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I like to think of it in the following terms in a very kind of practical,
easy-to-use sense.
Consider this, this diagram here, which uses the same kind of schema as we've been
using before, which is that we've got essentially, on the vertical dimension,
we've got extrinsic motivation and
on the horizontal dimension, we've got intrinsic motivation.
We can identify three categories of drivers that a company
can employ in order to get a maximal amount of,
what I'm going to call, discretionary effort out of people.
Remember behind all of this is this notion that we're trying to
get people to kind of willingly put in additional work.
Give, give them, give of themselves more in the work context, and that is why
I call it discretionary effort, it's stuff that essentially us individuals could
withhold if they wanted to, but we want to encourage them to give it.
And essentially we've got three categories of drivers.
We've got one I'm going to call material drivers,
which of course is primarily about money.
And then we've got what we're going to call personal drivers,
which is in the bottom right hand corner here,
which is primarily about making work just intrinsically interesting.
1:30
And then we've got the third category, which I'm going to call social drivers.
Which are about somewhere in between essentially around creating work that
is interesting enough but largely through the context of the organization in
which we're working that encourages people to want to give a little bit more,
often done through, for example, teamwork.
So, I'm going to give you examples.
There's a couple of examples in the course room of
companies that have particularly used these different drivers in different ways.
What I'm going to do now is I'm going to just briefly talk about examples.
Very practical examples that you can all recognize,
of each of the three sets of drivers.
So, let's take the material drivers first.
2:11
Think of the world of banking.
Bankers around the world continue, even five years on from the banking crisis,
continue to have a hard time, to be given a hard time.
And partly that's because they own so much money, and
in fact the point I want to kind of make is for whatever reason, for
historical reasons, the world of banking has been hooked on material drivers.
for, for really, for no apparent reason other than somehow, some point they,
they, they realized they could get away with it and, and, and that perpetuated.
So if you are a, if you are a trader, if you are a bond trader let's say,
you are paid basically as a percentage as, of, of what, of what you sell.
Or rather when you make a,
a, a profit on a trade, the expectation is you will get a slice of that profit.
Most of it goes to the bank but you get a slice of it.
This is a classic example of what we're going to call material rewards.
Where the reward is linked explicitly to the job that you do.
Another example would be many many sales organizations, so if you, if you work for
IBM or Oracle or SAP, and you are in the business of selling software, undoubtedly,
a massive component of your personal earnings, is a function of your bonus.
And the bonus system is directly linked to how much you sell.
Now, these are complicated bonus systems, but
the essence of it is you sell more, you earn more.
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We all understand what a material set of drivers are.
What are the benefits and the weaknesses of this model?
First of all,
to be very clear, they are only effective under very narrow sets of circumstances.
In other words, if I can be absolutely certain as an organization that by
incentivizing someone to sell more that they will actually help the organization,
than that's fine.
But if by selling more, by pushing very hard, I end up
actually damaging things for somebody else in the organization, or perhaps selling
something in the short term which damages us in the long term, it actually hurts us.
So there are very small number of situations.
And I'm not convinced that many banks actually have this situation.
Where benefits which are
directly relinking money to volume of sales, a good thing.
So they provide this direct link, which makes some people very happy.
It makes people very comfortable.
They're very kind of easy to use, because it's much easier to
design a system based around these material rewards.
But, ultimately they also have bring with them enormous costs.
One of the costs is that extrinsic rewards,
material drivers tend to drive out the intrinsic.
In other words, if I am obsessed about making a bonus,
I stop worrying about what's good for the organization.
I just care about what's good for me.
They can also incentivize exactly the wrong behaviours.
They can incentivize me to, for example,
focus on selling this month, and actually sometimes do damage in the longer term.
And they also lack flexibility, they tend to focus us on
a particular prescribed set of behaviours, and avoid a broader set.
So I'm not saying that material drivers are a bad thing.
I'm just saying they are typically overused as a method for
evaluating and rewarding people.
And one of the reasons why that is the case is simply because so
many organizations, so many banks in particular have got into
the situation where they're giving these rewards.
It's very difficult to then take those away.
Julian BirkinshawProfessor of Strategy & Entrepreneurship
