A while back I 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 that you run across as a consultant, as well as compensation plans that you submit as a Manager, that is not the case.
Is it a bad thing to have people respond by focusing on specific aspects of their job that they are being measured on? That is a tough question. This simple answer is, “sometimes.” This is ultimately the desired outcome of implementing specific KPIs (key performance indicators) and MBOs (Management by Objectives), 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 constantly closing within certain periods (usually months or quarters) and focusing on models that create the desired revenue stream (e.g., perpetual license sales versus subscription license 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 goals can be incorporated into plans as a way to drive towards 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, all of these business goals are codified and supported by motivational financial incentives.
Some of the most successful salespeople are the ones that primarily care only about themselves. They are in the game for one reason – to make money. Give them a plan that is well constructed and 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 with properly constructed compensation plans that means their own business is prospering. It needs to be a win-win setup.
But, give a salesperson a plan that is poorly constructed and they will likely find the ways to personally win with deals that are inconsistent with company growth goals (e.g., paying 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 time available, salespeople tend to book most of their deals at the end of whatever period is being used. With quarterly cycles most of the business tends to book in the final week or two of the quarter – something that is not ideal from a cash flow perspective. Using shorter monthly periods may increase business overhead, but the potential to significantly increase business from salespeople working harder for that immediate benefit will likely be a very worthwhile tradeoff.
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 growth of the company. The company prospered and my team made good money making that happen. Another win-win scenario.
This approach worked very well for me, and was continually validated over the course of 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 came out of what would otherwise be routine engagements. Those tools and procedures increased efficiency, consistency, and quality. They also made it easier to on-board new employees and to 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. Back testing 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 the fact 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 that will motivate people to do what you want or need. But, if you want your business to grow and be healthy it is something that needs to be done well.
This type of work isn’t rocket science, and therefore is well within everyone’s reach.
Whether you are a business owner, a manager, or a parent, finding the right way to motivate your team is important to maximize performance and results. Each person is a little bit different, is looking for something a little different, and once you figure out what is important you can get the most out of them. Not everyone wants to be a star – and that is usually OK (as long as they have the right attitude, skills and work ethic).
But, there are those exceptional people that want to be the best, are willing to take risks, work hard, and “think different” in order to succeed. These are the people who are self-motivated, and continue to raise the bar for the entire team as part of a high-performance culture. These are the people who move the dial.
I’ve had the pleasure of being taught by people like this, working with people like this, managing people like this, and helping a few people become people like this. Every once in a while you have a few of these special people working together, and that is when really amazing things happen. These people are generally curious and wonder “why not?” They are confident (not arrogant), intelligent, and passionate about being successful.
Back when I was funding research projects I had a trip scheduled to Philadelphia. I asked a friend at a local hospital to make an introduction to meet someone from “CHOP” (the Children’s Hospital of Philadelphia). They were always ranked as one of the top hospitals, and I wanted to see why. The introduction was made and a lunch meeting was scheduled. I was looking forward to the meeting, but had no real expectations for the meeting.
Much to my surprise, a half-dozen people in a large conference room with a catered lunch greeted me. They gave me presentations on their various projects (which was unusual as they did not know me, but did know I was involved with research projects at other facilities). Everyone in the room was amazing, and the department head (Dr. Terri Finkel) was one of the most impressive people that I had ever met.
After lunch was over I told Dr. Finkel that I appreciated the lunch, but wondered why they went to so much trouble when I never promised to do anything in return for them. She just smiled and replied, “We love what we do, and love having the opportunity to talk about our projects and passions to people who have similar interests.” That made a huge impression on me, and within about six months we were funding projects using a unique approach that Terri suggested in response to a question I had about getting the most “bang for my research dollars.”
Over the course of a few years this team did incredible things that had a tangible impact on Pediatric Rheumatology. There were many great researchers, but two of them really stood out (Drs. Sandy Burnham and Randy Cron – both continue to do amazing things to this day). The results of this team were so much better than everyone else that we supported. They provided a huge return on my investment, and I can take pride in knowing that in some small way I made a difference through these efforts.
To me it came back to the basics. Intelligent people who were passionate about making a difference, who were confident enough to be challenged, and who were led by a visionary person who saw an opportunity to motivate her team and help me achieve my goals. It’s the best type of win-win scenario possible.
These people moved the dial back then, and continue to move it today. It is a thing of beauty to watch stars like this perform. These are the people who shine twice as bright and guide others down the path to success. And, you can find them in every industry and every walk of life.