In some “open” sports leagues, teams move up or down between multiple divisions based on their performance for the completed season in a process called promotion and relegation. Under this model, the highest-ranked teams in the lower division will typically be promoted to a higher division, and the worst-ranked teams in the higher division are relegated or demoted to the lower division for the next season. Through the free market, something similar happens to businesses — but instead of being promoted or demoted to another division, businesses will cycle in or out of existence.
The performance of sports teams and businesses largely depends on the quality of the individual players or employees — and keeping an underperformer on a payroll penalizes other employees. The thing is, in today’s market – which is characterized by low unemployment and the “great resignation” – some companies feel pressured to keep underachievers on the payroll. But a deeper analysis shows that employers should not be running scared.
Let us start with the basics: employees are a key part of a business’s ability to attract customers. If they are not performing at a satisfactory level, customers will move to another goods or services provider that does perform at a satisfactory level. Companies like GE under Jack Welch recognized this, and periodically conducted reviews and pruned underperforming employees. Additionally, underperformers represent a drag on other employees, forcing them to take up a disproportionate share of the load, which can harm both productivity and morale.
For the past year or so, many businesses have forgotten this. The owners looked at headline numbers that focused on a worker shortage and proceeded to bid up wages and, in some cases, retained less-than-competent employees. Hiring managers took on mediocre employees, kept them on, and in many cases, promoted them. At some point, however, it reaches critical mass, and business begins to suffer because customers will not stay loyal to a less-than-stellar provider. By the time many business owners realized what went wrong, it was too late in the game since they already lost their customers. That is what happens from managing by looking in the rearview mirror instead of looking ahead.
However, the unemployment numbers and the great resignation only tell part of the story. As inflation continues to rage and interest rates continue to spike, we see an uptick in unemployment and an increase in the number of older, experienced individuals re-entering the workforce. They are discovering that their retirement income does not stretch as far as they thought it would, so they are returning to the workforce and bringing a lifetime of knowledge and a work ethic with them. And they often are willing to work at a competitive salary.
This end of employee entitlement can be good news for business owners and may make them less hesitant to prune away underqualified employees. But hiring managers and others still need to be cautious about bringing on replacements. Taking on a qualified employee is as important as taking on a new customer — and in both cases utilizing the correct form of outreach matters. Just as management tailors advertising campaigns that are designed to reach targeted customer markets, they should carefully and thoughtfully design employee searches that will reach the right kind of person. Outsourced IT support and other consulting and business process firms often miss this important step. Businesses are only as good as their people; their ability to attract, satisfy and retain customers depends on the quality of the teams they are fielding.
It is also important to remember that business owners are a central part of the driving force that keeps the U.S. economy moving. Maintaining that momentum, however, requires a commitment from everyone at all levels of commerce. Like a sports team that neglects to rotate their player roster, a business owner or hiring manager who neglects to monitor and motivate their workforce – and trim it when necessary – will, sooner or later, get their own pink slip and be told: “You’re fired.”
Carl Mazzanti is president of eMazzanti Technologies in Hoboken.