Last year, I worked with a company that had a gain-sharing plan for hourly people. Employees worked to create gains that they, in turn, shared. It was a relatively decent design but its implementation was flawed. As a result, it became perceived as a form of entitlement—something employees deserved. Even worse, they had no idea how to create the gains.

Here are some characteristics of good incentive plans:

The right targets
There should be a clear line of sight between what people do and what they can influence. Expecting hourly people to connect to an earnings-per-share goal is a bit of a stretch. But connecting them to reducing scrap or re-work in their area provides line of sight. The incentive needs to focus on targets that drive results because results fund the payout. If there’s no gain, there’s no payout.

High involvement
People are more apt to actively participate in an incentive plan that they’ve helped design and set targets to achieve. They will work like the devil to hit the stretch targets that they have set. In most cases, people will beat their own goals, even if they are high.

Leaders at all levels, but especially first line leaders, need to promote high involvement and a disciplined continuous improvement process that fosters root cause identification, problem solving, solution testing and refinement.

An information-rich environment
Goals and actual performance information should be as available to the incentive plan participants as a sporting event scoreboard is available to the players on the field. And they should have the information they need when they need it to improve work and results. This includes information about the workings of the business and what it takes to “improve the score.”

The right payout at the right time
Payouts should be large enough to get attention, yet frequent enough to connect the work that was improved with the results that were created. For example, if the incentive is paid annually, the line of sight between work and results is so long that most employees forget the plan exists. Monthly or quarterly payouts (with a form of hold-back in case the company tanks late in the year) keep the effort, results and payout connected.

Everything that comes after is merely repetition.

Not long ago, I spoke at Darden, the big full-service restaurant company and a Fortune 100 Best Places to Work.

Darden screams, “Great Company!” even from the highway.

My Darden host, knowing I fancy myself as somewhat of a foodie, took me back stage into the Olive Garden test kitchen where I watched the chefs create some new entrees. I was like a kid in a candy store.

That’s what we all say we are these days. But when is “crazy busy” a waste of time?

Well, how often do you manage your time according to the value it adds to your business?

An organization’s role is to create value for its customers and continuously improve the process, so more value can be added.

This is the concept of lean. Leading an organization using lean principles and a lean mindset is becoming a big deal everywhere.

If you’re not pruning waste out of your core process—like converting raw materials to something customers’ value—you’re likely to be at a competitive disadvantage.  You can bet your competitors down the street are pruning madly.

How can you add more measurable value today than you did yesterday? How can you add more value tomorrow than you will today?

Check your calendar. Is what you’re doing every hour today adding value to your core process, or is some of it draining value from that process?

Will you say “no” to a meeting that you know will not add value to the organization’s core process?

When you’re in the throes of a petty, political conversation, are you willing to stop and ask your fellow “politicians” whether the discussion you’re having right now is something the customer would be willing to pay for?

Will you give up some sense of control by delegating a lower value-adding task to someone who makes less money than you do?

Will you prune your core process today? The other guys might be doing it right now.

In my book The Leadership Solution, I discussed how leaders can use questions to signal their priorities. If you want to improve speed to market, ask about speed to market issues. If you want to focus on customers, ask about customers.

If you want to increase innovation, ask about new ideas.

Two companies I’ve worked with recently have used employee surveys to try to surface barriers to innovation. Sure enough, the questions related to management’s interest in new ideas received low scores (56% and 38% respectively).

If you want to be more innovative, you absolutely must be viewed as someone who wants fresh new ways to take care of the customer.

The question I’ve always liked best is: “What do you think?”

What counts is what you count.

Among the CEO’s I work with, getting people to work together across functions and departments is one of the top issues. Why then, do others guard turf and focus only on their department, business unit, function or geographic area, which is often at the expense of the company’s overall health?

With the assumption that few if any of us get up in the morning relishing another emotionally-draining day of battle with our teammates, I believe we aren’t willingly creating the silos. Systems create them and they usually start within the goal setting and reward systems. These two systems communicate what’s expected in a powerful way.

If you want integration, check to see if your leaders have shared goals. The way I do it is to use a simple Excel spreadsheet, listing the leaders down the left column and company goals across the top. Fill in each leader’s goals and weightings. You should be able to see quickly if you have a problem. The goals will be out of whack at a glance.

Here’s what you should focus on:

• Keep the number of goals to a minimum—the critical numbers. Having a small number of goals clarify priorities. Having many goals confuse people as to what’s important.
• Company-related goals should be shared by the leaders and weighted heavily.  This makes it clear what’s important and creates interdependencies among the leaders. That is, the goals should be set so that individual member rewards come as a result of the entire team winning.
• Business unit or functional goals should be secondary, so they should receive lighter weightings. They should drive the overall corporate goals.

If you’re trying to integrate your organization, start with the exercise I use and see what it tells you.  Then, if necessary, modify the goals and weightings to eliminate silos, integrate the organization and improve overall results.

For this reason, savvy business leaders target their engagement efforts where they’ll get the biggest returns and the most leverage. You can do this, too.

What do they do that you can do?

For those who missed an earlier Leadership Report, let me reiterate two fundamental, but not universally understood, notions about engagement.

First, employee engagement is a condition that occurs when your employees share the values and purpose of the organization and are willing to “do whatever it takes” to help the organization succeed.  The condition must be properly directed at hitting or exceeding operating or financial performance goals that are important to your business. When you do this well, you’ll hit those goals more efficiently. It’s the equivalent of driving your car to a destination on eight cylinders instead of five.

Second, engaging people requires hard work and resources, as do so many things that are worth doing.  There’s a cost associated with increasing employee engagement.  But the return can be huge—or it can be small. In fact, somewhere along the line, there can be a point of diminishing returns where the cost to engage people is greater than the gains increased engagement can create.  (Do you have to be at a six sigma level (99.9997 defect free) in everything? Most would say no.

Initial efforts to engage people often—but not always– should be focused where the potential gains are the greatest.  Below is a Pareto chart (named after Vilfredo Pareto, which is why it’s always capitalized), representing five cities where a company maintains distribution centers. The height of the bars reflects the number of customer service complaints each facility received in a given unit of time.  The percentage numbers above each bar reflect the engagement scores (on a scale of 1-100) for that facility.

The data tell us that the biggest opportunity for improvement is at the Atlanta facility where the complaints are the highest and the engagement scores are the lowest.  This shows us where the potential opportunity is to improve engagement, but doesn’t necessarily tell us the size of the potential return on the investment (ROI).

To calculate the ROI, we need to know answers to some questions.

1. What’s the size of the problem caused by the complaints? This might be reflected in warranty costs, the cost of rework, processing customer returns or loss of contracts or future sales.
2. What are the root causes of the complaints and what actions and investments are required to make the root causes go away and lift to occur?
3. How much of #1 and #2 above do people have control over? That is, to what extent will an investment in engaging people modify discretionary effort, eliminate root causes and create the gain?
4. Knowing the size of the investment and the size of the gain will reveal the ROI.

It’s important to appreciate what employees can and can’t control through the use of their discretionary effort. To use an exaggerated example, insurance company employees have no control over where a hurricane hits. But, they do have control over how accurately or quickly they process the claims.

Similarly, the employees in the Atlanta facility in the example above have a lot of control over what goes on inside the four walls of the distribution center. But control over inventory levels may be dictated by a corporate supply chain operation, something employees in the distribution center may have no control over. Yet the inventory levels may be too low, causing late shipments that are spawn the customer complaints. So, it’s important to focus engagement efforts where people have control over the results that need to be improved.

Typically, the ROI is higher where the opportunity is the greatest. As a leader increases engagement over time, performance goes up and the so-called low hanging fruit gets picked. Reducing cycle time, for instance, becomes increasingly challenging as the degree of difficulty goes up. Eventually the investment/return lines can cross and leaders need to decide whether to keep improving performance at a cost that may well be higher than the cost to create those gains. That’s, as they say, a strategic decision.

However, as I’ve said many times, aiming for a 100 percent engaged workforce is a fool’s errand in almost all cases.

I hear this question frequently—most recently by someone in Turkey—about transforming an organization into a lean one.  It’s always worth learning from those who’ve gone before you, especially if it can avoid costly missteps.

For those new to lean and its brother, six sigma, lean is a concept that focuses on maximizing value by eliminating waste. Six sigma is a measurement of variation. It’s used to improve quality. Successful lean transformations are characterized by the performance improvements they create and their staying power. That is, lean becomes a way of doing business, not another program of the day.

There are two components of lean. One is the technical, or hard side of business; the formulas, measures and processes. The other is the cultural, or the soft side that includes issues related to leadership, communication and rewards.

The starting point?  Without equivocation, I advocate that the cultural side of the change effort must be addressed first.

In every situation where I’ve been asked to help “fix” a lean transformation gone bad, the problem had been created by addressing the hard side first–changing work processes or imposing new performance measures that no one understood.  Tools, techniques and work processes were implemented on top of a value system that was incompatible with lean.

Starting with leadership, communication and involvement issues takes time. But sometimes we have to go slow to go fast. Getting the cultural issues down right will cause the lean effort to skyrocket, once you marry up the technical and cultural sides and begin the integrated implementation.

Why don’t sales and production people work out the tension between inventories and on-time delivery?  Why don’t human resources and internal communication folks create and administer one employee survey instead of two?  Why don’t department heads with competing priorities work out their differences? Why do complex organizational matrices throw unnecessary political friction into an already overburdened business?

Yes, it’s true that some organizations have worked out these issues. But by my count, not many have. Huge amounts of productive time are wasted trying to negotiate the conflicting priorities, or figuring out ways to work around So-and-So who’s known as a turf-protector but has all the right contacts in high places.

How much could we get done for the customers if we didn’t have this collaboration friction?

Here are four likely root causes of condition, which in fancy-talk is known as organizational segmentation (versus integration).

The root causes:

• The organizational arrangements are based on antiquated business functions, not on value streams. That is, they have little to do with meeting customer requirements.
• Leaders are being paid to meet the goals of their business unit, geographic region, department or functional unit. The compensation arrangement dictates that they make the numbers, all else be damned. (It’s not that crass, but that’s really what it’s saying.)
• There are no priorities, or too many priorities (one in the same), or conflicting priorities. Everyone is on his or her own and until someone figures out what it really takes to win, everything’s up for grabs.
• Processes aren’t in place to enable conversations across functions. Even if the previously mentioned causes were tied down perfectly, when there’s no formal or informal way to build consensus (as in over lunch), getting together is difficult.

Most CEO’s I work with or know wouldn’t put up with what others routinely face before that nicely packaged presentation makes it to the CEO’s desk.

Agile organizations focus on tomorrow, are intolerant of the way things are and systematically renew and improve themselves.  They dig deep for new customer requirements and ways to meet them. And they obsess over getting their people involved in creating incremental and transformational improvements.

An agile organization is adaptive; it anticipates, constantly questions its assumptions and continuously improves its processes and systems. In short, the organization’s culture is to actively and simultaneously listen to its customers and  people.

The balancing act that’s required is managing the tension between maintaining a core sense of purpose and a “what if” mindset.  If you focus too much on the core, you become set in your ways and apt to stagnate.

If you are excessively “what if” focused, you flop around trying this and that, sending energy in multiple directions without a clear purpose or strategy. The nice thing about strategies is that they help you know what to disregard.

People welcome information about business strategies, competitors and customers. They want a minimum of rah-rah, just the unvarnished facts delivered in an authentic way.

The overarching context needs to be supplemented by “what it means to me” or the CEO’s message is likely to become “so what?” information as in, “That’s all well and good, Madame CEO, but what do you want me to do about it?”

If I’m sitting in the clinical development function of a pharmaceutical and I’ve just heard my CEO discuss the importance of getting new medicines into the pipeline, I want to know what my leader of clinical development has planned to get new medicines into the pipeline. More importantly, want to know what I need to do–what actions I need to take–to help us get where the CEO has told us we need to get.

The “what it means to me” needs be just as speed-driven and well orchestrated throughout the business as the CEO’s meeting.