Category Archives: Commentary

New Videocast Series – Retail Solutions Online

We’ve recently started a videocast series at www.retailsolutions.com to highlight key factors that affect performance, how organizations sometimes confuse the issue and focus on the wrong thing, and how managers can work to identify key performance levers that will actually result in desired business outcomes.  The first videocast focuses on the difference between “awareness” and “peformance” and can be found here.

Incentives & Disincentives: Will They Affect Performance?

At last year’s RILA Loss Prevention conference in Orlando, I presented a general session where we talked about the various performance “levers” that exist and how they can be used more effectively.  There is a tendency for managers to push on the same one or two levers over and over again, even if they are not the ones that will have the most impact on performance.

In a previous posting (August 31, 2009), we discussed task clarification in some further detail.  In this post, we’ll look at one of the most commonly used performance management techniques – incentives.  We’ll also look at the intertwined issue of disincentives.

Incentives are such a strong part of management history that we have numerous idioms and sayings about them, such as “You can catch more flies with honey than vinegar” and the oft-used “carrot or the stick.”  According to one study, over 75% of American corporations use some type of incentive scheme ranging from stock options to “Employee of the Month” awards to piecework pay for factory workers.  In fact, they are so pervasive that we often take their effectiveness for granted.

As a result, when there is a performance gap in the workplace, we often turn first to the idea of providing incentives – a reward for the desired performance – or disincentives – a punishment if the desired performance is not achieved.  However, there are many “levers” of performance and incentives will only work if the causal issue for the performance gap is related to motivation.

Here are some examples of when incentives will not be effective in changing performance: 

  • The employee does not have the capacity to perform the desired objective
  • The employee does not have the knowledge or skill to perform
  • The employee does not have the needed materials, tools, or resources
  • When other incentives are more important than the one you are offering
  • When disincentives outweigh the incentives offered
  • When the incentives offered are not actually tied to the desired performance
  • When the incentive scheme incorporates too many different performance objectives
  • When the incentive scheme is so complicated that an employee cannot determine the link between their performance and obtainment of the reward

In fact, there is not even universal agreement that incentives actually work in the first place.  Writing in the September-October 1993 issue of Harvard Business Review, author Alfie Kohn, argues that, at best, reward programs produce temporary compliance.    But, when it comes to productivity, he cites over two dozen studies that “have conclusively shown that people who expect to receive a reward for completing a task or for doing that task successfully simply do not perform as well as those who expect no reward at all.”

Additionally, poorly designed incentives can backfire and produce undesired results.  In his book The Only Thing That Matters, Karl Albrecht describes watching an employee at a call center picking up a ringing phone and simply hanging it back up without talking to the caller.  When asked about it, the employee said they were measured and rewarded on answering the phone within 3 rings.

Shortly after starting as the Director of Loss Prevention for a retailer a number of years ago, I inquired about the dramatic drop in check write-off losses for the current year versus the previous year.  What I found is that the previous year’s write-off was the worst in company history and, as a result, the Senior Vice-President of Operations had sent out a memo to all management and all stores that this problem must be addressed and the financial results brought in line.

But, what we also found out was that check tender sales were way down and we were receiving a number of complaints from customers.  It seems that many store management teams, in their effort to address the check write-off issue, were simply refusing to take checks unless they could call the bank to verify funds were available.  At night, customers were sometimes being told, “If you have the money in your account, go to the ATM across the street and get the cash.”

You can imagine the impact these practices had on productivity, customer service, and, ultimately, on sales.  Clearly, these were not the results the Operations head had intended.

Alternatively, Nicole DeHoratius and Ananth Raman published a study in 2007 that showed how changing a store manager’s incentive in a retail setting can affect their attention towards shrinkage and loss prevention.  In the studied retailer, the company changed the emphasis of the store manager compensation plan to increase the weight given towards sales, thus decreasing the emphasis on the prevention of inventory shrinkage.  As most of us might expect, the company saw an increase in both sales and shrinkage.

Clearly, I’m not arguing that there is no place for incentives in the workplace.  Rather, when evaluating how you achieve desired performance, a careful analysis must be done that examines all the factors that influence performance.  Simply dangling a “carrot” or threatening the “stick” in isolation will probably not produce the lasting results you desire.

As always, I welcome your comment, disagreement, and dialogue.

The Top 5 Mistakes of Privacy Awareness Programs

While this article specifically discusses “Privacy Awareness” programs, the points made are applicable to loss prevention, shrink, and safety campaigns.  In working with companies on training and awareness campaigns, we have come into organizations and found they were previously falling into many of these traps.  We especially think that problems #2 and #3 on this list are worth considering:

  • #2 – Equating “campaign” with “program”
  • #3 – Equating “awareness” with “training”

For a training & awareness campaign to be successful and produce results, it has to be well thought out and not simply a checkbox that is ticked off.  You can read the full article here.

New Year’s Resolutions for Retail Loss Prevention

As we come upon the new year, I thought I might humbly suggest some resolutions for the retail loss prevention industry for 2010.  I’m sure some of them will be controversial but they are all made in the spirit of moving our industry forward.  Please feel free to comment.

#1 – Don’t make numbers up

In our quest to quantify what we do, let’s be careful about simply pulling numbers out of thin air or estimating numbers and presenting them as fact.  In fact, there are several parts of our business where we simply don’t have accurate numbers.  Let’s strive to change that fact, not make up facts.

#2 – Don’t make the case for loss prevention by acting like Chicken Little

The primary message I have gleaned from news articles about retail loss prevention during this past year is that things are really bad.  I mean, historically bad.  We’re talking drastically bad.  ORC gangs are hitting all the malls, shoplifting is up because of the economy, on-line auction sites are siphoning millions, if not billions, of dollars via fenced and counterfeit goods, there are no laws on the books that help us address these issues, retail theft is funding terrorism, our budgets have been cut, senior loss prevention positions are being eliminated, cats and dogs are living together…wait, that last one was actually from the movie Ghostbusters

And, as a result, what has happened to shrinkage?  Well, if you believe the numbers in the National Retail Security Survey (see resolution #1 above), retail shrinkage in the U.S. came in at its second lowest level in the 17 or so years the survey has been done.  I say kudos to all the practitioners in our business who have continued to improve the way we do our business, who have leveraged technology, and have evolved their approach and response to the emerging threats listed above.

#3 – Demand that our industry associations fund research and education

I like our industry associations.  I participate in several of them.  I think they are well-intentioned and have expanded what they do for our industry over the past 15 years.  The staff members of the associations are hard working, helpful, and eager to serve the industry.  Their advisory boards are comprised of individuals who give a broad representation of the retail industry.  But, the one area where I think they need to step up is in the area of funding research and education in our industry.  The lack of rigorous study and research in our industry is largely the reason that we need resolutions one and two above.

There are models for how this could work and it does not have to be difficult.  The Europeans, working through the ECR framework, have figured out how to do this effectively with the process being driven by the retailers.  I don’t see any reason this can’t happen in the U.S.  However, this will only happen if practitioners demand it.  When I look at other large professional and trade organizations, they typically have more robust offerings to their membership in this regard.

#4 – Don’t create a new name for what we do

Retail security, loss prevention, assets protection, profit protection… I really don’t care what we call our industry (I know there are some that care passionately about it), but I do know that having multiple terminologies and nomenclature does not help others understand our profession.  Look at established professions like medicine, finance, IT, HR, and others.  By and large, they have established consistent labels for positions within their industry.  There is a clear distinction in medicine between a doctor, a physician’s assistant, a registered nurse, etc.  In finance, there is a clear distinction between a bookkeeper and a CPA.  I don’t hold illusions that we are going to reach consensus in 2010, but hope we don’t have more diffusion.

The 3 Habits of Highly Irritating Management Gurus

This article takes a critical look at the business self-help genre and its visible “gurus.”  According to the article, these writers tend to have three characteristics in common. Lousy leadership “gurus” are marked by a tendency to overstate the newness of their ideas, a fondness for naming “model” companies and a willingness to market various “tools” that purport to reduce leadership to a few easy steps. “If management could indeed be reduced to a few simple principles, then we would have no need for management thinkers,” the author writes.

While I would not dismiss their work out of hand, as this article does, it is an interesting phenomonen that business leaders flock to the same well-worn management principles time after time after time.  It seems there is serious money to be made by taking a timeless principle and using a new metaphor.  The more simplistic you make it, the better.  If you write it as a parable (think Who Moved My Cheese) that is the best!  Perhaps that is why you can find legions of folks who have read The One-Minute Manager but hardly a soul who has read Drucker’s The Effective Executive or The Practice of Management

Read the full article at The Economist.