How Management Can Drive Profitability

August 10, 2001
Together with many other consultants and authors, I have long argued that if you(first) energize and excite your people, they will serve your clients well, andyou'll (then) make lots of money. But is there any actual proof that this is theright sequence?

    In PracticeWhat You Preach (Free Press, 2001) I present evidence on the factorsthat drive financial success. Surveying 5,590 people in 139 offices in 15 countriesin 15 different lines of business, I asked a simple question: are employee attitudescorrelated with financial success?

    The answer is an unequivocal "yes!" The most financially successfulbusinesses do better than the rest on virtually every aspect of employee attitudes,and those that do best on employee attitudes are measurably more profitable.

    Conventional wisdom is right in saying that quality and great client serviceget results. However, what conventional wisdom forgets is that to get greatquality and client service, you must first energize your people to deliver it.And that brings us to the prime mover of this entire chain of effects: the skillsand behavior of the manager in creating and driving everything else.

    The study produced very specific (and non-trivial)findings. The most financially successful operations are those in which:

  • Management is seen by the staff as practicing what they preach, and thereare no disconnects between the walk and the talk. When people come to work,the priorities and rules of the game are clear and consistent.

  • Management is trusted by those they manage. Individual managers act inthe interests of their group, not just to advance their own personal interests.

    The study shows that if your people agree with thefollowing nine questions, you'll make significantly greater profits andgrow faster:

  1. Client satisfaction is a top priority at our firm.

  2. We have no room for those who put their personal agenda ahead of the interestsof the clients or the office.

  3. Those who contribute the most to the overall success of the office arethe most highly rewarded.

  4. Management gets the best work out of everybody in the office.

  5. Around here you are required, not just encouraged, to learn and developnew skills.

  6. We invest a significant amount of time in things that will pay off inthe future.

  7. People within our office always treat others with respect.

  8. The quality of supervision on client projects is uniformly high.

  9. The quality of the professionals in our office is as high as can be expected.

    These nine things all seem obvious. But they're not so obvious that everyoneis doing them. That's the big AHA! of this global, statistical study: The individualoffices that are doing the best financially are not doing innovative, creativemanagerial things. They are just led by individuals who are executing on thebasics: practicing what they preach!

    The evidence shows that these are high standards that few managers (or managementteams) reach consistently. They are not easy to achieve. They require courage,an ability to confront difficult situations, and an ability to take a long-termperspective when many pressures cry out for much earlier gratification.

    The standards are tough. They do not say, gently, "We encourage teamwork."They say things like "we have no room" for individualists. The messageis that management must have the guts and courage to enforce the standards theyfrequently preach. In the short term, you can make incremental money by toleratingbehavior from disruptive individualists who contribute to the bottom line. I'venow got proof in my book of what many of us have long suspected: you make MOREmoney by refusing to tolerate this behavior!

    Most of the findings confirm what other writers (and I) have been advocatingfor years. What's new here is that this study presents substantial evidence.Some of the conclusions are new. Among the top factors predicting profitabilityare the issues of trust and respect. The study shows that where trust and respectbetween management and employees are high, financial performance predictablygoes up. Surprising? Maybe. But we are rarely (if ever) taught how to win, earn,or give trust and respect in our formal education.

    The study shows that success in management is less a property of firms (thesystems of the business as a whole) and more about the personality of the individualmanager within the operating unit. Success is about personalities, not policies.

    The success of a business is a matter of choosing the right managers, not choosingthe right corporate policies. A huge amount of time is spent worrying aboutand developing corporate strategies, missions, policies, and practices. Theamount of time spent thinking about, screening for, and appointing the bestmanagers pales in comparison. It's time for firms to switch their attentionto what really counts.

    So what does this mean for the HR professional? It means that the key leveragepoint in making money is helping managers learn how to manage well, accordingto the standards you advocate. In many companies, HR devotes the overwhelmingmajority of its time and attention to employees, not to managers. Yet it isthe managers' personal style that will determine (yes, determine) the employees'commitment, enthusiasm, and productivity.

    When selecting people to become managers, firms tend to focus on rewardingthe best individual performer, selecting a great business-getter, or lookingfor "business skills" (business development or financial management)rather than people skills. The ability to energize others (i.e., actually manage)is rarely a primary criterion for choosing managers. Yet it turns out to bethe key to financial success. Ask yourself: Do we choose our managers primarilyon the basis of the ability to energize those around them? Do we have methodsin place to ensure that they actually are doing this? Do we ensure (not justadvocate) that managers adhere to the standards above?

    We all know that people are not just the brains ofmost businesses; they are the heart, the soul, the guts, and the rest of theanatomy as well. However, for many managers this is an uncomfortable and, sometimes,unfortunate necessity. They feel more comfortable within the technical, intellectual,rational, or artistic boundaries of their field. Dealing with people(yeuch!) and human emotions (horrors!) is something they feel unpreparedfor and are inclined to avoid whenever they can.

    According to the case studies of superstar offices in the book, here are someof the things that managers must be to create the most profits (remember, thisis statistical evidence, not theory):

  • Even-keeled andeven-tempered

  • Genuine

  • Good at readingpeople's character and skill level

  • Sensitive topersonal issues

  • Smart, but human

  • Someone of highintegrity

  • Apolitical

  • Sincere

  • Transparent,not opaque

  • A good communicator

  • A good listener

  • A role model

  • Articulate aboutwhat he or she stands for

  • Comfortablewith allowing other people to get credit

  • Disciplinedabout standards, although open to reasons why they may not be met

  • Enthusiastic

  • Thoughtful

    How many of your managers pass these tests? How many of you have systems inplace to ensure that they do, and to help them?

    These findings will challenge people. Not their intellect or skills but theircharacter! How well do you fare on the tests of trust, respect, and integrity?Are you seen as practicing what you preach? I can prove that if you CAN'T passthese tests, you WILL make less money!