Organizational Alignment Succeeds or Fails Through Incentives
"Incentive compensation is the third rail in marketing, product [management], and sales alignment."
The message at SiriusDecisions' 2015 Summit is clear: “Marketing, product management, and sales need to be aligned to drive business growth,” John Neeson said during his keynote. “The hallmark of a high-performing organization is the alignment of those three areas.”
Neeson, cofounder and managing director of SiriusDecisions, cited convincing data from a recent study by the research firm: Alignment can lead to 5 to 36% of an organization's growth. Plus, businesses that closely align marketing, product management, and sales may grow faster than industry peers.
According to SiriusDecisions' research, businesses with high alignment showed 19% faster revenue growth and 15% more profit than the other companies studied. Most organizations are just fighting to get and stay aligned, Neeson said. For those business, and even for the leaders, alignment is an ongoing journey.
Neeson cited six factors to neccessary for improving alignment among marketing, product management, and sales teams: shared strategy, go-to-market approach, and success measures; organizational alignment; common, integrated processes; and shared technology.
One element that can derail alignment, Tony Jaros discussed in his keynote, is compensation. “Incentive compensation is the third rail in marketing, product [management], and sales alignment,” said Jaros, SVP and chief research officer at SiriusDecisions.
You get what you pay for
The wrong variable compensation can cause conflict and create fiefdoms instead of encourage collaboration. Alignment becomes impossible in an environment with competing goals.
Jaros recommended (not surprisingly) following SiriusDecision's B2B Incentive Framework, which encourages business leaders to consider both the strategy behind and the execution of incentive compensation plans.
There are several elements that should comprise an incentive compensation strategy:
Define – Agree on the types of incentives to use.
Decide – Select the variable incentive elements that will work best for the organization.
Evolve – Adjust the expectations of each role based on the new strategy.
Execution is composed of three main elements:
Enhance – Provide the knowledge and skills the staff needs to succeed.
Support – Improve the infrastructure to help employees meet expectations.
Monitor – Track performance on an ongoing basis to ensure that the incentive compensation strategy is driving the expected actions and performance.
Beware the shadows
When selecting variable incentives, Jaros said, consider that they're meant as a bonus for achieving a specific, stated goal. So, incentive compensation targets should be results oriented, and based on such activities as pipeline growth, revenue, profitability, retention, and offering mix. When selecting targets, he said, consider the company's growth strategy. Is the primary goal, for example, to acquire new customers? Increase retention? A blend of both? Set targets and incentives accordingly.
Jaros cautioned attendees to beware of what he called shadow incentives. These incentives aren't documented and typically are a reward for employees doing something outside of their normal responsibilities. They're usually non-financial in nature. But used incorrectly or unwittingly, shadow incentives can backfire. They may promote behaviors that lead to such problems as employees decreasing time spent on their defined responsibilities or internal competition.
Jaros cited an example of a company that in the past, when hiring new telesales employees, sometimes implicitly or explicitly noted that success in the role is a path to the sales team. Instead of encouraging positive behavior, this shadow incentive caused some telesales reps to attempt to close deals that should have been passed to the sales teams.
“Shadow incentives aren't all bad,” Jaros said, “as long as they're acknowledged and managed to.” Find them, he said, understand why they exist, and make necessary adjustments.
Whether planning variable compensation or shadow incentives, ensure that the related targets are clearly communicated and achievable, or employees won't change their current behaviors. The internalized response will be: “If I don't understand the compensation, I'll just keep doing my job the way I always have been.”
Jaros also warned against setting incentives as an afterthought. “They have to be part of the strategy,” he said, adding that there has to be governance represented by sales, marketing, and product management to ensure that incentive compensation supports alignment among the three teams, versus creating conflict.
In fact, Neeson emphasized in his keynote the importance of each team doing their part to ensure alignment among them. “There are no heroes in alignment, there is only a catalyst,” he said. “Be the catalyst.”