Organizations and Individuals

The more the organizations grows, the more the individual can grow

The more the individual in an organization grows as a person, the more the organizations can accomplish-this is the insight underlying all our attention to manager development and advanced manager education today.  

The more the organization grows in seriousness and integrity, objectives and competence, the more scope there is for the individual to grow and to develop as a person.

ACTION POINT: Keep learning.  Take full advantage of your company’s educational benefits.

Misalignment Identification

There are two key questions to ask when assessing whether your current sales compensation program is misaligned with short-and long-term strategic objectives. 

Because of the criticality of alignment in assessing the effectiveness of a sales compensation program, it is important that you clearly understand what exactly alignment means.  It is easy to think that any commission program is aligned with a company's strategy--simply because more sales generate higher incomes for sales representatives.  However, a deeper and more critical examination is required to assess how aligned a sales compensation program is with a company's strategy.

There are two key questions to ask when assessing whether your current sales compensation program is misaligned with short-and long-term strategic objectives.  The first question is: Do the prevailing programs penalize sales representatives for achievement of the objectives?  This question isn't meant to be figurative, but literal.  If a company sees a long-term strategic opportunity in products that have below-average margins, but the company uses a commission matrix in which gross margin percentage heavily influences the commission rate, the existing program could very easily penalize a sales rep for supporting the corporate strategy.  Another example would be a company that wants to grow its services business, but allocates an unrealistically heavy overhead allocation charge to gross margin dollars generated from these accounts before it calculates commissions.  In these cases, misalignment clearly exists and there is not doubt that changes are necessary to establish alignment.

The second question to assess alignment is: Do the prevailing sales compensation programs encourage sales representatives to achieve the desired objectives?  The answer to this question is much more subjective.  There are some clear alignment indicators--such as whether strategic business pays a higher commission rate or whether bonuses exist for achieving territory goals that are tied to the company's strategic goals. However, "encouragement" is difficult to quantify.

ACTION POINT:  Establish strategy first and then align compensation.

Getting Aligned

A sales compensation program's virtue is not the inherent value of the commission rate used or the balance between fixed and variable pay.  How aligned the program is with the company's objectives and how supportive it is of the company's sales management processes is what really matters -- and dictates its value.

Upon realizing that the data from exhibit 4.1  did not reveal a relationship between company performance and compensation delivery it became necessary to pursue a different approach.  Interviews were conducted with dozens of senior executives and they shed light on what appeared to be the real differentiators between companies that were gaining market share and those that were not.  Specifically"

• "There is a strong relationship between share gainers and the alignment of their structures with corporate and sales objectives."
• "Share gainers have effective sales management processes in place."
• "There were clear differences between market share gainers and market share losers with respect to how incentive structures were developed."

Although the structure of a sales compensation program program is important, its effectiveness is subservient to the clearness of a company's strategy, an organizational structure that supports the strategy, and the existence of an effective sales management function.  A sales compensation program's virtue is not the inherent value of the commission rate used or the balance between fixed and variable pay.  How aligned the program is with the company's objectives and how supportive it is of the company's sales management processes is what really matters -- and dictates its value.

The conclusion from the data alone in exhibit 4.1 is often that sales compensation structure does not matter.  Nothing could be further from the truth.  The correct interpretation of the chart is that the structure of the sales compensation program, by itself, will not produce top performance.  

ACTION POINT:  Companies that abdicate strategy to the sales force and rely on their sales compensation program to manage their sales people will not be top-performing companies.

Getting Aligned

This is a direct measure of income at risk...

Understanding the exhibit below is essential to seeing that their are countless options in sales compensation plans and that market share gain or loss is not related to the sales compensation plan.

Each point on the scatter diagram represents a single distributor survey respondent.  The horizontal axis represents salary as a function of total compensation and runs from zero (100% incentive) to 100% (all salary).  This is a direct measure of income at risk: 100% salary indicates there is nothing at risk; zero salary indicates that all of the compensation is at risk.

The vertical axis portrays the respondents market share gain or loss relative to industry growth provided by their trade associations.  The values run from -10% to +10%; the bold line in the middle reflects no change in market share.

To validate that the at-risk component relative to total compensation is irrelevant to market share gain or loss, simply sleet any range on the horizontal axis and take note that the there is a nearly identical number of responders below and above 0%.

ACTION POINT: If there had been any relationship between share gain and incentive structures, it would have appeared as a concentration of businesses on the market share gainer side without a corresponding concentration on the market share loser side.

Effective Sales Incentive Design

There is absolutely no relationship whatsoever between a  company's sales incentive plan structure and its gain or loss of market share.

Sales compensation is all about alignment.  In 2003, Indian River consulting conducted an broad study of wholesale distribution compensation practices.  They found and presented the following:

"There is absolutely no relationship whatsoever between a  company's sales incentive plan structure and its gain or loss of market share."

The statement was bold and went against the grain of conventional thinking; however, the illustration below shows their is no relationship between compensation mix and market share gain.  Is shows the relationship between salary as percent of total composition and market share gain or loss.  The table contains a fundamental insight that needs to be clearly understood.  It presents compelling evidence that

"there is no perfect pay plan.'

ACTION POINT:  Pursue market share growth first.

Spirit of Performance

The purpose of an organization is to enable common men to do uncommon things.

Morality, to have any meaning at all, must not be exhortation, sermon, or good intentions.  It must be practices.  Specifically:

1. The focus of the organization must be on performance.  The first requirement of performance is high performance standards, for the group as well as for each individual.
2. The focus of the organization must be on opportunities rather than on problems.
3. The decisions that affect people – their placement, pay, promotion, demotion, and severance must express the values and beliefs of the organization.
4. Finally, in its people decisions, management must demonstrate that it realizes that integrity is one absolute requirement of any manager, the one quality that he has to bring with him and cannot be expected to acquire later on.

ACTION POINT: Focus on performance, opportunities, people and integrity.

Understanding Implementation Obstacles

You can avoid many implementation obstacles by laying the groundwork early

Before implementing your new process, it's useful to understand common obstacles to implementing a redesign and to ask yourself whether you've taken steps to avoid them.

You can avoid many implementation obstacles by laying the groundwork early in your BPI effort.  For example, help managers and employees see the importance of changing the process, and involve them in the redesign.  The more they participate, the more they will understand the value of the change and support its implementation.   

ACTION POINT:  Ask people to take part in testing the new process will help them see that the change is feasible, and will get them on board for implementation.

Implementing your Redesigned Business Process

Many experts maintain that implementation is the most difficult step in any BPI effort. 

With resources in place and the process design completed and tested, you're ready to implement your redesigned process.  That is, you'll actually start using the new process within your organization.

Many experts maintain that implementation is the most difficult step in any BPI effort.  To boos your changes of success, think of implementation as consisting of these parts.

• Understanding implementation obstacles
• Rolling out the new process.

ACTION POINT: Recognize and prepare for the challenges that will be part of any process change.

Obtain the Resources

 To build the required infrastructure and gather necessary material, you will likely need to work with other departments or business units. 

Once you've identified the resources you'll need to implement your new process, you'll have to figure out how to acquire them.  To build the required infrastructure and gather necessary material, you will likely need to work with other departments or business units.  For example, if your redesigned process requires extensive new equipment or technology, you will probably have to order these materials through your company's purchasing or IT department.

If numerous people will require training in using the new process, you may have to work with the human resources department to provide relevant workshops or courses.  However, if the redesigned process requires that just one person be trained in a relatively straightforward task that does not call for a change in job responsibilities, you may not need formal HR involvement.  In this case, you may be able to simply ask another employee in you department to meet with the employee and explain the new task to him or her.

ACTION POINT: Consider the degree of training, equipment or technology that will be required with a process change.

Understand Resource Types

A new process often creates new responsibilities that need to be incorporated into management activities.

Depending on the complexity and scope of your new process, the resources you'll need can vary dramatically.  For example, a process change may require:

• New or changed work roles.  With many BPI efforts, you may decide to use consultants or contractors to perform the redesigned process.  Or you may change an existing employee's job responsibilities so that he or she now performs part of the redesigned process, or hire entirely new employees to carry out the process.
• New equipment or technology.  Some process redesigns require new equipment or technology. 
• New physical space where equipment and technology can reside or where people can carry out the process.
• Support form information technology experts.
• Training
• New management responsibilities and metrics.  A new process often creates new responsibilities that need to be incorporated into management activities.

ACTION POINT:  Major process changes will require some or all of the resources above,  However, many process changes are more minor and require less substantial resources.

The Responsible Worker

The responsible worker has a personal commitment to getting results.

But there also is the task of building and leading organizations in which every person sees herself as a “manager” and accepts the full burden of what is basically managerial  responsibility for her own job and work group, for her contribution to the performance and results of the entire organization, and for the social tasks of the work community.

Responsibility, therefore, is both external and internal.  Externally it implies accountability to some person or body and accountability for specific performance.  Internally it implies commitment.  The Responsible Worker is a worker who not only is accountable for specific results but also has authority to do whatever is necessary to produce these results and, finally, is committed to these results as a personal achievement.

ACTION POINT:  Are you personally committed to getting results at work, or are you just going through the motions? 

Tips for Redesigning a Business Process

Change the process in ways that provide value that the customer wants--for example, more speed and efficiency, more accuracy, less cost, or a singe point of contact between customers and your company.

The following list of tips can aid in the redesign of a business process:

• Change the process in ways that provide value that the customer wants--for example, more speed and efficiency, more accuracy, less cost, or a singe point of contact between customers and your company.
• Don't be constrained by current job titles, responsibilities, and locations.  If you need to create a new position to make the process flow as effectively as possible, consider doing so.
• Attack the biggest time-wasters in the process first--such as points where there is extensive waiting, moving, or rework.
• Examine the logic behind the current sequence of steps in the process. Ask yourself whether the process would work more quickly or efficiently if you rearranged the steps.
• Look for opportunities to remove unnecessary reviews of completed work.  When people know that their work will be reviewed multiple times, the incentive to git it right the first time diminishes.
• To decrease the number of steps in a process, eliminate sign offs or approvals by individuals on activities they don't know much about.  Instead push decision making down to where the work is actually being done.
• Identify opportunities to simplify steps that are unnecessarily complex.
• Involve as few people as possible in performing a process.   You'll reduce the number of potential bottlenecks and other problems.
• Identify problem points in the process by asking the people involved where they experience frustration, and by asking what precisely, frustrates them.  Answers might include "When this part of the work gets to me, there's missing information."
• To identify bottlenecks in the current process, increase the inputs flowing through it, and accelerate the speed at which the process is performed.  Bottlenecks will become more noticeable under these conditions.

ACTION POINT: Consider the tips above when reviewing and redesigning a process.

Redesign the New Process

When people contribute ideas for changing a process, they often feel more committed to it.

Some questions to have your stakeholders consider when presenting a redesigned process are:

• "Does this process, as designed, address the performance issues identified in the project goal?  Does it enable us to take advantage of important opportunities?"
• "Where do you see potential issues arising in this proposed process?"
• "What suggestions would you offer to improve the process's effectiveness at achieving the projects goals?"
• "In your opinion, have we missed something that's important? If so, what is it?"

By inviting contributions from stakeholders, you begin building support for the new process your team has crafted.  When people contribute ideas for changing a process, they often feel more committed to it.

ACTION POINT: Consider further revisions to your redesigned process based on the feedback of stakeholders.

Document Your New Design

The general who wins the battle makes many calculations in his temple before the battle is fought. --Sun Tzu

Document the latest version of your redesign in an activity flowchart.  Omit details about who will do which tasks.  That information will come later.  For now, you want to present a relatively simple version of the process to stakeholders to invite their feedback and ideas.

Present the new activity flowchart--along with information about how you generated ideas for the proposed process--to key stakeholders.  These stakeholders will likely include your manager as well as others in the company who would be affected by the changed process.

ACTION POINT: Plan your changes and clarify them by writing them out.

Consider a New Design's Implications

Talk about how the new process might affect your company's structures, employees, customers, and systems.

To further gauge the feasibility of your redesigned process, discuss the organizational ramifications of the redesign with your team.  Talk about how the new process might affect your company's structures, employees, customers, and systems.  The table "Examining a Redesign's Organizational Implications" shows examples.

Organizational Aspect		Wil the new Process Require
Structure		The creation of new jobs, departments, or reporting relationships, or major modifications of existing structure.
Employees		New skills, knowledge, and expertise that must be acquired by training existing employees or hiring new personnel?
Customers		New marketing plans or other communicaitons to inform customers of the redesigned process and to help them use it
Systems		Entirely new systems--such as new IT infrastructure--or the significant modification of existing systems?

ACTION POINT:  Depending on the nature of your redesign's organizational implications, you may decide that your team's proposed process needs further changes. 

The Purpose of Profit

Profit is the ultimate test of business performance.

Profit serves three purposes.  One is it measures the net effectiveness and soundness of a business’s efforts.  Another is the “risk premium” that covers the costs of staying in business-replacement, obsolescence, market risk and uncertainty.  Seen from this point of view, there is no such thing as “profit”; there are only “costs of being in business” and “costs of staying business.”  And the task of a business is to provide adequate profit.  

Finally, profit ensures the supply of future capital for innovation and expansion, either directly, by providing the means of self-financing out of retained earnings, or indirectly, through providing sufficient inducement for new outside capital in the form in which it is best suited to the enterprise’s objectives.

ACTION POINT: Decide to pull the plug on an unprofitable business if it is not covering the cost required to stay in business or providing enough capital for future growth.

Envision a Better Process

Define performance metrics related to:

In addition to brainstorming ways to improve the process determine how to measure the new process's performance.  Define performance metrics related to:

• Customer satisfaction - for example, "Number of times customer has to phone the company before getting their problem solved" or "amount of time on hold."
• Quality - such as "Number of errors in assembly, or pick, or delivery."
• Cost - such as "Amount spent per quarter on parts."
• Cycle time - for instance, "Number of hours to assemble one unit of product."

ACTION POINT: Direct process improvement toward the activities that will impact the metrics listed above.

Envision a Better Process

 Be sure that the ideal process directly addresses the business problem or opportunity identified in the project goals. 

With your team , visualize what an ideal process would look like.  Be sure that the ideal process directly addresses the business problem or opportunity identified in the project goals.   Brainstorm ways to make the process better.

During the brainstorming, set aside the "as is" process flowchart, so new ideas won't be influenced by the status quo.  Then think about ways to improve the process's performance.  First, think about ways to     exceed customers' expectations.  Could the accuracy, speed, and quality of the process be improved?  How might the process be improved to make it easier for customers to do business with the company?

Second, consider ways to cut costs.  Could steps be eliminated form the process to reduce the number of resources required or reduce the cost of the resources used?  Third brainstorm ideas for reducing cycle time--the total time it takes to complete the process.  Could requests for clarification or information be eliminated to speed up the process?

ACTION POINT: When improving a process consider ways to: exceed customer expectations, cut costs and reduce cycle time.

Redesign Your Business Process

...redesign the process so that it produces the outcomes you're looking for.

You've analyzed the existing process that you identified for improvement.  Now it's time for your BPI team to redesign the process so that it produces the outcomes you're looking for.  The redesign process consists of these steps:

• Envisioning a better process
• Testing your team's ideas
• Considering the implications of a potential redesign
• Documenting your redesign
• Gathering feedback from stakeholders and refining the redesigned process

ACTION POINT: At the end of your redesign phase, you should have a set of documents describing the proposed process redesign that is approved by management and other key stakeholders.