What tools can most organizations, which exist in the spectrum between the Fox and the Hedgehog, leverage to build success through trust *and* risk-taking?
Executive Summary: How does an organization balance the pressures of building trust through, and incentivizing, sustained successful execution, with the need for some form of risk-taking (with positive outcomes). Are common control structures like bonuses enough? Does innovation have a role to play here? From the desk of They-May-Be-Buzzwords-But-You-Still-Have-To-Make-Hard-Decisions-About-Them.
Overview
Anyone involved with a business- from a startup to a Fortune 10 company- has dealt with the trade-offs involved in building trust across decision makers in the organization, managing levels of risk-taking (high, or low, as required), and structuring organizational incentives. In the middle of all this is the need for transparency, which is fulfilled via measurements and reporting as an accounting function.
The key here is is risk-taking for positive outcomes. This could be an imperative in hypercompetitive markets (Ref. Clayton Christiansen in Innovator's Dilemma). Examples of risk-takers for positive outcomes include Jeff Bezos and Steve Jobs.
What approaches can help us manage these parameters? Does innovation have a role to play?
Kicking off the Thought Process and the Initial Hypothesis
An Accounting researcher***, who I happened to have the pleasure of listening to recently, tackled the topic of business trust and the role of accounting, in which two things stood out:
1. A "laboratory experiment" seemed to indicate that record keeping, as a function of measurement in accounting, helped build trust across multiple transactions between anonymous parties,
2. Bonuses- as a function of incentives, which in turn are a function of organizational control- are better tools than penalties for trust within an organization.
This led me to think about the relationship between trust and risk-taking, and specifically this relationship:
Trust > Bonus Incentives > Risk-Taking
The hypothesis is that bonuses, as a means of control, are not great for some types of risk-taking.
Paradigms from Strategy and from Psychology
The "mom" readers of this post would point out the abundance of literature around child development and types of positive reinforcement. Case in point, this article:
http://www.nytimes.com/2012/08/05/opinion/sunday/raising-successful-children.html?pagewanted=all
Some strategic thinking readers might also frame this as a Fox vs. Hedgehog problem. Their point could be that organization must clearly choose between being a fox and being a hedgehog. If If you want your organization to focus on repeatable execution, then bonuses work well under the hedgehog paradigm.
In reality, most organizations have to do a balancing act between the two. So, how do you solve this problem for most organizations?
Some Pathways Towards Resolution
Here are a couple of thoughts:
1. Personnel:
Jack Welch has stated previously that, at GE, he looked for folks who had some failure under their belt. I take that as a proxy for an appetite of risk taking and an understanding of its potential consequences.
2. Innovation Program:
If bonus incentives are not helping with an organizational desire for risk-taking, then the positive reinforcement incentives need a more refined structuring. Innovation programs fill this gap for a more refined structuring.
Innovation
Several approaches to innovation are available to help make the appropriate trade-offs in the spectrum between the Fox and the Hedgehog. These focus on making innovation flexible and adaptable, and are available commercially, as well as in research literature.
However, structuring an innovation program in an organization is never easy, especially when it pertains to the core activity of a business unit, or even an organization. Enabling risk-taking though innovation requires a level of communication and buy-in across the organization that may take some time and sustained effort to achieve.
Do innovation programs at Google, Yahoo, and Amazon have interesting tales to tell? I have also previously posted about Netflix on this front:
1> Netflix bids for Original Programming: http://insightplusideas.blogspot.com/2011/03/innovation-and-tactics-series-netflix.html
2> Netflix and Organizational Capabilities: http://insightplusideas.blogspot.com/2011/03/netflix-and-organizational-capabilities.html
How would these contrast against innovation at a bank, at a perishable goods supplier and at a metals company?
Would an organizational skeptic call the innovation program old wine in a new bottle? Or is it all about results, and a rose by any other name is still a rose? Amazon has invested in risks for positive outcomes despite negative signals from the stock markets. Jeff Bezos had apparently asked potential CFOs if they had invented anything.
What do you think?
*** Many thanks to Dr. Kristy Towry at Emory.
Showing posts with label incentive. Show all posts
Showing posts with label incentive. Show all posts
Wednesday, March 6, 2013
Tuesday, July 28, 2009
Innovation and Effective Healthcare for The Masses: An Oxymoron?
I tread carefully when it comes to discussions on optimizing healthcare solutions for the masses because Stephen Hawking's image crops up in my mind with this question: What if we designed a wonderful system that made it really difficult for Stephen Hawking to seek assistance at any point in his life? Replace Stephen Hawking with any person important to you, or who you believe is important to society, and you know what I mean.
Teams designing an effective healthcare system for the masses have challenges on sustaining innovation that are slightly different from those faced by mass market consumer products companies.
For a mass market beverage company, the challenge in supporting innovation may exemplified by the case of the Quaker Oats Company product portfolio acquisition. However, for regulators designing an effective healthcare system, the real challenge in societal optimization of healthcare lies in supporting innovation "pathways" through:
1> supporting basic research, and,
2> providing markets, processes and infrastructure for very expensive drugs to hit the market, and,
3> providing patients means to seek solutions outside the "mass" healthcare system.
For patients that have to pay out of pocket, then the government must make this process seamless, painless, and provide structures that help individuals extract some "economic rent" from (no apparent or direct attached economic benefit to) society. Depending on the context, you could call easy access to private, non profit foundations, to help fund your recovery, a form of economic rent.
In fact, the government may leverage experience with organ transplants for designing these "innovation pathways": http://www.organtransplants.org/understanding/unos/
The three points listed above are examples of the way certain "types" of innovation may stop getting support once creating and sustaining a mass market healthcare system becomes a prime focus of the society. I realize I am effectively proposing an indirect subsidy for innovation. I am in favor of this sort of indirect subsidy, because my hypothesis is that this may have a multiplier effect on drug research. My perspective is that this indirect subsidy would be similar to the investment in national highways in the last century.
What do you think?
--
Teams designing an effective healthcare system for the masses have challenges on sustaining innovation that are slightly different from those faced by mass market consumer products companies.
For a mass market beverage company, the challenge in supporting innovation may exemplified by the case of the Quaker Oats Company product portfolio acquisition. However, for regulators designing an effective healthcare system, the real challenge in societal optimization of healthcare lies in supporting innovation "pathways" through:
1> supporting basic research, and,
2> providing markets, processes and infrastructure for very expensive drugs to hit the market, and,
3> providing patients means to seek solutions outside the "mass" healthcare system.
For patients that have to pay out of pocket, then the government must make this process seamless, painless, and provide structures that help individuals extract some "economic rent" from (no apparent or direct attached economic benefit to) society. Depending on the context, you could call easy access to private, non profit foundations, to help fund your recovery, a form of economic rent.
In fact, the government may leverage experience with organ transplants for designing these "innovation pathways": http://www.organtransplants.org/understanding/unos/
The three points listed above are examples of the way certain "types" of innovation may stop getting support once creating and sustaining a mass market healthcare system becomes a prime focus of the society. I realize I am effectively proposing an indirect subsidy for innovation. I am in favor of this sort of indirect subsidy, because my hypothesis is that this may have a multiplier effect on drug research. My perspective is that this indirect subsidy would be similar to the investment in national highways in the last century.
What do you think?
--
Friday, July 24, 2009
Find Clarity on the Healthcare Debate. Now. Here's How.
Based on the French Openesque rallies in Congress over Healthcare so far, most folks, including Peter Singer in an NYT article*, agree on some key points:
1> Private health insurance must remain available.
2> Consumers must pay less for healthcare.
So, why are we still debating? The "how" is keeping us busy! You, as the consumer and the raison d'etre of this battle, can seek the following from your representatives:
1> A baseline of the current healthcare costs, overt and covert, by consumer segments.
2> Projected costs for current and proposed healthcare plans.
3> Healthcare market structure definition and guidelines for market agent behavior, tied to measurable outcomes, that all entities- private and government- must adhere to.
In plain old straight talk, the answers to these questions help *you* decide.
Both Democrats and Republicans have leveraged the government as a market agent in the financial services industry. This learning could be transferred to the Healthcare industry. It may shed light on triggers for the government to become a service provider market player and also triggers for the government to exit the service provider value chain to return to just regulating the market.
In terms of cost, talk to any healthcare practitioner and he/ she will tell you its all about incentives. What would you change if an internist is not paid by an insurance company for taking steps that help prevent a more expensive medical condition later because it is not part of her job description? What would you change if you thought someone was recommending tests for sleep apnea when its a case of tonsilitis? This requires clarity on not just market structures, but also incentive processes.
To summarize: These questions with help each party in the debate develop a contextual, competitive positioning strategy to achieve recognizable differentiation in the market through both methods and outcomes.
If you are wondering how we can continue supporting broad innovation in healthcare, see here:
http://randomjunkyramblings.blogspot.com/2009/07/innovation-and-effective-healthcare.html
* Peter Singer's New York Times article on healthcare: http://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html?pagewanted=5
What do you think?
--
1> Private health insurance must remain available.
2> Consumers must pay less for healthcare.
So, why are we still debating? The "how" is keeping us busy! You, as the consumer and the raison d'etre of this battle, can seek the following from your representatives:
1> A baseline of the current healthcare costs, overt and covert, by consumer segments.
2> Projected costs for current and proposed healthcare plans.
3> Healthcare market structure definition and guidelines for market agent behavior, tied to measurable outcomes, that all entities- private and government- must adhere to.
In plain old straight talk, the answers to these questions help *you* decide.
Both Democrats and Republicans have leveraged the government as a market agent in the financial services industry. This learning could be transferred to the Healthcare industry. It may shed light on triggers for the government to become a service provider market player and also triggers for the government to exit the service provider value chain to return to just regulating the market.
In terms of cost, talk to any healthcare practitioner and he/ she will tell you its all about incentives. What would you change if an internist is not paid by an insurance company for taking steps that help prevent a more expensive medical condition later because it is not part of her job description? What would you change if you thought someone was recommending tests for sleep apnea when its a case of tonsilitis? This requires clarity on not just market structures, but also incentive processes.
To summarize: These questions with help each party in the debate develop a contextual, competitive positioning strategy to achieve recognizable differentiation in the market through both methods and outcomes.
If you are wondering how we can continue supporting broad innovation in healthcare, see here:
http://randomjunkyramblings.blogspot.com/2009/07/innovation-and-effective-healthcare.html
* Peter Singer's New York Times article on healthcare: http://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html?pagewanted=5
What do you think?
--
Monday, March 24, 2008
Conference Panel: Fundraising Darwinism- Evolution of PE fundraising
Bruce Rosenblum, Managing Director, The Carlyle Group, tore into the re-emergence of SPACs (Special Purpose Acquisition Companies) in the context of Private and Public PE companies. He pointed to two advantages PE firms would have over SPACs: diversification and GP incentives.
Given that there are many similarities between VC and PE fundraising, I was inclined to think that there was more to the comparison that what met the eye.
1> Was the PE firm structure an advantage?
2> Were the PE networks an advantage?
3> Were the PE firms able to gain efficiencies across investments that would not be possible in a different setting?
I queried Bruce for a comparison between Public PE firms and hypothetical mutual fund like SPAC aggregators (something I came up with to gain a better insight into his perspective). He had an interesting response.
What do you think?
Also, Francesco Guerrera, Financial Times, highlighted the paradox of PE firms going public. Bruce talked about KKR rasing $5 BN in public equity through Euronext at Amsterdam.
How do you think PE firms would deal with the q-on-q public market pressures?
Given that there are many similarities between VC and PE fundraising, I was inclined to think that there was more to the comparison that what met the eye.
1> Was the PE firm structure an advantage?
2> Were the PE networks an advantage?
3> Were the PE firms able to gain efficiencies across investments that would not be possible in a different setting?
I queried Bruce for a comparison between Public PE firms and hypothetical mutual fund like SPAC aggregators (something I came up with to gain a better insight into his perspective). He had an interesting response.
What do you think?
Also, Francesco Guerrera, Financial Times, highlighted the paradox of PE firms going public. Bruce talked about KKR rasing $5 BN in public equity through Euronext at Amsterdam.
How do you think PE firms would deal with the q-on-q public market pressures?
The Usual Disclaimer: This is purely a knowledge sharing resource. Ethically, context is everything, and I will gladly retract anything that affects the parties mentioned. Call this my mini OpenCourseWare, if you will, where Open signifies life experiences.
Subscribe to:
Posts (Atom)