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.