management
It’s not Rocket Science – What you Measure Defines how People Behave
I previously wrote a post titled “To Measure is to Know.”
The other side of the coin is that what you measure defines how people behave. This is an often forgotten aspect of Business Intelligence, Compensation Plans, Performance reviews, and other key areas in business. While many people view this topic as “common sense,” based on the numerous incentive plans you run across as a consultant and compensation plans you submit as a Manager, that is not the case.
Is it wrong to have people respond by focusing on specific aspects of their job that they are being measured on? That is a tricky question. This simple answer is “sometimes.” This is ultimately the desired outcome of implementing specific KPIs (key performance indicators), OKRs (objectives and key results), MBOs (Management by Objectives), and CSAT (Customer Satisfaction), but it doesn’t always work. Let’s dig into this a bit deeper.
One prime example is something seemingly easy yet often anything but – Compensation Plans. When properly implemented, these plans drive organic business growth through increased sales, revenue, and profits (three related items that should be measured). This can also drive steady cash flow by closing deals faster and within specific periods (usually months or quarters) and focusing on models that create the desired revenue stream (e.g., perpetual license sales versus subscription license sales versus SaaS subscription sales). What could be better than that?
Successful salespeople focus on the areas of their comp plan where they have the greatest opportunity to make money. Presumably, they are selling the products or services that you want them to based on that plan. MBO and OKR goals can be incorporated into plans to drive toward positive outcomes that are important to the business, such as bringing on new reference accounts. Those are forward-looking goals that increase future (as opposed to immediate) revenue. In a perfect world, with perfect comp plans, these business goals are codified and supported by motivational financial incentives.
Some of the most successful salespeople are the ones who primarily care only about themselves (although not at the expense of their company or customers). They are in the game for one reason—to make money. Give them a well-constructed plan that allows them to win, and they will do so in a predictable manner. Paying large commission checks should be a goal for every business because properly constructed compensation plans mean their own business is prospering. It needs to be a win-win design.
However, suppose a salesperson has a poorly constructed plan. In that case, they will likely find ways to personally win with deals inconsistent with company growth goals (e.g., paying a commission based on deal size but not factoring in profitability and discounts). Even worse, give them a plan that doesn’t provide a chance to win, and the results will be uncertain at best.
Just as most tasks tend to expand to use all the time available, salespeople tend to book most of their deals at the end of whatever period is used. With quarterly payment cycles, most of the business tends to book in the final week or two of the quarter, which is not ideal from a cash flow perspective. Using shorter monthly periods may increase business overhead. Still, the potential to level out the flow of booked deals (and associated cash flow) from salespeople working harder for that immediate benefit will likely be a worthwhile tradeoff. I pushed for this change while running a business unit, and we began seeing positive results within the first two months.
What about motiving Services teams? What I did with my company was to provide quarterly bonuses based on overall company profitability and each individual’s contribution to our success that quarter. Most of our projects used task-oriented billing, where we billed 50% up-front and 50% at the time of the final deliverables. You needed to both start and complete a task within a quarter to maximize your personal financial contribution, so there was plenty of incentive to deliver and quickly move to the next task. As long as quality remains high, this is a good thing.
We also factored in salary costs (i.e., if you make more than you should be bringing in more value to the company), the cost of re-work, and non-financial items that were beneficial to the company. For example, writing a white paper, giving a presentation, helping others, or even providing formal documentation on lessons learned added business value and would be rewarded. Everyone was motivated to deliver quality work products in a timely manner, help each other, and do things that promoted the growth of the company. My company prospered, and my team made good money to make that happen. Another win-win scenario.
This approach worked very well for me and was continually validated over several years. It also fostered innovation because the team was always looking for ways to increase their value and earn more money. Many tools, processes, and procedures emerged from what would otherwise be routine engagements. Those tools and procedures increased efficiency, consistency, and quality. They also made it easier to onboard new employees and incorporate an outsourced team for larger projects.
Mistakes with comp plans can be costly – due to excessive payouts and/or because they are not generating the expected results. Backtesting is one form of validation as you build a plan. Short-term incentive programs are another. Remember, without some risk, there is usually little reward, so accept that some risk must be taken to find the point where the optimal behavior is fostered and then make plan adjustments accordingly.
It can be challenging and time-consuming to identify the right things to measure, the proper number of things (measuring too many or too few will likely fall short of goals), and provide the incentives to motivate people to do what you want and need. But, if you want your business to grow and be healthy, it must be done well.
This type of work isn’t rocket science and is well within everyone’s reach.
Diamonds or just Shiny Rocks?
During a very candid review years ago, my boss at the time (the CEO of the company) made a surprising comment to me. He said, “Good ideas can be like diamonds – drop them occasionally, and they have a lot of value. But sprinkle them everywhere you go, and they just become a bunch of shiny rocks.” This was not the type of feedback that I was expecting, but it turned out to be both insightful and very valuable.
For a long time, I have held the belief that there are four types of people at any company: 1) People who want to make things better; 2) People who are interested in improvement but only in a supporting role; 3) People who are mainly interested in themselves (they can do great things, but often at the expense of others); and 4) People that are just there and don’t care much about anything. This opinion is based on working and consulting at many companies over a few decades.
A recent Gallup Poll stated Worldwide only 13% of Employees are “engaged at work” (the rest are “not engaged” or “actively disengaged”). This is a sad reflection of employees and work environments if it is true. Since it is a worldwide survey, it may be highly skewed by region or industry and, therefore, not indicative of what is typical across the board. Those results were not completely aligned with my thinking but were interesting nonetheless.
So, back to the story…
Before working at this company, I had run my own business for nearly a decade and was a consultant for 15 years, working at large corporations and startups. I am used to taking the best practices learned from other companies and engagements and incorporating them into our business practices to improve and foster growth.
I take a systemic view of business and see the importance of optimizing all components of “the business machine” to work harmoniously. Improvements in one area ultimately positively impact other areas of the business. From my naive perspective, I was helping everyone by helping those who have easily solved problems.
I learned that while trying to be helpful, I was insensitive to the fact that my “friendly suggestions based on past success” stepped on other people’s toes, creating frustration for those I intended to help. Providing simple solutions to their problems reflected poorly on my peers.
Suggestions and examples that were intended to be helpful had the opposite effect. Even worse, it was probably just as frustrating to me to be ignored as it was to others to have me infringe on their aspect of the business. The resulting friction was very noticeable to my boss.
Those ideas (“diamonds”) may have been considered had I been an external consultant. But as part of the leadership team, I was coming across as someone just interested in themselves (leaving “shiny rocks” laying around for people to ignore or possibly trip over).
Perception is reality, and my attempts to help were hurting me. Luckily, I received this honest and helpful feedback early in this position and was able to turn those perceptions around.
What are the morals of this story?
First, people who are engaged have the greatest potential to make a difference. Part of being a business leader is making sure that you have the best possible team, and are creating an environment that challenges, motivates, and fosters growth and accountability.
Disengaged employees or people who are unwilling or unable to work with/collaborate with others may not be your best choices, regardless of their talent. They could actually be detrimental to the overall team dynamics.
Second, doing what you believe to be the right thing isn’t necessarily the best or right way to approach something. Being sensitive to the big picture and testing whether or not your input is being viewed as constructive was a big lesson learned for me. If you have good ideas but are ineffective, consider that your execution could be flawed. Self-awareness is very important.
Third, use your own examples as stories to help others understand potential solutions to problems non-threateningly. Let them connect to their own problems, helping them become more effective and allowing them to save face. It is not a competition. And, if someone else has good ideas, help support them through collaboration. In the end, it should be more about effectiveness, growth, and achievement of business goals than who gets the most credit.
While this seems like common sense now, my background and personal biases blinded me to that perspective.
My biggest lesson learned was about adaptation. There are many ways to be effective and make a difference. Focus on understanding the situation and its dynamics to employ the best techniques, which is ultimately critical to the team or organization’s success.
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