“Julia, we are a small company, why should I waste time doing employee appraisals – that’s for big companies!”
In part 1 we examined various appraisal techniques and highlighted two of the main areas where 360 Degree Feedback will benefit the company. If you missed it, you can see it here.
Now let’s look at the 10 steps to introduce 360 Feedback in the company. Focus on one step at a time.
Step 1: Define the Purpose
The first step is to define the process and as indicated previously, there are two main applications within the company.
It is necessary to communicate the purpose of the process to all that will be involved or impacted by the 360 Degree Feedback process.
Step 2: Choose the Collection Method
The two most frequently used methods are questionnaires and interviews. For many companies a combination of the two are used.
Step 3: Decide on the Data to be Collected
When you begin to use 360 Degree Feedback it is essential that you decide the data to be collected and the collection method you will use. This will assist you to:
Focus on actual behavior in the company rather than general traits
Base ratings on particular work contexts to reduce rating error
Ensure that rated behaviors are tied closely to the company’s strategy and vision
Step 4: Identify the Feedback Recipients
The next stage involves
Selecting employees who will receive the feedback
Remember self-selected employees are always more conducive to the process
Always ensure that all recipients are aware of their involvement within the process
Step 5: Train the Participants
For many companies, 360 Degree Feedback is a new event within the company and as a result it is important that both the employees who are doing the rating and the employees who are being rated receive adequate training. Some important rules of thumb always prevail:
Communicate, Communicate, Communicate
Train employees and managers in accepting negative feedback and on rating errors
Constantly update employees on progress to ensure necessary buy-in
Step 6: Recipient Chooses who will Rate Them
Within an effective 360 Degree Feedback process it is important, where practical, that the recipient of the feedback chooses an average of 10 co-workers to rate them. These on the whole tend to include but are not limited to:
Caution: Recipients may choose more lenient people to do the rating. A properly planned process will help to avoid this situation. The purpose is to find areas the people can improve upon and prepare for promotions.
Step 7: Questionnaire Distribution
Should you decide to use questionnaires, you should include either
Paper & Pencil
Raters should be allowed the opportunity to forward the completed questionnaires to a pre- identified manager or supervisor to protect confidentiality.
Step 8: Analyze the Feedback Data
Within many 360 Degree Feedback systems not enough care is taken in the analysis of the feedback. This needs to be carefully planned at the beginning of the process. Without this planning either too much or too little feedback data can be collected.
Step 9: Feeding Back the Feedback
This is one of the major steps where the process can completely fail. It is essential that adequate time is provided for staff to take-in the feedback and that the whole process is transparent. There is nothing more dangerous within a company where staff is asked for feedback and it is then omitted or ignored. Staff will know what has been said so don’t ever hide information! Again this step may be best facilitated by upper management.
Step 10: Follow Through
Another extremely important stage in the process that is often overlooked is the follow-through on the feedback received. After all the feedback is what you were looking for in the first place. Three important steps are involved:
Establish Improvement Areas
Design Action Plans
Identify coaches or mentors to assist employees in their future development
Repeat the Process
360-Degree Feedback is a continuous improvement process that will greatly benefit the company. The process should be repeated following an agreed period to review progress and identify future action plans.
Are You Ready For 360 Degree Feedback?
Now that you know how to introduce a 360 Degree Feedback Process it is essential that you decide are you ready to introduce this process. Research and experience has demonstrated that you will need to consider:
Top Management Buy-in
Past History of your company’s review process
Coaching & Management Skills
Trust & Interdependence
Clear Performance Plans
Top Management Buy-in
As with any change process, top managerial staff need to be fully engaged in supporting the process, understand the advantages of 360 Degree Feedback, and ensure that all participate fully in the process.
To determine whether past history may impact the introduction of 360 Degree Feedback you will need to ask yourself the following questions. Please try to answer them as honestly as possible:
Has 360 Degree Feedback been used previously within the company?
What were the results?
Where was the process a success and why?
Where did the process encounter difficulties and why?
Coaching & Management Skills
As with past history, you will need to ask yourself the following questions. Please try to answer them as honestly as possible:
Does management have the required skills and knowledge to implement the process fully?
Have the necessary mentors and coaches been introduced across the organization to ensure the smooth application of 360 Degree Feedback?
Trust & Interdependence
Given the often sensitive nature that can be discussed, 360 Degree Feedback requires trust and confidentiality. Ask yourself:
What are the trust levels within your company?
How can trust levels be increased?
The introduction of an effective 360 Degree Feedback Process can often be impacted when there is a level of un-stability within the company. You will need to determine:
What is the current position of the company? Please provide as much detail as you think necessary.
Are changes foreseen that may affect the implementation of an effective 360 Degree Feedback Process? Can they be avoided and/or integrated within the purpose of the 360 Degree Feedback Process.
Clear Performance Plans
The last area that will determine whether your company is ready for 360 Degree Feedback refers to the performance metrics of the company. Ask yourself:
What are the performance metrics within your company?
Are they clear to all employees?
If not how can they be made clear?
Why 360 Degree Feedback Programs Fail
It should be clear that the introduction of a 360 Degree Feedback Process is not as difficult as it first may have seemed. In fact with appropriate planning and the sequencing of activities as presented earlier it should be easily introduced within your company. This is presuming that you have identified that you are ready for 360 Degree Feedback!
We want to briefly highlight some of the reasons why 360 Degree Feedback programs have failed in other companies which we believe will help you avoid making the same mistakes. These include:
No Clear Purpose
Using 360 degree feedback as a substitute for managing poor performance
Not conducting a pilot
Not involving key employees
Not making the feedback’s use clear
Having scoring and administration not user friendly
Making it an event rather than an ongoing process
Not evaluating effectiveness
No Clear Purpose
360 Degree Feedback programs must be firmly rooted in a purpose for the company.
You will need to ensure that employees understand and share this purpose to ensure that the outcomes are relevant.
360 Degree Feedback Is Not A Substitute!
360 Degree Feedback should also not be viewed a substitute for managing poor performance. Instead it should be seen a methodology for discovering areas whereby performance can be increased.
Not Conducting a Pilot
360 Degree Feedback is not initially an easy process to introduce. For companies where 360 Degree Feedback has not been implemented previously; a pilot should be undertaken to familiarize both management and staff of the intricacies of the process.
Not Involving Key Employees
Not involving employees reduces ownership of the 360 Degree Feedback Results and Process and undermines the overall process. Making a conscious effort to involve key employees increases trust and confidence within the company and the potential success of the 360 Degree Feedback.
For 360 Degree Feedback to be effective; all employees need to be informed of the purpose of the feedback, how this process will work and be confident of the relevance and transparency of the exercise.
The most important facts concerning confidentiality:
360 Degree Feedback must always respect the confidentiality of all material collected.
Validity of the process will be undermined along with the future reliability of data collected if confidentiality is broken.
360 Degree Feedback must not be used against staff as it will damage trust relationships within the company.
Not Making the Feedback’s Use Clear
Employees must be fully aware of what the feedback will be used for. Without clarity the relevance of the feedback obtained will be compromised.
User Friendly Scoring and Administration
All participants must find it easy to complete the 360 Degree Feedback Process. Any areas of confusion must be removed so you will continue this ongoing process and not just use as a one-time event!
360 Degree Feedback is not a once-off effort
360 Degree Feedback is a continuous process of improvement and must be always perceived as being so.
Not Evaluating Effectiveness
Evaluation is the cornerstone of successful 360 Degree Feedback Programs – make sure that you build in appropriate evaluation structures.
360 Degree Feedback offers particular implementation benefits in the areas of Employee Development and Performance Appraisal. Before starting a 360 Degree Feedback Program the company must ascertain whether it is ready for 360 Degree Feedback. If you are not prepared, the program will fail. However, planning, communication, and proper execution – you will find these tools invaluable and so will the employees!
“Julia, we are a small company, why should I waste time doing employee appraisals – that’s for big companies!”
Why Have Performance Appraisals?
Over the last few years, the use of “360 Degree Feedback” has grown in popularity. 360 Degree Feedback is a system or process you develop in which the employees received feedback from those who work around them. This can be managers, peers, direct employees, or employees from other departments in which they interact with regularly. However, before we discuss the pros and cons of 360 Degree Feedback it is important to gain a general familiarity with performance appraisals. In particular, what are the advantages of performance appraisals?
Performance Appraisals offer several advantages to the individual, team, and to the company.
At an individual level, performance appraisals offer a number of advantages. These include:
Recognition of past effort
Developmental/training requirements can be uncovered
Research has consistently demonstrated that these items are extremely important for an individual. Without recognition for past efforts it can be difficult to consistently motivate an individual to engage in future efforts, or willingly accept developmental activities.
In addition to the benefits achieved at an individual level, a number of team benefits come straight to mind. These include:
Alignment of effort with objectives
Motivation of team members
The effectiveness of any team is clearly aligned to the team’s set of objectives. Without opportunity for feedback in a trusting and transparent setting, the team will not know where they collectively are in relation to those objectives.
The subsequent advantages to the company become evident:
Development of staff
Achievement of key objectives
Best and focused utilization of human resources
Overall Benefits of Appraisals
Increased employee performance
Greater control of work
Improved motivation and commitment
Increased information flow
Better relationships within & across the company
360 Degree Feedback is a continuous process of improvement and must be always perceived as being so.
Roles within Performance Appraisals
The simplest form of performance appraisals involves two individuals – the manager and the employee.
Manager’s Role in Performance Management
Set Objectives with Employees
Manage Rewards and Ensure Fair Compensation for an observed level of Job Performance
Offer Accurate, Timely, Regular & Specific Feedback
Advantages to Managers
Through Performance Appraisals, Managers can:
Translate business goals into individual job objectives and standards
Monitor performance against solid standards and offer feedback
Communicate and seek buy-in / agreement on objectives
Coach employees on how to achieve their performance objectives
Identify employees strengths and weaknesses
Generate and agree upon development plans to best serve the company’s and the individual’s needs
One of the most important advantages to performance appraisals is the employee’s role in performance management! When employees are actively involved in their own development and set objectives with their manager, there is a natural tendency to take ownership in their own performance.
Advantages to Employees
Through Performance Appraisals, employees can:
Openly discuss performance with managers
Be provided with an opportunity to develop skills
Reinforce and sustain current good performance
Improve existing performance
Determine career progression goals
Identify training needs
Link rewards to performance
Eight Appraisal Techniques
Below is a list of the main performance appraisal techniques. Most companies use these forms of performance appraisals. Whatever you choose to include as part of your 360 Degree Feedback will vary depending on the type and history of your company.
Appraiser ranks employees from the worst to the best based on specific characteristics or on overall job performance
Poor basis for decisions
Degree of difference between employees difficult to specify
Appraiser ranks employees two at a time and decisions on which is superior are included in the final ranking order for the whole company
Ease of decision making
Complicated within a large workforce
Challenges associated with ranking
Appraiser observes incidents of good and bad performance and uses this information for judging and leading the performance appraisal
More objective than previous techniques
Requires skilled observation
General free-written evaluation by the appraiser
Employee evaluates themselves based on a particular template that has been supplied by the company
Employee may be more lenient
Conflict can occur between appraiser and employee
Employee receives a series of assessments supplied, performed and evaluated by specialized external assessors
Range of techniques employed
Range of dimensions analysed
Not necessarily job specific
Appraiser evaluates the degree to which the Employee has achieved specific objectives
Requires awareness of measurable targets
Appraiser specifies on a scale to what degree relevant characteristics are possessed by the Employee.
Ease of comparison
Capacity to assess characteristics from the very simple to the complex
Personality and behavioral traits difficult to measure
Key Implementation Areas
Before we begin to briefly examine an effective 360 Degree Feedback Process, it is important that we understand implementation areas. These are:
360 Degree & Employee Development
Within the area of employee development, 360 Degree Feedback will:
Focus on development of skills and competencies to meet organizational objectives
Identify Training & Development Needs
Identify Areas for Improvement
Develop Action Plans
Assist Career Development Opportunities
360 Degree & Performance Appraisals
Within the area of performance appraisals, 360 Degree Feedback will:
Set Performance Objectives
Review Past Performance
Improve Current Performance
Assist Career Development & Promotion Opportunities
Assess Salary/Position Levels
Stay tuned for part 2 – we’ll talk about “An Effective 360 Degree Feedback Process” and the top 10 Reasons 360 Degree Programs Fail.
Large or small meetings benefit from identifying certain primary roles before the meeting takes place. These roles provide a framework for managing the process of productive meetings.
Chairperson: The chairperson is a critical role within the meeting as they:
Encourage participation and manage conflict
Follow the agenda
Control a casting vote, if needed
Start and close the meeting on time
**Time-keeper: The time keeper role includes the following:
Starting the meeting on time.
Allotting and controlling the requisite time for each agenda point.
Finishing the meeting on time.
**Recorder: The recorder’s role includes:
Capturing any decisions
Taking the minutes accurately
Checking that all information to be presented in the minutes is accurate.
Completing and distributing the minutes after the chairperson has signed them off.
Participants: The participant’s role can be described as follows
To prepare for the meeting when necessary
To arrive on time and stay for the meeting
To actively participate in the meeting
To complete any tasks assigned in the meeting
**smaller meetings may work best if the recorder and timekeeper are held by one person
The preparation of a meeting can be assisted by using a Pre-meeting Checklist that allows the organizer to provide all necessary information to the participants and thereby allows them to be prepared for the meeting. Typical issues would be:
Note the where and when of the meeting
Allocate enough time to allow preparation
Read all relevant documentation
Note any comments / questions which you have.
Read the agenda fully and carefully
If an omission is evident in the agenda, contact the chairperson and have it corrected.
Note the main topics and objectives
Understand your responsibility in participation
A list of do’s!
Arrive on time so that you don’t miss the opening words from the chairperson.
Listen to the views of others
State your own views clearly and concisely
Take accurate notes – especially of any action points that are pertinent to you.
Stick to what is on the agenda
Make constructive contributions
Define any problems as they arise
Help to create a positive atmosphere.
A list of don’ts!
Do not be aggressive
Do not be defensive
Do not dominate
Do not withdraw from the discussion
Do not withhold information of value
Do not ramble
Remember that each participant is in the meeting to play an active part in achieving the goals of the meeting. This means being prepared initially, then following the list of dos and don’ts as outlined above. The critical issue when it comes to carrying out the mid meeting responsibilities is to justify your presence at the meeting in the first place!
Failure to follow up on actions defined and assigned during the meeting means that the meeting will have failed and everyone’s time was wasted. Accurate and clear minutes with action points and responsibilities defined need to be released to participants as soon as possible after the meeting. At Stanford we use the “Responsibility Matrix” https://stanfordmc.com/wp-content/uploads/2016/02/Sample-Resp-Matrix.doc . Just a simple word document that the recorder may use to note actions/tasks assigned to individuals. Action points need to be completed by who and when as noted on the matrix.
This is often the reason why meetings fail – there are no actions completed and so no direct benefit can be attached to the effort that has been put into the meeting. It is therefore very important, even critical, that actions determined during the meeting are assigned!
People at Meetings
People are usually the cause of meetings failing due to hidden agendas, lack of focus/ attention, disruption through having side-bars or mini-meetings, poor attitude, poor preparation, or poor etiquette (arriving late / leaving early). Most of these are habitual and should be dealt with to maximize the effect of the meeting.
Leading a Meeting
Good leadership is crucial for an effective meeting. If a leader does not have control over the meeting the objective becomes vague and momentum is lost. A leader is responsible for promoting participation and ensuring all to be involved with problem solving. Typical leadership functions include managing people and assigning responsibilities.
Before the meeting the leader should:
Outline the main points of the meeting
Clarify the ideas about the meeting
Decide on who should attend
Decide on location, date and time.
Draw up and circulate the agenda
Emphasize the type of the meeting
Decide whether it will be formal / informal
Circulate any useful documentation
During the meeting the leader should:
Create the right climate
Open the meeting and introduce participants, if needed
Outline the structure, content and time limits
Highlight the key goals
Encourage discussion & involvement
Help to summarize / clarify contributions
Control any dominators / trouble makers
Get decisions made.
Confirm responsibilities and actions
Close the meeting with a summary of key action points
Leadership Styles for Meetings
To be an effective leader, an appropriate style of leadership should be used in the meeting. There are a range of styles all leadership management books outline.
Three most often used in business are:
Authoritarian: Make decisions without involving others, makes rules, expects obedience, and threatens.
Democratic: Everyone is involved, agendas are formed through consultation, active participation is encouraged, and power is distributed within the group
Laissez faire: Participants are left to their own devices, dominators emerge and take over, meetings will stray off course, and there is minimum contribution form the leader.
Obviously, the style most suited for small to medium sized businesses is the Democratic Style. Of course, I may have readers that disagree. In this day and time the more involved and engaged your employees/staff are in the quality of running the business and participate in solving problems and challenges, the more successful your company will be. The effects Democratic Style lean toward participants who feel involved and take ownership of decisions. Decisions may take a little longer however; self-esteem and confidence of individuals turn in to happy, loyal, and productive employees!
Why Meetings Fail
Meetings fail primarily because of participants failing to:
Meetings don’t fail – participants do!!
Meetings take up much of the working week – they need to be effective so attention must be paid to the issues such as:
The type, format and leadership of the meeting must match the requirements.
Lack of attention to the simple things will cause a meeting to fail.
Roles and responsibilities must be considered and assigned
Documentation in the form of an agenda, notes and minutes must be prepared accurately and distributed in a timely manner.
Good time management principles are required
Invite the right people and allow them to participate.
“Julia, my staff and I continue to have meetings but… it feels like we keep talking about the same ole stuff and nothing ever gets done!”
I know the quickest way to get a client to raise their shoulders or roll their eyes and tell me “that doesn’t work here” is to suggest regular staff, management, department, or inter-departmental meetings! Let’s be honest, we have all participated in our share of the long, drawn out, boring, unproductive meetings. Recently, my husband referred to a meeting as a BOGSAT – Bunch of guys sitting around talking!
A meeting is a gathering of people with one or more goals to be achieved. Meetings can be held in a variety of locations. They may be held for a variety of reasons; each with their own particular impact on the organization and the attendees. Overall, meetings should be seen and used as effective vehicles for action and performance.
The biggest problem is how meetings are approached. If meetings are used to debate and harp on problems; they are set up to fail. Recognizing the value of meetings and using a planned approach to running effective meetings will produce much more valuable results.
Value of Meetings
Effective meetings are most valuable to any organization when they promote:
A sense of involvement
There are many benefits that arise from the use of meetings, provided that the meetings are effective and focused. These benefits can be seen on several different levels in the organization.
On the Organizational Level
Improved use of time
Improved decision making
Better use of resources
Multiple perspectives utilized
On the Team Level
Improved use of time
Improved decision making
Better use of resources
Ownership of processes
On Individual Level
Improved use of time
Involvement in decision making
Better use of knowledge
We can all recognize the benefits of effective meetings but what can we do to make sure we have organized effective meetings that produce the outcome we need?
Making Meetings Work
Meetings are a great venue for communication; unless they are unproductive, chaotic, and turn into gripe sessions and belaboring a problem. Think of the last meeting you attended. How effective/productive was that meeting?
You can improve the quality of your meeting by:
1 – Understanding the need for meetings allows participants to:
See the real value of an effective meeting process.
Set objectives for meetings and focus on achieving great outcomes.
Try to improve meetings as communication and decision making vehicles.
2- Understanding the types of meetings allows participants to:
Select the appropriate meeting type for the purpose.
Prevent the downside associated with running the wrong meeting.
Improve the image of meetings in the organization.
3- Understanding the reasons for failure allows the organizers of meetings to:
Avoid the main mistakes.
Remove performance obstacles.
Plan and resource meetings appropriately.
4- Application of key techniques and skills will cause:
Improvement in the outcome of meetings.
Improvement in the level of commitment to and involvement in meetings.
Better use of meeting time by focus in on key issues through a structured process.
Understanding and applying these guidelines to organize and communicate your meetings will improve meeting outcomes, level of commitment and involvement, and be a better use of time by focusing in on key issues through a structured process.
Formal and Informal Meetings
Formal meetings: are characterized by formal procedures, a structured agenda, and definite roles assigned for running the meeting.
Informal Meetings: are characterized as being more chaotic, energetic, inclusive, and creative while less routine and ordered.
Whether or not a meeting will be formal or informal depends on who the participants are and the topic to be discussed. Other factors are the company culture, what type of business, and location of the meeting. Formal and informal meetings can vary in size and may have very different results.
People are more likely to attend
Discussion may be more open
Less chance of passengers
Control will be easy
One of my favorite styles of small meetings are “In- Services”. An in-service is a quick but informative type of meeting and is a great way to communicate information to a small group of people taking 15 to no more than 30 minutes. Many times an in-service is use to address a recent problem and provide the “lessons learned” and how the particular problem should be handled in the future. Examples of small meetings in small businesses are departmental meetings or management meetings.
More ideas can be generated
More perspectives can be taken into account
High level of control is required
Higher level of absenteeism possible
Large meetings in small businesses are typically the monthly company meetings. Obviously, there is a need to take control of time and keep discussions to a minimum.
No matter what size or style the meeting is, it should have an agenda. Even a small informal meeting should have a brief agenda to help identify who should attend and what topics are being covered.
Agendas should be circulated sufficiently before any meeting to allow attendees time to prepare. A hastily thrown together meeting will net poor results, or drag on longer than needed.
The agenda for a large or formal meeting and will contain the following:
Title of the meeting
Date and time
Attention drawn to the Minutes from the last meeting, if needed for a formal meeting
The agenda is what is used to drive and control the meeting activities so every effort must be made to ensure that the agenda is both accurate and available. An agenda should be used for all meetings in order to document the information shared. Even an in-service should be documented. However, for small meetings or in-service training the agenda may just be a form outlining what is discussed and signatures of all who attended.
Minutes: Minutes are taken during the meeting as a formal record of what happened in the meeting. Things such as responsibilities for actions must be clearly defined in the meeting and recorded (as on a responsibility matrix). Minutes need to be clear, concise, and accurate. All minutes should be circulated as soon as possible after a meeting to facilitate action. Formal meetings will have more meeting minutes than informal. Typically, small meetings or in-service training will only use an in-service form.
People tend to feel good about their involvement in informal meetings as the higher energy levels lead to less boredom. There are some practicalities that must be attended to in order to increase the performance of the meeting:
Informal meetings do not work for every topic and don’t fit with all work cultures.
There needs to be a system for recording what agreements have been made. Example: the Responsibility Matrix
Minutes need to be produced – even as a short note with actions recorded and responsibilities highlighted for small meetings.
The place for the meeting shouldn’t hinder communication through the presence of distractions, noise etc.
Success Factors for Meetings
We all view meetings as being successful for different reasons. However the following is a list of some of the main reasons why meetings are successful.
Clear objectives: Without clear objectives the meeting cannot succeed because the purpose is not clear, the correct people may not be present, and the meeting will be unfocused and generally unproductive. Meeting like this tend to never end! By setting clear objectives the participants are more apt to stay the course.
Relaxed atmosphere: When participants are more comfortable they are more apt to focus on the requirements of the meeting than on behavior. It facilitates professionalism and constructive criticism. The goal is to achieve the desired outcome without dealing with distractions or conflict.
Honest, direct and constructive criticism: At a meeting there will often be several points of view or opinion being presented. It is important to present constructive criticism so as to encourage participation and move towards a smart solution. Meetings tend to be most successful when you remove personality from the activity.
Fair distribution of activities: This is important to ensure that all attendees participate. Fair levels of involvement and action points increase the willingness to participate.
Accurate assessment of the capabilities and performance levels of group members: The most successful meetings take into consideration the levels of competencies of the participants in communication, decision making, and leadership. The more vested the participants are in the outcomes the more successful the meeting with be.
Ability to deal effectively with disagreements: In meetings where there are wide differences of opinion it may be necessary to manage a conflict situation to facilitate involvement by non-combatants and ensure a just outcome from the process. Managing conflict allows you to stay on course and conquer the most challenging problems in a company.
Good leadership: As in any organizational process, the presence of good leadership allows the meeting to keep on track, focus on the required outcomes, involve all opinions, protect the process/ participants, and produce a satisfactory outcome.
In “Meetings Don’t Fail- Participants Do part 2″ I’ll talk about Roles and Responsibilities within Meetings, Do’s and Don’ts, People at Meetings, how to Lead a Meeting, Leadership Styles, and Why Meetings Fail.
“Julia, why should I be concerned about having policy and procedures written for my business?”
Policies and Procedures are the strategic link between the Company’s Vision and its day-to-day operations. They are one of the most important tools in your business because well written policies & procedures allow employees to understand their roles and responsibilities within predefined limits. Basically, policies & procedures allow management to guide operations without constant management intervention.
In order to understand why policies & procedures are so important we need to know what they are and differences between them.
What is a Policy? Policies identify the key activities and provide a general strategy on how to handle issues as they arise. They are clear, simple statements on how your company conducts business. I like to think of ‘policies’ as the “What” and “Why” that guides the foundation and structure in our business. They set the boundaries for all operational decisions.
What is a Procedure?
The ultimate goal of every procedure is to provide a clear and easily understood plan of action required to carry out or implement a policy. Procedures identify who will do what, what steps they need to do, and what documents are used. A well written procedure will help eliminate common misunderstandings by identifying job responsibilities and establishing boundaries for the employees and management staff. Good procedures actually allow managers to be pro-active and prevent the company (and employees) from making costly mistakes. The procedure is the road map that guides you to your destination and keeps you from getting lost. I like to think of procedures as the “How” that supports all operational policies.
The top three major differences between policies & procedures are identified below:
Policies: • Are general in nature • Identify company rules • Written using simple sentences & paragraphs
Procedures: • Identify specific actions • Explain when to take actions • Shows how to complete forms
Why Have Policy and Procedures?
Policies & procedures are required when there is a need for consistency in your day-to-day operational activities. Policies and procedures also provide clarity to the reader when dealing with accountability issues or activities that are of critical importance to the company, such as, health & safety, legal liabilities, regulatory requirements or issues that have serious consequences.
You Have Policy and Procedures; Are They Working?
If you have already has established Policies & Procedures, how can you determine if they are meeting your needs? A few ‘Critical’ signs that your policies and procedures need to be reviewed and updated would include an increase in the number of accidents, higher turnover, or costly overruns. The workforce can also provide important clues that your company’s policies and procedures need to be reviewed. These clues could include more staff questions on ‘normal operations’ or a feeling of general confusion within a department or division. Employees may also be demonstrating inconsistency in their job performance and there may be an increase in the workforce’s stress levels. Finally, your customers may provide additional clues in the form of increasing complaints.
Benefits of Policy and Procedures
First, employees are provided with information that allows them freedom to carry out their job and make decisions within defined boundaries. Second, employees understand the constraints of their job without using a ‘trial and error’ approach. Third, policies & procedures enable the workforce to clearly understand individual & team responsibilities. Finally, clearly written policies & procedures allow managers to exercise control by exception rather than ‘micro-manage’ their staff.
Well-written policies & procedures benefit the company as well as the employee. From an employee perspective, the guidelines provided in policies and procedures allow workers to perform their jobs with respect and dignity. They provide guidance on how to handle issues properly as well as clearly identifying their job constraints. The organization benefits by allowing managers the freedom to concentrate on strategic issues because the policies and procedures are in place to guide the normal-day-to-day operations.
How Often Should Policy And Procedures Be Reviewed?
Policy and Procedures are never done! The PnP (Policy and Procedure Manual) is a living document that should be reviewed in totality annually. However, each time you have a problem or a consistent challenge you should ask yourself- Do we have a policy? If so, is it working? If not, do we need one? Your business is constantly changing and so should your policy and procedures.
If your policies and procedures are incomplete, outdated or inconsistent, then you are probably not driving the performance improvement you intended.
“Julia, What should I do to plan for an increase in sales for 2016?”
The budget is done, now what? One of the most important pieces of your plan for the New Year is to develop a strategic approach to achieving your forecast of sales while controlling all the cost of running the business. Sounds easy, right? For most small business owners, this is one of the biggest challenges. I cannot tell you how many times we hear “If we could just get more sales”! The truth is, without all the tools we have discussed this year in controlling cost and planning for profit, an increase in sales just means working harder with no increase in profit. You want to project an increase in sales using a strategic approach so you are spending resources effectively. Those resources are time, people, and money.
Remember before any strategy can be applied to your business you first must identify where you are and where you want to go. The strategic approach is simply how you are going to get there. Sound familiar? We use this same approach to strategically planning for an increase in sales. The top two challenges we find in businesses are 1) the sales forecast is unreasonable and 2) the sales forecast is simply a percent increase from the previous year’s sales.
SWOT Analysis is a time-tested tool that allows you to focus your efforts around the Strengths, Weaknesses, Opportunities, and Threats facing your business. The Strengths and Weaknesses are internal while the Opportunity and Threats are external to the business.
A SWOT Analysis can be used for any planning exercise. It is simply how you plan to achieve the goals you have set. Use this approach to plan your sales strategy by defining activities that support sales goals. Identifying the SWOT in your business will help you accentuate the positive and overcome the negative activities that drive sales. This is a tough one for small businesses because many owners do not have a sales background.
SWOT- Strengths, Weaknesses, Opportunities, and Threats
Strengths: Think about the attributes of your business that will help you achieve your objective, increase in sales. Questions to consider:
What do you do well?
What products/ services are you known for?
Are those products/ services profitable?
Where are you most profitable in your business?
What are your competitive strengths?
What products/services are you ready to take to market that will increase your competitive strength?
What do you do better than your competitors?
Weaknesses: Think about the attributes of your business that could hurt your progress in achieving your objective, increase in sales. Questions to consider:
In what areas do you need to improve?
What resources do you lack to improve these areas?
What products/ services of your business are not very profitable?
What would prevent you from taking new products/services to market?
What costs you time and/or money?
What are your competitive weaknesses?
What do your competitors do better than you?
Opportunities: Think about the external conditions that will help you achieve your objective, increase in sales. Questions to consider:
What are the sales goals you are currently working towards?
How can you do more for your existing customers or clients?
How can you use technology to enhance your sales process?
Are there new target audiences you have the potential to reach?
Are there related products and services that provide an opportunity for your business?
Threats: Think about the external conditions that could damage your business’s performance or prevent you from achieving your objective, increase in sales. Questions to consider:
What obstacles do you face?
What are the strengths of your biggest competitors?
What are your competitors doing that you’re not?
What’s going on in the economy?
What’s going on in the industry?
How can you adjust to respond to what is going on in the economy or the industry?
It isn’t enough to just “record a number” in the sales forecast and hope that you will meet those goals next year. You must look at the activities for each sales strategy used for the products/services that you offer. Using a one size fits all approach for a sales strategy doesn’t work. Define activities from each area that will enhance or improve your sales goals. Don’t over complicate this. Use the KISS design principle; keep it simple, stupid. When we fail to meet sales goals, we must adjust COGS and expenses to protect profit.
Consider the following when establishing sales and activities and strategies:
Resources available- time, people, and money
What changes do you need in the resources you have?
Are you staffed appropiately?
Does your maketing budget support what you are trying to accomplish?
Have you identified your sales KPI’s and the frequency and methog for tracking?
Have you established criteria to use when deciding when to abort a sales strategy?
Make sales a priority for everyone! Each person on staff has a role in sales; from the close of the sale to the delivery of the product/service.
Planning for next year should be an exciting exercise! Look at what you have done well this year and capitalize on it. Take a close look at what you did not do well and ask yourself what changes need to happen in order to turn any negatives into positives. This can be a fun and motivating process if you don’t try to do it all in one sitting! Be realistic in sales goals – but challenge yourself and your staff. You will be amazed how much more focused you will be in 2016 with a solid plan.
“Julia, what do I need to do to plan for profit in 2016?”
So here we are – the last week in October! Has it been a good year? Have you met the goals you set for 2015? What did you do well? What could you do better? These are the questions you need to start asking yourself in order to prepare for 2016.
We have talked about business planning versus a business plan before so this post will focus on what you need to do between now and December 31st so you will be ready for kickoff on January 1st. It will be here faster than you know – Ready or not!
My advice to clients is to complete planning for the New Year by Thanksgiving. This will allow you to enjoy the holidays and know exactly what you want to accomplish in the New Year before the end of the current year. Yes, I am about to tell you to plan your planning!
The whole process can be broken into 6 steps.
Schedule a date
Project Cost of Goods Sold
Set KPI’s and monitoring frequency
I don’t recommend trying to complete a plan in one sitting! You need time to walk away and think or brainstorm. Think of things you want to accomplish next year, products and/or services you would like to add, how you can streamline areas of the business, what goals for growth you can set, or even when you plan to take a vacation.
Step One- Get Started
The first step to putting your 2016 plan together is to make a date with yourself to gather the information that you will need. It’s that easy! So, stop reading and go mark some time on your calendar for next week. You probably need about an hour just to gather information. That is it for the first step…that wasn’t hard was it?
Step Two- Gather Information
Gather the following and put it in a folder called “Planning for 2016”:
2015 actual monthly revenue totals
2015 actual monthly cost of goods sold totals
2015 actual monthly expense totals
List of any capital purchases you plan to make in 2016
List of any projects you intend to tackle in 2016
List of marketing and advertising activities you have done for 2015, noting what worked and what didn’t
List of any new products or services you plan to kick off in 2016
List any products or services you plan to discontinue due to low margins
Set dates on your calendar for steps three – six. You should break these up into several days. That is planning your plan!
Step Three- Project Sales
The best place to start projecting sales for 2016 is to review what sales were in 2015. Look at each month taking into account any unusual positive or negative spikes in sales. What were the reasons for the spikes? Were they controllable? Define what a reasonable increase in sales would be. Record these projections by month in a spreadsheet. Use excel if your financial software does not allow you to budget different amounts each month.
Things to consider when making these projections:
How many profit centers do you have (categories you receive revenue from)?
Are there any new products and/or services you plan to offer?
What profit center will they be assigned to?
How many and at what cost will you sell each?
Projection totals overall should be based on how many of each product or service you offer, how many you will sell, and what you charge per sale. You may have multiple products / services assigned to one profit center.
Identify any products or services that should be discontinued or any changes that should be made to increase sales.
How will maketing and advertising activites you plan effect sales?
Step Four- COGS (Cost of Goods Sold)
The COGS should be based on a percentage of sales for control and planning purposes. For any profit center that has a COGS account attached to it you can use the percentage of sales for 2015 as a guide. Remember, to get this percentage you divide the total cost by the total revenue for that specific product or services. For example; Total food purchase is divided by the total food sales to give you the percentage of cost of goods sold. So, if total food sales were $100,000 and you spent $33,000 on food purchases, your COGS would be .33 or 33%. Do this for each COGS account. Now you can use this percentage to forecast 2016. For example; If you project sales to increase to 150,000 and you forecast a 33% GOGS, you would budget $49,500 in food purchases.
Things to consider when making these projections:
Do you have appropiate COGS acccounts set up?
Did 2015 reveal the percentage of sales that met your goals for the year?
What changes do you need to make in purchasing?
Are there changes you need to make in pricing to cover cost?
Do the total COGS leave room for profit and expense requirements?
Are there any capital purchases or planned actions that will reduce COGS?
Now this step should be a breeze. Remember the difference between fixed and variable expenses. Items like rent are fixed. You may have an increase in rent per your signed lease but the month to month amount should be the same. Fixed expenses do not change with sales volume. In most businesses, the bulk of the expenses are fixed. Variable costs are those that can fluctuate depending on the amount of sales per month. Examples of variable costs are administration staff wages, commissions, or credit card fees. The more widgets you make/sell, the higher the variable cost can be. Use the same approach as above for line item variable expenses.
Step Six- KPI’s (Key Performance Indicators)
One of the most important steps in completing the financial portion of your plan is identifying what your KPI’s are, how you will monitor them, and the frequency of measurement. You can’t manage what you can’t measure!
Labor costs are the number one challenge for most companies and a great KPI. Monitoring labor cost month to month will assist you in meeting the year end goal. Let’s say your budget is a 43% labor cost. If you are face to face with a 51% labor cost one month you can monitor this expense closely the following month(s) to bring your year to date cost back in line. A labor KPI may also alert you to other things that may be going on like uncontrolled overtime, inaccurate time keeping rerecords, and even theft. Things may happen from time to time to drive labor cost up; however, monitoring labor cost as a KPI on a monthly basis will keep you in a healthy financial position.
The financial portion of business planning is what seems to be the most challenging for folks, especially the first year. Once you have projected a budget, tracked actuals, and recorded variances for a complete year, you will find this step the most rewarding. This is why I suggest you start with the forecasted budget, which is simply a projection of total sales, cost of goods, and expenses per month for the year. This is our tool to manage by the numbers……numbers are a powerful measurement of success!
Next time we will review strategic planning to support your forecasted budget. I will focus on a strategic approach to increasing revenue and how planning can be the best tool for increasing sales!
“Julia, I have been working hard all year, however, the bottom line is not where I want it to be!”
So here we are – mid October! By now you should have closed your third quarter. Are you where you want to be? Is your focus on having your “touchdown” by December 31st?
All is not lost if your bottom line is looking weak or you are entering a slow 4th quarter. Many small and medium sized companies have not reached their breakeven point yet and will not until mid-November or early December. Keep in mind that once you have reached your breakeven point – daily revenue turns into 100% profit because all expenses for the year have been met by total revenue! So, “IT AIN’T OVER TILL IT’S OVER” and it is not over yet!!
This is the time of year when business owners have to focus on controlling expenses by paying close attention to the financial reports. Brush the dust off the planning documents you did earlier in the year and see if you have done what you said you would do. If you are falling short, get to it! Keep your staff motivated and involved in reaching the goals you set early on. Sound hard? Just remember you have been waiting all year to get to this place. If you have been managing by the numbers there should be no surprises closing the 3rd quarter.
Don’t Throw in the Towel Yet! All businesses have peak and slow periods. When you master the idea of managing by the numbers you will see the slow periods become less stressful and allow you to continue to focus on your overall profit goals.
If you are approaching a peak business period, make sure you are continuing to monitor all costs. But, if you are approaching a slow business period, make sure you are still continuing to monitor all costs. Notice a trend to my rants! It is all about controlling costs from beginning to end!
What is Breakeven? Breakeven analysis is used to determine when your business will be able to cover all its expenses and begin to make a profit.The lowest point of profit that a company can achieve and survive is the breakeven point. A company will breakeven when the total sales equal the total expenses. A breakeven calculation is critical for any business owner to understand. It is an activity you can do every month when reviewing your financial reports.
Breakeven is a point in time when revenues and expenses meet. Revenue earned after that point in time becomes pure profit.
Determining the Breakeven Point
To determine the breakeven point you will need total revenue and total expenses for the year from either your forecast or your P&L, and the total number of working days.
Calculating the number of working days:
To calculate your working days, take a 12 month calendar. Mark off any days of the year that you will not be open and then count what is left. The days left are your working days.
Calculating the Breakeven Day:
Total Revenue / Total Number of Working Days = Daily Revenue
Total Expenses / Total Number of Working Days = Daily Expenses
Daily revenue – Daily expenses = Daily Profit.
Total Expenses / Daily Revenue = Number of Working Days to Breakeven!
Starting with January 1, count the number of working days to find the actual day of the year you break even.
What does this mean for profit?
Let’s assume every day up to the breakeven point that the company makes a daily profit. Beginning the day after the breakeven point the daily revenue goes directly to profit. This is because your breakeven means you have paid all of your expenses for the entire year. Yes, daily revenue becomes profit because all expenses have been met!
It all comes down to this – The closer you can get the breakeven point to be near Jan 1st, the more profit you will make!
Breakeven-A Motivator! One of the most exciting activities we do in Beyond the Basics Boot Camp is calculating breakeven points. Just knowing the day the revenue and expense axis cross each other is extremely exciting and motivating to most business owners. We are all in business to make a profit, right? Knowing what day your hard work is approaching that touchdown is one of the best motivators! What is your motivation for 4th quarter? Is it to make it to that breakeven day or are you close and ready to focus on shaving a few days to breakeven on an earlier date? Either way – it is motivation to keep your eye on the ball!
“Julia, I am overwhelmed with the number of advertisers and marketing sales people who all offer great deals to help me attract more customers. How do I know who to “believe” or know what will work?”
If you have met me at least once you have heard me say “I don’t do law and I don’t do taxes!” I don’t do marketing either! In fact, I have been known to say that marketing is a necessary evil, which doesn’t make my marketing friends happy! The point is, without marketing, how do customers know who you are and what products and services you offer? You can be really good, even great, at what you do but if no one knows about you it is pointless to call yourself a business because you are simply supporting your hobby!
Many of our clients are overwhelmed with phone calls and emails on how to gain new customers by signing up for countless marketing opportunities. So, how do you decide what to do and how much to spend on marketing activities or campaigns? The best approach is to budget appropriately and understand what the return on your investment (ROI) will be. We cannot predict the future but there is a way to measure a return on investment for marketing activities used to obtain future customers!
What is Marketing?
Marketing is the wide range of activities involved in making sure that you’re continuing to meet the needs of your customers and getting value in return. Marketing is usually focused on one product or service. A marketing plan for one product might be very different than that for another product. Marketing activities include “inbound marketing,” such as market research to find out what your target groups of potential customers are, what their needs are, which of those needs you can meet, how or where you should meet them, etc. Inbound marketing also includes analyzing the competition, finding your market niche, and pricing your products and services. “Outbound marketing” includes promoting a product through continued advertising, promotions, public relations and sales.
Before discussing the return on marketing investments, let’s review other popular words that confuse most non-marketing folks! The most frequent words I hear clients interchange are:
Advertising – bringing a product (or service) to the attention of potential and current customers. Typically done with signs, brochures, commercials, direct mailings or e-mail messages, personal contact, etc. Find out who your target is and advertise where they hang out!
Promotion – keeps the product in the minds of the customer and helps stimulate demand for the product. Involves ongoing advertising and publicity.
Public Relations – include ongoing activities to ensure the overall company has a strong public image.
Publicity – mention in the media. Organizations usually have little control over the message in the media, at least, not as they do in advertising. Good publicity is free advertising!
Sales – cultivating prospective buyers (or leads) in a market segment; conveying the features, advantages and benefits of a product or service to the lead; and closing the sale (coming to agreement on pricing and services).
A few years ago I found a quote in “Promoting Issues and Ideas” by M. Booth and Associates, Inc. that says it perfectly:
“… if the circus is coming to town and you paint a sign saying ‘Circus Coming to the Fairground Saturday’, that’s advertising. If you put the sign on the back of an elephant and walk it into town, that’s promotion. If the elephant walks through the mayor’s flower bed, that’s publicity. And if you get the mayor to laugh about it, that’s public relations.” If the town’s citizens go the circus, you show them the many entertainment booths, explain how much fun they’ll have spending money at the booths, answer their questions and ultimately, they spend a lot at the circus, that’s sales.
Understanding the difference in the above activities is just part of the equation. The ultimate challenge is to choose how to spend your marketing dollars! Learn to know what is working and what is not!
What is a Return on Investment?
Return on investment (ROI) is a measure of the profit earned from each investment. Like the “return” you earn on your portfolio or bank account, it’s calculated as a percentage. The calculation is:
(Return – Investment) Investment
It’s typically expressed as a percentage, so multiple your results by 100.
In simple terms, marketing ROI is implementing a system of measurement to help determine or confirm that you are getting at least $1.01 back in sales for every $1.00 you spend on marketing the product or service. Marketing ROI can be applied to either an individual marketing tool like email marketing or to a campaign itself.
Applying the ROI formula to marketing:
ROI calculations for marketing campaigns can be tricky but once you master it you will begin to approach this expense category differently and more confidently. You may have many variables on both the profit side and the investment (cost) side. But understanding the formula is essential to produce the best possible results with your marketing investments.
The components for calculating marketing ROI can be different for each organization, but with solid ROI calculations, you can focus on campaigns that deliver the greatest return. For example, if one campaign generates a 15% ROI and the other 50%, where will you invest your marketing budget next time? If your marketing budget only returns 6% and the stock market returns 12%, your company can earn more profit by investing in the stock market.
Basic Marketing ROI Formulas: Which one will you use?
One basic formula uses the gross profit for units sold in the campaign and the marketing investment for the campaign:
*These expenses are typically tracked in “Sales and General Expenses” in overhead, but some companies deduct them in ROI calculations to provide a closer estimate of the true profit their marketing campaigns are generating.
Why you want to use ROI on marketing campaigns
ROI helps you justify marketing investments. In tough times, companies often slash their marketing budgets – a dangerous move since marketing is an investment to produce revenue. By focusing on ROI, you can help your company move away from the idea that marketing is a fluffy expense that can be cut when times get tough.
You measure and track the ROI of all of your marketing investments. Your campaigns deliver the highest possible return and you’re able to improve them over time. You understand the choices you make because there’s solid data to support your investments.
You calculate ROI on some investments, but because it can get complex, you don’t attempt to measure it at all times. You have a general idea of how your investments perform relative to each other, but you can’t pinpoint the exact return you’re generating. And in tough times, your budget is cut.
You don’t measure the performance of any of your investments. In fact, marketing is viewed as a cost, not an investment at all. Your company isn’t sure what works and what does not and it’s a struggle to meet goals.
Where to start
It’s a good idea to measure ROI on all of your marketing investments – after all, you’re in business to earn a profit. If your sales process is long and complex, you may choose to modify or simplify your ROI calculations, but a simple calculation is more useful than none at all.
1. Confirm your financial formulas
There are several figures you’ll need for your ROI calculations:
Cost of goods sold (COGS): The cost to physically produce a product or service.
Marketing investment: Typically you’d include just the cost of the media, not production costs or time invested by certain employees; however, in certain cases it may be better to include all of those figures.
Revenue: It can be tricky to tie revenue to a particular campaign, especially when you run a variety of campaigns and have a long sales process. This is why it is important to outline before you start a campaign and know how you will track results.
2. Establish an ROI threshold
Set an ROI goal for your entire budget and individual campaigns; set a base as well. By doing so, you gain more power over your budget. If you project that a campaign won’t hit the threshold, don’t run it; if you can’t get an ongoing campaign over the threshold, cut it and put your money elsewhere.
3. Set your marketing budget
When you have an ROI goal and annual revenue/profit goals, you can calculate the amount of money you should spend on marketing – just solve the ROI formula for the “investment” figure. You’ll be more confident that you’re spending the right amount of money to meet your goals.
4. Calculate ROI on campaigns; track and improve your results
Tracking ROI can get difficult with complex marketing campaigns, but with a commitment and good reporting processes, you can build solid measurements, even if you have to use some estimates in the process.
Use your ROI calculations to continually improve your campaigns; test new ways to raise your ROI and spend your money on the campaigns that produce the greatest return for your company.
You must have a way to measure a return on investment for marketing activities. Remember, you can’t manage what you can’t measure! Track, track, track results!
Tip- Determine what your marketing budget should be each year. Thegeneral rule of thumb for calculating your company’s ideal marketing budget is below:
*Total Revenue x 5% = budget required to maintain current awareness/visibility
*Total Revenue x 10% = budget required to grow and gain market share
There are several reasons why implementing a change doesn’t work.
It’s the wrong idea.
It’s the right idea but the wrong time
The reasons for the change are wrong
There is a lack of authenticity
Personal ambition gets in the way
People are not ready for the change
People get carried away
Conflict resolution takes too much energy.
There are multiple reasons why a making a change may not work. The reasons may appear in isolation but usually they are acting in combinations! Having information on the reasons for change is not sufficient, there is a need to understand why they occur. Get to the why!
Reasons for Resistance
People resist change because it is usually seen as
Other reasons why resistance can arise include:
Lack of trust
Misunderstanding of the purpose
Differing assessments of the situation
Previous bad experiences
Why Do Change Programs Fail?
Not all changes are successful – this is true both in life and in business. In several cases it may be due to a lack of skills:
Let’s take a closer look at these:
Lack of Analytical Skills
In change or change management – guessing won’t do. The ability to analyze operations and finance is important.
Analysis can lead to solution engineering, which is vital in a change process.
Lack of People Skills
In today’s high paced business environment it is essential that you possess clear and precise people skills. These include:
Lack of Systems Skills
This will damage the change process because lack of system skills prevent:
Understanding how the systems involved in or impacted by the change actually operate.
Ability to design new and improved systems and to critically evaluate them.
Linking the systems skills with analytical skills to develop reasoned opportunities.
Lack of Business Skills
This will damage the change process because of a lack of:
Basic understanding of how the business actually works.
Knowledge of the various interdependencies among the business functions.
Ability to communicate effectively in the main business functions
Here are some fundamental mistakes to avoid when leading and implementing a change process.
No powerful guiding group
No communication of the vision
No short term wins
Victory declared too soon
No deep rooted change in the culture
Most of these can be avoided or have their influence reduced if care is taken to acknowledge them and deal with them at the start of the change process and if vigilance is maintained for them throughout the change process.
Are You Ready for Change?
From what we have discussed, is your company ready for change? It had better be since:
Change is a fact of life
Change is required for long-term success.
Change is not optional
Change is the only constant in business, and the following factors must be recognized:
Change may be caused by internal or external factors
Resistance to change is a normal reaction
Change cannot always be planned
When change can be planned, use all available information when planning.
Communication and involvement are key elements.
Change requires a strong change leader
Recognize and overcome the known obstacles to change
Use change as a positive driver for the business.
Without taking heed of the negatives and planning for the positives to be implemented, change will be seen as a resource draining activity that is unwelcome in the organization. The ability to plan, implement and manage change successfully provides a business with a significant competitive advantage in today’s business environment.