Small Business Blog from Atlantic Canada

I am "CA" Atreya (PMP, MBA), the author of this blog. I help businesses in Atlantic Canada achieve their BHAG successfully. You may subscribe to this blog using a feed reader (RSS).

Note: For the first article in this series please go to Issues in Strategy Implementation.

Just to recap, so far we discussed leadership, building teams with competencies and capabilities, organizational structure, resource allocation and internal policies & procedures in the implementation of strategy. It is important for both organization departments and employees to be enthusiastic about the strategy implementation. You will never be able to successfully implement any strategy without the cooperation of your employees. To get employees’ undivided commitment to the strategy, you have to be resourceful in designing both monetary and non-monetary motivational incentives. Understanding what motivates each employee can help you design such systems that will earn you their commitment. Ask yourself this question: “What behavior does the current reward system in your organization encourage?” One of the biggest challenges to strategy implementation is to employ motivational techniques that build employee commitment.

The role of a reward system is to align employee commitment to the organizational strategy. Does your organization’s reward system do that? Successful strategy implementers inspire and challenge employees to do their best. They get their employees buy-in and structure individual efforts into teams. It is no secret that team-work is essential for organizational success. One another advantage is that when an organization resorts to teams, they substitute peer-based control for hierarchical control. Isn’t that great? Unfortunately, many small businesses still have the hierarchical reporting system of work. Peer control is so powerful that organizations using this control methodology find they can reduce costs by removing some layers of management hierarchy. But I digress here.

The most dependable way to keep employees focused on organizational objectives and their performance targets is to generously reward and recognize individuals and teams who have achieved their targets. A properly designed rewards structure is your most powerful tool for mobilizing organizational commitment for strategy execution. Your company’s incentive system is the vehicle by which your strategy is emotionally ratified in the form of your employee commitment. Strategy driven performance objectives must be established for every employee, manager, team and even for you – the CEO. If your organization’s strategy is going to be low-cost provider, you must reward performances that helps reduce costs. If you are a niche player, you must reward low customer complaints, speedy order delivery.

I would recommend an academic classic - “On the folly of Rewarding A, while hoping for B” by Steven Kerr (Academy of Management Executive (now called Academy of Management Perspectives) 9, no. 1 February 1995 – p. 11). There is an example of the reward practices of a health-care insurance company. The management wanted employees to be accurate when paying out claims. Hence, they tracked the number of returned cheques and complaints filed. Employees found it hard to differentiate between the two type of surgical claims (it involved different payouts). Since clarifications took more than the organization standard of two days, the norm became “When it doubt, pay it out”. As you can imagine, the insurance company was loosing money through overpayment.

Now consider their reward system: merit increases of 5% for outstanding employees, 4% for above average and 3% for all others. How motivated would you think employees were with a 1% differences between the merit levels? Here is the icing on the cake: the company rules stated that employees forfeited their entire merit raise at the next six month review if they were absent or late for work three or more times in any six-month period. Do you see a problem here? The rule said “times” and not “days”. The company while hoping for performance was rewarding attendance. If you are considering evaluating your reward system, this article is definitely worth a read.

Another pothole to watch out for is to reward results and not performing assigned functions. In any job performing assigned tasks is not the same as achieving outstanding results. Once the reward system has been designed, it is important you communicate it to all employees and make sure they understand. Pressure for performance must be accompanied with meaningful rewards. The payoffs have to be high. If it is only marginal, then there is not enough motivation and the system breaks down.

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