Monday, September 12, 2016

Are you incentivizing the behavior you want?

(The first in a 2-part series)

People often express surprise and disdain when company employees don’t seem to care much about delivering quality performance with intention.  Too often we think employees just want to get that pay check, striving only to click the “done” box on their job
duties. Blame is usually focused more on the individual employee as just someone who doesn’t have motivation or pride in their work. In most cases, however, this apparent apathy translates into a representation of the company. The company then loses customers, suppliers and partners. This isn’t always an individual problem. All too often this is a problem with improper or a complete lack of incentives with little to no comprehension of that individual's value to the organization and the role they play in its success. This can and does happen at all levels of the organization, from the lowest to the highest levels.

I’ve personally managed regional and global divisions of large and small, domestic and international companies, and when I was trying to help a divisional vice president of an international company institute better quality procedures in his division, in order to produce better and more reliable products with improved customer satisfaction (read, improved customer retention and therefore more reliable revenue), I was speechless when he said to my face “I hear you, and I recognize the value, but I don’t get ‘bonused’ on that activity….I have to focus our division’s efforts on what we are measured on in our performance – and paid for - at the end of the year, and we don’t have time or capacity for this initiative.”  What?! You aren’t going to participate in an endeavor to produce better quality products that produce greater customer retention and satisfaction, which translates in the long run to more company revenue and better company reputation because you don’t get bonused on that directly?! What about doing it because it’s the “right thing” and in the long run better for the company?  To him, that was a secondary consideration because at the end of the year, that wasn’t part of the criteria on which he and his “success” would be measured. Never in a million years at that point in my career would I have fathomed that kind of response from someone at that level. However, it was exactly what I needed to hear in order to understand the dysfunction in corporate America.

From that point, I recognized that money was what spoke to and motivated people as much or more than anything else.  So, in order to motivate change, we had to show how money translated into the equation.
To do this, I spearheaded the introduction of a “cost of quality” program that measured just the hard costs (meaning costs that were actually expended or went out the door in free goods or services) incurred by the business resulting from the lack of these quality procedures. While it took me several months to convince even my own staff of the need to put time into this initiative in order to tie quality to finances -- because they too couldn’t understand why people wouldn’t just improve because it was “the right thing to do” or because it was “the law” or because it was better to produce better products. However, after a few months of driving this home and pointing out each and every time a financial impact could be tied back to a quality process (or lack thereof), I finally convinced my own staff of the value of buckling down and devoting the time to design a program instead of  making excuses why something else was more important and took up their time (the department’s “to-do” list was always well longer than available time to accomplish…the quality/regulatory/legal department was not at that time a popular place to devote resources with its perception as just a “cost center”). It ended up being one of the best uses of time we and our company went through that year. In less than 12 months, this very basic, hard-cost-only “cost of quality” pilot program caught a million dollars of hard costs to the business as a direct result from quality process gaps. That revelation produced widespread support and adoption of a more pervasive cost of quality program to identify more issues that led to buy-in by everyone from top to bottom of the need for changes and the value of quality processes – not just to customers, but to the company’s bottom line.

While this is not an article about the importance of quality processes, per se, it was the bigger picture that spoke volumes to me. This experience told me several things about basic corporate environments that has proven to hold true most everywhere: (i) people don’t see the “down the chain” impacts of their actions; (ii) financial rewards through bonuses and increases in salaries based upon performance reviews more than anything else are the motivators for a large number of corporate employees; and (iii) most companies don’t have the right financial incentives and performance metrics in place to create the end results they really want.  The reasons why incentives are not adequately tied to the right activities are, in large part, because of the fact presented in (i) above and the continual dragging along of traditional, long-standing performance metrics and formulaic bonus plans that are based almost entirely on the end results of revenues, cost control and profitability numbers.  These plans are also mostly reserved for only the senior managers and the sales employees despite the role that everyone else plays in the success of the company.

The biggest problem I have seen with this standard employee incentive and bonus structure is that they aren’t addressing the milestones that produce those desired end result revenue, cost and profitability numbers. Even when companies try to get progressive about revamping their incentive and bonus plans, they still have trouble seeing the beginning and middle genesis of the chain reactions. They focus still on the outcomes instead of the process that leads to the outcomes. They also leave out everyone in that chain for financial rewards and incentives. Employers base performance mostly on the end game of how much money is in the till – how much in sales and how much money did you spend. There is a smattering of productivity measures in there, but again those are usually another end-result numbers game. Metrics have to be measurable, so what’s better at being measurable than numbers, right?

The problem isn’t that they are using just numbers to measure performance and incent behavior, it is that they aren’t incentivizing the right activities and points in the processes along the way that create the end game they want.  As a result, the employees aren’t focusing on the process and the activities that create the solid foundations that make it easier to produce the results. Instead, they’re focusing only on the end result, and it doesn’t really matter much to the employers or the employees how they get there. As a result, companies end up incentivizing little more than employed hamsters on wheels producing a
house of cards and everyone is a loser at this game, from customers, employees and the companies themselves.

So, does it really matter that you’re only incentivizing end-game numbers if the profitability numbers are being met?  What else really matters……………?

Read tomorrow’s part 2 for the conclusion....