After emerging from bankruptcy during the 1990s, an airline focused efforts on reducing costs. To motivate employees toward the goal, the company offered rewards to pilots who effectively reduced fuel costs. The plan worked. Pilots did reduce fuel costs…by adjusting air conditioning and reducing flight speed. The changes resulted in late and uncomfortable flights, so customers switched to other airlines.
Desired Business Outcome: Reduced total costs.
Selected Metric: Fuel costs (presumably to be reduced by a specified percentage).
Action: Reward pilots who minimize fuel costs on their flights.
Oversight: Fuel cost is tied to aspects of the business that affect customer perceptions.
The airline offers a real example of one of the dangers of linking employee compensation to company goals. The approach will likely be effective, but could result in a case of, “be careful what you wish for…”
At the opposite end of the spectrum is an automobile manufacturer that failed to gain employee buy-in on the company goal. Executives observed low productivity (38.98 hours to assemble a vehicle) and a high error rate (179 problems per 100 vehicles produced). They communicated the improvement goals, showing that they were vital to success. But employees did not strive for the goals because they feared that improved productivity would result in job loss.
Desired Business Outcome: Improved performance.
Selected Metrics: Assembly time, Problems per vehicle.
Action: Communicate the importance of the goals throughout the company.
Oversight: Employees saw no benefit (and in fact suspected job loss) associated with achievement of the goal.
This company learned from the experience and went on to develop a more successful system. They dispelled the fears about job security and introduced incentive to work harder. Employees who achieved their productivity goals would be redeployed to more intellectually challenging activities within the organization. The result was a reduction in error rate (from 179 to 134 problems per 100 vehicles) and quicker assembly (from 38.98 to 24.44 hours per vehicle).
Incentives are often necessary to motivate employees to strive for the goals that will benefit the company. Reward systems must be implemented carefully, though. If they are not thoroughly researched and closely monitored, the incentives can result in success at high cost, or even in unethical behavior. If they are not enticing enough, the investment in the research and development of the goals may yield little to no return.
A well-developed goal-based management system sets realistic targets and gives employees a reason to help the company succeed. With that strong foundation, the next issue to face is the happy dilemma of what to do after you have achieved your goal!
Director, Marketing Sciences
Sisk, Michael (2003). Are the Wrong Metrics Driving Your Strategy?. Harvard Management Update, November 2003.
Ordonez, Lisa D.; Maurice E. Schweitzer; Adam D. Galinsky; and Max H. Bazerman (2009). "Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Settings" Harvard Business School Working Paper