In this entry, the spotlight will be on the areas of “financial incentives,” “when (not) to change,” and “effects of managerial control.” These are the remaining topics discussed in the Hard Facts, Dangerous Half-Truths & Total Nonsense.
Money issues can really mess up people and organizations. The biggest myth in our financial incentive system is this: People’s motivation to work, and to work hard, lies in the amount of money they get. If the money isn’t “right,” employees will undermine the organizational goals and management goals. Once organizations figure out the reward system, which is always intricate and complicated, employees’ behavior will be perfectly aligned with the organization.
Do you think you only work for money?!
This assumption is also responsible for the perennial debate about teachers’ performance and whether teachers’ salaries should be tied to performance, as measured by the students’ test scores. First of all, do we really think that our own, and our next generation’s, education is all just about how we do in tests? This is not about politics, but about how to understand and employ logic and facts to engage in meaningful and intelligent discussions. And it’s a topic about which we all feel passionate, and we all have some experience. How many teachers that you know of are actually motivated by their salary? Is teacher’s motivation the sole determinant of students’ performance? How about the teacher’s skill, parents’ involvement, parents’ education background and financial standing, the community in which the school resides, the school’s culture, the administration’s record, the resources, etc.?
Having reflected on these nuanced concerns, would you be surprised to know that the idea of merit-pay for teachers has been around since early 1900? Furthermore, the research in this area has been abundant, and the results have been pretty conclusive: Whatever benefit merit pay may achieve generally doesn’t last more than five years, and it consistently fails to improve students’ performance, i.e. test scores. By the way, what motivates students?
The two major points about financial incentives I learned from the authors of Hard Facts, Dangerous Half-Truths & Total Nonsense are:
- While financial incentives can increase people’s motivation, for a short while, the motivation will improve only effort (work harder, and only in the short term) but not ability (If you are not fundamentally good at something, additional money isn’t going to change that.). As Sherlock Holmes said to Watson: Once it’s explained, of course, it’s obvious!
- “We think others are motivated by money, even if we are not.” A study of prospective law students found that 64% of respondents indicated that they wanted to pursue a law degree because of the intellectual work or interest in law, while only 12% thought their peers were likewise motivated. In fact, 62% thought the others pursued the degree because of financial rewards.
Of course, in general, people would like to have more money, but they want it for a wide range of reasons, most of which are not directly linked to the motivation over which the organization wants control. And by and large, the intrinsic value of the work itself plays a significant role, a fact often overlooked by management and compensation consultants. These often untested assumptions help warp our notions of what work means to us, and what it means to others. Hence, financial incentives get overemphasized while the intrinsic importance of work gets underemphasized.
As much as I love studying organizations, there are times I just want to throw my hands up and say, “why bother?” Especially when everything about organizational life seems complicated, without easy answers, or often, with no answers. We like nothing better than a linear, neat, straight road to lead us through the day. So it is with issues like “change!’ On the one hand, we extol those who embrace change and disdain those who “resist” change; on the other hand, we don’t ever know exactly howto go about engaging change effectively. It’s yet another either-or, “change or die,” dichotomy we keep running into. One major reason why changes are messy in organizations is because the goals of management and those of the “other employees” are often orthogonal or even opposed. What management may see as an improvement, “other employees” (the ones who do the work?) often see as a dis-improvement.
The authors mentioned the Oracle (software) system. Stanford University, where the authors are professors, wanted to “improve” their software system using the “enterprise resource planning” (ERP) by Oracle. The project cost twice as much in time and money as projected, and as a result the university administration actually “apologized to the staff for putting them through it!” The very same system is still wrecking havoc in the scientific organization whose examples I often use. This is a typical kind of decision where executives love the “concept” of ERP without really grasping the costs for the implementation and the time and effort it costs the staff who are forced to use the system. This is all the more glaring when these top level managers’ own work isn’t likely to be profoundly impacted by the proposed change.
Other typical organizational changes that the authors warn about include: mergers and acquisitions; switching to “better” HR practices; quality improvement efforts (such as the Six Sigma I discussed in the post, “A Sensible Organization Is Not A Perfect Organization: Drawing boundary, yes, generating unlimited rules, not so much”); business process reengineering; layoffs; launching a new product; and starting a new organization. Management really needs to have a deep understanding of how each of these types of change would impact the organization. Are the changes really worth the upheavals that they are guaranteed to bring to the organization? Is the management willing to be honest and open to employees’ feedback, and have a genuine dialog? When planning a major change, perhaps it is wiser to start with experiment, such as making the planned change in a smaller unit.
Combing through research from economics, psychology, sociology, and business/management, the authors offer the following key questions for decisions on changes:
- “Is the practice better than what you are doing right now?”
- “Is the change really worth the time, disruption, and money?”
- “Is it best to make only symbolic changes instead of core changes?”
- “Is doing the change good for you, but bad for the company?”
- “Do you have enough power to make the change happen?”
- “Are people already overwhelmed by too many changes?”
- “Will people be able to learn and update as the change unfolds?”
- “Will you be able to pull the plug?”
Good questions. But an important platform for assessing and answering these questions, is honesty and authenticity on management’s part. For instance, the answer to question 4: The kind of managers who are into making themselves look good (of which there are plenty and they are likely to be the last people to admit it) cannot possibly answer that question wisely, which can begin the downward spiral.
These issues ultimately beg inquiry into the quality of managers and how much control they should and do wield. Since I have touched on managers/leaders roles in previous entries, I will try not to repeat myself, but will highlight a few points that intrigue me.
Managers-leaders do make differences, big and small…except when they don’t. In general and on average, managers cause moderate impact at best; however, the lower the level where managers reside, the higher the likelihood that their actions are impactful. One of the major reasons for limited impact is the constraints posed by both internal and external environments. This is especially true for large organizations. Remember, it’s really about the system (discussed in the post, “If You (Management) Want The Best People For The Organization: Get out of the way”). As much as managers would like to believe that they are in control, reality says otherwise. In addition, at least in most of the western developed countries, there is a natural built-in tension between accepting hierarchy and authority and keeping the power of control at the upper level in check.
Now, why would the managers at the lower levels have more impact? There are more managers at this level; the probability of diverse backgrounds is therefore higher, and we are likely to witness a wider range of management styles that may be more in touch with the staff’s needs. Upwardly-mobile managers tend to have more homogeneous backgrounds, education, track records, management styles and ways of thinking, etc. The paradox here is that the higher the management level, the more complex the problems and situations the manager faces, yet the more homogeneous the approaches and styles one has learned along the managerial ladder, which constrains the imagination of the higher management levels. What most managers/leaders need to bear in mind is that the majority of their responsibility is about projecting confidence while exercising humility in the face of flaws in the system, and retaining the (internal) doubts necessary for accepting improvement.
One final point about managers/leaders is this: While the good ones’ impact is rather moderate, the bad ones inflict enormous damage, to organizations and the people working in them. “Study after study demonstrates that bad leaders [managers as well, my words] destroy the health, happiness, loyalty, and productivity of their subordinates.”
The authors offer 9 points for taking evidence into actions:
- “Treat your organization as an unfinished prototype.” Except don’t overwhelm people with changes.
- “No brag, just facts.” I like this one a lot.
- “Master the obvious and mundane.” Such as, avoid mergers and acquisitions!
- “See yourself and your organization as outsiders do.” Talking to customers is a good way to start.
- “Power, prestige, and performance make you stubborn, stupid, and resistant to valid evidence.” This would require a high level of self-awareness, which I believe has a tendency to diminish as one moves up.
- “Evidence-based management is not just for senior executives.” True, except lower level managers tend to be extremely constrained by resources and time.
- “Like everything else, you still need to sell it.” Stay on message, and the fewer the messages the more effective they can be.
- “If all else fails, slow the spread of bad practices.” This is a tough one.
- “The best diagnostic question: What happens when people fail?” I could write another thesis on this one. Love it!
And finally finally, HAPPY FATHER’S DAY! Till next time,
Staying Sane and Charging Ahead.
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