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The Folly of Rewarding A while Hoping for B

The Folly of Rewarding A while Hoping for B
Another reason why we can see misalignment between rewards and behaviors is because we can reward behaviors that are different from those that we’re expecting. Worse yet, we can sometimes reward behaviors that we’re actively trying to discourage.
Now this is known as folly of rewarding a while hoping for b. In the readings assigned for this session you’ve seen a lot of examples of the folly. I wanna belabor the subject too much, but I wanted to give you a couple of illustrations of where most typically you can detect the folly in organizations. A typical example is when we expect long term growth, but instead reward short term profit orientation. I was just with a group of senior oil executives who saying that in this environment of low oil prices, there’s tremendous pressure from Wall Street, from the financial community to reduce capital expenditure budgets.
And that action would inevitably help short-term profitability of the companies, but it’s not necessarily consistent with a long-term growth orientation. Because these companies need continuous investment in infrastructure for new oil field development. We’ve all been in organizations that claim they support teamwork but give out only individual rewards and individual bonuses. Some consulting firms for example, still use forced stacked rankings after the completion of every project. After a completion of a consulting project a team leader would rank order his or her consultants in terms of top performer, second top performer, and the worst performer.
Now, those rankings will subsequently feed into promotion, compensation, and even termination decisions. Now, as you can guess that reward structure is not necessarily the most effective for supporting teamwork. In fact, it can often illicit very dysfunctional behaviors. There are two ways to the top. I can either improve my own performance or I can drag the others down. Companies often believe that they support innovative thinking, risk taking but in reality they reward conformity. So this is from an organization that thought it rewarded risk taking experimentation forward looking thinking. But in reality, it rewarded conformity and compliance.
An employee at this company said a single mistake for which you are blamed can offset many successes and result in you being labeled and limited in future assignments and promotions. Now, one of the reasons this happened in this particular organization is while the company was trying to reward innovative thinking and new ideas, it was also severely punishing employees for failures. Consider the following scenario. It’s the case of a real technology company that struggled to drive radical breakthrough innovation. Its management decided to implement an incentive system where an engineer would receive a bonus based on the number of submitted patent applications. Do you find this approach effective in terms of driving radical breakthrough innovation? Think about this for a moment.
This is a classic example of a folly. Because what this incentive system encouraged the engineers to do is to submit lots of really incremental patent applications. Furthermore, it encouraged them to split their ideas into as many patent applications as possible. It was interesting to see at this company too that the number of applications skyrocketed as the company approached the end of the fiscal year when the engineers needed to hit their numbers to get the bonuses. So suddenly everybody got really creative in November and December. Many of these patent applications were subsequently rejected by the patents and trademarks office. For those that were accepted, a lot of these patents were subsequently invalidated in patent infringement lawsuits.
Now, you may wonder why does this happen in the first place? Managers are pretty smart gals and guys, why can’t they figure this out? Why can’t we align rewards and behaviors? There are two key culprits for this phenomenon. One is, our fascination with instant gratification. Always strive for instant gratification, that immediate pat on the back for delivering the short term results. And as you can see in many situations, that particular incentive structure can conflict with attaining long term growth and profitability of our companies. The pressure for short term results is now reinforced more so than ever before by Wall Street and the financial community which is increasingly dominated by short term investors.
And the second reason for the folly is our fascination with objective metrics, data in which are easy to come by. So counting patent applications sound like a great idea because data are easy to obtain. And it seems like a really good objective impartial metric. The fact that it leads to gold displacement, and crowds out goal of radical break through innovation is not immediately obvious.
So though this in mind, what advice would you give to this technology company to drive radical breakthrough innovation?
To help you in the thought process, I’ll give you an example of Amazon. Amazon is trying to stimulate radical breakthrough ideas among its engineers. And what it does, it asks its engineers to submit one radical innovative idea as part of their three year development plan. The company recognizes this that it should not be expecting immediate results from these ideas. It is also very much tolerant of failure, but it expects its engineers to learn from those experiences and document those learnings for the others in the firm. So to address the folly, the first step is to understand what behaviors you’re rewarding relative to what you’re expecting at the company. Chances are you will find some misalignment.
And I’ve given you some examples of all those misalignment. Those follys are particularly prevalent.
Long term growth verses short term profitability. Emphasizing innovation versus compliance. Teamwork versus individual rewards.
Think about how you can alter the reward system in such a way that the rewards actually reinforce the desired behaviors, the behaviors you wanna see in your team, not undesired behaviors.
Nor should reward systems be mere bystanders.
I have an assignment for you. I’d like for you to identify a folly of rewarding A while hoping for B issue. It could be in your current team or past team or organization. I would like for you to propose a concrete actionable solution to address that issue, which would most likely include both performance metrics and rewards. And then go to the discussion forum Folly A, B thread, share your ideas and solicit feedback from your peers.
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