Decisions within organisations are influenced by hard and soft incentives (part 2)
In part 2 lets look at some examples of incentives which may be at play within any organisation and how they may inhibit or support change.
In the earlier post, we discussed the role incentives play within an organisation and how they could help or hinder change, you can read more here:
Let’s look at some common incentives we can find inside organisations and the effects these incentives could be having. Note: positive and negative reinforcement is not good or bad — each can have desirable and undesirable effects and side effects. How we balance the effects on the overall health of the ecosystem is what is important.
Financials
One of the most obvious hard incentives is financial incentives such as bonuses and increments. These are rewards for specific actions, outputs or outcomes. The effects can be profound and the side effects equally strong. For instance where you are rewarding sales staff for what they sell you can expect you will find instances where negative behaviours to achieve those results also can occur.
Visible measurement and feedback
A subtle soft measure which can be useful for behaviour change is the use of visible measurement. This can be leadership instigated or team instigated (where leaders provided a safe and encouraging environment for this to occur) — what is measured and how it is incorporated into their rituals can influence the mix of behaviours.
For instance, helping teams see the full customer experience, not just that they were using a feature but helping them understand the median quality of the experience for the customer helped influence teams to invest more in the qualities of an experience and thus the outcomes for customers overall.
Performance Management
Another often hard incentive is Performance Management. Most organisations have a form of individual performance management which linked to employees’ progression and standing in the organisation and to remuneration — whether directly or indirectly.
Even those organisations who claim they no longer do performance management still have a philosophy of how they encourage improved performance within the organisation and the expectations that come with this are incentivising individuals’ and teams’ behaviours.
Goals and alignment
Another soft incentive which is found within most organisations is the use of goals and the associated alignment efforts to have units within an organisation pulling in the same direction. This can be powerful to incentivise common interests when collective goals are well-understood and each unit is aware of how each other unit contributes.
The side effects can also be gruesome — I have seen teams work against their own interests, the overall organisation's interests and other teams’ interests all because of the misapprehension that some team-level goals would be what they are measured against, above all else.
Relationships, politics, personalities
A very difficult to pin down but ever-present incentive structure in every organisation is the effect of relationships, politics and personalities. It's not hard to find individuals and teams doing things based on what they perceive would be seen as favourable or unfavourable politically. Often these behaviours can be out of touch with what actually is desired.
It's important for investing in the feeling of safety such that decisions are made based on what the desired effect would be for the organisation. Hero cultures or command and control structures can create perverse gravities which skew decision-making into unpredictable directions which optimal outcomes impossible.
As you can see there can be many forces at play within an organisation. The interplay of all the systems and elements of an organisation makes them a complex system. We need to approach such a system with an adaptive approach and awareness of the system.
Share with me in the comments some of the incentive structures (whether from those above or ones I have missed) that you have noticed in your organisations. This input will inform later posts where we will explore what we can do to encourage desirable effects and what we can do to limit undesirable effects.