Matrix-Based Management, Part III: Training & Education

The “drivers” of productivity are separate measurements that can be used to determine success in the organization. We will look at some of the more common drivers in the jewelry industry, but you may want to consider if there are others more specific to your business.

For our purposes, “alignment” is defined as “harmony among all the components of a business.” Each part functions in support of the whole. The Matrix can be used to evaluate how healthy the business is right now or how a change—even a small one—in one area could affect other parts of the business.

The Matrix consists of six parts: The Corporate Mission Statement, which sits in the center of the Matrix, and five components: Financial, Operations and Support, Sales and Marketing, Training and Education, and Social Mission.

Once again, we will rely on three years of data from Jewelers of America’s Cost of Doing Business Survey, the JCK Annual Salary Survey, and information on training available via the Internet during the period covered by these surveys. The educational prices quoted are not current; they are, to the best of our knowledge, accurate for the period covered in the surveys.

We will once again use the following as the Mission Statement for our sample company:

“This Company exists to sell quality jewelry at a fair price so that we can become a business that is financially stable, even prosperous; one that has an excellent reputation for integrity and humanity, and is known as a great place to work; one that rewards all stakeholders and encourages investors to continue to support this company.”

Under the T&E umbrella. “Training and Education” means developing and improving what the business does through sales training, software development, hardware upgrades, continuing education, “counter intelligence,” and anything else that improves the efficiency and effectiveness of the organization. It includes not only developing systems but also communicating them throughout the organization.

Training and education is often overlooked. Ever hear the story of a lumberjack determined to cut down as many trees as possible? The first day he cut down nine trees; the second day, seven. On day three, he cut down five trees, and on day four he cut down only two. When a friend asked what he was doing differently, he replied, “I’m swinging the ax as hard or even harder today than I was earlier.” His friend then looked at his ax and noticed it was very dull and needed sharpening. But the lumberjack replied, “I don’t have time for that—I need to keep cutting down trees! That’s what I get paid to do.”

Training and education is as critical as sharpening your tools. Without it, your business will become ineffective, like the lumberjack’s dull axe: You’ll be working harder … and accomplishing less.

This area addresses three parts of the mission statement: “great place to work,” “rewards stakeholders” (salespeople and other employees), and “excellent reputation.”

Key questions. Here’s what we should be asking ourselves:

  • Are our salespeople better this year than last?

  • Do we see improvement over time?

  • What are we doing to make them “better?”

  • Are they leaving for better jobs or do they have a career path here?

  • How much should we spend and what will it buy?

  • Are our salespeople making more money this year than last?

  • Are we developing a skilled labor force or providing a temp job until something better comes along?

  • How old is our equipment?

Measuring up. The measurements we should look at include:

  • Employee productivity

  • Dollars spent annually and per employee

  • Educational opportunities within the industry

  • Annual pay

  • The “appraisal dilemma”

Are our salespeople getting better each year? Let’s look at the figures:

The answer? Yes, they are getting better. Each year they have sold more and have increased their gross profit per employee. (As mentioned in a previous article, it’s better to measure the actual gross profit per employee rather than simply computing the average. In our Sales and Marketing Analysis, we’ll look at pay-to-sales ratios, but for now it’s enough to see that they are getting better each year by selling more.)

Sales are not the only way to measure improvement. The survey does not provide information that also might be relevant to performance, such as closing ratios, quantity of add-on sales, quality control, and added professional credentials.

One measure of note: The JCK Salary Survey indicated that job turnover is not a problem for most jewelry stores. According to the survey, 63% of stores reported no employee turnover.

Money well spent. Next, let’s look at what we’re spending annually on education and training.

It is worth noting that both figures have grown. However, this is just 0.2% of sales, which is incredibly low: As a ratio to average salary, it represents just 2%.

How can this industry properly train professionals on budgets like this? If our industry wants to attract “the best and the brightest,” we must provide more in the way of professional training. This budget is not enough to develop a skilled labor force, and when we look at Sales and Marketing, we’ll address this further.

For now, we should realize that many personnel problems follow from not developing skills in the workforce, which makes it impossible to provide a career path. Conversely, employees must be able to sell enough to provide sustainable profits to support investment in training programs. Thus, a storeowner is faced with a critical decision: whether to invest in employee training first, in the hope of greater profitability, or work on profitability first and then invest in training.

I believe we must invest now in ways to increase the value each employee brings to the marketplace; the reward should be greater profitability over time. If a professionally trained employee cannot bring enough value to the marketplace to sustain the investment in the training, the traditional model of a retail jewelry business is dead over time.

Let’s go shopping. Exactly what does our budget buy?

Our industry offers many opportunities to educate employees, and in recent years these opportunities have multiplied dramatically. Jewelers of America (JA) and the Gemological Institute of America (GIA) have been aggressively adding to their curriculum; the Diamond Council of America (DCA), the American Gem Society (AGS), and the American Society of Appraisers (ASA) are ensuring that their courses are up to date; and the Jewelers Vigilance Committee (JVC) has created J-BAR to assist jewelers in appraising. The Jewelers Education Foundation (JEF) is updating its Web site to provide a more complete listing of education courses. Jewelers must earn enough profit to be able to invest and support these programs.

However, given our per-employee budget, it would be difficult for our store to take advantage of these opportunities. The budget might be enough to keep people current, but it’s not enough to train and educate new employees.

Show them the money! Are employees making more money?

The average store has been able to provide a modest pay increase over the period covered in our surveys. However, these wages are barely “living wages.” If we want to attract a better pool of candidates, we must create a career path for employees as well as the opportunity to earn a decent wage. To do so, each employee must become more profitable in order to sustain higher wages. The challenge of the retail jeweler of the 21st century is to create value that the market recognizes and rewards through greater profitability. If employees cannot create enough value to sustain their own living wages, other channels of distribution, such as the Internet, will replace them.

‘The Appraisal Dilemma.’ Thanks to the generous support of JCK , JVC has created a course to educate the average jeweler about the legal liabilities of poor appraisals. Many retail jewelers continue to appraise poorly, leaving themselves open to significant liability for opinions rendered rashly, under circumstances where they do not disclose their own interests in the transaction.

Professional appraising requires professional training and education. This is not simply a one-time curriculum; like any profession, it requires continuing education. The current budget for the average jewelry store would not be adequate to cover professional appraisal education or even the continuing education requirements of such organizations as the American Society of Appraisers. The education would need to be paid in part by the profit from the work itself. Let us look at the profitability from appraising.

Does this compensate for the time and effort involved in providing this service? If appraisals take more than 1% of the owner’s time, it becomes highly unprofitable, because this activity represents only 1% of the average store’s profit. Given that it would cost a minimum of $10,000 to defend a lawsuit over a bad appraisal, does the profit justify the risk? Statistics show that in this country the average person controlling assets over $1 million (such as this storeowner) will be sued every five years. Is it worth the risk?

If you spent all of the training budget and all of the profit from appraising on yourself, you still would not qualify as an appraisal expert, and you’d still need to purchase the equipment necessary to perform a good appraisal. Given the risks, this is certainly a case where a retail jeweler should consider outsourcing appraisal work.

Jewelers must learn to control the temptation of appraising a recent purchase from a competitor in the hopes of discrediting the purchase and winning a new sale. Such behavior discredits the entire industry.

Jewelers also must learn to create real value in the marketplace, not through offering “inflated appraisal values” to support the customer’s belief that they bought some kind of “bargain” but by creating real value the marketplace rewards. It should be an extraordinary event when a store appraises an item for more than the actual transaction price. Most appraisals, even those for insurance replacement, call for a “fair market value.” The IRS and the Uniform Standards for Professional Appraisal Practices (USPAP) define this as “the price a willing buyer would pay a willing seller, neither being compelled to do so.”

Who is more unethical? The jeweler who prices an item for $8,000 knowing he will sell it for $6,000 (when pushed) and then writes an appraisal for $10,000? The customer who buys an item for $6,000 but takes the appraisal, knowing it is inflated, to the insurance company to insure for $10,000? Or the insurance company that gladly takes premiums for $10,000 knowing it has an “arrangement” with that same jeweler to replace the item for $4,500?

This is the sad state of our industry. We must not rely on smoke-and-mirror techniques to justify our prices and profits. Appraisals represent so little profit for the average store that it is better to leave it to true professionals and to spend the education budget on improving the professionalism of our salespeople.

Dinosaur technology. As technology becomes an increasing part of our businesses, stores must make sure equipment does not become obsolete. Software is constantly being updated, and software companies won’t support old programs forever. Eventually storeowners may not be able to bring their data to current forms. Hardware also must be replaced as technology improves.

Outdated software and hardware can cause many problems down the line and can be expensive if complete replacement becomes necessary. It’s much less painful to update periodically than all at once. Updates should be built into a budget and included in the “Training and Education” component.

Training and Education includes improving employees as well as increasing efficiency in the corporation, including the use of current technology. It includes everything that would maintain current efficiencies as well as improve them over time. If we do not plan to grow and improve, we will become complacent and stagnant. In the dynamic retail environment in which we operate, remaining stagnant for too long is a death sentence for most enterprises. Like the lumberjack, an operation must make sure its tools are sharp and keep this component in alignment with the Corporate Mission. Otherwise, over time, you’ll find yourself working much harder … and achieving progressively less.

Employee Sales Productivity

YEAR 1 YEAR 2 YEAR 3
SALES PER EMPLOYEE $160,000 $179,080 $175,667
GROSS PROFIT PER EMPLOYEE (Computed) $76,800 $84,883 $86,603

Dollars Spent Annually on Training and Education

YEAR 1 YEAR 2 YEAR 3
TOTAL DOLLARS $1,141 $1,431 $2,081
PER EMPLOYEE $285 $358 $520

Opportunities:

ORGANIZATION YEARLY DUES CURRICULUM APPROX. COST PER CURRICULUM
JA $125 Entry $15
Jewelry 101 $35
Counter Intelligence $79
Nothing to Hide $30
AGS $745 CSA $299
RJ $425
CGA $325
DCA $325 Diamonds $110
Colored Stones $110
GIA $ – GG * $6,375
ASA $495 USPAP $295
Master Gem. Appraiser $595
* Not including equipment

PAYROLL YEAR 1 YEAR 2 YEAR 3
Total Payroll $112,995 $140,293 $144,122
Subtract owners pay (JCK Salary Survey by Store Volume) -$60,000 -$75,000 -$75,000
Non-owners payroll $52,995 $65,293 $69,122
Divide by three people on staff $17,665 $21,764 $23,041
(JCK Salary Survey) $20,340 $26,253 $26,000

Dollars Spent Annually on Training and Education

APPRAISALS YEAR 1 YEAR 2 YEAR 3
Income $2,853 $2,863 $3,481
Expense $788 $367 $583
Net Profit $2,065 $2,496 $2,898