Peter Scholtes Protege discusses Merit Pay

This week’s Business901 Podcast guest is Kelly Allan of Kelly Allan Associates Company. In 2004, Kelly was one of the 12 people selected by the W. Edwards Deming Institute to conduct Dr. Deming’s famous four-day seminars. When Peter Scholtes retired from conducting seminars and consulting, he asked Kelly to continue his work. After five years of doing this, Peter wrote a note of thanks and admiration to Kelly for his efforts, which I highly recommend that you take a look at and read. Kelly also serves on the advisory council of The W. Edwards Deming Institute.

An excerpt from the podcast:

Joe Dager: Well, one of the things I noticed, is when discussing Lean in Sales and Marketing, the  first thing many talk about is leveling sales and making it better for the production side. It makes it very difficult to gain acceptance of “Lean” into sales and marketing because it stays centered on internal processes. When I read Peter’s work and Deming’s work, it is about systems thinking where we are trying to make both the supply and the demand-side  work together, and just as you alluded to there in your description, it is that type of systems thinking that Dr. Deming and Peter Scholtes were about.

Kelly Allan: You are absolutely correct, and I think it’s a good insight that you mentioned and it’s true not just of “Lean, ” I mean “Lean” has really excellent things to offer, but when we try to apply anything without seeing the larger context, we typically get those unintended consequences. So, the example you gave about sales, trying to level set sales with production, it’s not that it is a bad thing, and it certainly can reduce some of the upsets that come from those two areas being out of balance, but that’s still kind of a black-and-white world, and with Dr. Deming’s work and with Peter Scholtes’ work, we are no longer in a black-and-white world, we are in a color, 3-D world instead of a two- dimensional, black-and-white world. So, we have to bring in other things, and it’s not just about, then, whether we are trying to look at the numbers of what production is, or service delivery is capable of providing, so that sales can sell that. We also want to have feedback loops that include market research, and that includes the customer, that includes new innovation, and we want to be using sales, not just as a sales function, but as in part a research function, to hear the voice of the customer, and to test things that the customer might not have thought about. It becomes multi-dimensional, and that’s where I think the example you gave was really excellent, because we see so many companies trying to force-fit “Lean” methodologies without seeing the larger ramifications of that. And things will get better in some ways if you force-fit “Lean” into sales, but they won’t necessarily stay there.

Joe Dager: In Peter Scholtes’ work and Dr. Deming’s, there is a discussion of merit pay. That hasn’t seemed really to take hold, and many people have said merit pay is bad, or sales commissions are bad. These two, most specifically were writing about it 15 or 20 years ago, and why is this? Were they wrong?

Kelly Allan: We have to look at what’s most useful, and if we’re going to look at the organization as a system, pay for performance, merit pay, pay for results, those kinds of 2-D, black-and-white tools start to have unintended consequences. They pit people against one another, and they cause all kinds of wasted time and wasted effort and turnover of staff, but they are very difficult for the human brain to unhook from, because on the surface it seems logical. When we get a call from an organization that says, “Well, we think we want to unhook from pay for performance and merit pay. Help us do that.” Our response is “Are you really sure you want to start there, first of all. If you do, you need to know why.” So both Dr. Deming and Peter Scholtes make it clear that the “why” comes from the math. Both those men were humanitarians, both very much appreciated the destruction of people that comes from merit pay and pay for performance and those approaches. But the reasons for unhooking come from the math. And just as a preview, the math has to do with the control chart, and what is the capability of the system and the people within the system to be successful. There are a couple of hands-on exercises that we take people through to help them unhook so they understand the science behind the methodology. Once they understand the science behind the methodology, otherwise guaranteed arguments about merit pay and pay for performance don’t go away, because our whole culture, and many cultures around the world, from the time we started school, are based upon individual merit, so our brains are programmed to defend that.

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