There are two types of performance: tactical performance, or the ability to execute a plan, and adaptive performance, or the ability to diverge from plan.
Today, when organizations measure performance, they typically measure only tactical performance, mostly because adaptive performance is very difficult, sometimes impossible, to measure. But only measuring tactical performance is an incomplete measure of performance.
When the work requires only tactical performance (e.g. placing an item in a box on an assembly line), the presence of indirect motives may not decrease performance, and may in fact increase it. Assembly line workers who have been boxing an average of 10 items per minute without a financial incentive may actually box a few more if you offer a bonus for every additional item they box over 10.
Work that requires only tactical performance is rare. Most work is subject to some volatility, uncertainty, complexity, and ambiguity (known as “VUCA” in the military). VUCA demands that workers diverge from the plan, that they adapt. They need adaptive performance, which is negatively affected by indirect motives, as demonstrated by the distraction, cancellation, and cobra effect.
Distraction effect – Hundreds of studies have demonstrated that emotional and economic distractions reduce overall performance. If you ask math students to complete a series of problems as quickly as they can while sitting alone in different booths, they will perform better than if you place them all in the same room, standing up at the same board, and asking them to sit when they are done. The last ones standing are often unable to solve the last problems as everyone else is looking on; the emotional pressure is too high. Similarly, if you offer these students a large sum of money (hundreds of dollars) to complete as many problems as possible within a given time, they will solve fewer than when a small reward (or no reward) is offered. In both cases, the students have two things to focus on: solving problems and looking smart/making money. The more distracted they are, the more performance suffers.
Cancellation effect – Studies have shown that rewards cancel out the natural sense of play – that part of us that does the work for the pure joy of it, and the strongest of direct motives. Experiments have shown that workers who are naturally helpful (i.e. helpful without promise of a reward) cease to be helpful when a reward is introduced and later withdrawn. Additionally, when you reward one thing you often create a trade-off. Rewarding quantity often affects quality. A focus on near-term can affect long-term results. And so on.
Cobra effect – When India was a British colony, the Brits tried to reduce the number of cobras roaming the streets by offering a reward for every dead one brought in. It didn’t take long for someone to build a cobra farm. That’s when the Brits realized that they didn’t want more dead cobras, they wanted fewer live ones. But dead cobras are much easier to count, so that’s what they measured. Every job creates the opportunity for maladaptive performance. When motivation is low enough (i.e. when levels of emotional and/or economic pressure are high), people find the easiest way to relieve that pressure (think fraud triangle). Call center workers hang up in the middle of a call to get on the next one simply to meet their duration or volume goals. Sales people kill the margin at the end of the quarter to meet revenue goals. When cobra farms are discovered, organizations can either eliminate the indirect motive and build a better culture; or they can keep the reward system in place and add controls. Most organizations choose the second option because it is easier to create. They also assume that nothing is wrong with their culture and that the wrongdoers, however numerous, are simply bad apples.
These three effects reduce adaptive performance until it produces maladaptive performance. Meanwhile, tactical performance can remain high (the sales person will shift all of her attention to selling and stop being helpful to colleagues – individuality/teamwork trade-off). Those who only measure tactical performance don’t notice the crippling effects on adaptive performance, and ToMo goes down “inexplicably”. We should be alarmed because adaptive performance is the secret sauce behind innovation, creativity, great customer service, distinctive salesmanship, etc.