. 6
( 8)


products appealing to a broad market succeeds almost automatically.

When new ideas emerge, help employees do preliminary research by
considering these questions, especially about competition:

• Is this product one that could be sold easily along with other
products we currently sell?

• Does it have a large market potential?

• Would this product be costly to produce?

• Does it have direct competition? Could you produce a superior

• How did this idea originate? From an existing product? From a
gap in the market? From an unresolved customer need?

• Does the origin of the idea say anything about other new products
you might consider?

Successful products also come from looking at what™s hot in your indus-
try or at what your competitors do better than you do. This requires
keeping tabs on your competitors. Stay on the mailing lists for competi-
tors™ products and read trade journals with an eye to developments that
signal new needs in your marketplace.

It™s important to pursue new products even if your current lines sell well.
The best kind of product development extends the interest in your prod-
ucts to new audiences while retaining the old.

Your marketing and sales departments should welcome new products
because they offer something new to talk about to customers who may
182 Build Long-Term Growth

have bought existing products for years. They can rekindle interest in
your entire product line.

As technology develops, it becomes more and more difficult to stay on
the cutting edge in any given industry. Managers must make decisions
about where their technical strengths lie, invest there, and purchase
other knowledge. How you define what you do should be clearly tied in
with your company™s core competency. Your core competency is the thing
that you do best. It is the strongest of your strengths. In my company™s
case, it was taking complex data and translating it into something simple
to understand and simple to use.

The Nordstrom department store™s core competency is in developing a
relationship with customers. Accordingly, they define their product as
the service their sales associates add to the value of merchandise with
this philosophy:

Offer the customer the best possible service, selection, quality, and value.

Much of product development stems from knowing your core competen-
cies. Historically, approximately 90 percent of a company™s proprietary
products or technology came from in-house development and 10 percent
outside. In the future, the breakdown may become 50“50, and the defini-
tion of “outside” may come to mean contract work, joint ventures, uni-
versity research, and consultants.

All this drives up costs, making product development not only the most
creative but perhaps the riskiest function inside the organization. Man-
agers must forecast how well new products will do and know when to
make changes. They must also know when to abandon a project.


New products are high-risk ventures, challenging you to anticipate and
minimize the risks you undertake. The following chart assesses the risk-
iness of a particular new product:

Existing Customers New Customers
Existing products Lowest risk Some risk

New products Some risk Highest risk
Growing Profitably with Marketing and Product Development

Smart managers expand their product line incrementally, moving in
small steps from product to product and market to market. As they go
along, they ask themselves key questions:

• Does the product come from a need you know your customers
have? Or do you merely think it™s a need? What™s the evidence of
that need?

• If specific customers want the new product more than others, can
you bring them into the development process? Would they pick
up some of the development costs? Would they commission the
product outright?

• Will this new product fundamentally change your internal oper-
ations? If you have inventory under tight control, will this prod-
uct interfere with that discipline?

• Are you counting on the quality of the product”not just value or
level of service”to sell the product? If one of these three factors
weighs more heavily than the others, which does?

• How many competing new products are in the market already?
If interest centers on a competitor™s product, is there room
for you?


People in product development turn an old advertising joke on them-
selves: “I know half of my development money is wasted. I just don™t
know which half.”

You minimize the loss of that money if you know the following:

• You must maintain high quality with the new product.

• Customers familiar with your existing products must find the
new one easy to use.

• Target customers must think the product has been made just for

• The product must add value to your operations without adding
much new cost.
184 Build Long-Term Growth

If product development is a central activity in your company, give it an
equal footing with marketing, sales, operations, and finance in the plan-
ning and implementation process. In this way, product development not
only supports the core business plan but also helps to define it.


Through the 1980s, Mead Corporation™s Lexis®, a computer-based
legal research service, dominated its field. Lexis was one of the
first sophisticated and widely used online services, and it made a
fortune for Mead, kicking more than $50 million a year up to cor-
porate headquarters on revenues of around $400 million. In the
midst of all this promise and money, Mead decided to milk the
Lexis subsidiary rather than cultivate it.

However, the company invested little money in developing or im-
proving Lexis services. As a result, other data providers entered
the market. By the early 1990s, Lexis was only one of many legal
online services and it lost market share fast. In 1994, Lexis was sold
and their new parent company made other strategic acquisitions of
legal content providers to help them regain some of their previous
market share. “Technology and the marketplace passed them,”
says a former Mead manager. “Senior management was content to
remain a broker of public-domain information while competitors
were developing value-added services. They paid the price.”

The lesson is that if you decide to create a new product, you must
also make the commitment to maintain it in the long term. Re-
member that a new product that succeeds won™t remain alone for
long”keep the momentum going by making it a priority.


However you monitor its effectiveness, your marketing department
should seek to remove the barriers blocking communication between you
and your customers. This usually takes the form of research and informa-
tion gathering, but whatever form it takes, it needs to focus on two objec-
tives: simplicity and sales.
Growing Profitably with Marketing and Product Development

Your marketing goals should seek to:

• Increase the number of potential customers who come into con-
tact with you.

• Increase your conversion rate, so that more of these potential cus-
tomers actually buy from you.

• Make sure they buy again.

• Use this information for product improvements and the develop-
ment of new products.

Doing marketing well depends on your ability to pursue new ideas
through the ordinary course of business. Small companies tend to fare
best here because, being small, they remain nimble. Big or small, how-
ever, companies do poorly when turf battles erupt or factions create un-
written rules that resist change. To get around this, managers create
cross-functional teams to foster product development, calling on people
from finance, marketing, and operations to work together on a single new
product. This can cause some confusion, but the creative upside is well
worth the risk.


Like operations, marketing brings a particular perspective”and particu-
lar priorities”to management. The following worksheets and exercises
will help you make the most of your opportunities:

• Assessment of competition.

• Product sales by marketing method.

• Product development checklist.

Ask yourself these questions about your marketing and product develop-
ment effort:

• What is your biggest competitive advantage?

• Do you, as a group, clearly understand your customers and
186 Build Long-Term Growth

• Do you know where you are positioned in your market?

• Are you regularly creating the next generation of new products
and services and offering them to existing customers?

• Is overall customer input (positive or negative) trending up or

• Are your products and services out of date?

• Are you losing market share?

• Is your pricing appropriate and competitive?

• How do you decide when to initiate a price change?

• Could a competitor put you out of business?

• Could a government or technology change put you out of business?

• What is the biggest threat to the long-term survival of your
Growing Profitably with Marketing and Product Development


Worksheet 6.1 provides a means to keep track of competitors™ progress in
the market and to learn from their successes and failures. Being able to
anticipate how a competitor will act or react can provide a significant ad-
vantage in planning your strategy.

Keeping track of your competition is more important as a sales tool than
as a means of setting goals for product development or service. It is im-
portant to know what they do well because your customers will know,
even if you don™t.

Making It Happen

List all the major competitors you know about. Use industry magazines,
trade association contacts, financial reports, or news services to make
sure you have a complete list. Some entrepreneurs even telephone com-
petitors directly to discreetly inquire about their sales volume, products,
and pricing policies.

Obtain their catalogs or other marketing materials, and buy their prod-
ucts or use their services. Ask friends what they like and don™t like about
the competitors™ products.

After reviewing publicly available data on competitors, prepare this de-
tailed assessment of the competition. This assessment will help identify
competitors™ strengths and weaknesses in products, quality, service, and

Reality Check

Consider these questions about your completed worksheet:

• Can you counter each competitor™s weaknesses with strengths in
your product or service? How else can you turn their weaknesses
to your advantage?

• Could they counter your weaknesses with their strengths?

• What parts of the market is your competition moving into? Moving
away from? Do these trends have any bearing on your business?
188 Build Long-Term Growth

Worksheet 6.1
Assessment of Competition
Competitors Name and Location(s)

Parent Company Information

Product Lines

Year Sales Net Income Total Assets Owner™s Equity

Estimated Market Share

Rate the following areas in order to determine major strengths and weaknesses of the
competitor. Check the box to rate each area as a Strength (S) or Weakness (W).
S W Comments

Briefly describe the competitor™s reputation, competitive advantages and disadvantages, and
overall marketing strategy:
Growing Profitably with Marketing and Product Development

• Are your competitors more stable and better capitalized than you
are? Does this matter much in your market?

• How does your company™s market position compare to those of
your competitors? Are you a market leader or a market follower?
Is there an advantage to being one or the other (which is more
profitable over time)?
190 Build Long-Term Growth


Marketing a product often costs more than the manufacture of the prod-
uct itself. Ineffective marketing efforts result in failed products, even if
the products themselves meet every other criterion for product success.

To spend marketing dollars most effectively, the company must know
what works, spend its money on those activities, and seek to eliminate or
modify efforts that are less successful. This is a constant process”a mar-
keting method that has worked for years may decline, and another type
of effort may suddenly become more important. To this end, it™s impor-
tant to track not only what the sales were by product but also which of
the company™s sales efforts made the customer aware of the product, de-
cide to order it, and place an order by phone, mail, or in person, to the
company directly, or through one of its other distribution channels.

Making It Happen

Most companies use a variety of marketing methods. Worksheet 6.2 lists
many of these methods across the top. To begin, list your products and the
total dollar volume sales attributed to each in the first and last columns on
the sheet. Then determine how much of your business is new and how
much is from customers who have done business with you before.

All of the new business should be broken down into how the customer
first heard about you: by mail pieces you sent out, through the phone book,
from telemarketing, from an advertisement (television, radio, or print
media), through someone who sells for you (i.e., a retail establishment),
through one of your sales reps, by word of mouth from another satisfied
customer, or from some other channel. In the top left portion of the box,
list the actual dollars attributed to that type of marketing. Once all the
boxes are filled in, use the bottom right corner of the box to calculate
the percentage of business attributed to that effort by dividing the total
sales effort by the new sales total.

Reality Check

Consider these questions about your completed worksheet:

• Is one type of marketing responsible for most of your sales dol-
lars? In total or just in one type of product?
Worksheet 6.2
Product Sales by Marketing Method for (Year)
Note: For each method, sales dollars are on top, and a percentage of the total sales is on the bottom.
Method A B C
New Sales Repeat Total Sales
Product Direct Mail Book Telemarketing Advertising Distributors Sales Force Referrals Other Total Business (A + B)
$ $ $ $ $ $ $ $ $ $ $
% % % % % % % %

Total ($):
192 Build Long-Term Growth

• Is this because your marketing expertise is limited or because
you™ve tried other methods and this is the one that works?

• Are most methods of marketing represented to some extent, or
are many boxes blank?

• Could you use other marketing methods that you aren™t currently

• Is a disproportionate amount of your business either repeat or
new? (You may be missing new opportunities if it is mostly repeat.
However, if it is mostly new, it may mean that customers are not
satisfied enough to return.)

• Does it say anything about new products you haven™t considered?

• Why aren™t you producing a requested product now? Is there lit-
tle demand? Is it too difficult to begin the process?

• Who should follow up on ongoing communications?
Growing Profitably with Marketing and Product Development


Even if product development is routine at your company, it is easy to re-
alize at the last moment that some important step was missed”packag-
ing not ordered, price discounts not set, no plan for notifying current
customers, and many other common missing pieces that can undo an
otherwise well-thought-out plan. Worksheet 6.3 helps you make sure you
have covered all the important steps in the product development process.

Making It Happen

Once you have decided to pursue development of a product, there are
many decisions to be made and things that must be done between idea
and prototype. Worksheet 6.3 lists some of the many items. Chief among
these are projected ship date and initial quantity. Experience is the best
guide to make these decisions, but most small companies try to schedule
twice the normal production time to new products and keep early
batches to the smallest cost-effective unit.

Although production and operations usually require the most attention
during new product development, don™t ignore marketing efforts. Espe-
cially if the new product moves away from or beyond traditional markets,
more time and effort will have to go into sales and promotion.

Some owners and managers fall into the trap of thinking that they can
sell a product after they™ve made it. Try to keep the production and mar-
keting functions as simultaneous as you can. This worksheet can help.
Meet with your product development team regularly and review the
checklist. Use it as a record of each step, and add to it items that are rele-
vant to your company.

Reality Check

Consider these questions about your completed worksheet:

• Have you discussed the new product and its development with all
employees who will play a role in the production, marketing, or
sales of this product?

• Did you include their input to make this process as smooth as
194 Build Long-Term Growth

Worksheet 6.3
Product Development Checklist
Projected Ship Date Initial Quantity

Check All That Apply Comments
Design Specification
Materials Required
Person-Hours Required
Temporary Help Required
Equipment Required

Miscellaneous Production
Storage Requirements
Other Packaging

Other Costs
Licensing Fees
Order Entry
Pricing Discounts
Shipping Schedule

Marketing Research
Marketing Plan
Direct Mail
Sales Reps
Commissions Schedules
Packaging with Other Products

Set Sales Goals
Determine Costs
Calculate Breakevens
Growing Profitably with Marketing and Product Development

• Did you set a realistic timetable to get everything done?

• Will you have sales as soon as the new product is ready to
ship? How do expected sales change the initial quantities you™ll

• Have internal production and operations functions gotten ahead
of external sales and marketing functions? If so, what can you do
to bring the two together?

W H AT ™ S N E X T

Now that you know how to bring your products to market and to
grow your business, I turn in the final two chapters to leadership
tactics for guiding your business and communicating your values.
You™ll learn how to manage your employees on a day-to-day and
long-term basis and how to manage your own growth as a leader.
A people that values its privileges above its principles
soon loses both.
”Dwight D. Eisenhower

T he quality of human resource management in your company deter-
mines the success or failure of most of the other goals you have set
for yourself. If you manage people well in all aspects”hiring, training,
coaching, reviewing, compensating, motivating, promoting, and cele-
brating”the impossible often becomes possible.

The single biggest mistake made by CEOs and other managers is spend-
ing more time analyzing and acting on the company™s financial particu-
lars than on its people issues.

But you can™t talk about employing people today without talking about
the erosion of trust between employees and their bosses. A recent Watson
Wyatt WorkUSA® survey showed that only 39 percent of employees trust
the senior managers, and only 31 percent feel that their companies do a
good job communicating with them.

Lack of trust is probably the biggest problem in corporate America today,
and it can™t be ignored at small companies either. How can you be sure
your employees trust you and believe in your goals for the company? The
simple answer is that you must be trustworthy.

Owners, CEOs, and managers must all behave in a way that inspires
trust. If you talk to one employee about another in a negative way, that

200 Lead with Courage

employee learns what he or she can expect from you. If you come in late
and leave early, you send a message about acceptable behavior. If you
aren™t honest about critical issues, don™t expect to find trusting employ-
ees when you need them.


Another significant finding of the Watson Wyatt survey was that only 52
percent of employees see the link between their company™s business ob-
jectives and their jobs. This number was at 72 percent only two years be-
fore the survey. Increasingly, employees are feeling disconnected from
their managers, their peers, and their jobs.

One result of this disconnection is the rise in fraud (by CEOs, boards,
and managers) and in workplace violence (by employees). People who
don™t feel committed and connected to other people and their welfare act
in ways that are callous, self-centered, and dangerous. Not recognizing
early signs in your business can have catastrophic results. Just ask the ex-
employees of Enron and Arthur Anderson. And as is so dramatically il-
lustrated by these cases, disconnection and abuse takes place at all levels.

Setting standards for acceptable behavior at your company is as critical
an area of focus as any other. And start at the top. Your own behavior as
CEO sets the standard. We will cover that in detail in the next chapter.

Demand that all employees treat one another”not just customers”with
respect. Encourage respect for deadlines and create a forum for listening
to individual concerns. Create a culture that encourages employees to feel
and express passion for their work and one that celebrates work done well.

In addition, be sure to recognize and promote employees who solve prob-
lems and help others solve problems. People who make things happen
and who don™t let anything prevent their pursuit of doing the right thing
are precious to the success of your company. Make sure they know that
you know who they are and fully appreciate their efforts.


Think of the difference one person can make when that person is highly
motivated to get something done; then think of a group of people, pulling
Driving Employees to Peak Performance

together toward a common goal. A high-quality team of people working
together is your single biggest competitive advantage. Don™t assume that
you pay employees to come to work and that ought to be enough.

Conduct monthly management staff meetings to review the employee
data you™ll compile using the worksheets in this section. Then evaluate
management performance based on how well your managers implement
the actions decided on in these meetings.

Look at your payroll as an investment. It™s just as important to have a
plan for your human resource dollars as for any of the money you spend
on plant and materials.

Quality in Your Workforce

You have a right (and a duty) to select the right employees for your work-
place. Don™t give up that right. If your intuition tells you not to hire
someone with all the right credentials on paper, don™t hire them. While
you can™t (and shouldn™t) discriminate based only on gender, ethnicity,
and a number of other criteria, you can (and must) be discriminating in
choosing people in terms of their skill, character, and ability to make a
positive contribution.

List the character traits you want your employees to possess. While the
exercise may be challenging, the rewards are profound. Consider ques-
tions such as: How important are initiative and resourcefulness? What
about trustworthiness and loyalty? Getting this right is likely to prevent
employee lawsuits later.

One of the most important characteristics of a superior workforce is that
all employees remain employable. This means that you employ only
those people whom your competitors would want to hire if they could. It
should be a goal of your human resource planning to seek state-of-the-
art employees. Employees should know that you expect excellence from
them and that they probably will need to invest in themselves through
outside training to keep their end of this bargain.

From the beginning, you should decide how many employees are opti-
mal to do the work and what skills and qualities you want them to pos-
sess. You can look at the quantitative issues objectively by looking at
overtime rates, the amount of temporary help needed, and the numbers
202 Lead with Courage

of errors made and subjectively by the amount of stress you see in the
workplace and what other employees tell you.

You may be able to readily identify the skills you need from new employ-
ees, but you can also do a more objective analysis by identifying the total
skill set you want from your employee base. Find out what you already
have by doing a skill-set inventory, and then hire for the qualities you
find are still missing.

Hiring Right Is Key

Recruiting and hiring are often done in haste, leaving the company to re-
pent in the long run. To counteract this tendency, set up your hiring pro-
cess at a time when more rational heads prevail, and make it difficult, if
not impossible, to hire unless the process is completed.

Today, there™s a reason to be concerned about negligent hiring. Negligent
hiring means you and your company can be sued if one of your hires in-
jures other employees, especially if you could have foreseen a problem
but did not do a thorough check of the new employee before hiring.

The following five essential hiring practices should always be

1. Require outside testing. Allow a competent, impartial profes-
sional interviewer to administer both paper and pencil and
verbal tests. Professional testing firms can administer valid
psychological tests for intelligence, stability, even determina-
tions of addictive or dishonest personalities, as well as skills
tests of important technical abilities in your workforce. I find
testing often validates a suspicion I already had but wasn™t
yet ready to come to terms with.
2. Conduct a rigorous personal interview. This includes asking gen-
eral attitude questions, how you would manage your boss
questions, how you would manage your staff questions, ques-
tions relating to the applicant™s understanding of the financial
workings of a business and your department™s role in the
Driving Employees to Peak Performance

business™s overall success, questions relating to the appli-
cant™s ability to set goals and his or her expectations about
achieving goals, questions relating to specific skills required
for the job, and general communications required by the job.
3. Arrange a peer group interview. This part of the process encour-
ages applicants to speak more freely and helps determine
how comfortable they will be in working with their peers.
Follow up with a meeting of everyone involved in the hiring
decision to determine if there is a group consensus about the
applicant™s suitability for work at your company.
4. Do a background check. Don™t neglect this, even if it is an em-
ployee™s cousin or your competitor™s best salesperson. It™s
very easy to set up an account with an investigative firm on-
line and to relatively quickly and inexpensively find out if the
applicant has a criminal record or a history of DMV problems,
lawsuits involving previous employers, workers™ compensa-
tion claims, and so forth.
5. Do a reference check. You can conduct these over the phone,
but they may involve a request in writing. Reference check-
ing is less effective than it used to be, although you may still
find a few people who are willing to talk. Most former em-
ployers play it safe and verify only dates of employment and

Finally, I recommend including a statement on the application that infor-
mation given by the applicant must be true and that it will be checked. I
immediately disqualify anyone who is dishonest about any information
that is pertinent to the hiring decision”that includes fudging on job ti-
tles, years of service, and salary history.


Productive and positive communication with an immediate supervisor, as
well as with coworkers, is a make-or-break issue for most employees. As
we all know, the business world necessitates both formal and informal
communication. Formal communication flows from the supervisor and
204 Lead with Courage

follows the policies and procedures in the company manual. Informal
communications are those that flow from other employees about “the way
things are really done around here.” When these two sets of communica-
tions are out of balance, morale at your company will likely suffer.

Make your internal computer network a resource for every kind of data
your employees need. Virtually all of the worksheets covered in this
book can be filled in with your company™s information and made avail-
able for employee reference. Your employee handbook should also be
made available online. Surveys can be conducted completely via e-mail,
and you can also make yourself accessible by e-mail for questions or
comments. Performance review and other forms, as well as other human
resource communications, can take place through an effective human re-
source information system (HRIS) designed for your size of company.

By no means should communication be conducted exclusively via com-
puter. Always conduct employee orientations and performance reviews
face to face. Create other avenues for informal, face-to-face feedback as
well. Mark these appointments on your calendar so time won™t slip by
and opportunities won™t be missed. Chats over morning coffee, celebra-
tion lunches, afternoon walks, and brown bag resource talks all are valu-
able opportunities for discussing issues or developing rapport.


The Virginia-based AES Corporation is the largest global power
company in the world. Founded in 1981, the company has 158 fa-
cilities in 28 countries and employs approximately 36,000 people
around the world. AES believes that every employee should par-
ticipate in the strategic planning process, even in the design of his
or her own workplace.

AES promotes adherence to four principles: integrity, fairness, fun,
and social responsibility. The company conducts annual surveys of
employees at individual locations and companywide to ensure that
it™s standing by these principles. The surveys are designed to deter-
mine whether employees follow the ethical principles both with
other employees and with customers and suppliers.
Driving Employees to Peak Performance

Provide Regular Feedback

The idea of providing regular feedback is to let employees know how
they are doing individually, in their departments, and as a part of the
company as a whole. Feedback is often subjective by necessity, but it can
be objective as well. The best kind of feedback is the kind employees seek
out, not the kind that™s forced on them.

You can take certain steps to maximize the effectiveness of the process of
giving your employees feedback. For instance, if your intranet has easily
available sales data, sales employees will look at it often and judge their
need to change performance accordingly. In this manner, you can em-
power your employees to change their behavior on their own or ask for
help before they are “graded.” In addition, you can give employees copies
of all of the evaluation materials that will be used during their employ-
ment (surveys, annual review forms, team feedback tools) at their orien-
tation. By showing employees how they will be evaluated, you™ll help
them understand what is expected of them.

Review Performance

Managers are taught to conduct formal performance reviews annually,
but it™s a good idea to conduct additional, informal, mini-goal-checking
sessions at least quarterly. Schedule these sessions when you will be
fresh and when your mind won™t be elsewhere. Conduct them off-site if
that will help ensure you won™t be distracted. If you put a lot of thought
into the process upfront, your employees will do most of the preparation
for the sessions themselves.

As a prelude to a review session, it™s useful to ask employees for feed-
back about what is standing in the way of their progress. Many human
resource professionals advocate asking employees to formally rate them-
selves and then compare their rating with their manager™s rating during
the formal session. I find this leads to a lot of anxiety and not much dia-
logue. If you ask people what is holding them back and what you can do
to help, they will candidly explore their own weaknesses from a place
where they are open to feedback.

During the review meeting, turn these areas for improvement into goals
for the coming year. Ask the employee to consider ways to create goal
206 Lead with Courage

statements with measurements by quarter. These goals then become top-
ics for your quarterly reviews.

Many companies make use of team performance reviews in addition to
the traditional manager™s review. In these reviews, members of a peer
group evaluate an employee. Although I see tremendous value in the
concept, I have found that the average employees today are not ready to
accept criticism from peers; they barely tolerate it from their supervi-
sors. Peer reviews can create anger and resentment rather than increased
learning, unless months of preparation precede the feedback. The best
way to transition into this system is to make it available as a tool for self-
evaluation to those individuals who seek promotions. If employees are
open to learning about how they are perceived because they want to use
this information to increase their opportunities, they will better be able
to accept the negative messages.

Also plan to conduct regular manager reviews to evaluate managerial
effectiveness. Employees need to know they will have the opportunity to
speak candidly about their manager™s behavior.


Determining proper compensation is one of the most complex aspects of
running a business. It™s wise to seek outside assistance when designing a
compensation program to ensure that it is fair and appropriate. A com-
pensation professional will evaluate and compare the jobs in your orga-
nization to one another, as well as to similar positions on the open
market, to determine a fair and competitive package. The compensation
professional can also assist in devising the correct formula for incentive
compensation, that is, bonuses for doing an outstanding job.

You don™t want to overpay, but don™t make the mistake of negotiating
hard to underpay. It™s not worth the time and expense you™ll face when
you need to replace high-quality employees who depart after a year or so
because of subpar compensation.

Benefits form a significant portion of the compensation package. Regard-
less of the other benefits you may offer”retirement, vacation, and so
forth”try to provide the best health insurance coverage you can. This is
the benefit that makes the most difference to employees and their fami-
lies in the short run.
Driving Employees to Peak Performance


Companies schedule regular meetings for all sorts of other tasks. We
can™t expect improvement in our human resource issues unless we regu-
larly devote time and attention to meeting these challenges.

An employee-ranking system is a simple tool managers can use to share
their concerns about their department™s employees. Managers can use a
simple 1 to 10 rating scale, in which they assign 9s and 10s to superstars
and 4s or below to employees who no longer belong in their current jobs”
or perhaps even with your company. Managers can rate employees in a
variety of categories and dimensions to reach a composite score. Some of
these dimensions include character, communications skills, and technical

The intent of this process is not only to review employees, but also to hold
managers accountable for constant improvement in the caliber of the per-
sonnel they hire. It™s a way to get managers thinking about what they can
do each month to create more 9s and 10s.

Manage the Managers

Between the tasks involved in recruiting and hiring and those involved
in discipline and termination lie the continual assessment and improve-
ment of your employees™ knowledge, willingness, and action on the job.
This brings us to the subject of employees who rank all the other em-
ployees”your management staff. Managers should rate 8 and above on a
1 to 10 employee rating system, or, if they are new, reach that rating
within six months. There should be little flexibility with this decision.
Managers who rate lower than 8 are not likely to possess the qualities
you want as a model for the rest of the staff. Remember, a manager™s key
role is to coach great performance out of others.

Don™t Tolerate Destructive Employees

We all make the mistake of keeping employees around long after they
know and we know they are not right for the job. Some behaviors should
never be tolerated in the workplace. They are toxic to your culture and
will hurt your work environment immeasurably if not checked. They may
seem harmless in small doses, but they can create a pattern of behavior
208 Lead with Courage

that can ruin a company. Employees whose actions reveal lack of charac-
ter and resulting unethical behavior should not be allowed to continue
destroying the company.

You may think judging employees™ ethics is inappropriate”that they
should be judged on work performance alone. But whether you realize it
or not, you set ethical standards for your company through many avenues,
such as your own behavior, the rules in your employee handbook, the per-
formance review process, the compensation system, and how and whom
you promote. You also set standards by the behaviors you encourage and
tolerate in your employees.

Studies confirm that the single biggest determinant of ethical behavior
of employees is the behavior of top managers and their ability to commu-
nicate culture effectively. If top managers aren™t willing to walk your
talk, expect employees to follow suit.


1. Gossip. Rumors can be incredibly disruptive to a company. A
lack of information can get rumors started, and frank expla-
nations can usually stop them. However, some employees
thrive on the admiration of others when they seem to be “in
the know.” Define gossip as clearly as you can and tell em-
ployees what you expect them to do when they hear it. First
and foremost, that you don™t repeat it. Along the same lines of
gossip, remind employees that all e-mail sent or received on
company computers is considered company business and not
private correspondence.

2. Violence or threatening or abusive behavior. Termination should
be immediate for any employee who engages in any form of vi-
olent or abusive behavior. Workplace violence includes threat-
ened or actual abuse and can be verbal or physical. These
behaviors only escalate with time and are never excusable.
Any employees involved in workplace violence should leave
the workplace immediately and be placed on a paid leave of
Driving Employees to Peak Performance

absence for a few days while you investigate the situation and
consult with your attorney. Don™t assume this couldn™t hap-
pen in your company”it™s estimated by the Occupational
Safety and Health Administration (OSHA) that two million
Americans are victims of workplace violence annually.

3. Dishonesty and theft. The term theft can include the theft of
time, office supplies, and the use of office equipment for per-
sonal projects. Set standards for what is acceptable use of
company assets. Security experts say as many as 30 percent of
workers steal, resulting in an estimated loss of $50 billion a
year from U.S. companies and contributing to as many as one-
third of business bankruptcies.
As for dishonesty, I have a zero-tolerance approach. I dis-
missed members of my accounting staff for what may seem to
be petty reasons: one for using $5 of petty cash as personal
lunch money, another for telling me he was home sick when he
was out of state on a long weekend vacation. If key staff mem-
bers are not honest with you about small things, how can you
be sure they will tell the truth “when it counts?”

4. Substance abuse. Substance abuse is more rampant than most
employers know. The U.S. Department of Health and Human
Services estimates that from 6 to 11 percent of adults are sub-
stance abusers. Substance abuse costs U.S. employers an esti-
mated $100 billion a year. Call your attorney to make certain
you follow the Americans with Disabilities Act (ADA) re-
quirements. Illegal drugs are expensive and have led finan-
cially desperate employees to commit fraud. They have also
been implicated in violent behavior in the workplace.


Compliance with the myriad employment laws is essential to avoiding
lawsuits, fines, and even criminal prosecution. There are so many laws
and regulations that it takes a professional in this area to provide ade-
quate protection for your business.
210 Lead with Courage

The administrative portion of the human resources function can often be
done most cost effectively by outsourcing it to specialists. Outsourcing
can be done effectively for writing and updating employee handbooks,
designing compensation programs, administering employee surveys, ad-
ministrating benefits (including creating benefit statements), and pro-
viding training for many types of skills.

Employee handbooks are essential for companies with more than a
dozen employees, and it™s helpful to post the handbook on your intranet.
Make sure the handbook reflects your culture and isn™t a cold introduc-
tion of rules and procedures. Rules should only make work easier or cre-
ate a cultural accountability; don™t expect them to cover every situation.
Our handbook always included expectations, not just rules. The hand-
book must be updated at least annually to keep legal requirements cur-
rent. When a handbook is introduced or updated, it should be carefully
explained at an employee-wide meeting. Drafting of new policies can
and should be a highly participative process to allow employees the op-
portunity to think through the kind of behavior and expectations they
want to have of one another. In addition, be sure that you are personally
willing to live with each policy in your handbook.

One of the most important provisions of the handbook is that employ-
ment is “at will.” Subject to various state laws, this means that your em-
ployment relationship with your employees is at your discretion; that is,
you may fire them at any time except for reasons that are illegal. Specifi-
cally, state that employment can be terminated at any time without cause
and that nothing in the handbook should be construed to be a contract of


An ounce of prevention is certainly true when it comes to avoiding law-
suits, but despite best efforts, lawsuits can happen to any company. Keep
focused on your business, and let the attorneys deal with lawsuits as
much as possible. If you are in business for any length of time and have a
number of employees, odds are that one or more of those employees is
bound to sue you. In my nine years™ experience running a company,
many employees threatened suit, especially at the time of termination,
but I had to pay to settle only one and none went to court.
Driving Employees to Peak Performance


Here are some final tips for managing the human resources role:

• Give human resource matters the planning and time they de-
serve. Decide to treat employees fairly, but also commit to
spending most of your time with employees who can grow to
become outstanding members of your team. Spend as little time
as possible with discipline problems, and help employees who
need to leave do so in as gracious and honest a way as possible.

• Provide the best benefits you can, but remember, what your
employees want most from you is free”the benefit of your
wisdom and expertise to help them grow in their careers and
your recognition of their accomplishments.

• Get the support you need to deal with people issues. Find
other business professionals you trust and solicit their outside
perspective to help you solve problems. Although you may be
tempted to procrastinate, act quickly when you make decisions
about people and get on with running your business. As I dis-
cuss in the next chapter, knowing when to ask for outside help
is key to great leadership.


The worksheets and exercises at the end of this chapter will help you
drive employees to peak performance. They include the following:

• Performance review.

• Team feedback.

• Management skills feedback.

• Employee ranking system.

• Human resource key indicators.

How does your human resource program rate on the following questions?

• Do you spend enough time to be sure you are hiring for the long
212 Lead with Courage

• Do you have written policies as required? Are they updated at
least annually?

• Are you certain you are in compliance with the basic HR stan-
dards, for example, employees versus independent contractors,
exempt versus nonexempt employees?

• Are you following procedures that are most likely to keep you out
of employee lawsuits?

• Have you set standards for performance and day-to-day behav-
ior? Are the standards clearly communicated and followed?

• Does your compensation and benefit structure allow you to hire
and retain highly talented employees?

• Are your employees overworked? Do you spend a large amount
in overtime and temporary help? Is that figure increasing?

• Do you tolerate gossip or other behavior that undermines em-
ployee morale?

• Do you give enough feedback to employees about their perfor-
mance? Do you review them individually at least annually?

• Do you insist your employees stay employable?

• Do you have a plan for the loss of any key employees?
Driving Employees to Peak Performance


The performance review process should be done in two parts. Part A of
Worksheet 7.1 is a feedback mechanism from the employee to the man-
ager. It™s important for the manager and employee to have a dialog over
the issues, looking both at the employee™s individual behavior and
within the larger context of the corporate culture.

It™s important to find out upfront what the employee thinks leads to
higher productivity within the company™s culture and what results in
obstacles to the employee™s best work. It™s vital to begin the process with
an open mind, listening to the needs and problems the employee is will-
ing to address.

The employee is much more likely to be forthcoming and identify his or
her own inadequacies if the manager first allows discussion about inade-
quacies in the organization™s support of the employee.

The second part of the performance review process is a subjective analy-
sis on the part of the manager as to the various aspects of the employee™s
work performance. It covers the employee™s specific job responsibilities,
the quality and quantity of the work done, and how he or she interacts
with others.

When you conduct this review, get away from the office or at least find a
place you won™t be disturbed. Do this both to complete the worksheet
and, later, to meet with the employee. You should also set up criteria for
each of the possible scores of 1 to 10 based on your own expectations of
your entire employee group. When completing an individual™s review
worksheet, consider looking back at others you have done to help main-
tain consistency. Also, if you have reviewed this employee previously,
look back to see which areas show improvement. In the comments sec-
tion, list specific incidences to illustrate the employee™s behavior.

Making It Happen

Give or e-mail the employee the first part of the performance review to
complete about a month before his or her review date. Specify a date by
which you expect to have the form returned. Set a date for your meeting
when the employee returns the form. Give yourself a few days to read
the employee™s responses and consider thoughtfully how they compare
214 Lead with Courage

Worksheet 7.1
Performance Review
(Part A)
It is time to schedule our annual performance review meeting sometime during the next month.
Please fill out this form as completely as you can and return it to me by .
It will help me to help you. We will schedule a time to meet as soon as possible after you
return this form.

What could I do to make your work more productive?

What equipment or training do you need to do your best work that you don™t have?

What could the company change (add or delete) that would help you do your work better?

What skills and abilities do you have that you think are underutilized?

Any other comments or opinions you would like to express?
Driving Employees to Peak Performance

Worksheet 7.1 (Continued)
(Part B)
Name Date
Job Responsibilities 1“10 Comments

Quality of Work 1“10 Comments
1. Technical skills.
2. Accuracy, little supervision required.
3. Creativity/originality of work.
4. Communication skills.
5. New approaches to problems.
6. Accepts responsibility”takes initiative
for action.
7. Forward-thinking/moving in same
direction as company.
8. Continues to learn and improve.

Quantity of Work 1“10 Comments
1. Meets deadlines.
2. Consistently hard worker.
3. Planning/ time management/workspace
4. Does fair share of department™s work.
5. Is in on time, on time to meetings, and
doesn™t miss a lot of work.

People Issues/Teamwork 1“10 Comments
1. Solves people problems directly.
2. Positive influence on coworker morale.
3. Working relationships inside company.
4. Leadership in company/shares information
and suggestions with others.
5. Working relationships outside company with
customers or vendors.
6. Participates in meetings.
216 Lead with Courage

Worksheet 7.1 (Continued)
Company Department
Objectives Objectives Individual Objectives for Next Year

Outstanding Accomplishments/Qualities

Areas for Improvement/Development
Driving Employees to Peak Performance

to your view of this employee. You can also use this time to do some-
thing about the problems the employee hopes will be addressed.

For the second part of the review, fill in the employee™s top five job re-
sponsibilities, then rate each category from 1 to 10, adding comments
where you have something to say. List the employee™s “star” moments on
the bottom of the second page, along with areas where further training
or improvements are needed or desired.

Use the middle of the second page of Worksheet 7.1 to write objectives for
the coming year, based on company objectives, and the department objec-
tives you have identified. After the review meeting, give the employee a
copy of the worksheet. It™s important that you both agree on these objec-
tives and that you meet at least quarterly to discuss them, along with any
other areas you identified where improvement is required.

Reality Check

Consider these questions about your completed worksheet:

• Is the company generally supportive of employees who are hon-
estly trying to do their best work?

• Are there a number of employees giving you similar feedback
about the company?

• Do the comments reflect a positive feeling about the company,
even if many problems are listed, or are there still things that
seem to be left unsaid?

• Would you agree with the employee™s assessments? Are there
things you can do immediately to show you are committed to the
employee™s success?

• Is your reaction defensive? Do you discount the employee™s opin-
ion before you have investigated the concerns? If yes, why?

• Can you objectively review your employees? Do you have fa-
vorites for reasons other than their work performance?

• Do your employees have a sense of your vision for them and their
218 Lead with Courage

• Do you have the courage and organizational support to be honest
with your employees about their work performance?

• Do you spend at least 90 minutes preparing for an employee re-
view meeting and at least 90 minutes meeting with the employee?

• Are review sessions a productive meeting of the minds or
(1) are they angry and defensive or (2) do they gloss over the real
Driving Employees to Peak Performance


Worksheet 7.2 is another part of the total 360-degree review process,
which is intended to give the employee a full circle of feedback from
everyone he or she connects with on the job. There™s one caveat to this
process”namely, there must be adequate preparation for a company to
launch into this process. People who have never received completely hon-
est reviews from their supervisors and who have not had an opportunity
to personally evaluate their own strengths and weaknesses are not ready
to hear brutally honest comments from their peers and others.

Training with case studies and role playing should be required to give
employees both a sense of how to give helpful, constructive, and practi-
cal feedback as well as how to accept it when given to you.

The review forms that will be used to solicit feedback should be given to
employees three to six months before the process is used. This isn™t a
surprise inspection”if employees know what standards will be used to
measure them, they will begin to change their behavior immediately so
that they will not receive negative reviews. If handled this way, you will
begin to get the desired result before you even ask for feedback from
peers. After all, wouldn™t the best result be uniformly positive feedback
from happy coworkers?

Making It Happen

The supervisor should give Worksheet 7.2 to a representative number of
people who are in a position to review an employee™s work. If the
coworker reports to the same manager, he or she is considered a team
member. If the coworker reports to a different manager, the coworker
would be considered a peer. I suggest doing this process twice the first
year to give an employee the opportunity to raise his or her score
quickly. The scores are usually lowest the first time employees give this
feedback review.

When all worksheets are returned, the supervisor should tally an aver-
age question score by adding the total of the 1 to 10 scores for each ques-
tion and dividing that number by the number of people who answered
the question. Comments should be collected on another sheet for each
220 Lead with Courage

Worksheet 7.2
Team Feedback
Please circle your relationship to (Name)
Team member Peer
Return this form to (Supervisor) by
Please rate his or her performance in the following categories (10 = best).
Your scores and comments will be kept confidential.
Quality of Work 1“10 Comments
1. Technical skills.
2. Accuracy, little supervision required.
3. Creativity/originality of work.
4. Communication skills.
5. New approaches to problems.
6. Accepts responsibility”takes initiative
for action.
7. Forward-thinking/moving in same
direction as company.
8. Continues to learn and improve.

Quantity of Work 1“10 Comments
1. Meets deadlines.
2. Consistently hard worker.
3. Planning/time management/workspace
4. Does fair share of department™s work.
5. Is in on time, on time to meetings, and
doesn™t miss a lot of work.

People Issues/Teamwork 1“10 Comments
1. Solves people problems directly.
2. Positive influence on coworker morale.
3. Working relationships inside company.
4. Leadership in company/shares information
and suggestions with others.
5. Working relationships outside company with
customers or vendors.
6. Participates in meetings.

Driving Employees to Peak Performance


. 6
( 8)