We regularly work with CEO’s that are frustrated with leader behaviors that undermine enterprise strategy. Simple financial measures, like P&Ls, are an effective way to visibly drive leader accountability, yet they frequently do not match the complexity of today’s strategies. Metrics serve as a powerful motivator and unfortunately, are often perfectly designed to drive sub-optimal results.
For a simple comparison, consider this sports team analogy. Assume you are the coach of a basketball team. When your team is performing at its best, your point guard, whose most valuable skillset is passing, finishes the game with lots of assists, yet not very many points. In addition to passing, you also rely on your point guard for immeasurable activities, such as strong defensive performance. In this ideal scenario, your point guard concludes the game with an unimpressive stat sheet. In fact, much of her contribution to the team is intangible. When your team is performing at its best, like your point guard in this example, each player contributes in whatever way adds the most value to the whole.
In team sports, measuring vital, non-point metrics and de-emphasizing individual metrics is not a new concept. Nevertheless, many of our clients struggle to move away from measuring leaders on points, or in organization terms, individualistic P&Ls.
As an example, we recently worked with a healthcare company that contains product/service lines of business (LOB’s). Historically, P&L’s attached to each line of business (LOB) led to siloed offerings that focused management energy on individual profit targets. However, the strategy has shifted to end-to-end patient care, requiring interdependency between LOBs. To deliver on the strategy, each LOB must play a unique role in which it is best positioned to contribute. For example, one LOB is best suited to acquire a broad customer base, even if this means operating at a loss. Although the leadership team of this company is aligned on the new strategy, the P&L construct is serving as a powerful organization derailer. Instead, the new business model necessitates a complex set of human behaviors calling for an equally sophisticated set of performance metrics.
The figure below illustrates an alternative, a shift away from P&L measurements that work for each silo, toward an enterprise view that optimizes the greater results. Note, each leader is still responsible for one LOB. Therefore, shared success does not have to be at the expense of focus or accountability. Now, each separate team, which owns components, customer management, or new innovations that make up the end-to-end offering, is accountable for metrics that optimize their role, without compromising the collective result.
In complex organizations, driven by cross-boundary interdependencies, take time to challenge conventional P&Ls to ensure they are not deceptively impeding company success. A creative way to test incentive options is to ask the question: “What lens do you want each leader looking through as they make decisions?” Remember, organizations are often perfectly designed for leaders to deliver results as intended, even if they are not the results you want.
Kates Kesler, Part of Accenture