I've been ranting on corporate dysfunction a bit much lately pointing out the negative aspects of poorly organized groups.
I'd like to propose a few measures that I believe will make corporate divisions not only operate with fewer conflicts, but also operate with happier people.
My first proposed step is Align Interests and Incentives
Easier said than done, but let me try to explain this concept. Systems that have built in conflicts of interests and incentives will not achieve their goals as efficiently as a system that is designed to align the interests and incentives of the members of the organization to achieve a goal.
An example of a system that has conflicting interests is a recruiting company that pays each recruiter based on the candidates that that recruiter places.
This kind of structure seems very easy to manage because each employee can be evaluated directly against a metric. Managers can read the numbers, draw a line, and keep or terminate employees based on their performance.
There is more going on in this structure though. Each recruiter has an incentive to place as many candidates as they can. However, they are intrinsically competing with their fellow recruiters. Each recruiter not only has an incentive to not assist their coworkers, but they have a direct incentive to sabotage each others' efforts.
What is the net effect of this structure?
One risk of this type of structure is the perception of unprofessional conduct by candidates and customers. Putting employees in direct competition with each other is practically asking them to compromise their integrity.
If the system is going to reward those who act dishonestly, there are some who will act dishonestly. People who are unwilling to compromise their integrity are going to leave, by their own volition or not.
It is not uncommon for a manager to try to discourage dishonest behavior by penalizing people who get caught acting dishonestly, but really all they end up doing is discouraging getting caught performing dishonest behavior. This practice will serve only to complicate the market of competing interests. Managers are going to be reluctant to discipline strong performing employees who get caught, they will likely turn a blind eye to them. Weaker performers will suffer the full force of the policy, they make for an easy example.
What adding a penalty does is to create another layer or operational opacity through various forms of subterfuge. If employees feel that getting caught acting dishonestly is going to cost them their job they have a strong incentive to make getting caught as difficult as possible.
The net result of the system is a recruiter will act unprofessionally to a candidate and/or to a client. Word will get around that the company is unprofessional and quality candidates and clients will prefer to do business with others.
That's all well and good that there are companies that operate with systems of conflicting interests. This is the real world and that's how business gets done.
Is it? Or is that the way that companies tend to work in the real world because they are sloppily organized.
How do you resolve this system of conflicting interests? First, I suggest that the goal of the organization be defined. For a recruiting company, I would say that generating revenue from placing job candidates with clients is a fair statement of the goal.
Once the goal is defined you can look at the elements at play. For the purposes of this example I will use candidates, clients, recruiters, and the recruiters managers. The managers are responsible for creating a system within which the recruiters try to place candidates with companies. It is in the company's best interest to create a system that encourages cooperation between recruiters. The assumption here is that having a system that provides absolutely no incentive for conflicting interests will focus the recruiters' efforts towards placing candidates for the company.
One way to encourage cooperation is to centralize the incentives. By spreading out the performance incentives the recruiters do not have an incentive to work against their colleagues, instead they have an incentive to help them. If all are rewarded equitably based on collective performance, then the primary concern of the group is to perform as a group.
This system by itself is not perfect. It creates a strong incentive for the recruiters to not do anything. If a recruiter can get away with doing nothing and get rewarded for other recruiters' work they may very well choose to do that.
One way to deal with this issue is to give the each of the recruiters the ability to vote whether to terminate a peer. This creates a very strong incentive for people to carry their weight. It also creates a heavy emotional burden for each of the recruiters. It's a necessary evil and those who work directly with people are in a position to not only observe who is helping the group but they also have an incentive to ditch the ones who aren't carrying their load.
The key to setting up systems of aligned incentives is to consider the goals of the interested parties and look to find incentives that encourage actions that approach those goals or encourage actions that don't digress from the goal.
Monday, May 12, 2008
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Posted by Paul Wiedel at 1:30 PM