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Sam Walton on How to Treat Employees


I’d like to share a surprising quote from the book Made in America, a sort of conversational biography of the founder and manager of Wal-Mart, Sam Walton, who said:

The larger truth that I failed to see turned out to be another of those paradoxes — like the discounter’s principle of the less you charge, the more you’ll earn.  And here it is: the more you share profits with your associates — whether it’s in salaries or incentives or bonuses or stock discounts — the more profit will accrue to the company.  Why?  Because the way management treats the associates is exactly how the associates will then treat the customers.  And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies, not in trying to drag strangers into your stores for one-time purchases based on splashy sales or expensive advertising.  Satisfied, loyal, repeat customers are at the heart of Wal-Mart’s spectacular profit margins, and those customers are loyal to us because our associates treat them better than salespeople in other stores do.  So, in the whole Wal-Mart scheme of things, the most important contact ever made is between the associate in the store and the customer.

Those words were spoken in 1992 or before.  Now 21+ years later, when you think of Wal-Mart, do you think of a role model for collaboration between corporations and employees?  I don’t.  Take, for example, this New York Times article from earlier this year, which makes a recent addition to a years-long story of Wal-Mart and wage disputes.

Walton goes on to say (back in 1992):

Theoretically, I understand the argument that unions try to make, that the associates need someone to represent them and so on.  But historically, as unions have developed in this country, they have mostly just been divisive.  They have put management on one side of the fence, employees on the other, and themselves in the middle as almost a separate business, one that depends on division between the other two camps.  And divisiveness, by breaking down direct communication, makes it harder to take care of customers, to be competitive, and to gain market share. … Anytime we have ever had real trouble, or the serious possibility of a union coming into the company, it has been because management has failed, because we have not listened to our associates, or because we have mistreated them.

It’s been about a generation since Walton spoke those words, but they seem just as applicable today.

Anyway, if you’re keeping a reading list, Made in America is an easy read that I highly recommend.

For further reading:

Check out my previous post on one way how not to treat employees.

Too Few (likable) Women at the Top

Sheryl Sandberg is the Chief Operating Officer of Facebook.  If you haven’t heard about her new book, Lean In, you’re missing out.  Her fifteen minute TED talk gives a recap.  At 7 minutes 30 seconds in she cites a Harvard Business School case study, which you can listen to her describe, or read my summary below the video.

The summary: The professor running the case distributed nearly identical text to two groups of students.  One group was led to believe the protagonist of the case was a man; the other, a woman.  Both groups agreed the protagonist was competent, but men and women of the first student group wanted to hang out with the male protagonist, whereas men and women of the second student group weren’t sure they’d want to work for the female protagonist.  To sum it all up, in Sandberg’s words, “Success and likability are positively correlated for men, and negatively correlated for women.”

See the full talk and comments here.  (If you’re interested, you should watch the full talk.)

Or buy her book.

How NOT to treat your employees


A company I’ve done some work for in the past recently lost a major bid.  The super-boss called the entire team into a conference room and said, “You lost the bid, you’re all fired.”  Some of the team had been with the company for over thirty years.  The carnage hit multiple rungs of the ladder, from some new engineers all the way up to a vice president.  All of them had been working hard right up until the meeting.

The particulars of the situation — how the message was actually conveyed, the extent to which there were equitable severance packages, the degree to which each may have failed to perform his or her duties — matter a great deal, and because I wasn’t there, I shouldn’t pass judgment.  I can say, however, that the company culture could have grown in a petri dish.  It was the worst I’ve seen of leadership in corporate America.  The folks who were let go might rightly miss their lost paycheck, but at least they get a chance at a more ethical work environment somewhere else.

When it comes right down to it, the people associated with your business are your business.  If your customers all quit, or if your employees all leave, you’ve got nothing.  The effects of this are obvious from small-time real estate, where sole proprietorships only ever sell at book value (the cost of the house), all the way up through corporate America, where “succession planning” is a big deal.

Good companies recognize this by offering training and development.  In terms of performance reviews, outside training courses, and other self-improvement perks, employees at mid-size companies like the one I mention above probably receive over $5,000 a year in improvement-related perks.  At some companies, like UTC, benefits can be far more substantial.  My favorite example is Toyota, who (although I can’t remember where I read it) didn’t lay off anyone at their US Sienna factory and instead set them in motion on a circular assembly line, honing and improving their techniques until the recession picked up enough where they were on A-work again.

Suppose GAAP required capitalizing employee training and holding it on the books as a form of goodwill.  Then when you fired someone, you’d be forced to recognize the true impact of your decision: you’d have to write down all that training.  Talk about restructuring charges.

Suddenly “you lost the bid, you’re all fired” might not seem like such a good idea.  Maybe there’s another way to make some money with that team…

How to Predict (part of) the Future

For complex projects, it’s hard to know whether you’re going to finish under budget.  The signal that you’re going over usually comes too late.  Ever tell a customer you need another $50,000?  They’ll probably say, “$50 K?  I don’t have $50 K!  Where am I going to get $50 K?!”  It’s not fun for either of you.

Fortunately, there’s a way to put a little careful thought and diligent accounting into a single picture.  It’s called “Earned Value Management.”  It’s the best graph a manager of a project will ever know.  And you can make your own in Excel.  No fancy software required.

Start by making a blank graph of dollars vs time:


You’re going to draw a couple lines on this graph.  The first line is your plan:


This represents the steps that need to be done, when you think it will happen, and what you think it will cost.  The total is cumulative over time.  Here are some example steps that would fit the graph:


The second line is your accomplishments to date (green is good):


This represents the value of what you’ve done according to the original plan.  In this case, we bought our metal (a $130 value) on February 11, two days later than we planned.  We’re behind schedule, which we can see because on February 11, our accomplishments line is below our plan line.

The third line is your cost to date (red is bad):


I like to leave the line out to reduce clutter.  This represents how much time and money it’s taken you to get where you are.  In this case, our purchaser was late two days because it’s taken much more time (and therefore labor cost) to find the metal we need.  We can see that we’ve used up more than $250 of our $328 budget.  Unless we over-estimated the remaining work, we’re going over budget.  Best of all, we could start to see this back on February 9.

So that’s all there is to it.  This is something I’ve used in real life, and it’s been very helpful.

Let me know in the comments below if you want my Excel template for making your own EVMS graph!

For Further Reading

I recommend this article on Wikipedia for a more in-depth view and some great graphs.  The first three sections (stop at history) are as far as you need to read for the next level.

Hiring Employees, Bosses, and Customers: Part Two of Three, Bosses


Previously I talked about hiring employees and gave an overview of a process that I’ve used to good effect in the past.  The perspective there was straightforward: you’re a supervisor or a hiring supervisor and you’re bringing on someone to be a direct report, either for yourself or someone else.

Hiring bosses involves two perspectives, and depending on which best describes your situation you’ll look at it differently.

When you’re choosing who to work for

I think this must be rather frequently overlooked, especially by inexperienced employees.  Having a job offer with compensation and responsibilities that match your goals doesn’t mean you should rush to take the job.  Your relationship with your boss is going to be critical, and you want to know a little bit about him or her before you sign on.  Even if you have to take the job, you should prepare yourself for what’s coming.

There are three things I’d suggest you think about:

  1. A lot of bosses got to be supervisors and managers by doing good work as individual contributors (sales, engineering, operations, etc.).  This leaves them woefully unprepared to manage people.  I think Warren Buffet said it, but I can’t find the  source just now: it’s as if the final career step for an award-winning cellist was to become the business manager for Carnegie Hall.  If your boss-to-be has never been coached, you’ll have to suck it up for a while even if you have the conversational grace to coach them yourself.
  2. Noam Wasserman wrote in “The Founder’s Dilemmas” that some people (he was writing specifically about entrepreneurs) go into business for wealth, but others go into it for control.  It’s important to get a sense for what your boss is after.  Behaviors in different situations can vary dramatically.  I’ve seen middle-ranking managers make money-losing decisions because it expanded their influence within the organization.  And I’ve seen others forego promotions in order to keep doing what’s best for the company.   It’s usually easier to work in groups where one or fewer are motivated primarily by control.
  3. You’re going to spend a lot of your time doing what your boss says.  I’m going to quote Buffett again here, because he’s right on:  “I learned to go into business only with people whom I like, trust, and admire.”  (“Warren Buffett on Business,” edited by Richard Connors, Wiley, 2010, p. 144). This is important in business partners, and if you can find it in a boss, you’ll learn a lot and enjoy the process.

In all these, try to talk to coworkers and the boss to determine their work  history and how things have been going.


When you’re choosing a leader for your organization

The above considerations still apply, but you can be a bit more prescriptive when you’re in control of the hiring process.  I like Jack Welch’s “Four E’s and a P” approach (Jack Welch, “Winning”):

  1. high personal Energy
  2. the ability to Energize others
  3. having Edge (making decisions quickly)
  4. Executing (getting results)
  5. Passion

When they’re in charge of that group or company you’re hiring for, they’re going to be almost overwhelmed by demands on their time.  Many of these will be important and urgent, and they need to be able to go, go, go.  In their attitude, they have to be like FDR, chin up and positive, in order to inspire other people that the obstacles they all see can be overcome.  And they can’t waste the organization’s time by sitting on decisions that need to be made.

Welch found that some managers that had these things still didn’t get good results.  Maybe that’s because they work on the wrong stuff, or because they’re perpetual optimists, or because they’re very quickly making all the wrong calls.  So he bundled up all that into the fourth “E,” execution, and looked at candidates’ track records.

“Passion” means they’re personally motivated to take your business and do something more with it than you asked or had imagined.  This last is critical, especially for startups, turn-around situations, or other times of crisis.

If you can find all this in a would-be boss, you’re doing good for yourself and for your organization.


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