All Posts in Policies and Procedures

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Camping season is starting (except for native Minnesotans, who have been known to go “winter camping,” probably because it’s the only time they can sleep outdoors without swarms of mosquitoes … but never mind them). So get close to the fire, and Scoutmaster Ray Todd Stevens will tell you a scary story:

I worked for a national retail chain. The official policy on credit cards was that you tried to find fraud. There was even a bonus for every fraud you found. But that was not the actual policy. The actual policy, which was well drilled into you by your manager, was that ‘… we never notice anything we don’t have to officially notice.’ I found two forged cards and one stolen one while there. Each time got me a conversation with the manager about why I noticed the inconsistencies. Also I got docked twice the bonus in commissions the pay periods of the bonuses for finding these cards.

The problem was that the sales counted toward commission and the manager’s bonus regardless of if they were fraudulent or not.

Is this the tale of a greedy manager trying to maximize commissions at the expense of the poor, longsuffering employer?

Probably not. No question, some individuals will do whatever they can to maximize their total income. They’re relatively rare, often in sales, and motivated more by money than by anything else.

What motivates most employees is achievement, approval, or a sense of belonging to an exclusive group that’s doing something important. The money is nice, but not their primary driver.

Not that they ignore what they’re paid. Quite the opposite — they give it their closest attention. That’s because a company’s compensation system is the loudest, clearest, and most emphatic communications channel it has for explaining to employees what it considers important.

The classic example, used in every introductory seminar on Total Quality Management ever given, is the company that decided it wanted quality. It preached quality, taught quality techniques, and measured quality improvement. The result, month after month, was a total lack of improvement in its defect rate. Why? The factory manager’s bonus depended on how many widgets rolled off the production line every month.

Pay for quantity, beg for quality, and quantity will win every time. What you pay for explains your priorities far better than your company newsletter.

Bring it home to IT. Many CIOs want to establish a more process-oriented perspective in their organizations, to get (all together now!) Repeatable, Predictable Results. Whether it’s an ITIL initiative or an attempt to rise to higher levels in the Software Engineering Institute’s Capability Maturity Model, they want the IT staff to “plan the work and work the plan” instead of coming to work every day as if the world had just been created fresh and new.

Good for them. These are important goals for many IT organizations. So if you’re one of them, go ahead and want process, teach process techniques, and measure process results. And then …

A project team finds itself under time pressure. The project manager rallies the troops, who work a succession of twenty-four hour days and seven-day weeks. Gasping for breath, exhausted but exhilarated, they meet their deadline with minutes to spare.

Impressed, you give them all bonuses for going the extra mile.

Outstanding. Except …

Another project team doesn’t find itself under time pressure. Every week, every team member meets every milestone. The project manager spots risks and issues early and deals with them. If one team member gets into trouble, the rest help out immediately so the schedule is never in jeopardy. The deadline rolls around, they put the software into production, and go home to spend the weekend with their families.

Boring. Why would you give them a bonus? They didn’t go an extra block, let alone an extra mile. All they did was the work in front of them.

Making process happen in IT is hard. If you pay extra for heroics while ignoring those who do their work by the numbers, you’re preaching process in a whisper while shouting, in the loudest voice you can, that you really don’t care for it all that much.

As with any good process, the results are predictable, and have been repeated so many times you’d think we’d have caught on by now.

You get what you pay for. If you want process, start paying for it, instead of its opposite.

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|In: Leadership|Last Updated:

Some of my mailbag’s contents, and associated random thoughts:

The latest edition of Keep the Joint Running arrives. As you start to read it, you imagine you hear Amazing Grace playing on the bagpipes. You read that sometimes, it makes sense to view the rest of the business as your customer, and the music suddenly stops.

“NOOOOOOOOO!!!! Now I feel like the last (un-morphed) guy in Invasion of the Body Snatchers,” longtime reader Chris Dejardins reported.

In another letter, Jim Carroll offered this imagery: “Your KJR of Feb 21 caused a thought to pop into my head (a most unpleasant experience, I might add, at least until the caffeine kicks in). The image of business as bazaar got me thinking of what roles different departments would have in this new and wondrous marketplace — Finance department as moneychangers, complete with slightly inaccurate scales, etc. — when a powerful image came to mind: HR as slave marketeers.”

It’s a terrific thought which I’m going to do my absolute best to pursue no further.

Then there was this, from a correspondent who must remain anonymous:

“I have worked in the land of transfer costs and it was really an eye opener.

“In the business schools it sounds like a good way to keep cost and quality under control, but when it is actually executed things are very different.

“I have received junk three days from the end of the quarter because the supplier, an internal partner in another manufacturing plant, wanted to make their numbers and figured that they would make up the difference at the start of the next quarter. By junk I mean partially assembled, untested, defective and shorted units.

“When this was complained about we were accused of exaggerating, lying and making excuses. They made their numbers and we had no recourse.”

You can turn the music back on — Amazing Grace on the bagpipes, if that’s what you like, Amazing Grace (Used to Be Her Favorite Song) if you’re more of an Amazing Rhythm Aces kind of person. Last week’s column was about chargebacks (“transfer pricing” if you want to be Fully Buzzword Compliant) and their consequences, not about the internal customer as the idea has been promoted for the past few decades.

Your job still isn’t to make end-users happy. It also isn’t to deliberately make them unhappy, just in case you’re of the binary persuasion and were hopeful. In fact, nothing has changed, because your job is still to help the business, and the employees who work in it, be as effective as possible.

There are some businesses whose biggest challenge is the efficient allocation of internal resources. Take the systems integration industry: Accounts must be run as independent businesses anyway; treating internal resources, and other accounts, as suppliers and customers is as good a solution as any for making sure every account gets the resources it needs without some accounts subsidizing others, and without overhead charges from headquarters getting out of hand.

Speaking of overhead charges …

Every company that institutes transfer pricing eventually has to deal with corporate overhead — the cost of all those departments and expenses everyone else wants someone else to pay for: Accounting, Internal Audit, Human Resources, and, all too often, the company’s top executives. Nobody is going to buy their services voluntarily, which means nobody is willing to pay for business functions that are absolutely necessary to the company’s health.

Is it any wonder that in most companies, everyone outside headquarters calls overhead a tax?

Here’s a suggestion: Start calling it “rent” instead. Nobody really likes paying rent, but nobody expects to live in someone else’s building for free, either, nor do they expect the various features of their living space to be charged a la carte.

Let’s close this subject down. There are some situations in which transfer pricing makes sense. Not many, but some. When it makes sense, the company becomes a marketplace; everyone is everyone else’s customer. Done right (a rare event) the result is the efficient allocation of internal resources.

In most companies, though, transfer pricing’s unintended negative consequences vastly outweigh the benefit, which my partner, Steve, describes as full employment for accountants, but which is more commonly described as “Making cost center managers accountable.”

This is simply a different way to describe the efficient allocation of resources. But isn’t it striking that, stated this way, the point is personal and pejorative rather than organizational and about benefit?

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