Business Journal

Small Companies, Big Results in Mexico

by Jennifer Robison

How large-company management science is boosting bottom lines for small Mexican businesses

The state of Puebla in south central Mexico might be the last place one would look for high-powered, sophisticated management science. Most of the businesses in Puebla are small. The state seems thousands of miles away from the cutting-edge companies of the global economy. And many people outside the region probably haven't heard of Puebla, Mexico.

But don't let Puebla's obscurity fool you. The state has become the locus of some small but remarkable businesses using the same science as the biggest and best companies in the world. And those businesses are getting powerful results.

MAP: Puebla, Mexico

Though it may be surprising to find small companies -- or PyMEs, the Spanish acronym for small and medium-sized enterprises (pronounced "pea-mays" in English) -- in remote venues using the same science in the same way to the same effect as does, say, Toyota, it's no accident. It's the result of the Puebla Job Creation Laboratory, a joint project of the government of the state of Puebla and Gallup.

In 2005, Mario Marín Torres, the governor of the state of Puebla, asked Gallup to help him fulfill some of his campaign promises: reduce poverty throughout the state, increase Puebla's domestic and international competitiveness, develop global best practices to bring world-class investment and technology to the state, and establish Puebla as a globally recognized center for management technology and productivity that can be linked to organic job creation. To help him in this endeavor, Governor Marín appointed his secretary of labor and competitivity, Jose Antonio Lopez Malo, to work with Gallup to convert promises to reality.

QUOTE: Globalization has brought competition...

It was a tall order. Gallup needed to create what is, in essence, an education, job creation, and intervention program for small to medium-sized enterprises.

But it was a smart plan for several reasons. Globalization has brought competition to areas of the world that previously felt safe from it. These days, Mexican manufacturers are worried about competitors in China, who are worried about rivals in Southeast Asia, who may someday soon lose business in places that can provide even lower manufacturing or labor costs. Also, most Mexicans -- in fact, most workers everywhere -- work for companies of fewer than 500 people. In Mexico, small businesses provide 71% of formal employment and about 50% of the GDP.

What's more, Gallup research has revealed that in countries around the world, what people want is a good job. One of the best ways to create sustainable jobs is through organic growth. Unlike growth that comes through purchases of other companies (think of the GE model), "organic growth" occurs when a company creates more transactions with its current customer base and with continuously growing margins. Low-cost loans, business development plans, and small business training programs and the like are all necessary, but good management is the true accelerant that can turn struggling businesses into flourishing ones. (See "Global Migration Patterns and Job Creation" and "Good to Great? Or Lousy to Good?" in the "See Also" area on this page.)

And that's what Governor Marín wanted Gallup to do for the state of Puebla -- provide the fuel for individual businesses to grow so that they could create the jobs that spur economic development.

No magic number

As mentioned before, this science will work in any good company regardless of size. But that doesn't mean the science can be inserted on a whim. For Governor Marín's plan to work, the science had to be carefully adapted and administered to the PyMEs in a way that provided them with the best chance for measurable success. Because there is not an infinite number of Gallup management experts in Puebla, and because every participating PyME would require a considerable amount of input from a consultant, the number of companies invited to participate in the first cohort was deliberately kept small -- only 32.

Those businesses, however, represent the local economy rather well. Some are tiny, with only a handful of employees who serve a very narrow market. Some are well on their way to becoming large companies but facing tough challenges. As Patricio Zorilla, the president of Ultravision -- a radio, pay television, and Internet access company with about 300 employees -- put it, "We're a small company, and we have a good product. But we need to work very fast and very efficiently if we want to get bigger or even to compete with the really big guys in communications." Each company, however, was exceptionally well-run and well-managed.

Delivery

Roberto Rojas, Ph.D., led the design and deployment of the PyME Growth and Job Creation Project. He faced special challenges from the project's beginning.

"We couldn't just walk into companies and tell them what to do," Rojas says. "They know their businesses better than we ever could. But we know the science. We had to deliver it in the way that would be most beneficial to them." And he had to figure out how to deliver it quickly, efficiently, and in a way that would create measurable success as determined by company growth, employee engagement, and job creation throughout each company.

QUOTE: The executives from the PyMEs...

Because a full-scale intervention in each business was impossible, Rojas concentrated on influencing high-level management strategy in each company. Once a month for five months, the executives came to the Gallup office for in-depth workshops. But before they even began, the executives were introduced to the program Rojas and his team had created -- the "Impact Plan Plus." In essence, the Impact Plan Plus integrated three basic components: creation of a shared vision for growth, development of strengths-based leadership, and increased employee engagement levels.

To create the vision for growth, the plan introduced executives to Gallup's Business Growth Strategies 13 (BG13) -- 13 concepts such as customer engagement, core competencies, and regional and global growth opportunities that, while not directly actionable, gave the leaders the food for thought that companies grow on. Then the PyME executives took the Clifton StrengthsFinder, an assessment designed to measure the presence of key talents -- patterns of thought, feeling, and behavior that can be productively applied. Next, they were coached on how they could best build on their individual talents to develop leadership strengths.

Finally, Rojas and his team explained employee engagement and the role it plays in creating productivity, sustainability, and profit growth. They also outlined how the Q12, Gallup's 12-item employee engagement survey, would be administered in their companies -- and what they should to do with the results.

"We went to see what Gallup had to offer, and we immediately thought that this is what we needed," says Ramon Gamero, human resources director of the 16-store home improvement chain Tudogar. "The Q12 in general was interesting because we realized our employees are really engaged with their work, but we have to do more with talents. This we learned right away."

The executives were introduced to the Clifton StrengthsFinder early because they needed to know their talents to use them to build leadership strengths. They also needed to understand strengths philosophy and language so they could explain and apply it throughout their organizations. And the executives from the PyMEs were anxious to learn.

"We were very interested in the program, because we have full field ISO 9000 certification. We were interested in learning how to use Gallup's program as a tool to help us meet those standards and to engage employees to ensure the continuous growth of our quality systems," says Esmeralda Garcia, quality manager for IVI Construction. The firm employs 90 managers as well as technical and office staff and, depending on the season and market, up to 900 people who build housing for low-income families in and near Puebla City. "But very, very specifically and most importantly, we wanted to learn about talents and how through these talents you could engage your employees."

To help make "using talents to engage employees" a simpler process, Gallup created a talent "map" for each company -- a visual that showed the variety of talents that were found in their management ranks. "We analyzed the talent map in depth," says Gamero, "and with the Four Keys [to Great Management, a coaching and analysis method that helps individual managers work with their reports' strengths, limitations, styles, and needs] assessment, we have a whole lot of information for decision making and improving [our] teams."

Getting started

To start creating the Impact Plan Plus, two Gallup management experts conducted site visits. This was a crucial component of the program. The consultants had to know the businesses well to make actionable suggestions, and the executives had to believe that the consultants knew enough to know what they were talking about.

QUOTE: Overall turnover at Tudogar dropped...

Based on what the Gallup consultants learned from the site visits, they identified key stumbling blocks for growth at each PyME, presented them to company executives, then worked with the executives to create their Impact Plan Plus. That's when they started talking about the BG13 in depth.

"We were working from the inside out," says Rojas. "We put growth at the center of this framework. You may think that this is all very obvious, but it isn't obvious if you don't give direct thought to these issues. We very much wanted each company to be successful, but for that to happen, they had to define what success means within their company."

At the same time, Gallup worked with each company to analyze its structure. The resulting organizational map was key not only to the Q12 implementation, but also to helping each business understand how employee engagement played out across the company. The employee engagement consulting and analysis was accomplished in a single month.

Thus, by the third month of the PyME project, executives of each company were awash in new management intelligence. They had received training in strengths development, employee engagement, management science, and strategic planning -- and were then sent back to their companies to implement it.

"The impact plan was very helpful to us because we're coming from the hard side of construction," says Garcia. "We're more process oriented [on] the hard, cold side of the industry. When we discovered that you can use your talents deliberately and efficiently and what specifically you can do to engage your employees, we realized that this is another very important side of the organization that complements the one we have already succeeded with. It gave us a comprehensive solution for dealing with a very important human factor."

Implementation

Each company implemented its learning in ways that best suited its culture. At Ultravision, Zorilla made what he learned part of the company's everyday culture and put one person in charge of the employee engagement and strengths implementation. "The studies and learning and all the measurement tools showed us that we needed to [make] some changes, so we did -- and we're still doing it," Zorilla says. "It's part of [our] everyday work to [manage] this way."

Garcia and her team of engineers and construction workers found the "soft side" of management a bit hard to swallow at first, but they understand productivity in a very concrete way. So they made the implementation process-oriented. First, they started matching organizational needs with individual talents. Then they paired engagement problems, as identified by the company's Q12 employee engagement results, with specific action plans to combat them.

Next, they tackled company-specific issues, such as quality, with what they learned in their management training. And they got very, very serious about managing individuals. "Through what we learned in the intervention, we've classified the employees based on performance -- A, B, and C employees," says Garcia. "We decided to work hard with the A and B employees and leave the C, where the attrition occurs mainly."

In the fourth month of the program, Gallup assessed each business' progress and provided formal and informal mentoring and support on leadership talents and business challenges. Some companies were able to integrate the new management approaches and science into their organization more quickly than others, but almost all of them could benefit from some degree of mentoring and support. So, whenever a business leader had a problem or a question or needed advice, his or her coach was on the phone or at the site with a suggestion.

The fifth month brought a final review and another round of formal coaching. This was the last month of the program, when everything came together. Though five months seems an extremely short period to absorb this much new information and learning, much less put it to work, each PyME had to show measurable performance improvements to demonstrate the value of the program.

Change up

Some PyMEs showed more improvement than others. But the improvements that several of them showed are remarkable, especially considering the time frame and learning curve. Overall turnover at Tudogar dropped from 90% to 40% after the company implemented its focus on employee engagement and strengths-based approach to employee development. The company has also increased the number of training seminars that managers scheduled with employees from 58 a year to 223 in six months.

The program boosted Ultravision's growth plans and prepared it for rapid changes. Ultravision has gotten so big so fast that "sometimes it starts to get a little bit messy," as Zorilla said. But since the intervention, he's found it easier to put the right people in the right jobs. "I really like talent-based structure because it is very operational. I invested money in doing this because I hoped that it could help our teams feel more like part of the company and feel responsible. We needed this to compete with the big monsters of telecommunications and to grow 25% a year, which is the industry standard."

IVI Construction is also facing rapid growth -- the company has built 4,468 houses since it was founded in 2000, and its goal for this year is to complete the building of 1,370 homes. Garcia believes that what they've learned through the program has ameliorated some of the negative aspects of fast expansion. "In terms of sales, [we've] been growing, but that is not necessarily a consequence of the Gallup program. It's because we are good at selling," says Garcia. "On the other hand, what we've learned has helped reduce attrition, and we've created 15 new positions."

These tools

So the governor of Puebla, the managing director of Gallup Puebla, and the PyME business leaders were all right -- you can jump-start growth with just the right application of management science. Rojas' Impact Plan Plus has become part of each PyME's DNA, and it will be continued, even without Gallup's direct involvement.

But that's not all these successful businesses want. Every one of them wants to broaden the scope of what they've learned, having seen what this learning has done for top management. As Gamero says, "The tools -- the Q12, the StrengthsFinder, and the Four Keys -- are very important, and now we consider [them] as essential for solid growth. We want to continue this implementation throughout the company. We should all have these tools."

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