Using Outdated Management Practices Can Be Very Costly

Readers of this blog are aware of the problems created by using quotas: Achieved the goal by not the aim (2013)The Futility of a Numerical Goal (2014), Distorting the System, Distorting the Data or Improving the System (2013), Dr. Deming on the problems with targets or goals.

Wells Fargo to pay $150 million-plus over allegations its workers opened fake accounts

City and federal officials have reached a settlement of at least $150 million with Wells Fargo over allegations that the bank’s employees, driven by strict sales quotas, regularly opened new accounts for customers without their knowledge.

image of quote by Dr. Deming "numerical goals set for other people, without a road map to reach the goal, have effects opposite to the effects sought."

As I said in a post on my blog, in 2008, The Defect Black Market:

It is simple to blame employees for taking such action. But the management that setup such a system deserve more blame. This type of manipulation is what is encouraged by managers that think management means setting up such simplistic, senseless systems (Why Extrinsic Motivation Fails). This is one more example of forgetting the proxy nature of data (among other things).

As W. Edwards Deming said decades ago as point 10 in his list of 14 obligations for managers: Eliminate Slogans, Exhortations and Targets.

Maybe Wells Fargo executives should pay more attention to how the field of management has evolved over the last 50 years. The dangers of strict sales targets are well understood by those that study management and human behavior. Sadly our management practices often fail to advance even as those that do seek to understand how to better manage our organizations make great strides in advancing our knowledge.

Related: Another Quota Failure Example (2006)Why ThoughtWorks Eliminated Sales Commissions (2013)The Trouble with Incentives: They Work (2010)Targets Distorting the System (2005)Dangers of Extrinsic Motivation (2006)

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7 Responses

  1. Thanks, John. Every Thursday I have to give a report to our management about the progress of our project. I haven’t hit a single goal yet and they are befuddled as to why. The blame is usually pointed in a direction other than mine, but I sometimes wonder where their patience will end as the project continues to not meet their expectations and all eyes are soon on me. I’m not sure what to tell them to change their ways. Classic case of management by fear, eh? Thanks for the links I will certainly check them out.

  2. John Hunter says:

    More details on the culture Wells Fargo executives created, 5,300 Wells Fargo employees fired after 2 million fake accounts discovered

    “In order to boost their sales numbers, employees opened 1.5 million deposit accounts and 565,000 credit card accounts on customers’ behalf but without authorization from those customers. ‘Employees then transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts,’ the CFPB wrote. ‘This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals.’

    In the meantime, customers real accounts were temporarily drained, leaving them with insufficient funds charges and overdraft fees.”

    I would hope even the most flawed executives realize a culture that creates 5.300 “bad apples” is in dire need of fundamentally improved leadership.

  3. John Hunter says:

    Wells Fargo continues to react to the anger at the harm they caused customers for years.

    In, Wells Fargo to cut sales goals to rebuild trust, they are quoted

    “The bank said the new prohibition on sales targets will help reassure customers that it has their best interests at heart.”

    The executive that was given huge bonuses for the targets they hit on the back of these anti-customer policies and the resulting anti-customer actions by the bank are walking away with over $125 million and I still haven’t seen Wells Fargo taking responsibility to correct this situation.

  4. Mark Graban says:

    I think a big part of the problem is that Wells Fargo and other organizations wouldn’t consider goals and quota setting (and pressuring people through exhortations) to be “outdated.”

    They’d probably think that’s perfectly modern management.

    It’s just the wrong approach, “outdated” or not. I don’t think it was ever the right approach for it to become “outdated.”

    My blog post on this (and I shared a link back to your post)

  5. John Hunter says:

    Mark, you are correct it really isn’t “outdated” it never was right. I do find that managers not paying attention to the developments in their field distressing

    And I do try to call attention to that failure to learn even as the troubles with incentives are shown over and over (as your post does well). it is an “outdated” practice only in the sense that say a century ago it would have been hard for a manager to know the problems with such a practice but for the last few decades if someone’s profession is management they need to understand the field enough to know the problems with incentives (yet many still do not).

  1. February 23, 2017

    […] Those with knowledge of how human systems work can predict the likely consequences of creating poor management systems. Yet when the natural result occur, each time people blame individuals responding predictably to the forces created by the management system. […]

  2. February 25, 2017

    […] 4 above). This failure can extend to companies Warren is significantly invested in: such as the long term and deep seeded mismanagement at Wells Fargo due to very poor leadership at that company for years. But in general, Berkshire Hathaway is much better at avoiding these toxic behaviors driven by very […]

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