Land O'Lakes IT whips up business outcomes

To encourage cross-functional product teams to focus on business outcomes, CIO Marc Carlson replaces spot bonuses with a long-term incentive plan.

Marc Carlson, CIO, Land O’Lakes
Land O’Lakes

Since 1924, Land O’ Lakes, Inc., one of the country’s largest agricultural co-ops, has been in the business of working on behalf of a cooperative of farmers, by selling dairy products, grain, and animal nutrition products.

But as the digital era comes to the farm, all of that is changing. Farmers now have robotic milking tools, analytics to determine the health of their animals and how much to feed them, and satellite imagery to assess the quality and performance of their land.

“We are how helping our members, retailers, dealers, and customers manage their businesses better,” says Marc Carlson, who joined the company in 2012 and has been CIO since 2018. “With technology at the center of what our co-op members need, IT has to be very tightly connected to our mission: to optimize the value of our members’ dairy, crop, and livestock production.

Connecting IT to the mission

Carlson’s first step in connecting IT to the mission was to realign teams under “business leads,” who are dedicated to animal, dairy foods, and agribusiness, along with supply chain and corporate functions.

“Our business leads didn’t have teams focused on, or dedicated to, the businesses,” says Carlson. “So, we assigned them resources including business analysts, support people, and project managers with the hope of establishing business-led product teams in the future.”

But Carlson didn’t stop there. With the knowledge that compensation drives behavior, last fall, he rolled out a pilot program that replaced spot bonuses for “working hard” with bonuses that are directly tied to the business outcome of a technology solution. With the success of the pilot, he is now scaling the program.

How it works

How does the new team alignment and bonus program work in practice? Let’s take, as an example, a replacement of legacy procurement processes and applications with new technology. The new technology will deliver fully automated supplier catalogs, provide a portal to connect co-op members directly with a supplier network, and automate a previously paper-laden invoicing process.

Step 1:  Convene the product team. Rather than treat the implementation as just an “IT project,” Carlson pulls together a cross-functional group with members from supply chain, finance, HR, IT and an integration partner.

Step 2: Define the metrics. The team works together to build a business case and determine the success criteria and desired business outcomes, with final approval from supply chain and finance. In this case, these were: achieve $2 million in savings from RFP initiatives, decommission the legacy application and hosting by a certain date, automate 50 percent of all invoicing, and triple the number of fully enabled suppliers from 218 to 654.

Step 3:  Establish a short- and long-term incentive. For this project, Carlson and the head of supply chain determine the overall bonus amount. The distribution of that bonus differs depending on the level and contribution of a team member, including the role each plays and whether they are full or part-time on the team. The first 25 percent is what Carlson refers to as the “inside-looking” factor—paid at the conclusion of the project, this bonus rewards teams for hitting delivery deadlines and budget projections. But the rest of the bonus, a full 75 percent, is determined by more of what Carlson calls an “outside-in” metric.

“One year after the completion of the project, we review whether it achieved the true business benefits that the team articulated in the business case upfront,” he says. “You get some bonus for delivering the solution, but your bigger incentive is helping with the business case.”

Incentivizing for long-term business value

Carlson’s goal for the new incentive plan is to get the product team to be more invested in supporting the new system and in making continual changes to ensure long-term benefits.

“In the old days, we would give a spot bonus to the team for working hard, and they would disappear and go off to different projects,” he says. “Today, because the team is incented for the long-term — and the support team now reports into the business leads — the team has a different focus. The developers are more interested in taking a support call and fine-tuning the product over time than they used to be. They have stopped saying, ‘Go talk to our offshore team and see if they’ll help you out.’”

Among the clear advantages to incenting a team on long-term business value are a tighter integration between IT, its business partners, and better solutions faster to Land O’Lakes farmer-members. But Carlson sees two additional benefits to the new bonus program: “Our old spot bonus model sometimes seemed sort of random to the team,” he says. “They never understood why one team was bonused and another wasn’t. This new model makes everything more transparent.” 

Carlson is also optimistic about the talent retention benefit of the new incentive plan.

“Going forward, as we extend the long-term benefit to beyond year one, and people are on a number of different projects, their long-term incentive can really start to stack up. If you’re looking forward to collecting a chunk of change over the next few years, maybe you don’t go looking for a new job.”

3 lessons from the pilot program 

For others interested in setting up a long-term, business value-focused incentive program for product teams, Carlson offers this advice:

Expect this to be complicated: “Figuring all of this out has been challenging because you have so many people who come in and out of the project. We want to compensate the heavy contributors more than the part-time people, and bonus appropriately on who does what. Working it all out will take longer than you think.”

Bake the bonus into the project spend: In the past, spot bonuses came out of the IT budget because essentially, they funded Carlson’s ability to reward his own team. But the new program is a part of the project budget right from the start, along with all the other resources required for delivery.  

Reduce team anxiety: “Make sure your team knows that this is additive compensation that is replacing random spot bonuses,” says Carlson. “Communicate that you are not taking any compensation away from the team; you are giving them the opportunity to earn more.”

Carlson is happy with the success of the pilot incentive program and looks forward to seeing the results of the fully scaled model. But he acknowledges he won’t know the results for a few years. “We’ll all take stock of the program a few years down the road,” he says. “And we’ll know if I failed miserably or this is a wild success.”

Copyright © 2020 IDG Communications, Inc.

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