Individual or team goals? | Collaborative Excellence: High Performance Agile Teams (2023)

What is more effective in Companies or Organizations that use Lean or Six-Sigma: Individual Goals or Team Goals?

Author: Menno R. van Dijk MSc

Date: February 14, 2012

Summary and conclusions

Much has been made about goal-related bonuses and incentives in recent years. Do they lead to irresponsible behavior and risk taking in financial institutions? Should managers of state-owned companies or companies that rely on state support receive a bonus if they meet their targets? Interesting questions; however, that is not what this blog is about. The way bonuses and incentives influence the way teams work together, especially in Lean organizations, is something I'm passionate about.

In my experience as a Lean consultant, I have often found that organizations struggle to maintain the initial rate of improvement: when autonomous production teams, Lean Quality Circles, or TPM teams are first formed, performance improves dramatically. A 20% to 50% increase in machine performance or output is almost always achieved. In some rare situations, I have even found productivity increases of over 100%. Enough to exceed my clients' expectations, but my goal has always been to achieve a state of 'continuous improvement'. That's when production teams continue to improve: relentlessly reducing waste, continually improving their standards.

I strongly believe that the goals and incentives of the finance team can play an important role in the final step towards continuous improvement. That's why I did this literature search: to see if my belief is supported by credible research.

My conclusion: Several publications, especially on the effectiveness of 'Operational Excellence teams' (eg TPM teams, autonomous teams, Six Sigma project teams, etc.), confirm that team goals and incentives are more effective than individual goals. However, I had to adjust my strong belief on two points:

• Also, individual objectives have their merits, and a mix of individual and team objectives is worth considering.
• Team objectives and incentives are not the only driver, nor the main driver, for the success of Operational Excellence teams and should be part of a comprehensive approach.

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Incentive effectiveness

Regardless of whether companies use Lean Sigma or not, financial incentives improve task performance moderately to significantly, but effectiveness depends on organizational conditions. Two recent reviews of the effects of organizational behavior modification indicate that monetary incentives significantly improve task performance.Stajkovic y Luthans (2003)meta-analysis of72Field studies show that an organizational behavior modification intervention using monetary incentives improved task performance by23percent, while a socially recognized intervention did so only for17percentage and feedback for only10percent. Furthermore, by combining the three types of motivational reinforcements, performance improved by45percent. This is a stronger effect on performance than when each approach is applied separately. Feedback, the strongest phase of PDCA culture in Lean Organizations, combined with money and social recognition produced the strongest effect on performance.³.

The standard argument in favor of the Individual Goal-Based Incentive Plan (IBIS) is this: if I am rewarded as an individual for my performance, I get full value for my commitment; if I get paid as part of a team reward, I only get a portion of the reward, so I can choose not to go the extra mile. As a result, the creative, suggestive, and learning culture of a lean organization is diluted. In some recent reports, a Team Goal Based Incentive Scheme (TBIS) is said to “penalizes performers and rewards passengers”. This is known as 'paseo'issue. Therefore, the mass production organization that chooses to institute an IBIS provides stronger incentives for its employees.³.However, in Lean organizations, this scenario is much different.

Again focusing primarily on small businesses, the meta-analysis by Jenkins et al. does not support the Lean Principle, "Quality at Source" in any way⁴.

Lean and Six Sigma Organizations

Incentive systems based on group or team objectives are consistently effective in organizations that follow Lean and Six Sigma, although they are not well tested in public sector settings where measures of organizational performance are often unreliable. Team-based or small-group incentives are characterized as rewards in which a portion of individual pay depends on measurable group performance (DeMatteo, Eby, & Sundstrom, 1998). The effectiveness depends on the characteristics of the reward system, the organization, the team, and the individual members of the team (DeMatteo, Eby, & Sundstrom, 1998). Honeywell Johnson and Dickinson (1999) found that equally divided small group incentives maintain high levels of productivity and satisfaction for group members and that small group incentives are at least as effective as individual incentives with groups of two to twelve. .³.

The goal of any performance variable pay scheme is to provide a direct link between pay and production: the more efficiently a worker works, the higher his or her salary. This direct relationship means that the incentives are stronger than in other schemes. However, traditional bonus, piecework and measured work schemes have faded in recent years as many employers have switched to overall performance rather than simple product/outcome based pay; this is how Lean Sigma companies are defining Excellence. In most Lean Business bonus schemes, they incorporate quality measures or customer service indicators into the assessment to avoid the likelihood of workers taking shortcuts or compromising safe work methods to increase production.

The standard advice in designing best-in-class sales compensation plans has always been to pay for individual performance. Recently, however, a growing number of companies are finding that team-based performance measures better reflect how they sell to customers.⁵.

Advantages and Disadvantages of Individual and Team Incentives

Before organizations adopt team-based measures and incentives, they need to address two questions:What business conditions are driving the decision to reward team results above or beyond individual results?? How can an organization know if this is the right way to go?? Answering these questions requires a close look at the company's business model, Operations, Sales and Marketing.⁵.

For example, organizations must determine how sales teams and individuals work together to drive business forward. Does the organization subsist on competition between “lone rangers” who rarely need to work together for the good of customers? Or does it rely on a complex network of account managers, overlays, and geographically dispersed client teams to work symbiotically and continuously to better serve client needs?

Once an organization understands these key capabilities, it can weigh the pros and cons of measuring individual versus team performance in its sales compensation plan.

combining the two

Assuming that an organization decides to employ a mix of team and individual incentives, which metrics are best suited for team measurement versus individual measurement? Ideally, an effective sales compensation plan should have three incentive measures. These can range from the objectively quantifiable (such as customer revenue) to the more subjective in nature (such as management by objectives). How the sales strategy and organization support key business objectives will help determine whether a chosen metric is best suited for individual or team measurement. A company should identify the activities that require the most team collaboration. This could include monetization of multiple products, cross-territory results, or customer satisfaction.

Individual incentives remain critical to success, so a properly balanced mix of individual and team incentives keeps "skin in the game" for sales reps while supporting and enhancing good team-based decisions for the customer. . The best method for a company to introduce team-based incentives for the first time is to take a sensible approach to avoid alienating its valuable high-performing employees.⁵.

If the company is moving away from a purely individual mix, it would be prudent to introduce a team-based measure that accounts for no more than 30% of the total incentive, leaving 70% of the incentive to reward individual results. As the organization becomes more comfortable with team-based measures, increasing to 50% based on team results will still provide an opportunity for individual performances to shine and allow the company to maintain a strong pay-for-performance culture. .⁵.

While individual performance measures work best for some organizations, others may benefit from team-based plans. The keys to success include recognizing a team-based sales organization, selecting the best measures at the team level, and finding the right balance. Executed with care and a strong business case in the right organization, team-based incentives can support a more collaborative environment that can improve alignment with overall company goals and create a winning sales strategy.⁵.

A recent study shows that incentivizing teams vs. Individuals: Incentivized teams increased their performance by 45%; Incentivized people increased performance by an average of 27%. It is believed that the increase in team performance is due to the decrease in “social loafing” that occurs in teams, due to the follow-up required by incentive programs. Clearly, peer pressure has significant value⁶.

Conclution

My conclusion: Several publications, especially on the effectiveness of 'operational excellence teams' (eg TPM teams, autonomous teams, six sigma project teams, etc.), confirm that team incentives are more effective than goals. individual. However, I had to adjust my strong belief on two points:

• Also, individual objectives have their merits, and a mix of individual and team objectives is worth considering.
• Goals and incentives are not the only driver, nor the main driver, for the success of Operational Excellence teams, and must be part of a comprehensive approach

References:

1. Ver Simon Burgess y Paul Metcalfe, Incentives in Organizations: A Selective View of the Literature with Application to the Public Sector CMPO (1999).university of bristol
2. See Manjari and Rekha,Formulation of the concept, principle and parameters of performance-related incentives (PRI), Indian Institute of Management, Ahmedabad, February 2008
3. Motivating Employees in a New Era of Governance, Performance Paradigm Review, by Debra and Laurie, Indiana University and San Francisco State University, respectively. 2006.
4. Promote labor relations and excellence in HR in thehttp://www.acas.org.uk/index.aspx?articleid=735em 19^ºFebruary 12
5. Are team-based incentive measures right for your sales organization?By Sheila McCarthy and Shalin Sharma inhttp://www.worldatwork.org/waw/adimComment?id=36014
6. Incentives, Motivation and Performance in the Workplace: Research and Best Practices,Spring 2002. Research sponsored by the International Society for Performance Improvement