The Bad Decisions We Encourage

It starts at an early age.  Teachers and parents tell us that to be successful and smart we have to get good grades.  Their intentions are good.  They assume that if you get a good grade in a class, that you studied hard and learned the material. But some students figure out that you don’t have to study.  You can copy from your neighbor, steal the test scores or find some other creative way to get the grade if that’s all you want.

Some kids are given an allowance if they keep their room clean.  If the parent doesn’t check the closet, under the bed or the hamper full of clean clothes, the allowance is easily earned.

Throughout life, we’re given incentives that are intended to encourage a certain behavior.  Make your numbers and get rewarded.

Bad decisions for clients

I’ve worked for consulting firms that had incentives for client-serving consultants at all levels based on a combination of sales and utilization.  The lower on the rung you stood, the more weighted it was toward utilization – billable hours to the client.  As you moved up the ladder in your consulting career, sales nudged utilization hours in importance.

The intent was that early in his consulting career, a good consultant would provide service so superior, that he will be in demand, thus increasing his utilization.  The longer he’s in the business, the more networking he will do and soon, he will be influencing sales.

Bad decisions for selling

And as he embeds himself more in the sales function, he’ll begin moving up the ladder and less time will be required for billable hours – as long as he’s selling.

I wonder how many consultants with those incentives pad their time sheets to increase their utilization. As sales becomes the larger focus, the incentive is to warm up to the executives within their firm who dole out the credit for sales when a project is won.  Consultant Bill is a good friend of mine and we want to keep him on board, so he’ll get 10% credit for that sale, even if he didn’t play that big of a role.

In some consulting firms, there are sales people that do no delivery.  They are 100% dedicated to sales – ‘business development’ as it is affectionately known as.

Most of these business development professionals are given incentives to increase revenue.  If you sell something, you get credit.  If you spent thirty hours last week developing relationships but didn’t sell anything, nothing got accomplished.

See my related post: The Need for Control

These types of incentives encourage bad decisions. Anyone trying to sell services will  just go out and sell.  It doesn’t matter whether we know how to execute it.  Just sell it and we’ll get some training or Google it.  Maybe we’ll hire an expert on it to help us out until we come up to speed.  Hell, if we do well on this, maybe it’s an opportunity to create a new practice within the firm.

This is a thorny route to becoming a trusted advisor to your clients.  The firm is essentially using the client and billing them for the time it takes them to come up to speed.  The firm will then use that knowledge to bill other clients.

The commonly held belief is that performance evaluations should be based on as much objective criteria as possible, minimizing subjective appraisals. Because of this, we tend to focus on the numbers of sales revenues, billable hours, and anything else we can count.

Turning bad decisions into good decisions

What if we skewed it the other way?  What if we said, you will be evaluated on how well you communicate?  A project will not be measured based on whether it was completed on time and under budget, but by how well it addressed the business needs.

Business development reps will not be measured on how much revenue they generate.  Instead, they will be measured on the quality of the relationships they develop.  And when they do sell a project that generates revenue, the evaluation will be based on how well it falls into our core capabilities.  If you sell what we do best, you get credit.  If you sell services that we don’t have experience in, you may eventually get the boot, regardless of the revenue involved.

You may say that that’s a system waiting to be gamed.  Can it be gamed any more than the numbers game?

Hire better decision makers

The way to avoid employees from gaming any incentive system is to focus on hiring employees who will do the right thing in the first place.  Hiring individuals that are focused on the strategy of the company – doing the right thing and delighting customers – will eliminate gamers.

Then you won’t have to worry about the measurements. Simply verify with that employee’s direct reports, peers, superiors and clients.  Did he do the right things? Great.

If you would like to learn more about working in consulting, get Lew’s book Consulting 101: 101 Tips for Success in Consulting at Amazon.com

As always, I welcome your comments and criticisms.