Dear Jeremy, My managing director keeps cutting costs in an effort to reach his bonus target profit level, but it’s making it harder and harder to invest for long-term growth. Is this just the reality of modern business?
The pernicious thing about bonus targets and KPIs is their implicit assumption that all salaried managers are motivated exclusively by measurable personal gain. Yet anyone who’s worked for any length of time in a successful, competitive business knows that all sorts of fudgy, soppy factors play an important part in their sustained success. But because they’re fudgy and soppy, they’re impossible to build a KPI around.
"You will be awarded a bonus of 35% of your gross annual salary if you make ten executive decisions that reflect and enhance the culture of the company, thus ensuring that it remains a nice place to work." Very few managers are motivated entirely by measurable personal gain. But because that’s how their targets are framed, that’s how they naturally respond.
Short-term profit targets, to the exclusion of all else, are the exact equivalent of price promotions. By assuming that people are interested only in the single dimension of money, they totally neglect the small matter of worth; and the downward spiral continues.
I have a fudgy, soppy solution to this self-imposed regime of value reduction. Two hundred and fifty years ago, Adam Smith, as a guide to ethical behaviour, proposed the existence, entirely in the mind, of an Impartial Observer. Never judgmental, with no power to penalise, the Impartial Observer simply heightens a person’s consciousness of the social implications of every course of action.
For companies in the deadly grip of short-termism, I recommend that they elect to their board of directors a Phantom Grandchild.
Nepotism is seldom advocated by the Harvard Business School but it can have one invaluable side effect. Most family-owned or family-controlled businesses are instinctively thoughtful about the day after tomorrow – and even the day after that.
Managers who have inherited their positions have a sense of continuity; feel a duty to leave the company in at least as healthy a state as they were fortunate enough to find it.
If every company reserved a phantom seat round the board table for a Phantom Grandchild, and formally asked its executives to seek the Phantom Grandchild’s opinion before any course-altering decision was finalised, there’s a good chance that more of those decisions would be in the long-term interests of the company, its owners and all who sail in her.
And unlike top executives, of course, Phantom Grandchildren don’t need to be expensively incentivised.
Dear Jeremy, We were told at Advertising Week Europe recently that the UK is the world’s worst place to launch a marketing services start-up. It’s always been a secret ambition of mine to launch a creative agency – have I missed my chance?
I don’t know who told you that. You can confidently ignore it. But that’s not to say that making a success of a new creative agency is easy. It’s just not impossible.
As everyone knows, the agency market is greatly oversupplied. Competition is feral. Real talent is scarce and money can be extremely difficult to make. Yet one rarely acknowledged fact continues to make it possible for a start-up to be given a reasonable hearing. When client companies choose their banks, their accountancy firms or their management consultancies, they have only a few big players from which to choose.
They want experience, solidity, good reputations, well-funded research departments and confident executives. But when client companies come to choose creative agencies – and the clue is in the name – they’re looking for something else.
They’re looking for something they’ve failed to find in all existing agencies. They harbour a permanent, just-under-the-surface, nagging dissatisfaction.
So if the founding members of a start-up have between them sprinkled stardust on their previous clients’ results, and can show that they’ve done so, then they’ll always be invited to make their case.
What’s your stardust rating?
Jeremy Bullmore welcomes questions via email@example.com or by tweeting @Campaignmag with the hashtag #AskBullmore.