From fixed to relative performance contracts and towards simple, ethical and empowering ways of dealing with value creation

Sydney, 15.10.2015 Cubewise Performance Management Leadership Forum

@NielsPflaeging

Performance Culture

Formal part of value creation Solution: Machine

Dynamic part of value creation Solution: Man

high dynamics

Local markets, high customization

Sluggish/dull, low dynamics

high dynamics

Spacious markets, little competition

Local markets, high customization

Sluggish/dull, low dynamics

high dynamics

high dynamics

Spacious markets, little competition

“Outperformers” exercise market pressure over conventional companies

Local markets, high customization

Formal part of value creation Solution: Machine

Dynamic part of value creation Solution: Man

Sluggish/dull, low dynamics

high dynamics

high dynamics

Age of Crafts Manu- facturing

Industrial Age/ Age of

Tayloristic Industry

Age of Global Markets

1850/1900

Spacious markets, little competition

“Outperformers” exercise market pressure over conventional companies

Local markets, high customization

1970/80 today

Periphery

Market

Center

1 Impulse 4 Command

3 Decision

2 Information

5 Reaction

Center

Market

Periphery

Client

Is in charge!

1 Impulse 2 Decision

3 Reaction

Center

Market

Periphery

Client

Serves the periphery, if needed

Is in charge!

•! Fixed,!individual!targets!•! Management!by!Objectives!•! Budgets!and!Plans!•! Performance!Appraisal!•! Hierarchical!Pressure!•! Pay!by!Position!or!Performance!•! Incentives!and!Bonuses!•!…!

Low!dynamics!

•! Fixed,!individual!targets!•! Management!by!Objectives!•! Budgets!and!Plans!•! Performance!Appraisal!•! Hierarchical!Pressure!•! Pay!by!Position!or!Performance!•! Incentives!and!Bonuses!•!…!

•! Transparency!&!Improvement!•! Comparisons!between!peers!•! Comparisons!with!previous!periods!•! Dialog!and!Dissent!•! Social!and!group!pressure!•! Pay!by!market!value!•! Results!Sharing!•!…!

Low!dynamics!

High!dynamics!

Theory!X! Theory!Y!

People!need!to!work!and!want!to!take!an!interest!in!it.!Under!right!conditions,!they!enjoy!it!

People!dislike!work,!!find!it!boring,!and!will!avoid!it!if!they!can!!

Attitude!

Direction!

Responsibility!

Creativity!

Motivation!

Peoplein

work,can

People!will!direct!themselves!towards!a!target!that!they!accept!!

People!will!seek!and!accept!responsibility,!under!the!right!conditions!!

Under!the!right!conditions,!people!are!motivated!by!the!desire!to!realize!their!own!potential!

Creativity!and!ingenuity!are!widely!distributed!and!grossly!underused!

People!must!be!forced!or!bribed!!to!make!the!right!effort!!

!

People!would!rather!be!directed!than!accept!responsibility,!"which!they!avoid#!

People!are!motivated!mainly!by!money!!and!fears!about!their!job!security!!

Most!people!have!little!creativity!-!except!when!it!comes!to!getting!round!rules!

Behaviors!

Context!Human!!Nature!

”Meritocracy“ Budgeting Planning

Control of work hours Job Descriptions

Competencies Management

Incentives Individual targets

Performance Appraisal/360°

Salary Ranges

Training budgets Personnel Development

Org charts

Target negotiation

Holiday applications

”Personnel Expenses“

Suggestion boxes

Assessment Centers

Knowledge Management

Pay for Performance

Paid extra hours

Bonuses

Sales Quotas

Dress codes

Job titles

HR

Allocations

Cost Management

Plan-Actuals variances

Forecasting

MbO

Development Centers

Bosses hire

Strategic Planning

Travel policies Jours fixes

Earnings Guidance Matrix Structures

Key Accounting, Business Areas

Business Partners

SWOT Analysis …

Fixed,!negotiated!targets!

Most!important!competitor!"28%#!!!

Market!"25%#!!!Plan!

"15%#!!

Actual!"21%#!!

Target:!absolute!ROCE!in!%!"here:!15%#!

!expected market Ø: 13%"

Plan!

Comparison:!Plan-Actual!

Actual!

Relative,!self-adjusting!targets!Target:!relative!ROCE!in!%!"to!market#!

Most!important!competitor!"28%#!!!

Market!"25%#!!!

Target:!ROCE!!in!%!better!!

than!market!avrg.!Actual!"21%#!!

!independent from expected

market Ø"

Target! Actual!Comparison:!Market-Actual!

targets

Accounts/KPIs!vs!prev.!periods!

last!mnth!!!!!!

Same!mnth!last!year!!!!!!

Same!mnth!prev..!year!!!!!!

Ø!!last!12!!mnths!!!!!!

Ø!!12!!prev.!mnths!!!!!!

!Indicators!or!Groups!of!accounts!

Rankings!"“league!tables”#!

Company! !KPI!

Competitor!A !31%!Competitor!E !24%!Competitor!C !20%!Us ! !18%!Competitor!B !13%!Competitor!D !12%!Competitor!G !10%!Competitor!F !!!8%!

Regions!!KPI!

Region!G!!7%!Region!E!!7%!Region!B!!6%!Region!F!!4%!Region!A!!3%!Region!D!!3%!Region!C!!1%!Region!H!!0%!

Snapshot!"static#!w/benchmarks!

KPI!2!

Us!Our!unit!B!

Our!!unit!A!

Compe-!titor!B!

Compe-!titor!A!

KPI!1!

Trend!with!references!"A#!Maximum!

Curve!with!variance!

KPI!"B#!Gliding!average!

Time!"Actuals#!

Trend!with!benchmark!

Us!

Competitor!A!

Time!"Actuals#!

KPI!

Trend!with!tolerance!

Tolerance!levels!

Time!"Actuals#!

KPI!

Us!

out!of!bounds!

Data Information ? ?

Industry!

Retail!

Services!

Government/!NGOs!

It!is!possible.!

!Law ! !Beta! !Alpha!!§§1!!Freedom!to!act !Connectedness !not!Dependency!§2! !Responsibility !Cells !not!Departments!§3! !Governance !Leadership !not!Management!§4! !Performance!climate !Result!culture !not!Duty!fulfillment!§5! !Success !Fit !not!Maximization!§6! !Transparency !Intelligence!flow !not!Power!accumulation!§7! !Orientation !Relative!Targets !not!Top-down!prescription !!§8 !Recognition !Sharing !not!Incentives!§9! !Mental!presence !Preparedness !not!Planning!§10!!Decision-making !Consequence !not!Bureaucracy!§11!!Resource!usage !Purpose-driven !not!Status-oriented!§12!!Coordination !Market!dynamics !not!Commands !!!

From!fixed!to!relative!performance!contracts!!and!towards!simple,!ethical!and!empowering!ways!!of!dealing!with!value!creation!

@NielsPflaeging!nielspflaeging.com!

organizeforcomplexity.com!betacodex.org!

slideshare.net/npflaeging!