Tuesday, January 20, 2009

Gaming the Incentives Game

I've always thought that measuring and rewarding people on tight metrics is short-sighted. I call it "What gets rewarded gets distorted." I remember that one boss justified paying some people more than others by saying, "They're the rainmakers. They bring the money in." So, the rest of us, who produced what they sold, were not really important, only the ones involved at the very end. That we produced a great product and made their job so much easier was not to be considered. That the sales people left other duties behind because they did not contribute to their sales meant that they were added to the rest of our work. So, some saw it as being punished for doing a good job.

Dan Heath and Chip Heath write a great article in Fast Company on what they call the focusing illusion, the way incentives and other metrics tend to distort what gets done in business or any enterprise that uses them. Dan and Chip provide several examples of people who changed their behavior, perhaps to the detriment of the organization but to their own advantage, as a result of the metrics/incentives.

In short, they point to how these metrics, intended to fix some problem, can be gamed by the participants and hurt the organization. They start out with the example of former NFL quarterback Ken O'Brien, who had a problem with interceptions. At one point, when his contract was renegotiated, a clause was inserted that penalized him for each interception. What did O'Brien do? He dramatically reduced the number of passes he attempted, reducing the number of interceptions, which may have hurt the team in the end but made sure that his pay was not cut.

I have one example that irks me, Burger King. After I order at my local BK at the drive-thru, I pull up to the window where I pay and am promptly directed to move forward to a door where they deliver my order. I might understand if there is a long line behind me, keeping orders from being placed. However, this happens at all times, even when there is no one behind me. This is intended to keep workers focused on getting the orders out as quickly as possible and cut the time it takes for customers to get their order, that time being measured by how long you wait at the window. Once you move your vehicle up to the door, the clock stops. So, to the BK managers, it looks like they have a phenomenal 3-5 second wait time for order delivery. It must look great at BK headquarters. Of course, it really ticks me off. I make a point of avoiding BK because of that, except that my younger son insists that he wants the Chicken Tenders only from BK.

I have one more example, except that I can't recall where I read it. However, I remember some of the details. One company, faced with customers complaining about deliveries taking too long to get to them, instituted a metric that tracked every order up through the time the order actually left the plant gate. So, the shipping department would get the orders packed, whether they were actually complete or not, and physically carry them outside the plant to a storage location just outside the gates and marked the order as having left the plant, which was technically true. The managers saw a dramatic reduction in orders left but customers were worse off as delivery time actually deteriorated. In the end, the managers started to give the shipping department more control and responsibility for how they did their work, improving actual delivery times.

The simple lesson is that virtually any policy, metric and incentive system can be gamed unless it is well thought out. Rewards left strictly to metrics can hurt an organization and ignores the crucial role that good managers/leaders play.

1 comment:

Klever Girl said...

I know EXACTLY what you mean, I too have come across a similar boss...


Everything around us is based on simple technicalities...I might be at my desk and typing furiously, I'm "technically working" we all know sometimes that's NOT the case. Sometimes you just have to stick it to the man.