Setting Goals and Rewards

You should check out The Second Machine Age, by Erik Brynjolfsson and Andrew McAfee of MIT. It’s a thoughtful analysis of the technology progression handed to us by Moore’s Law and its effect on every aspect of our lives. Their thesis is pretty simple but also powerful.

Early in the computer age, we developed transactional systems designed to give us the data we needed to make decisions, but over the last 10 years or so, the pace of innovation has accelerated. Systems have become increasingly sophisticated and capable not only of giving us the right answers in business, but also of managing increasingly intricate business processes. Processes that were only imaginable before are becoming easy — and such is the case with managing people.

One of Brynjolfsson and McAfee’s predictions for the future of business is that technology will become increasingly valuable as a way to augment human abilities and behaviors. Yet their analysis cuts through the idea of the all-powerful computer — such as the chess-playing and Jeopardy!-winning cousins Deep Blue and Watson — and arrives at a more satisfying conclusion: Those businesses that do the best job of harnessing humans and computers to work together will be the most successful.

The People-Management Problem

Perhaps a classic example lies in how we manage people. Given a choice, many managers would rather wrangle cats than direct humans — in part because incenting humans and following their progress toward a conclusion so that the right reward can be given is a low-productivity process full of twists and turns, and lost data.

Until very recently, managing people was a matter of setting goals and supplying incentives to follow them. It was a matter of tallying the results and calculating rewards. Unfortunately, though, the process quickly gets out of hand if managers have many people to track, along with day jobs that come with goals and incentives of their own.

People naturally find the easiest ways to reach their goals, like a mouse in a maze goes for the cheese. So the end of quarter accounting too often starts with reminders of the original goals and back-of-the-envelope calculations to derive percent of attainment.

Such is a “good” system. A less-than-good approach is to forget the beginning incentive and goal-setting and to arrive at a bonus amount that is bestowed less as a reward for meeting the goal than as manna from heaven. No wonder motivation sags in many businesses. People don’t really know what’s expected of them — and good work, while hoped for, is treated as a miracle rather than the result of a plan.

The Machine Solution

That’s the way it always has been, but it can change now. That’s because systems are becoming generally available that combine the number-crunching and data-gathering capabilities of technology with the right-brained, creative, goal-setting and motivational talents of real managers. In other words, the MBO approach can now be much more than an aspiration learned in business school and promptly shelved in the real world.

Teaming managers with systems that actually aid in management processes and not just calculating results can turn the difficult and time-consuming people supervision process — including goal and reward setting — into a rigorous and time-saving science.

Using systems that manage MBOs has another, more important benefit. Rather than waiting until the end of a reporting period to ask, “How did we do?” managers now can ask the more useful question, “How are we doing?” at any time in the reporting period.

The obvious benefit of this approach is the possibility of knowing where things are succeeding and where the sledding is tougher in time to intercede. This is managing by exception — one of the more useful tactics that managers are tasked with. Now, by leveraging appropriate systems, managers actually can intercede where their efforts will do the most good, and they can do it on a consistent basis.

All this suggests that in the second machine age, we might reconsider and reconstruct the very idea of work. Well-tuned goals and incentives can be managed anywhere any time, with less emphasis on employees reporting to a building every day or working these hours or these days but not those.

Best of all, because it will make this new paradigm more palatable to all parties, research shows that directing as little as 3 percent of employee compensation into well-managed MBOs is enough to move the needle. The key is managing well. Employees quickly go from gaming a system imposed by others to strategizing how to maximize a set of incentives constructed expressly for them.

The second machine age will be a time for recalibrating the relationships between people and computers, work and life, and among people. Goal- and reward-setting will be small ways to do some of this, but their impact will be great.