Incentives get you less

In America, they are giving children hamburger tokens for reading books. When the tokens stop, so does the reading. What are the children learning? To not value reading. Over the last few years we have witnessed mis-selling of financial services on a grand scale. What is the primary cause? Incentives; the salesperson is more concerned with what they earn than what they sell you. In your local mobile phone shop, staff are incentivised for selling phones. How do they behave towards a customer who has a service problem? They avoid them if they can, for the service problem may take up valuable selling time.

Managers believe without incentives staff won’t work. The truth is incentives will always get you less. Some of what you lose is identifiable, as with the costs of repairing poor quality selling. Some of the costs are unknowable, for example the loss of custom and negative word-of-mouth.

In every case I know where sales forces have been taken off commission and put on a salary, sales have improved, customer service has improved, co-operation between salespeople has become the norm and the turnover of sales people has been reduced. Why do managers stick to the belief that incentives are necessary for performance? The real driver of performance improvement is intrinsic, not extrinsic. It is that old-fashioned thing called pride. We need more of it.

If you want to grow, go with the flow

Do you ever wonder whether the services offered by your local Chamber of Commerce or Business Link have any real value? Research published this summer by Warwick Business School suggests that there are two ways of getting a boat swiftly down river. You can work on getting the crew to work better together, or you can get the boat into a faster current and let the current do the work. The latter strategy, the research shows, is the secret of business success.

It seems to me so much training and education on offer to business managers is of the former kind – get the crew to work together better and none of the help provided is of the latter kind. We are told to ‘Invest in People’, train, communicate more effectively and so on. We are coerced into registering to ISO 9000 and we are told to adopt the Business Excellence Model. But is any of this doing any good?

The Warwick research shows that successful companies don’t follow the advice of Government-sponsored business advisors. But what they do instead is simple: they identify a market niche that is growing rapidly and jump in to exploit it. The niche opportunities are thrown up by change; technological, social or legislative. Pre-cooked and pre-packaged food, customised holidays, newly-privatised services, and specialised services, for example spectacles in an hour, are just some examples where companies have established fast growth where nothing much existed before.

But more than that, these companies listen very hard to their customers, especially in terms of what they are doing and would like to do with any service or product. From the customers’ point of view, the service or product solves a problem, fills a need or does something of value. Knowing what that is, is critical to staying ahead; ensuring that future product development puts the customers problems at the forefront.

And these are the two secrets of success – exploit a growing niche and listen to and learn from customers.

Just for a bit of fun, when you next meet people from a Government-sponsored agency, ask them how they judge their effectiveness. Every time I do this, I listen to them talk about meeting Government-set targets for activities. For example, the number of businesses being committed to IiP or registered to ISO 9000, the number of NVQs trained or the numbers of training ‘bums on seats’. Then you should push them a little and ask whether they have measures of the impact of these things on the economic performance of their area, in other words ask whether there is any hard evidence that doing these things helps business work better. I expect you can guess the answer.

1999

DECEMBER

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