February 2023 Volume 5

OPERATIONS & MANAGEMENT

Leadership and Management FAQ Answered By Joel Strom

This month we have a couple interesting FAQs. As always, remember to submit any Leadership and Management FAQs that you would like answered. FAQ 1 I am thinking of implementing an incentive pay system in my company. Is that a good idea? And how can I ensure that it incentivizes the behavior that I am seeking? The answer to the first part of the question is that depending on what you are trying to incentivize, yes it could be a good idea. Incentive systems in the right areas designed correctly can be great investments and produce impressive ROIs. The key words here are “in the right areas designed correctly”. Not designed and implemented correctly, a program intended to incent a positive behavior or productivity can incent totally different actions with unintended consequences. Here is an example of unintended results: My first job out of school as an engineer was, at that time, one of the top companies in the machine tool industry. My initial assignments as a young engineer had me directly involved with the workers in the factory. It was there that in addition to having my first real taste of manufacturing, I had my first real lessons in employee incentives and behavior. The company was very proud of its factory incentive system. Production employees, in addition to their base wage, received a piecework incentive. Standard times for manufacturing a part were established before it went into full production. The incentive system then paid off if the employee beat the standard time to complete the operation. If a machine operator making a part with a 10 per hour standard made 12 parts that hour, they would receive 120% of their base hourly rate for that hour. This was before CNCmachines so the operator could truly affect the production rate. It was intended to be a win-win, the company was to get improved production rates while the workers had an opportunity to earn more money. However, in reality, productivity was not great, parts were still late, quality issues were abundant, and costs were high. The incentive system was not incentivizing what was intended. The design was flawed. The most obvious flaw was that operators got paid an incentive based solely on the quantity of parts produced. There wasn’t anything to ensure the quality of their parts. Then once bad parts were discovered, they were often sent back to the same machinist who could earn incentive pay to fix his own mistakes. That to me is a good example of how easy it can be to implement a destructive rather than a constructive incentive program. You have a problem that you believe an incentive program could solve. You want to quickly fix the problem so you don’t spend the time needed to consider the ramifications and the possible behaviors that could be incented by the plan.

A few guidelines that should be considered in your plan design. 1) Don’t focus on only one aspect of the process, it could create unwanted behavior in another part of the process. 2) State specific objectives to ensure understanding of what the objectives of the plan are. 3) Play “devil’s advocate” in the design process and don’t implement without being comfortable that it will incent the behavior and results you are seeking. Designed and implemented properly, in the right operations, incentive plans can be a powerful management tool. They can help solve short term problems, they can mold behavior, and they can reinforce company culture. FAQ 2 I recently heard the term “default future.” What does that mean? The simple answer to that question is: Your company’s default future is where it would be and what it would look like in the future if you did nothing different than you were doing right now? When I see companies operating without goals and visions, not developing new strategies and plans, and not innovating, I immediately think default future . Picture it as setting your company adrift in the ocean without a chart, compass, rudder, or power, and letting the current and winds determine its destination. Certainly not a great management practice. Leaving your company to its default future was never a good idea. Today, however, with the forging industry and its evolving technology along with the economy and the world as unpredictable as it is, it’s a risk no company leadership should take. Your business is too important to leave to chance. You need to actively take charge of your company’s future. It is more important than ever to ensure that development and implementation of future strategies, plans, and innovations are a core part of your company’s culture.

Joel Strom is the Founder and CVO at Chief Value Officers. He has spent the last 4 decades accelerating manufacturing company value as an owner, CEO, and advisor. His recently published book, CEO to CVO, Moving Your Business from Ordinary to Extraordinary , has quickly become a trusted guidebook for building company value. He can be reached at joel@joelstrom.com.

FIA MAGAZINE | FEBRUARY 2023 42