There is an old saying that “when you change incentives you change behavior,” and there is some evidence to support that it can work. For example, the Mexican government program Prospera has been proven to be extremely effective using cash payments to boost school attendance and preventative health care.
So it’s not surprising that when leaders want to change behavior, they often start by designing programs with carrots and sticks to encourage behaviors they want to see and penalize those they don’t. Sometimes consultants are brought in to do complex econometric analysis to optimize the incentives for maximum effect.
Yet research shows that incentives often fail and can even backfire horrendously. Human behavior can’t be boiled down to simple triggers. There are norms that underlie behaviors that are rarely obvious and unintended consequences that can warp behavior. The truth is that if you want to motivate people, incentives are not the place you want to start.
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“Institutions usually remain inscrutable to those operating within them—like water to fish.” writes Joseph Henrich, Harvard’s Chair of Human Evolutionary Biology. “Because cultural evolution generally operates subtly and outside conscious awareness, people rarely understand how or why their institutions work or even that they ’do’ anything.”
Organizations are institutions of collective action. They are designed to produce specific, repeatable processes through the creation of specialized roles, norms, rituals and behaviors. This is what creates the culture shock when someone starts out in a new place, and also the social cues they use to start conforming and fitting in.
It’s also why whenever we set out to lead change, we’re sure to encounter resistance. All of those subtle forces built up over time are designed to support existing behaviors and norms. To bring genuine transformation about, we need to shift from a manager’s mindset rooted in the status quo, to a changemaker mindset that can shift it to another direction.
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The mathematician Benoit Mandelbrot saw the world through what he called Noah effects and Joseph effects. Joseph effects, as in the biblical story, support long periods of continuity. Noah effects, on the other hand, are like a big storm creating a massive flood of discontinuity, washing away the previous order.
History certainly seems to bear this out. Events propagate at a certain rhythm and then converge and cascade around certain points. For roughly a decade, I’ve thought that 2020 would be one of those inflection points and that certainly seems to be the case. The 2020s are echoing the 1920s in some very troubling ways.
We always need to be careful with making historical parallels, because history is so long and varied that we can find some historical allusion to fit any potential set of facts. Yet, they can also be instructive. Clearly, we are on the brink of a new era that we do not clearly understand and we are a juncture that is fraught with peril. Looking back can help us make sense of it all.
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“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices,” wrote Adam Smith in his classic, The Wealth of Nations. It is a lesson we seem to need to learn over and over again.
It is also at the heart of a recent suit brought by the Justice Department, along with eight state Attorneys General, against a little known real estate software company named RealPage. It may seem obscure, but its ripple effects are bound to be far reaching, affecting not only regulation and competition, but the distinctions we make between machine and man.
How did an obscure company, that few ever heard of, manage to drive up rent for millions of Americans? At what point does an algorithm become collusive? Is there any real difference between sharing information in some back room or on a server mediated by an algorithm? These are all questions we need to answer in an increasingly algorithmically-driven world.
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Jennifer was a rising star when her boss tapped her to lead a transformational initiative. She was told that it was a “burning platform” moment and her success was absolutely crucial to the future of the organization. She could set her own budget, choose her own team and would have full executive support to move forward and scale quickly.
Jennifer wasted no time. She hired an outside firm to help her craft an emotive message to create awareness for the initiative as well as a sense of urgency around the need for change. She designed a training program to help employees adapt to and embrace the transformation. In six weeks the project launched with a huge kickoff meeting.
Initially, it seemed to be an enormous success. But soon Jennifer noticed the excitement fizzling out and, about eight months into it she realized that she was being actively undermined. Executive support diminished, the project was abandoned and her career was derailed. It all could have been avoided if she had taken an evidence-based approach.
In March of this year, Bill Anderson, pharma giant Bayer’s CEO, wrote in Fortune that the 160–year old company was at a “crossroads.” He outlined steps he was taking to battle the bureaucracy that’s plaguing the firm, such as slashing red tape, eliminating levels of hierarchy and decentralizing decision making.
Many cheered his stand against the status quo, but I was skeptical It seemed more like transformation theater than a real transformational initiative. In particular, I was struck how Anderson’s plan reflected telltale signs, such as a false sense of urgency, a rushed process and an over-publicized launch.
I was surprised to find that many agreed with me. We’ve seen so many “celebrity CEOs” like “Chainsaw” Al Dunlap at Sunbeam, Bob Nardelli at The Home Depot, and Eddie Lampert at Sears, talk big and then fail miserably, that it seems that we’re not as likely to be taken in. Yet just as important as noticing the pitfalls, we need to acknowledge the underlying fallacies.
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It’s funny how things can turn out. We’re heading in a particular direction, focused on the future and things somehow go awry. We try in vain to get back on track, but instead we end up setting out in a new direction, exploring avenues we scarcely knew existed. Before we know it, we’ve gotten to a place we never dreamed of.
Many people experienced this during the pandemic. They took up a hobby, moved their place of residence, changed their job—or even switched careers. Others were diverted by a life-changing experience or a heartbreaking disappointment. John Lennon put it, “Life is what happens to you, while you’re busy making other plans.”
That is, in a nutshell, how Digital Tonto started 15 years ago. It was in the middle of the financial crisis and I was sitting in my apartment in Kyiv, wondering what I would do next when I came across an article about writing a business blog. I launched a few days later. Thanks for 15 years of support! Here are some of my favorite articles from the past year.
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Lou Gerstner, writing about his legendary turnaround at IBM, said, “Culture isn’t just one aspect of the game, it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value… What does the culture reward and punish – individual achievement or team play, risk taking or consensus building?”
Most business gurus would readily agree with that, but if you’d ask them what culture actually is they would be hard pressed to give a coherent answer. Anthropologists, on the other hand, are much more rigorous in their approach and most would agree that three essential elements of a culture are norms, rituals and behaviors.
In a positive organizational culture, norms and rituals support behaviors that honor the mission of the enterprise. Negative cultures undermine that mission. A common problem with many transformation initiatives is that they focus on designing incentives to alter behaviors. Unfortunately, unless you can shift norms and rituals, nothing is likely to change.
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Peter Drucker was the quintessential management visionary.” He was often decades ahead of his time, developing concepts like knowledge worker and management by objectives long before they were on anybody else’s radar. It was for good reason that the corporate elite hung on his every word as if they were supplicants getting an audience with an ancient oracle.
Yet when he first met Thomas J. Watson, IBM’s now legendary CEO, Drucker was somewhat taken aback. “He began talking about something called data processing,” Drucker recalled, “and it made absolutely no sense to me. I took it back and told my editor, and he said that Watson was a nut, and threw the interview away.”
We tend to think in linear terms and expect current trends to shape the future. Yet what we don’t see are the nascent ecosystems forming out of our field of vision. Things connect in nonlinear ways until some crucial link triggers a genuine inflection point. That has less to do with technology or economic trends and much more to do with how humans solve problems.
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Managers are trained to lead operations, not change. You usually get promoted to management by being good at your job. You try to keep things running smoothly, service your customers, develop talent, take care of your employees, and improve things where you can. It’s often a struggle to keep the trains running on time.
So when the need arises to pursue a transformational initiative, an organizational change management team is usually brought in, either from a consulting firm or from a vendor. They will usually bring a formal change management model like Kotter’s 8 steps, Prosci’s ADKAR or something similar, formulated internally.
Don’t get fooled by fancy charts. These models are notoriously unsuccessful and you shouldn’t just accept them. McKinsey has found that 69% of transformation efforts fail. A more recent study by Bain found that only 12% succeeded and 75% had mediocre results. Change is an investment and, like any other, you need to ask good questions. Here are three:
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