Your targets are hurting your customers - lessons from Wells Fargo and Youi

The whole idea of setting stretch targets to get outstanding performance is, in my opinion something of a myth.  The people that set themselves stretch goals (such as Olympians) sometimes achieve them because (a) they believe in goal, (b) they are personally committed to their goals and (c) they surround themselves with people supporting and nurturing them. 

Not the same when some Exec provides the Sales Exec with a stretch goal for the year, then this person splits up the stretch goal across the individual KPIs for sales team.  Let the competition begin, internal competition that is...

Wells Fargo bank, the second largest bank in the USA, was fined US$185m by the financial services Consumer Protection Bureau early in September 2016,  Employees of the bank are accused of opening around 2million accounts/credit cards that the customers had no knowledge of.  Since then the bank has "terminated" more than 5,000 employees, some Exec's have "retired" the CEO has resigned.
The Wells Fargo employees opened and funded "fraudulent accounts" so that they could make their sales and cross selling targets.  Customers apparently picked up in this because of the account fees...and this behaviour, allegedly has been going on for 4-5 years.  The government has initiated an investigation and, of course, some people have filed a class-action lawsuit.  The story is well covered in the US media, but not really touched on in Australia (see: ABCnews; Forbes; CNBC; Fortune; Money; FT).

Think this only happens in the US..?  I came across the alleged Youi misconduct through the 2016 Sales Ethics Hall of Shame article on CustomerThink (Nov 20).  There is an extensive investigation and report into the behaviours at Interest with quotes from customers and ex-employees.  And then an article in TheAge that says, Youi has been "making unauthorised charges on credit cards and falsifying insurance policies on a large scale".  Unlike many other insurers you can't get a quote online from Youi, you have to talk with them where - the whistleblowers say - the sales people will pressure you to get the sale. 

Often, quotes not provided without bank or credit card details, and then charges applied even if the customer decides not to proceed.  It's also alleged that cancelations (within the cooling off period) are not processed.  Sometimes the quote/policy will contain incorrect information, such as garaged location, colour of the vehicle, or how the vehicle is stored, to ensure the quote is low and the sale won.  When the customer calls back to correct the details, it is alleged, they are told 'not to worry about it...'  There is (apparently) an ASIC investigation pending and Youi claim these accusations to be "vexatious". 

All these tactics (if proven) are deliberate ways to get sales targets and probably bonuses. 
What concerns me is that, well, if I rang up to enquire about a set of special saucepans from an ad online or on TV, I might expect a little bit of sales pressure and definitely would not provide my credit card details unless I chose to buy.

But we have banks and insurance companies now applying these tactics to get sales targets.  Businesses that should be about developing relationships built on trust.  After all when you buy an insurance policy, all you have is a promise to pay given certain circumstances.  What value is a promise if there is no trust..?

These sales teams are playing a short-term game in a customer-market that is a long game.  Don't they know that closing the sale this way is only a short-term gain - their goal is actually to open a relationship, based on trust for the long term, so that the customer renews, so that the customer becomes a promoter rather than a detractor.

For Wells Fargo and potentially Youi, losing the trust of your customers (and potential customers) is a massive cost for many years to come, consider the following impacts:
  • Customers will have an increased resistance to sales approaches (less sales, less new customers)
  • Loss of share of wallet from existing customers and future customers (lower Customer Lifetime Value, lower profits)
  • Loss of advocacy (lower NPS, lower positive WoM, significant increase in negative WoM)
  • A smaller pool of potential new customers

So let's return to the idea of the Exec setting a stretch target for the sales leader, who then divides the number across the sales team and sets the KPI.  Typically there is no buy-in - you might have sign-off, but very little commitment to the target.  The individual might be committed to achieving the target, because either there is a bonus attached, or their job is jeopardy.  Do they have the support of people around them to achieve the target...well maybe the sales leader is the supporting, coaching type, so they will have some support.  Will they have the support of their team - not if there is internal competition and the sales leader has a scoreboard or league ladder to keep track of the targets.

So what Options do we have in this situation, when targets are imposed in this way..?
  1. I can work to improve my performance and the system that produces that outcome to get the target. 
  2. I can game the numbers so it looks like I got the numbers/target.
  3. I can manipulate the system so it looks like I got the target.

Often, Option 1 is just too hard.  Results and targets, more so these days, are achieved by teams, not individuals.  The sales person may need help from a pre-sales person, an appointment-setter, or marketing, or even the social media team that source leads from content.  But yes, the individual attempts to work harder to get the target.  Here's the problem, working harder often does not produce the result.  Changes in performance often needs a change to the processes and systems that produce the outcome.

Option 2, game the numbers.  Can do, especially when our targets are percentages, we just need to alter the denominator.  When the target is activity based, we just do more. 

Option 3 - manipulate the system.  Happens more often than we want to admit.  The team at Wells Fargo did it for years.  It must have become part of their culture.  Most organisations have an element of manipulating the system to produce targets somewhere in their business.  It's almost seen as fair game.  "Management want this number, we gave them that number and they rewarded".  What gets rewarded gets done.  Unintentionally, management have now polluted the data they use to run the business.

Clearly we want people to take Option 1, Improve Performance.  So we need to create an environment where people want to improve, where they own their goals and they are supported in trying to achieve their goals.

I work with the PuMP, the eight step performance measurement method.  One of the PuMP tools early in the process is the PuMP Diagnostic.  This is a series of 26 statements where teams discuss and determine where they currently are in terms of where they are currently with performance measurement.  A couple of the questions relate to targets.  Consistently organisations rate: Measures are used as a tool to assess people’s performance very high; and Most performance targets are achieved, also scores very high on the 0-10 scale. 

Is it ironic that we are mainly using measures to assess people, and we are typically achieving our targets. 

Measures should be used to assess business and process performance, as a tool for people to make decisions and take action.  Measures give us feedback on the results we are trying to achieve.
Google Ventures partner Rick Klau talks about his experience at Google using the OKR - Objectives and Key Results - approach.  It's a long video, but at about the 25 minute mark he talks about how, 'at least half the objectives/targets need to come from the bottom up'.  In other words, the Execs can set the company objectives, then  - to ensure engagement and buy-in - individuals and teams and set their own goals that will contribute to the company goals.  OKRs though are not the basis for an individual's performance evaluation.  Additionally, targets should only be achieved at a 60-to-70% level, in his words if you are consistently hitting your targets "you are sandbagging it".

Let's get sensible about how we set targets.  If punishment or reward is linked to the target, then we are likely to be pushing individuals towards options 2 and 3.  If they chose option 2 or 3, then the data we use becomes unreliable.

We want people to work on improving the processes and systems they work with, so let's ensure we create environments where learning is valued over judgements.  Let's use measures and targets as a way to understand what performance is doing, why it is doing that and how to improve.

Wells Fargo set the targets, and there were consequences if the people didn't get the numbers.  Gaming the measures and manipulating the system was rife.  But management were okay with this, they were getting the numbers they needed.  The cost is huge - not the financial penalty - but the loss of trust with their customers and potential customers.