Digital transformations: aligning incentives to the transformation strategy
When employee incentives are misaligned to the objectives of your digital transformation strategy, then the risk of failure increases significantly.
Let’s say you have an agreed business case for the transformation programme and have a clear understanding of the success criteria, a group of highly invested leadership stakeholders, a project team raring to go, and cross-functional support planned… but do you have your people’s reward and recognition aligned to that of the transformation? And does it matter?
In short, the answer is “YES”. Aligning team and employee incentives to the strategic goals of the transformation is crucial to the success of the programme.
Historically, the various functions involved in digital transformations have been incentivised differently. This is due to many factors (e.g., some functions are not 100% allocated to the transformation, sales will be incentivised differently from the delivery functions, and so on).
Goals and incentives show where the organisation is focusing effort and prioritisation. Conflicting or misaligned incentives pull people to different north stars, dilutes clarity on what success looks like, and increases risk. This impacts negatively on the efficiency and effectiveness of the transformation by creating silos, inhibiting collaboration, and sowing the seeds of disunity across the entire transformation function.
Conflicting leadership goals
Take the example of one leader incentivised to raise bookings, who wants to see the transformation prioritise getting products to market faster – while a counterpart is incentivised to drive down support costs and wants to focus efforts on support automation and workflow improvements.
Core business vs change initiatives
Or a subject matter expert who has a critical role to play at this point in the transformation, but they’ve got tough (non-transformation related) role targets to hit this quarter and they can’t afford to spend time on the transformation initiative.
Short-term decision-making vs long-term value
Conflicts can arise between ambitions to transform for the long term against reactive urgent needs for short-term goals right now. The hope that the transformation programme will solve a wider and wider set of targets can result in ballooning success criteria. This will risk the transformation rushing to do everything all at once, with the impact being diluted and deliveries not meeting the ever-increasing success criteria.
Cost cutting vs product development/improvement
The eternal tension between the drive for efficiency and increasing revenue can result in situations where the transformation team finds itself under-resourced and under increasing time pressure, leading to deliveries being scaled back and everything deemed “not essential” getting de-prioritised. This leads to the transformation function feeling that it’s underachieving and a resulting valley of morale that is difficult to recover from.
How have we got here?
We commonly rely on tracked programme metrics and success indicators (schedule, scope, budget, outcomes, impact, and learnings), mandated organisational drivers (mission, values, standards adherence, in-year financial or priority targets, and longer-term growth metrics), and perhaps some project milestone-related celebrations.
However, used in a disjointed way, these don’t cut it. Incentives must be aligned to the transformation strategy which, in turn, is anchored in the core business values and competencies.
How do we fix it?
Here are some examples of how you can help align goals and employee incentives with the objectives of your digital transformation strategy.
CEO sponsorship of the transformation will ensure that this is not seen as a pet project and goes a long way to overcoming any barriers.
A new approach to organisational culture is required, to encompass both ‘Run’ and continuous ‘Transform’ business needs. Everyone needs to be clear on the strategy, direction, and what transformation success looks like. Staff need to understand how they will be measured and how they play their part in delivering success. Don’t underestimate the incentive of being part of a purposeful, impactful team with a clear mission with opportunities to be challenged and grow.
Inspire to transform
The adoption of an inspirational leadership style will allow staff to see the big picture and become agents of change themselves. People are more productive when they feel inspired, and it is the responsibility of the leadership function to light this fire.
It is within the remit of the programme manager to manage the challenge of leading a cohesive and collaborative project culture.
Understand how the stakeholders are incentivised. Understand the team’s goals, drive, and development needs (via one-to-one meetings or a project kick off) and align assignments thoughtfully. Reach out to volunteer champions and ancillary functions (agree access and expectations, ensure project contributions are acknowledged in performance reviews, and commit to providing feedback and supporting development).
Structure the governance of the transformation programme to ensure the connection to the organisational mission and values are built into the ways of working, decision-making, and communication. This allows for faster and more effective adaption of the programme to changing circumstances and risks.
Use a full range of incentive tools to nudge alignment of recognition and reward with transformation programme success outcomes. It is strongly recommended to include transformation-focused objectives as part of the individual’s annual performance targets. Consider variable compensation such as milestone or outcome bonuses if appropriate and if you have budget available. Securing opportunities for individuals to take on growth assignments is highly motivating. And don’t forget project milestone celebrations, gamification, formal recognition, and heartfelt appreciation.
Assess the impact of aligning incentives with transformation strategy by recording baseline metrics, reviewing change, and comparing to other programmes. Appropriate metrics could include measurements of stakeholder engagement (consistent understanding of mission, individual sense of purpose and job satisfaction), team productivity (rate of throughput, delivery quality, avoiding overwork), and transformation impact (success criteria met, change acceptance, benefits felt).
In summary, we need to step back and review the transformation programme to assess how teams and individuals are currently incentivised, align these incentives to the strategic goals of the transformation, and appraise the impact of this.
Incentives are a potent tool and used thoughtfully, they can work to support a strong collective purpose with a highly engaged team. Misaligned or used as a blunt tool, they can at best distract and at worst create programme conflicts, promote poor behaviour, and increase the risk to programme deliverables. Aligning incentives and compensation strategies to the vision underpinning the transformation and tying compensation to collaboration are essential to ensuring that all functions/teams and individuals are pulling in the same direction.
So, “YES”, aligning employee incentives to the strategic goals of the transformation is critical to delivering a successful outcome.
Have you experienced the negative effects of misaligned incentives on a transformation programme? If so, we’d love to hear about them and how these were tackled, so please comment below.
About the authors
Brian Harkin is the CTO of Kynec and a visiting lecturer at Bayes Business School (City, University of London).
He is passionate about the intersection of people, technology, and innovation and has developed the Galapagos Framework to help leaders and organisations transform the way they direct digital change.
Sarah Patel has 20+ years’ experience in fintech, including as a project manager helping customers achieve value through large-scale software upgrades and implementations; and as a customer success leader, working with her team to partner with strategic customers, supporting their path to successful outcomes.
Sarah delights in empowering teams to deliver results for their customers and the business. Connect with Sarah on LinkedIn.