- Player: John Nicolakakis
- Company: Roman’s Pizza
- Turnover: Over R1 billion in system-wide sales
- Accolades: Young Business Leader of the Year – Southern Africa, 2015 All Africa Business Leaders Awards (AABLA) Brand Builder of the Year 2016, Franchise Association of South Africa (FASA) 2016 Awards Nominated for EY 2015, EY Entrepreneur of the Year, Exceptional category
- Visit: romanspizza.co.za
The first Roman’s Pizza franchise John Nicolakakis ever sold was to a complete fraud. He was 23 years old, and it was his first deal since joining his father in the family business.
“I was so excited when he handed over the cheque for his joining fee. I didn’t realise it was the last cash we’d see from him. He couldn’t even cover his set-up costs. We had to step up and help him get the business up and running. We basically loaned him the money to buy a franchise from us. And we had to do it. The brand was more important than my mistake.”
Nicolakakis’ father hadn’t liked the prospective franchisee, but he’d gone through with the deal anyway, against his father’s wishes. It was a lesson the young businessmen took to heart.
“On the one hand, I was 23 with a 30-year-old’s experience. My dad had spent my whole life talking about the restaurant business. He always explained every decision he made to me, and would ask me questions. ‘John, this is a good site. Can you tell me why?’ Sites, restaurants, customers, I was always learning, which is why by the time I agreed to join him in the business, I had a solid concept of a good site — but I was very short on people skills.
“From that moment on I became far more discerning, and a lot less eager. The agreement that my father and I had when I joined the business was that we would embark on an aggressive expansion plan. That was my condition. My father had grown a strong brand with 28 stores and a distribution centre, but he loved the restaurant business and serving customers. That’s what made him happy.
“I wanted to grow a brand that would be a household name. But I was realising that there’s a right way to grow, and a wrong way. Every decision I made from then on had to take the sustainability of the brand into consideration.”
Arthur Nicolakakis’ goal was to run the busiest pizzeria in South Africa. Serving people was his first love, and the fact that many of the 25 stores in 2001 were franchised was simply because Arthur had agreed to let a few friends purchase franchises if they could find a good site. “That was my dad,” says Nicolakakis.
“His philosophy was ‘If I know you, trust you and you have my number, we can chat about a franchise.’ That’s as formal as the process got. When I joined the business in 2001 there was an entire filing cabinet filled with little slips of paper: Franchise enquiries that my dad’s secretary didn’t know what to do with, so they all ended up in drawers.”
But Nicolakakis Senior must have understood his son and what it would take for him to join the business, because even though it’s never been discussed between the two, he had quietly laid the foundations that Nicolakakis would need to build the business into a formidable brand.
“The distribution centre was started when the brand had less than 25 stores and didn’t need it yet,” says Nicolakakis. “But it’s much easier putting these systems in place when you’re small than when you have hundreds of stores. My dad had incredible foresight for what the business could become, even though that wasn’t his personal goal. These foundations allowed us to scale and keep costs down for our franchisees. Back-end infrastructure is crucial if you plan to grow. You have to start small, but think big. What will need to be in place as you hit certain milestones? The better your infrastructure, the smoother and more successful your growth.
“In hindsight it’s possible my dad played me,” laughs Nicolakakis.
“I had always been adamant that I was going to be a stock trader in New York, and yet here was this business with all the right foundations, ready for someone with completely different growth objectives to take over and run with.”
Nicolakakis had some conditions though. First, all profits had to be reinvested into the company. Profits couldn’t be saved so that one day the family could move back to Greece, as so many of Arthur’s contemporaries were doing. “If we did this, we were going to grow aggressively,” says Nicolakakis. “That was my main objective.”
Arthur was ecstatic to have his son on board, and happy to let Nicolakakis run with any growth plans he had. He was supportive, but he didn’t interfere with his son’s strategic decisions. This was why the young franchisor had a lot of hard lessons ahead of him.
Missteps are common for all businesses, particularly in start-up and growth phases. What’s important is not that they happen, but that lessons are learnt and systems, processes and strategies are adjusted as a result.
This is an area where Nicolakakis has been particularly vigilant. “Mistakes happen. I know, I’ve made my fair share of them,” he laughs. “But I’ve had one goal since joining the business, and it was only strengthened when I took over the helm from my father in 2004. I want to be the biggest pizza brand in South Africa. Nothing less will do.”
To achieve this ambitious goal, Nicolakakis has focused on three core areas of the business: The business model, marketing, and franchisee selection and support.
1. A business model that delivers on key objectives
When Nicolakakis joined the business, Roman’s Pizza was a strong brand in a localised area of Pretoria. His first step was to sell franchises — he wanted to grow the company’s footprint as quickly as possible, increasing its reach on a national level. But he also knew that while the pizza business had been a fledgling industry when his dad had first bought a struggling pizzeria in 1993, the landscape was far more competitive in 2001.
If Roman’s Pizza was going to be the largest pizza brand in the country, he needed to give consumers a compelling reason to choose Roman’s over a myriad of other pizza brands and take-away options.
That reason was a high quality product at a low price point. Now he just had to figure out how to deliver on that brand promise. High quality at a high price point is easy. Similarly, it’s relatively simple to price low if you aren’t concerned about quality and service delivery. High quality, low price is much harder to achieve — and maintain.
The distribution centre was an important first step that was already in place. It allowed the brand to purchase in bulk, and pass those savings onto its franchisees. It also meant Nicolakakis could control the quality of the product. All calamata olives, anchovies and pizza sauce are imported from Europe. Seeman’s is the company’s meat supplier, and only the highest quality mozzarella is used.
To offset the costs of quality, Nicolakakis needed some smart cost-cutting strategies. The first involved the operation of the head-office and distribution centre. This is a lean, mean operation. Offices are functional and above the distribution centre. There’s no plush furniture or frivolous expenses.
“We strip out all unnecessary expenses. The aim is to keep costs down, and other than our ingredients, every buying decision is made through that lens.”
Next, Nicolakakis turned his attention to the customer experience. With the exception of independent brands, most of his competitors — from pizza takeaways to burgers or fish — offer a free delivery service.
“This was the area in which we could really make a difference on our bottom line,” he says. “I don’t believe the South African market suits a delivery model. Urban areas are congested with traffic, and suburban living means that a delivery radius needs to be quite large. It’s expensive to offer; even if it’s marketed as ‘free,’ that service has to be built into the product’s price point. It’s also difficult to deliver a hot product that’s as good when it reaches its destination as it was when it left the store, and there will always be incorrect orders.”
As a result, Nicolakakis made the bold decision to be a call and collect business. It was flying in the face of traditional customer expectations, but the price point he was able to offer as a result also broke conventional norms. As a Roman’s customer you can purchase a high-quality pizza for less money than anywhere else — as long as you’re happy to pick up your order yourself.
As it turned out, most people are perfectly willing to do just that, and the model has been a runaway success. “We are the leaders in terms of value, and this is why — we can’t afford to deliver without raising our prices to cover those costs. Yes, we lose out on people who will only order deliveries. That’s okay, we’ve chosen our model and it’s working.”
2. Aggressive marketing and discounting tactics
Roman’s Pizza operates some of the busiest pizzerias in South Africa, and aggressive marketing campaigns and crazy discounting deals play a large role in that success.
“We’re in unprecedented times,” says Nicolakakis. “For the first time in 15 years the consumer sector is facing a proper downturn. How will we weather this recession? The consumer is stretched beyond belief, which means as a brand you need to give a reason why people should buy from you.
“It’s accepted that quality is important, but in this sector, so is price. Our stock-standard menu pricing is 10% to 35% cheaper than our competitors, so we’re already better value for money. Our whole model is built on discounted prices. But it’s important to remind consumers who you are. Never stop marketing, particularly in a crowded market. We’ve learnt that you need to get a little bit crazy.” Roman’s Pizza markets 365 days a year, but ad campaigns switch between generic campaigns and discount campaigns.
“We see an effect with our generic branding campaigns, and they’re important, but the real response comes from our promotional campaigns. The problem is that there’s a fine line you need to walk when you’re offering discounts to that degree.
“Gross profits (GP) collapse when we do this, which means volumes have to make up the losses. A GP of 40% instead of 50% is fine as long as volumes make up the difference, and then you carry your increased customer base through a generic marketing period. It’s a balance and it takes constant work.”
To make the large-scale discounting campaigns work, head office takes on the risk. “If the growth in turnover does not ensure that the franchisee maintains the rand value of his GP, we will subsidise the loss through a rebate or royalty discounts. We’re a debt free family-owned business, which means we have no partners and shareholders to report in to. It gives us an enormous amount of freedom.”
Well-marketed discount campaigns mean a sudden influx of customers, and this needs to be carefully managed as well.
“We’ve been doing it for so long we now know how to prepare for our discount campaigns,” says Nicolakakis. “In the early days we had some specials where the wheels fell off, but today we’re prepared for those volumes. Our stores are built for high volume, low margins.
“Our first above-the-line advertising was a R750 000-radio campaign. A few months later we followed up with our first TV campaign, offering incredible discounts. Volumes skyrocketed by 40%. It was chaos. As the distributor, it’s up to us to ensure that our franchisees receive the stock they need. We needed extra trucks to deliver the volumes. It was all hands on deck, working around the clock.
“The trick with discounting is to drive the volumes, and then be able to deliver. In-store the franchisees and their staff need to be equipped to handle high volumes, but our support is crucial. It’s a team effort.”
3. Finding and supporting the right franchisees
Nicolakakis’s growth strategy has always been a franchise model. Currently the brand has 25 company-owned stores, 30 joint ventures and 140 franchised stores.
As so much of the brand’s success rests with its franchisees, the company has also fine-tuned its franchisee selection process since Nicolakakis’ early (and over-eager) mistakes.
“Our first step is to verify financial records and vet all financial criteria,” says Nicolakakis. “We learnt the hard way that you can’t just take someone’s word at face value. We conduct personal interviews and do psychometric testing as well.” As a general rule, Roman’s Pizza franchisees should be owner-operators, and before any documents are signed or money exchanges hands, each prospective franchisee spends one full week in a store, from open to close.
According to Nicolakakis, many prospective franchisees drop out of the process at this point. “This business is a lifestyle choice. You either love it, or it’s not for you. But it’s important to know which before we embark on a relationship together. Protecting the brand is far more important than selling another franchise. We want our franchisees to love what they do and what Roman’s Pizza stands for.”
Given how seriously Nicolakakis takes service delivery, it’s an important distinction. Franchisee cell phone numbers must be prominently displayed in-store, and customers must be able to contact you, no matter the day or hour. Nicolakakis’ own number is readily available for all customers as well.
“We have a lot of loyalty towards our franchisees, and we will always go the extra mile for them, which is why our first franchisees are still with us, 20 years later. But we expect excellence from them as well — and will be completely transparent if something isn’t operating according to our expectations.
“Great franchisees are irreplaceable. This is why we spend so much time vetting new candidates; it’s why we will always give first option of a new site to an existing franchisee, and it’s why we are so focused on maintaining an open and transparent relationship with our franchisees.
“Our worst store is a corporate store, our best is a JV. Corporate stores tend to trade on average. They’ll trade better than a bad franchisee — bad franchisees take shortcuts, buy inferior products, and will destroy your brand, no corporate store will ever do that — but they also lack the passion of an exceptional franchisee.
“We’ve also found that it’s incredibly important to have corporate stores from an overall business perspective. We’re able to test new procedures, systems and standards at our corporate stores before rolling them out, and it keeps our finger on the pulse of the market.
“For example, we insist that franchisees spend a minimum of 1% of sales on local marketing, but at our corporate stores we spend 2,5%. It’s our testing ground. We need to back up our theories at store level before we can expect franchisee implementation.
“We’re an aggressive brand. We’re hands on, passionate, and value personal relationships. But we’re also very straightforward. If you play ball and we make an error, we’ll do anything to fix it. But we expect the same from you.”
Throughout this expansive growth journey, Roman’s Pizza has remained a family business. “My dad is a sounding board. His experience is a vital factor in our growth. But we’re also both alpha males, and we’ve boxed over the years. We’re the two people who love this business most, and when we fight it’s truly for the business’s best interests. We might not always agree on what’s best for the business, but we know any argument is coming from a good place.”
With that degree of passion behind its name, it’s no wonder Roman’s Pizza has become a household brand.
7 Self-Made Teenager Millionaire Entrepreneurs
These teenager entrepreneurs have already made their first million and more. How did they do it and what’s their secret to success?
1. Evan of YouTube
Evan and his father Jarod started a youtube channel ‘Evantube’ to review kids’ toys. The channel was a resounding success with other kids – so much so that today it boasts just over 6 million subscribers.
Evantube brings in more than USD1.4 million a year from ad revenue generated on the channel.
How did it start? With a father-son fun project making Angry Birds Stop Animation videos, and morphed into doing reviews on toys and video games. But Jarod’s dad is aware of the responsibility of Evan’s sudden fame and hopes to teach Evan about the importance of being a good role model for others.
“Most recently, we had the opportunity to work with the Make-a-Wish Foundation, and were able to fulfill the wish of a young boy whose dream was to meet Evan and make a video with him at Legoland,” explains Jared. “It was a really incredible experience. YouTube has definitely opened many doors, and the kids have gotten to do some pretty amazing things.”
Expert Advice From Property Point On Taking Your Start-Up To The Next Level
Through Property Point, Shawn Theunissen and Desigan Chetty have worked with more than 170 businesses to help them scale. Here’s what your start-up should be focusing on, based on what they’ve learnt.
- Players: Shawn Theunissen and Desigan Chetty
- Company: Property Point
- What they do: Property Point is an enterprise development initiative created by Growthpoint Properties, and is dedicated to unlocking opportunities for SMEs operating in South Africa’s property sector.
- Launched: 2008
- Visit: propertypoint.org.za
Through Property Point, Shawn Theunissen and his team have spent ten years learning what makes entrepreneurs tick and what small business owners need to implement to become medium and large business owners. In that time, over 170 businesses have moved through the programme.
While Property Point is an enterprise development (ED) initiative, the lessons are universal. If you want to take your start-up to the next level, this is a good place to start.
Risk, reputation and relationships
“We believe that everything in business comes down to the 3Rs: Risk, Reputation and Relationships. If you understand these three factors and how they influence your business and its growth, your chances of success will increase exponentially,” says Shawn Theunissen, Executive Corporate Social Responsibility at Growthpoint Properties and founder of Property Point.
So, how do the 3Rs work, and what should business owners be doing based on them?
Risk: We can all agree that there will always be risks in business. It’s how you approach and mitigate those risks that counts, which means you first need to recognise and accept them.
“We always straddle the line between hardcore business fundamentals and the relational elements and people components of doing business,” says Shawn. “For example, one of the risks that everyone faces in South Africa is that we all make decisions based on unconscious biases. As a business owner, we need to recognise how this affects potential customers, employees, stakeholders and even ourselves as entrepreneurs.”
Reputation: Because Property Point is an ED initiative, its 170 alumni are black business owners, and so this is an area of bias that they focus on, but the rule holds true for all biases. “In the context of South Africa, small black businesses are seen as higher risk. To overcome this, black-owned businesses should focus on the reputational component of their companies. What’s the track record of the business?”
A business owner who approaches deals in this way can focus on building the value proposition of the business, outlining the capacity and capabilities of the business and its core team to deliver how the business is run, and specific service offerings.
“From a business development perspective, if you can provide a good track record, it diminishes the customer’s unconscious bias,” says Shawn. “Now the entrepreneur isn’t just being judged through one lens, but rather based on what they have done and delivered.”
Relationship: “We believe that fundamentally people do business with people,” says Shawn. “There needs to be culture match and fluency in terms of relations to make the job easier. As a general rule, the ease of doing business increases if there is a culture match.”
This relates to understanding what your client needs, how they want to do business, their user experience and customer experience. “We like to call it sharpening the pencil,” says Desigan Chetty, Property Point’s Head of Operations.
“In terms of value proposition, does your service offering focus on solving the client’s needs? Is there a culture match between you and your client? And if you realise there isn’t, can you walk away, or do you continue to focus time and energy on the wrong type of service offering to the wrong client? This isn’t learnt over- night. It takes time and small but constant adjustments to the direction you’re taking.”
In fact, Desigan advises walking away from the wrong business so that you can focus on your core competencies. “If you reach a space where you work well with a client and you’ve stuck to your core competencies, business is just going to be easier. It becomes easier for you to deliver. Sometimes entrepreneurs stretch themselves to try to provide a service to a client that’s not serving either of their needs. This strategy will never lead to growth — at least not sustainable growth.”
Instead, Desigan recommends choosing an entry point through a specific offering based on an explicit need. “Too often we see entrepreneurs whose offerings are so broad that they don’t focus,” he says. “Instead, understand what your client’s need is and address that need, even if it means that it’s only one out of your five offerings. Your likelihood of success if you go where the need is, is much higher.
“Once you get in, prove yourself through service delivery. It’s a lot easier to on-sell and cross sell once you have a foot in the door. You’re now building a relationship, learning the internal culture, how things work, what processes are followed and so on — the client’s landscape is easier to navigate. The challenge is to get in. Once you’re in, you can entrench yourself.”
Desigan and Shawn agree that this is one of the reasons why suppliers to large corporates become so entrenched. “Once you’re in, you can capitalise from other needs that may have emanated from your entry point and unlock opportunities,” says Shawn.
Building a sustainable start-up
While all start-ups are different, there are challenges most entrepreneurs share and key areas they should focus on.
Shawn and Desigan share the top five areas you should focus on.
1. Align and partner with the right people
This includes your staff, stakeholders, partners, suppliers and clients. Partnerships are the best thing to take you forward. The key is to collaborate and partner with the right people based on an alignment of objectives and culture. It’s when you don’t tick all the boxes that things don’t work out.
2. Make sure you get the basics right
Never neglect business fundamentals. Do you have the processes and systems in place to scale the business?
3. Understand your value proposition
Are you on a journey with your clients? Is your value proposition aligned to the need you’re trying to solve for your clients? Are you looking ahead of the curve — what’s the problem, what are your clients saying and are you being proactive in leveraging that relationship?
4. Unpack your value chain
If you want to diversify, understand your value chain. What is it, where are the opportunities both horizontally and vertically within your client base, and what other solutions can you offer based on your areas of expertise?
8. Don’t ignore technology
Be aware of what’s happening in the tech space and where you can use it to enable your business. Tech impacts everything, even more traditional industries. Businesses that embrace technology work smarter, faster and often at a lower cost base.
Ultimately, Desigan and Shawn believe that success often just comes down to attitude. “We have one entrepreneur in our programme who applied twice,” says Shawn. “When he was rejected, he listened to the feedback we gave him and instead of thinking we were wrong, went away, made changes and came back. He was willing to learn and open himself up to different ways of approaching things. That business has grown from R300 000 per annum to R20 million since joining us.
“Too many business owners aren’t willing to evaluate and adjust how they do things. It’s those who want to learn and embrace change and growth that excel.”
Networking, collaborating and mentoring
Property Point holds regular networking sessions called Entrepreneurship To The Point. They are open to the public and have two core aims. First, to provide entrepreneurs access to top speakers and entrepreneurs, and second, to give like-minded business owners an opportunity to network and possibly even collaborate.
“We believe in the power of collaboration and networking,” says Desigan.
“Most of our alumni become mentors themselves to new entrants to the programme. They want to share what they have learnt with other entrepreneurs, but they also know that they can learn from newer and younger entrepreneurs. The business landscape is always changing. Insights can come from anywhere and everywhere.”
The To The Point sessions are designed to help business owners widen their network, whether they are Property Point entrepreneurs or not.
To find out more, visit www.ettp.co.za
Bain & Company Give You The Data On How To Become 40% More Productive
Top performing organisations get more done by 10am on a Thursday than most companies achieve in a full week. They don’t have more talented employees than everyone else though — they’re working with the same people and tools as you. Michael Mankins unpacks what separates these businesses from everyone else, and how you can learn to be more like them.
- Player: Michael Mankins
- Company: Bain & Company
- Visit: www.bain.com/offices/johannesburg/
“Engaged employees are 45% more productive than satisfied employees. An inspired employee is 55% more productive than an engaged employee and 125% more productive than a satisfied employee.”
When Bain & Company partner, Michael Mankins evaluates businesses, he clearly distinguishes between efficiency and productivity. Efficiency is producing the same amount with less — in other words, finding and eliminating wastages. Productivity, on the other hand, is producing more with the same, which requires an increased output per unit of input and removing obstacles to productivity.
Interestingly, when businesses face challenges or tough operating conditions, the first response is always to become more efficient, instead of more productive. Restructuring and ‘rightsizing’ are the result. The problem, says Michael, is that when companies take people out, they don’t take the work out, and so the people end up coming back, along with the costs.
A better response, he says, is to identify the work that could be removed to free up time, which could then be invested in producing higher levels of output.
While businesses have become very good at tracking the productivity levels of blue-collar and manufacturing workers, tracking the productivity of knowledge workers is entirely different.
“There’s no data around white-collar productivity,” says Michael. “The problem is that the world is shifting towards knowledge work, and so, if we can’t measure productivity, output and obstacles in that space, businesses will never get the great levels of performance they’re looking for.”
Because of a complete lack of statistics in this area, when Michael and his colleague, Eric Garton, were approached by Harvard Business Review Press to write a book dealing with this issue, they had to devise a way of looking at the relative productivity of organisations comprised of white-collar workers.
The results were unexpected. “We were asked to research the difference between top performing organisations (the top quartile) compared to average organisations. I honestly thought the answers would be obvious, even if we didn’t yet have the tools to track them. I thought the best companies would have the best people. That’s 90% of the answer. Simple as that.”
As it turned out, it wasn’t that simple at all. Of the 308 organisations in the study, drawn from a global pool, the average star performer or A-player was one in seven employees. This statistic held true whether the company was in the top 25% of performers or an average performer. The difference was that the top performing businesses were 40% more productive than their counterparts — and yet their mix of talent, on average, was the same.
“There were some exceptions, but on the whole, the best in our research accomplishes as much by 10am on a Thursday as the rest do the whole week. And they continue to innovate, serve customers and execute on great ideas — all with the same percentage of A-players as other, more mediocre businesses.”
So, what were the differentiating factors?
What’s dragging your organisation down?
First, we need to understand how Michael and Eric approached their research before we can understand — and implement — their conclusions.
“We began with the notion that every company starts with the ability to produce 100 if they have a workforce that’s comprised of average talent, that’s reasonably satisfied with their job and can dedicate 100% of their time to productivity — bearing in mind that no-one can dedicate 100% of their time to productive tasks.
“The question we were focusing on was around bureaucratic procedures, complex processes and anything else that wastes time and gets in the way of people getting things done, but doesn’t lead to higher quality output or better service to customers. That’s what we call organisational drag. You start at 100 and then the organisation drags you down. The good news is that you can make up for organisational drag in three ways: First, you can make better use of everyone’s time. Second, you can manage your talent better by deploying it in smarter ways, which includes placing it in the right roles, teaming it more effectively and leading it more effectively. Third, you can unleash the discretionary energy of your workforce by engaging them more effectively.”
This trifecta — time, talent and energy — became the basis for Michael and Eric’s book, Time, Talent, Energy: Overcome Organizational Drag & Unleash Your Team’s Productive Power. “The way you manage the scarce resource of talent can make up for some, potentially even all, of what you lose to organisational drag,” says Michael.
What the research revealed: Time
“Wasted time is not an individual problem,” says Michael. “It’s an organisational problem. The symptoms include excess emails and meetings and far more reports being generated than the business needs to operate.”
These are all manifestations of an underlying pathology of organisational complexity, which is managed by senior leadership. “The best companies lose about 13% of their productive activity to organisational drag. The rest lose 25%. The most important thing is to reduce the number of unnecessary interactions that workers are having. That means meetings and ecommunications need to be relooked.”
The easiest manifestation for Michael and Eric to observe were hours committed to meetings and how much time workers spend dealing with ecommunications. What’s left-over is the time people can actually get some work done.
What they found is that the average mid-level manager works 46 hours a week. 23 hours are dedicated to meetings and another ten hours to ecommunication. That leaves 13 hours to get some work done — except that it doesn’t.
“It’s difficult to do deep work in periods of time less than 20 minutes. When we subtracted all the other distractions that happen daily, we were left with just six and a half hours each week to do work.” What’s even scarier about this statistic is the fact that meeting work and ecommunication time is increasing by 7% to 8% each year and doubles every nine years. If left unchecked, no-one will have the time to get any work done. “This is why everyone plays catch-up after hours and on weekends,” says Michael.
“One of my clients told me that his most productive meeting is at 6.30am on a Saturday, because it doesn’t involve one minute that isn’t required or one individual that doesn’t absolutely need to be there. If the same meeting was held at 2pm on a Tuesday, there’d be twice as many people, it would be twice as long and there’d probably be biscuits.”
The point is clear: We don’t treat time as the precious resource that it is, and if we did, we would radically shift our behaviour.
Start by asking what work needs to be done and then figure out the best structure to do that work. “Don’t confuse having a lean structure that does the wrong work with being effective,” says Michael. “One of the biggest problems we see is that companies are not particularly good at stopping things. Things get added incrementally, but nothing ever gets taken away. For example, we found that 62% of the reports generated by one of our clients had a producer — but no consumer. Time, attention and energy was invested in reports that no one needed and no one read.
“Ask yourself: How many initiatives have you shut down? If you made the decision that you could only do ten initiatives effectively, and each time you added an initiative, one had to be eliminated, what would your organisation look like?
“Unless you routinely clean your house, it gets cluttered. The same is true of companies. Initiatives spawn meetings, ecommunications and reports, which all lead to organisational drag.”
What the research revealed: Talent
According to Michael, the biggest element in their research that explained the 40% differential in productivity is the way that top performing organisations manage talent.
“We conducted research in 2017 that revealed the productivity difference between the best workers and average employees. Everyone knows that A-level talent can make a big difference to an organisation’s performance, but not everyone knows just how big that difference is.”
To put it in context, the top developer at Apple writes nine times more usable code than the average software developer in Silicon Valley. The best blackjack dealer at Caesars Palace in Las Vegas keeps his table playing at least five times as long as the average dealer on the Strip. The best sales associate at Nordstrom sells at least eight times as much as the average sales associate walking the floor at other department stores. The best transplant surgeon at Cleveland Clinic has a patient survival rate at least six times longer than that of the average transplant surgeon. And the best fish butcher at Le Bernadin restaurant in New York can portion as much fish in an hour as the average prep cook can manage in three hours.
It doesn’t matter what industry you investigate, A-level talent is exponentially more productive than everyone else.
This is why Michael thought that the obvious answer to why some organisations perform better than others is the mix of talented employees they’ve attracted.
“When we asked senior leaders to estimate the percentage of their workforce that they would classify as top performers or A-level talent, the average response was slightly less than 15%. And that’s despite the fact that most companies have spent vast sums of money in the so-called war for talent.”
The big difference, as Michael and Eric discovered, is how that talent is deployed. “It’s what they do with that one in seven employees that makes the biggest difference,” says Michael. “Most companies use a model called unintentional egalitarianism, which basically means that they spread star talent across all roles. The best on the other hand, are more likely to deploy intentional non-egalitarianism. They ensure that business-critical roles are held by A-level talent.”
The challenge is that approximately 5% of the roles in most companies explain 95% of a company’s ability to execute its strategy, and very few organisations articulate which roles those are — but the ones that do tend to be top performers.
“There’s an excellent historical example of this at work,” says Michael. “Between 1988 and 1994, Gap was a high-flyer in the retail sector. They performed globally on all levels — they grew faster than anyone else, were more profitable, had higher shareholder returns, and were the most admired company.
“During that time period, the organisation was led by Mickey Drexler, and his strategy was to focus on what he believed was Gap’s critical role, which was merchandising. He wanted every merchandiser to be a star. ‘No one will tell us what the colour is this year — we’re going to tell the world. We’re going to determine which styles are in and what everyone will be wearing.’
“And they did. If you want proof that Gap’s merchandisers were in fact stars during that period, you can look at today’s CEOs and COOs of the world’s largest retailers. Most of them were merchandisers at Gap during those years.”
The challenge of course is that everyone is always trying to hire stars, and yet only 15% of employees can be described as A-level talent. What can organisations do to utilise their stars wisely?
“First, move a star into a different position if they’re not in a business-critical role. To achieve this, how you define a star might have to change. Some companies hire for positions, and others hire for skills across positions. Stars, in my view, are more the latter. They can learn different skills and fill different roles.
“Second, start defining your business-critical roles. If you ask executives what percentage of their roles are business critical, most say 54%. They’re not discerning. It’s unintentional, because they don’t want to signal to their workers who aren’t in a business-critical role that they’re not as valuable to the organisation, but the reality is that people figure it out anyway, and you just end up with business-critical roles that aren’t filled by the right people, and stars in positions that anyone else could fill.”
Teams perform better than individuals
To understand how important teams are when deploying talent, Michael uses an example from the world of racing — Nascar in the US to be precise.
“Between 2008 and 2011, there was one pit crew that outperformed everyone else on the track,” he says. “A standard pit stop is 77 manoeuvres, and this crew could complete them in 12,12 seconds, which was faster than any other team. However, if you took one team member out and substituted them with an average team member, that time jumped to 23 seconds. Substitute a second team member, and it was now 45 seconds. The lesson is simple: As the percentage of star players on a team goes up, the productivity of that team goes up — and it’s not linear.”
Michael and Eric also discovered that the role leadership plays on team productivity is both measurable and exponential.
“In 2011, the National Bureau of Economic Research wanted to quantify the impact of a great boss on team productivity. They found that a great boss can increase the productivity of an average team by 11%, which is the same as adding another member to a nine-member team.
“If you take that same boss and put them in charge of an all-star team, productivity is increased by 18%, and this is with a team whose productivity was exponentially higher to begin with. Great bosses act as a force multiplier on the force multiplier of all-star teams.”
According to Michael and Eric’s research however, what most organisations tend to do is place a great boss with an under-performing team in the hopes of improving them, when what they should be doing is pairing great bosses with great teams.
“We did a survey that asked a simple question: When your company has a mission-critical initiative, how do you assemble the team? A: Based on whomever is available. B: Based on perceived subject matter expertise. C: We attempt to create balanced teams of A, B and C players to foster the development of the team. D: We create all-star teams and we put our best leaders in charge of them.
“We thought everyone would answer D. We were wrong. 30% of our bottom three quartiles answered B, closely followed by C, and then A. Only 8% of them answered D.
“The results were very different in our top-performing quartile though. There, 81% of respondents answered D. In other words, the 25% most productive companies in our study set were ten times more likely to assemble all-star teams with their best players than the remaining 75% of the organisations in our research.”
How talent is deployed makes a difference. “I recently had this highlighted for me through another sporting analogy. The world record for the 400-metre relay is faster than the 100-metre dash multiplied four times. How is that possible? When your role is clear and your position is clear, the handoff is seamless. Under these conditions, the best teams outperform a collection of the best individuals.” Michael does offer a word of advice though.
“Don’t fall into the trap of believing that if you do have the best talent, you don’t need to worry about anything else. I don’t believe that’s true. There are always higher levels of performance that can be achieved because there are always areas you can improve on.”
What the research reveals: Energy
According to Michael, employee engagement and inspiration is a hierarchy. “There are a set of qualifiers that have to be met just to feel satisfied in your job: You need to feel safe, have the resources you need, feel that you’re relatively unencumbered in getting your job done every day and that you’re rewarded fairly.
“To be engaged, these all need to meet, and more. Now you also need to feel part of a team, that you’re learning on the job, that you’re having an impact and that you have a level of autonomy.”
Inspiration takes this a step further. “Inspired employees either have a personal mission that is so aligned with the company’s mission that they’re inspired to come to work every day, or the leadership of their immediate supervisors is incredibly inspiring, or both.”
Why does this matter? Because how satisfied, engaged or inspired your employees are has a real, tangible impact on productivity. “Engaged employees are 45% more productive than satisfied employees. An inspired employee is 55% more productive than an engaged employee and 125% more productive than a satisfied employee.”
The really scary statistic is that 66% of all employees are only satisfied or even dissatisfied with their jobs, 21% are engaged, and only 13% are inspired. “These statistics are pretty constant, although top organisations can improve their engaged and inspired ratios,” says Michael. “What we found amongst those companies that did have more engaged and inspired workers was that they all tended to believe that inspiration can be taught. It’s not innate. You can become an inspirational leader with the right attitude and training.
“For example, one organisation surveys its employees every six months and specifically asks workers to rate how inspirational their leaders are. If you’re rated uninspiring by your team for the first time, you’re given training. If, six months later, you’re still rated uninspiring, you’re given access to a coach to evaluate why the tools aren’t working for you.
“By the third, two questions are asked: Should you be a leader, and should you be at the company? Many productive employees can be effective individual contributors but aren’t necessarily leaders, or aren’t happy as leaders, and would best serve the organisation in a different role. The second question is tougher, but even more important. If an inspired employee is 55% more productive than an engaged employee and 125% more than a satisfied employee, an uninspiring leader is a tax on the performance of the company, and there has to be a consequence to that. We have to constantly enrich our workforce and leaders need to be included in that.”
The problem is that very few organisations are asking how inspiring their leaders are. “If you don’t know if your employees are engaged or if your leadership is inspiring, you can’t address it,” he says. “You can take a satisfied employee and make them engaged, but you can’t inspire someone if they aren’t first engaged — that’s the hierarchy. Employee engagement is largely achieved through the way you manage teams. You have to give people the sense that they are having an impact, working within a team and learning. Get that right, and you’ll unlock a powerful level of discretionary energy that will drive productivity in your organisation.”
Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power, by Michael Mankins and Eric Garton, focuses on the scarcest resource companies possess — talent — and how it can be utilised to drive productivity.
Visit www.timetalentenergy.com to find out more.
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