What Makes a Health Club Healthy?
by Will Phillips
Most clubs, like most people, are neither sick nor healthy, but somewhere in between. We call this in between area "not sick". This means that although you are not in the peak of health neither are you suffering any great discomfort. Feeling good is not an indicator of health. Becoming a truly healthy business requires you to fix things before they break. This requires discipline and creates discomfort-just like regular workouts.
What Is Long Term Club Health?
In the most simplistic form, a healthy business is one that not only looks good now but has within it the capability of future success. There are many businesses which look superb now, but may not perform well in the future. There are seven basic indicators of a health club's health:
The first three characteristics are to be maximized for maximum health. In other words, the more the better. The next four need to be optimized. In other words, an appropriate balance is needed between the two extremes on each of the last four characteristics.
- Strategic Position
- Stretch vs Coasting
- Control vs Responsiveness
- Growth vs Profit
- Individual vs Clu
Characteristic 1Strategic Positioning
The Strategic Position of an club is a measure of how well the club is situated in relation to its external world. A well positioned club is in a goo location with a growing market; has little competition; delivers high value to customers; no threats from changes in legislation, the economy, technology.
When your Strategic Position is strong, your club can be mismanaged, yet still be an outstanding financial success. In this situation there is little motivation for "feel good managers" to change. On the other hand, the club with poor Strategic Positioning and superb management, will usually struggle. There are eight areas which contribute to an club's Strategic Position:
- Growth of your market. A rising tide lifts all boats.
- Steady demand with no up and down or seasonal cycles. Basic food is noncyclical; turkeys and Christmas trees are very cyclical.
- Competitive distinctiveness which clearly separates you from competitors in your customer's eyes. Sunkist oranges, Purdue chickens are distinctive. Most clubs are weak here. Hospital linked health clubs are more distinctive than those not linked. The easiest distinction for a club is a unique location.
- High barriers to entry due to such things as equipment cost, patents, trade secrets, experience, distribution system, brand names, location, license, etc. Auto manufacturing has high barriers; most retail stores have low barriers.
- Low vendor vulnerability which means you are not overly dependent on suppliers for materials, services or labor. The oil crises was a prime example of how vendor vulnerable many industries were, such as plastics and motor homes.
- Low customer vulnerability which means you are not overly dependent on a small number of customers. Most clubs rate very well here.
- Low indirect competitor vulnerability which means your customer's needs are not easily satisfied by a product or service which is very different than yours. Home exercise and outdoor exercise are indirect competitors to clubs.v
- A Nurturing business environment which includes such things as technology, regulations and laws, politics, social values, the economydomestic and international, etc. New technology may be so captivating that it captures your members-Cardio Theater, Fit Linx, web based workout tracking and on line scheduling and email reminders have not quite made the big breakthrough-YET. Or hospital linked fitness may simply sweep huge areas of the market up.
Rate your club on each area. Give yourself a 10 if you well positioned; use a one if poorly positioned. Scoring under 65 means you are not well positioned. That does not mean it hurts now.
"To have the path made clear is the
Every healthy club begins by knowing where it is going and why. A well-defined purpose can focus and direct all of the club's resources and energy towards achieving that goal. The history of military warfare is filled with numerous examples of small, well-focused forces which have overcome significantly larger forces which were less well-focused. Similar examples abound in business.
aspiration of every human being in our
beclouded and tempestuous experience."
A healthy purpose should meet four criteria:
Some clubs are unfocused because they try to be too many things to too many people. The result is resources that are spread too thin to be effective. For most of us it is easier to decide what to do than it is to decide what not to do. We simply take a piece of paper called our "to do list" and write all the things that we think are important. We may even then go back and star the ones that are the most important. To have focus however, it is necessary to go back and to cross off the list all except a few of the stared items. Peter Drucker calls this setting posteriorities.
- Clear to all staff
- Meaningful to all staff
- Agreed upon by all staff
Focus is always easier in a small club since there is a lack of specialization and the small size allows everyone to see what everyone else is doing and hence understand the big picture much more thoroughly than is possible in a large club. As the club grows each individual's allegiance and focus tends to shift away from the club's purpose to their departmental purpose and in some cases the shift even goes down to the purpose of sub-units within the departments. Thus, accounting becomes more interested in accounting than in the purpose of the club. Sales becomes interested in sales, and fitness focuses on equipment. The poor president is the only one who is worried about the whole club!
Profit Is Not The Focus
Other clubs have a strong focus, but the wrong focus. The first wrong focus is profits. Profit is not the purpose of business just like health is not the purpose of life. Good health is critical to having a good life, but there is more to life than health, and there is much more to a healthy club than profits, even though profit is critical. Profit is also deceptive, since it usually involves accounting sleight-of-hand with little correlation to cash or value.
It is common to talk about profit as a way of keeping score. This is a much healthier viewpoint than profit as a purpose since it points out the distinction between the game and the score. The purpose of the game is to play the game well. And if this is done, the score reflects it. If there is too much focus on the score, one is apt to not keep your eye on the ball and not play the game well.
I have been told that a well known tennis pro who retired from the professional circuit some twenty years ago uses this principle when he plays now. Being well past the prime of life he's seen as an easy target by some of the sport's younger and more athletic amateurs. Many of them have challenged the old pro to a match, presumably for the fun of beating a pro. Yet the ex-pro has not lost a single one of these matches. His secret is that before playing he insists on a rather significant wager, large enough that if the challenger lost it would really hurt-like your car or house! When playing for such a high stake it is very difficult to focus on what it takes to play the game well. All of the challenger's attention is on the score. The same failures occur in clubs where all the focus is on profit or sales. The same focus error can occur when a student chooses to focus on grades and not on learning.
Growth Is Not The Focus
The second wrong focus is on growth. Growth without sufficient cash, people or control is a disaster. Osborne Computer and Peoples' Express are examples of companies so consumed with growth that they died. Currently some businesses focus on growth and going public. There is a big payoff for owners when this happens. Yet 1-3 years after going public many businesses are in very poor health. This type of extreme growth is almost like a cancer.
The Right Focus
Ultimately, the right focus is always on understanding then satisfying the customer's needs. For it is the customer who keeps the business in business. In fact, the most sound management advice to any business is very simple, "Get and keep good customers." If you do this, all the rest can be solved. The way to do this is to "find out what the customer wants and give it to him or her." ... Lee Iacocca
Figure 1 illustrates the relationship between the customer's needs (1) and the products or services (2) your business provides. The degree of overlap (3) of these two areas, is a measure of how well your products and services meet your customer's needs. If there is no overlap, there is no business.
Figure 1. The relation between customer's needs and the club's products and services.
These two circles represent two different viewpoints for looking at the same view. For example, when you go into the hardware store and purchase a 1/4" drill, the product you have purchased is a quarter inch drill (Circle 2). But, your need was to have a 1/4" hole (Circle 1). The only people who truly need 1/4" drills are those who look upon them as a work of art and take them home and mount them over their fireplace!
As soon as you loose sight of the customer's need, it is possible for another product or service to better meet that need. We have seen this evolution occur with the tremendous popularity of the Morse twist drill which replaced the old brace and bit. More recently, however, the twist drill has been replaced in part by flat bladed wood drills, lasers, and water jets. The customer needs a hole not a drill and the Morse Company has struggled to survive because it focused on products (Circle 2) and lost sight of the customer's needs (Circle 1).
What They Need vs What You Have
This distinction between the two circles was clearly seen by a friend of mine who when a window in his brand new Porshe was broken. He was heart-broken and very concerned that the winter weather would damage the inside of this car. He called up one glass company which quickly told him that they did not carry the particular piece of glass for his car, but they could have it within THREE days. When he expressed his concern about how to protect his car the glass company advised him to get a plastic garbage bag and tape it over the window. If you are a Porshe lover, you know that this solution will not meet your need! Besides, you can't see through it.
At that point my friend decided that he would try another glass company to see if they had the item in stock. The second company also told him that they would have to order the glass for him. They also suggested that while writing up the order they would be happy to install a temporary window.
As he was walking out of the office of the second company, having just written up the order for the window, he noticed the mechanic in the shop vacuuming all the little bits of glass out of his car. He immediately noticed a nice clear tightly stretched piece of plastic on the outside of his window and another on the inside of his window. Before he could say a word the service man had stood up and said "Don't worry we've tested the masking tape and it won't harm your paint in any way whatsoever."
The first company thought it was in the glass business. The second company knew that it was not in the glass business it was in the business of satisfying the customer's need which in this case was protecting his "love."
Typically the more sophisticated and educated the business person the more likely they are to focus on the product or service and to forget the customer's need. This is very clearly seen when your CPA provides you with accounting information instead of information to help you manage your business better. The accountant says, "I know what information my client should have." The CEO says, "I get all these numbers but I'm not sure how it helps me manage better."
Another friend describes a situation where his teenage daughter sprained her ankle late on a Sunday afternoon. The family doctor was not available so she was taken to a new Doc-In-The-Box 24-hour medical service, for treatment. The doctor taped up the sprain carefully, gave her a sheet of instructions on how to treat the sprain over the next few days and said good night. That evening, several hours after they returned home, the young girl received a phone call. It was the Doc-In-The-Box calling to inquire how she felt and was everything alright. The doctor knew that he was not treating a sprain he was treating a person and that the patient had needs beyond those of simply treating the sprain. My friend now reports that the Doc-In-The-Box is the new family doctor.
Kodak once believed it was in the photography business (area 2 in Figure 4). Fuji Film realized it was in the image reproduction and preservation business (area 1) and expanded from film into copiers and video. To a large extent the video camera has replaced the home movie camera. This may well happen to the still camera, and film will be a declining business.
It is very difficult to focus on customer needs since customers often appear to be irrational, erratic and highly idiosyncratic - in other words, entirely human. The natural response is to discount the customer or client, and do what you "know" is right for the customer. This may succeed in the short run. Invariably, in the long run the target shifts and the club misses. The more the purpose of the club focuses on the customers'/markets' needs, the greater the chance for long term success.
In a young company the overlap between the two circles is usually quite good. As a business ages the two circles drift apart due to changes in the customer's needs, changes in the business environment and the inability of the business to respond to the changes (Characteristic 5). If your attention is on your products and services, you don't notice the change until its often too late. If, on the other hand, you are focusing on the needs of the customer, it is much easier to notice the drifting and to take actions to correct it.
Well Stated Purpose
A well stated purpose focuses on meeting the needs of four entities who are critical to the club's success:
A healthy business will include each of these four areas in its statement of purpose. It will usually emphasize them in the order in which they're listed above. These four areas, of course, are all in potential conflict with one another. The healthy business spends a fair amount of time seeking the appropriate balance between the four areas and continually readjusting the balance. One of the first steps in doing this is to quantify and consistently measure how well the needs in each of those four areas are being satisfied.
- First, the needs of the customers.
- Second, the needs of the business such as cash, profit and growth.
- Third, the needs of the owners.
- Fourth, the needs of the employees.
Clarity Of Purpose
The second quality of a healthy business purpose is its clarity to all employees in the club. Since the purpose is used to focus every other decision and activity in the club, it must be clear to all. This use is what gives the purpose its power. In order to achieve this power everyone in the club must understand the purpose.
The most successful purposes add the third quality. They provide meaning to each individual's work by integrating the businesses purpose with the individual's life purpose. Being a firefighter who has saved a child from a burning building, illustrates the role of meaning in a job. Of course, the fireman works for money, but meaning plays a powerful role also.
Purposes with meaning often contain such phrases as, "to be the best" or "to create our own future," or "to challenge all of us." Starrett Tools makes micrometers and competes successfully in the 80's against all overseas imports. An underlying theme in the Starrett purpose is to be "undisputedly the best." This appeals to all of its employees, many of whom are craftsmen.
Female workers in a medical company were producing poor quality plastic tubing. When the company focused on quality improvement techniques little progress occurred. Eventually the company realized it's purpose was satisfying customer's needs and the customers were the patients who used the tubing for breathing while in the hospital. The company then bused all employees to a nearby children's hospital ward to see their products in action. A giant photo of their tubing in use by a child was mounted near each tubing machine. Quality improved dramatically. The firm's purpose clearly gave meaning to the workers, many of whom were also mothers. They were no longer just making tubing; they were caring for children.
Look at the difference between two football teams where one simply has the purpose to win games and the other has a purpose of bringing pride to their city. The second example has the potential of being a more powerful purpose by capturing the energy of the whole community.
Our individual search for meaning or significance in our lives is one of the most powerful motivational forces we can experience. When an club's purpose enables employees to also find meaning, their commitment to the club can be nurtured to extraordinary heights. An employee with a high sense of meaning in his or her job will know how his or her job contributes to:
One $20 million dollar client is in the business of trucking human sewage, and you would think a purpose with meaning would be out of the question. However, the company trucks primary sludge to treatment facilities and then to farmers' fields. They did not see themselves as sewage workers, but as environmental saviors who prevent river and ocean pollution by recycling organic fertilizer which benefits the farmer, the duck, the swimmer and the produce consumer.
- The department's purpose
- The club's purpose
- The customer's needs
- The community's needs
- The owner's needs
- His or her own needs
It is a challenge of leadership to conceive the purpose in a way that is meaningful. This challenge is well known to military leaders. Soldiers protecting their country have endured lack of food, life threatening climates, extreme physical exertion, exhaustion and the constant fear of death because what they are doing is very meaningful to them. Napoleon commented that success in combat was 2/3 morale and 1/3 material. When meaning disappears morale is soon to follow. This is a crucial part of the United States military failure in Viet Nam. The conflict had no meaning, thus morale disintegrated to a point where foot soldiers were killing their own leaders. When organization and individual meaning are poles apart, mutiny often follows.
There was a time in my life when I spent several months each summer engaged in expedition mountaineering in remote areas of the world. In each case our climbing team consciously found itself in situations where the weather was life threatening, the food was poor, the physical exertion extraordinary, and there was significant threat from rock fall or avalanches. Yet our mountaineering team persevered because the challenge of a first ascent provided extraordinary meaning to our lives.
In the early decades of the industrial revolution there was little concern for the poor quality of working conditions and no concern for providing meaning to the employee's life. Since there was no "psychological" pay, workers began to demand monetary pay. This trend has reached it's zenith in our highly unionized industries where workers see their jobs as meaningless and are paid 25-35 dollars per hour.
Christopher Wren, the architect, illustrates the power of purpose with these responses from three stone masons when they were asked, "What are you doing?" The first one responded, "Putting in my ten hours." The second replied, "Crafting stone." The third said, "Building a cathedral to God."
Pap test labs are a current example of a whole industry which has lost its purpose. Pap tests are the most widely performed medical test. They are designed to detect cervical cancer. If caught early it is almost always curable. Yet, one fourth of the cancer cases are not detected by the tests. This means the patient is told she is okay when she is not.
As reported in the Wall Street Journal the PAP Smear Test industry is driven by cost and profit. The incentive system for the testers is piece work rates and the freedom to leave work early if they are fast. As a result, the tests are done up to ten times faster than recommended by experts.
The industry and the employees believe the purpose is profit. By not having a purpose which focuses on the customer's needs (in this case, the patient), seven thousand women per year die in the United States due to cervical cancer.
This is an example of an historically un business-like industry--the medical fieldwhich has misdiagnosed itself. The symptom was lack of profitability and customer dissatisfaction with cost and quality. The response has been to refocus the purpose on profits and cost; and to neglect the basic purpose-serve the customer.
Agreement On Purpose
The fourth essential quality of the purpose is that everyone in the club agrees to it. If it is clear but not agreed upon, then individuals will not make their decisions to support the purpose. When the purpose is not clear and agreed to by all in the club, everyone is on his or her own in making the innumerable little day to day decisions. Thus, in a short while every one has developed his or her own informal philosophy, policies and procedures. The usual response is for leaders to then develop innumerable official policies and procedural manuals. These kill creativity and encourage inflexibility.
In a healthy business, a clear and agreed purpose focuses decisions, reduces unproductive conflict and inspires cooperation. Within the purpose, creativity and flexibility are nurtured. This combination of focus and autonomy is a powerful motivator since it appeals to the human desire for purpose and freedom.
A quick test for assessing how purposeful your club is would be to ask every employee from top to bottom to tell you the purpose of the business. Remember, no prompting from you. In a healthy club the answers will be remarkably similar and focus on the customers' or clients' needs.
In order to improve the quality of the purpose of your club, your management team will need to spend time (hours to days) to create the first draft of the statement of purpose. This process begins by creating a vision of the desired future and ends with strategic planning. Once the purpose is communicated to others in the club, you will be able to collect more feedback and ideas for refining it. Your statement of purpose should be reexamined once a year.
Great leaders create great visions which are also extraordinarily simple. Martin Luther King's "I have a dream..." is an example as was John F. Kennedy's vision of putting a man on the moon and returning safely before the end of the decade. One vision motivated the Civil Rights movement for massive change in the United States while the other dream triggered the growth and early success of NASA. The more powerful the vision or purpose, the more likely the club will create its future instead of reacting to it.
Once a purpose is drafted, it must be communicated and its implications discussed with all employees. Preferably, face to face in small groups. Now it is time to design an information system which will measure each critical item in the purpose. If all you measure is profit and neglect to measure customer satisfaction, the message is clear, "profit is king."
Remember, a business can be showing excellent financial performance and have little purpose. By not addressing and balancing the needs of all four areas, the business will ultimately undermine itself and shorten its life. Lack of purpose, like the other six characteristics, are early warning signs of future problems.
Once you have a meaningful purpose which is focused, clear and agreed by all, it can be used to evaluate and refocus every other club decision, no matter how large or how small. Most importantly, this process can align the club's strategic elements to support the purpose. The following strategic elements of an club should all be aligned to support the purpose.
Strategic Design Elements:
These elements are called strategic since each one of the five is a different way of linking and converting the Purpose of the organizations into action and behavior.
- The Culture which is the beliefs, philosophy and values of the business. It is the fabric which supports every aspect of the club and explains why things are the way they are.
- The Planning system which converts the purpose to strategies and shorter term objectives and is eventually tested in the budget or profit plan.
- The Structure which divides up the work and assigns tasks to specific departments and individuals.
- The Control system measures progress on critical outcomes and provides mid course corrections.
- The Incentive system which decides what people must do to be rewarded by the club in monetary and non-monetary terms.
Figure 2A model of strategic mis alignment on the left and strategic alignment on the right.
A misaligned club is like taking a trip in an automobile where the destination may be clear but the wheels are not aligned and pointing in the right direction. With serious misalignment you may never reach your destination. With moderate misalignment you will get there but you will expend tremendous amounts of energy overcoming the misalignment. Here are several business examples of misalignment:
If your statement of purpose were to say that quality is number one you would then want to have a culture or informal value structure which truly says that you will be backed for holding up a program and re-doing it when the quality is not up to standards. The structure supports this part of the purpose by making sure that each persons job definition includes being held accountable for quality. The control systems in the club supports quality by providing timely and reliable quality information. Finally, the incentive system can also support decisions in favor of quality. Thus, a well aligned club is very powerful and efficient. It does not waste human energy. The company purpose is the lens for focusing all other parts of the club to bring them into alignment.
- Cultural Misalignment: You tell employees that quality comes first yet everyone knows that in reality quality is forgotten when there is a rush.
- Planning Misalignment: Our purpose is clear, but our short-term priorities are continually changing.
- Control System Misalignment: You believe that satisfying customer needs is very important yet you have no information system to regularly measure this.
- Incentive System Misalignment: You wish to attract new customers to your restaurant but there are no incentives to encourage the waiters to bring in new customers. Or salesmen are encouraged to get help with member retention activities yet the commission structure is set up to favor selling new members.
From a historical and political perspective, the difference between the United States and the USSR is not in their purposes but in their alignment. The Constitution of the USSR is a noble statement that most U.S. citizens would approve. There are many parallels to the United States Constitution. The difference between the two nations is the better alignment of the United States to its Constitution.
Once the purpose is clear and agreed ask a diagonal slice task force to list everything about the club which truly helps accomplish the purpose. Once this is done, have them create a second list of everything in the club which blocks or inhibits achieving the purpose. For the most depth, these lists should be made individually before they are accumulated in a team session. These two lists will indicate areas of alignment and misalignment. This process may require an outside facilitator if there is not a history of open and honest communication in the club.
Strategic Job Descriptions
Alignment can be significantly improved by creating strategic job descriptions. These begin with the corporate purpose and then tell everyone their job priorities. The first priority for everyone is to achieve the corporate purpose (Vision, mission, goals and values).
The second most important priority on everyone's job description is to respond to the needs of other department's to help them achieve the corporate purpose.
And lastly, the third most important part of your job descriptions are departmental functions. These are what is included in the typical job description.
A systematic and in-depth approach must be taken to thoroughly re-align the five Strategic Design areas. In general, they need attention in the order in which they are listed above. This is the agenda of a major, long-term improvement process.
These first three qualities of a healthy club: Strategic Position, Purpose and Alignment should all be maximized. The more the better. The next four qualities are not to be maximized but optimized between two extremes. The healthy club is continually seeking the right balance between these extremes.
Characteristic 4Stretching Versus Coasting
"To be satisfied with the norm is fatal.
A stretched club is one in which each person is continually trying to do his or her best. Stretching most commonly occurs when an athlete is working with a good coach. Each day the coach will stretch you to just a little bit more, just a little bit better. Stretching seems to be a natural tendency of all people. Little children who are just learning to build with blocks will always pile them up until they all fall. They don't create a conservative pile that's stable. As children grow older they will climb to their limits unless discouraged by adults!
You must constantly demand and
strive for maximum performance."
Figure 3-The original research on stress by Hans Selye pointed out that stress is not the problem. Too little and you coast; too much and you are strained. Just right and you achieve maximum productivity and health.
It appears that people stretch when four conditions exist:
New businesses usually have all four of these qualities without trying, due to the nature of a start-up business:
- They are challenged.
- They feel that they can make a difference in the outcome. Another way to say this is that they feel a sense of control.
- They are rewarded, not punished for stretching. In many cases of course, the reward is simply the internal one of satisfaction.
- They are trusted. A lack of stretching shows up most clearly where people's autonomy is limited such as in a police state or in a bureaucracy. This also occurs in a child when adults caution them not to climb so high.
Club Stretch Stimulates Individual Stretch
- The challenge is to survive.
- It is easy to make a difference because of the small size and the high impact of any single individual.v
- New businesses are often infused with a positive success-oriented attitude which encourages and rewards frequently and quickly.
- High trust exists because there is no time to over-supervise or over control individual behavior.
Stretching can only occur when the club has a purpose and is trying to align itself. If there is no attempt to align, then the club is not stretching, which is a prerequisite to individual stretching. When all the demand to stretch is on individuals and not on the club as well, little stretch will occur over the long run.
Stretching will only occur where the culture of the club says that it is okay to make mistakes. If failure is penalized, there is a high dis-incentive to stretch.
The value of stretching can be seen in many settings. Former Secretary of Education William J. Bennett reported that in inner city schools with high drop-out rates, "the higher the standards, the lower the drop-out rate."
Types of Stretch
There are two basic types of stretch. One is hard work; the other is creative work. Many clubs have "hard work" stretch. Few have "creative stretch." Creative stretch occurs with change and produces emotional discomfort.
Stretch versus Strain
Productivity is closely tied into stretch as revealed in Figure 3. It is essential that just the right amount of tension is applied by management to produce stretch; but not over stretch, thus creating strain, or under stretching which creates a climate of coasting. This is a very fine balance which requires constant monitoring and fine tuning.
As every club grows and matures there is also a natural tendency for the policies and procedures to grow. These put an increasing focus on being correct and controlling individual behavior. The result is that managers who are willing to stretch are turned into administrators who prefer to coast.
The opposite of stretching, of course, is coasting. This begins when you begin telling yourself that you deserve to slacken the pace a bit and it ends up with conscious physical and psychological absenteeism.
Many of you have had a coach, a teacher or a boss who stretched you. It was probably not easy or comfortable. But it was a time in your life when you were at your best. A good leader or manager will also stretch his or her followers. Stretching is subtle. Challenging is not demanding. And stretching is not straining.
When people are stretched, a number of personal qualities emerge and develop:
The Outward Bound adventure training schools have capitalized on this fundamental relationship between challenge and character. They have taken over the job which our families, schools and jobs often neglect.
- High energy
- The ability to follow or to lead
Coming back to the car analogy; with purpose, you know your direction, with alignment, your wheels are pointing in the right direction, and with stretching, your foot is on the gas, but not driving the engine into the red zone.
You may not be able to easily find out if the people in an club are stretching to do their best. It takes real confidence to admit to yourself you are coasting, much less to tell your boss. One way to find out is to ask people what it would take for them to do their jobs 20% better. People can usually generate good answers to this question if they are encouraged to be creative and innovative. If their answers begin to touch on any of the four conditions under which people stretch, you can be assured that there's a fair amount of coasting going on.
You can also assume that no one is fully stretched unless you have specific examples of individuals stretching in all departments every week. You can also assume that stretching is not occurring unless there are specific and definite activities which are designed to encourage the stretching process. Such activities would include the negotiating and setting of departmental objectives which are mutually agreed upon by all department heads, team negotiations for setting annual budgets, on the spot performance appraisals which support stretching, high accountability for commitments made and incentives which reward stretching. Although it is difficult to objectively measure stretch, most managers and employees can subjectively assess it quite accurately if they are speaking openly.
If your standards of performance are based on precedence, they are always conservative, and it is guaranteed there will be little stretching. This does not mean you should ignore your past history or industry standards. Find out what they are and exceed them! Some basic financial performance standards can be obtained for most industries from Robert Morris Reports, or your industry association. If no figures exist for your type of business, select some top performers, and go visit them and learn what their standards are. Xerox recently learned how to improve its warehousing efficiency by visiting LL Bean.
You can stretch in two basic ways. The first is setting higher and harder standards which initially encourages harder work and longer hours. Unfortunately, there are real limits as to how far this type of stretch can take an club. The second type of stretch has no such limits; it zeros in on working smarter by finding new ideas and perspectives.
Characteristic 5Control Versus Flexibility
One extreme of this continuum focuses on control, stability and continuity. The other extreme is characterized by flexibility, responsiveness, change and creativity.
When a business is under control there are no internal surprises at the end of the week or the end of the month. This means you have first identified the critical results areas for your business. These are the areas in which you must achieve results if you are going to accomplish your purpose. It is best if you have narrowed this down to a half-dozen or less of areas. These must be regularly monitored and the information fed back to all in your club who have any impact on the area. This allows them to take corrective action based on the information.
In some unhealthy clubs, information is shared only on a need-to-know basis and the ability to take corrective action is reserved as a management prerogative. In this case, control is usually quite poor and managers end up attempting to keep control of areas which workers may control much more efficiently and responsibly.
Based on your type of club, you may need to receive feedback on a daily, weekly or monthly basis for your critical results areas. The report you receive should not be more than one or two pages long; not one or two pounds heavy! A major danger of our computer era is that you can be inundated with irrelevant and unanalyzed raw data. The data in your critical results areas should be simple and analyzed with ratios, percentages, comparisons and graphs.
One of the best ways to determine an club's strategy is to examine what it measures and controls on a regular basis. The critical results areas for the total club should, of course, include measures of the four entities whose needs are being served--Customers, Club, Owners and Employees. Many clubs only measure financial information because their accountants have blinders on and believe hard financial numbers represent the only valuable information.
Accountants are the experts on "counting and measuring" and should take off their blinders and also measure such things as customer and employee satisfaction. Only when you begin to measure these do they truly become important and useful for improving the club's health.
As you cascade control down through the club, each department should have it's own set of critical results areas. For instance, the sales department may measure the frequency of customer inquiries or the conversion rate of inquiries into sales. Both of these measures may be much more significant than actual sales since they will show a drop of sales long before the actual revenues drop. Staying in control means getting the information as soon as possible as opposed to simply waiting for the results, in which case it may be too late to take corrective action. Thus, good critical results areas are those which give you the earliest indication of something being out of control.
Most clubs realize that keeping under control requires a systematic approach to managing information and corrective action. In this case, the control system must have specific goals which are supported by the proper critical results areas. The information reported must not only be accurate and timely but also used to take corrective action.
In a healthy club, control is balanced by responsiveness, the over controlled club is like the driver of a car who rigidly grasps the steering wheel and plows directly into an accident. The responsive club can steer around obstacles!
Responsiveness in an club occurs at two levels: Strategic and tactical. Tactical responsiveness shows up in hundreds of small changes to improve things.
A club which is over controlled will not allow for flexibility, change and creativity; as the size or complexity of your club grows the founder cannot supply enough ideas or flexibility for the club to remain responsive. It is necessary to begin tapping ideas from all people at all levels, all of the time. This search for new ideas will lead to improvements in your products and services as well as internal improvements in how you produce and deliver. Your search for new ideas should not simply be limited to employees but also extend to customers. In much of the consumer products industry it appears that new products are developed based upon customer input as opposed to input from sophisticated and well financed product development departments.
An owner of a dozen franchised pizza stores reported that they had charged more for take-out orders than for eat-in orders until a customer once questioned this policy. "Why do you guys charge more if we take it home to eat it? We don't take up table space, you don't have to clean up after us and it seems like it should be cheaper." The next week the prices for take-out were reduced and take-out sales began to increase.
In another situation, impatient patients complained to their doctors about arriving on time for appointments and then having to wait. Since this outpatient clinic was located adjacent to a shopping mall one patient said, "Why don't you just give us beepers just like you have so you can tell us when the appointment is ready?" Now any patient who is likely to wait more than 15 minutes is given a beeper to allow wandering around the mall.
Internally many good ideas, in fact, often the best ideas come directly from the people most directly involved with the work. This means that you need a systematic way of encouraging and tapping ideas from your front line workers. One way to assess the creativity of your club is by the number of new ideas which are generated in every department every month either for new products or new ways of improving producing and delivering your products and services.
Similarly, if your club is to be creative, it is necessary that there is a systematic way to stimulate, select and reward new ideas. Simply having an open door policy is not enough. It is like the business man who says he is very interested in profits but has no systematic way of measuring or reporting on them.
If an club goal is to increase creativity, it is necessary to align the club behind that goal. The following six factors are common in clubs which have a record of innovation (10).
The Innovative Club
Without this support there will be little systematic innovation in an club. Creativity and innovation are often associated with small companies, but that is not necessarily so. Even though the tendency is for large companies to age and bureaucratize and loose creativity, many large clubs successfully fight this trend. A prime example is the 3M Corporation which continually develops successful new products. Ogilvy & Mather have frequently been rated near the top in creativity as an advertising firm, yet they are also one of the largest.
- Plans and objectives which focus and encourage the development of new ideas in certain areas such as customer relations, cost reduction, improved efficiency or product line extensions.
- The culture must encourage open communication, and risk-taking while tolerating mistakes.
- A structure is needed outside the normal hierarchial structure which will encourage, collect and consider all new ideas.
- A set of criteria for evaluating new ideas.
- Resources must be available to support the development of new ideas which are not part of the regular operating budget.
- Incentives to reward people for new ideas which succeed.
In addition to being creative, the healthy club must be sufficiently flexible and able to change so that it can put new ideas to use. One of the best analogies of this fifth characteristic is a skier. Skiing well requires the appropriate balance between control and flexibility. Once an club has found some balance between these two extremes it is now necessary to escalate the level of each one while maintaining the balance. This will allow you to ski on expert slopes as opposed to beginner slopes.
The responsive club is like the polo player and his horse. With the slightest shift of weight or twitch of the knees from the rider, the horse knows which way to turn and does so instantaneously. At the other extreme, you find the unresponsive club which is somewhat like riding a stubborn mule. Even when you beat it with a long stick it changes direction very slowly, if at all. The responsive club is able to respond to desired changes quickly, thoroughly, and without undesirable side effects and without policing.
A quick survey of the development of military strategy also shows that speed wins. Horses are faster than foot soldiers. Tanks are faster than horses. And helicopters are faster than tanks. This strategy of mobile warfare has been most thoroughly articulated by Rommel, "Speed of maneuver in operations and quick reaction in command are decisive." Troops must be able to carry out commands at top speed and in complete coordination.
Regis McKenna, the guru of high tech marketing, often describes an example of strategic responsiveness in his speeches. Intel dominated the computer chip market. Motorola then developed an improved chip and a battle for market dominance began. Motorola was taking market share. Intel responded with a crash program which eventually gave it market dominance. The time to analyze the problem and develop the action plan was seven days. Executives at Motorola reported that it would have taken them seven days just to get the right people together for a meeting.
An club which is truly responsive has a number of attributes which contribute to its responsiveness.
Thus, some of the first steps for improving responsiveness in an club include an increased level of communication, understanding, and respect, (ie. teamwork). At first, accounting and sales do have to sit together quite frequently whenever either one of them is making decisions which may effect the other department. They must sit together to educate the other department about their perspective on the problem so their needs are integrated into the solution. When this educational process has been completed, and it is no longer necessary to always sit together in order to be coordinated, a higher level of responsiveness will have been established. This high degree of coordination is most often seen among the professional athletic teams, musical team and casts of plays. It is least often seen in professions like accounting, law and medicine.
- Communication is open, honest, complete, accurate and thorough. Like the trained athlete who has an extraordinarily responsive nervous system, healthy clubs must have a communication system which links every part to every other part.
- In order for this information to be well used, the club must have a high degree of mutual respect between individuals and between departments. This means that the information that you receive from another person or another department is respected as being valid information from their point of view. Instead of being discounted and discarded.
- There must be a high degree of trust between individuals and departments. This trust must be based on fact and understanding not on faith. When the sales department trusts the accounting department, it means that the sales department based on past experience, knows, that when the accounting department is changing a system, that it will thoroughly consider the needs of the sales department and integrate them into the new system without the sales department having to be continually vigilant and present in the system redesign. This is trust based on knowledge not trust based on credulity.
- Changes in Purpose and strategy drive realignment of the five Strategic Design Elements in Characteristic 3.
Strategic Responsiveness begins with a balanced awareness of the critical external factors outside the club and internal factors within the club. The club which focuses exclusively internally is very aged and bureaucratic. The club which focuses exclusively externally is typically out of control. External awareness generally focuses on four external areas and two internal ones.
To be responsive an club must be aware of what is going on that it must respond to, such as:
If you are sufficiently aware of changes in these areas, it is rare that your business will be caught from behind and surprised. By keeping your periscope up you will be able to anticipate changes instead of simply reacting to them. Many significant business failures are due to external changes which were not detected soon enough.
- Changes in your markets.
- Changes in your competition.
- Changes in your vendors.
- Changes in your club's environment which includes such things as technology, regulations, the economy, etc.
- The internal health of the business; such as its financial performance and its clubal alignment (Characteristic 3).
- The degree of employee satisfaction at all levels.
A client of ours in the cable television business was so concerned with the rapid rate of technological change that a vice president was assigned to monitor this as part of his duties. This was done by subscribing to a large number of technical publications, informl networking and attending many industry conventions. The information gleaned from these sources was summarized onto one or two pages and distributed to all managers with the company on a monthly basis. This allowed the purchasing agent to make decisions about how many units of a new piece of equipment to purchase in light of potential changes in technology of such equipment in the next few months. It also allowed the engineers to design more appropriately.
After hearing a brief seminar on these six characteristics, the president of a construction company which installed glass on skyscrapers returned home and immediately decided to have lunch with his major supplier of extruded aluminum moldings which held the glass. During the lunch he found out that his supplier was likely to be involved in a strike in a week or two because of a labor dispute. Since this had been his sole source of these materials, the president immediately started searching for a second source and fortunately found one before his primary vendor went on strike. In this case, he was able to anticipate a problem instead of react to it.
Every business in the United States which depends upon entry level employees who range in age from 18 to 25, should be highly aware of the so called "baby bust." This is the opposite of a "baby boom." In approximately 1990 we will have the lowest number of entry level workers available to start work. Since our economy continues to expand, the 18 to 24 age group will find itself in a sellers market. This means that it will be harder to attract and keep people in this area. If you are not aware of this now, it will be very difficult to prepare for it then.
Young companies tend to have no systematic way of keeping people aware of changes, just a very good intuitive system. Although this can work well, it often has serious blind spots.
Old and more mature companies have often developed a very systematic way of looking at their internal and external world. The danger is that there is too much system and too slow a reaction.
Of course, there are at least two additional qualities of unhealthy clubs which often prevent them from making use of good early warning data about changes in external factors. One of these is the culture of the club which says we don't believe front-line people. An excellent example of this were the reports by retail store salesmen in the Singer Sewing Machine company that housewives no longer wanted to sew. They claimed that in the late 1960s and early 1970s when more and more women were entering the workforce, that it was more acceptable for a woman to be a poor tennis player than to be a poor sewer. Corporate headquarters refused to believe these reports and blamed it on poor salesmanship. It was not until the Singer Corporation suffered some of the largest losses in American corporate history, that the message got through.
The second reason why early warning information is not made use of is the sluggishness in responding. The club may be willing to respond to the information but not able to respond fast enough. At times, this is combined with a hesitancy to truly believe the new information. A combination of these factors has been seen in every industry which is deregulated.
Although the appropriate balance between internal and external awareness in a healthy club will vary depending upon the stage of growth of the business, it is generally better to favor external awareness over internal. The responsive club is much more likely to have a strong Strategic Position.
Characteristic 6Profit Versus Growth
The profit end of this spectrum is a measure of the amount of profit that your club spins off. One of the best ways of measuring this is the amount of value added dollars which you create per employee. The value added is the difference between your cost of materials/equipment/facilities and the price (total income) for which you sell them. This calculation does not include such things as debt service, taxes, labor or other overhead. A healthy club must spin-off surplus cash in order to pay for debt service but more importantly to invest in assets for the future whether these assets are capital equipment or the development of personnel.
By analyzing over 125,000 financial statements, one research effort across many industries has come up with an empirical figure for firms which employ something over a dozen people and have a reasonable distribution of top, middle and lower level workers. The research discovered an extraordinarily high correlation between healthy businesses and those which produced a bit over $40,000 of value added per employee. Those which produced less than this simply did not have the resources to invest in their future. Of course, their bottom line profitability may look very satisfactory in the short run. An club will show a decline in its ability to spin-off cash way before there is any significant change in its profitability.
Another way to measure real profitability is through your gross margin. Many business analysts believe this is a more accurate indication of financial success than traditional profit measures. The reason for not including profit in the characteristics of a healthy club is that profit tends to be a fiction. You can increase or decrease profitability by accounting sleight-of-hand. It is a rare club in which there is a relationship between profits and cash. Thus, we prefer to measure margin, cash or earnings before interest, taxes, depreciation and amortization (EBITDA).
At the other extreme of this continuum is the club which is growing very rapidly and, in fact, outgrowing its cash. This typically occurs because the cash is tied up in facilities, equipment or uncollected accounts receivable.
Thus, whenever an club is in a fast growth mode there is a high likelihood that growth may become its downfall. Some recent data reveals that the single best predictor of decline in an individual business was a recent period of growth. On the other hand an club which is spinning-off very high amounts of cash and is not growing will also undermine itself.
Characteristic 7Individual Versus Club
Every successful club must find an appropriate balance between serving the needs of the individuals and serving the needs of the club. Even in the times of kings and slaves it was necessary to balance the needs of the slaves against the needs of the kingdom if the kingdom was to continue without a revolt. After the industrial revolution and well into the 20th century the balance heavily favored meeting the company's needs. As a result, there tended to be long working hours, strenuous work, poor working conditions and low pay. This extraordinary neglect of individual needs led to the foundation of the union movement and Federal Legislation to protect workers. Someone had to stand up for the workers if their business would not.
In the last 10 to 15 years, businesses in the United States have generally sought to readdress this imbalance. The motivation for this change has come as much from the company president's changing values as from pressure due to Federal regulations protecting individual rights and needs. Unfortunately many of these regulations are bureaucratic overreactions which make it very difficult to find an appropriate balance between the individual and the business. It is one of the penalties which the modern generation of managers are paying which was incurred by our turn of the century industrial leaders.
As the educational and knowledge requirements escalate for entry level workers, we find a curious difference from turn of the century smokestack industries. In the beginning of this century the foreman and supervisor always knew how to do the workers' jobs. In our current knowledge revolution it often turns out that the boss or supervisor is often not as technically competent as the worker. This means that the individual has a much greater degree of power over his or her boss and consequently must be more carefully nurtured in order to be a high performer.
One measure of an club's focus on individual needs is its ability to attract, develop and keep talented people. On the other extreme, we see the clubs which tend to grind up and burnout people. It is interesting to note that the high income for partners in many professional organizations has historically been dependent on a large mass of entry-level accountants, lawyers or interns who worked extraordinarily long and strenuous hours for modest pay. Many of these professions are now experiencing great stress at this point because entry-level workers are no longer tolerating such conditions.
An extreme example on maximizing the individual benefits to a small group of people is the recent concept of "Golden Parachutes." In such a situation, the management team, if forced to bail out, takes with it many millions of dollars to the severe detriment of the business. More traditionally we find an imbalance when top executives have company cars, large expense accounts, 35 hour work weeks, and gold business card cases.
One of the curious interplays between the extremes of this characteristic is the tendency for clubs to begin by not truly responding to individual needs for challenge, promotion and increased income. As a result, individual's move and transfer to other clubs or industries.
This imbalance is significant in the club industry. Clubs have not figured out how to make the organization strong enough so they can also support the individual. Don't feel you are alone in this dilemma-most service businesses are. The net result, of course, is that the original club looses a great deal. It recruits, trains and develops people and then looses the investment when they leave. The short sighted solution is to reduce your investment in people.
Employees in our Federal Civil Service system have the highest level of benefits of any industry in the nation. Since the Federal government is the body which has enacts many of the new regulations to support meeting individual needs, this legislation is first applied in the Civil Service arena. Unfortunately, this heavy focus on individual needs has not been balanced with efforts to meet the needs of the organization. Thus, many of them have little health in purpose, alignment or stretch.
Escalation and Balance
Once an club has found a fairly good balance between the extremes in the last four characteristics it is now necessary to escalate the level of each end of the continuum. Healthy clubs not only have a balance between the extremes, but they also have high levels of the two extremes.
When an club finds that increasing its focus on serving individual needs begins to undermine the club's needs, the wrong solution is to back off on meeting individual needs. The healthy solution is to maintain the individual focus and to increase the ability to meet the club's needs. Thus, the ante has been raised on both sides and a new balance is created at a higher level of performance.
Customizing The Characteristics
If after reading through these seven characteristics you find that they do not truly reflect what health would be in your business, I encourage you to modify them. In fact, one of the most powerful legacies that any company president can give to his or her next generation of managers, is a description of what the characteristics are that make good health in your CLUB. This allows the next generation to steer the right course and to make mid-course corrections to keep the business on track and healthy. It is as if you were giving them the genetic code for designing the next generation of your business.
Using These Seven Characteristics To Diagnose Your Business
Once you have understood these seven characteristics, it is possible for you to use them to examine the health of any club. The purpose of such an exam is to produce a diagnosis which leads to an action plan for improving the clubs' health.
An effective diagnosis can be done by presenting these characteristics to a team of top key managers, and then leading a discussion which evaluates their club on the seven characteristics. Several instruments have been developed by our firm to facilitate this diagnostic process.
How Healthy is Your Club?Questionairre
The following questions were chosen to assess seven major areas in your organization. Taken together they will give an over all indication of its state of health. Please respond to each question to the best of your experience even though you may not have complete background knowledge.
The survey results will be used to focus a discussion among managers and employees to decide what, if any, follow up action is needed to improve the organization. You will receive a summary of the results of this survey.
Please print this page and CIRCLE the response to the left of each statement that corresponds to one of the following:
SA STRONGLY AGREE:
You strongly agree with the statement.
IA INCLINED TO AGREE:
You tend to agree with the statement.
ID INCLINED TO DISAGREE:
You tend to disagree with the statement.
SD STRONGLY DISAGREE:
You strongly disagree with the statement.
SA IA ID SD
I clearly understand the direction we are heading.
SA IA ID SD
We show a high degree of respect for our members.
SA IA ID SD
I know how my work contributes to the overall direction.
SA IA ID SD
We have a strong sense of teamwork and cooperation.
SA IA ID SD
Our resources (people, money, time, equipment, etc.) are focused to produce the best results.
SA IA ID SD
There are incentives to encourage us to do what is important
SA IA ID SD
I am proud of our organization.
SA IA ID SD
The people who work here trust and respect each other.
SA IA ID SD
The way our jobs are divided up makes sense to me.
SA IA ID SD
The work I do is very challenging.
SA IA ID SD
The people I work with stretch to do their best.
SA IA ID SD
I know what it takes for me to do my job better.
SA IA ID SD
I get accurate and timely information which helps me do my part.
SA IA ID SD
Our actual performance rarely surprises us.
SA IA ID SD
We regularly seek ideas and comments from our supporters.
SA IA ID SD
We do a better job than our competitors.
SA IA ID SD
The people who work here are satisfied with their work.
SA IA ID SD
Everyone is encouraged to think of ways to do things better.
SA IA ID SD
We regularly make improvements in how we do things.
SA IA ID SD
Staff are not over stressed.
SA IA ID SD
Our business responds quickly to outside changes and challenges.
SA IA ID SD
Decisions are implemented with commitment by all.
SA IA ID SD
We have a good balance between profit and growth.
SA IA ID SD
People here stretch to achieve club goals.
SA IA ID SD
There is mutual respect between employees.