As part of a workshop I facilitate on understanding people risk within an organization, I often work through an excellent academic paper[1] that describes how the setting of goals or objectives can create havoc within an organization and cause serious damage for its stakeholders, and indeed society.
The premise of the paper is that setting objectives, particularly those that have a narrow focus and which have a significant potential impact on those who are required to achieve such goals, can skew behaviour in ways that can be disastrous. The paper cites many examples of where this has been the case – such as how Ford required its’ staff in the 1970’s to create a car that could be sold for less than $2,000 or £2,000. The resulting Ford Pinto was exactly that. However, in hitting the price target, Ford compromised on quality. The Ford Pinto could ignite on impact.
It seems that understanding the connection between setting targets and potentially adverse outcomes is still to be made by most organizations today. This is despite the GFC, and a long list of corporate failures since, which have provided some of the most glaring examples of how goals can create bad outcomes.
But lets just look at the last two weeks in the UK.
This week we have seen Lloyd’s Bank fined £28m by the UK regulator (the FCA) for mis-selling and incentivizing staff to sell products through inappropriate methods, such as the threat of pay cuts or demotion. Astonishingly, the UK FCA are quoted as reporting that:
“In one instance, an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted.”
We have also seen this week the publication of the Government’s Elliot Review into food supply in the UK , which argues that retailers who seek to drive out cost (as a primary goal) from their supply chain help to encourage the substitution of poorer quality and even illegal food products (e.g. horsemeat instead of beef). It states:
“ The culture of adversarial procurement of products across the supply chain has contributed to a belief that the lower the price the better, and bonuses are often awarded for such delivery. Those who are employed in the food industry need to understand the extent of their exposure should adulteration or substitution occur, both in terms of the potential for the endangerment of consumers, and brand damage and loss of revenue.”
And perhaps most worrying has been revelations that the police, faced with significant pressure to hit crime targets, often ‘game’ the system to such an extent that very serious crime may go uninvestigated simply to ensure that targets are met. In the words of former Chief Inspector Dr Rodger Patrick:
“I highlighted this issue in relation to incidents involving domestic violence, child protection and child abuse, but the incidents weren’t recorded and investigated and subsequently this led to homicide….That is the extreme end of the risk that people are taking. It isn’t just about fudging the figures to keep everybody happy – there are really serious consequences of this behaviour.”
When we look at these examples from a Maturity perspective, we can see organizations who have lost any sense of a societal value motive, who have performance systems skewed from poorly defined and ill thought out objectives, and who have no understanding of the people related risks that arise from the nature and operation of their organization.
The outcomes from such immaturity need to be properly addressed and so far there is little evidence that any lessons have been learned from the litany of corporate failings since the latter half of the 20th Century to the present day. If this continues, corporate scandals will continue apace, causing harm to firms, their people, organizational stakeholders and to wider society.
[1] Goals Gone Wild: The Systematic Side Effects of Overprescribing Goal Setting by Lisa D. Ordo´n˜ez, Maurice E. Schweitzer, Adam D. Galinsky, and Max H. Bazerman; Academy of Management Perspectives, February 2009
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