Why are stores, technology and customers changing…but incentives are not?
A store manager for a $7.8 billion clothing chain overspent his monthly payroll by $3000. In doing so, he was able to turn around a down month and drive a comp store sales increase of 5%, resulting in additional revenues of $75000 for the month.
He received a visit from his district manager who disciplined him and place a note in his file for mismanagement of company funds.
Is there a better way?
Big box and other large retailers have used a fairly standard review methodology for years. It usually flows something like the following:
• Set the company goals for the year • Decide which metrics and what levels will achieve those goals • Set objectives for each manager in the company focused on meeting those objectives annually • Track objectives monthly
This makes sense right? If managers are achieving their objectives every month then they are guaranteed to make the year. If they are “green” or positive in every category then they must be on the right track. Right? However, as any seasoned retail leader knows – few stores consistently achieve every metric.
Parker Avery has witnessed retailers who use metrics that not only encourage poor behaviors, but also reduce productivity due to the corporate mandate of having to perform the associated processes. To focus on one, very time-consuming process to support a single metric can also negatively impact customer service. This can lead to maverick, non-standard (yet, sometimes innovative) ways to achieve the same objective. Additionally, we have witnessed “underground” networks within companies, where managers collaborate on ways to “get around” the system, which can also impact the ability to accurately measure performance.
Further, for every new process or initiative, there is often a new success measurement. Retail leaders today are ‘over-metric’d’ and under-supported. With the volume of innovation and pace of change, this is not surprising, but it is 100% preventable.
What if store leaders could be empowered and incented to take their own initiative and readjust as issues happen?
We propose that success can be measured in ways other than “just being positive” in each metric category month over month. As shown in Figure 1, traditional methods of measuring retail store management – while consistent and “expected” – are outdated, static, often drive maverick behaviors, and rarely result in appropriately incenting and rewarding managers to achieve company objectives.
The premise is that if most or all metrics are not satisfactorily achieved, then the manager is doing something wrong – this premise should be challenged.
Perhaps a more updated way of measuring and incenting store management is to drive behaviors towards overall success, rather than getting buried in individual and often cumbersome metrics. While measurements such as comp store sales, inventory turns and labor budgets should and will always be critical components of performance – they should not be the ultimate factors in determining optimal performance. The old adage “you can’t manage what you can’t measure” absolutely holds true, but to suffocate innovation by mandating outdated, tedious and time consuming processes is usually counterproductive.
We are not advocating letting management run their stores any way they wish – there does need to be a strong level of standard process execution – but we are suggesting a more strategic approach by providing standard guidelines, measurements and best practices on how the business should be run, and then instilling a mindset of collaboration, innovation, and empowerment.
Figure 2 outlines a measurement and review approach that suggests a higher level, weighted type of assessment. Each of the categories have metrics associated with them, but they are also weighted according to the company’s objectives. The manager is then “rated” on an overall basis, according to those weights and measurements. There should be some non-metric elements built in to each of the categories, including things like employee and customer feedback, but this is a component that must be handled very carefully to avoid any negative human resource issues. The principal is simple: create a way for company leadership to decide on what’s important for growing the business (the weighting), and then incent those good behaviors. At the same time, managers should be charged with running their business as a whole, not focusing on meeting individual metrics.
These holistic ratings are then carried from month-to-month, preventing the cyclical habits that often are created from missing a metric one month, then chasing it the next.
Having this type of system greatly reduces the reliance on a single way of achieving an objective as well as managers’ tendencies to seek workarounds or “beat the system.” By encouraging innovation and empowerment and rewarding those who run a great overall business, this approach is flexible enough for all store sizes, demographics, sales and geographic locations. It can also help achieve higher employee satisfaction, which creates more loyal and productive employees.
When the things that are important to your business are aligned with incentives that are valued, and leaders have bought in to the success of the organization, isn’t it time to adjust management review and measurement structures accordingly?