Engaging The Workforce W Business Acumen

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When management opens the books and reveals the financials to the workforce, it is a sign of good faith, entrusting employees with the tools to make business improvements. It is also evidence of a commitment to collaboration, giving employees the broadest and deepest exposure to major changes in the business.

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Engaging The Workforce W Business Acumen

  1. 1. TECHNICAL NOTE NO. 424 Engaging the Workforce with Business Acumen Technical Note No. 424
  2. 2. TECHNICAL NOTE NO. 424 ENGAGING THE WORKFORCE WITH BUSINESS ACUMEN At a 100-year-old paper mill in the Pacific Northwest a group of employees formed a team to reduce energy costs. They called themselves the “Kill-a-Watt” team and were made up of both hourly and salary employees. Through energy awareness and education, they helped their mill save over $1 million in just one year. Across the country in Virginia, a team of beer plant employees converted the plant’s sanitization process, saving over $300,000. Another team made up of hourly and salary employees at a Canadian lumber mill created a new way to process logs that resulted in improved quality, increased productivity and a 40% waste reduction. What is it that engaged and inspired these employees to make these dramatic improvements even though they were in different industries and geographical locations? In all cases it began with leadership commitment and a direct request to employees to learn about the business and make business improvements. The business case for change creates a platform for one of the most effective tools for bottom line improvements: Business Acumen for the work force. WHAT IS BUSINESS ACUMEN? Surveys of over 1000 employees from all levels and from multiple industries reveal a gap in understanding the basics of the business, operating goals, and competitive comparisons (see Table 1). Business Acumen is an intentional intervention to engage and empower employees to improve financial performance. This happens as employees gain a better understanding of the key drivers of business success and how their roles impact financial performance. Through Business Acumen, employees learn about costs, the consequences of poor quality and how money is made in their business. They learn how competitors make money and how their business compares to the competition. Most importantly, employees learn how to apply Business Acumen to their areas and departments so they can improve the way they do business. Business Acumen interventions are developed internally, and nearly 90% of all employees participate. King Chapman & Broussard (KCB) has over two decades of experience working in major change projects with clients in many industries. KCB assists organizations with focusing on the external view: how their business is perceived by other departments, stockholders and customers. KCB has developed ten critical success factors to provide a framework for designing and managing successful, collaborative change efforts. One of the critical success factors is employee designed and delivered Business Acumen, which allows organizations to elevate employee business knowledge, increase employee engagement, and improve financial performance. Front-line employees develop the training in partnership with accounting personnel to include financial, functional, and business performance metrics. The training is presented throughout the organization. 1
  3. 3. TECHNICAL NOTE NO. 424 Table I Typical Response Rates to Business Acumen Survey Questions I understand my site's operating plan and performance goals for the current year. 37% 21% 42% My site is performing better than its competitors. 14% 30% 56% My site will achieve its operating goals this year. 25% 33% 43% My site's current business plan/strategy is clear to me. 48% 19% 34% I know my company's vision values and strategic goals. 37% 16% 46% Disagree Neutral or Don't Know Agree Source: Combined responses from over 1,300 employees surveyed in King Chapman & Broussard’s Readiness for Change Assessments WHAT BUSINESS ACUMEN IS NOT When the conversation of Business Acumen is first introduced to managers in a company, we often hear, “We did that once”. When asked for more information, managers usually perceive Business Acumen training as:  Hiring a local business college to come deliver finance or accounting 101.  Corporate training course on accounting.  Quarterly or yearly town hall meetings in which the financial performance is reviewed. We hear employees describe these meetings as “managers talking to other managers”.  An accountant using PowerPoint slides to show the financials of the company. We have found that Business Acumen is effective when the content is tailored directly for those receiving the training and when the trainer is a “peer”. For example, the information is being presented to hourly employees by trainers who are hourly employees. If the audience is comprised of geologists and geophysicists, those teaching the course are geologists and geophysicists. This assures that the conversations are relevant to the audience, and those delivering the information are credible since they “are one of us”. WHAT MAKES BUSINESS ACUMEN IMPORTANT IN ORGANIZATIONAL TRANSFORMATION? Employee engagement and involvement is a key component to the success of any major change effort. When leaders ask employees to cut costs, Business Acumen puts the leadership message and call to action into proper context. Revealing the numbers and opening the books is a sign of good faith by management that they trust employees with the tools to make business improvements. It is also evidence of management’s commitment to collaborate, giving employees the broadest and deepest exposure to major changes of the business. Front-line employees know where the treasure is hidden. When given a context for change and a description of the type of cost reductions or improvements that 2
  4. 4. TECHNICAL NOTE NO. 424 can be made, cost reduction ideas (treasures) small and large are revealed and acted upon. The intent of Business Acumen is to encourage employee participation and collaboration in making business improvements. The content of Business Acumen is designed to tie directly to the business. This includes the case for being educated about the business, the way the business works financially and what can be done to impact it. Participants learn first-hand what the challenges are and what can be done, whether they are on a project team or not. WHAT ARE THE RISKS FOR NOT HAVING BUSINESS ACUMEN? Without Business Acumen, major change efforts struggle to engage and empower people to make a meaningful impact as they are not provided with the understanding and tools to make a difference. Second, there is no sense of urgency. Tackling business problems is conceptual; the answer to “why this?” and “why now?” is far removed from the day-to-day actions taking place on the front-line. This was not the case at an envelope plant in Texas. An hourly worker had a conversation with her co- workers about the impact of quality and how many more envelopes, cost and labor it took to make up for one run of poor quality or defective envelopes. That knowledge instilled a sense of purpose and urgency to take action and improve quality on the front-line. Business Acumen participants who are working on project teams have the ability to contribute thoughtfully to solutions that make a difference to the outcomes of the project. Employees gain a very different view of their work and projects when they understand how what they do rolls up into a financial statement or impacts their customers. When employees have not had Business Acumen training, the solutions that they propose for business problems often involve spending capital on the problem versus operating differently or exploring other non-capital avenues. Employee leadership emerges when more people are exposed to how the company makes money. When employees understand how what they do affects the financials of the business, they gain the ability to make educated decisions in their areas. They also gain the confidence to take action. The investment, time, and resources put into a Business Acumen program as part of a major change effort generate a big payoff. It will result in the development of leaders, and an increase the business knowledge of the workforce, engaged employees and a positive financial impact on the organization. WHAT IS FOUND IN A SUCCESSFUL BUSINESS ACUMEN INTERVENTION? Building Business Acumen into the organization starts with a leader’s commitment to allowing employees to make business decisions in their area and in their span of control. Unless leaders of the organization give employees the ability to follow through and take action on what they have learned, employees will find themselves feeling powerless and unable to move forward. The leaders who stepped forward and committed themselves to a new future in each one of the preceding examples could not have predicted the kind of results, innovation, and involvement the employees demonstrated from a 100-year old paper mill, a 700-employee brewery, a unionized lumber mill and an envelope plant. Once you have leadership support and a context created for change, Business Acumen focuses on the basics of how the business operates and how it connects at a macro-industry level, the corporate or company level, and down through the divisions and operations. Business Acumen ensures that relevant 3
  5. 5. TECHNICAL NOTE NO. 424 information is distilled from the business, the industry, and customers. This information is translated to all levels of employees in all departments through conversations and tools to inspire action that makes a positive impact on the business. When assessments are conducted to determine the readiness of the workforce for strategic change efforts, the findings from these assessments often indicate that employees do not understand the basics of the business financials, nor do the employees get the connection from the overall operation of the business to specific departments, areas, machines, etc. At the individual and department level, it is important to ensure that the Business Acumen training lets employees know where they fit into the business and how their actions impact customers, other departments and the overall business. If given the information and tools, employees are more likely to take action on financial improvements in their area, such as cutting costs or increasing productivity. Successful Business Acumen programs include the following:  Preparation of managers, supervisors, and employees who want to make changes. Giving employees the okay to make changes can be quite unsettling for some levels of management if they are not confident in their employees’ decision-making abilities.  A program developed and delivered by a team of front-line employees. KCB has found that employee-led programs build credibility among peers and provide a method for communicating financial information that is both informative and understandable.  An assessment of employees’ understanding of the business. KCB assists in designing questionnaires, interviewing, data gathering and analysis. Some representative questions that have been useful for Business Acumen team interviews include the following:  What financial areas of this business are a mystery to you?  How does the business operate from end to end?  Where do we get the money that we invest in the business?  Where do we make money; where do we lose money?  What does EBITDA mean, and why is it important to us?  How do we sell our end products?  Outcome-based projects targeting Breakthrough results. That is, projects that go beyond business-as-usual in approach, solution and result. This gives employees a living laboratory to take risks and try out their ideas inside of a project and team environment.  The financial books are open, and employees have access to all financial information while designing the Business Acumen program. There were intangible and ancillary benefits for the companies who conducted Business Acumen programs. Employees at the paper mill took interest in cutting costs in many areas resulting in reducing steam leaks, generating alternative paper making solutions, and trimming chemical costs. In the beer company, relationships improved between departments on the production line when employees gained an appreciation and understanding of the impact each had on the process. The genesis for collaborating at the lumber mill on improved cost and productivity started with a conversation between an hourly employee and a log buyer during employee interviews on improving the business. Calling for major change and significant business improvements starts with a commitment from leadership to employees to participate in the change. With the context set and a case for change clear from the top, Business Acumen can be one of your most powerful tools to engage and empower 4
  6. 6. TECHNICAL NOTE NO. 424 employees to be your partner in improving the business. CONCLUSION KCB has been advising business leaders in implementing organizational transformation since 1983. We have found Business Acumen to be a key lever for interrupting myths and stories about the business, and for engaging employees to become actively involved in implementing transformation. Business Acumen is an intentional intervention to engage and empower employees to improve financial performance. This happens as employees gain a better understanding of drivers of business success and how their roles impact financial performance. Through Business Acumen, employees learn about costs, the consequences of poor quality and how money is made in their business. They learn how competitors make money and how their business compares to the competition. Most importantly, employees learn how to apply Business Acumen to their areas and departments so they can improve the way they do business. This Technical Note was written by Camille Ford, Partner, King Chapman & Broussard 5

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