Rethinking Business Management

Jul 16, 2024

Lecture: Rethinking Business Management

Speaker's Background

  • Confession of a regretful action: went to law school in the late 1980s
  • Did not excel in law school; graduated in the bottom percentile
  • Never practiced law
  • Aims to use some of the legal skills to make a case for rethinking business management

The Candle Problem

  • Experiment created in 1945 by psychologist Karl Duncker
  • Participants are given a candle, thumbtacks, and matches and asked to attach the candle to the wall without dripping wax on the table
  • Common incorrect solutions: using thumbtacks to attach candle or melting the candle
  • Correct solution: use the box holding the thumbtacks as a candle holder
  • Key insight: Overcome functional fixedness (seeing the box only as a container)

Experiment by Sam Glucksberg

  • Studied the effect of incentives on problem-solving (Candle Problem)
  • Two groups: one timed for norms, one offered monetary rewards
  • Result: incentivized group took 3.5 minutes longer
  • Finding: Incentives can dull thinking and block creativity

Broader Implications

  • Findings are consistent over 40 years of research
  • Incentives work for some tasks but not for others, especially creative or cognitive tasks
  • Modern business practices still rely heavily on extrinsic motivators (carrots and sticks)

Economics of Motivation

  • Dan Ariely's experiments at MIT and in Madurai, India
  • Higher incentives led to worse performance in cognitive tasks
  • LSE study: Financial incentives can negatively impact overall performance

The New Approach: Intrinsic Motivation

  • Core elements: Autonomy, Mastery, and Purpose
  • Autonomy: self-direction in work
  • Mastery: desire to improve at something significant
  • Purpose: working towards something larger than oneself

Examples of New Approaches

  • Atlassian: 'FedEx Days' and 20% time for creative projects
  • Google: 20% time leading to products like Gmail, Orkut, Google News
  • Results Only Work Environment (ROWE): no schedules, focus on results increases productivity and satisfaction

Case Against Traditional Management

  • Traditional management is suited for compliance, not engagement
  • Example: Encarta vs. Wikipedia

Conclusion

  • Mismatch between what science knows and what business practices
  • 20th-century rewards work only in limited situations
  • Intrinsic motivators are more effective for creativity and high performance
  • Aligning business practices with scientific understanding of motivation can transform businesses and solve complex problems