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.

This is the way the world ends

This is the way the world ends
Not with a bang but a whimper

So said T. S. Eliot, Nobel Prize winning poet. And, as it turns out, so do the Mayans. According to various sources, mostly on the web, Dec. 12, 2012 will mark the end of one age and the start of an other, or not. The world may end on that day through some sort of cataclysm, or it may just be another day.

With the inauguration of Barack Obama, what will we get? Depending on who you talk to, it is either the start of a new era of progress and hopefulness or the sad end of an era.

In either case, the world will not end or reboot. It will keep going. Remember the year 2000 hype? It was either to be a disaster of crashing planes, closed banks and computer mayhem or it was the start of a new era? It was neither. On January 1, 2000, it was just another day.

So, what's a leader to do? Actually, nothing, I think. We just go on doing what we were doing all along, getting our people and organizations focused and moving forward, always. Just don't wait for the end to come about or some magical change to take place. Get excited for the history of the day, but don't start behaving as if history is taking over for you.

Staying On The Creative Edge

As a leader, one has to keep a sharp edge at all times. The day-in, day-out struggle of getting your organization moving forward can wear down your edge. After a while, you tend to get dull, as does your thinking. So, how do you keep that sharpness? There are many ways to do it. Today, I will suggest one: find a new challenge to focus on during your off time. It can be related to what you do or not, as long as it is somewhat removed from the daily issues you deal with.

For example, if you work in the insurance industry, you already spend quite a lot of time focusing on risk, projections, HR, customer turn-over, etc. Few people in the insurance industry deal with every type of insurance segment. More likely, they deal with a niche: autos, business, residential, shipping, legal or some other segment. If you deal with auto insurance, create a challenge to think about in, say, shipping insurance issues. You can also take on a challenge about something complete unrelated to insurance. Think about traffic issues in your neighborhood, city, region, state, etc. Think about solid waste disposal issues. Take your pick. Read a magazine in an unrelated discipline: waste disposal, accounting, shopping malls, dental practice, retirement communities, marine construction or any random industry. Pick the current topic in the industry and set a challenge to come up with a solution to some small part of that topic.

Currently, I have my own challenge. I picked economic development. It's not my field directly, but it touches on some things that interest me. Specifically, I picked the topic of creating home-grown industries in the area where I live.

I did some quick research and started looking at what strengths we have: labor with a wide variety of skills but with more on the lower skills level; access to good shipping and international ports; good natural resources within a couple of days' shipping; university support centers; some governmental and private investment opportunities; and training support. I looked at what industries we had in the past and what industries we have now. I did a cursory match of all of these and came up with furniture building as my first result. It does not require great capital investments and is a minimal skills level industry. We have a strong forestry industry nearby. The market may be the biggest challenge, but we need to focus on a niche we can target. It is also an industry that can be developed in small or even cottage-style plants, as opposed to a car factory that needs millions in capital, equipment, land, suppliers and labor.

I attack the problem during my spare moments: driving, waiting at someone's office, early in the morning, doing yard work, etc. Will I solve this problem? Maybe. I might come up with some ideas that I can forward to someone else who might be able to do something with it. Maybe not. So, what does it do for me? It keeps me thinking and stretching my capabilities. It reinforces that the analytical skills I use for my regular job do not get dull. It gives me a break from the routine. It gives me new perspectives–always a welcome dose of renewal.

I will work on this for a while and put it away. Later, I will come up with another challenge and look at that for a while. What I bring back to my regular job, every time I do this, is a new urge to improve what I am doing there.