Promote from within and boost profits. It seems like a simple equation, especially after a glance at examples such as Costco, which fills 98 percent of store manager positions from inside the organization and enjoys an industry-low turnover rate of below 6 percent after the first year.
Mark Murphy, CEO of the human resources firm Leadership IQ and the author of Hundred Percenters: Challenge Your Employees to Give It Their All, and They'll Give You Even More, says a commitment to pushing employees up your business’s food chain and building leaders inside the company is critical to the bottom line.
“You benefit from the accumulated knowledge not only of the products and services you offer but also their deep understanding of the company culture, what works and what doesn’t,” Murphy says. “That is an enormous learning curve you must invest in when you make a new hire.”
There are plenty of other benefits to cultivating leadership from inside your organization. For starters, there is a much lower risk of failure or attrition when people in new positions come from within. “You already know this person has been successful and works within your team,” Murphy says. The let’s-grow-together culture also sends the message that each worker’s efforts count, are noted and that they are valued for the long term. This also creates an environment that encourages innovation and creativity. “The message should be that the best idea wins, not that the most senior person’s idea wins,” Murphy says.
Here are some ways to create a culture that produces loyal, innovative and productive employees:
•Make the organization as flat as you can. By removing levels of management between the CEO and the rank-and-file, it is easier to share goals, ideas and other communication, including critiques and praise.
•Give people freedom to create. Look to Google’s 20 percent program, in which employees are encouraged to spend one-fifth of their work hours devoted to a passion project—it’s been credited with incubating Gmail and AdSense, among other extremely profitable products. “The philosophy is that when you give employees the space to innovate as opposed to just responding to customer demands, you come up with the really great ideas,” Murphy says. “It removes the feast-or-famine approach to development.”
•Make it a meritocracy. When faced with a specific company challenge, put it in front of the entire organization. The best idea wins, no matter who comes up with it.
•Empower employees. To take those great ideas to market, employees need to know they have the resources and freedom to see them through.
•Create a culture of improvement. Hold monthly meetings in which every employee is asked: “What did you improve on most last month?” as well as “What do you want to improve on this coming month?”
•Hire for culture fit and growth potential. Murphy recommends the interview question: “Tell me about a time you faced a task you didn’t know how to do. How did you respond?” This helps identify not only innovative thinkers, but self-directed learners.
•Fire effectively. Murphy warns strongly against confusing longevity with success. “Tenure does not necessarily equal cultural fit,” he says. Scrutinize whether an employee is being promoted for the wrong reasons: Does the current manager not want to deal with her anymore? Is the employee a “talent terror”—someone with excellent hard skills who is a poor cultural fit for an organization? Promoting or even retaining these people can be a toxic force in your company, as it sends the message to other workers that bad behavior is acceptable.
Company: Gravity Payments, a payment processing company based in Seattle that provides systems for small businesses across the country to accept credit card payments efficiently
Tactics: Gravity Payments hires on potential, engages every employee in a formal mentoring program and fills all management positions from within.
Results: Today the company has more than 100 employees and nearly 12,000 customers, and major corporations frequently try to poach Gravity’s employees.
We started almost 11 years ago, and whenever we had a little extra cash flow, I hired someone. We couldn’t afford people with great résumés, so I found some who could learn and grow but needed development.
From the beginning I have had two main philosophies: First, we are working for the little guy, the small-business owner going up against major challenges. The second is that every employee is his own CEO. That empowers people to make decisions and be proactive in ways that affect the company and their careers.
Being CEOs also means that employees must take responsibility in ways that they may otherwise have not. It can create a lot of stress. Six months ago an employee failed to do the proper oversight when our website was transferred from one vendor to another, and our site was down for three days. It was a big deal that we weren’t able to communicate directly with our customers—the first time it ever happened. I sat down with the employee and asked him to estimate the financial cost of the mistake to the company and to our customers. He estimated correctly that it was a sum equal to three times his annual salary. I explained that this was a huge mistake, but it was an investment the company was making in his development, and I expected him to earn back that investment for the entire organization and our clients.
He went on to turn the situation around and became a real superstar. He hustled for new clients from his personal network and helped merge two departments that were duplicating tasks. He recently asked to hire an employee, which will make him even more efficient and now a manager. As emotionally painful as that experience was, it was the right thing to do to stand behind him and develop him into a leader.
Company: LeadJen, a database-driven B2B lead generation firm
Tactics: Create opportunities for every worker to showcase leadership abilities; exhibit universal support of individuals’ goals.
Results: With 60 employees, the 10-year-old company is considered a leader in its industry.
Our company’s sales process is very complex, which makes employee longevity really important. If we have new people in different roles every week, it really compromises client relationships.
We send a message to all employees that we want them to succeed, period. This can mean developing within the company or helping them to seek their goals outside the organization.
Every quarter we select a community project. These have included programs that support housing for the poor, blood drives and gathering school supplies for needy kids. All employees are encouraged to submit a project that we should tackle, and everyone votes. The idea initiator is then responsible for organizing our involvement. This creates a great opportunity for people to showcase their leadership talent.
Sometimes employees have career ambitions that clearly fall outside our company. One longtime sales employee was a really great worker but wanted a new challenge. So he applied for a marketing position that we posted. We sat down and did a skills evaluation and decided it was not a good match, but that helped him refocus his energy into an earlier passion, which was nursing. Over several years we supported him with part-time and contract work as he went back to school to earn a nursing degree.
Other powerful tools are our quarterly board meetings and employee meetings. At each of these get-togethers, team leaders present the business results they are trying to create and what tactics they are using. We’ve been doing this for two years, and it has made a huge impact on how employees think about their roles within the company and the impact they can make.
Company: Tanga.com, a daily deals site
Tactics: Exhibit clarity in leadership by making goals explicit, give the company’s 40 employees the power to make important changes, and hire for culture.
Results: Since 2011, the company has grown over 58 percent per year and is on track for 50 percent growth in 2014.
To develop leaders from within, you need to be a strong leader yourself. Set clear objectives.
At a recent companywide retreat, I laid out a goal to reduce the time we take to respond to customers. It had been taking a day or two, and I wanted to whittle that down to within one hour. I told our people, “I don’t know how to do it, but within six months we must make this happen.” Then I let them take it from there. This empowered our people to innovate. Within just three weeks we had hired one new person and promoted another, dropping response times to 1.5 hours.
Another time I said we needed more metrics to analyze the company, and someone we had recently hired in accounting quickly stepped up to create this amazing dashboard that completely changed how we run the company. He was given a promotion and the ability to hire someone, making him a manager.
One of the most important things we do is to hire for culture in many of our positions rather than focus on hard skills. One of our star employees was hired as a 19-year-old to package products in our warehouse. He was a hard worker and a quick learner, and everyone loved working with him. He was then promoted to a job positioning products on the web, and from there he was promoted again to work side by side with me on a team of six that interfaces directly with vendors to source products. All this happened within a three-year span.
This kind of personality and cultural fit is so important to our success. Everyone has to be committed to developing great customer service and strong vendor relationships. We have vendors who chose to work with us over our much bigger competitors because of these close personal relationships. None of this would be possible if it weren’t for each employee’s ability to take responsibility and make real changes every day.