Incentives Run Amok
In This Issue
Here are three stories which have one thing in common:
- Several customers have reported being "fired" from their Ford dealer after providing less-than-perfect ratings on a customer survey. One customer, when he contacted his dealer about buying another new vehicle after his original purchase was told to go away: "Since that survey actually cost myself and the dealership money from Ford, I will have to personally pass on your offer."
- Wells Fargo bankers created millions of fraudulent accounts in order to meet sales and cross-selling quotas. To date, the bank has paid $185 million in fines, and the former leaders of the company have personally had to return tens of millions of dollars in bonuses.
- Walmart stores across the country have absurdly obsolete technology products on their shelves, often priced at close to the original retail price from ten or more years ago. Walmart employees explained to the Consumerst blog that discounting obsolete items counts against their stores' financial targets, but unsold inventory does not, giving store managers no reason to try to get rid of outdated products.
All three of these stories involve incentive systems that have run amok, leading employees to do things that are harming the company. What's more, most employees at these companies probably understand that they're doing the wrong thing, but they feel like they have no choice but to go along with the broken system.
Meanwhile, senior leadership is either unaware of the problem or (as is alleged to have happened at Wells Fargo) actively punishes employees who try to raise the red flag. The end result is that the numbers look good even while the underlying situation in the company gets worse and worse.
How do companies get in this situation? I see three key factors:
- An over-reliance on a few specific metrics. Metrics and goals are important (you couldn't manage a large organization without them), but they are only a distorted reflection of the underlying state of the business. It's a mistake to believe that metrics, by themselves, tell the whole story. Leadership needs to stay connected to what's going on in the front lines of the organization.
- Overly rigid goals. Bright-line targets are easy to administer and seem fair on the surface, but the real world tends to be a more complicated place. It's better to focus on an employees overall pattern of behavior, even if it's harder to quantify, than on whether some particular metric meets an arbitrary threshold.
- Punishing failure rather than rewarding success. There's no metric that can't be gamed, and punishing employees for failing to meet their targets forces them to choose between cheating the system or accepting the punishment. Because most people react much more strongly to punishment than an equivalent reward (think about the difference between getting a $100 bonus vs. having your pay docked $100), punishing failure can encourage employees to do whatever it takes--even if they know it's wrong--to avoid being punished.
There's a strain of business culture that says an executive's job should be to set rigid goals and deal mercilessly with those who fall short. My view, however, is that true leadership means understanding what's really going on deep inside the company and ensuring that everyone is pulling in the right direction. Goals and metrics are just one tool for this, and an imperfect one at that. And when used improperly, they can lead to some very bad results.
To create a good customer experience you need to be able to put yourself in the customer's shoes.
But you also need to be grounded in what actual customers expect and experience.
When You Assume...
When you put your "customer hat" on, are you trying to come to a genuine understanding of specific customer issues and feedback, or are you imagining what a customer might think based on your own assumptions?
As the old saying goes, when you "assume" you make an "ass of U and me."
It's tempting to try to think about the customer's perspective, but customers have a very different experience than employees. Crossing the chasm between an insider's perspective and a customer's perspective is almost impossible without customer feedback. For example:
- Employees understand how the company works, and customers don't.
- Employees understand industry jargon, and customers don't.
- Employees know why certain policies exist, and customers don't.
- Employees have experience navigating their company's bureaucracy, and customers don't.
These differences in perspective can create blind spots when you try to understand the customer's viewpoint.
Understanding the Customer's Experience
To really put yourself in the customer's shoes, you should:
- Begin with customer feedback, not you or your team's ideas of what customers are thinking.
- Take the view that each customer's perspective is reasonable, and trust what they're telling you.
- Expect that different customers have different experiences. When customers have conflicting opinions, both are equally valid.
- Work to understand why some customers might feel differently about your customer experience than you do.
- Understand what parts of your customer experience may be painful to customers even though they make sense to people inside your organization.
This puts the voice of the customer front and center where it belongs. Too often, companies will take the opposite approach: beginning with their own preconceived ideas, they imagine what they think customers want and then collect customer feedback to validate their opinions.
And while customers and employees may agree about many customer experience problems--things that are painful to customers are often also painful to employees--the insider perspective is usually incomplete.
So when you put that customer hat on, make sure you're not putting it on backwards.