Returning to the framework on page 139 in Chapter 37, at the team level of value-added outcomes, companies can use gainsharing to reward teams that produce the gains. Bob Doyle, who pioneered the concept of gainsharing and wrote the seminal book on the topic, saw the benefit of the organization sharing bottom-line results with the employees who created them. Bob understood that if you set a benchmark, challenged your employees to exceed it, and promised them a substantial part of the gain that comes from exceeding the target, they would be motivated to accept your challenge—and beat it. The key is to set a realistic benchmark, not hyper-inflating it, so that there is an opportunity to surpass it. Bob also understood that this could be done at both the individual and group levels, but that big gains generally came when teams were involved.
Gainsharing can result from decreasing costs or increasing revenues, as we saw earlier on the critical path. So, when companies decide that cost needs to be driven down even further, they can determine how much lower they want them, and then offer to share with the employees the benefits of that reduction. Likewise, you can use the same technique on the revenue side.
For example, a drugstore chain that needed to reduce costs came to two realizations. First, they noticed that most of their work teams were able to manage themselves without constant direct supervision. Second, they thought that those self-managing teams might prefer not having managers. So, they proposed to the teams that, if they could eliminate the need for a manager, the company would share the savings of that manager’s salary with the team. The team would get 50% of the savings to share among themselves, and the company would get the other 50%. The company reduced the amount of managers by one-third, while overall company productivity, employee morale, and profitability went up. The chain did so well that they were bought out by a larger chain that wanted to expand into their territory, but, more importantly, wanted to learn how the firm accomplished those improvements. What they were really buying was a new management approach that they hoped to spread throughout the entire newly formed company.
Similarly, Whole Foods, the natural foods grocer, understands this gainsharing principle. Each department receives reward money based on the revenue generated by that department and compared to the other departments. The teams that produce more money get more money. Whole Foods recognizes that getting everyone on the team to perform for the team’s benefit encourages their workers to look beyond the clock that provides their hourly salary.
Team rewards are tricky because team members may have different inputs and throughputs that are valued differently in the labor market. In a hospital, heart surgeons get paid more than cardiologists, who get paid more than emergency room doctors who get paid more than the nurses. Likewise, the contributions of each team member may not be equal. One individual might account for 40% of the effort, results, and outcomes, while the other four team members account for 15% each. Yet, if they are all necessary for a successful patient outcome, then the hospital needs to have some team reward that encourages them all to work as a team and that is above and beyond the individual rewards available to each of them. The team can all agree how to allocate the team reward either before the work gets started or after the work is done.
For team rewards to work best, the team members need to have some input as to who is on the team. As discussed earlier in Lesson 26 on hiring, they need to feel that their team has the right talent and the right spirit to work together to produce the value-added outcomes. This is why companies like Whole Foods involve the teams in hiring and training new members.
Critical Path Action Items
What critical path teams are you on? How many non-critical path teams?
Will any of the teams you are on produce team level outcomes on the cost or revenue sides?
How should you be rewarded for those team level outcomes?
As an owner or manager, what critical path team level outcomes do you expect and from which teams?
How do you plan to reward those team level outcomes? Bonuses? Gainsharing?
If you don’t reward those team level outcomes, do you think that team members will give much to the team or that the teams will produce?