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This is one of those things that seems amazingly dumb to me in business and in government. If I run a department in a company that is responsible for say, cust

This is one of those things that seems amazingly dumb to me in business and in government. If I run a department in a company that is responsible for say, customer service, there are a million ways I could improve customer service by doing things like increasing efficiency in "back of house" areas and the reallocating those funds to customer facing areas. Problem is... I can't do that, because if I drive efficiency in the BOH area I don't get to keep the surplus resources I just created, it gets gobbled back up by the organisation at the next budget cycle... So there's literally a NEGATIVE incentive for me to optimise. Now, I understand why the organisation feels the need to capture that surplus, there might be other areas of the business that leadership thinks needs those resources more. But what they're failing to understand is they're actually hurting both the team making the efficiency AND the team who needs the extra resources because now everything is just going to remain exactly the way it was. This seems like a ridiculously easy problem to solve though... Just allow teams that drive efficiency dividends to retain say half of the benefit they generate. The company still gets a chunk of resources back to redistribute the way they see fit, AND the team generating the efficiency are able to implement the rebalancing of resources WITHIN the team that incentives them to make the changes in the first place. I would bet serious money that the NET divided returned to the central pool would actually be HIGHER even though they only get half of each block of surplus, because you would be providing SO MUCH more incentive to individual teams to find and implement these efficiency gains now.

pstuart 3y ago
> Just allow teams that drive efficiency dividends to retain say half of the benefit they generate. I think that's a good start but like in the article, could somehow create perverse incentives (for example, if they keep the savings where does it actually go)? The whole issue of incentives is fascinating to me and I think it would be wonderful to have a "Department of Game Theory" that could model and verify these behavioral assumptions.
- kelnos 3y ago
  > I think that's a good start but like in the article, could somehow create perverse incentives (for example, if they keep the savings where does it actually go)? Is that really a problem, though? The other half of the savings still gets returned to the rest of the business to allocate as they see fit. Even if the half retained by the money-saving team gets lit on fire, that's still a net positive, overall.
MrDarcy 3y ago
> now everything is just going to remain exactly the way it was. Consider it’s not dumb. Then what is it? Perhaps management knows full well everything you say but they’re also subject to the same incentives. My hypothesis is the status quo makes the system more predictable all the way to the top, which in turn enables them to confidently pull the levers they want to pull without surprises. If that hypothesis holds, it seems entirely rational to let support be.
michaelmrose 3y ago
You are right. Not only do you lose the resources you saved but you are now less resilient against changeable circumstances as you approach a natural maximum efficiency based on resources and circumstances. A fat inefficient department can pluck low hanging fruit at need a lean efficient one may fail under pressure even if more resources are provided late in the game because it may not be able to efficiently turn money into productivity without a significant ramp up in terms of recruiting and training.

pstuart 3y ago

> Just allow teams that drive efficiency dividends to retain say half of the benefit they generate. I think that's a good start but like in the article, could somehow create perverse incentives (for example, if they keep the savings where does it actually go)? The whole issue of incentives is fascinating to me and I think it would be wonderful to have a "Department of Game Theory" that could model and verify these behavioral assumptions.

kelnos 3y ago
> I think that's a good start but like in the article, could somehow create perverse incentives (for example, if they keep the savings where does it actually go)? Is that really a problem, though? The other half of the savings still gets returned to the rest of the business to allocate as they see fit. Even if the half retained by the money-saving team gets lit on fire, that's still a net positive, overall.

MrDarcy 3y ago

> now everything is just going to remain exactly the way it was. Consider it’s not dumb. Then what is it? Perhaps management knows full well everything you say but they’re also subject to the same incentives. My hypothesis is the status quo makes the system more predictable all the way to the top, which in turn enables them to confidently pull the levers they want to pull without surprises. If that hypothesis holds, it seems entirely rational to let support be.

michaelmrose 3y ago

You are right. Not only do you lose the resources you saved but you are now less resilient against changeable circumstances as you approach a natural maximum efficiency based on resources and circumstances. A fat inefficient department can pluck low hanging fruit at need a lean efficient one may fail under pressure even if more resources are provided late in the game because it may not be able to efficiently turn money into productivity without a significant ramp up in terms of recruiting and training.