Friday, January 04, 2008

Goal Misalignment

I've been thinking of an old classic management article I read in graduate school. Steven Kerr's, "On the folly of rewarding A, while hoping for B." I found an updated shortened version of it here.

This article is still pertinent and relevant today. I keep thinking about it as I work in a start-up.

What about start-ups? What is the reward system -- options and buyouts? Bonuses? Does management and shareholders have long-term goals in mind? Or are they rewarding just short-term earnings? Is long-term profit being sacrificed for short-term advantages? Are Investors goals in alignment with employee goals? Investors, Managers, and Employees will seldom seek the same outcomes, thus controlling investors and management may need to be aware of what they are rewarding.

Consider the example of investors wanting the company to be "cost conscious." But investors (or management acting on investor wishes -- and this distinction is important) may not really be explicit in describing how that goal is to be achieved, neither do they reward effective cost consciousness. This is really an intangible goal that isn't really very specific and may result in a a different outcome than really intended. Costs may be "cut" for appearances sake to show an effort is being made to reduce spending, without thinking through all the implications of a cost cut. A cut may be made that actually reduces productivity.

Differences in perceptions can cause goal misalignment. Different individuals may receive different cues from the environment than others and many perceive different behavior as a necessity to accomplish avowed ends. Perceptions of how the company may fulfill an individual's goals may also be incongruent, leading to unfulfilled expectations and misunderstandings.

I also think about this article we hear so much about politics (OK, so who is going to win in New Hampshire?) . Politics drive me crazy. Most voters are united in one great purpose: "More." Few individuals can be elected who promote "Less." Thus, politicians are elected who have promised more -- more police, more schools, bigger pensions, etc. The political reward system is designed such that it is irrational to produce less. Who wants to vote for someone who promises less? Yet, voters are crying for less expenses, budget cuts, etc. This conflicts with the way individuals vote. Are we as a people rewarding the behavior we want? Are we rewarding "more" while hoping for "less?"

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