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IMT581: Food for Thought – Understanding Incentives

by on October 20, 2010

Prof. Desouza covered a range of topics in class on Tues, but I want to focus this post on the main topic: incentives.

As mentioned in class, one of the duties of a manager is understanding how to measure the effectiveness and efficiency of processes and outputs. Sometimes it will require test runs in order to gain new information/knowledge in order to refine those measurements. It is critical to be able to understand what your goal is in order to identify what it is you need to measure. Without having clear and accurate methods for measurement, it will be difficult to incentivize the correct actions.

Furthermore, it is important to understand that different types of incentives are more effective at encouraging certain types of actions. I’m sure most of you have seen this, but if you haven’t, Dan Pink’s Ted talk on motivation is something you should watch. In summary, extrinsic incentives (i.e. financial incentives) are more effective with actions that do not require cognitive thinking (e.g. assembling a computer) and, in fact, can be detrimental to creative thinking, whereas intrinsic incentives (i.e. autonomy, mastery, and purpose) are more effective with actions that require cognitive thinking.

Another critical point is remembering that everyone is unique, thus each individual or group of people may desire different incentives. As a knowledge worker and manager, you will (hopefully) be doing work that requires cognitive thinking, and working with other knowledge workers, which will require you to understand the needs and desires of each individual (unless the culture is against this). Understanding measurements and incentives will not only help you in your work, but also those around you, and as we have learned, measuring outputs is difficult. Better understanding the people you work with will help you better refine your measurements and incentives, and better understand outputs.

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