July 18, 2018 travyrs

What about the Economy? The impact on incentive and engagement programs

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Companies use various forms of incentive, engagement, loyalty and other performance programs to motivate employees, dealers and customers to change their behaviors. In an economic environment that is humming along, these programs tend to be in favor as budgets are easy to justify. 2018 seems to be one of those years according to the Incentive Research Foundation’s Top Incentive Trends of 2018. Market Optimism was listed at number 2, “The incentive travel industry’s net optimism score for the economy is up almost 20 points from 2017, according to the IRF. Increased optimism is leading to budget increases for incentive professionals”, but the economic forecast through 2020 is quite different. When the environment changes those budgets can dramatically shrink and in many cases, be totally eliminated.

To understand how that can happen, to even the biggest and the best companies, just go back to 2008-2009 and review the results. Company CEO’s were testifying before Congress to justify having such programs during a recession. CEO’s who escaped Congress were seen running with a clipboard or briefcase hiding their face as news reporters chased them through their office lobbies wanting to know why they had sent their sales team to Hawaii during a recession. Companies who provide these types of programs were also impacted. Program cancellations were widespread and with that loss of business, layoff’s and “early retirement” created an exit of great talent from many of these companies.

The shame of all of this is it did not have to be that way. Performance Improvement Programs are indeed a great asset to any business when they are planned, executed and measured correctly. The planning process is critical and must be conducted with an eye on all internal and external environments of the business. For companies that planned and kept an eye on their environments, the 2008-2009 economic downturn had the opposite effect. Instead of laying people off they were out recruiting talent that would not have been available in better times.

Instead of cancelling programs, they were increasing their budgets to improve them. How could they do that?

Working from an enterprise performance perspective and a measurement of ROI that included far more than a measure of program costs versus achievement of objectives, they were able to see a recession coming. Economic forecasts can predict that and while there is little a business can do to stop it, knowing it is coming a year or two before it hits sure helps in the planning process. During that time these organizations were reviewing the results of their incentive, engagement and loyalty programs to understand the audiences they were reaching as well as the internal teams that had to support those audiences. In good times, as we are enjoying now, most companies will live with under-performing employees, channel partners or customers who perhaps tend to drag down margins. By addressing both of these factors the organizations that lived to grow during a recession were able to take positive action with both of these audiences. Not the hatchet approach that happens during the down cycle but a much more human approach that allowed employees to move on when jobs, in most cases a better fit for them, were still available and customers were offered the same opportunity with competitors. These actions were actually included as objectives in their programs.

The timing to be forward thinking, especially how your organization will consider measuring ROI, is key. Economic trends, from a leading economic forecast firm, with a historical 98.7% accuracy, has recently forecasted that in the B2B space 2019 will show a slight dip in the market, not a recession but a downturn that will last into 2020. Then by the year 2030 we are all looking at a very likely economic depression. That’s right, not a recession but a depression that will rival the 1930’s. Planning now for the ups and especially the downs is going to be key.

Time to take thorough planning a bit more seriously I think, what about you? When finalizing your budget for your next incentive or engagement initiative what will your approach be? What internal and external environments will you consider as part of your strategic planning process for your performance programs?

While assessing potential internal and external impacts may seem like overkill to most in the incentive, recognition and reward space, to me, an industry outsider, it is the most powerful step to ensure that the best program objectives are selected to achieve the most profitable outcomes for the company, especially financial ROI.