Remember those “Choose Your Own Adventure” books? At the end of a chapter, the reader would get to choose to go left or right and turn to an appropriate page to find out how your choice played out. Below are a couple of motivating quotes and a scenario I’ve found myself multiple times. I want you to “Choose Your Own Adventure” by writing in the comments how you would respond. I believe there are several appropriate ways to approach this situation and I’m curious what path you’d take.
This is not about new management tricks or gimmicks or superficial techniques that can be used to manipulate human beings more efficiently. Rather it is a clear confrontation of one basic set of orthodox values by another newer system of values that claims to be both more efficient, and more true. It draws on some of the truly revolutionary consequences of the discovery that human nature has been sold short.
- Abraham Maslow (Maslow on Management, 2)
Why is it every time I ask for a pair of hands, they come with a brain attached?
Henry Ford (source)
“Why not just have one dimension?” an audience member asks me after a lecture. “It’s all about incentives. If you get those right, people will do what you want. I bet I could take everything in management and put it terms of incentives.”
I’ve been thinking a lot about how and why we should decide what to do at work. Specifically, I have a basic assumption that I’m trying to question. I generally believe that we would rather rely on market (or quasi-market) forces–rather than clear yes/no decisions–to direct our behavior. Here are just a few examples of how that assumption would play out in reality:
Instead of telling employees to work (or not to work) on specific projects, let them decide what to work on and then bear the consequences (or a proportion of the consequences) for doing so.
Instead of asking a manager (or other decision-maker) to decide between two or more project options, try to do experiments on all of the options and let talent flow to the project(s) they want to (based on their incentives).
Instead of deciding between two good new hire candidates, have a bias toward short-term contracts (or other arrangements) that allow strong candidates to demonstrate their ability to create value.
These ideas seem generally compatible with the MBM philosophy, but how extreme can you go without reaching chaos? What are the key drivers (vision, etc.) that allow us to rely on these market or quasi-market forces without devolving into mass hysteria?
The five dimensions of Market-Based Management are listed on page 26 of The Science of Success:
Vision: Determining where and how the organization can create the greatest long-term value.
Virtue and Talents: Helping ensure that people with the right values, skills and capabilities are hired, retained and developed.
Knowledge Processes: Creating, acquiring, sharing and applying relevant knowledge, and measuring and tracking profitability.
Decision Rights: Ensuring the right people are in the right roles with the right authorities to make decisions and holding them accountable.
Incentives: Rewarding people according to the value they create for the organization.
Of course, there’s a lot that goes in to each of the dimensions, but just think for a minute about the definitions listed here. Can you point to a well-known success (or failure) that can be–at least partly–attributed to getting one or more of these dimensions right (or wrong)?
This week’s ad is a classic, especially for basketball fans from the 80s and 90s:
Here, Michael Jordan and Larry Bird elevate their shooting skills to amazing heights. Why? For a Big Mac, of course.
This ad emphasizes–somewhat humorously–the fact that people respond to incentives. The goal of this commercial seems to be to establish the Big Mac as something that ought to be sought after. After all, two of the greatest basketball players of all time are willing to go to quite a bit of trouble to get one.
When I reflect on my career, I never think back on the size of my compensation package at any of the stages along the way. No, what stands out in my memory, what I think about both proudly and fondly, are the projects and the teams, the people I worked with, the teams I was a part of, the projects we worked on, the products we created.
I remember working weekends and holidays with Bruce, Peter, and David to build MacLion, the first relational database for the Macintosh; I remember Kathy, Nasi, and Elaine semi-conscious and sprawled on the floor of my cubical after working 24 hours straight during the final push to complete dBase IV; I remember the heroic efforts during the Browser Wars to ship Netscape Communicator 4.x and to “free the source code.” And most recently, I remember the sustained efforts of the MBM and LTD teams to build the outstanding Koch Associate Program that enhances the ability of non-profit professionals to advance economic freedom.
There is nothing quite like the feeling you get from being part of a team working all-out to create something valuable to customers. For Abraham Maslow, it occupies two of the higher levels of the Hierarchy of Needs: first, being part of a team is the equivalent of the “community” or “belonging” level; second, contributing to the success of that team is a critical element for “self-esteem” – or what Arthur Brooks, when describing happiness, calls “earned success.”
In looking for a song that captures this feeling, this sense of belonging and accomplishment, I ran into difficulties. I first thought of Bruce Springsteen’s “Glory Days” and Taylor Swift’s “Long Live.” But both of these had the same problem: they were backward-looking, with a vaguely forlorn tone that a person’s greatest accomplishments were behind them. I wanted something more forward-looking.
My best shot at this comes from another of my favorite musical artists, Gordon Lightfoot. Lightfoot is best-known for his ballads. While it never cracked the top 40, one of his most famous ballads is the “Canadian Railroad Trilogy,” (yes, another railroad reference – I assure you, I’m not obsessed with railroads). I like the three distinct “movements” in the ballad, and especially the symmetry of reprising the first two movements in reverse order to complete the trilogy.
And then there is the theme of the trilogy: a team of people building something that creates prosperity for an entire region. The first movement sets the scene: “there was a time in this fair land when the railroad did not run; when the wild majestic mountains stood along against the sun.” The second movement describes the prosperity theme: “for they looked in the future and what did they see? They saw an iron road runnin’ from the sea to the sea.” And finally there is the center of the trilogy, the third movement, all about the team of “navvies” building the railroad: “we are the navvies, who work upon the railway; swingin’ our hammers in the bright blazin’ sun.” For students of history, you’ve got a great song about a critical element of the Industrial Revolution and the prosperity it unleashed.
Gordon Lightfoot performs an outstanding rendition of his own song (my favorite version is the one he re-recorded for Gord’s Gold). However, I ran across a version on youtube by the competitors on “Canadian Idol“ that I really liked. Lightfoot’s music was the theme for that evening’s competition, but all the competitors united as a team to perform the “Canadian Railroad Trilogy”:
Comments on this theme and how Lightfoot’s “Canadian Railroad Trilogy” illustrates it are appreciated. However, I’m also soliciting other songs that capture the essence of the Joy of Teamwork – any suggestions?
As usual in the culture wars, happiness is defined differently between the combatants. For Big Government advocates, it centers around income equality. If government policies can only redistribute income from the wealthy to the poor, everyone will be happier, overall.
Brooks starts by reminding us that money can’t buy happiness, then goes on to prove it with numerous studies. So, what does “buy” happiness? “People flourish when they earn their own success. It’s not the money per se, which is merely a measure – not a source – of this earned success.” And it’s economic freedom that allows the greatest number of people to earn their success – and once again, Brooks has the studies demonstrating a strong correlation between levels of happiness within societies and the amount of economic freedom they enjoy. Public policies meant to help people can actually undermine their “pursuit of happiness.”
MBM incorporates similar concepts in the mental model that embodies Abraham Maslow’s seminal Hierarchy of Needs insight. The higher levels of the model focus on self-esteem and self-actualization. Within a firm, individuals earn self-esteem by making substantive contributions as part of a successful team. Or, in Brooks’ words, achieving “earned success.”
Policy makers and supervisors, in this sense, are both subject to this fundamental aspect of human nature. When lower levels of Maslow’s hierarchy are largely satisfied, what drives productivity, job satisfaction, innovation, and prosperity is the pursuit of happiness through earned success.
What’s the opposite of a Principled Entrepreneur? An unprincipled entrepreneur? Well, yes. But historian Burton Folsom has a more descriptive term: a political entrepreneur. Political entrepreneurs (a.k.a. crony capitalists) achieve financial success not by competing in a free market but by enlisting the government to tilt the playing field of the market in their favor through subsidies, regulations, protectionism, or just plain, garden-variety corruption.
In his book The Myth of the Robber Barons, Folsom uses these distinctions to separate the principled entrepreneurs (he calls them market entrepreneurs) from the true robber barons, the political entrepreneurs. Folsom’s book is a wonderful series of short stories. One of my favorites is about James J. Hill, who earned the nickname Empire Builder for assembling the northernmost of the transcontinental railroads.
Unlike his competitors, Hill did not take any government subsidies. Facing a very different incentive structure, Hill built the shortest, most efficient route through the Rocky Mountains and opened the northwest to greatly expanded settlement and trade. He built communities along the railroad and worked to make them successful because he knew his success depended on his customers’ success.
When the Panic of 1893 struck, Hill’s Great Northern Railroad was one of the few transcontinental railroads that remained solvent. Hill augmented his railroad’s more efficient construction and operation with a series of entrepreneurial initiatives that allowed him to emerge from the recession stronger than ever. He expanded and consolidated his railroad empire until trust-busting President Roosevelt forced him to stop.
Hill’s Great Northern Railway survived the trustbusting as a separate business entity. In 1929, Great Northern Railway named its premiere passenger train Empire Builder in honor of its founder. Artist Mike Danneman captures the powerful entrepreneurial drive of James J. Hill in this colorful painting of the Empire Builder cutting through the snowy Rocky Mountain wilderness near Glacier National Park (scroll down to fifth painting).
I’m still looking for some artistic representations of Property Rights. You don’t want me to start posting about barbed wire art sculpture but I will if you force me. Help me out by sharing any examples in the comments or send email to chris.cardiff(-at-)cgkfoundation.org.
I want to pass on this neat story about incentives in the workplace from Michelle. Below is an excerpt from the email Michelle sent me about the story and a link to the examples she highlights.
Below is a link to the This American Life story about the Nummi GM/Toyota plant. It has some great MBM lessons for the powerful role incentives play in the workplace. Particularly compelling, is the comparative performance of the unionized workforce in the GM plant versus the same unionized employees’ performance at the Nummi plant. We often hear that individuals facing entirely different set of incentives will adjust their performance accordingly, but have very few examples that bear this out. The natural experiment highlighted in the piece hammers the lesson home.
Thanks Michelle for passing along this story. If you’d like to submit a potential guest post, Quick Take or Friday link, please email Ann (ann.zerkle (at) cgkfoundation.org).
Thanks to Ann for the invitation to join the blog. I’m looking forward discussing ideas with everyone each week!
I’ve found myself oddly intrigued by the National Football League’s handling of fines and penalties this year. The latest act of tom-foolery by Andre Johnson and Courtland Finnegan resulted in $25,000 fines for each player. Johnson and Finnegan forcibly removed each other’s helmets and delivered direct blows to the head. There are two strange things about this situation: 1) we rarely see hats-off brawls in football (this was closer to what one might expect from a hockey fight), and 2) the amount of the fines is really confusing. Consider these other fines from the 2010 season:
Brandon Jacobs ($20,000): “For yelling at Eagles fans during last week’s loss to Philadelphia. Jacobs was observed by an NFL security representative making obscene gestures and yelling obscenities toward fans in the stands”
Will Witherspoon ($40,000): “Laid a nasty little helmet-to-helmet hit on Donovan McNabb late in the Titans loss to the Redskins.”
Richard Seymour ($25,000): “His ejection for hitting Steelers quarterback Ben Roethlisberger in the helmet. Seymour hit him with an open hand in the jaw.”
These fines illustrate in interesting pattern. Consider the fact that Johnson and Finnegan were each fined only $5,000 more than Jacobs, who simply yelled at some fans. Witherspoon hit someone with his helmet during a legitimate play (although I’m sensitive to the fact that the NFL is trying to avoid these types of hits).
Perhaps the most interesting situation concerns the Seymour fine. He received the same penalty as Johnson and Finnegan, despite the fact that he hit a player who was wearing his helmet. In essence, Johnson and Finnegan received no penalty for the extra act of removing their helmets and delivering direct punches to the head. In order to keep a player—already intent upon punching another player—from removing that player’s helmet and punching him in the face, the penalty must be greater for the latter behavior.
Economists who study the legal system call this “marginal deterrence.” They are interested in the development of penalties that ensure that those who commit lesser crimes are not prompted to commit greater crimes due to the lack of more significant punishment. For example, if the punishment for armed robbery was the same as that for murder, armed robbers would be more likely to murder those who try to interfere with robberies.
Now to the point: looking at marginal deterrence in society—and in sports—challenges my thinking on incentives within firms. I tend to fall into the trap of viewing incentive issues as black-and-white, all-or-nothing situations (i.e., I either have incentives to create value or I don’t). However, I think something akin to marginal deterrence (both in a positive and negative direction) certainly has a role in shaping our thinking about organizations.
Of course, we want to make sure that people have incentives to show up, do high-quality work, and contribute to the value creating activities of the business. The work on marginal deterrence, however, pushes us to dive further into the issue. To misuse a popular book title, do employees who are able to achieve “good” have the incentive to do “great.” When they fail, do they have incentives to right the ship or plunge further into the depths of the sea?
Incentives are clearly important in business. MBM counts incentives as one of the five key areas in which to look for solutions to problems that arise in firms. Limiting our thinking to an on/off, black/white understanding of incentives is dangerous. Ideally, incentives work at the margin to limit the downward spiral of bad behavior and turn good behavior into great.
Can you think of examples where the marginal incentives do or don’t work in your business? What can we do to get things moving in the right direction?
