Without relevant and timely information to understand the business, and a compensation system that rewards improved business performance, people can’t and won’t do the right things. This is called "Playing the Game of Business." With it, you can generate improved control of your business while increasing employee performance and commitment, thereby creating a more self-managed organization.

The "Game of Business" can be implemented in three steps:

Step 1: Establishing Critical Performance Variables for the Business

For each function or work process of your business (like customer acquisition and retention, product/service delivery, after-sales service, etc.) determine key productivity, efficiency, quality and service criteria that measure the performance of that function or process. Measuring and tracking these variables would help company management and staff learn about their operations. For example, one company focused on its customer acquisition and retention process. They chose the criteria of sales volume, gross margins, the number of product orders, and the size of the customer base. They tracked these variables weekly and monthly by customer category, by product line and by sales person to better understand where their sales were coming from.

When starting to measure and track business variables, examine which variables are really helping the organization to learn about its business operations, and pointing people to their priorities and places for needed action. Another company found that when they did this, employees became much more interested in the business’s performance. They wanted to know not only how the business was doing, but also how they were doing individually.

Step 2: Setting Targets for Key Performance Variables, and Managing by Exception

After collecting, charting and discussing data for a time, company staff become familiar with looking at critical business numbers and they gain a feel for their meaning and impact on the business. Management and employees can now set performance targets for individuals or teams to achieve. This can be done by establishing minimum, satisfactory and outstanding levels of performance for the variables that are critical for business success. One of the companies I mentioned set various sales, gross margin and customer base targets by product line and by sales person, the variables that they felt that every sales person in their company had the greatest ability to impact.

In setting performance goals, input from staff is crucial. With staff involvement in setting targets comes greater commitment to achieve those goals. Negotiating acceptable and challenging goals is much more empowering than just having goals indiscriminately decided by management.

Finally, set up appropriate management and employee forums or meeting to review, react to and problem solve those variables that are outside acceptable ranges of performance. Be sure to recognize outstanding results, and to analyze what created them, because you want good performance to be repeated.

Step 3: Tying Incentives to Key Performance Variables

After working with this performance system for some time, employees become familiar with goal setting, performance reviewing, and action planning and implementation. Management can now work to accelerate performance improvement by tying incentives to reaching or exceeding targets. Employees need to relate personally to the chosen variables and see results regularly, otherwise they won’t be able to connect their actions and decisions to company performance.

The company can create an "incentive pool" tied to the chosen variables, and treat it as a separate income source to employees, not as part of their regular compensation. To prevent employees becoming complacent about the incentive system, or perceive it as entitlement, it should be continually adjusted. Performance targets can be raised annually. As well, different variables can be employed as business conditions change. Expectations need to be set high to generate a challenge and sense of accomplishment for employees, but not made unrealistic so as to discourage employees from performing at their best.

To keep the "game of business" on target, company owners and managers must keep their focus on generating valid information, learning what the numbers mean about the business, improving performance continuously through participatory problem-solving, and fairly rewarding all employees for improved performance.

With the appropriate intentions in mind, company owners can boost not just business performance but also employee energy, morale and loyalty. If set up properly, this system can cost a firm virtually nothing to implement. Monetary incentives can come directly from increased business profits as the firm's performance improves. In this way, both the company and its employees can win.


Harvy Simkovits, CMC, President of Business Wisdom, works with owner managed companies to help them grow, prosper and continue on by offering innovative approaches to business development, company management, organization leadership and learning, and management education. He can be reached at 781-862-3983 or .