Incentive Based Solutions

I prefer solutions that enable people who have the most investment in the success of the solution to be in the position to influence that success. Right now it’s easy to see the problems created by systems that put disinterested parties–or just the wrong parties–in charge of various activities. Here’s a list of some of these areas and brief solutions.

  • Generals don’t sign for property and therefore none of them get fired when they massively fail an audit. :: Make generals accountable for all the property under their care.
  • The DMV doesn’t care about you being safe (your test weighs all traffic violations the same regardless of their catastrophic consequences). :: Let your insurance company be in charge of issuing drivers licenses.
  • The DMV doesn’t care if your car is safe to drive on the road, but your insurance company does. :: Let the insurance company issue vehicle licenses–and include lower rates for vehicles that are tested safe.
  • The VA doesn’t care about veterans. :: Let veterans own stock in the VA–being realistic, they’ve kind of earned it., right?

You’ll notice that this brief list is directed at government activities. That’s because the government can use force to create systems that serve political realities not the reality the rest of us live in. In addition there are control measures outside of the government to correct poor systems. Wells Fargo created some bad incentives that led to a system of corruption. Their stock prices and customer base responded by taking their business elsewhere.

Each of these systems and their failures really comes down to their isolated measurements. The DMV doesn’t care about safe driving because they’re shielded from the consequences of an accident.  The VA doesn’t care about veteran’s health because it doesn’t get measured on basic things like veteran’s treated.  It has measurements about wait times.  If they applied Little’s Law they might just realize how broken they are.

If people don’t want their tax payer dollars funding projects that don’t have to demonstrate any measurement of success such as $43,000,000,000 gas stations, then maybe it’s time for a change.  Instead of complaining about politics operating the way they do it’s a good idea to understand what were the incentives that led to the outcome and look for ways to change those.

What solutions leave you with the short of the stick?  What incentives created that outcome?  What can you do to change those incentives?

 

Measure What Matters

Measure What Matters by John Doerr is an excellent addition to my book list. The text articulates very clearly how to synchronize multiple levels of activity into a cohesive combination of effort.

We’ve talked before about the importance of measurements. This book answers much of what’s needed in the process of getting to good measurements to get good results.

This book is ideal for anyone who values context of what they are doing. It does this in two ways. It allows you to see the context in a system that may not publish it for you, and provides you to the tool set to create that context if you are in a leadership position.

Measure What Matters reviews the process of Objectives and Key Results (OKRs). The book doesn’t come across as a how-to. It recounts the power behind the method and then injects anecdotal evidence from multiple diverse sources. For the audio book, many of the sources appear as guest readers including Bono. While Bill Gates’ name appears on the cover, his contribution is read by an actor, though the content is still highly illuminating.

They say you’re not supposed to judge a book by its cover. This book has a reasonably plain cover, but so does Getting to Yes and forty years later it’s still a standard read. I imagine that Measure What Matters is in line to have a similar legacy.

Illogical Behavior ≈ Illogical Measurements

Tell me how you measure me and I’ll tell you how I behave.  If you measure me illogical way. . . do not complain about illogical behavior.

This past week I got to meet someone who I’d instantly consider a friend of mine.  She works as a continuous improvement engineer for a potato manufacturing company in China.  She was communicating her observations of the behavior of the workers in the plant and how it impacted production.  As I was listening (which I’m still not as good as I’d like to be) I remembered this quote from Eliyahu Goldratt’s book, The Haystack Syndrome.

The behavior she was describing was illogical and while there’s not a direct correlation between illogical behavior and measurements, Goldratt is generally correct that there is a correlation!  I asked her what her mepotatoes fun knife forkmeasurements were and she explained that each shift is currently measured on their output.  Output is defined as the amount of product produced during their shift.

Output and throughput are two different things.  Output is the amount of product regardless of quality.  Throughput is the amount of value of the product to the business as determined by the customer.  Customers tend to care about quality, and so while a shift may have high output if that output is of a lower quality than customer specifications it will not meet throughput requirements.  It is wasted effort.

It’s easy to see how this happens, the measurements are designed to encourage a particular type of behavior, but that behavior doesn’t translate to added value.

One way to expose this is to ask yourself if the work your doing is value added or if the work you’re doing is simply to satisfy a measurement?  If you’r work is value add, great!  Keep going.  If it’s to satisfy a measurement then please, question the assumptions of the measurement.

Notice I said, question the assumptions of the measurement, not the calculations.  Generally, people get the calculations right (with some exceptions), but it’s the assumptions that are really dangerous.  The leadership at my friend’s work had made the assumption that output and throughput were the same thing and that measurements based upon output would suffice to encourage the behavior they wanted.

That assumption appears wrong.  It should be tested and if found false, corrected.

Making and operating on assumptions doesn’t make you a bad leader or a bad person.  We all do it.  There’s just not enough time in our lives to fully research every decision (See Thomas Sowell’s Knowledge and Decisions).  We have to use good-enough information when we make our choices.  Once a system is established it’s a good idea to review those choices to see which assumptions can be challenged to find greater opportunities to improvement.

Are you ready to challenge your assumptions?

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