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Productivity Services

Almost everyone agrees that measures and rewards have a profound impact on team behavior. While we can readily agree on this point, very few of us are able to figure out how to align the measures with the behaviors we are trying to encourage. Here is a tale of a team that changed its measures to break through of a well entrenched corporate paradigm to a dramatically high level of performance.

In 1993, Productivity Services was a team of about 40 Industrial Engineers led by 4 managers who reported to a Senior Manager. The PS team provided reengineering consulting services to EDS external and internal customers. Each manager had their own Profit and Loss Statement. Each manager was responsible for selling and overseeing the work of their own team of 10 or so consultants. The senior manager also pursued leads, made presentations, and sold new business. The work was performed in the field, by sub-teams of 1 to 5 consultants. So at any given time each manager had two to five teams in action. As a team was wrapping up one engagement, its manager would be busy trying to find them a new engagement. The normal state was that some engineers would be working and billing clients and some would be on the bench waiting for work. Overall, the group averaged about 60 percent billing of available time. This looked about right as 60 percent utilization is a customary consulting industry average. Clients were charged a per day fee that was approximately twice the average engineer's salary. Productivity Services' overall objective was to break even on the overall P&L. Individual managers were asked to try to achieve the same result for their individual P&L.

From time to time, a manager would sell work for more people than were available on his team. When this occurred the practice was to visit the other managers, determine which people were on the bench, and ask to borrow one or more people. When a manager borrowed a consultant from another manager, it was customary to transfer the salary and fringe benefit cost of that person to the borrowing manager's P&L for the duration of the engagement. This allowed the giving manager to cover the cost of the lent person, but it also meant that when the lending manager sold something new they would not have their own person available and would have to start the borrowing process with the other managers. As time went by, one manager discovered that she could maximize her P&L numbers (Revenue versus Expense) by keeping a very small staff, and borrowing other managers people when she sold work. This strategy really worked great for her because this meant that she wouldn't have to pay the cost of keeping a supply of people on the bench. That cost was covered by her fellow managers. After a while, her fellow managers caught on to the strategy and started refusing to provide available people for new business that she had sold. So she appealed to the senior manager to intervene. From his point of view the reluctance of the other managers to provide people looked like insanity. Overall, every person that could be gainfully charged out to clients should be. So the senior manager went after the other managers to understand their reluctance to provide resources.

Each of the other three managers made their case. Two said they were on the verge of selling something big. "If that's so," said the senior manager, "then you might want to hire some more people." Adding, " You know a bird in the hand is worth two in the bush." Still the managers balked. One introduced the idea that the borrowing manger was difficult to work for and that none of his people wanted to work on one of her engagements. Finally, one hinted that problem was that the borrowing manager was manipulating the system to maximize her performance. So the senior manager called her in and confronted her with the allegation. "Yea, that true," she admitted. Stunned, the senior manager asked her why. She explained that she was just trying to maximize her P&L. The senior manager still didn't get it. "But I never told you that I was measuring your performance on the basis of how profitable you were on your P&L," he said. "Yea, but its the only measure of performance I've got," she replied.

The senior managers called all four managers together and laid out the problem. Together they hit on the idea of dividing profit between two P&L s when one borrowed resources from another. In other words, If you borrow a person from another manager, you get to keep half the profit while the lending manager gets half the profit as well as gets cost coverage for the lent person.

What was the result of this change? At the beginning of the month in which the change was implemented, the overall utilization of the group was 58 percent. By the end of the month it was over 90 percent, and remained over 90 percent for the next two years...until the group was dissolved into the new corporate consulting organization.

Looking back it is obvious that the old system was a win/lose system. You won if you had all your people employed on work you sold yourself. You won bigger if you had all your people employed on work you sold and you were able to borrow someone else's as well. But you lost every time you loaned a consultant to another manager. You broke even on getting the cost of the individual covered, but you lost the opportunity to make a profit on that person. The new system was a win/win system, since you won biggest when you employed your people on work that you sold and you won smaller, but you still won, if you could get any non-utilized people working on someone else's engagement.

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