In today’s changing business climate, small and medium businesses face a tremendous uphill battle to simply stay in business, but through the same perseverance, innovation, and hard work that created these organizations, these companies can thrive instead of stagnate.
According to Darwin’s Origin of Species, it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one able best to adapt and adjust to the changing environment in which it finds itself.
– Leon C. Megginson, Civilization Past and Present, 1963
Last week, I wrote about the role of Effective Leadership in change management, which I highly recommend as a beginning introduction into this topic, however this post will be primarily about what companies can do to adapt and change with the new world. The goal is not just to survive, but to improve in such a way that makes the organization stronger for the future.
So Why Change?
One of the best part of operating in a predominately free-market economy is that we have the ability to operate, innovate, and change whenever and however we want (within the bounds of legal structures, of course). However, the problem is that unless there is an incentive to change, usually there is none. To generate a force for change, a capitalist economy normally requires:
- Customer wants/needs, or
- Other motivator such as increased profits or public opinion
In the absence of one of these motivators, there is no reason to institute change, even when that change could benefit the business over the long-run.
“A smooth sea never made a skillful sailor.”
– Franklin D. Roosevelt
Touch-less Systems in Restaurants
I was having lunch the other day with Gerren Sprauve from Clean Slate Janitorial Services and we were talking about how leaders can best plan for change in their organization (among a whole litany of other leadership topics). When we went to pay the check, we noticed the waitress had a new touch-less system which was entirely more convenient than their previous system. She described the new system as more user-friendly and customer-friendly than the previous system. She also said that it was new due to the changes in how that restaurant decided to do business in the wake of the COVID-19 pandemic.
So was this system not available before the pandemic? Of course not! If there is a customer/employee convenience improvement and the potential for process flow improvement, there is room for potential profit increases. For the sake or argument, lets say that particular restaurant’s profit margin pre-pandemic was 10% (for comparison sake, the average profit margin in the restaurant industry is approximately 3-5%), therefore this particular restaurant is already doing very well in comparison to their competition. So if things are going great, why look to improve? The leaders who have the strategic planning know-how to foresee and plan for meaningful change are the leaders who are and continue to be market leaders in our economy. At this point, we will never know what implementing that small change to the restaurant prior to the pandemic would do, but all signs point to at least increasing that 10% profit margin.
Changes To The Business Environment
In the last few months, we have seen countless companies close their doors entirely and furlough their employees, or how I like to put it “give up.” Now, I know that with the pandemic there was very real reasons to close some businesses so that safety measures could be implemented, social distancing learned, and the healthcare system to ramp up. Predominately, these businesses were in the service industry that has significant person-to-person interactions, potentially leading to a greater spread of the virus. However, “essential” businesses such as your local grocery or hardware stores were able to add barriers between checkers and customers, add touch-less systems, and other safety measures that minimizes the potential spread of the virus seemingly overnight. One of the largest employers in Florida, Walt Disney World, furloughed between 43,000 and 70,000 (depending on whose statistics you believe) of their 80,000 employees in Central Florida on April 19th. These employees are still not back to 100% employment at this point, so why the delay? The below suggestions can be applied to most, if not all businesses to combat the massive business disruption that has occurred during the pandemic.
1. Changing Your Operation
Previously, I spoke about the technological change that happened at the restaurant I was eating at, however touch-less technology is just the beginning of the opportunities that can be implemented. Similar to touch-less systems, many companies have begun to upgrade their point of sale (POS) to better track their inventory and integrate these systems with customer relationship management software (CRM). Modern day POS systems are more than just a checkout stand, they serve as a time clock for employees, track inventory across all stores, automatically generate purchase orders for vendors to restock, and provide customer interaction/loyalty programs. Integrate these systems with CRM software and a business can completely change how they interact with their customers. These systems can automatically generate the kinds of paperwork or emails that before would have increased the administrative overhead for the business.
Additional to new hardware and software process improvements can make very large impacts to operations, lowering costs and increasing employee engagement into your company. Two process flow improvement programs, 5S and Lean Six Sigma, focus on improving the flow of business operations and are customer-driven improvement programs. The aim of both is to increase customer satisfaction through lowering the company throughput time, while decreasing costs for the company. 5S is designed to create clean, organized workplaces, where visual queues signal need within the company’s work flow. Lean Six Sigma (LSS) is a process of improving quality of product or service with the customer’s needs in mind. LSS was originally created for the manufacturing sector, however the principles can be applied to any manner of industries due to its customer-centered principles.
Bottom line: A business that wants to leverage new technology and principles, stands to decrease their costs during a time that many businesses are deciding to cut jobs rather than operational waste.
2. Changing Your Customer
Over the last few months, I have heard many times that companies have not been able to continue operations because their “customer” shut their doors or is no longer buying. I have heard this from companies that normally do business with the hospitality industry and theme parks, as well as from companies that conduct business with niche customers. Regardless of who your customer was six months ago, chances are, a business can apply their business with little to no changes to another customer(s). This is not a complete and utter shut down of all business, and individual consumers are still spending, so why assume that a business cannot adjust their operation and their customers.
The perfect example of what could have been is Walt Disney World and Disney Cruise Lines, that understandably could not continue operations in the classic sense. However, it represents only one arm of a much larger organization that is known worldwide as one of the best marketing and merchandising companies. As I mentioned earlier, WDW furloughed a vast majority of their workers due to the pandemic, which probably was completely unavoidable, however could have benefited from a different course of action. Merchandise department could have changed operations from a brick-and-mortar approach to an online and mobile approach (think mobile carts in parks or ice cream trucks specifically for Disney merchandise and items). Engineering could have completed projects nearly impossible to complete when guests are at the resort/park. Pyrotechnics crews could have executed a 4th of July show and media crews could have televised the show on ABC or other channels owned by Disney Company in advance of the WDW parks re-opening. All of these options would have fed into keeping more employees on staff, but also would have assisted in the marketing and ongoing operations of the company. I was very impressed with some of the digital presentations that Disney did over the shutdown including the Disney Sing-Along and other content created through taping from celebrity homes. However, the small number of these items that were created were not marketed very well, and frankly it was too few to hype the company’s services that were still in operation (thank you Disney+ for the sanity you have provided over the last few months).
Bottom Line: Creatively leveraging company resources to reach new customers can help minimize the impact to the company due to the pandemic.
3. Build Loyalty
One of the buzz words in business is “loyalty”. Brand loyalty, company loyalty, customer loyalty programs, etc. The fact of the matter is that when a company’s proverbial back is against the wall, is the time that it shows its true colors to its customers. The most successful brands before the pandemic are the most successful companies during it (for the most part anyway). What assists with ensuring steady business is a great brand loyalty. Companies like Coke, Amazon, Apple, and Nike are some of the most recognizable and desired brands in the world. However, even local companies can leverage a great brand loyalty and build a strong customer interaction. In my area, some of the local businesses exercise great brand loyalty and have started to expand their operations to bite into their more corporate competitors. These companies include Yellow Dog Eats, Axum Coffee, and Crooked Can Brewery. Focusing on building a brand may seem like something that big companies with big marketing budgets do, but small businesses stand to make great success in building brand and customer loyalty.
Customer loyalty programs are not new to businesses, however for some reason there are a significant number of companies that still do not utilize some form of loyalty program. The classic example is the “buy X number, get Y purchase free”, however loyalty programs can be simply a newsletter email that is sent to customers to let them know what is going on with the company. A loyalty program at its core should be designed with its core customers in mind and will generate additional sales for the company. What form that program takes should be unique to the relationship between that company and its customers.
I am a firm believer in referral programs (nearly every client that I have has heard my pitch on this type of loyalty program) and their ability to generate sales at an extremely low cost for the company. This is a very good example of a non-traditional customer loyalty program that takes one customer and creates two that are purchasing the product or service of the company. This conversion at the “cost” of a discount to the first customer, which granted does lower the profit margin for the company temporarily, however leads to a greater customer base for significantly lower cost than traditional marketing and loyalty programs. Additionally, in today’s social media age, a company can greatly increase their customer base through leveraging social media in a similar way for customers to “refer” a business to one of their friends. If you don’t believe me, I recommend reading the power of social connections in social media marketing.
The last use of loyalty in business is employee loyalty, which I use to describe the two-way relationship of loyalty between a company and an employee. During my time in Corporate America, I have seen the term “employee loyalty” thrown around along with comments like “employee retention” and “employee turnover”. However, the truth of the matter is, loyalty is a two-way street and just like trust, it is earned, not given. A common question from interviewers during this time is “what have you done during this time to sharpen your resume?” However, HR and hiring managers better prepare for the follow-up question “how has your company treated its employees during this challenging time?”
I was speaking with one of my friends in Seattle recently and he told me what his company had done to reduce costs during the pandemic, needless to say, I was not super impressed. As the director of sales, he spent maybe four hours a week pre-pandemic in his big corner office located in a large office building. This building now is resident to four of the 50+ normal employees with the bulk of employees working from home. The company that was previously very against telecommuting has seen incredible increases in productivity and employee happiness despite their large-cost office building in downtown Seattle sitting relatively empty. Initially, this company built significant loyalty by not furloughing or laying off employees when much of the competition was, however all of that changed when the company furloughed much of its workforce for TWO WEEKS! Many readers who know me, know that I am no accountant, but how much money did the company truly save by a two week furlough? My guess is such a minuscule amount of money to not outweigh the feeling of betrayal by its employees. Meanwhile, their office building sits empty and continues to accrue rent payments in one of the highest commercial rent cities in the nation. Seems like a gross misallocation of company resources, especially when considering the company will suffer from employees starting to look to the competition.
This is the perfect time for companies to build lasting loyalty to their employees by ensuring that they are treated like the people they are and not the accounting line item costs. The case I made to some individuals is the idea of a furlough versus a reduction in hours. The Federal Government CARES act assisted individuals impacted by COVID-19 with $600 per week. The impact could be loss of job, but also included reduction of hours for most states. Eligibility for the $600 is state-specific, so I will not be getting into the specific details, however take it on faith that a significant number of companies could have reduced hours, keep employees on the payroll and allowed them to be eligible for the extra $600 per week. For the companies that were completely unable to continue operations (I’m looking at you tourism and hospitality industry), this would have been a significant way to increase company loyalty while still reducing company costs without a complete furlough, especially of low-wage employees.
Bottom Line: No matter if we are talking about customers or employees, loyalty is the key to lasting success within an organization.
4. The Cost of a Furlough
Unfortunately, we do not have accurate numbers of how many furloughed employees will return to their original jobs. The only large scale furloughs of the past were federal government related and there are externalities that make return to work more likely than in the commercial sector such as government pensions. According to a recent Washington Post poll, 77% of workers who lost their job believe they will get that job back. Beyond the highly optimistic statistic that provides, HR managers should be dissecting that number to mean that 23% don’t expect to return and more likely will be seeking other positions outside of their original company. That does not seem too large, except when you put real numbers to that statistic. Let us take the WDW furlough as an example, where approximately 43,000 to 70,000 employees were furloughed. Using the 23% statistic, that means between 9,900 to 16,000 employees will not be expecting to return to the Most Magical Place On Earth. According to Glassdoor, the average cost of companies to hire an employee is $4000 and 24 days, which then makes the cost to return to normal operation between $39,000,000 and $64,400,400. Add these hiring costs to the unavoidable cost of doing business, and the loss of revenue due to closing your doors and you can start to see the true cost of these decisions.
UPDATE 9/10/20: Amazon releases a survey of unemployed workers
According to an Amazon survey, 53% of COVID-19 impacted workers were forced to seek a new job. Adjusting the numbers above for a 53% non-return rate nets a furlough cost to Walt Disney World in the ballpark of $91,160,000 and $148,400,000. Remember that these numbers are estimates of how much it will cost to get Disney back to pre-COVID-19 staffing levels though. Based on new data, it is not likely Disney will be able to accomplish this feat any time in the next year and a half.
5. Societal Changes
Lastly, I wanted to touch on non-pandemic related changes to our society. In recent months, I have seen a significant number of organizations changing their logo, shutting down brands, or signing celebrities to docuseries, all in the name of showing their “support” for the currently changing demands from consumers. On the surface, this “shows” their support for diversity and inclusion, but does it really? Inclusion does not happen at the marketing level, it happens at the point of sale with customers and at the way companies lead their employees. Many companies preach diversity, but do not actually practice it. Let me be clear, my definition of diversity is the Merriam-Webster definition “the condition of having or being composed of differing elements” and inclusion being “the act of including : the state of being included.” Put together in the workplace, businesses should take input from all manner of ideas, thoughts, people, etc. relying on the content of what they provide to the company rather than the color of their skin, what god(s) they pray to, their gender, or who they love. All too often companies focus on these big, public gestures rather than integrating these ideas into the day-to-day of their organization.
Today, there are countless websites that allow current and former employees to rate companies. It would be foolish to believe that with all of these resources available to the public, that companies can afford to ignore them. A company that is consistently rated online as a diverse and inclusive organization by both employees and customers will naturally develop a brand that includes these trades. Don’t get me wrong, the items listed above are very important as signals to consumers and employees of a company’s culture, however without the use of these ideas in their operation, it is a meaningless stunt that leads to the exact opposite effect.
Bottom Line: Diversity and inclusion are very important in today’s climate to both employees and customers, companies who achieve this in the way they operate will reap the benefits of increased employee happiness/retention and increased customer demand.
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