We make our annual plans, we set our quarterly goals, we may even develop more granular monthly plans, weekly plans, elaborate spreadsheets or CRM based KPI's or OKR's and then... "it" happens.
The "it" that happens often isn't what you wanted to happen...
You wanted the sales team to find new customers but they didn't.
You wanted your finance team to reduce the days sales outstanding (DSO) of your receivables, instead they increased.
You wanted your leadership team to collaborate more effectively and they got worse.
There's obviously a disconnect between what you and your team wanted to happen and what is actually going on.
So Why Did Things Go Wrong?
We didn't define success clearly enough... at least, not clearly enough for those who were trying to execute. This is a classic "Communication Process Model" issue where we fail to ensure that what we said is what the hearer understands. EXAMPLE: The Sales Manager tells the team that sales of Product X will have a special commission rate of 3% instead of the normal 1.5% but fails to make it clear that the product must ship before the 31st of the month to qualify. Imagine what happens when Bob returns with a huge order for his customer's entire yearly requirement of Product X, with ship dates every other month?
Make sure you have those on the execution side of the equation tell you how they think the incentive is supposed to work - have them give you examples or run some scenarios they validate and you can save everyone a lot of grief!
We defined success too clearly... and it stopped people from trying. If not being clear enough creates confusion, having too many criteria for success is equally ineffective. An incentive program that reads like the User Agreement for your favorite mobile device app is not going to elicit the response you want.
Fewer criteria that are more meaningful and clearly define the outcome you want. If it's to lower the Days Sales Outstanding (DSO), let the team know what the current DSO is, how DSO is calculated and what you want DSO to be - and what happens if that goal is achieved.
Like this:
"Our current DSO is 36.5 and we want to bring them to 36 or below. We calculate our DSO number as follows - receivables for the rolling 12 months / sales for the rolling 12 months * 365 days = DSO. If we get to 36 DSO or below, we will give each member of the accounting team a $50 Amazon gift certificate!
We created "backwards" incentives that undermined our intended outcome... In the book "Power Failure" by William Cohan, he recounts how the CEO of General Electric - Jeff Immelt - unintentionally sowed the seed for his corporate failure through the use of a highly lucrative supplemental pension incentive program. The GE Supplementary Pension Plan (know to insiders as the "SUP") had the following elements:
The employee was at least 51 years old
They had to remain employed at GE until they reached age 55
Upon exiting GE, you would receive 80% of your salary and bonus FOR LIFE (regardless of whether you took another job or not...)
Your participation was solely at the discretion of the CEO (Jeff Immelt)
Let's see if you can guess what effect this might have had on the quality of feedback Jeff received from his executives when it came time to develop and execute strategic initiatives or important policy decisions?
Quoting from the book: "Instead of the team of rivals that had surrounded Jack (Welsh), Jeff had created a team of sycophants, aided and abetted by the unintended consequences of a highly lucrative supplemental pension plan.... most people coveted the SUP if they were in a position to get it and, once awarded, chose to keep quiet rather than risk losing the SUP by getting on the wrong side of the CEO."
As the result of incentifying the silence of his top leadership, Jeff made a bunch of bad decisions with minimal pushback from his leadership team and put himself in the crosshair of activist investors who then pressured the Board of Directors to replace him to "enhance shareholder value". Immelt was subsequently forced to resign his CEO position by the Board of Directors.
Think "Incentive" Every Time You Are Planning
If you get what you incentify, then it makes sense to add a step to your planning process and make sure that there are incentives aligned with your desired outcome(s). They don't always have to be incentive programs with outcomes like cash or gift cards but stopping to consider if there is a clear incentive for people to do what you want done makes a lot of sense. The incentive might be the outcome you desire is a clearly defined objective on their annual performance review - mission accomplished! The incentive might be they will be affirmed for doing what you need done in a meaningful manner; maybe in front of the rest of thier team - mission accomplished!
Write out your incentive idea and vet it... Decide what you want to happen, clearly and simply outline the "terms and conditions" of success and make explicit what will happen if success is achieved. Put your incentive outline in writing and hand it to someone who isn't an "insider" - can they make sense of what you want and what happens if the right outcome is achieved?
Maybe you need a coach? Someone to help you work through "incentive thinking" and how to move with confidence into the decision making role only you can fill? It's can be valuable to have an outsider's perspective to help you and your organization deal successfully with topics like these.
If any of this has made you think "Hey - maybe I could use some help in these areas" - please reach out for a free, no obligation initial consultation.
Thank you for investing your time to read this - let's make the future a better place to be!
Looking for help solving issues like these? We would love to engage with you!
Contact me at rickcramblet@brite.consulting or (231) 577-9138.
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