Organisations are an ecosystem of hard and soft incentives

Improving an organisation such that change is significant and resilient is difficult to achieve. At its worst attempts at change are instinctive activities based on what leaders reckon may work where the benefits, if any, are short-lived and the side-effects long-lasting. Even thoughtful attempts, applying ideas that worked elsewhere, can have about the same success.

Organisations can be thought of as ecologies of interdependent systems. Most of these systems are emergent patterns that come from interactions of people’s behaviours within the ecosystem. Improvement can be thought of as interventions into these systems. By thinking about change in this way we can be thinking about what we can try to bring about the effect we are looking for to achieve our desired improved state.

I like to think of the many incentives and disincentives operating within an organisation like magnets which attract or repel different behaviours. For example, if leaders regularly publicly praise only one type of activity then they can expect that activity to be the dominant activity. I will use an example to illustrate the idea but note this example is oversimplified as it deals with toddlers which are vastly simpler to adults in a work setting. As a relatively new father I am finding an example of how incentives influence behaviour in raising our child. The best advice I read which has helped my perspective on positive reinforcement and its limits approximated to ‘don’t repeat anything you don’t want to repeat in the future’. For my wife and I, we realised we had to make a stand with the use of the dummy and other crutch behaviours we were using to settle our son after they had outlived their usefulness. That is to stay — if we didn’t want a dummy to be a permanent fixture we’d have to make a change. If we didn’t want him to cry every time he wanted something we had to stop giving him things every time he cried.

I find that companies that skew towards being feature factories have a culture of ‘attaboys’ over email every time a feature is released. Its cheap celebration and praise and yet can reinforce behaviours which may not be desirable if they crowd out other desirable but less visible behaviours. The classic being the shipping of many features correlating with a gradual decline in quality and ease of delivery. The problem can be both with leadership and product teams — product teams can create this situation by being narrow in what they communicate; well-intentioned leaders will provide positive encouragement in response to positive news. Good leaders will expect and ask for more. Good product teams will provide regular updates on failure, learning and more.

Common examples of incentives

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 are not good or bad — each can have desirable and undesirable effects and side-effects. How we balance the effects of the overall health of the ecosystem is what is important.

Financials

One of the most obvious hard incentives are 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 & feedback

A subtle soft-measure which can be useful for behaviour change are 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 & 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 goal 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 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 make 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) which you have noticed in your organisations. This general idea 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.