That's a lovely article with a wincingly bad headline. The author does a very good job of describing what happens when managers give instructions and then discover that they have instructed people to act counter to the managers' desires. That is not 'misinterpreting'. That is essentially a compiler error; the manager told the employees to do the wrong thing, and the employees trusted that they knew what they were talking about.
In a normal business environment, human cognitive biases about authority act very strongly. I think that a big part of what causes 'bad management' is that managers may tend to think of themselves as buddy-buddy with their subordinates, and rationalize that surely someone will tell them if they make a mistake, issue instructions that seem counterproductive, make bad tradeoffs like the ones in the article, et cetera, et cetera. That's almost always wrong. The incentive structure for normal employees means that you go along with the boss' idiot idea in almost every case, or alternatively that you take it on good faith that your wise and benevolent manager knows what they're doing, and in both cases employees do not critique managers in ways that the managers can hear (by which I mean, both covert conversations and social cues that managers miss).
It's more like simple user error than a compiler error. "Aaaagh, why did the computer do that?" "Because you told it to." s/computer/employees/
Also, in his retelling, he skipped the part where the employees pointed out situations where they would be punished for making the right decisions, asked for assurance that doing the right thing for the business would be rewarded (or at least not punished) regardless of the official "goals" and "incentives", and were told not to expect any such consideration. I guarantee that happened, but for some reason he doesn't remember it as an important part of the story.
I don't think the employees misinterpreted at all. I think they knew exactly what they were doing.
I think instead, the manager simply failed to realize what his actions would do. He gave them different incentives, and they reacted to them.
Employees are there to work for the company, but they will not promote the company at their own expense. If your incentive plans incentivize the wrong things, you'll get the wrong things.
'Clever' incentive plans are rarely actually clever.
It'd be really nice if people read Freakonomics before sitting down to design workplace incentives. I know it's not the most rigorous treatment of economics but it does a great job of hammering the point home with some memorable and accessible anecdotes.
This Wikipedia page is the best piece on incentives of all time:
"The term 'Cobra effect' stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes. The Government therefore offered a reward for every dead snake. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually however the Indians began to breed cobras for the income.
When this was realized the reward was canceled, but the cobra breeders set the snakes free and the wild cobras consequently multiplied."
I heard a version about an archeologist paying per-piece for shards of ancient pottery. So the locals broke the artifacts into little pieces to get more money!
I'd heard the version about the French paying a bounty for dead rats, both are great examples of how difficult it is to incentivize an behavior when all you can reward is a concrete outcome.
At our work we sometimes have unofficial rewards for reaching goals (e.g., as a team if we reach X number of bugs we get doughnuts).
I joke with my co-workers that we should immediately stop finding bugs once we reach X, since anything further than that is wasted effort (and sets the bar higher when the next doughnut offer comes around).
Great story, but from the briefest of googlings, it seems poorly sourced. References to business literature are unreliable. Are there good historical sources for this?
The story itself reminds me of John Gall's classic book on systems (originally Systemantics, now The Systems Bible).
Similarly if you start measuring LOC (lines of code) on your developers and rewarding or penalizing as such. You are guaranteeing that the number of LOC increase. Same applies to things further up in the stack - # bugs fixed, # tickets closed, etc.
Scott Adams (Dilbert cartoonist) had a similar example of a company that paid its testers and developers a small bonus for each bug found and fixed. So of course the developers started intentionally coding bugs just so they could get paid for fixing them.
The title is "when employees misinterpret managers". Anybody who thinks that phrase implies it's anything but the manager's fault is either not a manager or is a bad manager.
It's worse than that. The Manager communicated their BAD IDEA very well, and the employees obeyed. It's more of a bad manager situation, NOBODY is misinterpreting orders. Managers are just not understanding what they want (my only problem is the title).
I love how forthright Ben is in detailing his own mistakes in management, to show how he learned from them.
He's insightful here on how to avoid managing for short-term metrics in a way that sacrifices value and long-term growth, one of the most widespread and persistent management mistakes. Ultimately, no metric can substitute for having individual employees who really care about producing work that the end user will love.
Ben Horowitz's actual topic is the challenge of incentivizing management.
His subject is covered very well by one of the best to write about this subject, Charlie Munger (Warren Buffets right hand man and Director of Berkshire Hathaway).
Charlie Munger discusses extensively the challenge of not only incentivizing managers and employees, but demonstrating that it is difficult to even fully understand what really incentivizes them (hint: it's typically different than what their superior thinks it is). He talks about human mis-judgement and its role in distorted intending incentives.
Munger says over 30+ years in business, this is the one area he continues to make judgement mistakes year after year, since this is such a difficult topic to get right. That doesn't mean you can't get it right or that proper incentives don't work however.
Check out the FedEx example in Munger's 1995 speech to Harvard.
One thing about "you get what you measure/pay for" is that if you're clear about your incentives its much easier to see how your expectations and the employee's actions misalign. If you hide your measurements and incentives behind a complicated or arbitrary system you'll never spot the misalignment.
[+] [-] sedev|14 years ago|reply
In a normal business environment, human cognitive biases about authority act very strongly. I think that a big part of what causes 'bad management' is that managers may tend to think of themselves as buddy-buddy with their subordinates, and rationalize that surely someone will tell them if they make a mistake, issue instructions that seem counterproductive, make bad tradeoffs like the ones in the article, et cetera, et cetera. That's almost always wrong. The incentive structure for normal employees means that you go along with the boss' idiot idea in almost every case, or alternatively that you take it on good faith that your wise and benevolent manager knows what they're doing, and in both cases employees do not critique managers in ways that the managers can hear (by which I mean, both covert conversations and social cues that managers miss).
[+] [-] dkarl|14 years ago|reply
Also, in his retelling, he skipped the part where the employees pointed out situations where they would be punished for making the right decisions, asked for assurance that doing the right thing for the business would be rewarded (or at least not punished) regardless of the official "goals" and "incentives", and were told not to expect any such consideration. I guarantee that happened, but for some reason he doesn't remember it as an important part of the story.
[+] [-] wccrawford|14 years ago|reply
I think instead, the manager simply failed to realize what his actions would do. He gave them different incentives, and they reacted to them.
Employees are there to work for the company, but they will not promote the company at their own expense. If your incentive plans incentivize the wrong things, you'll get the wrong things.
'Clever' incentive plans are rarely actually clever.
[+] [-] dpritchett|14 years ago|reply
[+] [-] praptak|14 years ago|reply
"The term 'Cobra effect' stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes. The Government therefore offered a reward for every dead snake. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually however the Indians began to breed cobras for the income.
When this was realized the reward was canceled, but the cobra breeders set the snakes free and the wild cobras consequently multiplied."
[+] [-] sp332|14 years ago|reply
[+] [-] zipdog|14 years ago|reply
[+] [-] Splines|14 years ago|reply
I joke with my co-workers that we should immediately stop finding bugs once we reach X, since anything further than that is wasted effort (and sets the bar higher when the next doughnut offer comes around).
[+] [-] gruseom|14 years ago|reply
The story itself reminds me of John Gall's classic book on systems (originally Systemantics, now The Systems Bible).
[+] [-] matt_s|14 years ago|reply
[+] [-] nradov|14 years ago|reply
[+] [-] sp332|14 years ago|reply
So, the managers failed to communicate what they wanted to the employees, but this is spun in the headline as the employees' fault.
[+] [-] bryanlarsen|14 years ago|reply
[+] [-] napierzaza|14 years ago|reply
[+] [-] bfe|14 years ago|reply
He's insightful here on how to avoid managing for short-term metrics in a way that sacrifices value and long-term growth, one of the most widespread and persistent management mistakes. Ultimately, no metric can substitute for having individual employees who really care about producing work that the end user will love.
[+] [-] neelm|14 years ago|reply
His subject is covered very well by one of the best to write about this subject, Charlie Munger (Warren Buffets right hand man and Director of Berkshire Hathaway).
Charlie Munger discusses extensively the challenge of not only incentivizing managers and employees, but demonstrating that it is difficult to even fully understand what really incentivizes them (hint: it's typically different than what their superior thinks it is). He talks about human mis-judgement and its role in distorted intending incentives.
Munger says over 30+ years in business, this is the one area he continues to make judgement mistakes year after year, since this is such a difficult topic to get right. That doesn't mean you can't get it right or that proper incentives don't work however.
Check out the FedEx example in Munger's 1995 speech to Harvard.
http://www.rbcpa.com/Mungerspeech_june_95.pdf
[+] [-] lmkg|14 years ago|reply
[+] [-] zipdog|14 years ago|reply
[+] [-] signa11|14 years ago|reply
maybe marginally related to the article...