Howard Schultz, the guy responsible for astounding growth of Starbucks, believes in treating his employees right. This is an excerpt from his book, Pour Your Heart Into It (p. 57), after describing how early Starbucks employees voted to unionize:
The incident taught me an important lesson: There is no more precious commodity than the relationship of trust and confidence a company has with its employees. If people believe management is not fairly sharing the rewards, they will feel alienated. Once they start distrusting management, the company’s future is compromised.
I worked for one company where I was initially impressed at its engaged workforce.
The workers felt the company took care of them, so they reciprocated. They worked beyond their standard 40, they took initiative to bring innovative, time saving, productivity enhancing, safety creating suggestions to light. They were usually helpful and respectful to eachother.
But, over the next few years I witnessed numb skull MBAs snuff out that energy. There were not material changes to pay or benefits. The only material changes was the messages coming from the executive floor.
Execs eager to control compensation costs caught onto the management fad of market-based labor pricing. They “benchmarked” pay against similar positions locally to “ensure they weren’t overpaying for talent.” The message received by workers: management thinks you’re an easily replaceable commodity.
The transformation was slow and subtle, but damaging nevertheless. Once satisfied employees turned into grumpy clockwatchers. They didn’t put in extra time. They weren’t as helpful. They didn’t work as hard to improve things. They were no longer engaged. The place lost its soul.
The income statement leads bad managers to make damaging decisions. Most managers haven’t given much thought to the income statement beyond their basic corporate accounting class in b-school. The way the income statement is nicely organized into line items of income and expenses leads lesser managers to the view the business as, well, individual line items to be managed.
Their fixation on the income statement prevents them from seeing the business as a whole. The truth is that all of the lines on the income statement are intricately related. Make dumb cuts in labor for the sake of controlling that line item and revenue and productivity will suffer. Associates stop working the free extra 5 hours a week. They aren’t as nice to customers. They don’t care much about sharing improvement ideas.
The income statement is more like a recipe than a grocery list. Miss a couple items on your grocery list and you’ll make it. Miss a couple key ingredients to a recipe and you’re hosed.
Many managers lose their jobs because they leave the yeast out of the bread dough. The really sad thing is that those managers nor the ones doing the firing ever even realize that.