Tuesday, September 13, 2016

Part II – Are your incentives tied to the right behaviors for success?

As a corporate employer, you may ask, what difference does it make if I’m tying incentives only to the end results if they make their “numbers” and everyone makes the forecasts?  If budgets are met, and my incentives are tied to making budgets, everyone goes home wealthier, right?  One of the many problems I see with this short-sightedness is reflected in the extreme, predictable and avoidable ups and downs and the scare of scrambling I see in companies each year, year after year. Without strengthening various parts of the chain of a business, meeting those end numbers is far more difficult than it needs to be. As an example, one particular company I worked with would start in January happy, optimistic and generous (but not extravagant or wasteful) in its resource allocations and spending. Hiring would take place, plans would be made for new initiatives and work was fun. Then, the end of the 1st quarter numbers would be released, and they didn’t match the forecasts.  There was some notice and caution, but nothing to get too worked up about. Then the 2nd quarter results would come in, and it was a red alert with alarm bells sounding everywhere. We had only 6 months to make up
gaps from the first half of the year, plus keep on target for the next 6-month forecast. The edict would come down from on high…cut
10% of the personnel and 10-15% (or more) of forecasted expenses. Do more with less…A hunkering down mode would begin and fear
was in the hearts and minds of everyone.

Then the 3rd quarter results would come in, and
not enough was done in the 3rd quarter to put things back on track and it was full-on panic. The craziness would ensue. Everyone was required to do anything and everything humanely (even if insanely) possible to make
those numbers in both cost cutting and bringing in any sales possible. The sales force would work out deals with customers to pay things early or upfront and manipulations would occur for revenue recognition with accounting procedures…anything and everything was on the table. Now, I’m not saying anything unethical or illegal was done ever, but it was an all-out blitz of spend no money and get any dollar you can on the books. People didn’t sleep and they absolutely killed themselves. Tempers were short and everyone was grumpy and motivated more by fear than anything else. It was never a nice place to work during
those last 3 months of every year.

Then the year-end results would come in, and they’d done it. They had succeeded in the near impossible feat of making up for the earlier budget misses while still making their quarterly requirements. Celebrations were everywhere, and everyone – those who were left anyway – would go into the year-end holiday season fat, happy and exhausted. In January, we were back to the “happy go-lucky” fresh start mode and the cycle would begin again. This happened every year I was there. You could set your calendar by it. You could always tell what time of year it was by the attitude and temperament of the environment. It was awful….and completely unnecessary.

I wish I could say this behavior was limited to just an isolated company here or there, but it’s not. I saw similar behaviors in many a company. The most significant factors I saw creating this dysfunction were: (i) because they couldn’t see the impact of the process
chain of cause and effect and what impacts what, they focused almost entirely on end results; (ii) the companies were managing their performance by quarters instead of longer term performance that would produce greater success over time; and (iii) because of the first two factors in (i) and (ii), they weren’t incentivizing most of the activities that actually created the results they wanted, so they were having to recreate the short-term circumstances to produce those end results every year. While there is a serious problem with the American culture with its shareholders expecting – no, demanding - continual increases in a company’s profitability and revenues quarter after quarter, creating an unsustainable corporate model over the long term which produces the behavior in (ii) above, I will address only the issues reflected in (i) and (iii) here. Solving (i) and (iii) will help with the unrealistic, dysfunctional and destructive culture behind (ii) and we’ll leave the discussion of (ii) itself for another article.

In order to incentivize the behavior that produces the results you want, you have to actually understand what behavior and activities actually do produce those results. It’s not as simple as “good sales people produce revenues”.  If you aren’t creating the system that fosters the results, you are having continually to start over and recreate every sale and every relationship over and over again…the hamster on a wheel…you never get ahead because you’re always fighting and you end up doing little more than replacing the sand that falls out of that sieve. Therefore, you end up relying nearly 100% on just your sales people and everyone else just becomes “sales support” (and we all know sales people with this sense of entitlement). The reality is that most every division or person in a company has a role to play in identifying, recruiting, soliciting, selling, supporting, servicing, manufacturing for, distributing to and retaining a customer that spends money with the company. If you don’t understand how every
person in your company impacts a customer or a revenue dollar, you can’t understand the milestones or activities that you want to promote that will make it easier for the company to achieve its objectives. The vast majority of companies have bonus plans only for senior managers and sales people. The problem with that is that everyone in the chain can either satisfy, dissatisfy, retain or lose a paying client. We all know how that goes with diversion of resources and management trying to save a customer, money going out the door in free
product, service or reduced pricing to try and save a client. Then comes the blame, finger pointing, and bad relations with customers as well as internally between employees. This only adds to the “us vs. them” mentality between the sales department and everyone else.

So, how do you avoid this terrible game most American companies play and create stronger foundations with more productivity, greater customer retention, satisfaction, and therefore stronger corporate reputation, which translates into greater revenues with less work? The first step is to do a reverse engineering and process mapping of each and every department of how they contribute to your mission, to a product or service, how they touch the customer and how they interact with one another internally in the flow of business.  Too many employees and departments do what I call “throwing the hot potato over the wall” with an attitude of "it's your problem now...it's off my plate."  Each individual employee has to understand where they fit into that process of their department and how that fits into the whole of the company – meaning understanding the direct impact to others of their actions or in-actions.  Once you’ve done that, only then can you more accurately identify how you want each of those employees performing those roles to behave in their responsibilities that contribute to the ultimate goal...happy customers spending money with your business.

Here is where your numbers come back into play. These objectives and metrics need to be measurable…. “doing a good job with a smile on your face” in that list of job duties isn’t sufficient. Is there a timing component, is there a service or productivity component…what would tell you whether someone did well, just “ok” or terribly? Put a key performance indicator and metric on those … and here’s the important part…tie it to a bonus or some other financial incentive. That’s right…give every single employee an opportunity for a performance bonus and financial incentive. Every. Single. Employee.  You do this for 2 main reasons. First, every single employee has an impact on the chain of processes that produces or supports something that touches the customer and you want that part of the process to go smoothly, productively and with the highest degree of intention and quality. Second, every single employee needs to understand how they touch or support the customer and the business objectives, and needs to feel that they are an important part of the chain. Because a customer can be lost at any point in this chain, you need to have a strong chain
that is holding that customer and it needs to be attached to a sturdy foundation.

This is how you keep both customers and employees. Retained customers continue to buy from you, alleviating you from having to always start over finding new customers and making up for lost revenues or the end of sales from that customer. Retained customers also forgive missteps easier and refer other customers to you, providing valuable references and contributing to that strong foundation and corporate reputation that brings in new customers without you making as much effort. This allows you to truly grow your customer and revenue base, filling up those holes in your bucket that allow you to step out of hamster on a wheel mode running furiously trying to put more sand in the bucket to replace the sand falling through the holes. Instead, it helps you create a bigger sand box.

This is also how you retain employees. When every employee understands their importance in the chain of activities, and is treated as the valuable part of the chain that they are and they are financially rewarded for it, they are happier, perform better and stay longer. They not only have greater pride in their work, but now they have a financial incentive to have that pride and go above and beyond the “not my job” mentality. This results in less money, time and lost productivity by the company in training new employees as well.

You don’t have to pay at the top of the salary market for good talent. Instead, put that extra money towards incentivizing the right behaviors throughout the chain of business activity and you will be paying more for results that really help you achieve the corporate goals. Your employees then will stay with you because they feel like they have a purpose and importance beyond “just doing a job” and they’re being financially rewarded for it beyond just a static salary.  Who wouldn’t put their money where their objectives truly are? Paying employees for doing what you really want while creating a systemic and functional team environment is the most productive use of any company’s time and money.