Page 59 - Performance Leadership

48 • Part I A Review of Performance Management

objective, it is profitability that often matters most. Many CFOs com-
plain that margins are under pressure because salespeople give away too
large a discount. However, this is caused by personal objectives (sales tar-
gets and on-target earnings) that are not aligned with corporate objec-
tives. There is an overemphasis on visible behaviors. It is assumed that it
is easier to measure revenue, or cost savings, than collaboration. It is also
assumed that it is easier to measure day-to-day operations than creativity.
Yet many organizations stress collaboration and welcome creativity.
Managers need to understand which behaviors are triggered by the
reward systems. Not all behavior is explained by a reward system, but
when the reward system creates misalignment between personal and
corporate objectives, undesired behaviors will appear. Alter the reward
system to drive more aligned behavior. For instance, a much better
sales target would be profitability or, if profitability analysis on a per
transaction basis is too complicated, contribution margin. Contribu-
tion margin consists of revenue minus direct costs, such as cost of goods
sold or of sales. When a customer asks for a discount, the salesperson
then has a different mindset, one more aligned with the overall objec-
tives, contributing more directly to overall business performance.
When trying to recognize and reward positive behaviors, again it is
crucial to understand the cultural context. Let’s look at another exam-
ple. In a consultancy firm there was unexpected resistance to adopt a
knowledge management system, in which the company had invested
millions. The company realized that, for the system to be successful,
the contributions of its consultants were critical. The company created
an incentive program for people who contributed actively. But the
incentive program failed. Actively contributing consultants who
received management recognition were viewed by their colleagues as
“losers” who “obviously had nothing better to do” than to fill in a sys-
tem. The consultants believed that “really important, busy consultants”
wouldn’t have time for that.
It is not only important to align personal and corporate objectives.
This should also happen between an organization and its stakeholders.
Stakeholders, such as shareholders, employees, regulators, society, busi-
ness partners, suppliers, customers, and even competitors, each have
an interest in organization. Mostly (with perhaps the exception of the
competition) they would like the organization to succeed. However,