I originally published this on February 28th and April 9th, 2011. Eight years on and things are worse.
13-week Time Horizons Serve Management and Subvert Leadership
The work of Management is to create control and predictability, to plan for exactly what will happen and how it will happen, to make promises and deliver on those promises. The work of Leadership is to explore possibility, to bring new realities into existence that are in alignment with the ‘why‘ of the organization, to declare visions and make commitments that forward those visions*. By it’s nature, the work of Management lends itself to a short-cycle measurement paradigm that emphasizes tangible results; the Fiscal Quarter as a timeframe within which to check the health of the organization is tailor made for gauging Management work.
The work of Leadership, in contrast, doesn’t unfold as linearly and a short-cycle measurement paradigm can fundamentally miss – and thereby marginalize – Leadership work. The drivers of Leadership work are for the most part intangible and relational (e.g., trust, influence, reputation, vision) and can’t be accounted for in the way tangible and discreet elements are (e.g., revenue, market share, error rates). As Felix points out in the interview, Wall Street has come to be dominated not by those who invest as owners of the enterprise but rather by those who are interested in short cycles of return on their investment. In my work consulting to pre-IPO companies, one of the running themes is a clarity on the part of organizational members that, once their shares are traded publicly, the opportunity for creation and exploration will diminish if not be shut down totally. There is a palpable sense of ‘going public’ as a Faustian bargain, an act of enormous financial benefit that will come at the cost of their personal and collective visions. The painful irony is that, at a time when the engagement with Possibility and Creation – the work of Leadership – are central to economic survival, there is an intuitive understanding that Wall Street does not value Leadership but instead insists on ever more efficient application of Management. Consider this simple but illustrative example:
Imagine that you are CEO of a publicly traded firm. Last quarter, you produced $500M in profit and this quarter you have promised $550M. At the end of this quarter, you announce that your company did in fact deliver $550M; what is Wall Street’s reaction? Positive, of course. Now, what if you produced $548M? The reaction is perhaps a little negative but you’re probably still OK. What about if you produced $552M? Likely a very positive response from the Street. And, of course, if you only produced $525M you know you’re in big trouble. Now here’s the really interesting one:
What if, after having promised $550M your company actually delivered $650M? The Street should be happy, right? After all, you just made them much more money than you said you would. However, the result of $650M would be taken as a negative, a sign that you have no control of your business. I’m not suggesting that this is a ‘bad’ perspective for Wall Street to have, but it’s important to understand what that system was and wasn’t designed for. The reality is that Wall Street rewards, first and foremost, control and predictability and has no tolerance for uncertainty; i.e., it’s very design ensures the rewarding of efficient Management and the
Long-term investors can engage in the long-term conversations that Leadership speaks to, they are engaged in a relationship that allows for certain measures of uncertainty and surprise. Short-term investors, by their nature, cannot. So, while I share Felix’s concern about the possible emergence of a very small investor class (which I actually don’t see happening), I do welcome the marginalization of Wall Street as a force in business.
In the second part to this post I’d like to discuss how the 13-week Time Horizon Creates the Illusion of Engagement and Motivation; but, for now, what do you see?
*If you confuse the terms Management and Leadership as specific titles or jobs in an organization, this perspective falls apart; we are referring here to Management and Leadership as two distinct, and complementary, ways of engaging within an organization, regardless of one’s title or job.
13-week Time Horizons Create the Illusion of Engagement and Motivation
In late 1993, I was asked to take a position in the corporate Marketing function of the publishing firm I had been working for. I had just come off of 2 years overseeing the turnaround of 2 failing business units and had developed something of a reputation as an effective manager and, in an organization where employees tended to be high on the cynicism scale, as someone who seemed to have an ability to generate high levels of satisfaction and loyalty from my employees. At around the same time I was making the transition to my corporate role, an article was published by Alfie Kohn that instantly resonated with much of what I believed about how to run a business and engage employees. I immediately made dozens of copies and began distributing them to my new colleagues. Before I share their reaction, here is a very brief summary of the key points Kohn made in the article:
– Pay is not a motivator: When people are asked what matters most to their co-workers or those they supervise, pay ranks fifth or sixth. Frederick Herzberg, one of the central figures in motivation theory, nailed it when he said: “just because too little money can irritate and demotivate does not mean that more and more money will bring about increased satisfaction, much less increased motivation.”
– Rewards punish: Just as punishment destroys motivation and creates defiance, defensiveness, and rage, rewards “have a punitive effect because they, like punishment, are manipulative.” Employees feel controlled and resentful, and this is not conducive to exploration, learning, and progress.
– Rewards rupture relationships: “The surest way to destroy cooperation and, therefore, organizational excellence, is to force people to compete for rewards or recognition or to rank them against each other.” Also, our reward and incentive-based approach encourages employees to present themselves as competent and hide developmental needs and/or long-term problems from those in control of the money. “Very few things threaten an organization as much as a hoard of incentive-driven individuals trying to curry favor with the incentive dispenser.”
– Rewards ignore reasons: “Relying on incentives to boost productivity does nothing to address underlying problems and bring about meaningful change.” The dispensing of rewards based on achievement of narrow, prescribed outcomes fundamentally lets management off the hook from the deeper accountability of creating conditions in which every employee can make a significant contribution.
– Rewards discourage risk-taking: “When people are focused on what they will get if they accomplish a mission, they become less inclined to take risks or explore alternatives.” Thus, “the number one casualty of rewards is creativity.”
– Rewards undermine interest: People who do exceptional work do not work simply to collect a paycheck; they work because they love what they do. Extrinsic motivators, such as rewards, are poor substitutes for the intrinsic motivator, genuine interest in one’s job. “The more a manager stresses what an employee can earn for good work, the less interested that employee will be in the work itself.” Furthermore, the more employees feel controlled, the more they will tend to lose interest in what they are doing.
Kohn’s article was titled: Why Incentive Plans Cannot Work and it was followed by a book, Punished by Rewards. If you are in any way engaged in business, are a parent or are involved in education,
Kohn’s work is must-read.
As you might have guessed, the reaction to my enthusiasm for Alfie’s work was cool at best; most of it was along the lines of a metaphorical pat on the head and a message of: ‘oh, you really don’t know how the world works do you’. Eighteen years later and we have yet to learn what Kohn has been pointing to. For the record, Kohn’s insights are backed by decades of research conducted in schools and business organizations and the conclusion is the same every single time: extrinsic rewards of any kind will, over time, destroy an individual’s inherent motivation for the work. What’s worse is that the greater the level of initial motivation, the greater the negative impact of rewards; i.e., the more you are rewarded for work that you have the most passion for, the more likely you are to lose your passion for it.
The obvious question here is: ‘well if that’s the case, why do we still rely so heavily on incentives?’ The answer is pretty simple: incentives WORK; however, they work in that they generate compliance for the short-term future. Remember that the work of Management is to generate control and predictability and, in the Industrial-era paradigm, incentives as a driver of compliance are quite a useful tool. Also note that the deteriorating effect that rewards have on motivation occur over time, they don’t show up over the course of a few weeks – or even months – but rather manifest slowly after successive cycles of engagement with rewards and incentives.
Which brings us to the title – and point – of this post: the emphasis on the fiscal quarter as the dominant unit of time in business ensures that the compliance-generating benefit of rewards is highlighted while the motivation-deteriorating effect of rewards is completely masked. This was fine when our central concern was ensuring that everyone ‘did their job’. However, as I have discussed in other posts, the economy that is emerging requires that everyone in your organization is actively and creatively engaged, that ‘doing their job’ is at best the beginning of the conversation about what it means to work for you. For this we need a philosophy of organization that has a longer attention span than 13 weeks and a deeper understanding of human motivation than the ‘do a trick and get a treat’ approach that we use on our pets.
*NOTE: given the structure of this site and the need for short posts, I am very much simplifying Kohn’s work. I strongly urge you to visit his site where you can find some well-written articles that will provide a richer insight into the conversation that I am opening up here.