Changing Gears

When I was reflecting recently on the importance of change, I thought of an age-old phrase, but with a twist: The only thing constant in business is change. French author François de la Rochefoucauld may have been talking about life in general back in the 17th century, but for our businesses these days, it's all about adapting and changing in response to market demands, technology, the economy and competition. Yet people are naturally resistant to change; it's often difficult and uncomfortable.

Should business owners avoid people who abhor change? Absolutely not. While significant changes for every firm and the individuals working there are necessary to succeed and grow, not all are successful at making them.

 

WHAT GETS PAID GETS DONE?

Industry consultant Angie Herbers wrote recently about research she conducted on employee performance at small firms by mapping it against a variety of criteria. What got my attention was the finding that employees received high evaluations at firms with specific characteristics. Among them were communicating the firm's goals to all employees, setting revenue instead of income targets and paying incentives tied to revenue.

Successful employees flourished where people were happy and fulfilled at what they were doing, Herbers found, and were excited about where they were going. What didn't create enthusiastic, motivated employees was equally interesting - simply paying them an above-average salary or giving them lots of benefits not tied to performance metrics. As it turns out, what gets paid gets done isn't quite right.

Management research over the past 70 years has reached the same conclusions. When rewards are tied to performance metrics, firmwide production goals are established, and individuals are given the training and flexibility to develop plans to reach personal and company goals, the result is performance that's well-above average for individuals and companies across all industries.

 

THE PRICE OF IGNORANCE

Firms of every size and shape have trouble executing these relatively straightforward management objectives. Usually, the failure is attributable directly to an owner's or manager's business ignorance; they don't realize cost structure (administrative overhead, pay, benefits, training, sales, marketing and so forth) should be determined by how they intend to grow the business, not by arbitrary cost-savings measures.

Failure to do so carries severe consequences: Business history is littered with stories of successful Fortune 500 companies forced to develop plans for growth in the face of competition or economic, regulatory or market forces. The story almost always ends with the failure of the growth plan due to flawed design or execution. The resulting financial implosion typically makes the news and academic journals.

That means the critical first step for business owners in implementing a plan for growth and profitability is to look at every financial decision through a growth lens. This was the situation my firm faced a short time ago when I realized significant internal change had to occur in compensation, training and organizational support to promote better growth.

When I started running my current firm a dozen years ago, my prior military experience drove much of my management behavior and attitude. It quickly became clear to me those skills would not enhance a collaborative organization, so I changed my leadership style.

 

BEYOND CALLING THE PLAY

I've written many times that it's up to the boss to create the right culture for a growing professional organization. It's critically important you lead and support and encourage your workers' participation in company change. If you don't, you can call lots of plays as quarterback, but without proper training and practice, they won't execute well.

In the past, when I've launched a new program at my firm without developing all the parts right, it's resulted in less than optimum performance by our staff. When that's happened, it's been my fault. However, when the firm has provided training, encouragement, monitoring progress and, of course, financial rewards, the results have been uniformly excellent. When it came time to step up our prospective client numbers, it was clear the entire program needed to be more than just adding a bonus for bringing in a new client.

For example, at the beginning of last year we implemented a new compensation program focused solely on gaining new clients from sources other than existing clients. This is much more difficult than getting a referral from a client, but absolutely necessary for above-average growth.

How did we do? By mid-November, our three relationship managers had 30 referrals from about 220 clients. More important, from networking, people who are "centers of influence" and referrals, we received another 13 names, two of which came to a senior planning associate.

I expect 2011 will have concluded with about 50 referrals. Historically, we've converted an average of 35% of qualified prospects, meaning we should yield about 17 new clients. We can look at that result in several ways: 17 divided by 220 equals 8% new client growth; 17 clients with an average of $1.5 million in assets equals $26 million in new AUM and about $200,000 in new revenue for our firm.

That's not all: One professional published a book and has sent it to every client as well as many influential people inside and outside our industry. Another wrote for an industry journal and started a speaking tour based on his work. By developing a strong, nationally recognized expertise, he will yield significant new-client dividends for years to come. A third professional is finishing her MBA and developed a classmate into a client while in school. All these efforts enhance their abilities to develop outside connections, which inevitably lead to new business.

 

SET THE TONE, DON'T BARK COMMANDS

Note that I did not tell our new author to write a book, but the firm supported his publishing and marketing efforts. I did not suggest that he write the article published in the journal, but the firm is supporting his speaking and networking efforts. I did not demand the third professional go back to school, but we encouraged her to consider the long-term benefits of a graduate degree in business.

In each case, my growth-focused lens helped me understand how to invest significant resources that led to substantial business development activities by our professionals. They are excited and so am I!

 

SHIFTING TO A HIGHER GEAR

When I was a kid learning to drive in the 1960s, we used a three-speed stick shift. We learned to shift by disengaging the clutch quickly while moving the stick to the next gear. Handled improperly, there were lots of grinding noises or the car stalled out.

When your business changes gears, you have to disengage from your current efforts forthrightly and move into the next phase of business positively. The next phase won't happen, however, unless management supports, encourages and rewards.

Learning to shift a transmission took practice at first, but soon became almost effortless. Shifting to a higher gear in business also takes work, but the more you practice, the easier it will be when your organization is ready to operate in a higher gear.

 

Glenn G. Kautt, CFP, EA, AIFA, is a Financial Planning columnist and chairman of the Monitor Group in McLean, Va.

For reprint and licensing requests for this article, click here.
MORE FROM FINANCIAL PLANNING