Freakonomics and Lean
I know this wouldn’t count as “leisure reading” for many folks, but
I’m reading (and very much enjoying) the book
Freakonomics: A Rogue Economist Explores the Hidden Side of
Everything
I’m a nerd, I read books like this for fun, I’m fine with that.
Stick with me, since there are some applicable lessons for the Lean
world, if you’ll accept my summary and shared examples.
The link above is to the authors’ official web page, where they
offer to sign your book, in a pretty Lean manner (this would be a
nice challenge for other authors to follow). Instead of the waste
involved with shipping the book to the authors and the authors
sending it back (with autograph), if you request it on the web
page, they’ll both sign a sticker, a bookplate, and they’ll send it
to you at their expense so you can put the sticker in the cover of
the book or “on your forehead” if you want. Very nice gesture on
their part, and waste reducing (not that FedEx, UPS, and the USPS
would appreciate that revenue-stealing plan).
Back to the main content of the book. In the first chapter, Levitt
and Dubner, give many examples of using incentives (or attempts to
use incentives) to drive positive behavior or avoid negative
behavior. That’s a topic that should be of interest to Lean change
agents and leaders — we’re always trying to drive the right
behaviors, such as “how do we get more employee suggestions?” or
“how do we get people to follow the standard work?”
The authors layout three different types of incentives: economic,
social, moral. In business, we tend to focus on economic
incentives. In fact, saying “economic incentives” may well be
redundant in most companies. We pay bonuses for hitting sales quota
numbers, that’s an economic incentive. We threaten to fire someone
for not following safety procedures, the potential loss of one’s
paycheck is an economic incentive as well.
Let’s look at something like wearing safety glasses (or, in a
hospital, clinicians washing their hands). These are practices that
should be followed 100% of the time, but aren’t. An economic
incentive might pay some sort of bonus for compliance or a penalty
for non-compliance). A social incentive might involve some sort of
social shame for non-compliance — is it somehow embarrassing to be
caught doing the wrong thing? A moral incentive plays on the “it’s
just wrong” aspect of human nature.
Do incentives work? Sure, in theory, but the theory is also
complicated (and the reality of incentives is complicated) because
of human psychology. That’s why, I believe, Dr. Deming taught us
that understanding employee psychology was a critical aspect of
management and leadership. The world isn’t so simple so that we can
rely only on smartly-designed economic incentives.
Back to Freakonomics:
“For every clever person who goes to the trouble of
creating an incentive scheme, there is an army of people, clever
and otherwise, who will inevitably spend even more trying to beat
it.”
Very true, don’t you think?
The book gives an example of a study conducted on day care centers.
One of the parent behaviors that the day care centers want to
discourage is late pickups, since this prevents the center from
closing and increases their costs. In the study, the percentage of
late pickups was measured for a few weeks. Then, some centers
instituted a new policy of a $3 fine to any parent who was over 10
minutes late.
What happened with the penalty, the incentive for coming on time?
Lateness went up!!!
Why? The Freakonomics authors say that the old moral or social
incentives (embarrassment or guilt for being late) was now replaced
by an economic incentive. $3 was hardly a huge penalty compared to
the $360 monthly tab. Parents no longer felt guilty (the moral
incentive) because they were now paying a trivial financial
penalty.
That’s quite an eye opening lesson. I don’t know exactly what the
answer is for challenges like safety glasses (in a factory) and
hand washing (in a hospital). As we’ve
discussed before, I would tend to rely more on direct
observation and leadership more so than financial incentives that
are easily ignored or easily gamed.
