current and perceived markets of interest; Understand strengths and weaknesses—in general and regarding defined market opportunities; Know your customers; Know your competitors; Understand your resources; ................. It is often the case that a very select group of executives and "experts" participate in a company's strategic planning process. It is seen as a high-level exercise, and indeed it is. However, it can become elitist in nature and may lose touch with the company's most important assets—its managers and employees. We call them the "fingertips" of the company. Ignore your sense of touch at your own peril. Managers and employees are often excluded from the strategic planning process because some experts believe it is not a good idea to allow strategy creation to be influenced by the implementers. This is because some say that the employee-implementers view the world in limitations, where a strategy should only consider opportunity—without much regard for possibilities and limits. That is technically correct, but never a very practical approach. Limits have a tendency to define capabilities and companies, and who better to honestly know and state these limits than your non-executive employees. So how do you ask employees what they think and then mesh those opinions and observations into a strategic-planning context? We believe that the best way to accomplish this goal is by using a simple opinion survey instrument. In our experience, the following elements are essential to the design of a strategic-planning survey instrument for employees (all employees): Gather information from a broad cross-section of employees and policymakers—Board Members to sales reps; Include managers and employees who regularly touch customers and products—do not be afraid to send out too many surveys, but do not just send one to anyone; Ask about where the company is strong; Ask about where the company is weak; Ask what strengths and products are crucial to future success; Who are the tough competitors and what do they do better than we do; What is missing from the product line that customers require; Make the survey as quantitative as possible with forced scales and ranking; Also, use a hand full of open-ended questions to allow the participant to say their piece, without structure; and Assure that all participants know that the responses are strictly confidential. We have also found that the best survey results occur when a professional is used to help design the survey, analyze and report the results with a statistical discipline. Some clients also like to expand this same enquiry to key customers. This is an excellent idea, but significantly increases the complexity of the survey analysis and feedback. If you choose to not survey your top 50 customers, we suggest that you alternatively interview the top 5-10. You have completed the employee survey and analyzed results. What do you do with it? An effective way to focus the strategic planning process is to get all of the decision makers into the same room and do not let them out until there is a consensus to write a statement of strategy, or schedule another meeting to continue the dialogue and close. To kick off such a session, we always believe it is good idea to first have the group leader present all the facts, information and knowledge need to make key strategic decisions to the group. This will generally include secondary market research gathered from available information and primary research you have created (i.e.: your employee strategic survey). We have found that it works best if you first present the survey findings and then validate or challenge them with available market facts, research and opinion. For example if all employees surveyed strongly agree that the company is the "market leader," but Marketing says we have only a 3% share of market, more work is required to reconcile these findings. In one instance, we found a client's executive team had a completely different view of its "best" products when compared to those of most of its employees—who lived with the "clunkers" daily. That was eye opening. Leading with the employee survey is a very powerful step and often sets the stage for the entire planning session and process from that point forward. If you are a CEO or a Board member and have just sat through the feedback of an employee strategic survey, what have you typically learned while viewing the company through the eyes of its employees? What the company can do and cannot do; Whether the company can fulfill its strategic vision with its current foundation of products and people; The differences in perceptions and knowledge between various employee groups—say the executives and the customer service representatives; The effectiveness of past investment and communications; and That what you do not know can misdirect and ultimately hurt you. However, the most important thing that you will learn is that your employees can be pretty smart and articulate folks. Armed with that information, your company can set out to make better strategic decisions and only pursue initiatives that can be implemented with the resources and employees at hand—or make the additions required. In our view that is a lot of value received at a relatively small cost. Are you doing strategic planning this year or next? If so, consider the value that can be provided by a focused employee survey. Call me, and I will share some strategic survey "tricks and traps" with you. Next month we will discuss what to do after you have finished your strategic planning process and written a strategy statement. It is now time to make it happen.

A Call to Action: How will PPACA motivate you and your employees to cancel their health insurance?

The Patient Protection and Affordable Care Act (PPACA) was enacted in March 2010. In an earlier edition of the Corner Office Gazette we described some of the impacts of this legislation on employers, employees and citizens in 2010.

One of the key provisions of this act will not take effect until 2014 (as currently written or understood). The act creates government-sponsored exchanges which will provide the ability (requirement) for all citizens to purchase health-care insurance coverage from exchanges or insurance companies without regard for individual pre-existing medical conditions or any other restrictions. So, if you are an employer, and already have employee health-care insurance, why should this matter to you?

Employers and employees will both have options when exchanges arrive. The two separate or joint choices will be—

• As an employer (with 50 employees or more), you will pay a $2,000 free-rider penalty for every employee (who works over 30 hours per week) that you do not insure or whose coverage you terminate. Further, if your employee has to pay more than 9.5% of their household income, your plan is deemed unaffordable and the employee will be able to go to the exchange for coverage. Your penalty in this case increases to $3,000.
• As an individual, you will pay a non-coverage penalty of 1% (starting in 2014 and with a $95 minimum) to 2.5% (by 2016) of your household income if you do not purchase health insurance—supplied by company or exchanges.

Let's look at a "back-of-envelope" analysis of the situation for employer "ABC" in 2014 considering both a single employee and a married employee with 3 dependents with identical household incomes of $80,000 each.  The 2014 estimated premium data is forecast using Kaiser Family Foundation information.



The above example is an interesting result if one only considers employer annual cost. This would seem to indicate a potential situation where both parties may be highly motivated to mutually drop coverage. This is because the cost savings for both parties is quite favorable and the individual can reapply (without any apparent penalty) just before or at the time they need some type of medical procedure and someone to pay for it. Let's call such coverage (payment arrangements) sick-party coverage [or SPC].

Four questions present themselves when you look at the back of the envelope and think of the implications of the analysis for both employer and employee.

• What would an employer do with future premium savings (if real)? In the end, we believe that most employers know that the health and welfare of employees is their concern and hence the current benefits will somehow be preserved. The employer will likely decide to provide supplemental insurance to cover their sick employees when the employee must rely on the SPC—and bridge the coverage gaps that will surely be built into SPC or exchange coverage by 2014 (just look at the history of Medicare). Also, many would argue that health insurance coverage is just another form of compensation. Hence, some of this apparent employer cost savings may also go back to the employee in the form of pay raises—but not everyone would agree with that thinking. Will there still be employer savings left to do any of this; who knows?
• What will be the fate of the private insurance companies if employers and employees begin to systematically and mutually drop insurance policies in lieu of SPC? I expect that private insurance companies will lead the way with packaging premium SPC policies to cover the gaps or restrictions (such as continuing access to your physicians or healthcare systems), just like premium Medicare coverage. Also, who do you think is going to process and pay the claims—a bunch of clerks in the basement of Congress?
• Will both employers and employees be motivated to cancel all their current health insurance policies, when possible? Yes, history (and Massachusetts) says both parties will act in their economic interest and reduce these costs by dropping all coverage as soon as possible. Why not; what is the risk? We are not entirely sure what the value proposition for exchanges will be by the time 2014 rolls around.
• What should a prudent employer do about this situation in 2010-11?

Wilkening & Company believes that the prudent company will begin to develop its future employee healthcare strategy and corresponding compensation strategy as soon as possible. While we have only discussed a well-paid employee in our example, also recognize that lower-paid employees may be eligible for federal subsidies through exchanges that will impact your cost and decision making in a variety of other complex ways. We recommend that you strongly now consider—

• A full analysis of your work force and healthcare costs and demographics;
• An analysis of cost scenarios under current PPACA rules;
• Development of 2011-2014 healthcare and compensation strategies in light of PPACA requirements; and
• Creation of an action plan to respond quickly and implement required changes in the event of inevitable PPACA rule and deadline changes.

While you technically have plenty of time to consider and act, we suggest you anticipate that changes will surely occur in this arena that will negatively impact your company if you are not ready to respond and act in your own defense—what do they say; the prepared will survive? Act to complete the above fours steps by 4Q11.

Wilkening & Company has developed information and methodologies to assist clients in the selection of 2010-2014 insurance and compensation strategies. We will continue to cover this evolving and changing mandates for our readers in future issues of the Corner Office Gazette.

Effective Strategic Planning—first, let's clearly state your strategy

Wilkening & Company has participated with clients in the strategic planning process, and has used client strategic plans for a number of purposes such as market planning and goal setting. We have found a wide diversity to what is called a "strategic plan." In many cases we find that a strategic plan is merely a multi-year financial plan and forecast—presented in a series of spreadsheets. As said, its purpose is essentially financial in nature and it is often used as the "top end" of the budget. While these tools may be effective for future planning, we would like to present a different definition or format for the strategic plan. In our experience, we have found that there are two characteristics of a successful strategic plan and the planning process. These generally are— Development of a clear and concise statement of strategy; and Active participation by employees (and other constituencies) in the strategic-planning process. In this discussion we will focus on the first characteristic, or the statement of strategy. Wilkening & Company believes that a strategic plan should be a clear statement of direction articulated in a one-page document with no more than two or three numbers (we will allow you an extra page if needed) that declares the following: What products or services a company will offer; What markets or customer groups will be served with these products & how will they be reached; How does the firm want to be known by all of its customers (its proposition of value); and How will we know we have succeeded? Let me give you a very brief example of a statement of strategy for a small industrial manufacturing company that was once a division of a Fortune-500 holding company.

The company will offer hand-actuated tools to skilled tradesmen to assist with the cold working and fitting of thin-wall copper, steel and stainless steel tube in diameters from 3/8 inch to 1-1/2 inch with generally low-pressure fittings, valves and connectors. These tradesmen will generally work within the plumbing, refrigeration and heating and air-conditioning industries. We will sell our tools in both US and foreign markets. The company will sell through exclusive arrangements with channel partners that will stock and distribute our products to the 5,000 worldwide sellers who sell to targeted tradesmen. Additionally, the company will sell directly to the 8-largest US tool marketing firms and the US government. All products will be sold under the brand name of ACME which has been a recognized market brand for the past 75 years. We are currently the oldest and most recognized brand in the market but have mixed perceptions of value amongst end users as the result of recent cost cutting and adverse channel-partner actions. However, end users know they can rely on ACME's unlimited lifetime guarantee for all products. This type guarantee is offered by no other competitor. In the future, we want our all of our products to be known by our end-user customers as the highest quality and the second highest-priced product in the marketplace. Further, all end-users will know that any new ACME product is always available on their seller's shelf. Our channel partners will know the company as having the highest commitment to service and quality in the market with premium margins for successful partners. The company has steadily lost share of market for its major products because of a lack of manufacturing capacity and inconsistent quality during the last two years. By reliable industry estimates the US and foreign demand for company products in applicable markets is $280 Million in 2010—65% in the US. Market growth is estimated to be roughly 2% per year. We now have 6% of that worldwide market. By 2015, the company will have gained a share of 15% worldwide which is 1st in share by 5 percentage points, and have no more than 70% of sales in the US market. During this period, the company will have a return on net assets employed (RONAE) of 32% or more. However, RONAE will be lower for the next three years, but never below 26%.

We have just stated a 5-year plan in 360 words and less than one page. Whether you like the plan or not, you understand it. But more importantly, what does this statement of strategy communicate to anyone that reads it? Each major discipline of strategic implementation (engineering, marketing, sales, operations…) knows its role and how to allocate resources. We can probably name our 150,000 worldwide end users and know how to find them. The value proposition is clear. As important as knowing what to do, management knows what not to be doing—i.e.: what "adventures" not to undertake. If we are going to succeed, we need to have the capacity to do so, and the continuing quality of product. Company (and individual) goals are clearly outlined and include crossovers with sales, profit, cash flow and the balance sheet—both quantity and quality. Notice in the plan we have not talked about how the company will fund any necessary (and certain) capital spending. I am not sure that discussion belongs in a statement of strategy. If the Board and management agree to a direction (as stated)—it seems to me that capital-funding needs are implicit. Otherwise, you cannot agree to the strategy. What do you think? With such a statement agreed-to by management and the Board, the company can then begin to build the organizations, systems, plans, annual budgets and spreadsheets that will provide the path to achieve its stated strategy. And if management or the Board (or your banker) is ever in doubt about what you are trying to accomplish and why, the one-page statement of strategy is always a quick and handy reference and guide. Do you have a statement of strategy? If not, could you complete one in a single page? Try it. Next month we will discuss active employee and other constituent participation in your strategic-planning process. Wilkening & Company has assisted clients with the formulation and implementation of business strategy. If you would like to discuss of share your statement of strategy, feel free to contact us.

Are you considering a Customer Relationship Management (CRM) system? HERE'S WHAT to do first.

Customer Relationship Management (CRM) is again all the rage, and has been so for the last 10 + years. These systems and the underlying software are seen by company and sales management to be the key to applying technology to their sales force operations and making sales forces more effective with the turn of a key (or, the writing of a check). The problem is that in reality CRM has often not achieved the expectations and hopes of the users. Wilkening & Company believes there are a number of factors that influence the success of these type systems. In our experience, if you get three things right (at the start), the rest will flow. But first, let's define what a CRM system is by describing what it does.
A CRM system is a database and connected series of software tools that do (or should do) the following—

1. Collects all demographic & planning information about accounts, prospects and buyers in a single comprehensive database;
2. Collects all activity information about an account regarding such matters as: sales plans, sales calls or customer contacts, order history and bookings;
3. Tracks future order activity and the progress of orders or requirements through the company's sales process;
4. Provides comprehensive reporting of past sales activity, future orders (pipeline), sales performance and the raw materials required for account, portfolio or territory forecasting;
5. Provides a tool for the sharing of information with company management, members of the sales force, customer service staff and technical resources; and
6. Provides the sales force and customers with a tool to access sales-order and customer-service processes.

It has been our experience that because of the relative complexity of the tasks at hand, CRM users have a tendency to rush forward without a proper foundation in an effort to get rapid (and promised) sales-force productivity gains. This often leads to failure, frustration and the waste of thousands of dollars in sales-force time and unopened boxes of software.

Let's beat the odds!

Assume that you have just been charged with designing and installing a CRM system for your company. What should you do first? Three things.

1. Write a statement of requirements—this is a one-page written document that describes what you want the CRM system to accomplish from the perspectives of company, sales force and customer. Use the six points (above) as a reference, but your requirements may be quite different or more specific. Also consider how these requirements will change both 2 years and 5 years into the future.
   
   Good advice is to start small and simple and build a CRM-based foundation for growth. Remember to keep your requirement statement to only one page in length. (For example: "For 2011, we want a system that will be used remotely by the sales force, will have 18 sales force users and 12 customer service users. We cannot use the current company IT infrastructure. The purpose of the system is to store basic and current information on all clients, keep track of all sales force contacts with clients, prepare simple call reports for management review and effectively distribute leads. Further, the sales force (and client) will be able to see and review all active client orders.)
   Now you have a foundation and a starting point stated in less than 100 words.
2. Step back and match your current sales process with your statement of requirements—you certainly do not want to spend money to make a 1970's sales process more productive when you really should move to a sales process more in line with the 2010 account and buyer. A CRM system is a tool to help you accomplish such a change and should be used accordingly. We often find that companies will use outside expertise & counsel to conduct this process "audit."
3. Don't forget the sales force—this is an obvious statement, once said, that reminds me of the time a large distribution company with a 1,000 person sales force asked me to "test market" a Wilkening & Company sales-logistics and planning tool for the company and sales force. My first meeting was with a crusty regional manager in Kansas City—I was in full selling mode. After about 5 minutes of discussion with the regional manager, I realized I was trying to sell him a product that was absolutely of no value to him or his sales force. The only winner was the company, and the sales force did all of the work to keep the tool current. Oh well, back to the drawing board.
   
   Don't make the same mistake I did. Make sure that complying with and contributing to the new CRM system is in the sales force's interest—more money, sales success, more time with the family. Decide how you plan to sell it to your sellers.

When you have addressed three above issues, then you can turn to the selection of the best software and technical tools required to succeed.

As a sidebar, many users pick the software and technical tools first, and then spend several months fitting the proverbial square peg into a round hole. That is a costly enterprise by anyone's measure.

Do it right and do it once.


Wilkening & Company has assisted clients in the design of successful sales processes and their integration with client CRM systems.

Trends in 2010 People Investment

In past issues of the Corner Office Gazette, we have stated that one of the major issues for the CEO and Board of Directors in 2010 is retaining key executives and employees for the long-term so they will be there at the time of recovery. In parallel, we believe it is also crucial to keep all employees increasingly involved with your business (i.e. - keep their heads in the game while all of this economic flak is flying around them). This is to insure that your work force is productive and as stable as possible in this difficult market. This is called "employee engagement" by the HR profession - and is a subject of much interest and research. A very common way to measure "employee engagement" is through employee-attitude surveys. Focus groups and online forums can also be sources of this information for the employer. In past lives we would simply call this "morale". In April of this year, Mercer Consulting conducted a survey of more that 320 employers in the US and Canada on a number of subjects including employee attraction, retention, engagement and workforce planning. It is called the Mercer 2010 Attraction and Retention Survey. The employers surveyed generally have used the survey methods discussed above to gather data & trends on employee attitudes and morale. The most common vehicle used appears to be the traditional employee survey applied in parallel with other quantitative and less rigorous techniques for data collection. The Mercer survey results are interesting and provide some possible insights regarding: What employers found to be the most powerful tools in the battle for employee retention and engagement (hearts & minds); and On a different subject, what surveyed employers expected and planned to do in the hiring market for the coming year. Two survey results are shown in the following charts.   Many people will always say that money is the most basic motivator of employees. While there is some truth to such comments, Wilkening & Company has advised its clients that perceived fairness by the employee and their belief that the company has their long-term interest in mind will always have the larger motivational and bonding impact on most employees. That is why we have consistently warned clients against increasing employee uncertainty and risk by broadly freezing or reducing salaries (and all pay) in the face of company economic difficulty. The Mercer survey seems to support our position by stating that most employees find salary the most important decision factor driving retention and morale (41% of respondents). It also suggests that if an employer tries to substitute a dollar of new salary increase for a dollar of new variable pay, such an exchange will not be seen positively. We are also not surprised by the relatively low perceived impact of training and career development in this market. As is the case in most business downturns, this is a year for surviving, not for discussing careers and skill development. In some quarters it is believed that the economy is recovering and signs of workforce expansion is either beginning or is underway—in the face of lingering (and unprecedented) 9%+ unemployment. The Mercer survey results suggest that there now may be guarded optimism in the market as 45% of employers are actively hiring employees to replace those they may be losing to the market or other forms of attrition. This can be compared to last year when many companies were actively reducing staff levels—and rarely hiring. The fact that 27% of surveyed employers are planning to broadly expand their workforce is also a change from last year—and perhaps the more striking 2010 statistic. What should your take away from these survey findings be? We think two conclusions. Make sure you continue to take care of your key employees—if you want them around in 2011-12. And, do not "fool around" with their salaries, or offer promises of making up salary loses with the new bonus. Start to rethink or reinforce your 2010 staff-reduction and hiring strategies. Your competitors may be starting to (re)invest. Can you afford not to consider the same? This is particularly true in the sales and marketing areas. We believe that the above findings reinforce our long-standing belief that the companies that attract and retain the best and most-experienced employees will emerge from this economic downturn quicker and stronger. How are you positioned to emerge from 2010?

You and Health-Care Reform— The Emerging Short-Term Landscape & Issues

This is the first of a series of Corner Office Gazette E-Notes to provide perspective and information about the impacts of the recently passed heath-care reform legislation (Patient Protection and Affordability Care Act—the Act), on you, your company and bottom line.

As summer 2010 begins, we have identified three emerging issues or trends that will require your vigilance or action this year: [This information is gathered from information available at the time of writing. As this legislation is now being implemented, changes and revisions are possible.]

1. A key date emerges for employers—on the six-month anniversary of the passage of the Act or September 23rd, 2010—when several new requirements for those offering health-care benefits will go into effect. Some of these are:
   
   
   • Lifetime coverage limits are abolished;
   • Annual limits will be restricted to federally-defined amounts until 2014, then prohibited;
   • Pre-existing conditions for children under 19 are prohibited;
   • Dependents may remain on the parents plan until age 26;
   • Specified preventive-care services are required without cost sharing; and
   • For emergency services, network restrictions and prior-authorization practices will disappear.
2. As an employer, your current health-insurance plan may be "grandfathered." If you have a group health plan in place on March 23rd, 2010, your plan is grandfathered and you are generally exempt from some of the requirements outlined in #1 (above), such as those related to preventative care, choice of providers or outside review of claims. However, if you make certain plan changes prior to September 23rd, 2010, you may jeopardize this "grandfather" status. Changes that can lose your exemption status include:
   
   
   • A change in insurance carrier;
   • Cost sharing changes;
   • Changes in coverage relating to specific conditions;
   • Changes in deductibles; and
   • Some co-payment terms.
3. Insurance company medical loss ratios [MLR] will be tightly limited or monitored beginning September 23rd, 2010. Medical loss ratios represent the amount of premium income used to pay medical claims. For example an 88% MLR means the insurance company is paying 88% of premiums for medical claims and using the remaining 12% for plan administration or profit. MLRs will be limited to 80% for individual plans and small groups and 85% for larger groups. Reporting begins September 23rd, and we assume compliance will soon be required.  This requirement will put pressure on your insurance carrier to rapidly cut their internal and claims-processing costs.

And you thought nothing was going to happen until 2014! 

What do the requirements and features of the Act mean to the typical US company voluntarily providing health care benefits to its employees? There are three ramifications or market shifts we believe you can soon expect.

• You can expect that your insurance company will begin to raise your premiums (in excess of normal medical-cost changes) to cover the new requirements, the uncertainty of the expanding and uncontrolled risk pool and MLR restrictions. Also remember, you are not going to be able to change carriers without losing your grandfather status. Early group plan-renewal increases are now reported to be over 15%. How do you plan to cover these new costs?
• You must proceed with caution when making any changes to your current health insurance plan. We suggest that you do not revise your plan (other than allowing normal enrollment), to avoid the risk of losing your current grandfather status. Expect your insurance company to make compliance changes for you before September. As the smoke clears regarding what is possible and not possible, your ability to change your current plan and the value of grandfathering should become more apparent.
• Expect that your current brokerage relationship may change in the next year or two as insurance companies try to manage their MLR through reduced marketing costs (read commissions). In the past, some of those savings may have found their way to you, but not in the future. If your broker is your current primary health-care insurance advisor, you might need to find a different way to get such counsel & services in the future. Much may rapidly change in this time-honored sales channel.

In some ways this whole process reminds us of the Y2K event of 1997-2000 where companies needed to rapidly meet new technical standards to avoid an enterprise risk of technology failure. To do so, they needed to find and retain very specialized expertise during a 3-5-year window to assure that the company would survive and prosper. There are some similarities here.

OUR SUGGESTION:  start building your strategies to deal with the Act during the next 60 days. September is closer than you think. Do you know where you need to be on September 24th? Stay tuned for our continuing analysis and perspectives of the Act and its impact on you and other employers.

Wilkening & Company is committed to help its clients navigate the new and uncharted waters of health-care reform. Call us if you need additional information, have any questions or would like to sit down to chat about the challenges of the coming months & years. [(847) 823-5090 or bob@wilkeningco.com]