You should check out “The Second Machine Age” by Erik Brynjolfsson and Andrew McAfee of MIT. It’s a thoughtful analysis of the technology progression handed to us by Moore’s Law and its effect on every aspect of our lives. Their thesis is pretty simple but also powerful.
Early in the computer age, we developed transactional systems designed to give us the data we needed to make decisions but over the last ten years or so, the pace of innovation has accelerated. Systems have become increasingly sophisticated and capable of not only giving us the right answers in business, but also managing increasingly intricate business processes. Processes that were only imaginable before are becoming easy and such is the case with managing people.
One of Brynjolfsson and McAfee’s predictions for the future of business is that technology will become increasingly valuable as a way to augment human abilities and behaviors. But their analysis cuts through the idea of the all-powerful computer such as the chess playing or Jeopardy! winning cousins Blue and arrives at a more satisfying conclusion that those businesses that do the best job of harnessing humans and computers to work together will be the most successful.
Perhaps a classic example will be in how we manage people. Given a choice many managers would rather wrangle cats than direct humans in part because incenting humans and tracking their progress toward a conclusion so that the right reward can be given is a low productivity process full of twists turns and lost data.
Until very recently, managing people was a matter of supplying goals and incentives to be followed later by accounting the results and calculating rewards. Unfortunately though, the process quickly gets out of hand if managers have many people to manage along with day jobs that come with goals and incentives of their own.
People naturally find the easiest ways to reach their goals like a mouse in a maze goes for the cheese. So, the end of quarter accounting too often starts with reminders of the original goals and back of the envelope calculations to derive percent of attainment.
Such is a “good” system. A less than good approach is to forget the beginning incentive and goal setting and to arrive at a bonus amount that is bestowed less as a reward than as manna from heaven. No wonder then that motivation sags in many businesses. People don’t really know what’s expected of them and good work, while hoped for, is treated as a miracle rather than the result of a plan.
This can now change because systems are becoming generally available that help managers combine the number crunching and data gathering capabilities of technology with the right brained, creative, goal setting and motivational talents of the best managers. In other words the MBO can now be much more than an aspiration learned in business school and promptly shelved in the real world.
Teaming managers with systems that actually aid in management processes and not just calculating results can turn the difficult and time consuming people supervision process — including goal and reward setting — into a rigorous and time saving science. More importantly, using systems that manage MBOs has another benefit. Rather than waiting until the end of a reporting period to ask, “How did we do?” managers can now ask the more useful question, “How are we doing?” at any time in the reporting period.
The obvious benefit of this approach is the possibility of knowing where things are succeeding and where the sledding is tougher in time to intercede. This is managing by exception, one of the more useful tactics that managers are tasked with. But now, leveraging appropriate systems managers can actually intercede where their efforts will do the most good and they can do it on a consistent basis.
All this suggests that in the second machine age we might reconsider and reconstruct the very idea of work. Well-tuned goals and incentives can be managed anywhere any time with less emphasis on employees reporting to a building every day or working these hours or these days but not those.
Best of all, because it will make this new paradigm more palatable to all parties, research shows that moving as little as 3 percent of employee compensation into well managed MBOs is enough to move the needle. The key is managing well. Employees quickly go from gaming a system imposed by others to strategizing how to maximize a set of incentives constructed expressly for them.
The second machine age will be a time for recalibrating the relationships between people and computers, the work-life balance, and among people. Goal and reward setting will be small ways to accomplish some of this but its impact will be great.
New compensation system for non sales types manages MBOs and can improve individual and company performance
NetSuite was not the only company having a party in greater San Francisco last week. DocuSign held an event as did Xactly and though I couldn’t get to DocuSign I did pay a visit to CompCloud, Xactly’s user event held at the Palace Hotel. Holding an event at the Palace is a right of passage for emerging companies in our market, I think, and Xactly has used the space in successive years to make important announcements to its users. This year was no exception.
Along with the expectable news about enhancements, revenues, and profits, all trending northward, Xactly introduced a new product that, I think, will have significant ramifications for many markets. You might know Xactly for its groundbreaking approach to sales compensation management. The company started out by rationalizing the hair-ball (a Zach Nelson term) of spreadsheets used to incentivize and accurately compensate commissioned sales people.
The solution proved to be a godsend to many large sales organizations eliminating over work and under (and over) payment of both the sales team and the finance people charged with getting commissions right. Today, CEO Chris Cabrera tells me that his company manages the payout of more than five billion dollars worth of commissions and the number is growing.
So all of this is to the good and Cabrera’s next objective is to enable companies that want to, to better manage MBOs and bonuses for non-sales employees. You might wonder if HR already handles this and the answer would be, it depends. Most senior executives on employment contracts have extensive MBOs written into their agreements and they are handled by HR and the CEO and even board of directors, in some cases.
However, employees at will, which is to say most of the people who have hands on oars and who row the boat, may not. For them and their managers tracking goals and objectives and compensating accordingly has been handled by that ancient and honorable analog device, a wet finger in the breeze, and that nearly analog device, the spreadsheet. This is highly unattractive in an age where we all have computers and can calculate the distance from earth to the moon to the inch on any given night.
What Cabrera says is needed is a compensation system for MBOs and in a few weeks, his team will deliver to market Xactly Objectives, a system built on the same cloud technology as Xactly’s flagship product, Incent. In making the announcement, Cabrera ticked off the many shortcomings of conventional spreadsheet driven MBO systems — they are unresponsive to change and easily forgotten. Too often their users fail to clearly communicate to employees what the objectives are and at the end of a reporting period people receive bonuses for seemingly inexplicable reasons. The problem with that is the bonus becomes a reward tied to nearly nothing rather than an incentive to do better. None of this helps drive correct behavior, which, after all, is one of the key reasons for having incentives in the first place.
Objectives will solve this problem and it comes at a time when corporations have increased interest in redesigning compensation to reward positive behavior that increases productivity and elevates customer experiences. In a bygone era, bonuses were supplied for such positive behaviors as punching the time clock, reducing the defect rate, and similar behaviors important to manufacturing. However, the manufacturing era is largely over.
Today, more people work remotely and with little supervision — Yahoo’s experience notwithstanding. At the same time there is more data than ever about employee behavior for managers to analyze so that they can better mentor people in their charge. A product like Objectives, used properly, can do a lot to give managers and employees ways to boost productivity and achieve organizational goals. It can give employees a better window into what they ought to do to be successful and it gives HR and others concerned with governance, concrete evidence to work with in managing the workforce.
With Objectives and Xactly’ sales performance management tool, the company should be viewed more as a budding platform vendor than as a point solution. Compensation is a big issue and it is only going to get bigger. It deserves management tools up to and including analytics that can help managers to better manage the business by managing the means of production, people. I see Xactly as one of the early players in the compensation management space with this emerging platform. It situates compensation as a specialty between executive management and the sales force, of course, but it also now mediates compensation for everyone else during the time between major HR interventions, typically the annual review.
Interestingly, another product, Salesforce’s Work.com, captures events during the work year for more accurate and faster annual reviews. But Work.com doesn’t do much for rewards other than provide gamified badges and the like. Inevitably, I think Objectives could be integrated with Work.com just as Xactly Incent is integrated with Salesforce SFA because it can handle the compensation part of a review process. Together they could provide a powerful behavior management solution beyond simply awarding badges. Xactly is a Salesforce partner and a significant contributor to the success of the AppExchange. Throw in some cloud HR solutions and you have the nexus of an important new HR function delivered by the cloud.
So, for many reasons I think Xactly Objectives is on track to help companies to meet the challenges of a more dispersed workplace that places great importance on some of the intangibles that drive customer experience and ultimately customer and company success.