Minding My Own Business

Leadership does matter

September 25, 2006

The importance of developing a team of first-rate managers and supervisors has never been more important. Whether you are a converter or supplier, an owner or senior manager, your company is perhaps the most significant investment in your life. I'm not merely referring to financial investment, although for many this is true. What I'm pointing out is that to be successful in business today, you need to make investments not only of money but of time and effort, as well as the personal investment of putting your happiness, communal stature and professional prestige on the line.

So regardless of whether or not you are a shareholder or profit-sharing participant, your employment is your de facto investment in the future of your company. And like the more traditional financial investments with which most of us are familiar, there are several critical objectives that drive the return on this investment.

First, you look at the company's performance, which can be measured in a myriad of ways. Certainly, you are interested in the financial performance of the business, beginning with profitability and cash flows to returns on investment and capital.

But you should also pay close attention to the operational performance of the company, and by that I refer to the non-financial aspects of the day-to-day running of the business. Factors such as the quality of products and services, customer satisfaction, employee retention and satisfaction, as well as relationships with the community at large, are all important elements in gauging the company's performance.

A second objective is growth, because it is the rarest of companies that can succeed in the long term without consistent growth. Growth itself takes many forms. It can be growth of sales or market share. It can be an expansion of capabilities or expansion into new industries and markets. It can be physical growth such as the construction of or relocation to larger facilities, as well as an increase in the number of employees. But most of all, what we want to keep focused upon is growth of profits, because size can be purchased, and top line growth for its own sake is usually ill fated.

All of this performance and growth is geared towards the third and most important objective of all, and that is an escalation in the value of the business. For public companies, the value of the business is defined by the market capitalization, a real-time assessment in the eyes of the investing public. However, for privately held companies, the value of the business is not a formula, and no matter what you may hear from business brokers and investment bankers, is not simply a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). Value is based on the perception of an informed potential buyer, and defined by the price that the buyer is willing to pay for the company. When there is just a single buyer in the picture, the value is obviously lower than if multiple buyers are pursuing the company, when the supply and demand curves take over. In general, growth companies have higher valuation than similarly sized static companies, even when they have lower earnings. This is due to the perception that the company's growth curve will continue, ultimately achieving considerably higher profits. And it is the likelihood of higher profits that truly drives valuations.

Please note that even if you own or work for a company that has no immediate interest in selling, you should not for a single minute make the mistake of thinking that building value doesn't matter. Value matters to your customers, who want to see a growing and thriving vendor. Value matters to your employees, who likewise want to feel secure in their jobs. And value matters to those with financial stakes in the business, including investors, shareholders, heirs, and banks and other lending institutions.

It is these three fundamental business objectives - performance, growth and value - that underline the importance of developing a strong team of front line supervisors, managers and leaders.

Why? Because the complexity of business in this age renders micromanagement not only obsolete but detrimental to the performance of the company. In today's business environment, a single individual just cannot be the best at everything. And for those who think they can, how do they expect to be everywhere at all times? (You may be able to manage time, but you sure can't make it stand still!) When customers, vendors or employees have questions, a solid organization has a management structure that has the responsibility to know the answers.

In addition, we can't ignore today's competitive marketplace, where the importance of differentiation demands specialization. Specialization, by definition, requires the kind of departmental and functional focus that only a properly structured and well managed organizational machine can deliver. From the top down, managers must be empowered with leadership responsibilities that encourage them to develop the kind of in-depth expertise that drives forward progress. When effectively implemented, this corporate attitude fosters multiple perspectives steeped in intellectual honesty and creative input.

Developing outstanding leadership within a company is never an accident. The process of building a structure of effective managers is one of the most critical functions of the chief executive, and from General Electric to Microsoft, is one of the key traits that distinguish truly great organizations.

Of course, the key to leadership development is delegation and responsibility. As difficult as it may be, we need to let go of certain responsibilities, and - this is key - tolerate and even encourage managers to do things their way. It will be different from your way, but different is not necessarily wrong. In baseball parlance, to get a runner into scoring position from first base, some managers give the steal sign, others bunt, and still others just swing away. Each method can work, and each can fail. Your focus must be on execution, for it is execution that delivers performance.

If you are a micromanager, force yourself into other areas so that you aren't even aware that the decisions are even needed! You need to give them rope - and not use it to strangle them when they screw up. Because they will screw up, and those screw-ups will invariably cost you money. But encouraging them to experience decision making with its consequences - both positive and negative - is critical to their development of the necessary skills. To reap the benefits of good managers, you have to invest, and that investment if often letting them learn from their mistakes. You must develop the stomach for seeing your chosen few make mistakes, albeit within reason.

A second important element is continuing education. As described above, it is critical for the well being of your company to have your managers develop expertise, and quite often this requires acquiring skills and knowledge from outside the company. This is not just an investment in dollars, but in time. You need to force them into the marketplace to explore the industry, where they can learn from vendors, competitors and customers. Sure it's hard to lose key production supervision for days at a time, but if you don't make education a priority, you will quickly find your all-star team of managers out of touch and ineffective.

Thirdly, you need to provide visibility for your leadership, not just within your organization, but to customers and vendors as well. The face of your company to its employees, customers and vendors should be its hands-on leadership - not ownership.

In a nutshell, you need to develop leadership, and effective leadership begins with execution. Executors are the gold standard, and their development is where every forward-thinking business should devote its resources. A company with a well-balanced lineup of executors in positions of leadership and management will achieve exceptional performance, is poised for profitable growth - and will see its value perceived at the highest levels across all spectrums.

Elisha Tropper is the former president of Prestige Label Co., headquartered in Burgaw, NC, USA.