As I’ve said in earlier posts, what gets measured and rewarded gets done. If our leadership teams are not careful about what they reward employees to accomplish, either intentionally or unintentionally, then unexpected results will certainly occur. Of course, unintended consequences may plague us no matter how carefully we consider our plans. The same is true for “punishments,” or disincentives.
For example, suppose we decide that revenues must grow and so we put in place a special bonus/commission for all sales folks who enter orders for new products from existing customers or orders from new customers. This incentive may well achieve the immediate result of an increase in backlog, but we may also find that we have created problems with our customers. The salesperson, incentivized to maximize orders, may “push” for sales and so strain the relationship with the buyer. On the other hand, a mature sales person may resist the temptation for short term gain at the expense of his or her relationship with the customer and will ignore the special bonus. In that case, we will be wondering why our incentive program produced such poor results.
My experience is that growth is best achieved through managing the business model to provide outstanding service to our customers and to their customers. That is not to be confused with the “customer is always right” syndrome. In many cases, by understanding what your customer’s customer needs, you may have the expertise to make a disruptive technology available to your customer that would almost always NOT be seen as needed or even wanted, by your customer. In other words, many times our customers are just as reluctant to change as we are. But we sometimes have an advantage as the “expert” in our field and can see where disruptive technology from our research will, or could, render our customer’s product obsolete if they do not embrace the change. More likely though, is if we are in touch with our customer’s customer, we will see that THEY are changing their business model and can assist in all that is implied by that change.
When we find ourselves focusing on growth only for the sake of growth of one business metric (say revenue), without regard to the business model, we will almost certainly create unintended negative consequences. Therefore all the business metrics, bonuses, rewards, and incentives should support the strategic goals, continuous business model innovation, and growth at a rate that is supportable through outstanding customer service rather than simply sales bonuses. In this regard, many companies are now re-evaluating the balance between salaries, commissions, and long term customer relationships. The balance seems to be tipping in favor of doing everything possible to foster the long term relationship with customers rather than short term advantages of booking a few more orders. That means building trust and trust, put simply, is “I get that you have my best interest at heart, not just your own.” If this long term relationship is highly valued, then we will look for ways to continue to further our customer’s best interests within our own company. This mindset will surely lead to new business models, new products, and new services. That in itself will create new and growing revenue streams.
It is important to look at all the costs of growth in the business, just like any other project. And, just like any strategic plan, we need to evaluate implementation to assure that all the incentives line up with achieving the goal and that the unintended consequences are discovered quickly and evaluated to avoid failures. Complex systems, such as our business organizations, are best shaped to evolve in our rapidly changing environment through response to those changing requirements with business model innovations. It’s survival of the most adaptable, not the strongest.