Collaboration and Measurement, the best enemies

We started this journey on collaboration in large enterprises discussing how organizational structures can stand in the way as far as collaboration is concerned. Today I would like to focus on a second aspect and this is measurement. To make it simple and to quote Dave Packard, a great west coast entrepreneur, “Tell me how you are measured and I will tell you how you behave”. And he is so right.

Indeed, people are willing to work together, naturally they have a helpful attitude. But in the end, the “what’s in it for me” question comes up. And frankly, if the measurement do not line up, bad luck. When times are good and the measures easy to achieve, there is not too much of an issue, but in the current environment, where the recession (officially ended though) is making achieving numbers difficult, it often is lonely out there.

I have seen companies giving sales people numbers by product lines, resulting in those numbers being achieved at the detriment of what is right for the customer. In particular, when the business units are strong, when they are the profit centers, developing an integrated approach to customers may be difficult. Top management should spend valuable time engineering a simple, but at the same time compelling measurement system to ensure they achieve the behaviors they want their company to portray. And it is that behavior that will foster collaboration.

Calculating bonuses on the success of the company (e.g. achieving objectives, profitability) may be seen as a way to foster this integrated approach, but it is important to think about how the individual contributor can influence the numbers he is measured on. If he is one of 300.000 employees to take a number, can he really influence the objective he is given? And so, will he act to improve this measure?

For sales people in particular, it is key to balance the measures that are part of the variable pay and the ones that provide bonuses. variable pay ones have the tendency to be the first ones to focus on, while the bonus ones are nice to have.

In a nutshell, developing a measurement framework fostering collaboration is feasible. However it requires a good dose of sound judgment and engineering at top management level, which ids often unfortunately forgotten.

Organizational structures often hinder collaboration

Large enterprises often have complex organizational structures based around business units and product lines. Customers on the other hand are looking at them as one organization and are astonished of the difficulty they have to collaborate amongst business units. The first of the 5 key elements I highlighted in my previous post is the organizational structure. The revenue generating entities are typically supported by shared service centers such as finance, human resources, marketing, IT and others. Each BU (business unit) has its own budget and is supposed to manage its own environment.

Many companies use an allocator key to spread the costs of the shared services over the business units. And here starts the debate. What key is used? For example, HR costs are often shared by headcount and this makes sense. But in my company, IT costs also got allocated by headcount, arguing that the more people were working in a department, the higher the IT costs. This worked well till some BU’s started to outsource production, using important IT resources to track operations with partners. They increased IT, but their headcount reduced, resulting in lower allocations. This obviously does not improve collaboration between the BU’s as some feel they end-up paying for others.

Shared services are required to ensure consistent operations across the organization at the lowest cost, but ensuring a fair mechanism is used to ventilate the costs of these services across the whole organization is critical to foster collaboration not just between a shared service and a BU, but also between BU’s. In our organization , we have moved away from allocations all together. We rather request BU’s to deliver a given “contribution margin”. The BU now has under its responsibility the management of the costs it controls, while corporate manages all shared services costs and funds those from the accumulated contribution margins. It eliminates the allocation debate, but replaces it with a debate about why one division’s contribution margin should be higher than another.

Another area of friction between BU’s is related to the place of the sales force. As pointed out earlier, customers expect sales teams to represent the whole company. So, should the sales force be a shared service, or should there be sales teams in each BU? Frankly, there is no right answer here. If a central sales force is used, debates about the cost of that sales force and the lack of representation of a particular BU in front of the customer, will be at the center of the debate. On the other hand, if each BU has its own sales force, the representation of the integrated portfolio of the company is lacking. If you are an IT company for example, despite the fact the customer wants his business problem to be resolved, it is difficult to explain the hardware BU the customer is not interested in blade servers for example. He will buy them if the sales person can demonstrate they resolve his problem. They are a consequence, not a selling argument. But frankly, this is heresy for hardware BU people.

There are many other examples where the organizational structure hinders collaboration. This is actually a never ending story and continuous adaption is required to address this. Strong leadership at the top will guide the organization through this. But we will come back to that element in a later post. Have you had experiences like the ones described hear? Share them, we can all learn from it.