By September 4, 2010 8 Comments Read More →

Economics: From “Dismal Science” to Dismal Home?

Catching up on some readingI nearly drove off the road when I heard this NPR story yesterday: “Allowance Economics: Candy, Taxes And Potty Training.” Please take a listen or a read.

In the piece, an Australia economics professor who is “an expert in incentives” decided to practice his “dismal science” (as they call it) at home with his family and children.

As they say on the interwebs, hilarity ensued.

Part one of the tale begins:

So when the time came to potty train his daughter, B., he designed what seemed like an economically rational incentive: B. would receive a jelly bean every time she went to the toilet.

Once the new policy was in place, B. suddenly had to go to the toilet really, really often.

This illustrates the point that Daniel Pink makes in his excellent book Drive: The Surprising Truth About What Motivates Us. There’s a great TED video of him here, if you haven’t seen it.

Incentives work — but there are often side effects and dysfunctions that people don’t want. The viewpoint of those who push incentives is simplistic – if you want more of something (like sales) then pay people more for that activity. If you want less of something (like injuries in a factory) you punish them. I doubt fining people for injuries ever led to anything other than people not reporting injuries, as Dr. Deming famously wrote about.

So, the genius professor pays his daughter a reward to use the toilet — she was apparently running in there every five minutes. The incentive worked, but it was dysfunctional.

You’d think the professor would have learned his lesson, but nooooooooooooooo:

A few years later, B.’s younger brother needed to be potty trained.  And Gans decided to expand the incentive system: Every time B. helped her brother go to the bathroom, she would get a treat.

“I realized that the more that goes in, the more comes out,” says B., who is now 11. “So I was just feeding my brother buckets and buckets of water.”

“It didn’t really work out too well,” Gans says.

Now the professor has TWO children gaming the system (or just the older one was force feeding and water-boarding her brother so that he would have to pee more often.)

Didn’t really work out too well, indeed!

The lesson for business or other organizations – incentives work. If you give your salesperson a quota or an incentive, they’ll hit the incentive — and they’ll often create dysfunction (such as gaining you unprofitable customers or by overpromising). I’ve heard stories of salespeople literally holding customer orders in their desk drawer, waiting to enter them at the time when the incentive payment was the highest. Or the incentives drive a “hockey stick effect” that really hurts the supply chain (the “bullwhip effect“).

But organizations often don’t see how the pieces fit together, they don’t think systemically — each silo suboptimizes itself and the company loses.

So how do we get people to do things? Dr. Deming would say, “substitute leadership!” Both he and Dan Pink would say the better way is to hire people who have intrinsic motivation, then don’t DE-motivate them through Dilbert-esque management tactics, like arbitrary quotas and misguided incentives.

You might want to revisit my old podcast with Eric Christiansen, the CEO of a Deming-style company that eliminated sales quotas for salespeople — turned out it worked better. Yes, there is an alternative to simplistic incentives.

Do we have to offer the economics professor an incentive to not screw up the potty training of his next child? :-)

Creative Commons Licensephoto credit: abardwell


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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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8 Comments on "Economics: From “Dismal Science” to Dismal Home?"

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  1. Sue Gillman says:

    Hi Mark,
    One of the things I’ve often noticed when incentives go awry is that they focus on an activity (using the loo) vs an outcome (SELF MANAGEMENT of when & where to go). This is a different way to see the “system” you smartly mention above.

    The gap in Lean, often, is volumes of kaizen events being reinforced vs smartly using actions in a system that contribute to real, tangible business results.

    Whether economics or psychology, we know that people do what they get reinforced for doing. This common sense is not so commonly administered!

  2. Mark Graban
    Twitter:
    says:

    Hi Sue – thanks for the comment and you’re right that arbitrary incentives are bad in a so-called “lean” setting. It’s ironic that Dr. Deming taught Toyota and the Japanese so much, let his basic lessons get so often ignored in attempts to copy Toyota.

    Arbitrary quotas and incentives about the the # of kaizen events you do, the arbitrary “5S Score” that your department receives, etc. should not be part of a healthy lean effort.

    I wonder how often other people see that dysfunction in the wrapper of “lean”?

  3. Amber says:

    Thanks to Dan Pink for the great tweet – awesome blog and glad to find you. As a HR Professional and potty-training mom, I thank you immensely for the find and the ensuing laugh. I don’t even know what to say…

  4. True confession (and maybe a bit of rationalization) here. When our kids were young, we used a method for toilet training from a book called “Toilet Training In Less Than a Day”. It worked. Well, not in less than a day, but in a few days. The method may seem a bit Skinnerian, and as someone who spent some time with Dr. Deming and learned a lot from him, I pondered the wisdom of using this method but proceeded anyway. I won’t get into the details of the method, but if there are young parents who are frustrated about unsuccessful attempts to potty train children, I would recommend it. In lean-thinking terms, it’s a lot like the “training within industry method” (the kid is teaching a doll, while you’re teaching the kid) and it involves treats (the saltier the better) and lots of fluids, and lots of practice, and some role modeling “ernie and bert keep their pants dry, you can keep your pants dry too”. In our experience, our kids didn’t game the system and press us for more treats. They kept their pants dry, and it’s still working to this day (not I’ve asked them about it lately, they are grown adults now).
    Mike Stoecklein recently posted..Does the Deming Connection have a down sideMy Profile

  5. Mark Graban
    Twitter:
    says:

    Mike – My criticism is meant to be more barbed toward managers who try to manage using simplistic quotas and incentives, not parents. I’m in no position to judge, having no kids of my own! Thanks for reading.

  6. Ron Krawec says:

    I have nothing to contribute to the bigger issue, but having a near-2-year-old starting potty training brought another thought to mind: allowance. My wife – the Psychologists in the family – believes that we should start to consider an allowance for our 5-year-old in exchange for completing chores. I disagree and feel that allowance should not be attached to the performance of chores, as at some point, he will decide that completing them is not worth the compensation, therefore either ask for a raise or stop doing them.

    I have read Daniel Pinks book as well as a slew of articles on occupational performance and am applying that information within my consulting practice – particularly on how performance should be measured (and more importantly, managed) in a healthcare setting. The organization I work for is currently floundering in with implementing Lean (thankfully, not one of my projects). My copy of Mark’s book is slowly making the rounds and having a positive effect with people starting to ask the questions that need to be asked.

    Thanks for the blog.
    Ron Krawec recently posted..TransformationMy Profile

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