• Frederic Peyrot

Call for an Incentive Design Officer

"We have poor and inefficient IT systems, but nothing seems to change."

"Teams are not collaborating although we could achieve much more by working together."

"Customer satisfaction is not getting any better despite our new staff training program."

Companies face many such issues which do not seem to improve and that most remedies do not seem to fix.

We blame the people. But often, the actual culprit is the organization, which does not provide the right incentives.

The IT Manager is not incentivized to innovate. He has no upside to introduce new solutions. However, he has a big downside if there is any security issue. Therefore, he is very conservative, does not try new things, and prefers outsourcing using vendors (preferably to the expensive market leader) to do his job.

The Marketing Manager prefers clicks over meaningful customer connections. He does not engage directly with his target audience, trying to get to know them better. Instead, he prefers outsourcing his job to PR agencies and running Facebook ads. After all you can't be blamed for doing whatever everybody else is doing.

Incentives is what drives people to do what they do. And people are incredibly good at optimizing for incentives. This is why:

- Political games increase in with larger organizations: because people's first mission in an organization is to please their boss (and larger organization tend to have more), not to improve the company's business.

- Cross-team collaboration is limited: because results are evaluated as a zero-sum game.

- Compliance and internal processes grow to a point of decreasing productivity: because people putting those rules in place are incentivized on optimizing for zero mistakes, not to increase speed, customer satisfaction or productivity.

As a CEO (or COO), whenever you see rampant issues, always consider if people working for you have the right incentives.

As Charlie Munger said: "If you could be working on incentives, don’t work on anything else."

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