2010 is going – the acid test


2010 has only a few more moments to live. I always told my hairdresser – by far the best economist this side of the world – that it would not survive such a harsh winter as we are going through these days. I am hardly ever wrong on such matters.

But the accuracy of my predictions is not today’s subject. The end of a year is usually assessment time, that special moment everyone ponders the outcome of the year. What went well and less well, what could have been done better, how did the year turn out. On a personal side, one may confront with the good resolutions that were adopted at the same time last year (did you really call your mother-in-law over for dinner every month as you promised?) On a professional side, one usually confronts one’s results against the objectives that were set earlier in the year. Just to see how one did and on which side of the bonus one stands.

Now, why it is only done at the end of the year escapes me entirely: it sounds as relevant as checking out whether there is still enough time to turn while the front bumper is about to passionately become one with the wall. Wishful thinking… Good management practice would have managers assess their team’s situation quite frequently, monthly for instance, in a brief manner (“Still on track, Y/N? How far, why, corrective action?” Job done). And whoever says there is not time to do so clearly state s/he should not be managing a team.

But there again, this is not the point. The point is the decision acid test. I once was taught about one I find more relevant than Kant’s principle of decision-making. It is rather simple: each manager making a decision should ask him/herself: is this decision I am making, creating or destroying value?

I am of course not talking about creating or destroying value for myself: doing so is exactly checking my decisions against the performance objectives that were assigned to me, in order to find ways to improve my incentive pay. And as the Agent/Principal Theory(*) reveals in all its beauty: following my performance objectives is not exactly the same thing as creating wealth for the organization. Remember: manager tells employee ‘customer visits are low. Go visit 100 customers’. Employee goes. Visits 100 customers. Manager is angry: ‘sales did not increase!’ Employee says ‘but I did visit them as you said’. Which may perfectly mean ‘I had coffee with them and we talked about the family’ rather than trying to sell anything…

Does this sound outrageously caricatured to you? How is this: one of the largest computer manufacturers (named after its founding figure/s) used to incentivize part of the sales force on the ordered amounts. At the end of the year, orders would explode. Only to be cancelled by January.  Decision was made to replace ordered amounts by invoiced ones as the KPI. Guess what? Exactly: invoices in December, bills of credit in January…

Following one’s performance objectives does not mean following the company’s performance objectives, only that assigned by one’s manager: subtle difference! Said manager is also subject to the agency theory as s/he reports to a higher management. That makes the cascade of ExCom objectives somewhat shaky as we go further down in the chain of command… Don’t we love KPIs! The day someone is given a KPI, s/he stops managing the business and starts managing the KPI.

This acid test calls for an assessment against the bigger picture only. Value creation / destruction covers the overall value impact the decision that is about to be made will have on the organization as a whole: including ripples beyond the scope of responsibility of the decision maker, considering the information and the tools available to him or her.

Run this test as a trial for 2010. And use it next year to on your own decisions and that of people around you to detect corporatchiks, be it just for fun and keeping the result to yourself – or not. And when I say “fun”, I mean it. It will be my way to offer you some in the year to come, along with many other fun subjects: is HR useless? How to create a culture? The importance of promises in an organization. In exchange, do not hesitate to share your best test results.

Happy new year!

(*) yes, I disagree with most of the ideas explained in this article. Yet opposing viewpoints are interesting.

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