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    Management and the Folly of Rewarding A while Hoping for B by Michael Crawford

    Michael Crawford is a principal with Corex Consulting, East Sydney, Australia. Reprinted with permission.

    General Information: mcrawford@corex.com.au

    In 1975 an American academic named Steven Kerr wrote a short, powerful article entitled "On the Folly of Rewarding A while Hoping for B"1. It was one of those rare cases where the title succinctly captures an idea whose relevance and truth we all can recognise.

    Kerr’s central point is that we can expect people to rationally do (or pretend to do) the things that are rewarded rather than the things we say they should do. As has been said, "Put your money on self interest. At least you know the jockey is trying."

    In World War II troops were committed for the duration unless killed or invalided. They had a strong motivation to hasten the end of the war. Allied troops in the Vietnam War had a tour of a year or less. Their self interest was not tied to the end of the war.

    While their governments wanted them to focus on winning the war, their rewards were linked to looking after themselves. Not so their opponents. They were there for the duration.

    We should not be surprised when doctors overtest, overprescribe and overtreat illness. Under our health system, their patients bear little of the cost. So they have no incentive to resist the doctors’ actions.

    For doctors there may be some direct financial gain from overservicing. More important though is the possible costs and professional damage from malpractice suits. Overservicing diminishes the chance of facing such suits, or losing them if they occur.

    So, while as taxpayers we would prefer doctors to test and treat at the level warranted by the circumstances of the case, in fact we have a reward system that encourages contrary behaviour.

    Most of us want honest politicians who tell us clearly what they will do in office, then stick to that once elected. In fact, politicians don’t behave that way, yet they still get elected.

    Their chance of being elected is frequently harmed by candour about programs. It is the community, with a strong contribution from the media, which sustains this reward system. Politicians behave rationally within it.

    Likewise, we expect our public service to do the best it can with the community resources available to it. Yet all senior public servants know the overriding rule is to avoid embarassing the minister, since that harms the government’s standing and may cost it votes.

    So community good, typically hard to measure, plays second fiddle to avoiding identifiable errors ¾ which are far easier for the media, talkback radio and the community at large to identify and blame on someone.

    This is a recipe for weak decision making in public sector management. It provides a powerful argument for limiting government activity. It is not a matter of inadequate public servants. It is the consequence of a community supported reward system unavoidably biased against good public sector management.

    All of the above are examples of reward systems which encourage behaviour contrary to what is wanted. In his article Kerr pointed out that business is not immune to this folly.

    Espousing long term growth and profitability while rewarding short term results is an example. Or asking people to accept the challenge of stretching targets but rewarding those who meet budget ¾ even if those budgets contain little stretch. The folly appears when we make a commitment to TQM yet put pressure on staff to meet near term production and sales volumes irrespective of the quality implications.

    The US Academy of Management recently polled a number of senior executives on the prevalence of this folly in business today2. Those executives reported it alive and well. Instances they quoted are shown in the table below.

    Hoping for . . .

    While rewarding . . .

    Teamwork and collaboration The best team members
    Innovative thinking and risk taking Proven methods and not making mistakes
    Development of people skills Technical achievements and accomplishments
    Employee involvement and empowerment Tight control over operations and resources
    High achievement Another year’s effort

    They attribute these follies to:

    • An inability to break out of old ways of thinking about reward practices.
    • Lack of an overall system view of performance factors and results.
    • Continuing focus on short term results by management and shareholders.

    To those reasons we might add cases where we espouse something in which we do not wholly believe.

    Management practice is continually beset by new conventional wisdoms that at the time seem dangerous to question. It might be TQM, or empowerment of employees, or teamwork, benchmarking, or customer focus. We know the ideas contain a kernel of truth but may doubt they are as relevant and potent as their advocates claim.

    Unfortunately when these nostrums are fanned by academics, business authors, consultants, journalists, other managers, and politicians, you risk being labelled a reactionary manager if you question their absolute relevance.

    So it is easier to endorse them but actually reward the things you really believe matter. In such cases the folly of rewarding one thing while hoping for another is more apparent than real.

    Unfortunately, though, it leads to miscommunication in the business and people working at cross purposes. This happens when those who accept the rhetoric follow conflicting paths to those who didn’t mean it.

    An enduring belief among managers is that of managerial accountability and responsibility. Despite its widespread acceptance, it is continually threatened by another staple of organisational life ¾ change.

    Every time there is a change of roles or people a period of potential accountability is cancelled. Do that often enough and everyone knows they are never likely to be in a position where they can actually be accountable for anything ¾ since even short term results are frequently the consequence of earlier actions.

    The frequency with which many organisations change responsibilities suggests this effect is not often considered. It is one example of a lack of an overall system view of performance factors and results. Most other instances of inappropriate reward mechanisms also flow from a failure to think things through systematically.

    Managers are generally action oriented. It is easier to demonstrate action today than consequences several years off. It is also often more comfortable attacking a current problem or opportunity.

    But unless we take account of the broader systems and reward mechanisms that drive our businesses, we will keep making the mistake of rewarding A while hoping for B ¾ and being disappointed with the result.

    1. Academy of Management Journal,1975, pp 769-783.

    2. Academy of Management Executive, February 1995, pp 15-16.

     

     
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