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As a corollary, this is along the lines of one of my favorite bits of wisdom from Poor Charlie's Almanac. If I recall correctly, Munger considers incentives to
by sp527 9y ago
As a corollary, this is along the lines of one of my favorite bits of wisdom from Poor Charlie's Almanac.
If I recall correctly, Munger considers incentives to be the single most important concept to properly understand in order to drive successful business (and arguably life) outcomes.
Not surprisingly, incentives are also chronically underestimated or outright ignored, even in situations where there's a strong, profit-driven incentive (#meta) to get them right.
> From all business, my favorite case on incentives is Federal Express. The heart and soul of their system – which creates the integrity of the product – is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can’t deliver a product full of integrity to Federal Express customers. And it was always screwed up. They could never get it done on time. They tried everything – moral suasion, threats, you name it. And nothing worked. Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift and when it’s all done, they can all go home. Well, their problems cleared up overnight.
- pmoriarty 9y agoFor a different view, see "Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A's, Praise, and Other Bribes".[1] It's about extrinsic vs intrinsic motivation. Extrinsic motivation comes from outside of the person and is what's typically used by organizations to try to motivate people: salary, praise, bonuses, etc. Intrinsic motivation comes from within. [1] - https://www.amazon.com/Punished-Rewards-Trouble-Incentive-Praise/dp/0618001816/ https://www.amazon.com/Punished-Rewards-Trouble-Incentive-Pr...
- Godel_unicode 9y agoI think this is frequently short-sighted. Surgeons are intrinsically motivated to be surgeons and help people, and they are trained to think clinically (pun somewhat intended) about risk-reward. They realize that trying to help high-risk patients will ultimately result in them being able to help fewer patients.
- candiodari 9y agoLuckily in most businesses incentives are used by the people designing the incentives to 1) cost as little as possible to the business 2) "optimize" their own pay/career (There was a study saying that over 80% of sales people would deny their employer a million-dollar contract if it netted them $500 personally, so compared to that this is nothing) Which makes sure that the incentives are not aligned with the business goals. Now I guarantee that the best way to destroy intrinsic motivation, bar none, is to provide extrinsic motivation for things that aren't aligned with the business' goals.