Bridge Those Silos with Incentive Alignment and KPIs

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During the #crmjam organized by Forrester few days back, concerns around silos came up too frequently to ignore. The challenges around silos were brought up in different contexts, which I have tried to capture below:

  • Departmental silos  not helping the customer objective
  • IT working in silo while creating the solution to business problems
  • Technological silos and communities working in isolation toward the next big thing in their areas

In my previous posts on Convergence in BPM Ecosystem and on using the social networking context for better technological synergy, I have addressed some aspects around convergence and synergy across various technologies and disciplines.

Behind the Organizational Silos

As for the silos within the organizations, it boils down to plain WIIFM (What’s In It For Me?) thought process, the way organizations measure performance and the type of behaviors they encourage.

Businesses do a decent job in defining their own objectives at high level. Then, based on how they are structured (most are by departments and functions), the objectives get broken down into what those sub-components of business are supposed to target. So, it comes down to quantitative and qualitative parameters that the functions are measured against, which are aligned with the strategic objectives beautifully.

In the world of machines, that might work well.

But, we’re dealing with people like you and me! Here’s what happens. For every function (read, people leading the function) there are a set of objectives. One or two are the primary, and others are equally important, but not so primary – calling them secondary would be inappropriate. For instance, sales are responsible for revenue and margin. Operations are directly responsible for Efficiency and Throughput stuff. Business actually “expects” Sales to be equally responsible for the bottom-line as well but someone else (here Operations) ends up being primarily responsible, why would Sales care!

Measurement, Expectations, Inspection, Incentive Alignment

It’s not difficult to find out what’s happening with these objectives. Everything gets measured, data exists for everything but a typical sales review will typically consume 90% to 200% of the allocated(!) time on revenue & related parameters – sometimes Margins, and seldom on customer satisfaction or Defect Ratios. So, that is one problem – even though everything gets measured, questions are asked only on the direct parameters for the function.

The expectations on synergy are conveniently overlooked because “People only do what you inspect, and not what you expect!” (I think I read this in Lou Girstner’s Who Says Elephants Can’t Dance?)

But even if you indeed start inspecting (read reviewing and grilling) these functions on those indirect objectives too, it won’t make them do any bit more on such objectives when they get back to their offices. The reason? Incentive.

In whatever ways the performance management process, compensation reviews, bonuses and incentives are worked out, it is almost always on the basis of direct objectives for the function that the leader or worker belongs to. There’s simply no (direct) incentive to collaborate and synergize. And to complicate this further, this also works like a racket where the bosses want their area to look clean and sweep the dirt from under the door to the adjoining ones that are supposed to be their primary collaborators!

The incentive, to act in a particular desired manner, may range from financial, social, or even moral. Many companies use the integrity and social cause messaging to tame the unethical and unsocial behaviors. And “to collaborate”, primarily falls under social incentive and sometimes promotions also have this built in – with the clause on acceptability among peers. In reality, collaboration factor ends up being a manipulation tool used just enough to get you across the line, while your primary objectives still remain the focus.

What can be done?

How can we solve this conundrum? Here’s what I think:

  • The linkage between the business objectives, departmental objectives and their underlying KPIs need to be more clearly identified, defined and measured. Clue: Look at BAM, Analytics. KPI has “Key” not without a reason!
  • Process Way of thinking needs to go beyond the departments. BPM can help achieve some of that by putting a Process Layer just enough to tie in those disjointed systems. There are ways to get this done with BPM methodologies without spending a whole lot of money in redesigning the systems and processes. Clue: Look for visibility and tied-in processes, leave other BPM mumbo-jumbo initially.
  • Think hard on performance management process. Is the performance being measured on conflicting objectives across various departments? Is there any alignment possible? Clue: Think what customer would want that department to do in a typical scenario. Leverage Process flows to drill down such scenarios and simulations – they may not be processes but would still work for getting the required visibility on conflicting (and not aligned) expectations.
  • Translate the “expected action” into an “incentivized action”! Fuzzy? Clue: Go back 4 paras and read again! 🙂

PS:

Too many words…? I know 🙂 my tweet during the jam looked like:

{“Incentive Alignment” <- Objective Setting <- Mgmt by Objectives <- Strategy align} + KPI (Ppl do what u inspect not wt u expect)

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  1. #1 by Max J. Pucher on April 11, 2010 - 7:00 pm

    There is a lot of scientific evidence that extrinsic motivation (money or titles or peer pressure) do not work well. Putting incentives on KPIs is for idiots, like in ‘Who moved my cheese?’ Measure to manage becomes a penal system when it is converted into ‘performance speed cameras’. A not-received bonus is a penalty. If all a busines has is ‘WIIFM’ employees, that does not speak well for the management.

    If you focus on numbers, that’s what you get. Focus on people and you get quality because people enjoy what they do. Lou Gerstner’s point on inspection has to be taken AS-WRITTEN! He did not say ‘MEASURE,’ he said ‘INSPECT’. That means to go there and look into it personally and talk to people about it! You think that inspecting must be reviewing and grilling? Why? And then measuring it abstractly should be any better or more accurate? Nonsense. Create a clear and well strcutured process organization, assign the best qualified process owner, empower him and his people and that will be it. They will be proud of their achievement without a single bonus dollar paid. If you need to link your objectives and KPIs, your process organization is wrong. You have created conflicting processes, because your functional organization does not reflect them. That can be fine, if the process owner and his team are empowered.

    BAM, analytics and KPIs are the typical, large corporate nonsense that comes from a purely quartely money perspective. As Dan Ariely wrote: ‘Money is often the most expensive way to motivate people.’

  2. #2 by Ashish Bhagwat on April 11, 2010 - 7:26 pm

    Max, You know what, I agree with you verbatim. And thanks for taking the trouble for putting this across as it perfectly balances out on one factor that was missing in the post – the people management and leadership aspect. Thanks!

    Now, a little defense on why my post sounded a little other way round – the context. See, there’re systems, processes, and people. My post addressed the systems context (as in the system that people and processes work within). You have mentioned Inspection is not about measurement, I’d say that system context needs to take care of the KPIs and measurement aspects while the People management and leadership aspects need to be dealt with on the lines that you mention. The systems, organizations and processes cannot run on the human aspects alone.

    So, while I agree with you, systems and human aspects are both important, and so are processes.

    Also, I need to clarify that I’ve not qualified the incentives to be only in monetary terms. The point of incentive alignment is to bring forth the point that whatever it is you want the employees to do, you have to provide enough incentive (monetary or non) for them to act that way. And KPIs alone obviously cannot do justice since many “Indirect” Objectives cannot always be quantifies and KPI’ed.

    The suggestions at the end of the post, admittedly, are a bit contrived in the direction of systems – touching on “Leadership” aspects could be off-context and a little preachy 🙂

    Excellent notes!

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