| You Get What You Inspect, Not What You Expect |
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As any business executive knows only too well, when managing employees you don’t automatically get the behaviors you say you want. You may really believe, for instance, in the need for excellent customer service but just saying that you value it doesn't mean that your employees will act in the way you wish they would, or that they will provide it. The problem is that you don’t get behaviors just because you expect them. You can posture all you want and catch people doing something wrong (or, if you're an enlightened manager, catch them doing something right), but that is too casual and disorganized. It leaves too much to chance, and you almost certainly won't end up getting what you want. The best way to let people know that something is important is to measure it and report on it. The only sure fire way to ensure that your people do what you want them to do is to inspect what they are doing and how that impacts the results. If you want to ensure that you consistently do get the behaviors you really want, you have to set processes and procedures in place to inspect them. This holds true for big picture areas like Values and Customer Service, but it has much wider applicability. One of the most frequent complaints that I hear is that processes are not followed. A new process is put in place and it is followed for a few days. Then, as soon as the manager turns away to focus on something else, the employees stop following the process and return to their old ways.
Whatever the behavior you want to encourage, just saying you want it wouldn’t make a blind bit of difference unless what you want is reinforced by concrete action. You have to stay focused and institute processes to ensure that procedures are being followed. It may be as simple as a checklist or a complex as a detailed review, but this is an essential step in getting people to do what you want them to do. Only if your staff knows that you are looking will they continue to do the things you want them to do. This principle also holds true for sales compensation models. The rule here is that you will get the behaviors you compensate, not the ones you say you want. So if you want to sell more of a particular item, you have to design the compensation plan so that it mirrors and rewards the sales activity that you really want. The problem with many sales and incentive compensation programs is that there is a gulf between what you want and what you reward. Since you will always get the behaviors that your programs compensate and not the ones you simply say you want, it s essential that your incentive compensation programs are aligned with your strategic plan. This issue is most common where salespeople sell products and services that have very different margins. You want to sell more of the high margin item but it is usually harder to sell. Unless you make a significant difference in sales compensation levels between the two items you will find that however much you jump up and down and motivate your people, you end up selling a lot more of the lower margin item. The most common mistake is paying commission based on Revenues rather than Gross Margin. Let’s suppose that you have a business that sells a product and also services it: § Product sales will typically be in the 15 – 25% gross margin range (unless you are in a commodity business). They will be higher ticket items than service and are easier to close because there is a motivated buyer with a time-based need. § Service contracts are typically in the 40 -60% gross margin range after all direct servicing expenses. They are at a lower dollar value and are typically harder to sell because you are competing with inertia, but the lifetime value of the sale will be exponentially higher than the transaction sale. § You say that you want to grow service revenues that are at a higher margin and represent a recurring revenue stream that adds value to your company rather than transaction revenues that are at a lower margin and do not recur. Service revenues will not grow just because you tell everybody that you want that to happen. They will only grow if you pay more for service contracts than you do for product sales and the best way to do that is to pay on the margin with a (modest) tail for recurring revenues. Using the example above, I would pay a commission percentage that was driven off the actual gross margin received for both transaction sales and recurring revenue/service sales, with a bonus for hitting the quotas that represent what I really want.
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