Goals That Match

This post at Startup Models is on point, especially the ideas of A. Paying commissions when the cash arrives, not when the deal is signed and B. Making sure the sales goals are in line with what is good for the company.

A story from a Supply Chain friend that is an example of B gone bad:

My friend gets hired by a fabric company to figure out what is wrong at a plant that takes in white cotton fabric at one end and ships out printed fabric from the other. The problem is that truckloads of fabric are rotting and molding in the Southern heat before the fabric can be brought into the plant for printing. Millions are being wasted annually.

But the printing plant is running 24/7. Supply Chain friend sees nothing wrong with the printing plant- it’s at full capacity, using good workflows. The problem isn’t there.

So my friend visits the plant up the road that makes the fabric which then rots in the parking lot of the printing plant. It, too is running 24/7, cranking out fabric as fast as it can. Fabric Weaving Manager is surprised that Printing Manager is having problems getting everything printed.

The problem? Fabric Weaving Manager was only evaluated on how much fabric went out his door. What happened to it down the line was none of his concern. He was being paid a giant bonus for weaving more fabric than the rest of the supply chain could manage. Waste of raw cotton, waste of fabric, waste of cash. The company thought it had the right incentives in place (High Output = Big Bonus), but the incentives had too narrow of a scope- the one plant. If Weaving Manager was paid based on output AND the profitability of the printing plant down the line, he would have incentive to weave the amount of fabric the printing plant could handle, rather than weave 24/7.

One well-intentioned goal resulted in expensive losses. Incentives need to have multiple factors to avoid unintended results.

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