Managing for the Short Term, Part 1

In this excerpt, Chuck Martin writes about skills execs need to manage what are likely to be increasingly restless workers

At any given time, more than 40% of managers and senior executives expect to leave their jobs within two years, writes author Chuck Martin in a new book, citing a recent study of 500 North American bosses. The challenge for employers is to get the most out of these people during their brief tenure. This will require new ways of hiring, training, and compensating employees vs. the methods that were in vogue when workers aspired to be lifers.

The change required amounts to nothing less than a new approach to management, argues Martin in his latest book, Managing for the Short Term: The New Rules for Running a Business in a Day-to-Day World (Doubleday, June, 2002).

It isn't just execs who are preoccupied with the short term, writes Martin, chairman and chief executive of business research firm NFI Research and a former vice-president at IBM. Companies are insisting on better and better performance in shorter and shorter time frames. While long-term planning will continue to determine an organization's direction, companies need to divide a multiyear strategy into short-term elements to improve performance, adds Martin, whose other books include Net Future (McGraw-Hill, 1999).

With strategies broken down into incremental steps, execs and managers will better understand corporate goals, employees will more easily comprehend their roles, companies will become more nimble competitors, and shareholders will see better results, Martin argues.

In Chapter 10, "Managing People for the Short Term," Martin writes that companies will have to become more skilled at managing what are likely to be increasingly restless workforces. The current hiring slump notwithstanding, labor shortages are expected to worsen soon, as baby boomers retire. Among the challenges corporations will face: offering quick rewards and gratifying work that will encourage the best employees to stay long enough to make substantive contributions. During future downturns, moreover, employers will increasingly have to find alternatives to layoffs -- such as unpaid vacation or temporary pay reductions -- since it will only become harder to hire employees back in upturns, Martin adds. Here is Part 1 of an excerpt of Chapter 10:

Chapter 10: Managing People for the Short Term

The same shortened time frame that applies to CEOs also affects the expectations of employees. Unless companies find a way to provide quick and ongoing rewards, impatient employees -- usually those that companies most want to keep -- are likely to start looking elsewhere.

The increased mobility of the workforce has been well-documented. The average turnover rate across all industries is 15%, but in some functions it is even higher, ranging from 31% in call centers to 123% in the fast-food sector. Almost 10% of all new college hires leave their job within one year; 25% leave within five years.

The problem is not limited to entry-level employees. Of 6,900 managers in 35 U.S. companies surveyed about their difficulties in hiring managers, only 44% agreed that their company had enough talented managers to take advantage of the most promising business opportunities (only 7% strongly agreed). And 90% believed it was more difficult to retain managers than in previous years.

And consider these statistics from a study of 500 North American managers and senior executives:

•More than 40% reported that they expected to leave their job within two years.

• 20% percent expected they would leave in 6 months or less.

• More than 20% planned to leave their present position to work for companies in direct competition.

•25% expected the turnover rate at their respective companies to be higher than 20%, and 12% expected turnover to reach 30% or more.

During the economic frenzy experienced during the rapid networking of the 1990s, employers found themselves hampered by a shortage of workers. That frenzy has passed, but employers still must compete for the employees who really matter. In addition to boosting the cost of replacing people, turnover can affect the bottom line even more directly. More than 44% of the managers in the study reported that employee turnover and the resulting lost expertise had cost them customers.

The level of job satisfaction seems to be dropping -- one study showed less than 51% of respondents being satisfied with their jobs in 2000, compared to 59% in 1995. (In another study, the percentage was 48%.) And the problem seems to be slightly worse for baby boomers; workers between the ages of 45 and 54 were the least happy among the groups surveyed. The percentage of boomers who considered themselves happy in their jobs dropped from 57.3% to 47.5% between 1995 and 2000. Gen Xers, by contrast, ranked first in overall job satisfaction; 58.1% of those surveyed reported job satisfaction in 1995, compared to 55.6% in 2000.

Just as there is a disconnect between top executives and managers, there often is a disconnect between workers and their companies. In one study, 47% of respondents believed that their company supported the idea that "What is good for the company is good for the employees"; only 39% believed their company also felt that "What is good for the employees is good for the company." Of those who felt their company was employee-focused, most felt that way because of perks, benefits and employee discounts. Less important (though only slightly) were salary, bonuses, an enjoyable work environment, and recognition, in that order.

Salary would seem to be a baseline for employees; if salary is not competitive or perceived to be appropriate, they will go elsewhere. But a company that wants to be perceived as truly employee-focused can't achieve that just with salary. Executives and managers who responded to a Net Future Institute survey about the most effective means of retaining employees cited autonomy and challenging work as the key incentive, followed by pay increases and advancement opportunities. With one exception -- pay increases -- this ranking is not dramatically different from the ranking of factors executives and managers said were important for themselves personally.

Executives and managers rated pay increases as the second most important retention tool for employees; for themselves, compensation and performance-based bonuses came in behind not only autonomy and challenge but work environment and advancement opportunities.

VOICES FROM THE FRONT LINES -- Motivating with Challenges

"In our organization, a challenging work environment, with responsibility and ownership for their work, is the biggest source of employee satisfaction. Combined with that is recognition of the individual and the team through compensation, training, advancement. Money alone will not keep employees happy. That is usually not the reason an employee leaves a company. They leave because they are bored or they do not feel that their value is recognized."

Employee Turnover: When Is It A Problem?

Companies spend a great deal of time trying to increase their employee retention rates, with the cost of replacing someone reaching as much as an employee's annual salary. And the higher the level of the employee, the more knowledge exits with him when he leaves. Though turnover rates tend to fluctuate with the state of the unemployment statistics, turnover of valued employees remains a major concern for most companies.

But are companies asking the right question of themselves? Are they beating their collective heads against a wall in an era when companies reshape themselves with mergers and acquisitions, when the demands of technology require ever-changing skill sets, when employees have been conditioned by rapid changes in their job environment to always be on the lookout for their next job?

One study of 107 companies concluded that 40 percent of financially troubled firms reported extremely low employee turnover. At these distressed firms, executives in finance, human resources, manufacturing, operations, and distribution averaged 8 years of service. In healthier companies, that average was 5.2 years.

The results can indicate several things, such as that the rapid changes of the business environment mean that it can be useful to have periodic infusions of new thinking about old problems. It also could mean that employees stay at unhealthy companies because of the fear, uncertainly or even lack of confidence. In addition, companies searching for winning talent may not be searching at "losing" companies.

And a Net Future Institute survey showed that managers feel that retaining employees is easier by far than finding the right new employees, even after an economic recession sent unemployment rates higher.

Retention strategies can have mixed results. It's important that pay is competitive, but it isn't necessarily the highest-paying firms that have the best retention. Even when those salaries are forced upward by stiff competition, raises alone do not constitute a retention strategy.

There is widespread agreement among executives and managers we interviewed that retention of valued employees is beneficial to the organization. Consider these comments from three different managers at both small companies and large corporations:

• "As the saying goes, "People first, strategy second." It is impossible to drive business value without top talent retention. Strategies are just as good as people who are able to execute with a degree of skill."

• "Retaining is the key to greater productivity, and thus higher profits for the company."

• "Companies that want to retain their best people need to have a strategy in place. There is too little proactive retention. Reactionary is the word I would use to best describe our retention culture."

Retention clearly is a worthwhile goal, but it is not necessarily the best strategy across the board. In some cases, managers might do better to focus their efforts on retaining the employees who matter -- and that might be not just individuals but an entire division. For individuals and areas that do not fit those criteria, managers will need to manage to maximize the efficiency of the turnover process. In those cases, managing for the short term may mean recognizing the realities of employee turnover and structuring hiring, training, and even outplacement procedures to make the most of the short time an employee may be with the company.

VOICES FROM THE FRONT LINES -- Rewards Tailored to Goals and the Individual

"A combination of short-term, smaller incentives for reaching short-term goals, and larger incentives for reaching long-term goals, are the most appropriate."

"The determination of a short-term incentive versus a long-term incentive will be based on the type of employee. All employees are impacted by short-term incentives. For employees that are critical to the operation, both long-term and short-term are important."

"The difference in impact is primarily dependent on the attitude and education level of the employee. Better-educated, administrative, and professional employees will be more influenced by long-term incentives. Unskilled, lesser-educated, production, and particularly organized employees are more attuned to immediate gratification."

"Long-term rewards tend to be financial through items such as stock options, bonuses and promotions/salary increases. The short-term rewards focus more around recognition -- names published, etc. -- rather than financial."

From Managing for the Short Term (Doubleday June 2002). Copyright 2002 by Chuck Martin. Reprinted by permission of Currency Doubleday

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