On Incentives Going the Wrong Way

Every so often in a meeting, you find out information that makes you shake your head in wonder.  I had one such meeting this morning.

Our customers have been requested to provide a price for some work to a large Australian, publicly listed company.  Great.

The issue is that the price they put in was some 55% over the price the company had received from another business.

OK, but, when you receive two prices that are aboutShort term bonusthe same from different providers and another price that is significantly lower than them (over $500,000 less), you would more than likely pause to consider whether the significantly lower price was, well, realistic.  Or whether the price was submitted to get the job in the hope that other work will crop up once the contractor is entrenched on site..

The trouble is, the managers of this publicly listed company are incentivised to under-spend their capital budgets each year – the more money they save against their budget, the bigger bonus they get.

As our customer said this morning – “they will end up with a pile of crap that won’t do the job but the manager doesn’t care as he got his bonus”.

The incentive program any business uses needs to align itself to the needs of the business and the staff but also, fundamentally, to the long term goals and strategies of the business.  Where there is no alignment, you run in to significant problems on a number of fronts.

Firstly, you want the incentive to encourage the type of behaviour you want to see.  If short term profit is the focus on the business, build your incentives around that.  However, the focus on short term profit is, to my way of thinking, myopic.  Getting a longer term strategy is far better for everyone concerned.  There are some notable people who like longer term strategies.  People like Warren Buffett.

Secondly, the incentive needs to match the motivators of the person being incentivised.  Using cash bonuses is fantastic however, the bonus can take other forms which might not cost as much but which may be far more highly valued than cash.  By aligning the bonus to what actually matters to your people you are also showing that you care for them as people rather than using a blunt force (cash) for everyone.  For example, a cash bonus is terrific but if you were to pay for a family holiday for your staff member, or give them some extra time off as a bonus (especially when they have a young family), this can have far higher value to them than anything else.

Finally, think about how you might face your shareholders/financiers where you had to explain how your business was so focused on short term thinking and behaviour that the investment decision made in plant and equipment spend was solely based on price and not quality or longevity.

They might, on hearing this information (however it is packaged) cause to question your thinking and ability to act as a custodian for their interests.  I seem to recall a similar approach was adopted by some banking institutions during the 2000’s.  That really didn’t end well.

The current business environment is very challenging for a lot of businesses.  There is a lot of competitive pressure due to a lack of consistent activity – especially in commercial construction.  This causes many businesses to try and “buy” work – price it with little or no (or, occasionally, negative) margin.  All they succeed in doing is making their exit from the market more rapid and they tend to deliver incomplete jobs as they go broke before the job is finished.

If your incentive program gives your team tacit or explicit approval to seek lower and lower prices – at any price, the quality of what you purchase will decline and will end up costing you more.

rich enough
A friend put it beautifully many years ago “I am not rich enough to buy second best”.  When you are designing and implementing your incentive program, make sure it delivers what you really want – not a facsimile of what you think you might like.


On Age and Learning (and Adapting)

Are you developing as you get older or are you stuck in a rut that is “comfortably uncomfortable”?

Over the years, I have seen many people who age gracefully but, at some point, don’t really seem to continue learning to stretch themselves and they merely repeat the efforts of the previous year (decade?)  As I ask my guys in here – do you want 20 years’ of experience or one year’s experience repeated 20 times?

Learning is a constant and, as technology develops and continues to develop (Moore’s Law), the perspective from which you assess your business and the direction of your learning needs to change.


I was discussing this with one of our customers the other week – he works in the trades and is an incredibly competent and highly experienced tradesman.  He does however have a fear of technology and this is starting to hold him back in his progress through his employer.  As we were discussing the issues around the use of IT by his employer, we analysed what would happen to him in the not-too-distant future if he continues to try and deny the changes that IT is imposing on his industry.  His employer is now requiring all quotes, jobs, variations and billing to be prepared on cloud-based software.  This is placing this very senior and experienced tradesman (and exceptional man manager) at a distinct disadvantage and, in discussions with his employer, is holding him back from moving further through the business.  As we continued our chat, he recognised that unless he makes the effort to embrace the changes being imposed, he will go the way of the dinosaur – incredibly well adapted to their environment – until their environment changed.


I am also seeing this in the accounting industry and have made numerous observations about this over the years.  In discussions with an advisor to the accounting industry last week, they indicated that a lot of firms are covering their ears, closing their eyes and shouting “la la la” as loudly as they can hoping against hope that the changes won’t impact them.  The advisor indicated that, based on their observations, the vast majority of firms are adopting this approach.  This form of denial is not exactly sensible or sane.  Just because the majority of the industry is not making the move  to ensure their future doesn’t mean you shouldn’t.

Commoditisation of the accounting space is happening and happening quickly.  The Economist published an article in January 2014 about this and the fact that (according to the authors) there is a distinct likelihood (94%) that accounting services will be replaced by automation by the early 2030’s.  This creates a conundrum for the owners of accounting firms – what business are they actually in?

My Verasage colleague, Ron Baker, in his seminal book “Implementing Value Pricing – A Radical Business Model for Professional Firms” (Wiley, 2011) provided a summary from Maister, Green and Galfords’s book “The Trusted Advisor” of the things that customers of accounting firms want from their advisors:

  1. Make an impact on our business, don’t just be visible;
  2. Do more things “on spec” (ie: invest your time on preliminary work in new areas);
  3. Spend more time helping us think, and helping us develop strategies;
  4. Lead out thinking.  Tell us what our business is going to look like after five or ten years from now;
  5. Jump on any new pieces of information we have, so you can stay up to date on what’s going on in our business.  Use our data to give us an extra level of analysis.  Ask for it; don’t wait for us to give it to you;
  6. Schedule some offsite meetings together.  Join us for brainstorming sessions about our business;
  7. Make an effort to understand how our business works: sit in on our meetings;
  8. Help us to see how we compare to others, both within and outside our industry;
  9. Tell me why our competitors are doing what they’re doing;
  10. Discuss with us other things we should be doing; we welcome any and all ideas!

Note how very little in this list could be expanded to include “preparation of financial statements and Income tax documentation”.

For those firms that are in “compliance lock” and not doing for themselves what their customers are wanting, how in God’s name are they going to be able to do what they are avoiding  for their customers?  They will be like my tradesman customer – really good at stuff that no longer resonates.  This is a death sentence.

So, as we age, and as the world progresses around us, we need to keep learning – to be alive to what is going on in our industry and outside it.  We need to “read the tea leaves”  to understand the impact that change is going to visit upon us.  We need to adapt.

In a rut

Because, if we aren’t doing this, we surely will go the way of the Dodo (or dinosaur).  At the end of the day, it is a matter of choice.  Get out of the rut.


On Getting Change to Stick

The most difficult thing to achieve is change.  This is due to many things and I had cause to experience the impacts of it over the past couple of months.

My gorgeous wife uses a website to enter information associated with her work and, over the Christmas break, they changed the format and structure of the site to “make it better”.

Unfortunately, the government department (now THERE’s a surprise!) had not let anyone know about the changes or what it would mean to them let alone how it would impact on their work.  Must have seemed like a terribly good idea to someone at the time.

We’ve been dealing with change in our business too – new technology, systems and processes are being introduced (and will continue to be introduced) to enable us to be more effective in what and how we do what we do.

This change can be embraced or it can be pushed back against or, worse still, you get the “passive aggressive” response.

I love the line by Tancredi Falconeri from “The Leopard”:

If we want things to stay as they are, things will have to change.

To embrace change, we need to ensure that the processes and planning around the change is well communicated to all concerned.  I can’t remember who stated the line, but I love it:

People don’t resent change – they resent being changed

For change to stick, we need to bring everyone who will be impacted on board early to enable them to contribute to the planning and rationale behind the changes being proposed.  Yep, this is time consuming, but it will help maximise your chances of successful implementation.

Depending on the particular personality/approach of your people, they will eagerly embrace the change, put up with it or actively (or passively) rebel against it.  This is where you need to understand their approaches and preferred styles when dealing with stuff.

It’s your responsibility as a leader to be effective in communicating the issues to your people and listening to them (not just hearing them!)

For change to stick, communicate, communicate, communicate.

On Leadership and Development

It’s about your people.  That’s it.

What is your real responsibility as a leader in an organisation (work, charity, school, family)?  Is it to be the dictator who controls and directs everything and to whom everyone “submits”?  Or is it to develop and grow the people in the group?

The other week, I came across a great meme from Entrepreneur which, to my way of thinking, summarises it perfectly:

LeaderFar too many so-called leaders that I have seen over the journey have not realised (or not made it obvious by their behaviour that they knew) the most important role they have in leadership is development of the people with whom they work.

Imagine if you will the dictatorial leader at work going home and practicing the same approach on his family (especially kids) that they did at work.  Do you think they would create decent members of society who would be supportive and contributors?  Unlikely.

Why then do numerous leaders adopt an approach at work that is different to the one they do at home with their kids?  Why don’t they approach the workplace in the same way they help their family grow, develop and mature?

It may well be that, when placed into positions of power (as opposed to influence), there is an “expectation” that they need to behave in a particular way.  I’m not sure where this comes from – is it from movies (The Wolf of Wall Street) or TV shows?  Does it come from impressions they have obtained as they have grown up and developed over the years from the likes of teachers, coaches and the like?  Or is it just because they haven’t really developed a concept of what makes a good leader?

The quote above, to my mind, summarises  leadership perfectly.  A great leader is one who can see the potential in people – often when they cannot see it themselves – and work with, encourage, challenge and engage them to push beyond their self-imposed limits to be all that they can be.

There have been some wonderful examples of leaders whom I have met and had the great fortune to work with over the years.  I’ve had some shockers too!  I am also very fortunate to work with a group of people in here and within our client base who exhibit wonderful leadership skills – a focus on seeing the potential in the people with whom they work and then working with them to develop and refine what they can see.  Seeing someone who develops far beyond their initial expectations is truly one of the most rewarding things you can do.

So, what sort of legacy do you want to leave behind as a leader?  Is it one that is autocratic and dictatorial – driven and was quite happy to stand on the throats of people on their way up as they had no intention of coming down?  Or is it a leader who people try to emulate, to model themselves on and who truly makes a difference in the lives of the people they have worked with?


Adoption of new Technology

What’s been your experience in your business with adoption of new technology?  Has it been an easy process or are your staff fighting you all the way?  Do you feel like you’re constantly fighting battles and no-one really seems to give a stuff?

First involvement with new technology is the most vital first step.  It needs to be a good experience to allow you and your staff to embrace the new technology.  If it’s a bad experience, nine times out of ten your staff will reject the product and will never approach its use with a positive attitude which in turns leads to non-adoption.  This is obviously exceedingly dangerous for you and your business.

Unfortunately the IT staff deploying new technology are often too busy and IT focussed to pay attention to the users’ first experience – they are usually flat out making sure they follow all the steps to make the product work and the user can double click an icon and have access to their fantastic new product – whether they understand the new product is (or seems to be) irrelevant.  Once the system is installed, they feel their job is done, pat themselves on the back and walk away happy.

The focus in any IT system implementation needs to be on the customer experience and customer relationship.  Too often, we see businesses that use IT consultants who are more interested in selling and installing a product than identifying and implementing a solution that meets the customer needs.

What is this saying to the first time user who is new to the product and may feel overwhelmed by the new “solution” and its functionality?  We hear the following from staff when they have had a new system inflicted on them:

  • They don’t understand how important my job is, and that I don’t have time to learn all this for myself;
  • Do they really understand or care what our needs are or is it just a sale?
  • They don’t care, as long as the product is installed, they can walk away and I am left to flounder;
  • Do they even know how to use it themselves? Are we their test case?
  • What have I paid all this money for if I now don’t know how to use it properly?

New technology is useless if it doesn’t get used.  Users usually don’t get to see what benefits and efficiency’s the product can provide if used correctly.  They look at this new tech as a thorn in their side that the owners of the business are making them use leading to frustration, misery and loss of staff.

If you are looking to invest in new technology, make sure you do your due diligence first.  You need to sign up with a business partner who will hold your hand through the process, identify a solution (or suite of solutions) that meet your current and identified future requirements and ensure adoption of the new product takes place from first contact.  This process actually involves your staff in the design and “wish list” development when identifying “what can be”.

You also need to choose a champion within the business who will drive the change.  This champion needs to have the time to dedicate to the project and not be stressed about all the other work they have to do.

Make sure the implementation partner or IT professional will be available for on-site support for the first couple of days after going live.  If staff don’t get answers to their questions on a timely basis or if their problems are put on the too hard list, they will have a negative experience and not want to learn more about the product.  Staff will blame the supplier, say the product was never installed properly in the first place and has never worked, when in reality they just weren’t shown how to use the product correctly.

When non-adoption of technology takes place, businesses end up paying a lot of money for a “solution” they will never use, then pay more money for a consultant to come in and recommend a new product that suits their business better and install this new product.  It’s a very costly and time-consuming experience and something no business really wants to go through twice.

If you’re considering changing your software, make sure it’s done properly and spend the time to get it done right the first time. This will lead to increased staff happiness and retention, efficiency and effectiveness improvement and a far more profitable business.

On Data Ownership

Just who “owns” your business’ data?

Source: nctba.org
Source: nctba.org

This is a question that not very many (if any) business owners consider in the selection and implementation of the “back-end” of their business.  More often than, not, the choice is effectively left to the accountant and/or bookkeeper.  This then creates a legacy system that the business has to deal with for many years to come.

This question was raised recently by one of the participants in my Tax Discussion Group who detailed an example where a customer of theirs was wanting to bring their bookkeeping from an external provider to an in-house resource.  Their system is on the Xero platform and the soon-to-be-no-longer-required bookkeeper wasn’t keen to assist them in transitioning the data for the new resource to use.  Suffice to say, the Xero Terms & Conditions seem to support the “losing” bookkeeper and effectively leave the customer (whose data it actually is) up that famous creek.

When you are considering a software package through which you wish to operate your business, you need to carefully consider who actually has the ownership of the data and what happens where you choose to change service providers.  Will they given you a guarantee that your data will move with you or will they “hold you to ransom”?

We guarantee that your data stays in your ownership.  If any of our customers want to move away from us or from the package that we manage for them, we will not stand in their way – it’s your data after all.

Does your current advisor give this guarantee?

Might just be worth asking the question – and get their response in writing!


On Pricing Power

“But I make no profit” was the plea.

On my recent trip to Bali, Indonesia, I was with my daughter and she was wanting to purchase a dress from one of the street vendors.  Aside from the fact that the dress was not something I would have chosen for her (I’m no fashion icon according to her), she had decided that was what she wanted.  It then came down to haggling over the price.

Source:  therebelmum.com
Source: therebelmum.com

I don’t want to go through the rather long and protracted discussion we had with the vendor (in the end, we reduced the pricing discussion to arguing over about A$0.20!) suffice to say, the process itself was rather fascinating.

Having determined that the dress was right for her, my daughter then handed discussions over to me.  In the process, I asked the vendor “How much?”  This led her to come back with “How much you want to pay?”  Classic positioning questions.  The only problem was, this was one vendor on an island with thousands of them all selling commoditised items – if I couldn’t agree on a price with one, I could easily go to another.  Both of us knew that.  The end result was that my daughter got what she wanted at a price that we were all (more or less) happy with.

Contrast that with the discussion we had the next day with some other Aussies sitting at the Pool Bar (as you do).  They had only just arrived in Bali and had, in the excitement, gone straight out shopping.  They hadn’t done their research (ie: asked other tourists) with regard to prices so the context in which they approached things was to compare prices being asked to the prices they paid at home.  In other words, they had no idea as to context.  The street vendors had a field day!

Sunglasses we were buying for A$2.50 – they paid A$25.00.  Shorts we paid A$2.00 for – they paid A$15.00.  Nothing different in the products at all (and in at least one case, the same street vendor).

Context and understanding the level of commoditisation are vital in the process of reaching a pricing and purchase decision.  Where there is an absence of one, there will be a shift in the outcome in favour of either the vendor or the customer.

From a business owner’s perspective, this then leads to the issue of being able to separate your product from other offerings on the market.  There are heaps of books available on this topic if you want to read further (contact me for a list of selected readings) and some excellent free podcasts that will help you understand this (again, contact me for a list of these).  Where you can de-commoditise your product/service offering, you are able to command a price premium as the customer will know that they are unable to get what you offer anywhere else.

It is for this reason that many businesses and brands fiercely protect their IP.  The premium inherent in the “brand” is the reason for the price points they are able to achieve.

In your business, are you able to differentiate what you do from others in your industry?  If you can, get the message really clear and make it about the customer.  If you can’t then your options to achieve premium pricing are still there, they just need to be approached somewhat differently.

Similarly, are your customers fully aware of the context in which they are buying, but, more importantly, are YOU aware of the context in which they are buying?  If you are, fantastic as you can then ensure that what you are offering meets your customer’s needs (and what happens if it doesn’t???)  If you aren’t aware of the context, then you really are at a loss and will need to adopt a “one price fits all” strategy.  This can be dangerous as you will (not might) have different customers who will pay different prices for what you’re offering.  Without sufficient information and context, you’re really only guessing.

If you end up having a discussion with your customers similar to the discussion we had with the street vendor, you’re in trouble.  Your customer doesn’t care whether you make a profit or not.

In Bali, I told her that.

On Killing a Wonderful Culture


You know the type of business?  The one you admire and respect.

The one that you want to emulate in your business and ensure that your people are as engaged as the crew in that business.  The business that is successful – almost in spite of itself because the people in the business work harmoniously and have developed a formal and informal management structure that delivers outstanding results.


Source: thepeoplegroup.com

I knew of one such business.  It was special in so many ways.  I admired their whole approach, ethos and especially cutlure as new people became fierce advocates of it and the supportive network that existed ensured that everyone could be their best selves.

Unfortunately, it has died.  This business, where one of my best friends works, has changed.  It has moved from being an inclusive and caring operation to one where there are now petty feifdoms and the focus has gone from “large” to “very small”.  It has become an internal business focussed on the personalities within it rather than the outward and forward-looking operation it once was.

This is incredibly sad.  Not only for the people involved, but also for other businesses that have looked to it as a beacon of what can be.  But, it can also provide an incredibly valuable lesson in what to do and what not to do.

The information I have received is that a large number of long-serving people within the business are now looking for work elsewhere.  These were the people who helped to create and curate the culture over the years.  These were the people who ensured “newbies” were inculcated with the culture when they started.  These were also the people who went “above and beyond” to serve the business, the staff and the customers.  They set the examples that became the norm for other staff.  They have now “checked out”.

Simon Sinek discusses this issue in far more erudite terms than I can here.  In short, the trust has gone from the business.  This is due to many factors but comes down largely to some of the senior management being a little bit too caught up in their own issues rather than seeking to ensure that the team is working effectively and creatively together.  In short, they have killed the passion and replaced it with work.

A consequence of all of this is that there has been the establishment of cliques and malicious gossiping within the organisation.  This has resulted in the curators of the culture losing their care for the business and the other staff.

What is happening is that all the good people will leave and the business will be left with the crap.

Unfortunately, this is not uncommon.  If you don’t manage and care for the culture you want, you will be left with one you don’t.  In every respect, you will be left with “the cream of the crap”.

There is a way out of this.  It is hard work, it requires deep honesty and introspection and it requires the re-establishment of a vision.  It’s called the Stages of Growth process – research-based and proven, it can resurrect organisations that are going through issues such as what this once-beloved business is going through.

I’d love to be able to help this once-fine business.  Unfortunately, they don’t see themselves as requiring any assistance.

Admiration and respect are earned.  And they can easily be lost.

How are you and your people curating your business?

On Bosses & Being Bad

Source: Forbes
Source: Forbes

Why are some bosses so bloody hopeless?

I recently read Guy Kawasaki’s excellent book “Enchantment” (Portfolio/Penguin 2012) where he included a list prepared by Bob Sutton of Stanford University which Kawasaki haad sourced from Sutton’s book “Good Boss, Bad Boss: How to be the Best…and Learn from the Worst”.

The list makes for interesting reading when you have a role that requires you to lead (and that includes in your family).

Note that I have Australianised some of the spelling but the list is as detailed in Kawasaki’s book (p. 159 on).

  1. I have a flawed and incomplete understanding of what it feels like to work for me.
  2. My success – and that of my people – depends largely on being the master of the obvious and mundane things, not on magical, obscure, or breakthrough ideas or methods.
  3. Having ambitious and well-defined goals is important, but it is useless to think about them too much.  My job is to focus on the small wins that enable my people to make a little bit of progress every day.
  4. One of the most important, and most difficult, parts of my job is to strike the delicate balance between being too assertive and not assetive enough.
  5. My job is to serve as a human shield, to protect my people from external intrusions, distractions, and idiocy of every stripe – and to avoid imposing my own idiocy on them as well.
  6. I strive to be confident enough to convince people that I am in charge, but humble enough to realise that I am often going to be wrong.
  7. I aim to fight as if I am right, and listen as if I am wrong – and to teach my people to do the same thing.
  8. One of the best tests of my leadership – and my organisation – is “what happens after people make a mistake?”
  9. Innovation is crucial to every team and organisation.  So my job is to encourage my people to generate and test all kinds of new ideas.  But it is also my job to help them kill off all the bad ideas we generate, and most of the good ideas, too.
  10. Bad is stronger than good.  It is more important to eliminate the negative than to accentuate the positive.
  11. How I do things is as important as what I do.
  12. Because I wield power over others, I am at great risk of acting like an insensitive jerk – and not realising it.

Having experienced (and perpetrated) a number of things that go directly against the wisdom contained in Sutton’s words, I am grateful for the insight and clarity of his thinking.  We need to understand how our actions as bosses/leaders impact those around us and therefore our businesses (or other organisations where we have influence) and our families.

Striving to be a good boss is a never-ending challenge.  It’s a challenge that can be confronting, but, at the end of the day, is very rewarding when you get it more right than it has been!

Don’t be a bad boss – it’s no fun and you’ll drive out all the good that your people want to bring to work every day.