From fixed to relative performance contracts - Keynote by Niels Pflaeging at Cubewise Performance Management Leadership

1. Fromfixedtorelativeperformancecontracts andtowardssimple,ethicalandempoweringways ofdealingwithvaluecreation Sydney,15.10.2015 CubewisePerformanceManagementLeadershipForum @NielsPflaeging

3. PerformanceCulture

7. Dynamicpartof valuecreation Solution:Man Formalpartof valuecreation Solution:Machine

8. Localmarkets, highcustomization high dynamics

9. Localmarkets, highcustomization Spaciousmarkets, littlecompetition Sluggish/dull, lowdynamics high dynamics

10. “Outperformers”exercise marketpressureover conventionalcompanies Localmarkets, highcustomization Spaciousmarkets, littlecompetition Sluggish/dull, lowdynamics high dynamics high dynamics

11. “Outperformers”exercise marketpressureover conventionalcompanies Localmarkets, highcustomization Spaciousmarkets, littlecompetition Sluggish/dull, lowdynamics high dynamics high dynamics Dynamicpartof valuecreation Solution:Man Ageof CraftsManu- facturing Ageof Global Markets IndustrialAge/ Ageof TayloristicIndustry Formalpartof valuecreation Solution: Machine 1970/80today 1850/1900

12. Market Periphery Center

13. Market Periphery Center Isin charge! 3Decision 2Information 1Impulse 4Command 5Reaction Client

14. Market Periphery Center Servesthe periphery, ifneeded Isin charge! 2Decision 1Impulse 3Reaction Client

17. •! Fixed,!individual!targets! •! Management!by!Objectives! •! Budgets!and!Plans! •! Performance!Appraisal! •! Hierarchical!Pressure! •! Pay!by!Position!or!Performance! •! Incentives!and!Bonuses! •! …! Low!dynamics!

18. •! Transparency!&!Improvement! •! Comparisons!between!peers! •! Comparisons!with!previous!periods! •! Dialog!and!Dissent! •! Social!and!group!pressure! •! Pay!by!market!value! •! Results!Sharing! •! …! High!dynamics! •! Fixed,!individual!targets! •! Management!by!Objectives! •! Budgets!and!Plans! •! Performance!Appraisal! •! Hierarchical!Pressure! •! Pay!by!Position!or!Performance! •! Incentives!and!Bonuses! •! …! Low!dynamics!

19. Theory!Y! Theory!X! Attitude! work, can People!dislike!work, ! ! People!need!to!work!and!want!to!take!an!interest! in!it.!Under!right!conditions,!they!enjoy!it! Direction! People!will!direct!themselves! towards!a!target!that!they!accept!! to!make!the!right!effort!! ! People in find!it!boring,!and!will!avoid!it!if!they!can ! ! People!must!be!forced!or!bribed!! Responsibility! People!will!seek!and!accept!responsibility,! under!the!right!conditions!! People!would!rather!be!directed!than!accept! responsibility,!"which!they!avoid#! Motivation! Under!the!right!conditions,!people!are!motivated! by!the!desire!to!realize!their!own!potential! People!are!motivated!mainly!by!money ! ! and!fears!about!their!job!security ! ! Creativity! Most!people!have!little!creativity!-!except ! when!it!comes!to!getting!round!rules ! Creativity!and!ingenuity!are!widely!distributed! and!grossly!underused!

20. Behaviors! Context! Human!! Nature!

22. … SWOTAnalysis Dresscodes Orgcharts Plan-Actualsvariances PerformanceAppraisal/360° StrategicPlanning BusinessPartners ”Meritocracy“ BudgetingPlanning HR KeyAccounting,BusinessAreas Holidayapplications Paidextrahours CostManagement SalesQuotas Incentives Individualtargets Targetnegotiation Jobtitles Controlofworkhours JobDescriptions PayforPerformance Travelpolicies MbO Bosseshire Joursfixes Bonuses SalaryRanges EarningsGuidance CompetenciesManagement Suggestionboxes Allocations MatrixStructures KnowledgeManagement Trainingbudgets PersonnelDevelopment DevelopmentCenters Forecasting ”PersonnelExpenses“ AssessmentCenters

23. Fixed,!negotiated!targets! Target:!absolute!ROCE!in!%!"here:!15%#! Plan! targets Relative,!self-adjusting!targets! Target:!relative!ROCE!in!%!"to!market#! Target! Actual! Actual! Comparison:! Market-Actual! Comparison:! Plan-Actual! Most! important! competitor! "28%#! !! Most! important! competitor! "28%#! !! Target:!ROCE!! in!%!better!! than!market!avrg.! Market! "25%#! !! Market! "25%#! !! Actual! "21%#!! Actual! "21%#!! Plan! "15%#!! !expected market Ø: 13%" !independent from expected market Ø"

24. Snapshot!"static#!w/benchmarks! Accounts/KPIs!vs!prev.!periods! Rankings!"“league!tables”#! Regions! !KPI! Company! !KPI ! last! mnth! ! ! ! ! ! or! Groups!of!accounts! Same! mnth! last! year! ! ! ! ! ! Same! mnth! prev..! year! ! ! ! ! ! Ø!! last! 12!! mnths! ! ! ! ! ! Ø!! 12!! prev.! mnths! ! ! ! ! ! Compe-! titor!A! Region!G !!7%! Region!E !!7%! Region!B !!6%! Region!F !!4%! Region!A !!3%! Region!D !!3%! Region!C !!1%! Region!H !!0%! Competitor!A Competitor!E Competitor!C Us ! Competitor!B Competitor!D Competitor!G Competitor!F !31%! !24%! !20%! !18%! !13%! !12%! !10%! !!!8%! Our!! unit!A! KPI!2! ! Indicators! Compe-! titor!B! Us! Our! unit!B! KPI!1! Trend!with!tolerance! Trend!with!references! "A#!Maximum! Trend!with!benchmark! Tolerance!levels! Us! KPI! KPI! KPI! "B#!Gliding!average! Us! Competitor!A! Curve!with!variance! out!of!bounds! Time!"Actuals#! Time!"Actuals#! Time!"Actuals#!

25. Information Data ? ?

26. Industry! Retail! It!is!possible.! Services! Government/! NGOs!

27. ! Law! §§1!!Freedom!to!act §2! !Responsibility §3! !Governance §4! !Performance!climate !Result!culture §5! !Success §6! !Transparency §7! !Orientation §8 !Recognition §9! !Mental!presence §10!!Decision-making §11!!Resource!usage §12!!Coordination ! !Beta! !Connectedness !Cells !Leadership !Alpha!! !not!Dependency! !not!Departments! !not!Management! !not!Duty!fulfillment! !not!Maximization! !not!Power!accumulation! !not!Top-down!prescription !! !not!Incentives! !not!Planning! !not!Bureaucracy! !not!Status-oriented! !not!Commands !Fit !Intelligence!flow !Relative!Targets !Sharing !Preparedness !Consequence !Purpose-driven !Market!dynamics !!

32. From!fixed!to!relative!performance!contracts!! and!towards!simple,!ethical!and!empowering!ways!! of!dealing!with!value!creation! @NielsPflaeging! nielspflaeging.com! organizeforcomplexity.com! betacodex.org! slideshare.net/npflaeging!