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
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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