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Archive for the “Incentives” Category

Management savant Peter Drucker supposedly said, “If you can’t measure it, you can’t manage it.”  The only problem with this frequently cited quote is that Drucker never said it.  In fact, he actually said things quite the opposite.  Like “Culture eats strategy for breakfast.”

photoLast week I attended a fascinating all-day seminar at NYU’s Stern School of Business titled “Ethics by Design:  How to Use Nudges, Norms and Laws to Improve Business Ethics,” sponsored by Ethical Systems.org, the Behavioral Science & Policy Association and CEO Trust.  There were over 150 attendees, mostly top-drawer academics with a sprinkling of executives and entrepreneurs.  I found it thought-provoking, useful, and even startling.

The day covered many topics, but the general trope was cautionary concerning our ubiquitous business emphasis on quantification, measurement, and goals.  While acknowledging that goals can encourage persistence and performance, almost all seminar participants emphasized the caveat that rigid goals will have deleterious effects on corporate culture and long-term corporate health.  While historic studies point to the positive impact of goals on increasing business performance, more recent research, including by many of the attendees and presenters, pointed to the the fact that overemphasis  on goals encourages unethical behavior.  The symptoms of this include increased moral disengagement, decreased individual self-regulation, and hazardous risk-taking.

Put another way, setting and pursuing ambitious corporate goals appears to incentivize employees to cheat, lie, and flimflam.  It encourages short-term thinking.  It undermines healthy process and culture.  It puts too much emphasis on the trees rather than on the forest.

The case against the over reliance on metrics was summed up neatly by Lisa Ordonez, Vice Dean at the Eller College of Management at the University of Arizona and by Marc Hodak, professor at the NYU Stern School.  Their presentation was titled “Walking the Tightrope:  Balancing the Incentives to Perform vs. Incentives to Cheat.”

363px-Drucker5789Dr. Ordonez wrote an influential article for the Harvard Business Review in 2009 (with colleagues Maurice Schweitzer [Wharton], Adam Galinsky [Northwestern-Kellogg School], and Max Bozeman [HBS]) titled “Goals Gone Wild.”  Her talk last week was premised on two basic conclusions of her research:

  • Goals cannot create self-sustaining motivation.
  • Goals cannot be the entire focus of management.

Specific organizational effects Ordonez warns of include systemic problems from narrowed focus, unethical behavior, risk taking, decreased cooperation, and decreased intrinsic motivation.  “Goal setting is management by numbers,” states Ordonez, and institutional incentives need to be assigned very carefully and in the context of principles.

She cites several episodes of goal-setting culminating in corporate disasters.  For example, she points to this year’s compliance calamity at Volkswagen.  Volkswagen had set two demanding goals for itself:  to comply with and effectuate mandated environmental standards and to become the biggest car company in the world.

It did not work out well.  As employees and managers at Volkswagen started work on the aggressive company goals, they quickly realized they could not easily meet the strict American (EPA) and European standards.  Rather than admit that, they decided to cheat.  And cheat massively and systemically.  They consciously decided to engineer their cars to fool the national testers and examiners instead of honestly fulfilling environmental and legal requirements.  The result is massive fines, loss of reputation and good will, lawsuits as far as the eye can see, and a significantly diminished stock valuation.

Both the recent scandals at the Department of Veteran’s Affairs and BP speak to the results of corner-cutting and dishonesty to achieve stretch goals.

Professor Marc Hodak was even more blunt than Dr. Ordonez.  Hodak said simply,  “Incentive to perform is indistinguishable from incentive to cheat.”  He points to the incentives for corporate executives to lie, exaggerate, and hide financial truths even from their boards of directors through techniques like channel stuffing sales results.

Hodak offers three solutions to ethics/compliance conundrums:

  1. Approach your goals holistically and put your incentives in the context of a culture of honesty.
  2. Look beyond “performance.”  Bad behavior hides behind good performance.
  3. Remember why your are in business.  Be true to your culture.  Always remember who you are.

urlEthics and corporate rectitude are not impractical, esoteric matters in the age of compliance.  Ethics is increasingly a practical necessity related to profit and ROI.  In many cases goals do more harm than good and rigid adherence to specific outcomes can be disastrous.

The solution?  I don’t know.  But the answer is surely somewhere near the corner of ethics, culture, and human meaning.

Ethics is not just a matter of doing good or being righteous.  It’s actually a selfish thing.  As Danny Meyer of Shake Shack puts it, “It is in our self-interest to be good.”

Dr. Priyavrat Thereja puts it this way:  “If ethics is not the engine of success, in the train of growth, it sure is a guard, with a flag, which may be green, or red.”

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To continue from last week–My philosophy about sales employees is this: I don’t want employees at all. What I want is peers with a congruent value system to share a personal and business journey.

For me that journey must begin with common values. I seek out executive sales associates who want their work to give back to the world through service and truth telling to customers and potential customers. Under that rubric of shared values, I try to only hire executive sales colleagues who are better than me at both genuine caring for the client and creating efficacious results, in that order. However, the truth is we are all better and worse than each other in our variegated ways.

So I organize my firm, Corporate Rain International, as a lifestyle firm; as a virtual company that affords all associates the freedom to maximize their own sales instincts and acumen with minimal interference from the big, bad boss (me). Over 17 years I’ve found this philosophy makes for an enlivened company and a happy community. It incentivizes and vivifies autonomy as a core value.

Etymologically, the term autonomy derives from the Greek word meaning self-governing. To be autonomous means to act in accord with oneself. When we are autonomous we all emanate a salesmanship infused with energy, integrity and a personal authenticity that sells.

Authenticity is compelling. Like the judge who, when asked to define pornography, said, “I can’t define it, but I know it when i see it.” Buyers feel much the same way. They know authenticity when they see it. Stephen Colbert famously calls this quality “truthiness,” I see incentivizing “truthiness” in every sales associate of my firm as a primary leadership imperative. You want to activate “truthiness,” not just because it is moral, but because it is effective.

Therefore, part of incentivization is hiring people who share corporate values so they are always, without thinking, succeeding by propelling a truth inside themselves. In my case I hire educated, value-oriented, experienced salespeople who are adults and self-starters and I turn ’em loose within a controlled system. And then I trust in the Lord. The results have generally rewarded my faith.

Of course, everyone works for money. That has to be fair and appropriate. But I firmly believe that passion and commitment are not fundamentally incentivized by money. They are better motivated by a will to happiness and autonomy.

Or, as Albert Schweitzer said, “Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.

Thank you, Albert.

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I believe much of what is expressed about incentivizing the salesman emanates from underestimation, condescension and even contempt for that person and her profession.

I don’t read sales books. They make me mad. From my own experience as an executive salesman, I believe most sales managers approach the whole subject of sales incentivization ass-backwards.

In my case, this judgment comes from being an unexpected, untrained and accidental success as an entrepreneur in elite sales outsourcing. My intent as a company founder was to build a happy life and create a community of peers who shared my values. While I wanted to make a comfortable living, money was not my business raison d’etre. And over the years I have managed to assemble a coterie of sales executives who, to one extent or another and in their variegated ways, are compadres in the realm of service, morals, humor and fierce independence.

After 17 years of accidental sales success emanating strictly form my own sales intuition and longings to be part of an ethical sales and service community, I have begun to discover I am not as odd or alone in my approach as I had always assumed.  And even more amazingly there is an increasing body of scholarly research that supports the instincts of my life experience and of conducting my business in a manner I damn well felt like. God bless entrepreneurship.

This is particularly true in the realm of sales incentivization. My core assumption has always been that happy people don’t fundamentally work for money because I don’t fundamentally work (or want to work) just for money. They work for satisfaction, happiness, a free life and other non-quantifiables.

Dr. Edward Deci, Director of the University of Rochester’s Human Motivation Program says:

“When people say that money motivates, what they really mean is that money controls. And when It does, people become alienated–they give up some of their authenticity–and they push themselves to do what they think they must do.” (Why We Do What We Do: Understanding Self-Motivation, G.P.Putnam’s Sons, 1995, p. 29)

In the realm of incentivization, I have always felt that salesmen are particularly misunderstood. Sales hires fail 80% of the time within the first year. That is a phenomenal statistic. While the reasons for this are complex, I believe the overemphasis on monetary reward is a large part of this statistic.

People want to be part of an organization that imbues quality and meaning to their lives.  Yes, they need to make money, but I don’t believe it ever activates their ardor and deep commitment. It does not inspire full use of their internal resources, their full being, their passion.

As CEO of my virtual executive sales outsourcing firm Corporate Rain International, I genuinely try to start with the assumption that every person I hire should be better than me, that every person I hire can teach me something, that each person I hire can comfortably grow the extant values of my company as a corporate companion.

To quote Edward Deci again, “[In speaking about motivation] the proper question is not, ‘How can people motivate others?’ but rather, ‘How can people create the conditions within which others will motivate themselves.‘” (Ibid, p. 10)

I agree. Thank you, Edward Deci.

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