Small Companies Should Learn from Large Companies
By Larry Coté, Managing Director, Lean Advisors Inc.
Some recent articles hitting the news indicate that a major aerospace assembler/manufacturer is looking into quality and safely problems. As you read further you start to ‘see’ possible root causes of some of the problems.
What catches your attention is the compensation model for leadership and staff. It stated that management and staff receive bonuses based mainly on financial and DEI (diversity, equity and inclusion). So, the first question that pops to mind is, ‘what happened to Safety and Quality’? As you read further, you find that a small portion of bonuses are in fact, allotted to operational and quality/safety.
Obviously, your impression is that financial and DEI are the most important goals of the company. And we know that if you reward someone and assess them on certain aspects of their performance, then they will gravitate their efforts and attention to those areas where they can meet those important goals and get their bonus. Everybody wants to do a good job!
Communicating and driving consistent goals across a company is important. It is what should be done, except if the selected performance goals drive the wrong behaviours or replace emphasis on other important mandates of the job.
We have said for years, true success must include improvement in at least these three measures – Quality/Safety, Cost and Service/Speed. When a company first starts out, they have to have those 3 elements. The challenge, as a company moves forward, is to ensure that all three continue to be impacted positively and ‘simultaneously’. If you only reach one or two of the three critical measures, that’s a ‘red’ flag and you must go back and assess where and how you failed. If you don’t, and consider only one or two, you will likely find that the missing measure was somewhat sacrificed (impacted negatively) in order for the other(s) to succeed – not true success.
This limited success thinking becomes part of your culture and is driven throughout all levels. People receiving bonuses, plus shareholders if they are involved, are satisfied with the current direction, and are reinforced by the bonus they receive reaffirming they are doing the ‘right’ thing. It usually takes a crisis, or some critical negative failure, to motivate someone in a leadership role to realize ‘we are off course’ and then to have the strength to do something about it. In the example I have been reading, the management did seem to have done just that. They are adjusting their thinking and establishing a new reward/measurement system to drive the behaviours they require for the future.
In conclusion, there is nothing wrong with tying bonuses to financial outcomes – almost every company does it. However, it is imperative to ensure that financial, quality/safety, and service/speed, are lumped together and are a major part of the strategy and direction. The company’s measure of success should clearly demonstrate, at the very least, these 3 outcomes (cost, quality/safety and service) at the same time, with rewards/bonuses aligned to promote the desired behaviours that drive all three together.
