Management by Objectives, MBO's, is one of the most proven, time-tested, methods of creating a performanc-oriented culture. In "Not Your Founding Father's MBO's" I expanded, upgraded, and updated this process to be much more impactful, stressing the importance of carefully picking your priorities as well as other significant improvements. However for here let's keep it simple.
The financial industry totally and perfectly created a self-destructive culture by telling their employees they would get giant rewards for creating short term profits. Imagine what a chair manufacturer would get if their employees were told "make as many chairs as you can--your bonus depends on it," with no comment on style, quality or customer acceptance: some of the measures of true long term value. Imagine what a software company would get if their employees were told "create as many lines of code as you can--your bonus depends on it," with no comment on style, quality or customer acceptance: some of the measures of true long term value. So maybe their bonus structure should have been something like:
- 20%-- this year's profits
- 40%-- the residual value of those same transactions two years out
- 40%-- the residual value of those same transactions four years out
Actually it should be much more comprehensive, but you see the point. The bonus and objectives structure in a company is a paramount ingredient into its resulting operational culture. We see what we got when the entire industry got lazy and stupid in how this culture was created. As the saying goes: "Be careful what you ask for."
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