The Incentive/Behavior Nexus

Steve Kerr uses a General Motors cautionary tale to show us that it isn’t enough to have incentives that appear to reward desired behavior. In this HBR blog post, he notes that:

Although managers’ bonuses are based partly on vehicle-quality improvements, and safety is supposed to be paramount, cost is “everything” at GM, and the company’s atmosphere probably discouraged individuals from raising safety concerns. Earlier this summer, a former GM manager described a workplace in which the mention of any problems was unacceptable.

Kerr’s critical insight is that while GM could point to formal quality incentives, these incentives didn’t have the required impact on its managers’ behavior. The money quote for me is this:

In order to properly align its incentives to support its mission and objectives, a company must determine what managers and employees believe they are being encouraged to do and not do.

Not getting that promotion and handling failure

We talk a lot about the need to fail and there are lots of great nuggets of wisdom like “A person who never made a mistake never tried anything new.” and “Ever tried. Ever failed. No matter. Try Again. Fail again. Fail better.”  But doesn’t that all sound like a bunch of hooey when failure visits you personally?

The best example of this phenomenon is when one doesn’t get a promotion.   As Amy Gallo puts it in her HBR blog post “Didn’t Get That Promotion?

Getting passed over for a promotion can be disheartening and even humiliating. Whether you thought you deserved the job or were promised it, no one likes hearing that they didn’t meet the mark.

It is a rejection that’s more painful than any save for unrequited or lost love.  One can brush off a failed project or presentation fairly easily… at least compared to hearing that one didn’t quite cut it. 

Gallo and her experts hit on familiar points up front: act ( but don’t react), get some outside perspective, no whingeing.  However, I found the last two points the most valuable from my experience.  I would go even further: reframing the experience and reenergizing one’s network are essential to make the obvious work.  One can’t exercise patience, get “outside > in” feedback, then take appropriate action without taking those two steps first.

New Leader Focus Area — Creatively Wielding Occam’s Razor

I’m wrapping up this first series about what goes into taking over a new organization (earlier posts (herehere, here, and here).  The theme of simplicity and parsimony gets mangled during many discussions; for example, sometimes people think that “simple = easy”.    Also, that old simplicity maxim — Occam’s Razor — focuses on analysis to the exclusion of creation (BTW, it wasn’t given its modern form by William of Ockham himself). 

Ockham’s own phrase Frustra fit per plura quod potest fieri per pauciora [It is futile to do with more things that which can be done with fewer] better expresses the essence of elegant design.  Notice the shift from “explain” to “do”?  With Ockham’s words in mind, let’s consider these HBR New Leader leading questions about complexity:

  • How complex are your product or service offerings, and what is that degree of complexity costing you?
  • Where is your innovation fulcrum?
  • What are the few critical ways your products stand out in customers’ minds?
  • How complex is your decision making and organization relative to competitors’?
  • What is the impact of this complexity?
  • Where does complexity reside in your processes?
  • What is that costing you?

New Leader Focus Area — Competitive Position

Per earlier posts (herehere, and here), I’ve been thinking about what goes into taking over a new organization.  This post takes a look at competitive analysis via benchmarking.  Benchmarking is always useful, though I’m always wary of getting too hung up on one’s competitors.  I don’t have any particular comment on the eight questions from the HBR New Leader article, but you might want to look at the strategy outline on the QuickMBA site (here):

  • How do you and your competitors compare in terms of returns on assets and relative market share?
  • How are the leaders making money, and what is their approach?
  • What is the full potential of your business position?
  • How big is your market?
  • Which parts are growing fastest?
  • Where are you gaining or losing share?
  • What capabilities are creating a competitive advantage for you?
  • Which ones need to be strengthened or acquired?

New Leader Focus Area — Customer and Profit Pools

Per earlier posts (here and here), I’ve been thinking about what goes into taking over a new organization.  In my last post on this topic, I may have given the impression that costs and prices should be one’s main focus. 

To that end, this area is one that I’ve neglected — the HBR New Leader article wisely emphasizes looking at customers up front.  In a past role, I spent too much time working cost, price, and process issues.  When I finally got to the customers I realized that I had left considerable revenues and profits on the table.  

  • Which are the biggest, fastest-growing, and most profitable customer segments?  This should tell you whether you’re in the right segments.
  • How well do you meet customer needs relative to competitors and substitutes?
  • What proportion of customers are you retaining?
  • How does your Net Promoter Score track against competitors?  There are a number of doubts about this specific methodology, but a systematic look at loyalty scores — and the reasons behind loyalty or switching behaviors — is essential.
  • How much of the profit pool do you have today?  How is the pool likely to change in the future?  Again, the authors are from Bain and are referencing a Bain-aligned approach.  On the same topic, I recommend this book on Strategic Cost Management by a business school professor of mine.  Shank and Govindarajan introduce some great tools for looking at the value chain.
  • What are the opportunities and threats?  Opportunities and threats to WHAT?  Use the preceding questions to focus the SWOT analysis.

New Leader Focus Area — Costs and Pricing

Per an earlier post (here), I’ve been thinking a lot about what goes into taking over a new organization.  Considering the economy these days, this may happen to more of us!   

Anyway, the principle that costs and prices almost always decline over time is a reasonable foundation for looking at one’s competitive and operations health.   Below are six questions from the HBR New Leader article I originally referenced which help to focus the analysis:

  • How does your cost slope compare with your competitors? In other words, are your costs lowering or rising more or less quickly than your competitors?
  • What is the slope of price change in your industry right now, and how does your cost curve compare?
  • What are your costs compared with competitors?  I’d also look at prices as well… competitors with prices eroding faster/slower than me should tell me something about the sweet spots in the value chain, offerings most valued by the market, etc.
  • Who is most efficient and effective in priority areas?  A pretty generic suggestion.  Looking at relative pricing and what that tells you about the market should give hints about “priority areas.”
  • Where can you improve most, relative to others?  Look hard at the capabilities you actually have or could build quickly.  Avoid immediate focus on topics that you can’t change.
  • Which of your products or services are making money (or not) and why?  Don’t automatically trust the received wisdom on who makes and loses money.  Invest some time and money is getting REAL numbers and answers.

New Leader’s Guide to Business Diagnostics

I’ve had a stack of stuff that I’ve meant to comment on, but set aside, forgot, etc.  Here’s a link to a great HBR article from the February 2008 issue “The New Leader’s Guide to Diagnosing the Business“.  The authors put together a powerful and flexible template that can be applied to most business environments.

[I]t is built on four widely accepted principles that define any successful performance-improvement program. First, costs and prices almost always decline; second, your competitive position determines your options; third, customers and profit pools don’t stand still; and fourth, simplicity gets results. Along with each principle, we offer question sets and analytic tools to help you determine your position and future actions.

In particular, I like the emphasis on quick, but focused, action.  Maybe you can think of this article as the quick and dirty complement to  The New Leaders’ 100-Day Action Plan.

[G]ather a lot of data quickly, ideally within the first three or four months of your tenure. Ask your senior leaders to head up teams that take on as many questions relevant to their areas of responsibility as they can handle. Ask for short, focused presentations to facilitate discussions about the main threats and opportunities. That should enable you and your teams to make quick, accurate decisions about the few areas on which to concentrate your efforts.

Strategy Management at Tesco

One of my regular alignment exercises is to tie planned investments to SAP’s strategy (see Jonathan Becher‘s Strategy vs. Planning post here).  As he notes: “[T]he budget isn’t really the plan; instead it’s how you intend to invest to achieve your objectives.”

As I look forward to 2009 planning next week, I was inspired and challenged by this Harvard Business Online post (here) by Robert Kaplan on Tesco’s approach to strategy management.  The specifics of Tesco’s balanced scorecard approach were interesting enough.  However, there were two points and a set of questions that stood out beyond the mechanics of the scorecard:

How can you keep distributed frontline employees–regardless of industry–engaged with and acting on the company’s central strategy?  [Tesco CEO Sir Terry] Leahy explained his approach: “Tesco doesn’t want one leader. We want thousands of leaders who take initiative to execute the strategy.”  

[B]ecause… all employees are aware of and can act on the strategy… Tesco filled 3,500 management positions, 27 directors, 200 store managers, and 8,000 department heads by promoting from within….

Note the connection drawn between the vision of distributed leadership and a concrete demonstration of how such leadership benefits both Tesco and its associates.  If I want the benefits of that vision, I better be ready with answers to the two questions I mentioned:

Is your company’s strategy being adequately communicated to and acted upon by all employees?  Can each employee explain the business unit strategy and how he or she contributes each day to implementing the strategy?

Comments on my “PR and Change Question”

Commenting on my post on PR and Change (here), Indy at http://enoptron.blogspot.com/ noted that: “Some businesses have people/departments who actually specialise in communicating with internal audiences.”  This approach is probably the best I’ve seen.  They work behind the scenes with advice and hands-on support. Indy continues:

Frankly, if the job is being left to PR people, it’s usually not a good solution. If you come up through the ranks of PR you do tend to have a skill-set/knowledge base focused on external audiences. There are PR people talented enough to turn their hand to internal matters, but it’s not something automatically successful.

Indy’s point on skill-set and knowledge base didn’t immediately come to mind when I wrote my original post.  But that helps explain the blind spot when working internally — PR is “hidden” by the brand or spokespeople during external campaigns, PR’s involvement is much more transparent to internal audiences.

Finally, the last paragraph makes an essential point — cascaded strategy and change must have multiple communication channels.  As Indy notes:

It is true that people trust and accept messages more when they come from peers and line managers. However, it’s also true that those groups of people can be “blocking filters” who do not transmit certain things.

Ceris62 (no blog link) suggests that social media has potential for mediating these discussions without internal messengers (or at least not formal or “approved” messengers).  I believe that’s true, but with a caveat: many of these initiatives are also driven by marketing-focused colleagues as well.  The association with marketing/PR does contribute to skepticism, especially at start-up.  However, that barrier is much lower and weaker in my experience, validating Ceris62’s general direction.

Leading, not managing, complexity

One of the pleasures of blogging are the parallels I find between and among various bloggers’ themes.  As I was prepping for my WSJ interview last Friday, I reviewed the posts on my Complexity Set page.  I realized that Elizabeth’s review of the book Leadership Skills for Project and Programme Managers (here) provided a nice counterpart to my post on a Harvard Business Review article The Experience Trap (sorry subscribers only) — Set Goals for Behavior.

My post highlights the power of goals that don’t simply replicate planning and control targets.  Rather, one should put the focus on behaviors that support project deliverables and outcomes.  This differentiation is one of the key differences between managing and leading.  Elizabeth’s post had a nice table from the book that outlined these differences really well, which I though was worth spiffing up and reformatting (below).

NOTE: Table manually copied and reformatted from Elizabeth’s post.  Credit: Adapted from Franklin, M. and Tuttle, S. (2008) Leadership Skills for Project and Programme Managers, TSO: London, p. 9.

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