Supply Chain Management Review

Link This | Email this | Blog This | Comments (0)

Skin in the Game
December 27, 2007

Based on the title of this piece, you might be wondering whether I’ve succumbed to the blogger’s temptation to comment on one or more U.S. celebrities. Not yet.

“Skin in the game” refers to the importance of having the interests of key stakeholders and participants linked to the objectives of your transformation process – often through financial incentives or consequences. It goes hand-in-hand with establishing the right foundation pillars for successful transformation, as discussed in earlier columns. You might think of “skin in the game” as the mechanism to increase the likelihood that all the pieces – and all the players – work smoothly together.

It can take several forms. As a minimum, it starts with incorporating relevant elements of the overall objectives of the transformation plan into the annual, written performance objectives of employees – from the CEO to the entry-level buyer - from procurement professional to internal client. Anyone who can influence the success of the transformation process should have some skin in the game.

The next level of action involves linking those personal objectives to financial incentives and consequences – and making them meaningful. One company I’ve worked with takes this so seriously that they have tied a significant percentage of the annual bonus program to the success of the procurement transformation plan - with annual milestones on a number of key dimensions, including quantifiable cost reductions.

Incentives are great, and – when meaningful – can be quite effective. But, what about the individual “blocker” who just won’t participate or, worse, actively works against the transformation objectives of your company? I had such a situation once or twice as a corporate CPO. When I discussed the particulars of one such troubling situation with one of the top execs at my company, someone whose advice I valued, the answer was straightforward: “That’s why we have flagpoles. Not just to rally the troops for a good cause but, if necessary, to hoist the recalcitrant party up in the air so everyone can see the example.” A little melodramatic, but his point was well-made.

He was conveying a willingness to deal with the problem – quickly and publicly. The reluctance to deal with noncompliance is one reason why transformation efforts can become derailed. That’s not to say that you go looking for people to serve up as examples. It’s first important to be sure that you understand why the “blocker” appears to be blocking the transformation effort. Have a conversation with him or her. Understand what is driving their behavior. Make absolutely certain that they have all the necessary facts at their disposal. You may find out that their reluctance to comply is based on some fundamental misunderstanding, or a lack of involvement.

In the final analysis, you’d don’t want reluctant compliance – you want active commitment.

Incentives. Consequences. Good two-way communications. All part of the juggling act when embarking on fundamental transformation.

In a future column we’ll take a closer look at the factors that contribute to world-class commitment/compliance.

Posted by Robert A. Rudzki on December 27, 2007 | Comments (0)