Business & Technology Nexus

Dave Stephens on technology and business trends

Archive for September 2006

Performance Based Pay – Thoughts from a Silicon Valley guy

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What are the views of a Silicon Valley guy like me whose spent a decade in Oracle’s performance-driven culture? To steal a line from Fox News, I think you’ll find them “fair and balanced.” :)

Let me explain the context. In talking with friends and colleagues (like Michael Lamoreaux), it’s come to my attention that the vast majority of organizations aren’t as modern as my San Francisco Bay Area upbringing had me imagining. I thought corporate America and the business world overall had embraced the value of performance based pay. I thought businesses understood that by aligning a portion of a person’s compensation with corporate interests that the company grew more competitive over time.

But I really should have known better. After all, lack of a performance-driven culture is what led me to join Oracle in the first place…

Straight from university I joined a small engineering consultancy called SetPoint. It was a good company that had cornered the advanced multivariable process control market, at least for a time.

Over my 4 years there (1992-1996), SetPoint would face increasing pressure from an upstart called DMC. Both firms, it turned out, were eventually swallowed by AspenTech in the same M&A transaction.

SetPoint did have a bonus plan. And bonuses, to their credit, did vary based on your performance. Top performing engineers received, as I recall, around 6.3%. Lower performers, on the other hand, might get 5.8%. The difference was so slight that it was barely enough to cover a meal at a nice restaurant!

Now I will be the first to admit I was pretty full of myself back then. I was looking to prove what I could do, and so naturally I tried to take on as much work as I could. I eventually ran a team of consultants who did projects for GE, personally wrote custom software applications on those projects, modified core product functionality in cooperation with SetPoint’s products group, taught classes for the Education group, did Marketing work including working with legal on trademarks, etc. It was a classic fast-and-furious small company role.

But at some point fellow employees started stopping by my office and asking me “Dave, why are you working so hard. Don’t you know it doesn’t matter?” And that was tough to hear. It got me thinking about how insidious that attitude was inside the company. What happens when you are working in a firm full of people who are watching the clock and heading home right at 5pm? How vulnerable are you as a business? And who is having any real fun!?

I asked for a meeting with the CEO to better understand why the company wasn’t more performance-driven. To his credit, he accepted even though he didn’t know me. And at that meeting I learned more than I ever imagined. Here’s my 10-11 year old recollection:

Dave Stephens (annoying young engineer): “Doug, why isn’t going above and beyond rewarded more here?”

Doug White (CEO): “Dave, this is a company of engineers. Engineers value stability above all things. We don’t differentiate much on performance – that would make things unstable. We like it that way and we’re not changing things.” (but more polite and CEO-like)

I knew right then I was working for the wrong company.

At Oracle, performance was and is managed fairly well. Every 6 months teams pull together forced rankings and use them to determine bonus and stock incentive compensation. Now I’m sure there are many firms that do performance-based pay better than Oracle – I’m not declaring them the best by any means. Yet I’m equally sure many more firms do it “worse” & could learn from Oracle’s techniques.

But measuring performance can be extremely tricky. A week ago, I posted a teaser showing a full & empty parking lot at a manufacturing facility. The question was, if just as many widgets are output on Sunday with 50 people there, how come 400 people are required Monday-Friday.

It would be naive to think that the other 350 people aren’t needed. But for the 50 required to run the manufacturing line, measuring performance is straightforward. How many widgets? Oh, up 10% at the same quality level? Great job. And so you could conceivably incorporate production targets into their compensation plans. But for the other 350, you’re stuck.

Measuring engineering and product design, which I’ve had to do a long time now, is more like measuring the 350 workers at the plant – it’s difficult. Get too formulaic and you’ll incent the wrong behavior. Say you start measuring developer performance based on code line output. Developers will start optimizing for that, not quality. Measure on defects and you will destroy a collaborative and open working environment as people cover their behinds. Formulas and straight quantitative measures simply don’t work in my experience.

I think the best plans recognize that performance is subjective and don’t hide from the subjectivity and complexity in the measuring process. Performance factors should be broad, and of course must include enterprise performance as the number one factor. We were always told at Oracle to rank people based on “their contribution to the company.” And I thought that worked.

Another thing to recognize is performance-based compensation systems are never fair. You should still use them – but you should understand this point fully. Subjective measures are loaded with complexity to begin with, and then exacerbated as different managers value those measures in different ways. So you are never going to have a plan or execute a plan that’s 100% fair. The best you can do is try and approach fairness & correct mistakes as you make them over time. Managers owe it to their performance-driven teams to promote the goals of these programs while acknowledging their inherent fallibility.

By being honest & upfront and not getting overly specific, management can ensure performance based pay, just like procurement, is good medicine for your business.

Written by Dave Stephens

09/28/06 11:43 AM at 11:43 am

Posted in Historical, Opinion

Coupa – Open Source Procurement: Website Refresh

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Here’s a few quick Coupa updates:

1) we’ve updated our website. let me know what you think of the new font on the homepage flash – noah, my co-founder, h-a-t-e-s it! should it go? and if so, what font would you recommend instead?

2) we’ve added instant online demos of our Enterprise Edition to our hosting infrastructure. we hope this helps folks evaluate our eProcurement solution whenever they’d like & at their own pace.

p.s.

Wow! I have received a few emails & some good feedback on the website (thanks!). just for fun, here are the 3 major versions we’ve gone through.. first, the original:

1st coupa website

next the 2nd version:

2nd coupa website

and finally the current version:

3rd version of coupa's website

Fire away with your critiques! :)

p.p.s. Charles’ comment below resonated with a few colleagues so the shopping cart, while really fun and enjoyable, got the boot. Here’s the latest “new” version:

Written by Dave Stephens

09/28/06 10:06 AM at 10:06 am

Posted in Coupa

Countdown to 20,000 unique page views

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I expect Procurement Central will hit 20,000 unique page views this week. Thanks to all of you who stop by from time to time.

Like most blogs, Procurement Central started out as an experiment. And let me tell you – the novelty of trying to be interesting on a daily basis wore off just a few weeks after I began. Blogging turned from treat to chore. But I decided to stick with it. And slowly it has grown into something very fun and truly enjoyable.

The CEO of Technorati once said he viewed blogs as people’s “focus & attention over time.” After spending months writing, I believe that is a very insightful description.

So here are the stats: I started Procurement Central on February 17th, 2006. This will be my 156th post and the blog has received 186 comments. Unique page views is around 20,000. RSS readership, while once light, now hovers around 100 feeds served daily.

all my best,
dave

Written by Dave Stephens

09/25/06 9:12 PM at 9:12 pm

Posted in Opinion

Speculators “Flee” Commodity Markets, Oil Falls

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I enjoyed an article published today in the New York Times entitled “Oil Prices Fall as Speculators Retreat.”

Oil prices dipped below $60 a barrel briefly today. Here’s how the CASH chart looks:


(Click Flipcharts from this link for more)

Beyond crude oil, consider the metals market. Gold is down from its high of around $730/oz on 5/12 to ~$590 (-19%). High grade copper is down 15% from it’s 5/23 high of $407. Platinum is down 15% from it’s 5/17 high of $1335. You get the picture.

Oil’s correction appears to have started roughly 4-5 months after metals peaked.

But Uranium (U3O8) has yet to stall its steep ascent. Visit www.uxc.com for a quick primer. One interesting fact on the uxc website is that for 2006 about 34% of the total poundage of transactions reported has been purchased by investors, not energy companies. The “Cliff Notes” on uranium is that, like other commodities, emerging China and India need it.

So what is in store for the commodities markets? Will uranium correct like the others? And is this a temporary reversal or the start of a longer-term trend? I wish I could be your expert on this but I am just a spectator. My gut says the long-term trend is up since resources are finite and demand continues to rise.

Written by Dave Stephens

09/25/06 4:14 PM at 4:14 pm

Posted in Opinion

Dr. Prausnitz’s Lifetime Achievement Award

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Many of you may be surprised to learn I am an unabashedly proud Chemical Engineer, even though I found my calling building business software. In fact, while obtaining my B.S. at UC Berkeley I was priviledged to do undergraduate honors research for the distinguished Dr. Prausnitz. And although I turned down Dr. Prausnitz’s request to go to graduate school and “become something” I always look back upon my work with him with fondness and gratitude.

His office (for over 50 years now) is on the 3rd floor of Gilman on Berkeley’s campus. Across from it you’ll find a plaque – and not just any ordinary plaque – but a plaque saying “in 1941 in this laboratory plutonium was discovered.” That sets the tone of the place – here is where history is made. Next to his office door is a now 20-years-out-of-date Academic Family Tree, highlighting all of the fabulous researchers that studied under Dr. Prausnitz and went on to contribute to the field.

Well, last night I had the absolute pleasure of returning to Berkeley to attend an AIChE Northern California Section dinner honoring Dr. Prausnitz with a Lifetime Achievement Award. Naturally, he hadn’t changed at all and engaged me with the same mix of charm and wit that I had remembered from nearly 15 years ago.

Dr. Prausnitz has many honorary doctorate degrees (to complement his actual phD from Princeton) and has received many awards and commendations over his life’s work. Given that he has spent over 50 years as a Professor at UC Berkeley, that’s saying something. In 2005, for example, he was awarded the National Medal of Science at the White House. In my eyes, he is just one of those legendary figures that has sought truth and meaning over the years – and as such I couldn’t pass up the opportunity to see him again, say thanks & congratulate him on all his achievements.

To my delight, Dr. Prausnitz gave a lecture as the dinner was concluding. He spoke not on technical matters, but instead about the role of Chemical Engineering and Chemical Engineers in the “postmodern world”. This was a philosophical talk and also a call to action. And to me, the concepts and concerns Dr. Prausnitz outlined persist well beyond the narrow confines of Chemical Engineering and extend instead to how Scientists and Engineers, in the broadest sense, have yet to adapt to the concerns of postmodern society.

I won’t attempt to recreate Dr. Prausnitz’s lecture because I would fail completely. But I think I can convey a portion of his message by reminding regular readers of one person’s reaction to my decision to launch my open source procurement start-up Coupa. The dissenter wrote: “that’s all we need is another engineer building software for us.” The point in the message is paradoxical but not uncommon. The thought behind it is that engineers “don’t listen”, engineers “don’t get us”, and therefore an engineer’s effort is just as likely to be a big waste of time than anything truly of value.

Of course, engineers and scientists bristle at this. In our typical, often condescending way, we respond along the lines of: “If not for us engineers, you would be eating a lot of raw food, living in a grass hut, and just forget about things like cars and planes, your iPod, the internet, etc.” Just trust us, we say, and we will make life better for everyone. Yet this knee-jerk response does not create a dialogue, does not help bridge the gap between those who use technology and innovation and those that seek to produce it, and, as Dr. Prausnitz said “destroys credibility.”

The truth is too much of society views engineers and scientists with deep suspicion. And we fuel that suspicion by providing plenty of examples where we have been either unable or unwilling to deal with context, differences in perception, underlying complexity, and especially the desperate need for human individuality. We come across at best as “dull and narrow-minded plodders” and at worst “dangerous tinkerers seeking to destroy life’s delicate balance.”

Of course, Dr. Prausnitz was less aggressive in his tone and his examples. He was able to draw out societal biases through looking at 2 similar slogans separated by 40 years. The former, used by DuPont, said “Better Living Through Chemistry.” What do you think? Would that work today? He’d argue, and I’d agree, absolutely not. Instead, people would react by linking Chemistry to accidents, to technology gone awry, to Bovine Growth Serum, etc. The new, postmodern equivalent is “Value Beyond Chemistry.” The message here is simple – we have the scientists firmly in check and while their work in necessary, we are making sure it is used within a social and societal framework of values that no engineer or scientist could ever understand. Us non-scientists and non-engineers are in charge, don’t worry!

Dr. Prausnitz issued a call to action on how to bridge the gap. He argued postmodernism had its very, very good points – such as it’s ability to free society from soul-crushing efficiency – firmly rejecting concepts like modular apartment buildings where every unit is exactly the same. He argued for more linking between the humanities and the sciences. And certainly I agree. Without being able to articulate the reasons for achieving scientific progress in a postmodern framework, true societal progress is difficult to achieve. Engineers and scientists should view theselves as apart of instead apart from society. And the converse should also hold true.

It was an inspiring talk – and well worth the drive to Berkeley. I may give you a few of Dr. Prausnitz’s more colorful examples in posts to come. But needless to say, just as always, I listened to him and grew smarter. I listened and 15 years melted away. Well done Professor Prausnitz, well done.

Now I’m certain most of you will never have heard of Dr. Prausnitz, so I want to end this piece with an anecdote he began his lecture with. Dr. Prausnitz said that he now knew there were 5 stages you go through when joining faculty researchers at a University setting. And these are:

1) Who’s Prausnitz?

2) Let’s give Prausnitz a chance

3) Prausnitz is one of us

4) Where can we get another Prausnitz?

5) Who’s Prausnitz?

How true. And not just of University Professors, Dr. Prausnitz. True for almost all of us.

Written by Dave Stephens

09/20/06 6:26 AM at 6:26 am

Posted in Opinion

Thought of the Day

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Let’s say you manage a factory. And on Monday morning the parking lot looks like this:

That day the factory produces 10,000 widgets at good quality.

Then, you come back Sunday. The factory parking lot looks like this:

Yet the factory still produces the same 10,000 widgets at good quality.

What do the rest of your employees do?

Written by Dave Stephens

09/19/06 8:00 AM at 8:00 am

Posted in Opinion

ERP, Procurement, and M&A

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I’ve posted in the past about Oracle’s Global Single Instance – both the vision and the reality. And although Oracle is now about as far off message from pushing a Global Single Instance as they ever could be, there are some compelling points that come with the promise of system centralization.

[Before you get too excited, this isn’t an argument for Oracle to return to the GSI message – clearly the world prefers messiness & Oracle is generating the revenues to show it!]

Answering key questions about your business is easier when it’s done from a central source. Ask Hyperion… And while a data warehouse is the most common route for larger organizations, a few have unified transactional systems that they can query directly.

A friend of mine, Greg Tennyson, was quoted extensively in a recent Inside Supply Management cover story entitled “Acquiring Refinforcements“. In it, another huge benefit of system centralization is showcased: acquisitions.

Oracle, according to Greg, can fully integrate an acquisition’s procurement operations into their central system within 6 months. And that’s impressive. In effect, it means all the overhead costs associated with doing business as a separate company can disappear.

But you needn’t get the “Global Single Instance” religion to wield your systems toward your competitive advantage in M&A actions. A single system is far from required – just ask GE. In one GE business, system practitioners use their “all you can eat” Oracle ERP license and stamp out a new instance with standardized processes within 30 days of acquisition close. They have to! Because +30 days there’s another acquisition to work on… At the end of the process they then tie ERP instances together so closing the books is as easy as possible.

Systems prowess is often overlooked when companies pursue acquisitive growth strategies. But it’s absolutely critical. Done well systems work is transparent and allows a company to focus on what’s most important: their new customers and employees.

Written by Dave Stephens

09/18/06 8:58 AM at 8:58 am

Posted in IT, Opinion