41% of small businesses are paying their employees…

…just to show up at work!

That is they are not held to any performance standard that somehow ties their paycheck to the results they are responsible for. According to a recent survey released last month by George S. May International 45% of the respondents also indicated their business is not profitable. Why do I mention this survey? Last month I introduced a survey from McKinsey & Company that suggested why larger companies with multiple layers of management might be struggling in this current economic environment. This month I continue the same idea and discussion with smaller businesses (annual revenue between $1M and $200M) as the backdrop.

More specifically, the discussion goes to the critical leadership function, for companies large and small, of successfully setting goals and achieving their desired results. Not only were 45% of the surveyed companies not profitable, the same percentage of companies did not have specific and measurable goals for their employees. This creates a leadership challenge when the correlation is clear between having specific and measurable goals for employees and the impact it has on profitability.

So why do so few businesses have specific and measurable goals for their employees? Again I offer three reasons why this may be the case based on my own experience.

Lack of Vision for the Business – Many small businesses make it up as they go by reacting to the ebb and flow of their specific industry and customer base. However, without a clear direction of where the business is going, as the Cheshire Cat in Alice in Wonderland said, “…any road will take you there”. The view of what the business is doing is typically through the rear view mirror.

Ill-defined Strategy – Strategy reflects the competitive direction of a business. How does the business compete in its industry? An ill-defined strategy creates a scenario where there is little to anchor organizational or individual goals to. The uncertainty of what is happening in the industry and with the competition makes it very difficult to establish SMART (Specific, Measurable, Attainable, Reasonably High and Time-Bound) Goals for employees and align them to the business strategy.

Measuring Activities versus Results – Even if a business has established goals tied to an overall strategy, if they can’t measure progress the negative outcome is the same. It is important to ensure the business is tracking and measuring results and not activities and doing so in a manner that yields new knowledge as opposed to restating or repackaging existing information.

How do your goals reflect your business strategy?

Lead Well.

Rick Lochner