Is Your Business Suffering From Unintended Consequences?

Have you ever put into place policies to motivate your team to behave in a certain way and ended up with an altogether different result? That's an unintended consequence! The book "Freakonomics: A Rogue Economist Explores the Hidden Side of Everything" authored by Stephen J. Dubner & Steven D. Levitt is devoted to documenting this phenomenon. We had the opportunity to hear Stephen Dubner speak at the 2007 Statewide Small Business Conference and discovered that his theories matched our own experience in business.

We have often seen how new policies and management decisions can lead to unintended consequences. Business decisions can have huge positive or negative consequences. When a manager or an owner of a business makes a decision, implements a policy, or even just behaves in a certain way; unintended, unexpected consequences can follow.

One example routinely seen in businesses is the way service is measured. Service is usually measured by an internal metric such as on-time delivery (the percentage of the time the customer gets the product by the date/time promised). There are usually two unintended consequences that occur when this metric is used as a measurable goal. First, the employees and managers start to develop ways to improve their departments' % on-time delivery numbers and lose sight of the REAL end goal-satisfying the customer. For example, if they're not able to build a product on schedule because they didn't receive the necessary material from the vendor, they won't include that in the % on-time delivery because it's out of their control. This causes the on-time percentage to increase (that's good-right?) but the customer never got improved service (whoops - not so good!).

The second consequence often seen is the assumption is that if you achieve 99% on-time delivery that the customer is ecstatic. This is not necessarily the case. Sometimes other service issues pop up that cause the customer to be unhappy. For example, everything leaves on time, but it was not loaded on the truck in the correct order, so the customer is taking 3 hours instead of the usual 30 minutes to unload the truck. It's important to understand all of your customer's expectations and follow up with your customer on a regular basis to see how you are performing.

Service is usually measured by an internal metric such as on-time delivery

Another example occurs when the daily actions of an organization don't match the written goals and stated metrics of an organization. Remember the old adage, "Actions speak louder then words." For example, service and quality are often said to be the number one and number two priorities for most businesses. Banners are put up, a big speech is given every quarter, and the employees occasionally get a vague message that service and quality need to be improved. Meanwhile, the workers get the message loud and clear from their immediate superiors that the true priority is to do the job faster and get the product out quickly. The unintended consequence is that service and quality never improve. More importantly, the employees get frustrated and confused by the mixed message. Turnover goes up and morale goes down and everyone wonders how this could happen.

And what about the "We Need to Make an Exception" clause that a manager or owner feels needs to be pulled out for an emergency? This can result in more unintended consequences. For example, there is a three day lead time for a product and a documented Process is put in place to ensure this happens right every time. All of the sudden the largest customer say they need the product in one day or they will take their business elsewhere. Everyone stops everything to make this happen. The customer gets their product and life goes on. A month later costs are high and service is poor and smaller customers have decided to move their business due to poor service; the smaller customers were getting moved out to handle the 1 day rush orders that the bigger customers had to have. All of the employees thought they were doing the right thing because they had seen their boss do it.

So when you as the manager or an owner of a business, make a decision, implement a policy, or even interact with your employees in a certain way, make sure that your employees have a clear measurable objective that they are trying to attain. Then they need to have a way to routinely follow up and measure whether they are attaining their objective and see if an unintended consequence is occurring. If possible, it is best to pilot a change with a small group and work out any unintended consequence before you implement the change to the larger group.

One way we help companies is by developing the leadership team so they're equipped to manage change in a way that ensures the company gets their desired results instead of unintended consequences.

David Robinson
Steller Solutions

Reprinted from the December 2007 "Steller Ezine", an electronic newsletter of Steller Solutions that is full of FREE tips and resources for your business. Subscribe at www.Steller-Solutions.com