Working with family in chauffeured transportation can be an amazing experience. It can also strain relationships and bottom lines. Because more than dollars & cents are at stake, managing family employees often requires both sensitivity and ingenuity. The following case study examines a recent challenge Charles Tenney & Associates (CTA) addressed with one of our clients.
“Fred Jones,” owner of ABC Transportation, recently asked CTA to help turn his company around. ABC has been operating for 20 years. Fred has other businesses and has not depended on his transportation service for income. Because of decreased performance over the past four years, Fred has infused cash into the business each of those years. The problem now is that Fred is ready to retire. Because of poor financial performance over the last four years, the company can not be sold for a price Fred will accept.
CTA audited the financial, operations, sales and technology effectiveness of the business. We determined that two of the problems involved family members working for the business: Fred's son-in-law and son. Fred originally hired his son-in-law because he had been laid off—like many corporate America employees. He gave “Henry” a sales job with a wage he was accustomed to making: $52,000 per year
Unfortunately, Henry has added no value to ABC Transportation—only a huge unjustifiable expense.
Fred's son, “James,” has worked for ABC for several years and is valuable in many ways. Over time Fred gradually increased James' salary. Fred recently promoted him to General Manager and raised his salary to $70,000. Although James is valuable, he does not have the skill set or GM experience necessary to be an effective general manager. And his contributions, although important, certainly do not justify a $70,000 per year salary.
Fred understands that maintaining the status quo will devastate his business and eliminate his retire plans. But if he does not address this matter delicately, he could create major problems within his family.
Because CTA was instructed that firing the two employees was an absolute last resort, we faced the challenge of finding a way to dramatically increase the production of each employee in a very short period of time.
What did CTA do to address the situation? Three major things.
1. Redefine and Reassign Job Descriptions
Old Job Descriptions: On Paper:
Owner Fred: President and Chief Financial Officer/Facilitate Major Business Decisions
Son James: General Manager—Manage the Operations/Sales/Marketing of the Business
Son-in-Law Henry: Sales Representative—Proactively produce new accounts for the business
Actual:
Owner Fred: General Manager/Sales/CFO/Administration
Son James: Operations Manager
Son-in-Law Henry: Sales (Not producing)
*The problem with ABC was not lack of talent. The problem was misplaced talent. The most obvious example of that was with Henry. He was being asked to produce sales and that was not reasonable nor the best use of his talents. CTA discovered he had a background in finance and was skilled in organization/administration. CTA removed Henry from sales responsibilities and transferred many of Fred's administrative responsibilities to him. Henry demonstrated immediately that he could perform many of Fred's remedial tasks with more efficiency. Additionally we used Henry's financial background in other areas to free up Fred for what he does best…sales.
Freed from significant administrative duties, Fred was able to make outside sales calls and produce on a level far greater than Henry was doing in a full-time capacity.
The job description for Fred's son, James, was redefined as simply operational manager. James is a good operational manager. Releasing him of his general manager title, did a couple of very positive things for ABC. It gave James additional time and focus to improve the operational segment of the business—something he understands well. His General Manager responsibilities were split between Fred and Henry. Administration activities went to Henry and the more creative/sales driving responsibilities returned to Fred.
Once we got on the right track the new job descriptions/assignments looked more like this.
New Job Descriptions/Assignments: Owner Fred: General Manager/Sales
Son James: Operations Manager
Son-in-law Henry: Administration/Financial/Accounting
Once we got the talent working in the right places, we began to focus on maximizing the efficiency of their daily output through processes, benchmarks, and work flows.
2. Establishing Processes Bench-marks and Work Flows (Six Sigma Process Management)
Prior to working with Charles Tenney & Associates, ABC had little to no standard operating procedures. And like most operators in our industry, ABC also had no knowledge of what they could and should produce as a business on a daily basis (industry standards for costs, efficiency, productivity, fleet utilization etc). CTA established benchmarks and expectations of what each department should be producing, to begin refining the flow of work and developing processes for how each individual's responsibilities should be completed.
Once we established the processes of how the responsibilities of each team member should be conducted on paper (mapping the process), ABC began to put those processes into action. Performance improvement took place immediately. As CTA continued to challenge them to improve, the ABC team began to perform the same standard processes with more speed and efficiency—creating substantially more production as a company.
As their production increased, CTA took the next step which was installing a system to measure on-going performance.
3. Installing Six Sigma Process Management
If you are not measuring activity and performance, your goals are meaningless. Prior to CTA, there was very little accountability for performance. Once CTA got ABC's performance at a higher level, it was imperative to ensure that the performance would not only be maintained but also improved as CTA stepped away from the project. Daily performance goals and accountability measures were put in place to ensure no lapse in production would take place. Each department had public accountability to the rest of the organization. Fred took ownership of holding the rest of the organization to the new standard of production daily.
The Results:
After 6 months of applying new job assignments/descriptions, and implementing Six Sigma Process Management processes, process measurement, process managers and process owners, the results were very exciting.
First, with the help of CTA, Fred was able to transform his business and revitalize his ability to retire without having to fire any family members. And the overall value of the business dramatically improved. This gave Fred the option to sell or continue to improve his business—an option he previously did not have. At the beginning of the assignment, Fred's business was valued at $550,000 with debts of $300,000 allowing Fred proceeds of only $250,000 from a transaction. After six months of consulting with Fred's company and improving the performance of the business with a focus on improving the value, Fred's sale proceeds had increased by $100,000 to $350,000. Continuing with the same improvements projected by the end of eighteen months, the sale of the business would allow Fred to double the sale price of his business and triple the proceeds to Fred personally after a successful sale.
Secondly, he was able to continue to provide the level of compensation he had been paying his son and son-in-law and maintain a profitable bottom line. By restructuring their responsibilities and applying effective processes to those responsibilities, each employee actually began to produce at a level that warranted their compensation.
Thirdly, as the standard of production soared at ABC, so did the passion within the organization. Being a part of dramatic transformation is powerful and inspiring to most members of an organization's team. Employees will continue to push the limit of what they can accomplish individually and as a team.
If you are experiencing the challenges of managing a family business and would like to see transformation, please submit the form below. A CTA associate will be happy to speak with you promptly.
