Monday, October 10, 2011

Designing your company to succeed

Everyone wants a successful company. However, in business school they still often teach a 19th or perhaps 20th century approach to management that simply doesn't work for knowledge workers. There are two main ways to design the system that is your company:

You can focus on extrinsic rewards - Salary/rewards are directly coupled to performance. Motivation becomes an issue as research has shown that something people get paid for is not as motivating as something people do for the love of it, regardless of how motivating it was to begin with. The extrinsic rewards undermine peoples intrinsic motivation. The managers job is now to try to raise performance, weed out the lazy and reward the hardworking. They have little time to think about improvements to the system. A culture of apathy and resignation emerges amongst the employees as noone wants to take risks and makes mistakes when it affects their rewards/salary. As a reaction to this a culture of control emerges in management as they focus on trying to counteract the apathy spreading through the employees and focus on maximising employee performance. The management view of employees becomes one of distrust; people do not work hard unless monitored and controlled. Unfortunately, within this pairing of company cultures this becomes a self-fulfilling prophecy; the employees merely comply with the increasingly bureaucratic guidelines and goals. People learn to game the system to do as little as possible whilst maximising their rewards. Talented individuals, being denied freedom and responsibility and being hampered by controlling bureaucracy leave, and employee turnover rises. Depending upon the business model, competition, etc. the company may or may not be profitable. But it will not have a high performing, committed, workforce and will be vulnerable to outside competition.

The alternative is to focus on intrinsic rewards - Here, there is no direct connection between performance and salary. Everyone is paid very well for their knowledge and experience and so they do not need to think about how to get a higher salary or better rewards. People work as hard as they can and do their best without supervision, based upon their own intrinsic motivation. The manager's job is to create a healthy and motivating environment by setting clear goals and eliminating obstacles for their teams. Well-publicised and transparent career ladders allow for salary progression as one gains experience/competence. The employees attach and own the overall goals of the company and use these as guidance in all situations. Everyone is committed and employee involvement leads to high productivity and low employee turnover. The success of the company is still dependent upon the overall business model but if there is any way to make this succeed the workforce will find it.

Obviously I, and many others, support the second strategy above. I believe that this is the beginning of a new 21st century view of management and motivation.

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