Do We Think Enough About Unintended Consequences?Posted: September 13, 2012
Metrics and rewards linked to them are a staple of management theory, consultants’ recommendations, and the operating rules used by almost every executive. The trick, however, is getting the right metric and thinking about whether and how to reward people based on that metric. But as tough as it often is to get that design right, it is nevertheless insufficient in getting the result you want.
Equally important, in my experience, is anticipating the myriad ways people could interpret, calculate, and manipulate that measurement and the many ways the incentive might create all manner of unintended consequences — some frustrating but ultimately benign and other consequences that are vastly more costly or risky than any of the benefits of the scheme.
Reading this article by David Segal of The New York Times is a good example of how one needs to think through all the angles of a measurement and reward/punishment plan, not unlike thinking like a bank robber when designing a “fool-proof” safe. For every metric-reward pairing, there are usually a hundred intended and unintended consequences. This is why, among many things, simplicity is a virtue since the geometric increase in consequences and interactions of consequences from having too many metrics and rewards make it almost impossible for managers to even know what is happening, like a fission reaction that tips over into a runaway cascade that results in one, very large mess.
The Haggler once knew a guy who worked as a salesman at a mattress chain in the Washington area. Every week, the chain ran a full-page ad in The Washington Post, advertising deep discounts on one make and model of mattress. And the rule among sales staff could not be simpler: if you sold any customers that discounted mattress, you were fired.
That’s right. Sell the mattress in the ad, and you’re gone.
How David Mamet is that?
This story came to mind recently, after the Haggler heard from several Staples employees who described some of the pressure they face from management when it comes to sales. But before we hear from the employees, let’s yield the floor to a customer who describes what this pressure looks like from the consumer side. Below is a condensed and edited excerpt from a Web site called my3cents.com, written by someone identified as JA2009. He is trying to buy an Acer computer for $449, as advertised by Staples in a newspaper.
“Upon my arrival, I found an associate who informed me that the laptops were in stock. However, before he would get me one, he proceeded to try to sell me his ‘protection plan.’
“Now, for a number of reasons, including my own knowledge of computers, as well as ready access to free computer repair services, I declined this. The sales associate indicated that it was O.K., and then walked away to, I assumed, get my computer.
“He returned with the store’s general manager, who again proceeded to aggressively push the protection plan onto me. He was extremely rude, implying that I was ‘cheap’ for not adding the plan. He walked away when I finally maintained that I did not want it. Then I heard him call the sales associate over and tell him something. Moments later, the sales associate informed me that the laptop was not in stock after all.”
It gets worse. The would-be customer calls a second Staples, where a salesman says, yes, we have that $449 Acer.
“I walked in and found the exact person whom I spoke to eight minutes earlier. The store was virtually empty. I asked him if I had just spoken to him about the Acer laptop and he confirmed that he was the person. I asked him if they were indeed in stock, and he indicated that they were. I then asked if he could please go get one, because I definitely wanted one. And then, before he goes back to get one, he asks me if I want the service plan.”
You know the rest. After a quick check of inventory, the salesman returns to say the Acers are all gone.
This tale, by the way, is three years old, but you will find more recent variations of it on different consumer Web sites. The Haggler chose this one because it is detailed and because it contains no obscenities — rare in this genre.
What is happening here? Why aren’t these stores eager to sell computers, even if customers don’t also want to buy service plans?
Staples, as we will see, won’t answer that question. But according to employees, it has in place a set of incentives that make it unpleasant, to put it mildly, for staffers to sell a computer without a whole bunch of accessories, particularly a service plan.
Staples, explained a manager named Natasja Shah in a series of conversations and e-mails, has a system called Market Basket that tracks how many dollars’ worth of add-ons each staffer sells.
“The average needs to be $200,” Ms. Shah said. In other words, each time you sell a computer, you need to sell, on average, $200 worth of other stuff. And that average is carefully tracked. Sales staffers who aren’t meeting their goals are coached, and if that doesn’t work, she and other employees said, there will be disciplinary action that can lead up to termination; underperformers can also end up with lots of night and weekends shifts or even a reduction in scheduled hours.
What happens to managers who can’t keep their storewide Market Basket numbers up?
“It’s not pretty,” said a manager who asked not to be identified, fearing repercussions. “There are these conference calls with district managers, and one of them once told a store manager, ‘If you can’t do the job, you can go sell fries at McDonald’s.’ ”
With the ever-present risk of bringing down a store’s Market Basket average, several employees said, upper management instructs store management that staffers who think they won’t be able sell $200 worth of add-ons should tell the customer the computer is not in stock.
“It’s called ‘walking the customer,’ because we let them leave the store empty-handed.” said Ms. Shah, who works in a Staples store in Fountain Valley, Calif.
Walking the customer is an update from a tactic that was known as “bouncing the customer,” Ms. Shah said, which entailed sending a customer to another Staples store. But that practice was abandoned, she said, because so many stores were bouncing so many customers that it was creating ill will among consumers. Now, staffers who don’t want to walk customers have another option: they can escort them to an in-store computer and tell them how to place orders online.
“If they buy it online, we lose the sale,” said Ms. Shah, “but we don’t have the Market Basket problem.”
Ms. Shah said she expressed her disgust to her supervisor and refused to instruct any of her team to “walk the customers.” She said she was fed up enough with this practice, as well as several others, that she wanted to speak publicly about it.
Asked about all of this, a Staples representative named Carrie McElwee wrote in an e-mail: “Staples’s policy does not require customers to buy a service plan. It’s our process that associates talk to customers to ensure they have what they need to run their device when they return to their home or office. Staples has zero tolerance for the actions described in the customer letter” — a reference to the lament of JA2009 — “and has taken disciplinary action up to and including termination.”
O.K., but what about the Market Basket incentives that ultimately send customers out the door empty-handed? Does Staples have anything to say about those?
Given two opportunities in follow-up e-mails to answer that question, Ms. McElwee did not. But, obviously, it makes no sense to have zero tolerance for a practice that incentives all but require. It is perhaps not as shabby as taking out a full-page ad for a product and firing employees who sell it — but it is shabby enough.