Scaling Up: How a Few Companies Make It...and Why the Rest Don't (Rockefeller Habits 2.0)

by Verne Harnish

you want to delegate the functions listed on the FACe tool to leaders who pass two tests (including culture fit): 1. They don’t need to be managed. 2. They regularly wow the team with their insights and output.

The chart asks you to list one or two key performance indicators (KPIs) for each function. These KPIs represent the measurable activities each functional leader needs to perform on a day-to-day basis. The last column on the chart captures the outcomes expected for each function (i.e., who is accountable for revenue, gross margin, profit, cash, etc.). These outcomes normally represent line items on the financial statements.

These KPIs represent the measurable activities each functional leader needs to perfo...

When completed, this one-page accountability tool helps you diagnose where you have people and performance gaps on the leadership team.

As a general rule, you can move people up or over into these functional positions at any time. However, if you need to bring someone in from the outside to fill a senior leadership position, you should do this only once every six to nine months. It takes this length of time to find the right person, get him comfortable in the position, and transfer the DNA of the organization into his psyche. In turn, the new executive will need this amount of time to positively impact the organization enough to pay back his salary. Now you can afford to bring in another leader. The rule is to take it slow when bringing outsiders into senior leadership roles. The exception is when the company is venture-backed and/or growing 100% a year and needs to bring on three or four key executives within a short period of time.

WARNING: Whatever is the strength of a leader often becomes the weakness of the organization (e.g., if the founder is strong in marketing, the business may eventually find it’s weak in this functional area). Why? Because leaders have a tendency to hold on too tight, strangling the efforts of those around them. Or the leaders figure they can “watch over the details,” bringing in someone too junior to oversee the function vs. bringing on the powerhouse they really need. Instead, leaders must make a counteri...

Whatever is the strength of a leader often becomes the weakness of the organization (e.g., if the founder is strong in marketing, the business may eventually find it’s weak in this functional area). Why? Because leaders have a tendency to hold on too tight, strangling the efforts of those around them. Or the leaders figure they can “watch over the details,” bringing in someone too junior to oversee the function vs. bringing on the powerhouse they really need. Instead, leaders must make a counterint...

NOTE: When looking at business units farther down the first column, even though you might not have formal business units, you might organize discrete teams around customer groups, product lines, or locations. You can consider these quasi-business units.

When looking at business units farther down the first column, even though you might not have formal business units, you might organize discrete teams around customer groups, product lines, or locations. You can consider these quasi-business units.

Once the team has agreed on the people accountable for each function, consider the four questions summarized at the bottom of the form: 1. Do you have more than one person accountable for a function? The founder might be sharing accountability for sales with another executive, or partners might all be listed next to “head of company.” The rule is that only one person should be accountable; otherwise, there will be confusion. Having more than one name in a box is a red flag. 2. Does someone’s name show up in more boxes than everyone else’s? We recognize that in growth companies, leaders may wear multiple hats, but if one executive’s name shows up three or four times compared to everyone else’s one or two, that leader is either going to die young (a little dramatic) or one of the functions he or she owns will not be supported sufficiently. This is another red flag.

The rule of accountability means one person must ultimately take ownership, however, so the person to whom these people report has overall accountability.

CEOs often avoid these decisions because they involve executives who have become dear friends. We recognize that this is a touchy subject, but it must be faced if the organization is to grow. One option is for some of the early team members to help launch a new product or division. They are usually more comfortable in a start-up situation or working on a smaller team. And several of the early leaders might be relieved to have the burden of an increasingly important and complex function taken off their shoulders. You won’t know until you have these crucial conversations.

Key Performance Indicators: The 75 Measures Every Manager Needs to Know, by Bernard Marr.

WARNING: A common mistake is simply noting down KPIs that are representative of the daily and weekly activities of the person listed for a particular function. It’s critical to zero-base your KPI decisions. Do this by covering up the names listed in the “Person Accountable” column (metaphorically or physically) and then decide on KPIs for each function that align with the business model of the company. Then consider if the person in the job function has the skills and aptitude to deliver on those KPIs. A mismatch might indicate a potential problem.

the main job of the head of the company is to make sure she has the right people doing the right things right). And when many founders/CEOs realize this, they often bring in someone else to head the company so they can focus on R&D or marketing or customer advocacy. That’s why we emphasize separating titles from functions.

The Great Game of Business: The Only Sensible Way to Run a Company

This is a great exercise for the CFO or person in charge of accounting to lead. Go through your financial statements and decide who is accountable for each line item. Then pick the most important line items for each of the functions listed on your FACe tool and transfer the answers to the “Results/Outcomes” column.

Most organizations, at some point in time, develop detailed job descriptions for all the key roles in a company … a huge project. We are not big fans of job descriptions and prefer Topgrading’s Job Scorecards, which you’ll learn about in the next chapter.

Remember, your company is a living organism that needs to survive in an environment that’s always changing. To thrive, it has to be able to adapt. Charles Darwin found that survival is determined by the ability to adapt to circumstances.

Lean is an approach to process design focused on eliminating time wasted on activities that don’t add value for customers.

One of the keys to Lean is objectively modeling and measuring productivity and then using simple visual systems to eliminate costly mistakes.

“Lean describes waste as anything that happens in a company that a customer would not want to pay for,”

NOTE: Sim emphasizes that there were eight fewer people because of natural attrition. “We will never let go of a person because of Lean,” exclaims Sim. “Otherwise, Lean will die as an initiative. No one is going to implement stuff that will end up costing them their job.”

Case in point: Nurse Next Door’s payroll and billing accountant, Noreen, was working evenings and weekends before implementing Lean. A year later, with twice the payroll, she was accomplishing the job in half the time. When she mentioned in a huddle that she had nothing to do because of her success, the leadership team suggested she take some time off as an example and incentive for everyone else in the office to pursue Lean initiatives. Nurse Next Door is now teaching these Lean techniques to its franchise partners, so they can work on growing their businesses vs. doing payroll all day.

Parsons, like Sim, warns that Lean is not about reducing headcount. It’s about reducing waste. Redirect the time and energy your people get back from eliminating wasted efforts, devoting them to serv...

warns that Lean is not about reducing headcount. It’s about reducing waste. Redirect the time and energy your people get back from eliminating wasted efforts, devoting them to serving ...

ACTION: Discuss and agree on the four to nine key processes in your organization.

The person to whom all these process leaders report is usually the head of operations (a COO type). Operations people are generally systems-focused. You want a head of operations who is obsessed with process mapping and improvement — or better yet, experienced in implementing Lean.

You want a head of operations who is obsessed with process mapping and improvement — or better yet, experienced in implementing Lean.

ACTION: For each key process you’ve identified, decide who within the organization will be accountable. These people are then ac...

Identify a few KPIs to track each process. As with the FACe tool, the Process Accountability Chart (PACe) requires that each process have indicators (time, cost, or quality) that will signify its health. One of the most important KPIs for processes is time — in either number of days (to deliver) or number of hours (to produce). It applies to almost every industry, as customers normally want things better, faster, and cheaper, whether we’re talking about a product or service.

ACTION: List one to three KPIs for each process to measure its speed, quality, and cost.

Once you have completed your PACe, gather someone from every function that touches a specific process, including a few customers who are affected by the process (if possible). Using colored Post-it Notes to represent each function (sales is green, accounting is blue, etc.), map out the steps and decision points as the process currently flows. Then step back and begin streamlining the process, eliminating wasteful steps and removing obstacles.

It’s important to revisit and examine one process every 90 days as part of your quarterly planning process. Like hallway closets and garages, these processes get junked up and need to be recleaned periodically. With four to nine processes, each will get examined roughly every 12 to 24 months, which is sufficient to keep your company running drama-free.

ACTION: Assemble the appropriate people for each key process, and list, debate, and decide the steps and decision points for that process.

Checklists help] with memory recall and clearly set out the minimum necessary steps in a process.

… [Checklists] provide a kind of cognitive net. They catch mental flaws inherent in all of us — flaws of memory and attention and thoroughness.

Apple stores draw more people in one single quarter than visit Disney’s four major theme parks in one year.

to-remember steps of service training, the initial letters of which spell out APPLE: • Approach customers with a personalized warm welcome. • Probe politely to understand all the customers’ needs. • Present a solution for the customers to take home. • Listen for and resolve any issues or concerns. • End with a fond farewell and an invitation to return.

Approach customers with a personalized warm welcome. • Probe politely to understand all the customers’ needs. • Present a solution for the customers to take home. • Listen for and resolve any issues or concerns. • End with a fond farewell and an invitation to return.

In the meantime, if you’re experiencing some drama, maybe a simple checklist will help.

@robertozj @sergeiw

To conclude, the strength of your People comes from the right leadership doing the right things right (FACe); and the right systems and processes supporting these people to keep the business flowing (PACe). With the combination of the right FACe and the right PACe, you have the key people and process ingredients for a great company.

Attracting and hiring A Players, at all levels of the organization, is as critical as landing the right customers. This requires the active participation of the marketing function in the recruiting process and the use of Topgrading methodology in the interviewing and selection process. With both, detailed in this chapter, your company will have a huge pool of candidates from which to choose enough “strange” people (who fit your differentiated strategy and culture) to scale up the business.

NOTE: The cost of a bad hire is 15x his or her annual salary, according to Topgrading, so it’s important to get the recruiting and selection process right.

The cost of a bad hire is 15x his or her annual salary, according to Topgrading, so it’s important to get the recrui...

A Job Scorecard details a person’s purpose for the job, the desired outcomes of this individual’s work, and the competencies — technical and cultural — required to execute it.

An A Player, by the Smarts’ definition, is someone in the top 10% of the available talent pool who is willing to accept your specific offer.

A central element of a Job Scorecard is the handful of specific and measurable outcomes that a potential hire needs to accomplish over the coming one to three years. While a job description tends to list what people will be doing (e.g., coaching sales reps, building client relationships), a Job Score-card describes the outcomes you want from such activities ($8 million in revenue, seven new S&P 500 clients, a 100% contract renewal rate among the customers the trash collector serves).