Dennis Ellmaurer's - TEC Blog

Tuesday, July 9, 2013

I Never Fired Anyone Too Soon

One of my TEC members terminated the employment of one of his direct reports recently. The now gone employee had lost the confidence of his team. Performance was off plan. Morale was down. My member moved quickly to remove this key member of his senior management team. When I asked about the abrupt termination, my member responded, “I never fired anyone too soon.”

Truer words, in a business context, may have never been spoken. Anyone who has ever managed an employee who was not performing knows the drill. Marginal employees are given every opportunity to succeed. They are coached and prodded. They are rewarded for temporary improvement and threatened when the inevitable backsliding occurs. Managers agonize. Co-workers fret. Performance is sub-optimized.

The question is why. Why do managers allow marginal employees to drag down the performance of the team and perhaps the entire organization? And then, after why, what are we to do about it? Here are a few suggestions.

Popularity over accountability. Patrick Lencioni, in his leadership fable, The Five Temptations of a CEO identified an issue for many leaders. We want to be liked. Being liked by close friends is one thing. The need to be liked by direct reports threatens accountability within the organization. It often leads to feelings of favoritism and unfairness.

What to do about it? The CEO in Lencioni’s fable quit rather than deal with the issue. Pretty dramatic. And not exactly a career enhancing decision. It is, however, not bad advice. If you are interested in being popular, join a country club. If you want to manage, give your people direct, honest and timely feedback.

The devil that you know. “Well, boss, I know Randy isn’t performing up to the expectations of the job, but at least we know what we’ve got. If I had to hire someone new I’d be starting over with an unknown commodity. It could be worse.”

Mark Belling is fond of saying “rationalization is the second strongest human drive.” Anything is better than dealing effectively with the fear of firing an underperformer. At best “the devil” is a poor excuse for a bad hiring process.

TEC Resource Specialist, Tom Foster, has a better alternative in a hiring process based on matching time span capability with the level of work and decision making required on the job. Foster replaces the gobbledygook of the typical job description with a specific role description organized around Key Result Areas. The process is described more thoroughly in Foster’s book, Hiring Talent.

The Performance Improvement Program. “We can change this guy. He has all the talent in the world. We’ll suck up the lost productivity and improve his performance over the long run.” Really?

And/or, “I made the hiring decision. We’ve got to give him a chance or I will look like I made a mistake.”

When rationalizing the effectiveness of the Performance Improvement Program, ask these two “acid test” questions instead. 1) If the employee quit, would you be really upset with the loss? 2) If you had it to do over again, would you hire this person for this job? If the answer to either acid test questions is “no,” the marginal performer should be offered up to industry straightaway.

We don’t have sufficient documentation. “We’re going to get sued if we terminate this individual. She is in a protected class.” Yep. You’re probably going to get sued. And the settlement amounts have grown to the absurd. It is better to settle and chalk it up to “bad management” than let some EEOC bogeyman drag down the rest of the organization. Better yet, buy some Employment Practices Insurance, stop worrying and get on with it.

Overall, the lack of documentation suggests a lack of a management system that insures an accurate understanding of what is expected in terms of job performance and provides timely and specific feedback on performance compared to expectations. Another TEC Resource Specialist, Jim Cederna, developed a process he calls the Personal Development Plan that provides structure to the expectation and feedback loop. Cederna’s process includes a set time line for improvement or exit. He leaves it up to the employee to make the changes necessary to be successful, but with a timeline that insures management action.

Other Processes. There are numerous variations on the “weed or feed” approach to hiring, firing and retaining good people. Top Grading provides a no-nonsense framework for hiring and retaining only A-players, for example.

Jack Welch at GE was legendary for his 20-70-10 forced grid rankings of all employees and the determination to weed out the bottom 10 percent each year. It was also thought to be cruel and unusual punishment for GE people. As he points out in his book Jack: Straight from the Gut, however, the process to remove the bottom 10 percent of his people was just the opposite. Welch thought it was brutal to keep people around who were not going to grow and prosper. According to Welch, “there is no cruelty like waiting and telling people late in their careers that they don’t belong.”

Red Scott, a colleague of mine from Florida put it another way. “The best thing you can do for a good employee is fire a bad one.” A structured weed or feed process will help get it done.

Wednesday, May 1, 2013

An Option for Herb Kohl

The cacophony regarding a new arena for the Milwaukee Bucks is swelling.  One side says the taxpayer needs to belly up again like we did with Miller Park.  Just let the 0.1% stadium district sales tax ride after it expires in 2017.  No one even notices this insidious little tax, the logic goes.   

The other side wonders why ordinary folks, with no love of basketball, rock concerts or monster truck shows, should foot the bill for a bunch of rich athletes and entertainers and one super-rich owner.  This is a private, for profit business, after all.  What business does the government have subsidizing private businesses?  

This is a PR nightmare playing out before our very eyes…again.  The Seligs threatened, whined and cajoled their way to a new stadium in 2001.  State Senator George Petak of Racine was thrown out of office after casting the deciding vote in the bitter sales tax battle.  There is an alternative that Senator Kohl might consider.  An alternative that a few Wisconsin companies have already found beneficial.   

Harry Dennis, the owner of TEC Wisconsin, devised a succession plan that puts the company in a trust upon his death.  The trust is managed by an “advisory panel” with the intent of carrying on the corporate mission in perpetuity. The company is still intended to make money.  It continues as a private entity.  There are, however, essentially no owners.  Schneider National in Green Bay has a similar non-ownership succession set up.  The Green Bay Packers are similarly “owner-free.”  The Packers make a lot of money.  They had little trouble finding funding sources for the $300 million renovation of Lambeau Field in 2000.   Brown County residents even voted to tax themselves with a 0.5% county sales tax.   

The downside is that Senator Kohl’s estate takes a financial hit.  Unlike the Seligs who took the subsidy and then sold the company, the trust owns the company (with certain provisions)…forever.  While the trust option puts a little less money in the senator’s estate, it also establishes a legacy that would make him nearly immortal.  And he might just get the new arena without the wailing and gnashing of teeth. 

Wednesday, February 13, 2013

I Know It When I See It

In the 1964 U. S. Supreme Court case of Jacobellis vs. Ohio, Justice Potter Stewart described his threshold for obscenity and pornography declaring, “I know it when I see it.” 

Business strategy is a little like that.  Well, not like pornography, exactly.  But it is important to know it when you see it. 

One of my TEC members had been struggling for several years with sales growth.  He created any number of sales plans.  He hired and fired numerous sales people.  He brought in a consultant.  He read books on sales management.  He increased advertising.  Devised a social media campaign.  Went to every “networking” event imaginable.  He bounced his ideas off his TEC group.  He worked hard.  Sales, however, did not grow. 

Then one day my member met the CEO of a firm that could have been considered a competitor, but was significantly larger is size.  The CEO of the larger competitor lamented the fact that his firm had “outgrown” several smaller customers.  The smaller customers demanded an inordinate amount of time.  They were more of a distraction to his organization.  He wanted to fire some of them, but feared the mess the process could leave behind. 

These messy little customers were right in my member’s wheel house.  He worked with his larger competitor to assume responsibility for these unwanted “C” customers and transitioned a few with little or no selling effort at all. 

It was then he recognized the potential shift in sales strategy.  He developed a simple ABC customer analysis and an elegant transition process that resonated with larger firms in his industry that had similarly “outgrown” some customers.  He promoted the process locally.  Then, rolled it out nationally.  Sales grew.  Dramatically. 

As a TEC chair, I would like to say my member developed this strategy through a formal and effective strategic planning process…like the one we talk about a lot in TEC.  On the other hand, this member recognized strategy when he saw it.  It didn’t fall out of a SWOT analysis, but it did beat working harder.  To paraphrase TEC Resource Specialist Chuck Reaves, “Strategy trumps hard work.”  Be prepared to know it when you see it.   

Wednesday, December 12, 2012

The Good, the Bad, and the Potentially Ugly

The sheriff rode into town the other day to speak to a combined meeting of my three TEC groups.  The sheriff, in the persona of economist Brian Beaulieu, didn’t need no “stinking badges.”  His credentials in terms of forecast accuracy and suggested actions in anticipation of turns in the business cycle preceded him across TEC nation.  He began predicting, for example, the recession of 2008…as far back as 2003. 

Here is what he had to say this time. 

The Good.  There are two to four more quarters of positive growth left in the current recovery in the United States.  The Federal Reserve’s QE3 policy will continue to stimulate the economy.  Employment will continue to rise.  The consumer will carry the day once again.  Retail sales will be good for Christmas 2012.  Ho-ho-ho. 

There will be a recession in 2014.  Not a bad one.  And liquidity will not be an issue.  Interest rates will remain low…because Dr. Bernanke said they would.  The bond market will continue to absorb inflationary pressures.  The mother of all price bubbles, however, is festering in the bond market. 

The private sector is doing quite well, thank you.  Beaulieu asked for a show of hands and found almost every TEC member company in the room was making money.  More than half were experiencing record profits.  Most companies are lean and well positioned to survive the downturn in 2014 in reasonably good shape. 

2015, 2016 and 2017 will be good years for the U.S. economy.  Unemployment will continue to be high, however.  Structural unemployment has increased to 6% from 4%.  The Fed’s unemployment target has increased to 7% to 7.5%.   

To Brian Beaulieu, a self-proclaimed, non-normative economist, it didn’t matter who is elected president in November.  The president of the United States has little control over the economy in the first 12 to 18 months of his presidency.  Beaulieu didn’t buy into the argument that businesses were holding off on making profitable investments pending the outcome of an election. 

The Bad.  There will be a serious downturn in the economy in 2018.  According to Beaulieu, there is a 90% probability of a precipitous stock market decline beginning in 2017. 

We will begin to experience systemic inflation over the long term.  Inflation will pay off the nation’s debt.  And QE3 is currently creating global inflation.   

Austerity measures, i.e. decreasing the rate of increase in government spending, will slow the growth in GDP and reign in the economic recovery of 2015, 2016 and 2017.  Austerity hurts. 

While there is no “fiscal cliff” lurking out there in 2013, there will be a slow erosion of GDP growth.  Part of the erosion might be attributed to the expiration of the Bush tax cuts and the potential implementation of sequester-related spending cuts.  Federal spending is projected to rise by $1.7 trillion without sequester cuts between 2013 and 2021. Federal spending increases $1.6 trillion even with these automatic cuts over the same time frame.  Big deal.  Taxes are going to go up either way…through rate increases or deduction limitations.    

The dollar will continue to be the world reserve currency.  Labor costs are projected to increase 15.5% over the next five years in China.  Relatively low political risk in North America combined with relatively low but rising interest rates make capital investment look positive for the United States, Mexico and Canada. 

The bond market is the problem.  The bond market is the big problem.   

To make matters worse, most TEC members agree that bonds are the least understood financial instrument in their prudently invested portfolios.  Beaulieu cautioned against bond funds that will come under price pressure as interest rates increase.  He cautioned against non-tax backed municipal bonds and high yield (junk) bonds.  He worried about the ill-liquidity of bonds at a time when investors needed access to cash.   

The Potentially Ugly.  According to Beaulieu, there will be a depression that begins between 2025 and 2030.  This depression will last for a decade.  Statistically, The Great Depression lasted from 1929 to 1934; although the recovery did not take hold until 1941.  About a decade. 

Beaulieu did not despair on this projection or any other piece of “the Bad” discussed during his presentation.  He repeatedly made his point that this was America.  The people in the room were Americans first; and then, entrepreneurs.  He urged his audience to do what every other generation of entrepreneurs did in good times or bad.  Make your move.  If your company has been around a while and you are dependent on a tired, old product or stagnant market, start something new.  Figure it out. 

If you don’t have the drive or the years left to retirement, sell your business to someone younger who can figure it out.  To Brian Beaulieu, business cycles are business cycles.  Nothing can stop the entrepreneur…except the entrepreneur. 

Brain Beaulieu’s new book, Make Your Move: Change the Way You Look at Your Business and Increase Your Bottom Line, includes a methodology for determining your internal corporate business cycle and prescriptions for dealing with the inevitable ebbs and flows of business.   

Dennis Ellmaurer is a management consultant who works primarily as a TEC chairman, leading three CEO mastermind groups in southeastern Wisconsin.  He can be reached at 414-271-5780 or     

Monday, July 23, 2012

Ready, Aim....Follow Through

My fiancée and I recently completed a hand gun training and safety course. Our instructor, Craig Turner, is a police officer. Mr. Turner also teaches other police officers how to shoot hand guns.
Mr. Turner taught us the basics of hand gun safety. Important concepts, such as, the gun is always loaded. Know what is in back of your target. Your finger doesn’t go on the trigger until you are going to shoot. And know, when you pull the trigger, you are going to do some serious damage.

From a technical standpoint, Mr. Turner taught us the concept of “ready, aim, fire and follow through.” In business, we have heard of “ready, aim, fire” or, if you prefer or you’re Ross Perot, “ready, fire, aim.” Even though the trigger had already been pulled and the bullet was in the process of exiting the barrel of the gun, it was follow through that made all the difference in the accuracy of the shot.

The similarities in business are striking. Business leaders spend countless hours on planning. They might bring in a facilitator, hold off-site planning sessions, and come back with something akin to a leather bound business plan….that never gets implemented. Like with hand guns, it is the “follow through” that differentiates companies that get things done from those that simply dither along through another useless planning cycle.

So why is getting things done so difficult in a typical organization. B. Chuck Ames, president of Reliance Electric Company described one of the problems of failed execution this way in the article Basic Management Concepts.

“No one should ever be pressured (or allow themselves to be pressured) into making unrealistic commitments. But once commitments are made, they should always be fulfilled. The good manager knows that most commitments are broken because of a sloppy attitude that always manages to find a rationale for failure. For this reason, good managers insist that all commitments be met. It makes no difference whether the commitment seems trivial, e.g. to return a phone call or pass on certain information by a certain time – or crucial, e.g. to meet a project completion date or achieve planned sales or earnings results. It must be met once it has been made.”

To shoot better or get things done in business, follow through is omnipotent. If you would like a copy of the complete B. Chuck Ames article or Mr. Turner’s phone number, please contact me. I will be sure to follow though on your request.

Monday, May 14, 2012

Are CEOs Idiots?

Kodak’s CEO tells 17,000 employees the only option for the 131 year-old company is to file for Chapter 11 bankruptcy protection. The company had 64,000 employees in 2003. Research In Motion fires its co-CEOs after the maker of BlackBerry loses $30 billion in market cap. Sony, Panasonic and Sharp, the trifecta of the Japanese consumer electronic industry, lost a combined $17 billion in 2011. Are the CEOs of these once great companies total idiots?

Before going too far, let’s add some local flavor to the stew. What the heck happened to the likes of some of these local boys?

- Joseph Schlitz Brewing Company

- Allis-Chalmers Manufacturing Company

- Schuster’s Department Stores

- Strong Funds

- Midwest Express Airlines

- M&I Marshall & Ilsley Bank

- Please insert your favorite corporate debacle here.

Were the CEOs idiots? How did these fabulous business blunders occur? We may never know exactly. But here are a few suggestions.

- Bad Strategy. In the end, what was Midwest Express anyway? A high-end, “best care in the air” corporate travel airline or a no frills, discount alternative to a bus? Customers were confused. Employees were confused. Vendors confused. Shareholders? Confused and left holding the lost luggage.

- Rotten Execution. In an effort to cost cut its way to prosperity, “the beer that made Milwaukee famous” changed the brewing process and started using cheaper ingredients. Not only did the reformulation change the flavor and consistency of the beer, the new Schlitz had a shelf life of about a day and half. Customers noticed. Can you say Budweiser?

- Blame Game. “We were making so much money, we just couldn’t quit.” Those pesky housing bubbles in Arizona and Florida were the problem. What a nice, conservative mid-western company from Milwaukee was doing in high risk, high reward ventures way outside its market area is another question. But for crying out loud, the M&I was a bank!

- Trends…Unforeseen, Denied, Misunderstood and Delusional. Kodak is an easy target here. An electrical engineer at Kodak literally invented digital image capture technology in the mid-1970s. How did the six Kodak CEOs since the ‘70s screw it up so badly?

The four bullet points listed above are certainly not all encompassing. And there is almost always more than one reason for the failure of the CEO to respond appropriately to the challenges of running a business successfully over a long period of time. How to improve the odds? Some suggestions.

- The Reality Check. My guess is the CEOs of some of these failed companies would have been better served with a strong board of directors that knew when and how to challenge the strategic thinking of the CEO. Absent a board, some CEO peer groups, like TEC, are designed to “question the answers” of the CEO. One of my TEC members employs a designated “BS Detector,” from outside the company during the strategic planning process to help the group avoid delusional thinking.

- People. People get things done. Weak management teams don’t. Failure to put the right people in the right jobs is bad. Failure to deal with people problems – fast - is worse. Jim Collins’ bus analogy of the right people in the right seats is well known. It should be pointed out, however, that CEOs need to get the wrong people out of the seats and off the bus before the new folks can get on. CEOs usually have an inner sense about weak people on their teams. They sometimes refuse to see it and deal with it in a timely fashion.

- An Intentional Culture. There is a real nice company down in Racine, Wisconsin that does not allow its people to say stuff like “I didn’t make plan because of (fill in the blank).” Or “I failed to fulfill my commitment due to (some circumstance beyond my control).” Realistic commitments that are made, are kept. No excuses. One TEC member CEO eliminated the words “hope” and “luck” from his company’s corporate lexicon, as well.

- Apply The Trends to Your Business. TEC Resource Specialist Adam Hartung suggests analyzing the mega trends eight years out. He recommends the intentional creation of “white space” disconnected from the business for innovative thinking. Get people outside the box. Then, have them think.

Truth be told, even the CEOs who really mess up aren’t idiots. CEOs are people. They make mistakes. They fail sometimes. Some learn and get better. Some don’t. But as long as we have human beings running corporations, there will be room for improvement.

Sunday, January 29, 2012

CEOs and Divorce

I have a couple of divorces going on now. Over the years, it seemed to me that I had a divorce going on with at least one of my members at any given point in time. With three TEC groups and 45 members in total, one might expect some “normal” percentage of member marriages to be headed for the rocks.

I wondered, however, if CEOs were more likely to experience failed marriages. The stress of the job. The time commitment. The travel. The temptations. Might they all add up to a higher percentage of divorce among CEOs?

An informal survey of my colleagues, however, revealed no evidence to support the proposition. It was, by and large, the position of other TEC chairs that CEOs were no more or less likely to have a marriage end in divorce. It also appeared that a fair number of CEOs remained in unhappy marriages. This would be similar, I suspect, to the married population as a whole.

There was, however, one common thread among CEOs of privately held companies whose marriages had failed. It was the almost desperate need on the part of the CEO to “keep the company.”

When it came to splitting assets and negotiating marital property settlements, the desire of the CEO to retain his or her company appeared almost as strong as child custody rights. In many cases, CEOs seemingly ignored the valuation of the company and the recommendations their advisors. In the end, they wanted to keep the company. It was, after all, their baby.

The implications? Good divorce attorneys on both sides probably are well aware of the save-the-company phenomenon. It is certainly healthy for the CEO to recognize this financially irrational desire. With the supercharged emotion of a divorce, rational thinking has been known, sometimes, to take the back seat.

Competent legal advice and strategy can help. Trusted advisors, like the peers in a TEC group, can assist. In the end, however, it is the CEO in the divorce who must come to terms with the reality of a fair marital property settlement and the need to keep the company. The evidence suggests that even in divorce, reality always wins.