Successfully Managing a TSP with Offices in Multiple Cities
Table of Contents
The Increasing Prevalence of Multi-City Technology Solution Providers
Technology Solution Providers (TSPs), such as SMB-focused Managed Services Providers (MSPs) and mid-and-upper-market-focused Product-Centric firms (VARs), are increasingly opening offices in second, third, even fifth or tenth cities. This is true despite the broad-based shift to Work from Home induced by the COVID-19 pandemic. The lockdowns caused this geographic expansion trend to pause for a few quarters, but, in the first quarter of 2021, we saw the geographic expansion regaining momentum.
There are many valid reasons not to expand a TSP business beyond the city in which it was founded. Among them are:
- The Total Addressable Market (TAM) in your existing city – even if you’re in a second or third tier metro area – is sufficiently larger for you to build at $10mm to $15mm SMB MSP or $50mm to $75mm VAR,
- If your challenge is growing fast enough in your existing market, what makes you think the same Marketing and Sales methods that aren’t working in a geography you know and where you have an established reputation, will work in a geography you don’t know and don’t have a reputation?
- Opening an office in another city is costly and risky.
You should consider these carefully in making your decision.
If you’re at Operational Maturity Level™ (OML™) 3.8 or higher and/or if your profitability and growth are near, at or above Best-in-Class (BIC) for your Predominant Business Model™ (PBM™), then adding a new geography may be a valid growth strategy for you.
In addition, the increasing prevalence of Private Equity-backed TSPs, and their desire for faster growth through acquisition, is also accelerating the pace of multi-city expansion.
What would be the proper reasons for deciding when to open another geography?
The answer is that, even if – as the threat from COVID-19 recedes – the Work from Home balance only swings partially back to Work from Office, the odds are good that those customers and prospects who are aggressively growing their businesses, will be more “Work from Office” and will want to partner with firms who are local to their office.
Put another way, Best-in-Class growth in the TSP business is dependent on strategic-thinking customers who place a high value on IT and who make higher than average investment in IT. These customers prefer to do business with IT firms who have someone in the Principal role, in the same geography. Much as they prefer to do business with a law firm or accountancy that has one or more Managing Partners in town, so do they prefer their chosen IT partner to have one in town.
The 11 Rules for Opening a New Geographic Location
Thankfully, there are best practices for managing multi-city operations, and that is the topic of this Service Leadership newsletter.
Based on the lessons we can take from your initial success in your first market, and from those who have succeeded in opening and operating new markets, let’s outline the rules for opening a new location.
- Distance from main location – The new location must be close enough that you (the principal, the owner) can wake up at home early in the morning, get to that location and have 3 to 4 meetings, and get back home in time for a late dinner. If it is any farther than that, you will not go often enough to make the location successful. This is part of the way you solve the “not enough principals” problem.
- A key second benefit is that this will mean the second location is close enough geographically that it will be of value to someone who wants to buy your company; distant locations often reduce stock value and decrease attractiveness.
- Who to hire – The first people you employ in the new market must be successful current employees transplanted from your first market. That’s right: Your best and brightest need to leave the nest and go make a home in the new market. And your nest must not only be willing and able to do without them, but also to support them in the new location. Proper process and policy, good culture and communications, are much more likely to be successfully established when carried into market by your prized pioneers.
- Getting good early traction – Prior to deciding where (in what city) you will open the new location in, you must analyze your current customer base to determine how many of your current customers themselves have branch offices in the potential new locations and will give you business there right away. The potential new city which has the highest likely Revenue from existing customers, is most likely the winning choice, both due to early cost offsets as well as early local references and referrals.
- Implicit becomes explicit, habit becomes DNA - Hopefully, you are very good at documenting processes and have thoroughly documented how your business runs today. That’s because it’s not only essential to scaling in your current market, but because it puts you about half-way to being well-documented enough to successfully open and operate a new location. One reason you are sending your current good people to live in the new location is that much of the knowledge about what we do and do not do, and why, is still implicit, that is, we have not documented it yet. But even they must be bolstered with as much explicit documentation and training as possible. If most of your operating methods are still implicit and you’ve only documented the “tip of the iceberg”, don’t open the new branch!
- Be able to afford to invest, patiently - Generally, it takes 2 to 3 years for a new location to become profitable, that is, to throw off positive cash flow which can be used to support not only its own future, but perhaps support other new initiatives in the company. That means cash flow from the rest of the organization must be able to reliably support the new location for a long time. Opening a new location is a venture-capital level of risk; it has high potential return but it also has a high chance of failing. The value of investing in opening a new location must be compared to the value of investing in other new initiatives the company is considering for defensive or offensive reasons. You only have so much money and so much senior management time. If you do decide to invest in opening a new location, and it isn’t trending towards profitability, even if only slowly, re-look at your ability to invest to re-implement Rules 1, 2 and 3 again. Make hard choices.
- Someone must be in charge – Once the new location gets up to about 5 or 6 people, someone there must be in charge. Minimally, that person should be a transplant from the mother ship and should be in charge of Sales and Service. Sales and Service people have a dotted line to their respective leaders back at the main location, but they have a hard line report to the local leader they work with day-to-day. Humans need a local leader. The local leader provides the daily direction, guidance and problem solving, as well as the authority in front of the prospects and customers, while the business unit leads back at the main office provides the methods, best practices and support.
- The local leader needs to act as principal. See “Why General Managers” below.
- The local leader doesn’t need P&L responsibility until the location gets to 20 or so people.
- The local leader does need to know and buy into your offerings, qualification and pricing, in detail (see Rule 7 below).
- Remember, though, that appointing the local leader does not diminish the frequency with which you, the principal or owner, must physically visit the location. To grow, and stay growing, locations need the full and constant participation of senior leadership.
- No new offerings or methods – One of the great strengths of well-running multi-location companies (though unfortunately there are many who do not run well) is that they use the distributed brainpower of the different locations as Petri dishes, if you will, to grow new offers and best practices which can then be used across the company. However, seemingly paradoxically, the only way to be successful with this is to make it very difficult for any location to come up with a new offering or method. This is because most new ideas aren’t very good; most peter out very quickly in the real world. So, the locations must demonstrate that they can succeed well with the already-proven formula, before they can start adding to or tinkering with it.
- The most common refrain of failing location managers is, “It may work in your market but it doesn’t work here!” Nonsense: Re-apply what we do here, and it will work there. Or find a new job.
- The same applies to hyper-successful location managers: Great success doesn’t mean they can do things their own unique way. The location isn’t their company to run; it’s their location to succeed with, using the company’s methods. Their future success depends on getting the main location and their peer location managers to willingly adopt their way of doing things, not on going rogue.
- An important corollary is that no location other than the main one, can have “back office” functions. This includes obvious things like marketing, accounting and finance, human resources, legal support, IT support and major internal systems, and customer-facing functions like Network Operations Center and Service Desk. Less obvious but usually better off centralized until the second location gets quite big, are possibly things like service dispatch and recruiting. The new location has field sales and service responsibility; that’s it.
- The same Target Customer Profile (TCP) must be pursued – It is hopefully obvious in Rule 7, but it’s pivotal to your success, so we’ll call it out separately here: The TCP you intend to pursue in your new market must be the same as you pursue in your current market. Otherwise, your marketing material might apply, but your people, skills, tools and processes will not apply. Your odds of succeeding with two different TCPs in one market are low; your odds of doing so in two different markets are lower.
- Thought Leadership Marketing – If your only lead generation methods are SEO, emailing, calling and shoe leather, you’re unlikely to be successful at ramping Revenue fast enough. Thought Leadership Marketing in your new market is even more important than it is in your existing one. You – the principal or owner – must be speaking at business events, attending charity events, giving interviews and publishing or being cited in articles in your new city. It is critical that smart decision-makers can look you in the eye and hear your train of thought. This is another part of the way you solve the “not enough principals” problem.
- We succeed together (training, job rotation, planning meetings and celebration) – If the critical activities of training, job rotation and planning meetings were simply ways to ensure that the desired outcomes of Rule 4 were successfully met, we would make them a sub-bullet there. But there is more at stake here. Too often, an “us versus them” mentality develops between the first location and the second which severely hampers the likelihood of success of both locations.
- From the first location’s point of view: Some of our best friends left us to start a new life; we have less help here than we did before; the new location seems to resist doing things correctly; they’re sucking up investment dollars which are desperately needed here; the boss seems to spend more time with them than he or she does with us.
- From the new location’s point of view: The people at the main office don’t understand the people and customers are different here; the main office has tons of resources around and doesn’t understand that we don’t; the main office seems to alternate wildly between paying no attention to us and micro-managing both important and unimportant things; the main office (or other offices) get more investment than we do, even though our job is harder because we’re newer; the boss spends more time at the main office (or some other office) than he or she does here.
- Therefore, it’s critical that, in addition to transplanting your best and brightest to the new location, you bring the new people hired at that location – and the transplants – back to your main office frequently for training, job rotation and planning meetings. This applies to all levels and roles at the new location. Toughest to accomplish is job rotation – having two people in the same or similar roles switch chairs for a week at a time, or at least have the one person come and visit the other person for some side-by-side work. This can be an emissary from your main location going out to the new location as well as a person from the new location coming to the main office. Obviously, this is going to be strain on resources, but it will ensure more efficient and effective operations in service to each other and to customers. Most importantly, it will help quell the “us versus them” tendencies common to any multi-location operation.
- Shared celebration is also critical. When the new location wins a new deal, an announcement is made from the main office celebrating their accomplishment but also noting everyone who contributed, including those at the main office. Similarly, when the main office wins a deal, it puts out an announcement (of course also citing any help from the new location), but the wise manager at the new location will put out their own congratulatory message in response, recognizing the accomplishment of the main office. The point is: We are in this together, we are all sacrificing to grow the success of the company and to provide even more opportunity for ourselves in the future. We succeed or die together.
- As hard as the second location is, the third is just as hard, then it gets somewhat easier – When establishing your second location, documenting and externalizing all of the implicit processes and policies by which your company operates, will feel like being wrung through the wringer. Having successfully documented things enough to get a second location off the ground, you’ll have done so thoroughly enough that you will only need to expend the same amount of effort over again, to open your third location. If you can successfully run three locations and at least make some profit, then you’re likely a proper multi-location operation, and opening fourth, fifth and so on locations from there, will be somewhat easier.
- Remember that the profit performance ratios of the top quartile multi-location operations in the Service Leadership Index® are the same as those of the top quartile, single location operations.
If you abide by these 11 rules, you’re not guaranteed to be successful in establishing a new location, but you’re more likely to be. These are the methods used by those who have most often succeeded in the past.
There are further nuances to evolving a successful multi-location operation – matrix management, proper P&L structure and allocations, career pathing, centers of excellence, incentive compensation, and so on – but following these 11 rules will get you off on the right foot.
Managing General Managers in a Multi-Branch Technology Solution Provider
As noted above, the local leader – the local Principal, if you will – is key to the successful launch and growth of the new market. This person must “own” the income statement for the geography, and must have both Sales and Service reporting directly to them. In other words, they must be general managers.
Top-performing multi-branch TSPs, as measured by overall profit and operational performance, use an organizational structure that has:
- General Managers (GMs) in each geography to whom the Sales, Service and Administrative (if any) personnel directly report;
- Domain expertise provided from headquarters for the specific needs of Service and Sales people on a matrix (dotted line) basis; and
- Shared Services such as Human Resources, Finance and Legal provided from headquarters on a departmental basis.
This newsletter provides guidance to the headquarters executive responsible for the field, in how to manage the GMs in each geographic location.
Why General Managers?
The principals of Service Leadership not only built and ran successful multi-branch TSP businesses, but also continue to evaluate and improve the performance of many others. Top-performing ones overwhelmingly deploy a decentralized structure with GMs for each material geographic location responsible for both Sales and Service.
This is especially true as the TSP grows Services Revenue as a proportion of total Revenue. Nearly all multi-branch TSPs with Services Revenue at 40% or more of total Revenue have adopted this structure.
Why does this structure work best, and why do other structures not work as well?
Having an executive responsible for growth and profitability for each branch provides four key benefits. Specifically:
- Productively leveraging the company’s relationships with C-level customers and prospects in the market;
- Effectively managing the synergies between Sales and Service to deliver the expected financial performance and Service quality;
- Creating a critical, unified communication and control point for implementation of company goals, policies and procedures, and for accountability for results; and
- Providing a direct-report (solid line) leader to whom the employees in that geography can look to as their leader and manager.
All four of these are critical to the optimal growth, profitability and Service quality within the geography and for the successful and accountable execution of the company’s global and local strategies.
When a TSP has only one location, these four requirements are in place by default, in the person of the CEO or owner. Generally, a TSP can open a second location and get away with not having a GM in that location. Performance will not be optimal, but the lack of performance will likely not severely injure the company. When a third location is opened, lack of geographically-deployed GMs will often sub-optimize performance to the extent that the company’s continued operation is at risk.
Because there is no school for running a multi-branch TSP operation, many TSPs as they grow to three branches and more, will:
- Fail to see that the success of their first location was based on these four requirements; and
- Make incorrect assumptions about which functions should be provided from headquarters and which should be provided locally.;
As a result, we see organizational structures all along the continuum from overly centralized to overly de-decentralized, most of which produce sub-optimal results. Thus, one purpose of this newsletter is to describe the structure most often used by top-performing multi-location companies. The organizational structure described above – a GM with P&L responsibility supported by centralized strategic and operational resources – is the only that consistently works.
From this point forward, this newsletter focuses only on the aspect of managing the GM, both individually and collectively. The topics of how the local sales and service operation function below that person, and how the headquarters departments and matrix-structure resources work with that GM, are the subjects of other Service Leadership OML Best Practices Guides.
Ensuring the GM Fulfills the Four Critical Requirements
To quickly recap, the four critical functions needed in a given geography that the GM structure fulfills are:
- An executive with P&L responsibility to most productively leverage the company’s relationships with C-level customers and prospects in the market,
- An executive with P&L responsibility to best manage the synergies between sales and service to deliver the expected financial performance and service quality,
- A unified communication and control point for implementation of company goals, policies and procedures, and for accountability for results,
- A direct-report (solid line) leader to whom the humans (employees) in that geography can look to as their leader and manager.
How should the headquarters executive manage his GMs to achieve these outcomes?
Division of Labor and Responsibilities
It is important that the GMs understand that although they are responsible for the local P&L and the local team, this does not equate to having the authority to:
- Deviate from company goals, policies and methods;
- Build local capabilities that duplicate or supplant capabilities that are intended to come from headquarters (even if those headquarters capabilities are failing either in fact or from the GM’s point of view); or
- Dictate to corporate how their local needs and market must be addressed.
Successful multi-branch operations count on the GMs’ intelligent and productive input and guidance, and do not allow the headquarters departments to blindly dictate to the GMs. These operations exhibit positive collaboration between field and headquarters to cooperatively and collegially evolve the company forward in an efficient and effective manner.
Inexperienced GMs may view the three rules above as either ignoring their local needs and/or stifling their natural inclinations to innovate. Let’s examine these two sometimes-valid concerns.
Ignoring Local Needs and Stifling [Local] Innovation
This is a delicate balance which nonetheless heavily favors headquarters leadership. Headquarters is always responsible for developing and executing a Value Creation Strategy that has been specified by the shareholders who shoulder the investment requirements and the risks of the business. The field GMs, in turn, are responsible for executing the Value Creation Strategy in their local marketplace. The GM, though expected to be suitably entrepreneurial, is not an entrepreneur in the narrowest sense in that he is typically neither an investor in the business nor taking any associated capital risks.
The GM is expected to:
- Deploy resources provided by headquarters (systems, support and funding) to the task of successfully executing the shareholder’s Value Creation Strategy in the local market; and to
- Communicate recommendations for improvement in those resources and the evolution of the Value Creation Strategy back to headquarters.
It is important to understand that the GM earns the right to make these recommendations to headquarters and to expect them to carry increasing responsibility, based upon their local performance in delivering on the shareholders’ Value Creation Strategy.
Unfortunately, too often the GM who has the most frequent and/or most strident recommendations for headquarters is the GM who is failing to deliver on the existing goals associated with the Value Creation Strategy.
The executive responsible for managing GMs must exercise finely tuned judgment regarding requests and recommendations from GMs who are not performing to plan by:
- Determining if the GM’s request or recommendation valid and asking if the corporate resource or direction is sufficient, correct or adequate.
- Assessing if the low-performing GM is either mistaken about what they need (or should be done) or defensively criticizing others to deflect criticism or inspection of their own performance.
That said, it is incumbent on headquarters, with the guidance of the executive to whom the GMs report, to devise the strategies and tactics, and provide the resources needed, to enable the GMs to successfully execute the corporate strategy in their local markets. It is a collaborative effort: both corporate and field are responsible to each other, in service to the shareholders’ Value Creation Strategy.
Most shareholders construct a Value Creation Strategy for delivering the highest return possible at the lowest pragmatic risk, which generally requires a plan that is aggressive but attainable. An unrealistic Value Creation Strategy – which may be so for one or more reasons – is unlikely to produce the outcomes the shareholder’s desire.
It is the responsibility of the CEO (regardless of whether they are a shareholder or not) to ensure that the headquarters and the branch teams understand the Value Creation Strategy, buy into the plan, and are aligned in achieving the plan. If the CEO (or whichever executive is directly responsible for managing GMs) is unable to gain the buy-in of a given GM, and the reason is deemed to not be because of a failure of the strategy, centralized Services, or the managing executive, then the GM must be replaced.
The Failure of Succeeding Despite Headquarters
In a well-run organization, a GM must buy into the corporate strategy to keep their job – even if they are producing a profit that meets or exceeds their profit goal. This is for one simple, overarching reason. In a well-run organization, activities in a market which are outside of what the organization supports (even if those activities generate great profits) deprive the organization of the leverage it needs in each of its operating departments to successfully scale and serve all of the locations.
To see why, let’s start with a nonsensical example. Let’s say that the GM responsible for the P&L in the Neverland branch decides to meet his or her profit goals by deviating from being a TSP and opening a muffler shop. The muffler shop generates great profits and growth, and the clever GM handily exceeds the profit goals set for them by headquarters. Is this acceptable behavior?
The answer, of course, is “no”, partly because in this nonsensical example an IT company clearly doesn’t want to be a muffler shop.
The real reason is that most of the investments in support and delivery capabilities by headquarters for branches not only goes unleveraged by that branch, but the evolution, refining and improving of those capabilities that comes from the branches using them, is lost from this branch. Even worse, if that branch is not successful as a muffler shop, then the company even loses the profits that might have come from the branch to further invest in resources for all branches to use.
Let’s now use a common example that’s closer to home:
- The Value Creation Strategy of the shareholders says that mid-market customers are the TCP. This is the customer size that the shareholders have decided can be won quickly enough, in the right quantity, to produce the financial outcomes needed to meet their goals.
- All vendor relationships, product choices, and Solutions and Services offerings are targeted at these customers
- Agreements are struck with vendors for mid-market product volumes in return for certain discounts and support.
- Skills profiles, recruiting, training, career-pathing, and incentive compensation plans are tuned to develop and motivate human capital appropriate for mid-market customers.
- Systems, tools and processes are implemented which are appropriate for Marketing, selling and delivering to mid-market customers.
- Marketing expends resources to identify and qualify target mid-market customers for the local Sales team to drive results in the mid-market.
The GM in Neverland attempts to sell the defined Managed Services offering1 to mid-market and finds that they are falling behind plan in this area. They mistakenly conclude that “mid-market customers in my market don’t want Managed Services” and sell Managed Services to SMBs instead. In selling Managed Services to SMB customers, they are wildly successful and exceed their Managed Services Revenue and profit goals.
In addition, in all other aspects of their appropriate mid-market business, they’re hitting it out of the park. In fact, they’re the only GM meeting any of their goals; the rest of the GMs, who are fully compliant with the company’s mid-market TCP, are failing.
How should the executive responsible for managing GMs respond? Should he or she allow the high-performing but “off the ranch” GM continue to sell Managed Services to customers outside the TCP?
The answer, of course, is no, for several reasons:
- They are failing to pursue the Value Creation Strategy set by the shareholders. How will the shareholders realize the exit value they are seeking to create by building a mid-market focused company, if some material component of the company’s Revenue is actually SMB-focused? It will make the company harder to sell, much less to sell at an optimal value.
- They are failing to use the resources provided by headquarters to market, sell and deliver mid-market Managed Services, which has three downside impacts:
- Those mid-market focused resources are deprived of the repetition, feedback and honing that would come from use by the high-performing branch;
- Those mid-market resources have a higher effective unit cost to the company and those branches which use them, because their cost is spread across fewer branches or sales; and
- The renegade branch likely has higher than appropriate costs because it is having to invest in resources itself that would otherwise be provided by headquarters.
- The “off the ranch” GM has increased the difficulty of his or her job in terms of:
- The complexity of what they must execute; and
- Their reduced ability to cross-sell all offers to all customers (having bifurcated themselves into two TCPs).
- The “off the ranch” GM will start to insist that headquarters choose vendors and products, and develop Solutions and Services, which can be sold to SMB customers. This will distract and dilute precious resources.
- Other GMs will see that this GM has not only met financial goals inappropriately but is being allowed to get away with it, and will begin to try similar strategies in their own market, all predicated on the first GM’s false assertion that “what works elsewhere won’t work here”.
Worse, while some of the other GMs may emulate the first GM entirely, and mimic his or her move to SMB (in this example), others might follow only in spirit, and instead move away from mid-market to, say, enterprise.
At this point, headquarters will have lost its ability to provide cost effective, differentiated Marketing, vendor management, product selection, Solutions and Services offerings, because it is not possible to do so across multiple TCPs without a massive (and likely fruitless) increase in investment by the shareholders.
How, then, is the executive responsible for managing GMs, supposed to cope with this high-achieving but renegade GM?
The answer is to take a multi-pronged approach.
- Reduce the company’s dependence on the renegade GM by doubling down on getting the other GMs to perform (and to perform appropriately), including terminating chronically low-performing GMs and replacing them with ones who are both capable and allegiant to the shareholders’ mid-market Value Creation Strategy.
- Do not approve any SMB Managed Services deals sold by any other branches. If one “accidentally” gets sold, terminate the agreement, transition the customer responsibly away, and do not compensate or recognize the sales rep and GM who sold it. Dismiss repeat offenders.
- Diminish the recognition the renegade GM receives – both formal and informal and both monetary and non-monetary – for being “successful” at (SMB) Managed Services.
- Celebrate and reward the successes of the mid-market Managed Services strategy in the other branches and in the renegade branch when they sell mid-market Managed Services.
- Challenge the renegade GM, in the one-on-one management meetings, to set a leadership example to the other GMs by repeating his or her success but this time in the mid-market (and abandoning the SMB initiative).
In these ways, the rewards for the renegade GM for continuing the counter-productive behavior diminish, and the rewards for behaving correctly increase. Most GMs will respond to this approach; if they do not, the executive responsible for them must replace them or face a disintegration of the business strategy and/or their leadership credibility.
Failure of Headquarters to Properly Support the Branches
Another reason GMs may attempt to not follow or leverage headquarters resources – such as HR, procurement, recruiting, the central NOC/Service Desk in a Managed Services company, and so on – is not because they’re following an unapproved strategy, but that they view (wrongly or rightly) that the headquarter resource is not doing its job.
This may in fact be true. In this case, the executive managing the GMs must work with his or her counterpart at headquarters to improve the performance and applicability of the headquarters resources. If the executive managing the GMs is the CEO, then he or she can take direct action to improve the performance of the headquarters resources.
What cannot be allowed is for the GM(s) who are the internal customers of these inadequate headquarters resources to replace using them with their own local, duplicative operations. This of course would lead to the misalignment and dilution of headquarter’s efforts, as well as higher costs. Even if the GM has valid reasons, it simply can’t be allowed, because company strategy would splinter and the branch’s chances for success in meeting the Value Creation Goals would dramatically decrease.
The responsible GM must work with the headquarters resources to bring their ability to support the branches as internal customers, to an acceptable level.
Harvesting Innovations
Inexperienced GMs may also react to perceived headquarters restrictions as hampering prospective innovation on their part and that of their team.
In practice, this is rarely the case. This is because running a business – even the GM’s single location – is a complex and challenging task, requiring as much focused brainpower and as many applicable best practices and leveraged resources as possible.
Successful multi-branch operations capture more innovation because they are more tightly managed, rather than loosely managed, so-called “entrepreneurial” multi-branch operations. This is for two reasons:
- In more tightly run multi-branch operations, best practices which are proven in one branch are more systematically identified, refined, and implemented across all locations, and better supported by a more focused headquarters; and
- Because each branch runs better, each GM and her team has more time and resources to focus on true innovation, rather than reinventing wheels that have already been invented elsewhere in the company.
Done correctly, each branch is a sort of petri dish in which the business culture or media is the same from branch to branch (dish to dish) so that beneficial innovations which spring up can be quickly cloned from one location to many, while counter-productive strains which pop up in one branch can then be headed off in others before they become malignant.
It is one of life’s many paradoxes that more disciplined multi-branch operations harness branch innovation more effectively than loosely run ones, perform better, and are more fun and exciting places to work.
In addition, company growth is easier when methods are the same across the company because an up-and-coming star in one branch can more easily move to another branch to even up talent distribution and offer career opportunities.
Foundations for Managing General Managers
Effective management of GMs requires certain tools and factors to be in place. Obviously, as implied by the discussion above, these include:
- A Value Creation Strategy (see this OML Trait in SLIQ™ 2),
- A Target Customer Profile (see this OML Trait in SLIQ).
In addition, it is important that:
- A budget be in place, down to the location or GM level;
- The budget be used in managing the company and each GM/branch; and
- The GMs’ compensation be at least partially based on their attainment of their budgeted Revenue mix, profit percent and profit dollars. (In SLIQ, see the OML Trait called “Use of Budgets in Managing the Company”>Financial Functional Area, as well as the related OML Traits in the Compensation Functional Area.)
With these foundations in place, a GM can be managed to performance which aligns with the company’s goals.
Methods for Managing General Managers
Cadence and Vehicles for Interacting with General Managers
As always, good management relies on consistent focus on desired goals, proper behaviors, objective measurement, and constant coaching and communication. What follows is a checklist for this regular cadence of activities and communications between the GM(s) and the executive responsible for managing them to performance.
| Cadence |
Activity |
Notes |
| Weekly |
One page branch Key Performance Indicator report, assures no surprises |
- Same report for every branch
- Friday morning or Monday morning
- This report should provide early warning of a GM who is potentially going "off the ranch"
|
| Weekly |
One hour 1:1 meeting between GM and his/her manager |
- GM sets the agenda but meeting is mandatory
|
| 2x Monthly |
One-to-two-hour, GM group conference call, all GMs and the executive responsible for them |
- Executive sets the agenda
- Mandatory
- Frequency varies by size of organization (larger = more frequent)
|
| Monthly |
Executive visits every location |
- Meet GM 1:1, present company progress to branch, go on sales and service calls, lunch with staff, manage by walking around
- Part of leading is being available
|
| Quarterly |
One-to-two-day, all-GM meeting at headquarters. |
- Executive sets agenda, follows the “business cycle seasons of the year” approach
- Mandatory
- Each GM carries some of the agenda, typically what they are best at (or worst at if needing focused remediation)
|
| Annually |
Either the fall or winter quarterly GM meeting |
- Recap performance for the year
- Provide recognition for good performance and “most improved” if GM is still here
- Collect ideas, innovations and requirements for the following year
- Share goals, developments and tactics for the following year
- Collecting data for headquarters planning may come out of the fall GM meeting, and rolling out the new plan may come in the winter GM meeting
|
Managing for Performance
Good GMs are driven by competitive needs for attainment and recognition. The executive can capitalize on this by using open (and fair) comparisons between them as measures of performance.
For example, as noted above, every branch has a budgeted goal for profit dollars and profit percentage, as well as Revenue mix. Branch A may have a goal of $1mm in profit, while Branch B may have a goal (because it’s a newer branch or a smaller market) of $500k.
In comparing performance, let’s say Branch A actually attains $900k in profit while Branch B attains $550k in profit. In this case, Branch B would appear higher (better) on the GM (or location) stack ranking chart because it attained 110% of goal while Branch A attained 90% of its goal.
It is true that Branch A actually contributed more to the company’s well-being than did Branch B, but in terms of attaining the goals set out for it by senior management, Branch B is the better performer. Branch A’s larger contribution is silently recognized in the fact that the GM in Branch A probably has a materially larger pay package than does the GM in Branch B, because of the greater skills needed to run a larger branch.3
Openly stack ranking branches based on the degree of their attainment of budgeted KPIs, is one way top-performing multi-location operations drive appropriate GM behavior and optimized outcomes.
Creating "Coopetition" Between Branches
It is often the case that one GM’s decisions can impact the performance of locations managed by other GMs and/or headquarters. Some examples of this are:
- Branch A has a customer who has locations in Branch B’s territory, but the Branch A GM decides to send his or her technical resources in to do the work rather than leveraging under-utilized engineers from Branch B;
- Branch A hires costly Solution Architects rather than utilizing those provided by headquarters or that exist and are available at another branch;
- Branch A won’t share with other branches “their” pool of potential new hiring recruits that were provided by the headquarters recruiting department; and
- Branch A makes a decision to leverage a headquarters resource in a way that drives up cost for everyone. For example, forcing Marketing to create assets or campaigns which cannot be used across multiple locations or selling Managed Services deals to customers who will not standardize.
For this reason, some component of the GMs’ incentive pay should be placed on company-wide attainment of budget goals, instead of their entire incentive being placed on the performance of their own territory. More detail is provided in the Compensation Functional Area of SLIQ.
Praise and Correction
The guideline to “praise in public and correct in private” is effective in this environment. Typically, public correction of ineffective behavior is difficult for most executives to do with good results and is not a skill we recommend building.
Make efforts to catch a GM doing something right and publicly praise them for it. Being a GM – or an executive managing GMs – is a lonely job and often one without many thanks. Having their leader and mentor publicly recognize them for doing a good job at something once in a while goes a long way towards keeping morale up and energies focused on the job at hand.
The Power of Multi-City Operations
The challenge, investment and risk of building a successful multi-city operation are considerable. However, the opportunity to more quickly grow to a size perhaps not possible in your existing geography (or geographies), and to have a materially larger geography and team into which to attract and promote talent, is also considerable.
This newsletter summarizes the methods used by those successful at building high-performing multi-city TSPs. Leveraging these best practices will save you time, investment and risk.
