This month’s MBR touches briefly on the Q2 quarterly review including special considerations for the pandemic environment and then moves on to look at talent through the lens of bench depth and key personnel.

Q2 Review

Reviewing the second quarter and the first half of 2020 should be like any other second quarter review plus consideration of the pandemic and how the business is fairing given the unprecedented economic situation.

At the end of any quarter the financial statements should be reviewed in concert with statistical, non-financial metrics that give a qualitative image of how the business is performing. Combining these views in a Focused Scorecard is ideal. Focused, rather than balanced because some metrics matter more than others and over time the focus should shift in response to internal and external factors effecting the performance of the business.

A word about speed. For rapid decision making and responsiveness, quarterly financials should be available by the 5th business day of the new quarter. Even at that, more than 5% of the new quarter has elapsed before the key metrics upon which the business is driven are available for review. Imagine starting a 100-mile drive without looking at the dashboard for more than five miles. It doesn’t make sense. Stick with the driving analogy for another moment and think about driving while looking at the dashboard. That’s not safe either. So the dashboard has to be quick to read with bright indicator lights and dials whose meaning is immediately apparent. The business dashboard is the same way.

As our clients look at their dashboards today, they are seeing wildly different readings depending upon the sector they serve. Our clients in the restaurant supply chain are looking at sales and thinking about how to diversify and solidify their customer base. Our clients in the construction sector are quietly knocking on wood as they continue to experience strong demand. And in the restaurant sector itself, owners are looking at unpredictable operating rules and an upside-down employment situation where their wait-staff is better off on unemployment than they would be working. The scorecard or dashboard for each business must reflect its unique strategy and position in its sector. It must also flex to allow for short-term focus on mission critical and survival metrics when the need arises.

A Couple Tools for Talent

Once the business is launched and stable, a period of years typically goes by where the business will be in an extended growth period. This period is characterized by an improving customer base and customer experience, new vendors, and a growing talent pool. By the time the business reaches $100 million in revenue, a strong tier one leadership group that reports to the owner(s) will be in place. But in that stretch from $5M to about $50M, there will be a lot of demand for leadership insight and experience, but frankly, little budget for $100,000 executives with 25 years of experience in their discipline.

This leadership vacuum is a critical challenge and practically ubiquitous among our clients in the growth company space. The business can’t add all the leaders it will need at once in the beginning and it NEEDS the insight of experienced leaders who have been through this before to help navigate the many surmountable challenges a business faces during its high growth journey to $100 million. How do the front runners balance this?

One technique is to use bench depth analysis and a bench depth chart to review the team’s developing strength. The real front runners that produce first quartile earnings use two tricks together with bench depth analysis to avoid having to hire a full tier one leadership team immediately. In fact, the really good ones can put off filling out that leadership layer until they are well past the $25M mark.

It starts with bench depth analysis. This is nothing more than a baseball style analysis, think Money Ball, of which positions in the business are the ones that drive wins. In a distributor, this would be sales and purchasing or vendor management. In collections, it’s call center and legal. In manufacturing its production and sales. That answer is specific to each business and its mix of customers and challenges. Of course, in every business, finance is critical, as is some sort of risk or compliance management role to keep the business out of trouble.

Whatever the specifics, create a chart, something like an organizational chart with the critical roles at the top and a series of boxes leading up to that role. This is where bench depth comes in. Looking at the actual team in place, each column beneath the leaders is filled in with the current team member that would ascend to that position if change is required. Using the baseball analogy, all the second, third, etc. string pitchers are stacked up beneath the starter.

If there is no one for a box, leave it blank. Do not place a name in a box that can’t grow into the position above it. There may be people that don’t appear on this bench depth chart. For this purpose, that’s okay. They simply aren’t critical for filling those top executive roles. In most organizations there are several of these sorts. They fill non-critical, but necessary roles. This exercise helps identify who is who.

That means bench depth analysis is especially useful as promotions, pay increases, new hires and reductions in force are contemplated. In fact, improving these decisions is part of how front runners, with first quartile earnings, maintain their performance. This is how front runners avoid literally millions in tier one executive salaries. They grow internal candidates to fill the empty boxes and open positions when they arise. In the meantime, they rent executives in the form of outside advisors. These resources can be brought on an as-needed basis to solve critical growth-oriented problems without making a literal lifetime commitment.

Call to Action

Analyze Q2 performance and bench depth:

Pull together the Q2 scorecard;
Note the time required in business days for #1 and consider improving the closing time to support rapid business decision making;
Create a bench depth chart for the business;
Analyze the critical positions with open boxes; and
Develop plans to course correct in Q3 and to address open bench positions.

If you are interested in reading more, Dr. Robert W. Barner wrote Bench Strength: Developing the Depth and Versatility of Your Organization's Leadership Talent in 2006. It presents some interesting insights into the process and talent in general.