COO at Cateway
I had an interesting debate recently with a colleague at a successful consulting firm. Their practice focuses on making management more accountable through “pay for performance,” which means if managers hit goals, they get a bigger bonus. His firm has prospered, yet the words of late quality guru W. Edwards Deming dogged me.
Let me be clear: I’m a huge proponent of accountability. Without it, nothing gets done. Yet, the most popular methods CEO’s choose today are ineffective, and often produce unintended and harmful consequences.
Management by Objective (MBO) has been widely used for years. The CEO requires the VP of sales to “grow sales by 10%,” manufacturing VP to “reduce costs by 5%,” and VP of finance to “reduce overdue accounts receivable by 7%.” Using MBO, the CEO concentrates on what, not how—the manager determines the latter. To provide incentive, the CEO promises fat bonuses for meeting goals. Management 101. Carrot and stick.
What happens next is predictable. The finance VP gets tough, demanding prompt payment and putting delinquent accounts up for collection. The VP of sales shouts as chronically late-paying but important customers get upset and cancel orders. The manufacturing VP based his production forecast on the higher sales goal and gets stuck with too much inventory at year-end. The VP of finance achieves her goal and gets her bonus, but at great expense. Tempers boil. Teamwork collapses. Sales are down and costs are up. Did the CEO get what he wanted?
Deming railed at MBO in his seminal work, Out of the Crisis. “The idea of a merit rating is alluring. The sound of the words captivates the imagination: pay for what you get; get what you pay for; motivate people to do their best, for their own good. The effect is exactly the opposite of what the words promise. Everyone propels himself forward, or tries to, for his own good, on his own life preserver. The organization is the loser.”
By Ed Powers, COO at Cateway
Sometimes you read a book that immediately goes in the place of reverence on the bookshelf. It sits alongside your collection of favorite works that have spoken to you deeply over the years. These are books most likely to be dog-eared, highlighted, and underlined on multiple pages.
That’s how I’m feeling these days about John Kotter’s The Heart of Change: Real-Life Stories of How People Change Their Organizations, which he co-authored with Dan Cohen in 2002. It’s the sequel to Kotter’s book Leading Change, but building on his eight-step approach with a multitude of stories of organizational transformations done right and wrong. In today’s world of chronic uncertainty, many organizations that survived the initial bloodletting of the Great Recession have been forced to make more dramatic changes to sustain their organizations. Kotter’s research suddenly has renewed relevance.
As an engineer, I’ve never been comfortable with the “touchy feely” stuff. That was always the work of HR who used terms like “change management” as a euphemism for downsizing. My focus was always on the data. If a decision has to be made, it has to be logical rather than emotional—just figure it out and do what has to be done.
Kotter says successful change isn’t a matter of the mind, but of the heart. “People change what they do less because they are given analysis that shifts their thinking than because they are shown a truth that influences their feelings… The flow of see-feel-change is more powerful than that of analysis-think-change.” He goes on to describe several examples of successful transformations that began by capturing the attention of senior executives in an entirely different way. Rather than telling executives the need for change with PowerPoints and reams of financial analysis, they showed them the situation, stirring an emotional response and a commitment to action. Kotter calls this Step 1: Increase Urgency. Without the right people having a strong personal connection to the problem, significant changes never get off the ground.