July, 2008

Pinpoint Responsibility to Raise Productivity

“You expect me to do what…?”

By Bill Lee

Where does the buck stop in your company? If the answer is with the owner, your company is more the rule than the exception.

I know that the buck must ultimately stop with the owner or general manager; however, the situation I often observe on consulting assignments is that the owner fails to pinpoint responsibility down the line. This practice results in an organization that is frequently in the habit of “passing the buck.”

One question I ask owners that helps me sense how well responsibility is being delegated is this: “Who in this organization suffers financially when the company fails to meet its financial goals?” More often than not, the answer is, “No one but the stockholders and the outside sales force,” (assuming the sales force is paid a commission).

I then ask, what about the department heads, the credit manager, the buyer(s) or the yard foreman?

And the usual answer I receive is, “No, those guys are salaried. They may be fussed at from time to time, but they don’t suffer financially.”

Those of you who’ve used my consulting services or have read my weekly newsletters know how strongly I believe in combining sound management practices with incentive pay to encourage accountability.

In a building material dealer’s business, there are five key areas that must be controlled: Sales, gross margin, operating expenses, inventory and accounts receivable.

Obviously, the owner cannot possibly control each of these areas personally, so the owner must have people in the organization who demonstrate that they are responsible by accepting accountability.

The first step toward effectively delegating responsibility is to develop an organizational chart. It doesn’t have to be fancy, but it does need to identify each manager and his or her respective areas of responsibility.

Job descriptions are the next essential ingredient. Job descriptions need to be a great deal more specific than the organizational chart. Job descriptions describe in detail each employee’s responsibility and each specific area for which the employee is held accountable.

Establish Understanding

Just as important as written job descriptions is having a clear understanding between management and staff as to what each responsibility entails.

The only way to be sure that each member of your organization clearly understands his or her areas of responsibility is to verbally review the job description on a periodic basis and encourage questions to address any areas that are unclear or overlapping.

If you’ve never tried this approach to management, you won’t believe how many of your employees are shocked to learn some of the responsibilities you have been assuming that they understood and accepted. The process itself will open up communication beyond belief.

There’s an underlying feeling within most of us that says, “If they base my pay on it, it must be important.” This is one of the best reasons to use an incentive or bonus plan to reinforce the written job descriptions and organizational chart.

In years like 2008, I recommend kicking off an incentive or bonus plan in lieu of a raise in pay. In other words, “We are not going to give you a raise in pay this year, but we are going to give you a way to earn more money.”

This will not only save you money, but it will make the point among your people that their raise becomes effective when they do. Money usually has a way of getting people’s attention.

To make your incentive plan more effective, try structuring it on what we call a double up/double down basis. (Send me an email to Bill@BillLeeOnLine.com with Double up/Double down in the subject line and I’ll email you a sample.)

It’s a good idea to pay the bonus as soon as possible after the results are in, say, monthly. But some goals such as inventory turnover, return on assets, etc. can, of course, only be calculated on an annual basis.

Good luck in improving your company’s productivity in 2008.

BILL LEE has nearly 40 years of experience in the construction supply industry. A consultant and seminar leader, he is the author of two books: Gross Margin and 30 Ways Managers Shoot Themselves in the Foot. www.BillLeeOnLine.com, 800.277.7888