In September 2016, Wells Fargo CEO John Stumpf testified before Congress, acknowledged wrongdoing by his company, and agreed to pay $185 million in penalties for fraudulent actions taken by over 5,000 of his employees. This debacle came to mind recently upon reading a 1975 research paper published in the Academy of Management Journal, On the Folly of Rewarding A, While Hoping for B. This paper describes the commonplace problem of rewards systems that are not aligned with desired outcomes and the detrimental results that may ensue. It touches on the fallibility of human decision-making and the assumptions (instead of quality data) that often drive decision-making. At some point, Wells Fargo management made really bad decisions: they incentivized employees to make decisions that harmed customers, the company, and ultimately, themselves.
Consider your rewards and incentives systems. What data drive decision-making? Do they align with desired outcomes? Do you track and monitor them to verify they achieve desired goals?
An October 2016 article in the Harvard Business Review discusses how workplace decisions made by all employees, even highly skilled professionals, are often driven by “noise” (irrelevant factors like personal attitudes, comfort, and work atmosphere). This results in inconsistent decision-making that is not based on objective factors or data, and the highly variable results are costly to all employers. The variance is so great and costly, the article asserts, that human judgment should be supported by or even replaced by algorithms. Research shows that data-driven processing yields better results due to consistent, fact-based decisions free of human irrationality. Such an approach is likely not possible for organizations that lack the budget and mathematical expertise to develop such algorithms. Happily, the Harvard Business Review offers several low-tech interventions that organizations of every size can implement to improve decision-making, including:
- Checklists to guide decision-makers
- Group discussion to explore varying perspectives
Consider decision-making in your organization. Are decision-makers subject to any sort of evaluation or group discussion? How do you know that decisions are consistently made based on facts? Do you offer any tools, training or other supports for decision-makers? Is it safe for them to seek help?
What would happen if group discussion on decision-making did take place in your organization? Almost certainly, there would be disagreement, debate and discomfort, especially when junior employees contradicted their senior colleagues. Clearly, a workplace culture of open communication and psychological “safety” would be necessary for a group discussion to achieve maximum effectiveness.
Is it safe for employees at every level of your organization to challenge processes and practices? If not, why? Who are the gatekeepers, and why are they not open to dialog? What is the potential cost to not allowing open communication?