Companies with weak performance measurement systems create inhospitable corporate margins.
Author Daniel H. Pink, in his book Drive: The Surprising Truth About What Motivates Us, describes how poorly designed incentive structures can lead to destructive employee behavior. Personnel will seek to achieve their goals by the easiest and quickest means possible. This path is rarely through the corporate margin where significant longer-term value creation is realized.
Company incentives built exclusively on short-term metrics, such as revenue or sales targets, encourage a narrow-minded focus on achieving near-term ROI at the sacrifice of longer-term value development and client satisfaction. Managers will undermine long-term growth to achieve short-term internal performance targets.
Organizations should build incentive structures that provide rewards for intermediate actions which lead to the desired end-state objectives (e.g. revenue, profit, etc.). For example, rewards could be tied to customer satisfaction as measured by client feedback surveys, new client acquisition, and contracts gained in emerging market sectors. While these intermediate actions may not achieve much in terms of near-term bottom line results, their impact is critical for business success in the longer term. A small contract in an emerging market sector may be more strategically important for the firm than a large contract in an established market. Firms need to recognize and reward these results differently to reflect their strategic differences.
Providing incentives for intermediate actions is critical for encouraging behaviors that lead to long-term growth and value creation. Companies which provide these types of intermediate incentives create an environment which sustains positive margin initiative risk-taking. Without these incentives, few programs will be able to marshal the resources to maintain margin activities which require multiple business cycles to mature.
Monday, October 11, 2010
Tuesday, September 28, 2010
Momentum Matters
Margin leaders need to balance big potential payoffs with the strategic value of smaller, quick wins.
Margin initiatives begin as untested theories and grow into proven business models. Strategies that require long periods of time and significant resource investment are less likely to succeed in the margin than strategies which can build on short-term wins. While small, these successes build the trust of initiative partners, stakeholders, and investors by providing proof-of-concept evidence that the overall strategy can be successful on a larger scale.
Many margin managers make the mistake of putting all their resources into one large effort. The high payoff is tempting, but gambling on big wins rarely achieves long-term success. While a win may catapult the leader and the initiative to a new level, a loss can close the initiative down completely. In addition, the likelihood of a repeat performance is low while the expectations have been set high.
Small wins not only create a history of success, they build capabilities and experience through the application of lessons learned. This internal growth sets the stage for tackling larger projects and increases the likelihood of success. In addition, any failure is weighed against the longer history of successful value creation. Going after a big solo win should only be attempted when the conditions are highly favorable.
Margin initiatives begin as untested theories and grow into proven business models. Strategies that require long periods of time and significant resource investment are less likely to succeed in the margin than strategies which can build on short-term wins. While small, these successes build the trust of initiative partners, stakeholders, and investors by providing proof-of-concept evidence that the overall strategy can be successful on a larger scale.
Many margin managers make the mistake of putting all their resources into one large effort. The high payoff is tempting, but gambling on big wins rarely achieves long-term success. While a win may catapult the leader and the initiative to a new level, a loss can close the initiative down completely. In addition, the likelihood of a repeat performance is low while the expectations have been set high.
Small wins not only create a history of success, they build capabilities and experience through the application of lessons learned. This internal growth sets the stage for tackling larger projects and increases the likelihood of success. In addition, any failure is weighed against the longer history of successful value creation. Going after a big solo win should only be attempted when the conditions are highly favorable.
Sunday, September 12, 2010
The Language of Results
In the end, only corporately-recognized results matter.
The ultimate goal of every margin initiative is the achievement of corporately-recognized value. Operating outside the boundaries of traditional business practice, these projects must mature until they are incorporated into the corporate structure to which they are affiliated if they are to accomplish anything. Value creation is only achieved by re-integrating with the organization.
Until that happens, initiatives in the margin often produce non-standard results. Unrecognized in corporate performance measurement systems, these results may be vital to the success of the initiative but account for little within the organization as a whole. It is only when the initiative begins to produce officially accepted results that margin activities receive recognition and the margin leader is rewarded.
The margin leader's business theories may be sound, his strategy excellent, his business plans exceptional, and his execution of them brilliant, but he will not have achieved anything until he produces results the corporation accepts - whatever that may be. This is true regardless of the value, wisdom, or sanity of the corporate strategy and performance standards. They may be industry best practice or completely arcane, but the margin leader - as part of that system - will be measured by that system. Unless he seeks only self gratification or some form of external recognition, his performance will ultimately be judged by his ability to produce corporately-recognized results.
With this in mind, margin leaders should align their strategies to ultimately achieve corporate priorities. They should also seek out organizations whose corporate priorities align with sound business practices. The greater the gap between corporately-recognized performance measures and typical early-stage performance results, the greater the challenge in building successful margin initiatives.
The ultimate goal of every margin initiative is the achievement of corporately-recognized value. Operating outside the boundaries of traditional business practice, these projects must mature until they are incorporated into the corporate structure to which they are affiliated if they are to accomplish anything. Value creation is only achieved by re-integrating with the organization.
Until that happens, initiatives in the margin often produce non-standard results. Unrecognized in corporate performance measurement systems, these results may be vital to the success of the initiative but account for little within the organization as a whole. It is only when the initiative begins to produce officially accepted results that margin activities receive recognition and the margin leader is rewarded.
The margin leader's business theories may be sound, his strategy excellent, his business plans exceptional, and his execution of them brilliant, but he will not have achieved anything until he produces results the corporation accepts - whatever that may be. This is true regardless of the value, wisdom, or sanity of the corporate strategy and performance standards. They may be industry best practice or completely arcane, but the margin leader - as part of that system - will be measured by that system. Unless he seeks only self gratification or some form of external recognition, his performance will ultimately be judged by his ability to produce corporately-recognized results.
With this in mind, margin leaders should align their strategies to ultimately achieve corporate priorities. They should also seek out organizations whose corporate priorities align with sound business practices. The greater the gap between corporately-recognized performance measures and typical early-stage performance results, the greater the challenge in building successful margin initiatives.
Friday, September 10, 2010
Running Out of Time
Margin leaders may need to buy time for margin initiatives to succeed.
Time in the margin is limited. The lag time between the start of a margin initiative and its maturing into a formally recognized program may be too long for the patience of corporate executives. As time runs out, additional requirements and constraints imposed by the formal organization will inhibit progress and further reduce the likelihood of success - ultimately leading to initiative failure.
Margin leaders must balance the demands of unrecognized strategic activities with the need for formally-recognized performance measures. Corporately-accepted signs of progress may not be strategic to accomplishing margin initiative goals and can actually distract from achieving real progress. However, margin leaders must use these indicators of success to push back the organizational entanglements which hamper success and buy the time needed for margin initiatives to mature.
While these efforts may temporarily delay preemptive initiative closure, managers in the margin must make rapid progress. They must find ways to accelerate development cycles to speed up the realization of results. This will rarely be pretty. Margin leaders might need to move forward with the trial of an effort not yet ready or proven, increasing risks while lowering valuable preparation time. They may need to pursue opportunities under sub-optimal conditions. Alternatively, they may need to pursue the wrong, but accepted opportunities at the cost strategic margin wins.
Top-down pressure exists throughout the life of a margin initiative. It is when those pressures start to consistently increase that margin leaders must consider methods of delaying negative corporate action while accelerating initiative progress. However, this should be taken as a sign that time is running out.
The longer this situation persists the less likely the margin initiative will be successful. The increasingly risky and non-optimized efforts reduce the chances of success while keeping corporate actions at bay consumes valuable resources. Over time, this feeds a downward spiral to disaster. Only three exits are possible:
Time in the margin is limited. The lag time between the start of a margin initiative and its maturing into a formally recognized program may be too long for the patience of corporate executives. As time runs out, additional requirements and constraints imposed by the formal organization will inhibit progress and further reduce the likelihood of success - ultimately leading to initiative failure.
Margin leaders must balance the demands of unrecognized strategic activities with the need for formally-recognized performance measures. Corporately-accepted signs of progress may not be strategic to accomplishing margin initiative goals and can actually distract from achieving real progress. However, margin leaders must use these indicators of success to push back the organizational entanglements which hamper success and buy the time needed for margin initiatives to mature.
While these efforts may temporarily delay preemptive initiative closure, managers in the margin must make rapid progress. They must find ways to accelerate development cycles to speed up the realization of results. This will rarely be pretty. Margin leaders might need to move forward with the trial of an effort not yet ready or proven, increasing risks while lowering valuable preparation time. They may need to pursue opportunities under sub-optimal conditions. Alternatively, they may need to pursue the wrong, but accepted opportunities at the cost strategic margin wins.
Top-down pressure exists throughout the life of a margin initiative. It is when those pressures start to consistently increase that margin leaders must consider methods of delaying negative corporate action while accelerating initiative progress. However, this should be taken as a sign that time is running out.
The longer this situation persists the less likely the margin initiative will be successful. The increasingly risky and non-optimized efforts reduce the chances of success while keeping corporate actions at bay consumes valuable resources. Over time, this feeds a downward spiral to disaster. Only three exits are possible:
- Corporate closure of the initiative,
- Abandonment of the initiative by the manager, or
- Initiative success through the achievement of corporately-recognized results.
Wednesday, September 1, 2010
Essential Skills: Action
Action drives success in the margin.
Many people will have opinions on the prospects and outcomes of a margin initiative. Critics will point out weaknesses in the approach and belittle accomplishments as if they could achieve more in your shoes. However, nothing speaks loader than action.
Get things done in the margin and your results will eventually quiet the critics. Action proves strategies. Action builds programs. Action creates value.
Many people will have opinions on the prospects and outcomes of a margin initiative. Critics will point out weaknesses in the approach and belittle accomplishments as if they could achieve more in your shoes. However, nothing speaks loader than action.
Get things done in the margin and your results will eventually quiet the critics. Action proves strategies. Action builds programs. Action creates value.
"People may doubt what you say, but they will believe what you do." - Lewis Cass(from Quote Garden: www.quotegarden.com)
"As I grow older I pay less attention to what men say. I just watch what they do." - Andrew Carnegie
"Action will remove the doubts that theory cannot solve." - Tehyi Hsieh
"Ironically, making a statement with words is the least effective method." - Grey Livingston
"Trust only movement. Life happens at the level of events, not of words." - Alfred Adler
Wednesday, August 25, 2010
Viewpoint: Healthy Identity
A healthy self-image is essential for survival in the margin.
David Sandler, founder of the Sandler Sales Institute and creator of the Sandler Selling System, wrote and taught extensively on success in the selling business. One of the keys to success as a salesperson he identified in his book You Can't Teach a Kid to Ride a Bike at a Seminar: The Sandler Sales Institute's 7-Step System for Successful Selling is to maintain a healthy self-image or self concept.
Salespeople must constantly face rejection. Successful salesmen and women separate what they do from who they are. They realize their intrinsic worth isn't dependent on their performance. As a result, they are able to face the numerous failures and rejections salespeople must face daily without loss of steam.
Margin managers also confront a challenging work environment. Like salespeople, these leaders must develop a healthy self-image or identity to thrive in the margin.
Mr. Sandler recommends that people monitor their self perception (how you feel about yourself) and plan activities that will protect and reinforce your self-image on a daily basis. He recommends keeping a daily journal or log that tracks your performance/role "score" and your identify/self-image "score" along with a to-do list that includes both work assignments and self-image builders. Proactively addressing your inner health ensures the emotional stability needed for superior performance in the margin.
David Sandler, founder of the Sandler Sales Institute and creator of the Sandler Selling System, wrote and taught extensively on success in the selling business. One of the keys to success as a salesperson he identified in his book You Can't Teach a Kid to Ride a Bike at a Seminar: The Sandler Sales Institute's 7-Step System for Successful Selling is to maintain a healthy self-image or self concept.
Salespeople must constantly face rejection. Successful salesmen and women separate what they do from who they are. They realize their intrinsic worth isn't dependent on their performance. As a result, they are able to face the numerous failures and rejections salespeople must face daily without loss of steam.
Margin managers also confront a challenging work environment. Like salespeople, these leaders must develop a healthy self-image or identity to thrive in the margin.
Mr. Sandler recommends that people monitor their self perception (how you feel about yourself) and plan activities that will protect and reinforce your self-image on a daily basis. He recommends keeping a daily journal or log that tracks your performance/role "score" and your identify/self-image "score" along with a to-do list that includes both work assignments and self-image builders. Proactively addressing your inner health ensures the emotional stability needed for superior performance in the margin.
Wednesday, August 18, 2010
Essential Skills: Endurance
Margin leaders must have the internal fortitude to endure for long hull.
Life is the margin is rough. Margin leaders face a constant pressure to perform. They must delivery results quickly against long odds. Few individuals can sustain operations in this environment.
Looking back on my career, I can remember certain individuals who were in the margin, but moved out and others who refused to enter in the first place. When times get hard, I think how comfortable it would be to move into a position within the bounds of normal business operations. Those are times when I need a reminder of why I'm here and the results that can come from just showing up every day.
Below are some quotes on the theme of endurance.
Life is the margin is rough. Margin leaders face a constant pressure to perform. They must delivery results quickly against long odds. Few individuals can sustain operations in this environment.
Looking back on my career, I can remember certain individuals who were in the margin, but moved out and others who refused to enter in the first place. When times get hard, I think how comfortable it would be to move into a position within the bounds of normal business operations. Those are times when I need a reminder of why I'm here and the results that can come from just showing up every day.
Below are some quotes on the theme of endurance.
"Perseverance is the hard work you do after you get tired of doing the hard work you already did." - Newt Gingrich(from Quote Garden: http://www.quotegarden.com/)
"The greatest oak was once a little nut who held its ground." - Author Unknown
"Fall seven times, stand up eight." - Japanese Proverb
"One may go a long way after one is tired." - French Proverb
"Our greatest glory is not in never failing, but in rising up every time we fail." - Ralph Waldo Emerson
"Difficult things take a long time, impossible things a little longer." - André A. Jackson
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