-
If
you look at your business and you don't like what you
see but don't do anything to change it, you are going
to see history repeat itself. (Rule
1)
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If
you want to make a change, then find a way to measure
the outcome you want to see. (Rule
2)
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If
you really want the impact to last, find a way to
reward those who make it happen. (Rule
3)
But
be careful what you measure and reward. If you measure
the wrong thing, you will get dysfunctional
results.
Measuring the
performance of your sales force by revenue alone will
result in a lot of low profit sales.
Measuring production on
the shop floor without regard to quality can be a
disaster.
If you grade your
customer service personnel on the number of calls they
handle, you may be missing the important task of
satisfying your customers.
You need to have a
balanced set of metrics that prevent your staff
concentrate on a single task to the detriment of
others.
Rule
3 is even more important because any incentive plan that
is not tied to increased profit is a gift. Salesmen are
particularly good at working their comp plan to maximize
their income.
If the plan doesn't have a tight relationship to
profit, you should rethink your plan.
But
good metrics for each individual must also include a
least one measurement with a dollar sign. You set the
benchmark for a target dollar level. Then you measure
the profit impact of performance above that
benchmark.
Incentive plans are based on rewarding those who
increase profit.
This
is a simple examination of my three rules. We will
certainly examine corollaries to these rules and more
subtle applications in future
newsletters.
But
I want to give special recognition to Dr. Dennis Slevin
of the Katz School at the University of Pittsburgh who
got me off to such a great start in my MBA.
Let
me know what you think. Drop me a line at
news@sigmapiconsulting.com
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