“So, you’re the culprit,” I repeated. “What specifically did you do that was so counterproductive?”
“I remember, it wasn’t anything extreme. We have different sales channels and different product lines, with outside sales, inside sales, internet sales. I began to hand out bonuses for each department with the highest gross margin, another for the highest revenue in the quarter.
“It’s funny, now that I think about it, when I handed out those bonuses, the room was quiet. There was no jubilation or high-fives, just a nod and a polite thank you.”
“Tell me about the down-side?” I asked.
“I found out later,” Reggie explained, “that each department gamed the gross margins. They would pump up the pricing in the last week of the quarter and then rebate it back to the customer in the next quarter. In the end, we still got our standard margin, but each department manipulated the bonus system. And all the progress we made on cross-selling was lost.
“And it’s not so much that they had to pay the piper in the next quarter, but look at all the wasted energy, counterproductive to what we stand for. And the last thing on our mind was doing a good job for the customer.”
“It was worse than I thought,” Reggie stated flatly. “What I didn’t realize when I opened up this little fracas, was that the competition started long ago. I nosed around some of my sources. It’s been a dysfunctional fight for the past six months, with not only my three internal candidates, but two others. They are all spread across three departments, so I never saw it.”
“What’s been going on?” I asked.
“Mostly, it’s the subtle non-cooperation of one department with another. Convenient delays, rough hand-offs, missing information. Nothing malicious or brazen, but I have five people working against each other, working against the company.”
“Who’s the culprit?”
Reggie’s demeanor changed. He sat straight up in his chair. The nerve was struck. Chin down, looking over his glasses, furrowed brow, he finally spoke. “I’m the culprit. I tried to create a little healthy competition, but what I created was an environment where individual agendas were more important that teamwork. I created intense internal focus within each department, when I need cooperation between departments.”
“How do we fix it?”
“First, we have to start with the culprit,” Reggie shrugged. “And that would be me.”
“You improved your quality, so your warranty program became a competitive advantage instead of a liability. Your lead time was down to four weeks. You lowered your cost structure. Your output and unit profit was consistent and predictable, systems focus. And then the rug got pulled out?” I asked.
“Yes,” Arianne reluctantly explained. “Everything, up to now had been internally focused. Efficiency, pace, quality. Then, the market fell out. Our customers would shrug their shoulders and buy from someone else. At first we thought they didn’t understand what a quality product we had. We even sent out our engineers with our sales people to explain why our product was more durable, lower cost and could be delivered faster. But, it was us who didn’t understand.”
“What do you mean?” I quizzed.
“We had been so internally focused that we didn’t notice a shift in the market. Our market moved. Our product was fine, but our market wanted something different. Our competitor smoked us. They had re-tooled a number of features based on user-feedback. We had no clue.”
I nodded my head, “Market responsive.”
“Yes,” Arianne confirmed. “It cost us a million dollars in stagnant inventory and months of development time to catch up. We had been so internally focused, we almost lost the ship.”