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Five Target Design Mistakes Everyone Makes

5/26/2021

 
The news headlines are filled with stories of targets and incentives that have gone terribly wrong. Many of these issues are caused by mistakes we all make. Here are five of the most common problems, and how you can avoid them…

1. Targeting the wrong metrics

Challenge: Target designers will often assume a link between the thing they target, for example ‘Value of sales’ for a sales team, and the thing they are really aiming to improve. In the case of a sales team, we are not trying to improve sales value, but rather profit.

It is easy to target on one or two highly visible KPIs assuming that optimising those will lead to positive business outcomes. This can be a mistake. Take call-centres as an example. Targeting agent ‘average handling time’ might seem to make sense, the logic being ‘If we can handle more calls per hour, we will have higher productivity, lower costs, shorter wait times and happier customers’. In practice, targeting just Average Handling time can lead to all kinds of dysfunctional behaviours, including…
  • Passing calls to second-line teams just to ‘stop the clock’
  • Hanging up on customers mid-call
  • Finding ‘tasks’ for the customers that require them to hang up and call back later

Solution: Use a KPI Tree to identify the full range of KPIs that influence our ultimate business goals, how they interact and potential  conflicts with maximising individual KPIs.

2. Underestimating your team’s ability to ‘game’ the system

Challenge: Humans are highly skilled at making the most of any situation. Targets and bonuses can bring out extreme ‘creativity’ amongst those being targeted. There are countless ways in which target systems can be gamed. 

Examples from the world of sales include…
  • A salesman asking a customer to place a major order to help him hit his monthly sales target, on the understanding that the customer will cancel the order shortly after the sales month closes
  • A salesman shipping scarce stock out-of-state, so he can honestly tell his peers that he has no stock, before the stock mysteriously re-appears when needed 

Solution: Run a ‘reverse brainstorm’ with the team members who will be striving for the targets. Ask the question ‘How could team members hit the target, but in the worst possible way?’. A full explanation of how to run a reverse brainstorm and a detailed checklist are included in the KPI Academy GAMED course.

3. Not reviewing targets often enough

Challenge: It is tempting to set target reviews to minimise administrative effort, perhaps annually.  This is a mistake. Research by Tom Steenburgh shows that simply switching from quarterly to annual bonus reviews led to a 10% drop in performance amongst the weakest performers, a 4% drop amongst ‘core’ performers and a 2% drop in the performance of ‘star’ salespeople.

Solution: Experiment with more frequent target and incentive reviews until you strike the right balance between effort and results.  If the review process is hard work, invest some improvement effort to make the process smoother and simpler. If you currently use annual reviews, switching to more frequent reviews could be the easiest performance win you make this year. 

4. Trying to fix problems with targets

Challenge:
 When a business is in a tight spot, it can be very tempting to use wildly ambitious targets and incentives to motivate your team to find solutions. This may work if the team have full ‘agency’ - the time, skills, resources and authority - to pull it off. More often it results in rule bending, cheating, law-breaking and acute employee stress. 

Solution: Avoid using targets to push unresolved organisational issues onto your team. Carefully check that the team has the time, skills, resources and authority to achieve if you decide to set ambitious stretch targets. You will also need to put extra time, effort and attention into policing the rules of those targets and incentives. If you don’t, you may pay the price through reputational, legal or operational problems.

5. Just focusing on your star performers

Challenge:
 Top performers are often the focus of targets and rewards, dominating the attention of their managers. 

In practice, the majority of team members in any organisation are not top performers. Simply focusing targets and rewards on top performers leaves a huge slice of potential improvement on the table.

Solution: Treat your team, and their targets, as a portfolio. Create targets and incentives that are realistic and motivating for all talent levels in the organisation. This portfolio approach has the potential to unlock much bigger organisational gains.

Getting more help with your Targets and Incentives
There’s a lot behind effective target and incentive design, but it doesn’t have to be complex.

For a clear, simple and effective approach to designing and implementing targets head to the K2 Enterprises course GAMED: Why targets and incentives fail and how to fix them.

Bernie Smith


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    Authors


    Ward Blatch
    Ward provides consulting and training services as the Managing Director of K2E Canada Inc. He joined K2E Canada in 2005 and is responsible for the Canadian operations of this international consulting group, which provides professional development technology education for accountants across Canada and the US. Ward lives in rural Nova Scotia and can be reached at ward@k2e.ca.

    Tommy Stephens
    Tommy is one of the shareholders in K2 Enterprises, affiliating with the Firm in 2003 and joining as a shareholder in 2017. At K2, Tommy focuses on creating and delivering content and is responsible for many of the Firm's management and marketing functions. Tommy resides in the metro Atlanta area. You may reach him at tommy@k2e.com.

    Randy Johnson
    Randy is a nationally recognized educator, consultant, and writer with over 40 years experience in Strategic Technology Planning, Accounting Software Selection, Paperless, Systems and Network Integration, Business Continuity and Disaster Recovery Planning, Business Development and Management, Process Engineering and outsourced managed services. Randy can be reached at randy@k2e.com


    Bernie Smith
    Bernie coaches businesses to develop meaningful KPIs and present their management information in the clearest possible way to support good decision making. As the owner of Made to Measure KPIs, he has worked with major organisations including HSBC, Airbus, UBS, Barclays, Credit Suisse, Lloyds and many more.

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