Sunday, October 10, 2010

Are Bad Policies Driving Bad Behaviour?

The behavioural difference in two of my clients is amazing.  In one client, client A, employees are responsible for scheduling their own vacation.  Sure, there is a reconciliation report to make sure that employees don’t book more vacation time than they have allotted to them, but so long as they communicate to their stakeholders that they will be out of office and they are performing at or above expectation, they are free to take time off as they please.  As a result, the amount of time booked against the sick leave account is virtually non-existent. At another client, client B, employees are required to schedule and seek approval for every vacation hour.  I have yet to meet an employee that likes this policy; it is universally agreed that this policy is a hassle and is a major distraction from serving their customers.  Why does client B have this policy?  To control the amount of time booked against vacation.  But as a result, the time booked against the sick leave account is twice industry average; employees use sick leave as a work-around to getting approval for a single vacation day (more effort than it’s worth). 
I can imagine at some point, client B felt that this was the right policy.  And it doesn’t help that few people feel empowered to challenge the process.  To guard against this, CFOs can take the following action for their organizations:

Conduct annual policy reviews

Not every policy will need to be reviewed annually, but you should have a policy review plan in place that rotates the coverage of all policies so that all are reviewed within a 3-5 year window.  Business models and markets change.  Companies divest business units and acquire others.  You want to make sure your policies reflect the reality of your business today; not your business as it used to be. 

Benchmark Causal KPIs

If you utilize KPI-based management reports (and you should), occasionally, include a deeper dive into the data and include causal KPIs.  In the case of my clients, looking at vacation accrued versus vacation taken is one metric but sick leave taken as a trend is a causal KPI that revealed important trends.  Vacations are taken during the summer and around holidays.  An analysis of the sick leave data showed that people tend to get “sick” on Fridays or the day before a long weekend. 

Include Anonymous Feedback Questions Targeting Non-Financial Factors

Ask your employees for their feedback on policies.  While you may have solid accounting logic to back up a policy, if a change in policy would drive additional revenue, then maybe it is time to look beyond the accounting logic.  Make the feedback anonymous so people feel free to express themselves.  Don’t predispose the questions that assume an as-is state (meaning: don't create questions that assume that the policies are correct in the first place).  Include open ended questions. 


Policies are not a “forever” mandate.  Organizations change over time and therefore, policies must change also.  Just because “we’ve always done it that way”, doesn’t mean we need to continue to “do it that way”.

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