Incentivisation may harm performance

Picture of cash roll wound up in a tape measure

In this fascinating (RSA animated) talk, Daniel Pink reminds that management is not a natural phenomenon. It was invented in the 20th century. So, it may not be the right solution for the future.

He further points out that business does not do what science knows. For example:

contingent ("if-then") rewards often destroy productivity, particularly in work where creativity is required
management is great if you want compliance, but not if you want engagement
intrinsic self-motivation often produces better results in complex and creative environments. It relies on

autonomy
mastery, and
purpose

Separately, research conducted by psychologists Edward Deci and Richard Ryan in the 1970s found that when individuals are intrinsically motivated to engage in an activity, such as a hobby or a creative task, introducing external rewards, such as money, can undermine their intrinsic motivation.

This is often referred to as the "overjustification effect" or the "crowding-out effect."

Theories posited for this effect include:

extrinsic rewards shift the focus away from intrinsic motivations
extrinsic reward, create an external locus of control, reducing that sense of autonomy

When considering this subject, it is useful to look at pursuits into which people do pour their time, energy and money. Sports are the obvious choice that springs to mind. People engage with sports, as players or spectators, even more passionately than they engage with arts and culture. And certainly more than most people engage with their work.

I think that one of the reasons for this is that the language of winning is much more straightforward. In sports, everyone knows who the competitors are. Everyone knows exactly what they need to do to score points. The causality between actions and scoring is clear. And everyone knows who is winning and losing at any point in time.

In business, this is less obvious. Companies keep score using arcane accounting conventions. Few employees understand these. Where there is a clear focus on the competition, relative performance is often less than clear. Could we make work more engaging by making it more like sports - effectively by gamifying work?

Resources:

The performance paradox

Pareto analysis

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Magnolia strategy

In the UK, conventional wisdom suggests that, if you want to sell your home, you should paint it magnolia. Magnolia is a warm off-white which is considered to be neutral and inoffensive, and therefore broadens the audience to which your property might appeal.

And therein lies its weakness. Magnolia is the lowest common denominator. Specifically designed to offend the fewest number of people. The common-or-garden variety colour. But by the same token, unlikely to "wow" anyone either.

It strikes me that many business strategies are written in magnolia ink. A compromise hammered out in a boardroom, between people who, even if they have strong views individually, are unable to agree on anything remarkable collectively. Where it seems safer to follow the herd that to stand out.

Good strategies stand out for being boldly differentiated, not for fading into the background. Good strategies divide opinion: those who buy into it support it with passion and commitment, whilst the detractors declare that it will never work (and subsequently eat their words). Good strategies create value by adding something new and different to the world, be it a new product or a new process. Good strategies are written in bright colours with bold lines.

Management shortcomings hinder innovation

According to a recent report by Accenture, "Innovation is a top priority for companies seeking to grow in (the) aftermath of the economic downturn, but flaws in managing innovation may hinder their progress”.

The cited 5 flaws in the corporate management of innovation, namely:

failure to learn from mistakes
widespread risk aversion
insufficient collaboration
too much emphasis on making incremental improvements, and
inability to leverage new technology (33% of respondents).

According Accenture's research:

89% of respondents said that innovation is as important, if not more important, than cost reduction to their company’s ability to achieve future growth.
50% of respondents in the U.S. and the U.K. reported that their most successful innovation has been development of a new product or service.
Yet, 74% of the respondents said their companies pursue incremental improvements, such as line extensions, and 66% said their organizations have made short-term financial results a priority over long-term investments.
73% of U.S. respondents and 30% of U.K. respondents said their organizations failed to learn from their mistakes.

The reasons given for the failure of new product or service launches included:

57%: inability to meet customer needs
54%: being late to market
52%: incorrect pricing
50%: the lack of a new or unique customer-perceived value proposition
43%: supply chain issues, and
43%: incorrect forecasting.

Source: Vanguard

Powerpoint: presentations versus pitchbooks

I hear a lot of commentary about the use and misuse of Powerpoint. Not all of it is helpful.

The fact is, the best way to use Powerpoint depends on your purpose.

In my work, I usually distinguish between presentations and pitchbooks:

Presentations are usually projected onto a large screen, and delivered to a large audience. Slides should contain few words in large fonts, clear and simple charts or emotive images. Signpost slides may be repeated to re-enforce key messages and structure. The notes area is best used for speakers notes as an aide-memoire.

Pitchbooks, on the other hand, are delivered in printed format to smaller audiences - usually no more than a dozen people sitting around a table turning pages together. As such, they typically contain more words, in smaller fonts (typically as small as 12 or even 10 point), and more complex and detailed charts, tables & figures. Page size is typically optimised for print (i.e. A4). The notes area is best used for more detailed data references, derivations and calculations.

The point is to know what you're trying to achieve, and use Powerpoint to help you best achieve it.

Footnotes:

I've seen many people use MS Word for their pitchbooks. It seems more sensible as a pitchbook is more like a document than it is like a presentation. However, Powerpoint offers a number of advantages over MS Word, such as slide sorting, more control over layout, and the enforcement of 1 slide 1 idea.
All of the above is as true for most presentation and word-processing software as it is for Microsoft Powerpoint and Microsoft Word.

Resources:

Uncovering Steve Jobs' presentation secrets

Philanthropic misappropriation

I recently read an article from The Motley Fool, Keep Charity out of the Boardroom. It reminded me of Michael Porter's seminal article on corporate philanthropy (see here).

Put in simple terms, corporate philanthropy that is not aligned with the corporation's strategy is a misappropriation of shareholders' funds.

Let me add that:

I am not one to promote a selfish and singular corporate drive towards profit. Management's role is to negotiate a sustainable win-win deal between shareholders, customer, staff and all of the corporation's various other stakeholders.
I am a great believer in charity, charitable giving and charitable actions.

But, at the end of the day, shareholders entrust executives with their equity investments. They have an expectation that their money will be wisely invested to maximise their return. They do not expect them to simply give their money away. Nor do they expect them or their employees to engage in other activities, no matter how laudable they may be, whilst the clock is ticking.

Michael Porter lists lots of examples of where corporate philanthropy is aligned with the corporation's strategy. These are where it builds the corporations' surrounding communities of present and/or future customers or employees. And there is mounting evidence that some forms of community outreach improves employees' wellbeing, and therefore productivity.

However, much modern corporate philanthropy has no such connection. All too often, it appears to have no end other than the personal aggrandisement of the executive(s) involved. This is no more defensible than my other bug-bear. That is the corporate sponsorship of executives' personal favourite niche sports. Especially where these have little appeal amongst the corporations' target markets.

Executives and employees who:

give of their own time and money to good causes, or
raise money from their often extensive networks of wealthy connections

are, of course, to be highly commended.

But they should not extend their personal generosity to give away their shareholders' money. Rather, they should return any excess share capital to shareholders. The shareholder can then decide for themselves what they want to do with it.

Natural History - Inside Out

Museums, like everyone else, must struggle to remain relevant in the face of rapidly changing consumer preferences. The new Darwin Centre at the Natural History Museum in London does an examplary job by turning the museum inside out. The new exhibit focuses, not on the animals, minerals and vegetables that are the focus of all of its other exhibits, but on the work that the scientists do behind the scenes. The centre contains exhibits describing the scientists' work, but more significantly, windows into working scientific laboratories where you can watch the scientists at work and even interact with them.

I was there today with my parents and my three year old daughter. Imagine her delight when she spoke to the scientist behind the glass window and he answered her in an engaging and enthusiastic manner. Most of what he said would have been lost on her young mind (but not to the rest of the party), but I am sure that this real life and personal exhibit will have made a greater impression on her than all of the other interactive exhibits put together.

As businesses struggle to adapt to an environment where customers are increasingly disinclined to be treated as faceless members of categorised target markets, they could do worse than to study the way in which the Natural History Museum has turned itself inside out and exposed its inner workings to the public.

Oh, and thanks to all involved for a thoroughly informative and enjoyable day out.