Setting Goals and Rewards
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.
The Fine Art of Belly Scratching
I was at a dinner at a working cattle ranch outside of Denver not long ago, but this ranch had a difference. Rather than raising cattle for the table, the business raised breeding stock and sent animals and other products, like embryos, all over the world. Every animal on the ranch had its genetic makeup tracked in a database and a unique ear tag that told something about it. I thought it was cool the way they applied science to the ancient practice of animal husbandry. But not everything was about genetics — some of it was more psychology.
As entertainment a real cowboy (Hey, I’m from Boston, Ok?) was tending to a young bull outside the restaurant and I went over to check things out. The bull was not full-grown, weighing in at only about 2,300 pounds and the cowboy gave me a lot of information.
Then the bull got a little restless, but honestly, it was something I couldn’t pick up on but the cowboy, with his experience, easily could. He picked up what looked like a long prod and I couldn’t figure out what he was going to do with it but what he eventually did completely surprised me. He began gently stroking the bull’s belly, that’s all. When I asked what he was doing, in typical cowboy fashion he said something that I’ve never forgotten, though at the time I didn’t see it as an answer to what I thought had been a direct question.
“Everybody likes to get their belly scratched,” he said, and that was that. As confirmation the bull seemed to relax.
Of course everybody likes to get his or her belly scratched both physically and metaphorically. Whether it’s in business or your personal life, a little communication that says, I understand you and you’re Ok, is an important elixir.
Hold that thought for a moment, please.
About six months ago I was speaking with a community manager, someone who helps businesses develop and run communities that reach out to improve bilateral understanding between vendors and customers. This woman happens to be a former elementary school teacher and we were talking about the power of using gamification and badges in a community setting.
I was doing research for a book and frankly, I was skeptical of the value of badges as rewards for community participation — after all, we were talking about adults, right?
“You’d be surprised,” the former teacher told me. “Everybody likes being recognized, kids, adults, it’s all the same.”
All this has me thinking about incentive compensation plans. They’re all a kind of belly scratching and it makes me wonder why in business we treat incentives so casually. Why, for instance, don’t we put everyone on an incentive plan of some kind? Why just sales people? And why, if we know incentives are so powerful, don’t we do a better job of targeting the behaviors we want to cultivate?
First things first. Many businesses provide some form of retrospective attaboys for a job well done. But reward after the fact without some form or objective reduces the reward to a random act of kindness. I am not against kindness but this is business and the goal should be repeatability not randomness and if rewards are randomized the idea of incentivizing good behavior flies out the window.
But incentives are not enough. Every day we see examples of sales people with incentives and overly broad goals gaming their compensation plans as Chris Cabrera points out in his new book, Game the Plan. Incentives have to come with crisp and concrete objectives otherwise if there is a path of lesser resistance to the goal, some people will undoubtedly take it — and they should because it’s in their self-interest. But this results in the incentives being paid without the objectives being attained and that’s not good.
For example, a sales goal only focused on a revenue target in any company with more than one product makes for a compensation plan that’s begging to be gamed. We all know that revenue mix is important otherwise one part of the business can get too busy while another does little. Worse yet, some products are more profitable than others and tracking only gross revenue loses that. But creating objectives and incentives detailed enough to cover all this is a tall order.
For all of human history the path of least resistance has been the standard operating procedure, but something amazing happened when database systems became available in the Cloud and companies like Xactly began tailoring them to the incentive compensation question.
With a system to monitor and report on all of the myriad happenings in the revenue generation process it’s now a trivial matter to develop objectives and incentives for sales teams and even the whole enterprise. Individualized objectives and rewards can be programmed and detailed scoring can provide unambiguous answers to some of the thorniest issues in motivating and managing a team.
Not long ago incentive compensation systems were thought to be a boon to the CFO enabling a business to reconcile all of the accounting for commissions at the end of a quarter. They certainly do that but if you think that’s their sole mission, you might want to revisit how important it is to proactively incentivize the behaviors that maximize profits and not simply to do the accounting. In today’s decentralized businesses where individuals are supposed to take on responsibility for doing the right thing without being told, clear objectives and the certainty of a belly scratch have become key components of organizational success. Just ask a cowboy or a teacher that you know.
