Theory of Constraints Handbook - James Cox Iii [298]
Why? Surely, it makes sense that when we stop using one measurement we should start using another or else we face the risk of people falling back in line with the old measurements. Surely, it makes sense that if you want people to continuously improve, you should link performance against these measurements with appropriate incentives (IF “good behavior” THEN the “Carrot” and IF “bad behavior” THEN the “Stick” consequences).
Like many of the “counterintuitive” insights of TOC, the cause-effect relationship between incentives, motivation, focus, collaboration, and how this affects the level of performance of people is quite misunderstood within most organizations. In fact, there is a major mismatch between what the social sciences have known about the effect of incentives on performance and problem solving and how most of the incentive schemes used by organizations, work today (Pink, 2007).
Scientific research over the past 40 years has proven the “common wisdom” that incentives drive higher performance is, for a large group of boundary conditions, simply not true. Incentives, in many cases will contribute to a vicious cycle of decaying performance (or at least stagnation) rather than a viscious cycle of continuously improving performance. The first scientific research into the relationship between incentives and performance was by Sam Gluxberg, who used the “Candle Problem” designed by Karl Duncker (1903–1940) in 1926 as a way to measure how cognitive problem solving is influenced by incentives. People are challenged with figuring out how to attach a candle to a wall in a way that would prevent wax from dripping on the table (Fig. 15-13).
FIGURE 15-13 Karl Duncker’s candle problem to measure cognitive problem-solving skills.
Duncker found (Pink, 2007) that most people struggled due to what he called “functional fixedness”—a mental block against using an object in a new way that is required to solve a problem.” Most people eventually figure it out (to attach the box used for holding the thumbnails with the thumbnails against the wall to provide a base for the candle), but it takes them a while to get it. Years later, Sam Gluxberg decided to see how a monetary incentive would affect people’s performance on the candle problem. He told one group if they were among the fastest 25 percent, they would get $5. If they were the fastest in the entire group, they would receive $20. Naturally, the people offered the incentives completed it faster, right? Wrong! In fact, they took an average of 3 minutes longer than those who were asked simply to perform the task as fast as possible, explaining that their results would be compared with the test standard.
Sam Gluxberg then repeated the same experiment but changed it to make the solution more obvious by placing the thumbnails next to the box, rather than inside the box. In this case, incentives fulfilled their purpose. What are the lessons from these two simple experiments?
Financial incentives tend to focus the mind and as such only tend to be productive on left-brain tasks, that is, relatively simple problems with a clear set of rules and a single solution. In contrast, when financial incentives are offered to people to solve more right-brain tasks—those problems that are more conceptual or complex in nature and require greater use of cognitive power—the incentives actually make the problem harder to solve because they narrow the focus when the solution tends to be on the periphery and so the solver needs to be thinking more holistically and laterally (thinking out-of-the-box).
These results were confirmed by an extensive study lead by Dr. Bernd Irlenusch at the London School of Business whose team studied 51“Pay for Performance” plans inside companies and found that financial incentives can result in a negative impact on financial performance (e.g. financial incentives for sales people involved in complex sales will lower, rather than increase their success rate).
So, science