People often fail to make good decisions if their performance goals and incentives point them in the wrong direction. An example is UD Trucks, formerly Nissan Diesel.
When the company was bought by Volvo in 2007, the new owners mapped out an ambitious strategy for growth. One key to the strategy was expanding after-sales service, which was a profitable business. But UD Trucks's sales force at the time was rewarded mainly on the number of trucks sold in a given period, with only a small incentive for after-sales services.
To ensure that incentives helped sales reps make the right decisions about their time and their interactions with customers, the company added new targets for truck inspections—a leading indicator of service revenue—and service profits. This focus helped UD Trucks weather the 2008-2009 downturn better than competitors: the company compensated for falling sales volumes with greater service revenue, keeping the operation profitable.
The Australian telecom company Telstra, similarly, had to change the incentives for its call-center agents to help them make good decisions. Before, agents had an incentive to minimize the time spent on the phone with customers. But service technicians in the field often got inadequate information from the agents and so were unable to resolve customers' problems on the first visit. The company changed its incentives so that the agents would spend more time on a call, helping customers resolve issues themselves or else gathering all the information required for a first-visit fix.
People often fail to make good decisions if their performance goals and incentives point them in the wrong direction. An example is UD Trucks, formerly Nissan Diesel.
When the company was bought by Volvo in 2007, the new owners mapped out an ambitious strategy for growth. One key to the strategy was expanding after-sales service, which was a profitable business. But UD Trucks's sales force at the time was rewarded mainly on the number of trucks sold in a given period, with only a small incentive for after-sales services.
To ensure that incentives helped sales reps make the right decisions about their time and their interactions with customers, the company added new targets for truck inspections—a leading indicator of service revenue—and service profits. This focus helped UD Trucks weather the 2008-2009 downturn better than competitors: the company compensated for falling sales volumes with greater service revenue, keeping the operation profitable.
The Australian telecom company Telstra, similarly, had to change the incentives for its call-center agents to help them make good decisions. Before, agents had an incentive to minimize the time spent on the phone with customers. But service technicians in the field often got inadequate information from the agents and so were unable to resolve customers' problems on the first visit. The company changed its incentives so that the agents would spend more time on a call, helping customers resolve issues themselves or else gathering all the information required for a first-visit fix.
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