This is a guest post by my good friend and colleague, Robert Wendover. Bob is the Director of the Center for Generational Studies and the award-winning author of Figure It Out! Making Smart Decisions in a Dumbed-Down World. I highly recommend this book!
Go ahead, I dare you. Ask a random person within your firm or organization, “How does this place make money?” Chances are, they will muddle through some general explanation about money coming in and services or products going out. Ask them to give you an estimate of overall profit margin and you’ll probably get a blank stare.
Here’s the problem; that stare costs you money every single day.
Owners and managers seem to have an aversion to telling employees about the firm’s business model as if it is some deep, dark secret. Heaven-forbid, the thinking goes, that the ordinary worker should figure out how much money the organization earns in a given period. The truth is, anyone with a passing familiarity with business costs and revenues can approximate your margins on the back of an envelope. But here’s the thing . . . if you don’t share this knowledge with your people, they’ll conclude you don’t want them to know. Then they won’t care.
Who cares about the waste that could be recycled? Management must know what it’s doing.
Who cares about that rule that doesn’t make sense on the front line? Management must be on top of it.
Who cares about whether we can shorten production time? I’m being paid to work, not think. (Someone actually said that to me one time.)
The big picture is the context that helps us all make better decisions. It’s the costs, the relationships, the processes, the daily challenges, and the overall vision. It’s all the stuff you consider when making choices that have consequences. Share those details with your people and they’ll start making better decisions and they’ll start thinking like those in charge.
Here’s how Ray, the owner and manager of a retail clothing store in Southern California, teaches his people to think. Periodically, Ray will gather his employees together and explain one facet or another of how the store operates. In one case, he placed a $40 pair of jeans before them and asked them to estimate the profit margin.
Their guess was that Ray makes about $20 on each pair sold.
“No.” said Ray, “That’s how much I pay for them. After paying your wages, advertising, rent and overhead, my margin is about 10%, or $4 per pair.” He explained that if he puts the jeans on sale for a 10% discount and sells 100 pair over a weekend, he won’t make a single dollar. He says the only reason he puts the jeans on sale is to draw people into the store hoping they will also buy items that are not marked down so he can make a profit. Ray then explains to his employees that if they extend this kind of discount to their friends and other customers after the sale concludes, they are essentially giving away the jeans. He then adds, “When things don’t sell for full price, it hurts all of us. When you let a pair walk out the store, I take away the money I use for employee raises, perks, and/or bonuses, and if it happens frequently, I have no choice but to start cutting hours and letting people go.”
For some employees, this is the first time anyone has ever peeled back the curtain to show them the brutal realities of retailing. And even if Ray is only able to get through to a few of his people each time they meet, he knows that this information will help them begin to think about ways to make sales, cut costs, save money, and make suggestions that will add to the bottom line, not detract from it. In essence, Ray’s employees are being taught to use their brains rather than reacting like the mindless robotic automatons often found in other retail establishments.
ON POINT – Some of your employees don’t think things through because they haven’t been taught how to think things through. Others don’t feel they’ve been given permission to think for themselves and simply have to follow orders and policies.
So rather than feed them the answers to everything, take a page from Ray and teach them how to figure it out. Then watch your people –and your profits – grow to new heights.
