How the Metric Was Fixed
A few blog posts back (“Metrics driving bad behavior”), I talked about a Six Sigma project focused on increasing sales. The Six Sigma team had selected brokers (customers) who had maintained the same level of relationship, i.e., were sending the same number of deals even though the total market size was increasing. If you recall, the team conducted site visits with these brokers. Their key finding for the root cause of this behavior was linked to the compensation metrics (which had stayed static for the past 18 months) & an increase in competition. Here is how this team solved the problem and the corresponding results:
1. The brokers were segmented into 4 distinct categories based on their deal volume: Super, large, medium and small. There was agreement amongst the team members that a $1 Million broker should have a very different level of service and compensation plan than a $250K one.
2. The compensation model for the “super” category was designed differently from the others. The main premise supporting the model was as follows: They are the largest brokers, and hence provide the largest growth potential for the firm (it is easier to go after 10 brokers to hit your targets, than 50). The primary focus was to lock out the competition so that the majority of the brokers' leads would be funneled to the firm. Hence, the more deals the firm was getting, the more they could give back to the broker. An aggressive deal target was designed for this category of brokers backed by a very generous compensation plan. But there was a catch – it was designed as an all or nothing package - the broker had to meet the target to get the compensation; the plan was not tiered.
3. The other three categories were given a tiered compensation plan with an option to provide either:
- A certain dollar amount of deals, or
- Ensure that the firm received a fixed % of their total deals
This option was provided as the smaller brokers would not be able to hit the dollar target.
The results:
- 80% of the super brokers hit their aggressive target – to increase incoming volume by 25%.
- The total deals received from the other categories increased by 15%
- The dealers’ performance is now being monitored weekly and targets adjusted quarterly
On a final note, I have to point out that the toughest part of this project was not collecting or analyzing data but having to take a risky decision based on the expertise of the sales director and team. No amount of data could really have proved that their “super” broker model was going to work. It was a risk they took; that for the time being is paying off (may require tweaking or revamping in 2008). But sometimes taking these types of risks are part of the development of a Black Belt and the Six Sigma initiative as a whole. While data-driven decision making is paramount, there are occasions where common sense and the knowledge of business leaders can be impactful.
