John Walters of 1-2-1 Business Consulting brings us insight on the topic of "pay for performance." This excellent compensation model is something many business owners can readily implement.
Many small business owners reject Pay for Performance Plans without a proper understanding of the potential benefits of introducing such mechanisms to their organization, and before conducting a proper evaluation. This could be for a variety of reasons, but the fact is that Pay for Performance Plans, when correctly designed, can be very attractive for a number of reasons:
1) Pay for Performance Plans are usually self-funding, meaning that you only pay out based on increased profitability.
2) They enable you to pay out more to your employees without adding to the on-going cost base of the organization. This can be very attractive, particularly when facing uncertain times.
3) Pay for Performance can be used to direct attention to improving a specific area of the business.
4) Since Pay for Performance systems usually result in some form of incentive compensation, employees tend to be more focused on results when it directly impacts their compensation.
5) Some Pay for Performance programs; for example Gainsharing, enable you to directly involve and unite groups of employees towards a common goal. Improved profitability may result from increased sales, waste reduction and or cost reductions from reduced spending.
Taking a closer look at gain sharing programs. Let’s assume that you want to drive improvement through increased sales, waste elimination and by cutting back on administrative spending.
What is Gainsharing and how does a Gainsharing Program work?
Let’s assume that a business is interested in increasing sales, eliminating waste and reducing their administrative spending.
1.Increase sales revenue. we will assume that a 10% improvement equates to $10,000 in increased profitability.
2.Waste Elimination: we will assume that a 2% scrap reduction equates to $8000 in additional profitability.
3.Reduced Administration spending: we will assume that reduced Administrative spending flows directly to bottom line improvement and that a 10% reduction equates to $2000.
We develop a Gainsharing Plan that targets a 10% increase in sales, a 2% reduction in waste and 10% reduction in Administrative spending. We then communicate to employees that we will payout on actual results, with a 50-50 split between the company and employees.
Let’s assume the actual results are as follows: A 2% improvement in sales, a 1% reduction in scrap and 5% reduction in administrative spending. i.e. $2000 +$4000 + $2000. This will result in an aggregate pool of $8000, meaning that $4000 will be paid out to employees and $4000 is retained by the Company.
The advantage of the above is that the program is that it is 100% financed out of the improved results, with both the employees and the company benefiting. More important, you have raised employees’s compensation without increasing the on-going overhead structure of the organization. Furthermore, you were able to create a team environment and get collaboration between Sales, Operations and Administration employees.
Here is a guideline that may help you when developing and implementing a Gainsharing Program for your organization:
1.Make sure that you are clear about your objectives and that you can translate them into quantifiable, measurable targets. One of the biggest mistakes made in the implementation of Gainsharing Programs is the company’s failure to accurately measure results. This can lead to a company losing money with a Gainsharing Program because the company compensates employees for “artificial gains”
2.Make sure that you really understand the savings that will flow from the program and that they are sufficient to ensure that the program is capable of funding itself.
3.Be clear about the rules of the program. Who is eligible to participate in the program, when results will be communicated and the schedule for making payments to the employees.
4.Be transparent about how you will calculate the savings and the % that will be distributed to employees.
5.Communicate openly and often. When employees have an opportunity to receive compensation, it is amazing how they become much more interested in the success of the business.
Should you need additional support to design and execute a Gainsharing Program for your organization, then please contact “121” directly. You may also find more compensation strategies to enhance stretch budgets and build performance in OED's Online Community, and via special events located at OEDGlobal.org.
Fostering the entrepreneurial spirit!
Monday, January 31, 2011
Friday, January 28, 2011
Good as Gold!
posted today by Bill Donnelly of Bac2Profit
Make quality a priority in every facet of your business.
Most of us know the book Think and Grow Rich by Napoleon Hill. In the first chapter of this classic, Hill tells the story of R.U. Darby who gives up on his dream of becoming rich by prospecting for gold, a mere three feet before striking a major gold vein. In most businesses, we give up in the “last three feet” before making major strides in building in quality as a competitive advantage and a profit center. Let’s examine 5 simple ways to go the final three feet in making quality a priority.
1. First, give your products or services a checkup.
Are you giving customers the best you can at the price point you set? Is there anything you can do to increase the quality without incurring a higher cost — for example, get a new vendor for parts or product or spend more time and effort on one aspect of a job versus another? A good example here is rework, is it better to deal with the rework as it occurs or is time better spent finding what is causing the rework? Is the best service you can provide the customer turning the job over to another company or associate more qualified than you to meet a unique demand? Have you even thought about a check up?
2. Set quality standards of for your work.
In order to improve the quality in your business, you have to start by defining what you consider to be quality work. You also need to carefully consider comments and feedback from your customers. How valuable is your product or service in the eyes of your customer? What outcomes do your customers expect from each job or sale, service provided, or product’s performance? Put your standards in writing and post them where every employee can see them. If measures of your quality standards can be gathered with reasonable effort, do it! Post the weekly or monthly results and trends in a visible place. If you can foster positive competition with separate measurement by group or individual, by all means try it!
3. Involve everyone.
To make quality a priority throughout your business, you need to involve everyone who works with or for you. The people that build and sell the products and provide the services to your customers usually have valuable ideas on how to improve quality. Employees who are part of the plan are more likely to feel a sense of ownership and pride and to think up and more quickly implement new ideas for improvement. Plan, manage, lead, and staff to achieve better quality results and great customer experiences.
4. Show your commitment to quality.
Showing employees that ownership and management are personally committed to quality sets the tone and provides a setting in which they can achieve their best. Train your work force to perform well and to make improvements. Praise and reward employees when their actions lead to quality results and customer satisfaction.
5. Set quality standards for every operation of your business.
Focus on “getting things done right” the first time to eliminate customer problems as well as waste of product or time. Identify operational practices that impede quality. Your processes should provide proper support for your business, of course, but they should also facilitate quick response to customers’ needs. “Standard procedures” should not stand in the way of customer satisfaction. Analyze your systems and work with staff to make improvements that allow your quality to shine through in everything you do.
Sometimes our greatest achievements and successes are closer than we think. In today’s global landscape, it is our responsibility to continue the quest for quality no matter how hard the challenge. With each step, you will grow stronger, more skilled and more successful. The Darbys quit because of the struggle and lack of commitment to finding the opportunity. Find your opportunity, struggle to be the best.
Make quality a priority in every facet of your business.
Most of us know the book Think and Grow Rich by Napoleon Hill. In the first chapter of this classic, Hill tells the story of R.U. Darby who gives up on his dream of becoming rich by prospecting for gold, a mere three feet before striking a major gold vein. In most businesses, we give up in the “last three feet” before making major strides in building in quality as a competitive advantage and a profit center. Let’s examine 5 simple ways to go the final three feet in making quality a priority.
1. First, give your products or services a checkup.
Are you giving customers the best you can at the price point you set? Is there anything you can do to increase the quality without incurring a higher cost — for example, get a new vendor for parts or product or spend more time and effort on one aspect of a job versus another? A good example here is rework, is it better to deal with the rework as it occurs or is time better spent finding what is causing the rework? Is the best service you can provide the customer turning the job over to another company or associate more qualified than you to meet a unique demand? Have you even thought about a check up?
2. Set quality standards of for your work.
In order to improve the quality in your business, you have to start by defining what you consider to be quality work. You also need to carefully consider comments and feedback from your customers. How valuable is your product or service in the eyes of your customer? What outcomes do your customers expect from each job or sale, service provided, or product’s performance? Put your standards in writing and post them where every employee can see them. If measures of your quality standards can be gathered with reasonable effort, do it! Post the weekly or monthly results and trends in a visible place. If you can foster positive competition with separate measurement by group or individual, by all means try it!
3. Involve everyone.
To make quality a priority throughout your business, you need to involve everyone who works with or for you. The people that build and sell the products and provide the services to your customers usually have valuable ideas on how to improve quality. Employees who are part of the plan are more likely to feel a sense of ownership and pride and to think up and more quickly implement new ideas for improvement. Plan, manage, lead, and staff to achieve better quality results and great customer experiences.
4. Show your commitment to quality.
Showing employees that ownership and management are personally committed to quality sets the tone and provides a setting in which they can achieve their best. Train your work force to perform well and to make improvements. Praise and reward employees when their actions lead to quality results and customer satisfaction.
5. Set quality standards for every operation of your business.
Focus on “getting things done right” the first time to eliminate customer problems as well as waste of product or time. Identify operational practices that impede quality. Your processes should provide proper support for your business, of course, but they should also facilitate quick response to customers’ needs. “Standard procedures” should not stand in the way of customer satisfaction. Analyze your systems and work with staff to make improvements that allow your quality to shine through in everything you do.
Sometimes our greatest achievements and successes are closer than we think. In today’s global landscape, it is our responsibility to continue the quest for quality no matter how hard the challenge. With each step, you will grow stronger, more skilled and more successful. The Darbys quit because of the struggle and lack of commitment to finding the opportunity. Find your opportunity, struggle to be the best.
Wednesday, January 26, 2011
Business Interruption
John Walters of 1-2-1 Business Consulting makes us stop and think about what would happen if our businesses, well, stopped. John outlines some excellent challenges to think through in advance and provides guidance to implement a plan BEFORE it is needed.
Have you ever stopped to think about how you would be able to operate your business in the event of an unscheduled break in critical services and or resources, and how you would be financially impacted by such an outage? The outage could be a few hours, days, weeks or months and could be related to a loss of power, machine failure, employee absence, and the list goes on and on.
For sure most businesses rely heavily on utilities, whether it be for direct production and or heating or lighting. Do you have an interruptible power supply? Have you a back up generator, and, if so, when did you last test it to ensure that it is in good working order?
Utilities, is a fairly obvious cause of business interruption, but there are a number of other areas that may be less obvious.
How about a computer hardware failure? With the advent of technology, most businesses use computers to schedule and to invoice. How long could you operate your business without computers?
What about the loss of data? Larger businesses have disaster recovery plans, and often business interruption insurance, but even they tend to suffer in the short term. There’s usually a delay to activate the service and several days before “normal” business is resumed.
What about Key employees that are unexpectedly absent from the business? This is of particular concern to the small business.
The point is that there are many potential causes for an outage, and that you are unable to protect yourself without first understanding the risk, the likelihood of the occurrence and completing an thorough evaluation of risk /reward. When you equip yourselves with the facts, you are then able to make an informed decision as to what, if any, steps you will take to mitigate the risk.
In summary, you should use the following guidelines to prepare a business interruption strategy for your business.
1.Make a list of the potential causes of an outage for your business.
2.Identify how long you could operate safely without said resources.
3.Identify the likely occurrence of the interruption to the service (High, Medium Low)
4.Indentify the financial impact of the outage. It may be helpful to think about this as a time range that you will be without resources.
5.List the steps that you could take to mitigate the risk of the outage.
6.Identify the cost of the risk mitigation.
7.Determine what steps, if any, you will take.
With the above information you are in a position to develop your business continuity strategy. Should you require any additional support then please take contact with 121 directly. They have the experience and are there for you.
For more planning steps before disaster (or just run of the mill annoyances) occur, check in with John, and visit OED's Online Community.
Have you ever stopped to think about how you would be able to operate your business in the event of an unscheduled break in critical services and or resources, and how you would be financially impacted by such an outage? The outage could be a few hours, days, weeks or months and could be related to a loss of power, machine failure, employee absence, and the list goes on and on.
For sure most businesses rely heavily on utilities, whether it be for direct production and or heating or lighting. Do you have an interruptible power supply? Have you a back up generator, and, if so, when did you last test it to ensure that it is in good working order?
Utilities, is a fairly obvious cause of business interruption, but there are a number of other areas that may be less obvious.
How about a computer hardware failure? With the advent of technology, most businesses use computers to schedule and to invoice. How long could you operate your business without computers?
What about the loss of data? Larger businesses have disaster recovery plans, and often business interruption insurance, but even they tend to suffer in the short term. There’s usually a delay to activate the service and several days before “normal” business is resumed.
What about Key employees that are unexpectedly absent from the business? This is of particular concern to the small business.
The point is that there are many potential causes for an outage, and that you are unable to protect yourself without first understanding the risk, the likelihood of the occurrence and completing an thorough evaluation of risk /reward. When you equip yourselves with the facts, you are then able to make an informed decision as to what, if any, steps you will take to mitigate the risk.
In summary, you should use the following guidelines to prepare a business interruption strategy for your business.
1.Make a list of the potential causes of an outage for your business.
2.Identify how long you could operate safely without said resources.
3.Identify the likely occurrence of the interruption to the service (High, Medium Low)
4.Indentify the financial impact of the outage. It may be helpful to think about this as a time range that you will be without resources.
5.List the steps that you could take to mitigate the risk of the outage.
6.Identify the cost of the risk mitigation.
7.Determine what steps, if any, you will take.
With the above information you are in a position to develop your business continuity strategy. Should you require any additional support then please take contact with 121 directly. They have the experience and are there for you.
For more planning steps before disaster (or just run of the mill annoyances) occur, check in with John, and visit OED's Online Community.
Tuesday, January 25, 2011
Where Small Business is Booming Now... Surprise Surprise
Did you see this story today?
By Marc Frank
CIENFUEGOS, Cuba
Tue Jan 25, 2011 9:51am EST
CIENFUEGOS, Cuba (Reuters) - Communist Cuba's recent easing of red tape for private enterprise is improving services for tourists in provincial towns on the Caribbean island, with hundreds of new restaurants and lodgings opening up.
"Mom-and-pop" small businesses have begun to boom in Cuban cities and towns following reforms by President Raul Castro to boost private enterprise and lay off state workers to improve efficiency in one of the world's last Soviet-style economies.
In the quaint south coast port city of Cienfuegos, the number of private restaurants has jumped from two to 16 in just a few months. There are now more than 100 home-based 'bed and breakfast' lodgings, local entrepreneurs say.
That is a welcome relief for visitors to the town, nestled between the foothills of the Escambray mountains and a palm-lined bay. Both foreigners and locals have grumbled in the past about the poor food and accommodation on offer in the Cuban interior, away from the capital and main tourist resorts.
Cienfuegos' 400,000 residents and wandering tourists, who last year struggled to find refreshment in the often sweltering city, can now choose between dozens of home-based snack outlets serving pizza, pastries, coffee and soft drinks.
"Competition means you have to improve your service and that's a good thing, everyone gains, you, the tourists and the country," said Orestes Toledo, owner of the Perla Hostal, a two-room bed and breakfast.
"Now even the state will have to shape up," he added, sipping coffee on his roof-top terrace overlooking the bay.
Cuban revolutionary leader Fidel Castro nationalized all small businesses in 1968 and only after the collapse of longtime benefactor the Soviet Union in 1991 begrudgingly allowed their return under tight regulation.
For the complete story, see: Reuters.com
We wish immense to success to these entrepreneurs!
By Marc Frank
CIENFUEGOS, Cuba
Tue Jan 25, 2011 9:51am EST
CIENFUEGOS, Cuba (Reuters) - Communist Cuba's recent easing of red tape for private enterprise is improving services for tourists in provincial towns on the Caribbean island, with hundreds of new restaurants and lodgings opening up.
"Mom-and-pop" small businesses have begun to boom in Cuban cities and towns following reforms by President Raul Castro to boost private enterprise and lay off state workers to improve efficiency in one of the world's last Soviet-style economies.
In the quaint south coast port city of Cienfuegos, the number of private restaurants has jumped from two to 16 in just a few months. There are now more than 100 home-based 'bed and breakfast' lodgings, local entrepreneurs say.
That is a welcome relief for visitors to the town, nestled between the foothills of the Escambray mountains and a palm-lined bay. Both foreigners and locals have grumbled in the past about the poor food and accommodation on offer in the Cuban interior, away from the capital and main tourist resorts.
Cienfuegos' 400,000 residents and wandering tourists, who last year struggled to find refreshment in the often sweltering city, can now choose between dozens of home-based snack outlets serving pizza, pastries, coffee and soft drinks.
"Competition means you have to improve your service and that's a good thing, everyone gains, you, the tourists and the country," said Orestes Toledo, owner of the Perla Hostal, a two-room bed and breakfast.
"Now even the state will have to shape up," he added, sipping coffee on his roof-top terrace overlooking the bay.
Cuban revolutionary leader Fidel Castro nationalized all small businesses in 1968 and only after the collapse of longtime benefactor the Soviet Union in 1991 begrudgingly allowed their return under tight regulation.
For the complete story, see: Reuters.com
We wish immense to success to these entrepreneurs!
Thursday, January 20, 2011
For the Young Entrepreneur
Young entrepreneurs oftne face different hurdles than their older counterparts. On the flip side, they often do not have many of the anxieties and career habits of their more established counterparts starting businesses.
Here are some great reads for all entrepreneurs~ but particularly those who are 30 or under entrepreneurs (or the ones who would like to support them, hint hint).
Check out The Business Insider's post in their War Room section!
Here are some great reads for all entrepreneurs~ but particularly those who are 30 or under entrepreneurs (or the ones who would like to support them, hint hint).
Check out The Business Insider's post in their War Room section!
Tuesday, January 18, 2011
Are you your business/brand?
Much has been made of Steve Jobs and how closely tied he is to the Apple brand. While Apple is a wildly sucessful business, long removed from the world of small business, it is one of the largest examples of owner-brand linking to the detriment of a company.
In past years, when Jobs has stepped back, the business has suffered. Most recently, his health stuggles have rattled investors while the company has been in the middle of highly successful launches. In fact, arguably one of the world's most famous transplant recipients, he has shrouded health concerns enciting gossip and everything but false obits on Twitter. So what happens now, now that he has circulated a memo to employees indicating another medical leave?
While our prayers are with Steve Jobs for a speedy recovery, we also ask: How wise is it be BE your business's brand? And what of your backers, or in the case of many small businesses, family members who depend upon the business's health should you choose this path and something happen to yours?
For more advice on this topic, checkout Jeff Lee's Business Builder Series Session including Succession Planning for Family Business.
In past years, when Jobs has stepped back, the business has suffered. Most recently, his health stuggles have rattled investors while the company has been in the middle of highly successful launches. In fact, arguably one of the world's most famous transplant recipients, he has shrouded health concerns enciting gossip and everything but false obits on Twitter. So what happens now, now that he has circulated a memo to employees indicating another medical leave?
While our prayers are with Steve Jobs for a speedy recovery, we also ask: How wise is it be BE your business's brand? And what of your backers, or in the case of many small businesses, family members who depend upon the business's health should you choose this path and something happen to yours?
For more advice on this topic, checkout Jeff Lee's Business Builder Series Session including Succession Planning for Family Business.
Monday, January 17, 2011
WHY SMALL BUSINESSES SHOULD OUTSOURCE THINGS THAT ARE NOT THEIR CORE COMPETENCY TO AN EXPERT – REASON FOUR
Resources Not Available Internally
Many small business owners do not have access all the required skill sets needed to manage a company properly. Outsourcing is a practical alternative to building those needed resources from the ground up. Outsourcing is also sensible when these skills are need only on a part time basis.
When business owners hire full time to fulfill such needs, they often find employees are under challenged with the tasks that are given to them to fill unproductive time. Consequently turnover is high. Or employees with lesser skill sets are hired and are expected to accomplish tasks that are beyond their training and experience, leaving the business open to risk, poor customer service and frustration for all involved.
Thanks to Next Level for this series of compelling reasons why it makes sense for small businesses to outsource during recession and beyond. For more great tips, check out Next Level's blog, site or FB page.. Find the pros you need and list your own business also on the OED Community.
Many small business owners do not have access all the required skill sets needed to manage a company properly. Outsourcing is a practical alternative to building those needed resources from the ground up. Outsourcing is also sensible when these skills are need only on a part time basis.
When business owners hire full time to fulfill such needs, they often find employees are under challenged with the tasks that are given to them to fill unproductive time. Consequently turnover is high. Or employees with lesser skill sets are hired and are expected to accomplish tasks that are beyond their training and experience, leaving the business open to risk, poor customer service and frustration for all involved.
Thanks to Next Level for this series of compelling reasons why it makes sense for small businesses to outsource during recession and beyond. For more great tips, check out Next Level's blog, site or FB page.. Find the pros you need and list your own business also on the OED Community.
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