Market-Based Management®

Compensation

That got your attention.  Many have read Daniel Pink's interesting popularization of some research studies that claim money can sometimes be a de-motivator. (Drive: The Surprising Truth About What Motivates Us.)  Here is Pink in a TEDTalk presenting his experience writing the book:

Recently, Russ Roberts had an extended discussion with Daniel Pink over at EconTalk.org.  I found it to be engaging.   The conversation provides a richer exploration of the ideas in Drive than just reading the book itself.  I admire Roberts' ability to question and challenge in a way that promotes learning and discovery in conversations - something we should all strive to emulate. 

If you manage an organization, large or small, for profit or non-profit, I encourage you to consider the following questions as you read, watch, or listen to all (or any) of the above:

• What is the purpose of compensation?
• What is the role of vision, decision rights, knowledge processes, and virtue and talents in the determination of compensation?
• Remember that whatever the "game" being played, there is always a bigger game being played around it.  Consider the larger questions: what is the role of business in society?  What does it mean to have a job?

I hope some of these questions help you dive even deeper into the material to make it more useful.  Feel welcome to comment and start a discussion around any of the above.

Book Review: Three Signs of a Miserable Job

My colleague, Mallon, heard me talking about various things, including my desire to become a better manager. She graciously let me borrow her book, The Three Signs of a Miserable Job by Patrick Lencioni. I must admit that I was a little skeptical. The book starts with the story of Brian. Brain believes his calling is management. The fable (as it is called in the book) follows Brian through various management experiments, which develops the theory.

I liked the fable style. I could not believe how the simple story of Brian trying to make employees less miserable entertained, informed and engaged me with the material. I'll get to the theory of the book in a second, but the form of the book was engaging. I'm looking forward to reading another of his books, Death by Meeting soon.

First and foremost, this is a book about people managing direct reports, not strategy. The theory rests on the assumption that regardless of the type of job, there are three things that cause employees to be miserable: lack of measurement (the author calls this immeasurement), anonymity and irrelevance.

To be clear about the opposite of immeasurement, Lencioni means that every employee should have measures that lets her leave everyday knowing if she had a good day or not. It could be as simple as how many customers smiled at her, but it is clear at the end of the day.

The part that made me sit up and read harder was the portion on irrelevance. Each employee needs to understand how he is making someone's life better. Managers need to be able to express to their employees precisely how the employees make their lives better. And managers need to drop the assumption that smart people will "just know" how they are making other people's lives better. I think everyone has experienced days where they have left work thinking, "Why am I doing this project?" or "Why am I on this team?" I heard someone say that RR&Es should answer the "whys," so that is one tool managers can use to address this.

Anonymity is the feeling that you are a cog, and if you were replaced tomorrow by someone equally able, no one would notice. The author puts it like this, "It's one thing to know that an employee's daughter likes dancing. It's quite another to ask how Friday's dance recital went" (230).

The author goes on to give many examples and practical steps to change. For someone new to management, I recommend giving this a read through. Have any of you read this before? What did you think of it? What books would you recommend to inexperienced/new managers that can help with some of the basics?

Equality, Value, and Merit

There is a fantastic chapter in Hayek's Constitution of Liberty called "Equality, Value, and Merit." Every time I read it, I am struck by something new. Here are some quotes:

"Not only has liberty nothing to do with any other sort of equality, but it is even bound to produce inequality in many respects. This is the necessary result and part of the justification of individual liberty: if the result of individual liberty did not demonstrate that some manners of living are more successful than others, much of the case for it would vanish" (page 85).

"If the differences are not very important, then freedom is not very important and the idea of individual worth is not very important" (page 86).

Then a professor recommended a movie (sorry, I can't remember who it was) that seemed to speak to the idea of individuals and liberty. So, I spent some time bopping around the internet trying to find it. Instead of the original movie, I found the trailer for the remake. It looks fantastic. Here it is:

What do you think of using this clip to motivate some of Hayek's work? Have you read this chapter before? What do you like about it?

Zeiglanerfleck Effect

Ok, there's no such word as "zeiglanerfleck" but I can't pronounce the actual name of the phenomena described below, so--much like a child struggling to say 'spaghetti'--I've made up my own name for it.

As this article describes it, "the Zeigarnik Effect is the tendency to experience intrusive thoughts about an objective that was once pursued and left incomplete (Baumeister & Bushman, 2008, pg. 122). The automatic system signals the conscious mind, which may be focused on new goals, that a previous activity was left incomplete. It seems to be human nature to finish what we start and, if it is not finished, we experience dissonance."

This is--I believe--what David Allen would call "open loops" in his "Getting Things Done" time-management system.  [ht Logan M.]

The Value Creation and Principled Entrepreneurship Guiding Principles urge us to make the best use of our time, so I've been focusing on ways to use my time--and brainpower--more effectively.

I've just started experimenting with Allen's system.  Has anyone else used the GTD system?  What's your preferred system for managing time and priorities?

MBM Readings

Frequent reader and commenter Tammy C asked in Ben's recent post: “I want to learn more about free markets/economics and how it can relate to me, as a manager…. What would you recommend to someone for their first book on how the idea of prospering societies was used to create the MBM philosophy?”

I thought this was an excellent question and one that others might experience, so I threw together a few thoughts.

Of course--as Ann mentioned--one of the best places to start is The Science of Success which succinctly lays out a myriad of philosophical ideas and how they apply to economics. 

 

Other than that, though, you have to do a little of the connection-making yourself.  We've found that pairing two readings--one philosophical and one managerial--is a good way to see how the big ideas impact the day-to-day.  Below are some thoughts on such pairings that Ann, I, and the rest of the MBM team have put together over the years.

• Incentives--Tocqueville's essay on “Interest Rightly Understood” and Adam Smith's thoughts on “Justice & Beneficence” discuss how individuals are self interested (both found in Boaz' The Libertarian Reader), and Sowell's Basic Economics discusses what motivates individuals in society (chapter 6 "The Role of Profits--and Losses" and chapter 9 "Productivity and Pay").  This can be paired with Abernathy's The Sin of Wages which looks at the problems with typical motivation systems in many organizations.
• Decision Rights--The importance of property rights are vividly discussed in both DeSoto's The Mystery of Capital or Anderson/Hill's The Not So Wild Wild West.  But how do feelings of ownership and accountability transfer over to management?  A good place to start is with Freedman's Corps Business (chapter on "Directing People," pg. 97).
• Knowledge Processes--I don't have a good reading about free speech and how that helps societies share knowledge, but Sowell's Basic Economics (chapter 2 "The Role of Prices" and 6 "The Role of Profits--and Losses") does a great job of explaining how prices, profits and loss share knowledge.  This could be paired with Senge's The Fifth Discipline (chapter 11 "Team Learning") about how you can help your team share and use knowledge productively.
• Virtue and Talents--Hayek's The Constitution of Liberty (this one is pretty dense) has a good set of chapters that discusses the concept of the Rule of Law and how important that is to creating stability and equality of treatment in societies (chapters 10-16).  In a similar way, we want productive cultures inhabited by employees we can trust--which creates organizational stability: a few good books could be Corps Business (chapters on "Developing Mangers," "Motivating People," and "Culture") and Collins' Good to Great (chapter 3 "First Who...Then What").
• Vision--The concepts of "creative destruction" (see Schumpeter's "The Process of Creative Destruction" in Capitalism, Socialism and Democracy (and if you're just starting out, I wouldn't suggest reading more than just that section)), "spontaneous order" (see Hayek's Law, Legislation and Liberty, chapter 2), and "experimental discovery" (see Hayek's essay “Competition as a Discovery Procedure” [PDF]) look at how free people interact and find ways to better themselves and others.  This can be paired with Senge's "Shared Vision" discussion (chapter 11) in The Fifth Discipline.  I see the connection as you want to create the boundaries in which your smart employees have freedom to act entrepreneurially in a way that no central planner could manage.

Of course, this is just our thoughts.  There are many, many other resources out there, and no book will ever take the place of simply going out and trying to apply MBM, but these can spark good ideas for how to better manage people and resources. 

Please let us know if you have other ideas or suggestions!

My Summer Reading List

Here's what I am reading this summer - how about you?

• The Citizen's Constitution: An Annotated Gude by Seth Lipsky
• The Rational Optimist by Matt Ridley
• The Argument by Matt Bai
• Stone's Fall by Iain Pears
• The Blueprint by Rob Witwer and Adam Schrager
• Athwart History: A William F. Buckley Jr. Omnnibus (Kimball and Bridges, editors)
• The Ambiguities of Experience by James March

I Order You To Creatively Solve This Problem, Soldier!

You may think of the armed services like I do--the quintessential model of top-down order. 

This isn't the case, however, in the Marines.  Sure, there are orders, but the Marines have optimized their management structure for the chaos of war, where smart individuals need to be able to act on their feet in the absence of commands.

If you haven't yet, definitely check out Corps Business by David Freedman. 

Reading this book, I was astonished at how similar the Marine's view of management parallels MBM.  Freedman identifies 30 principles that the Marines spend every minute of every day drilling into their members.  Principles such as "build a capability-based organizational mission," "manage by end-state," "demand to be questioned," and "experiment obsessively" scream MBM to me.  Vision, culture, decision rights, challenge, and even the Kitchen Sink Mental Model are all represented in this quick read. 

If you've read it before, please share your favorite ideas from the book, or where it diverges from MBM--I'd love to hear your comments!

The Road to Serfdom

F. A. Hayek's Road to Serfdom has been getting some serious attention in the media lately. (Here's the cartoon version if you just want a quick overview.) It outlines what I've come to call a "theory of change" for society based on Hayek's experience.

Recently, I led a reading discussion with the Associates about The Road to Serfdom (and a couple of other works), and I asked them to think about what lessons managers could learn from Hayek's work. Using the panels of the cartoon for reference, here are a few bullet points of what they came up with:

• Small steps can result in large changes over time. Pay attention to the little changes in organizational culture.
• In panels 1 and 2, a war results in centralization of power that stays even after the war. For an organization, a crisis can result in any number of quick changes that may or may not be optimal in the long run.
• Panels 3-7 could have a decision rights lesson. Authority through consensus doesn't always work in an organization.
• Panels 10-13 led us to a conversation about cults of personality and the implications a strong single decision maker.

While we didn't talk explicitly about panels 14-18, flipping through them this time made me think about how miserable I would be in a place that planned every second of my working day. An appropriate translation into the organization might be that entrepreneurial people go elsewhere as their days turn mindless and boring.

If you've not read The Road to Serfdom, I highly recommend it. Do you think there are other lessons we can draw from this? Do you agree with Hayek's theory of change presented in The Road to Serfdom? Do you think I'm trying too hard to draw lessons into the organization from it?

Hey, Let's Create a New Language!

I've been reading up on a special case of spontaneous order lately: language. Hayek's conception of spontaneous order--order that is the result of human action but not human design--is a fundamental explanation of how markets work, and it's application is an interesting (if not hard-to-apply) aspect of "Vision" in MBM.

A recent article from Discover Magazine Online explores a unique phenomena, the creation of an altogether new language in the form of Nicaraguan sign language.

"In the 1970s, a group of deaf Nicaraguan schoolchildren invented a new language. The kids were the first to enroll in Nicaragua’s new wave of special education schools.... Its child inventors created it naturally by combining and adding to gestures that they had used at home. Gradually, the language became more regular, more complex and faster."

This new way of communicating grew spontaneously as the children adapted and learned from one another.  But what about well-established languages?  The Lexicographer's Delemma, by J. Lynch, describes how the English language has evolved without the guidance of intellectual elites imposing grammar dictates from the top down (the same is true for France, despite their efforts to the contrary).  Rather, the author quotes a grammarian as saying that the "'the spirit of English liberty will hinder or destroy ' any such scheme" of command-and-control language planning (pg. 107).

Sorry grammar freaks; your services aren't needed, according to Mr. Lynch.

Are the formal rules of grammar needed to keep language useful, or does spontaneous order suffice?  As managers, how do we balance letting employees go "laissez faire" vs. providing active, detailed guidance?

Fiction

I'm often asked why we don't use more fiction to teach in the Associate Program. Part of it is that we'd have to give up some awesome non-fiction work that directly connects to Science of Liberty^TM. However, I think the other part is that putting together a great line up of fiction that would lend itself to nuanced topics is tough.

Currently, I can only think of very obvious choices: Ender's Game, Atlas Shrugged, 1984, and Fahrenheit 451. Do you know of any great fiction books (or plays) that might connect with Science of Liberty concepts? The trick is to find a piece of work that people would read regardless of the message because it is well written. I think those are few and far between, but if you know of any, please leave a suggestion in the comments.