Thursday, November 1, 2012


Talk to Jobs Australia National Conference, Manly, Thursday, November 1, 2012

The last time I spoke to your national conference, many moons ago, I offered some confident predictions about the outlook for the labour market. It seemed to go down quite well, but turned out to be hopelessly wrong. So this time I propose to do something quite different, something more philosophical, something I haven’t done before, even something a bit naughty. For many months I’ve been reading and ruminating on a question of motivation: how do we get people to do their job well? The trouble is, though I’ve come to some tentative conclusions, I haven’t yet finished my search and haven’t yet decided what the answer is. Despite that, I’m going to give you a progress report on my ruminations to date.

The question of how you get people to do their job well is one facing every manager, but it’s also a key question for public policy. Governments and their bureaucrats seem increasingly concerned to ensure people are doing their jobs in the way the pollies and their advisors think they should. For instance, they’re concerned to ensure the organisations contracted by them to deliver job services to the unemployed do so efficiently, effectively and accountably. So I hope you can see why I thought my topic to be of more than passing interest to all of you.

But governments’ concern with the topic goes a lot further than the management of contractors. It’s clear, for example, the Gillard government - like many governments - is quite dissatisfied with the performance of schools and teachers, and is using a wide range of strategies in the hope of achieving improvement: the regular, national assessments of literacy and numeracy, the publication of those Naplan results and much other data on the MySchool website, the offering of incentive payments to schools and teachers etc. Another case: the state governments respond to the public’s belief that the sentencing of criminals is too lenient by reducing judges’ discretion. A different case is occupational health and safety. We don’t want workers’ health to be endangered in the workplace, but what’s the best way to get employers to exercise the necessary care?

So what do I think about all this? Well, as I say, I’m still making up my mind. But let me give you my conclusions so far. They boil down to six.

First, I accept we need accountability and transparency from organisations and their employees.

That’s particularly true for government agencies, which operate with authority (and funding) derived from the public, and also for outfits delivering services on behalf of the government. If you’re handling taxpayers’ money you have to account for it, in a way that people working in the private sector need to be supervised but not be held publicly accountable to the same extent. Of course, it’s not just the money you handle, it’s also what you do to discharge the duties you were charged with.

Second, I agree with the modern trend to greater measurement of performance.

One of the slogans that accompanies the new mania for measurement says: you can’t manage what you don’t measure. I’m not sure that’s true, but it does contain an element of truth. Actually, the hard part of being a manager is managing the unmeasurable.

Putting these first two propositions together, I don’t accept the argument of the teachers’ unions that, because measures of schools’ performance are capable of being misunderstood by parents (or misused by the media), they should not be made public. Most of these measures have been calculated by education departments for many years and used for their own management purposes, but kept strictly confidential to all but the insiders. The fact is that all statistics - every one of the thousands produced each day by the Bureau of Statistics, from the national accounts to the CPI - are capable of being misunderstood and misused. That’s a reason for educating people in their correct interpretation, not a reason for the performance of elected governments and their agencies to escape public scrutiny. It’s not an argument for keeping the public in the Mushroom Club. Having said that, however, I must add a qualification:

Third, I have grave doubts about the modern management fad of using KPIs (key performance indicators) in the attempt to ensure people do their jobs well.

It is true that measures of performance (‘metrics’ in the fashionable business jargon) are capable of being misinterpreted, even by managers, let alone by outsider amateurs and a sensation-seeking media. Most managers know little about the rules and the pitfalls of statistical interpretation. It may be that when workers are employed to perform simple, repetitive tasks - workers on a factory production line, for instance, or those employed in data entry - you can get away with using numerical targets to ensure a satisfactory rate of output, provided you combine it with some form of quality control.

But, these days, the satisfactory performance of most skilled jobs simply can’t be measured with a few key numerical indicators. Nor is the quality of people’s performance easily checked. This is because satisfactory performance of the projects people work on has too many dimensions. It would be impractical to attempt to measure every dimension, and some dimensions may not be capable of measurement. In such circumstances, supervising the quality of people’s performance will also be difficult. Even where a person’s job is to process a number of cases each day or each week, it may be easy to count the number of cases they get through, but much harder to allow for the differing difficulty of those cases, as well as monitor how well they were dealt with. That’s true even of lowly workers in a call centre. While most of the problems they deal with may be routine, we all know from experience how easy it is to ask a question that’s beyond the operator’s pay grade or to be offered confident assurances we know, or soon discover, to be wrong. We all know how unhappy we can be with the experience, even when we eventually got what we wanted.

Numerical indicators of performance are particularly unsatisfactory when the task involves dealing with individuals - because people and their problems come in so many shapes and sizes. At least three-quarters of Australia’s workforce works in the services sector, and most of those jobs involve delivering services to individuals. Am I starting to ring any bells with your own circumstances?

But the fact that performance so often can’t be satisfactorily assessed using PKIs is just the start of the problem. The deeper problem is that PKIs are so easily manipulated - so easily ‘gamed’. If the satisfactory performance of my job has, say, five dimensions, and you slap a KPI on as many as three of them, rest assured I’ll meet my targets. But I’ll do it by cannibalising the two dimensions you haven’t measured. This kind of behaviour is rife and it’s the reason I regard the use of KPIs as a fad that management will soon see to be a snare and a delusion.

Early in the days of Paul Keating’s national competition policy, someone came up with the idea of encouraging better performance by the state governments by means of what I think was called ‘benchmark competition’. The idea was to publish each year, for each of the states, a host of key indicators of their performance in all their areas of responsibility (courts, prisons, hospitals, schools etc). The public would be able to see which states were doing better and which were doing badly, and this would encourage the states to try harder. At first the relevant state bureaucracies complained the figures weren’t on a comparable basis, so much effort was put into making sure they were. But someone who’d been close to the process told me the figures - which are still produced each year - are utterly unreliable because of each state’s efforts to manipulate their indicators.

This is why I have much sympathy with the teachers’ argument that a quality education has a lot more dimensions than just the literacy and numeracy so regularly measured by Naplan. Put too much emphasis on Naplan scores and you will get schools ‘teaching to the test’ and, in the process, neglecting those dimensions of a quality education not being measured. Whether this yields a net benefit to students is a question no one bothers to measure - assuming they could.

From the developed world’s unhappy experience with monetarism and money supply targeting in the 1970s emerged something economists call Goodhart’s Law, which holds that ‘any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes’. That’s what’s wrong with KPIs.

It follows that attaching monetary incentives to KPIs is equally foolish. But I would go further and say:

Fourth, I have grave doubts about the equally fashionable practice of using performance pay to try to ensure people do their jobs well.

This is not just because good performance is hard to measure, but also because money is a bad motivator. Thanks to the limitations of their model, economists unconsciously assume money is the only motivator. And, perhaps because of their own materialism, business people easily assume monetary incentives are likely to be most effective. But the obvious truth is that people are also motivated by a host of non-monetary motivations, ranging from the pursuit of power and social status to the satisfaction of working hard and doing a job well. Many people have a deep commitment to doing their job to a high standard - for the benefit of customers, but primarily for their own satisfaction.

There are two problems with performance pay. One is that the more I’m motivated just by money, the more I’m likely to cut corners, sacrificing quality. The other is that studies by psychologists show monetary incentives drive out non-monetary motives. Once you’ve trained people to do things just for the money, any subsequent decision to abandon performance pay will lead to a deterioration in performance.

Fifth, I also doubt the effectiveness of the main alternative to monetary incentives, the imposition highly prescriptive rules and regulations.

This is the approach beloved of governments and bureaucrats. David Thompson tells me the rules the department imposes on providers of job services run to 3000 pages. So I imagine this is the main way the government tries to get you guys to do your jobs well. It also applies to governments’ attempts to oblige judges to impose harsher sentences.

You probably don’t need me to tell you why this approach doesn’t work well, either. As well as burdening people with a lot of red tape and compliance costs, it limits their freedom to exercise their discretion in responding to the peculiar circumstances of each of the cases they deal with. It stifles, and therefore wastes, people’s use of their experience and expertise in discharging their responsibilities to the best of their ability. It assumes the people making rules that fit the general case know better than practitioners on the ground dealing with specific cases that may or may not fit well with the general case. It also assumes practitioners aren’t to be trusted. And rules, too, can be gamed by people who’ve been discouraged from doing their best.

Consider the industrial relations tactic of ‘work-to-rule’. Work-to-rule demonstrates that it’s actually very hard to design rules on paper than work smoothly in practice, partly because circumstances may differ so much from case to case. It shows that well-functioning organisations are organisations that honour the spirit of rules rather than the letter, that turn a blind eye to rules that don’t work well.

But if PKIs, monetary incentives and prescriptive rules don’t work in getting people to do their jobs well, what does?

This I’m still working on. But I do have some clues.

Sixth, rather than trying to control people with rules or performance targets, or bribing them to do a good job, we should be aiming to produce well-trained and well-motivated workers, free to exercise their discretion in meeting the needs of the widely varying cases that come before them.

Psychologists tell us intrinsic motivation is superior to extrinsic motivation. That is, it’s better to encourage people to do things for their own sake, rather than for the external rewards they bring. When people take a pride in doing their job well, you get better performance than using rules or whips or bribes.

Sociologists tell us people’s behaviour is heavily influenced by something most economists and business people are oblivious to: social norms of acceptable behaviour. Studies show making people attend courses on ethics does little to make their behaviour more ethical. There will be exceptions but, in practice, people tend take their ethical standards from the behaviour of those around them. If most people around me cheat, I’m likely to cheat. If most people around me work hard, I’m likely to work hard. And if my group habitually works hard, it’s likely to come down hard on any individual within the group who slacks off. The thing about ‘norms of acceptable behaviour’ is that they usually involve the imposition of informal sanctions on individuals whose behaviour the group regards as unacceptable. You don’t get fined, you get gossiped about, chipped and, in the extreme case, sent to Coventry. Humans are such social, ‘groupish’ animals - we are so pre-programmed to want to ‘fit in’ - that such informal sanctions are usually highly effective in achieving adherence to group norms.

There’s an old debate in monetary economics over ‘rules versus discretion’. The best position is probably a half-way house - discretion within a set of fairly loose rules - but I believe leaving people with discretion to use their expertise to make the best decisions to fit the particular case is likely to maximise the chance they will be motivated to do their best work. Tight rules are de-motivating.

What we need to bolster this, however, is a group norm - a ‘culture’ - that we all work hard, we all do our best to meet our clients’ needs, and if we cut corners we do it to fit a client’s needs, not for our own convenience. How do you introduce such a culture where it doesn’t exist? How do you strengthen such a culture if it isn’t strong enough?

That’s what I’m still working on. One thing I do know is that it has to start at the top. Not surprisingly, bosses are hugely influential in affecting the attitudes and behaviour of the people working for them. But they’re influential not so much in the programs they introduce and the pep talks they deliver but in how they behave. As business people say, you have to walk the talk.

Another clue lies in the original meaning of the word ‘professional’. What does it mean to be professional? These days, it may mean you play sport for money, not just the love of the game. More commonly, it means well-trained, highly proficient. But its original meaning is instructive: it used to mean putting the client’s interests ahead of your own. In other words, the complete antithesis of doing a job just for the money. To say, I’m a member of a profession, is to say I put clients first.

I suspect the culture we need to introduce into organisations to lift their performance is old-fashioned professionalism. And though I’m still working on ways to do that, I do know this: if you can get the work culture right - get the norm of acceptable behaviour right - it will tend to be self-reinforcing, without need for KPIs, performance pay or highly prescriptive rules.