John Westrum's home-building company in Fort Washington, Pa., was growing like mad: From 1991 to 1994, its revenues skyrocketed 700% to $28 million. Paradoxically, the demands of such rapid growth made it impossible for Westrum Development Co. to perform at the level of its own high standards. "Customers were unhappy, contractors were screaming at us, and our management of invoices and payments broke down," recalls Westrum.
Putting their heads together on a retreat, Westrum and his 30 employees developed an 11-point plan that measured the duration of construction projects, the quality of the job according to a 178-point checklist, customers' willingness to recommend Westrum to their friends, and other guidelines. As an incentive to employees, Westrum set up a bonus pool that would be paid out quarterly for meeting intermediate and ultimate customer-retention goals.
The first year, only 20% of the pool was paid out. Then Westrum posted spreadsheets showing performance over the previous four quarters. "Employees started focusing not so much on the dollars but on the results," he reports. "Anytime we weren't meeting an objective, people would rally behind the person who needed help. After about a year and a half, the effect was phenomenal." By 1996, 80% of the available pool had already been paid out at the end of the first quarter. Best of all, 90% of customers said they would recommend Westrum to a friend, as opposed to 50% two years earlier.