Extrinsic & Intrinsic

On the issue of motivation

Friends,

I hope that all is well with you and yours.

Today, as the book club inches ever closer to the final chapter of our inaugural read, I thought that we would turn the page on acquisition and retention. Though I am certain that we shall find reason to revisit the topic, not least in my upcoming paper on e-commerce co-penned with James Hankins, it is time to move on to something else entirely.

Thus, without further ado, let us dig into something that has a significant impact on strategy yet rarely is discussed.

Incentive structures are habitually omitted from strategic management discourse, I suspect, due to the fact that it is predominantly written by theorists who do not actually do the work themselves, or at least are so far removed from its implementation that they assume subsequent execution to perfectly mirror their original intent; it is assumed that everyone will not only understand the strategy, but also do precisely as they are told.

Those of us who are practitioners, on the other hand, are only too aware that incentives can make or break a strategy regardless of its merits (or lack thereof). To understand how they work, I would argue, can consequently only help.

The metaphorical carrot

In short, incentive theory is one of the major schools of thought around what sparks human motivation. It originally emerged after the second World War, building on what was called drive theory as put forth by psychologists Clark Hull and Kenneth Spence (in turn largely influenced by Sigmund Freud).

Instead of focusing on homeostasis – the idea that the body actively works to maintain a certain state of balance or equilibrium, such as eating when one is hungry – incentive theory argues that people are, so to speak, pulled toward behaviors that may lead to rewards and pushed away from actions that might lead to negative consequences. The food, to use the previous example, may be such a reward.

Of course, not all incentives are created equal, though some are more equal than others. What might motivate someone in one context might not inspire someone else, or even the same person, in another. We are likely to find food more enticing if we are hungry than if we are full, say.

All kinds of factors play into the incentives found most appealing, but common among them is that they are extrinsic, i.e., external. This stands (at least as a rule) in contrast to notions of intrinsic motivation, that is, a personal fulfillment of some variety where the task or behavior is its own reward. The difference, one might say, is that between participating in a sport to win awards and participating because one finds the activity enjoyable.

An inevitable but

Extrinsic incentives such as monetary rewards may, for example, spur people to perform more efficiently and increase overall productivity. But prizes come at prices; they can also lead to short-termism and a decline in the overall quality of work, which is more generally influenced by intrinsic factors. These are more long-term, ensuring effectiveness over time. If one is finding something interesting, engaging and rewarding in itself, one is also more likely to be creative and innovative. And yes, if you happen to work in advertising, this has consequences for your work on several levels.

Yet, as most will be aware, many organizations are short-term in nature and thus overemphasize the temporary compliance provided by extrinsic rewards, either blissfully unaware of or consciously ignoring their potential drawbacks. Indeed, as Alfie Kohn once wrote, it is difficult to overstate the extent to which most managers and the people who advise them believe in the redemptive power of compensation (though one might also note that the latter group are rather good at ensuring that whoever hired them are the top beneficiaries).

Such bonuses have two primary effects. There is the obvious direct price effect (more money in the bank), but also an indirect psychological effect – and these can be mutually exclusive or at least negating. A financial carrot may motivate someone to perform a task they find unpleasant, but it may also signal that the task is unpleasant to someone who previously did not believe it was. To make matter worse, employees often game the rewards, which can turn the incentives perverse (a topic that I have covered extensively in years past).

Unfortunately, changing the status quo is not something easily made; plenty of companies will find themselves painted into a corner. If already implemented incentives are removed for current employees, they may start performing their assignments much less eagerly. If the incentives are kept in place, new employees who were attracted by intrinsic motivation (which some love to argue is the case for brands with a clear CSR agenda, though others vehemently disagree) will lose said motivation as extrinsic rewards have proven, time and again, to destroy it. If incentives are kept for current employees but not offered to new employees, there will eventually be corporate mutiny.

Consequences and complications

Understanding the challenge of these dynamics at play in an organization is important for anyone looking to improve the odds of a strategy being implemented – particularly given that there hardly are any guarantees that they will work in the strategist’s favor.

That is not to say that incentives and motivations can be reduced into behaviors that are observable and measurable any more than they can be divided into parts to be manipulated (so that that people with more power can elicit the behaviors they want from people with less power). We are dealing with complexity, after all. But an investigation into how people are incentivized to act can doubtlessly provide a helping starting point for potential reactions to a new strategy.

To illustrate, anyone who has created more than one global strategy will be able to predict the likelihood that regional heads, for whom bonuses may be negatively affected by a new direction, object or even refuse to comply. Depending on the level of executive weight behind the strategy, this can either be mitigated by compromise or entirely ignored, but it is worth taking into account that long-term buy-in will be difficult to purchase either way. Extrinsic motivators do not alter attitudes or create commitment, merely change behavior temporarily. We saw it with how discounts negatively affected brand loyalty and the same applies here.

Similarly, founders are typically incentivized to behave differently to investors who, in turn, may have monetary reasons to make decisions that are not in the long-term interest of the company. No matter how good a strategy one creates, an exit plan may render it irrelevant in an instant.

In other words, it is often a worthwhile exercise for strategists to not only diagnose the current context as it pertains to the strategic issue as such, but to also look for potential incentive related roadblocks for later implementation. Although some consultancies and agencies (and I know because I have worked with them) are done with the client the moment the strategic document changes hands – a nice gig if you can get it – the rest of us usually are not. And if we want our work to make it, we have to make sure people want it to work.

Today as well as tomorrow.

Next week, we are going on a quick off piste due to subscriber request, as I will be sharing some of the tips and tricks of public speaking that I have collected over the course of my career.

After that, more strategy.. ..and some very interesting news.

Stay tuned, and have the loveliest of weekends.

Onwards and upwards,
JP