Financial Incentives – do they work?

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Revisit an Important Topic – a repeat posting from 2013

It is accepted wisdom in human resource management practice that financial incentives, wages and bonuses, drive work performance((1)). This is a part of our business and political culture.((2)) Though studies and surveys have shown for decades that people find many other factors (growth of skills, engagement, sense of purpose, social connection, and many others) to be important in their work, the key to every human resource management strategy has been the compensation plan. Increasingly over the past couple of decades human resource management professionals have devised ever more complex methods for connecting various performance metrics to compensation plans. 

Do Financial Incentives Work? Continue reading

Footnotes:
  1. Note that we are talking about individuals here. Organizations, for profit, non-profits and government, definitely react positively to financial incentives and disincentives []
  2. In fact the notion that people make “rational” decisions based in part on financial rewards is a central pillar of our “if we only let markets work, everything will run smoothly” culture. []

Management Skills for the Effective Manager – Drucker’s The Effective Executive – 2

Peter Drucker's The Effective ExecutiveIn Peter Drucker’s The Effective Executive, he outlines eight management practices in the introduction that are the core skills of the effective manager:

  • They asked, “What needs to be done?”
  • They asked, “What is right for the enterprise?”
  • They developed action plans.
  • They took responsibility for decisions
  • They took responsibility for communicating
  • They focused on opportunities rather than problems.
  • They ran productive meetings.
  • They thought and said “we” rather than “I”.

But, before really getting to work on these he takes on some very interesting foundational issues. First, “… the executive is, first of all, expected to get the right things done. And this is simply that he is expected to be effective.”((1))  

What is effectiveness? Continue reading

Footnotes:
  1. All quotations in this posting are from pp. 1-24. Here is an early example of how the style, and many of the examples, in The Effective Executive are quite dated. The pronoun “she” never appears in the book. When he wrote the book in 1967, women in management were extraordinarily rare and their was only a nascent awareness that women could and should play a full role in our economic and social institutions []

Management Skills for the Effective Manager – Drucker’s The Effective Executive – 1

Peter Drucker's The Effective Executive

Learning how to be an effective manager is a primary task for every manager. However, most managers learn management skills on the job  without guidance and in a haphazard fashion. A few companies have formal mentoring programs but, of these, few have a structured approach. Very few courses are offered in business schools on how to be an effective manager. To the extent that a manager becomes an effective manager, it is learned by stumbling about and reinventing the wheel.

Peter Drucker’s The Effective Executive: the definitive guide to getting the right things done ((1)) has been a continuing resource for me in learning how to be an effective manager and teaching others these management skills . I find myself re-reading it in parts and all of it every year. To spread the wisdom around and reflect further on this guide for the general manager((2)) I will devote a series of postings here to its content on how to be an effective manager. Continue reading

Footnotes:
  1. I am using the 2006 edition published by Harper Collins. I will also refer to The Effective Executive in Action by Drucker and J. A. Maciariello published by Harper Collins, 2006 []
  2. I use the word “manager” throughout in place of “executive” because I believe that Drucker’s ideas scale up and down the management hierarchy very well. These are lessons for everyone one from front line supervisor to CEO []

Meetings – where you begin to be a more effective manager

A recent New York Times article “Building a Better Teacher” by Elizabeth Green((1)) told the story of Doug Lemov’s discovery that a large component of high performing teachers’ success came from their classroom management skills. While reading the article, and, especially watching the videos of teachers actually employing good class management, I was struck by an interesting parallel in the management world. Just as education schools do not do a good job of preparing teachers to know what to do when they first walk into a classroom, most managers learn their craft by trial and error. They have little help from mentoring or development programs in their companies. And, business schools seem to provide little guidance either.

Meeting management is to effective managers as classroom management is to successful teachers

Meetings are a great place to start to learn the management craft and a crucial platform for driving and sustaining high performance. Great managers and great organizations have great meetings. And, from the perspective of a manager interested in developing a high performance culture, meetings are a great starting point in building a high performance company. After all, meetings exhibit all of the important attributes of high performance organization and culture. And, no effective manager can be ineffective in meetings.

Good meetings:

  • focus on results ($s, people and values)
  • engage, empower and demand every participant’s energies
  • use fact-based thinking
  • orient to customer needs (internal and external)
  • devolve strategy into tactics
  • employ process and systems thinking
  • use well-developed problem solving tools and approaches
  • focus on adding value for customers (internal and external)
  • look for waste reduction
  • build on company and individual strengths
  • among the more important……

Meetings are a great place to start because they are a regular event in which the manager has significant control and can demonstrate, concretely, high performance principles and practices in front of, and with their direct reports.


Footnotes:
  1. March 2, 2010 http://www.nytimes.com/2010/03/07/magazine/07Teachers-t.html []

Manage Your Business As Processes

Many business owners and managers are frustrated by the poor results achieved by some portion of their business. They diligently track their business using metrics like sales, profits, customer perceived quality, on time delivery, etc. These are obviously some of the most important results any business needs to produce. Why doesn’t attention to these important metrics produce better results?
Unfortunately none of these metrics are actionable nor controllable as objects of management focus. No amount of teeth gnashing about inadequate sales will generate a single additional sale. No matter how intensely you beat on your operations to improve on time delivery will this lead to improvement.  
 
Why is this so? 
 
Let’s examine on time delivery as an example of the problem. On time delivery is an end result of a process, a series of ordered steps, activities, that are your production operation. This process may not be delivering adequate on time delivery to your customers. But, you cannot understand what is causing this process to be out of control without examining in detail, through what is commonly referred to as root cause analysis, the causes of this failure. Here is a brief list of some of the more common causes: 

  • Part shortages  
  • Machine down time for poor maintenance  
  • Production bottlenecks  
  • Poor part quality  
  • Lack of labor  
  • Poorly trained labor  
  • Poor scheduling  
  • Inadequate customer requirements specifications

 
The lesson here is that in order to improve on time delivery you really need to first determine the cause, second set improvement tasks that eliminate the cause, and third measure improvements in that function until you achieve a controlled state of adequate  
performance for on time delivery. 
 
The fundamental mind set is to see your business as a system of processes. Your task is to make sure the processes are well defined and operate in a controlled state to produce the desired results. The method for achieving in control processes is to determine the root causes of failure, set tasks to eliminate the cause, and track metrics that measure the reduction of the causative element.  
 
Now you might be in a service business and say to yourself, “My business does not produce widgets. How can this apply to me?” 
 
Services are also produced through a series steps. In many cases these steps are not well-defined and are further complicated by the frequent direct interface with, and frequently the participation of, the customer. It is not as easy to “see” the steps in services production as in widget production. You don’t have the machines and parts moving around with a sequence of physical transformations.  
 
Here is a list of typical causes of poor service quality: 

  • Bad service design  
  • Mis-managed customer expectations  
  • Inadequate information resources in the hands of the frontline service provider  
  • Poor training of the service provider  
  • Unclear decision making scope and authority for the service provider

 
Learn to see your business from a process perspective. Then, apply process control techniques to drive to better results in sales, profits, customer retention, and whatever else is important.

Critical Element Missing from Fast Company 3M Article on Innovation

Fast Company published an interesting article about an old story, 3M’s innovation culture yesterday, “How 3M Gave Everyone Days Off and Created an Innovation Dynamo” by Kaomi Goetz. The article repeats the well-known story of 3M’s policy of giving employees time to develop new ideas.

There is a critical element missing from this story.

Business Unit Managers at 3M are required to generate a rolling average of 20% from new products year in and year out. If they fail, their business unit is dissolved and the products rolled into someone else’s business unit. This drives business unit managers to continuously look for new ideas and invest in them. It is difficult to create new ideas, even harder to bring them to market. This policy drives the organization to make this critical step happen.