Steve Kerr – Reward Systems: Does Yours Measure Up?

Fixing Dysfunctional Behaviors in Organizations

 

In this episode, our guest Steve Kerr shares insights from his book on reward systems. He explains how flawed reward systems can lead to irrational behaviors in employees similar to B.F. Skinner’s ‘blaming the rat’ theory. Kerr discusses the importance of effective measurement and reward systems in organizations and provides practical steps to realign them for better outcomes. He uses analogies from the healthcare system and historical military examples to highlight the pervasive issues and solutions for leadership in various contexts. This discussion is crucial for anyone involved in organizational transformation and leadership.

 

00:00 Introduction to Reward Systems

00:52 Meet Steve Kerr: Leadership and Legacy

01:28 The Folly of Rewarding A While Hoping for B

01:49 Three-Step Process to Realign Reward Systems

02:38 Measurement and Performance: Key Insights

04:31 Healthcare System Example: Misaligned Rewards

08:08 Stretch Goals and Innovation Challenges

12:33 Military Analogy: World War II vs. Vietnam

14:28 Organizational Dynamics and Leadership Challenges

16:04 Effective Performance Reviews

20:22 Creating a Candid Culture

22:07 Conclusion and Next Episode

 

On the Folly of Rewarding A,While Hoping for B

https://web.mit.edu/curhan/www/docs/Articles/15341_Readings/Motivation/Kerr_Folly_of_rewarding_A_while_hoping_for_B.pdf

 

Aidan McCullen, Steve Kerr, reward systems, employee behavior, BF Skinner, dysfunctional behaviors, fixing reward systems, CEO memo, leadership development, GE, Goldman Sachs, ultimate rewards, boundaryless organization, performance measurement, innovative culture, healthcare system, preventive care, stretch goals, Jack Welch, candid culture

Jayshree Seth, 3M

The Heart of Science Engineering Blueprint with 3M's Jayshree Seth

Jayshree Seth, 3M’s first Chief Science Advocate, shares her journey as a trailblazer with 80 patents. She delves into leadership principles, innovation strategies, and the transformative power of empathy and storytelling in science. Jayshree offers practical frameworks for aligning leadership with purpose, emphasizing the importance of creativity and resilience in a rapidly changing world. A must-listen for aspiring leaders and innovators!

AI Wars Echoes of Past Tech Battles in the Race for Dominance

This week’s Thursday Thought explores the ongoing battle for AI dominance among tech giants like OpenAI, Anthropic, X, Google, and Microsoft, drawing parallels to historic format wars that have shaped various industries. From the iconic VHS vs. Betamax struggle to the intense competition between gaming consoles like PlayStation, Xbox, and Nintendo, and the enduring rivalry between iPhone and Android, these conflicts reveal a recurring pattern. As AI companies follow similar paths, it’s clear that, while technology evolves, the strategic dynamics remain strikingly similar.

Gold Crushes Ants Ill-Fitting Robes and Disruptions Power Redistribution

Gold Crushes Ants, Ill-Fitting Robes and Disruption’s Power Redistribution

Aidan McCullen: [00:00:00] Gold Crushes Ants, Ill-Fitting Robes and The Power Redistribution of Disruption.

Just a brief reminder of what this episode is in case you have not heard it before.. Each week I write a newsletter called The Thursday Thought. For years, listeners to the Innovation Show have asked me to narrate it. I never had enough time. So today, I am using AI. I have cloned my voice. It is not perfect, but it saves me hours of effort.

For those who want the short version. Here is a paragraph: Disruption redistributes organisational power, information and status. As Machiavelli noted, those in power dislike such change. However, there is a twist to this week’s Thursday Thought. Sometimes, the new-found power does not sit well with those who inherit it, to their detriment and to that of the organisation. Gold Crushes Ants!

Let’s begin with a quote by Plato from “The Republic.”

Plato wrote:

“But when the cobbler or any other man [00:01:00] whom nature designed to be a trader, having his heart lifted up by wealth or strength or the number of his followers, or any like advantage, attempts to force his way into the class of warriors, or a warrior into that of legislators and guardians, for which he is unfitted, and either to take the implements or the duties of the other; or when one man is trader, legislator, and warrior all in one, then I think you will agree with me in saying that this interchange and this meddling of one with another is the ruin of the State.”

This passage from Plato’s The Republic expresses the idea that societal roles should be distinct and specialised to ensure the stability and well-being of the state. Plato argues that each individual has a natural aptitude and should perform the role suited to their abilities. The cobbler (a metaphor for any tradesperson), the warrior, and the legislator/guardian represent different classes in society.

Plato believes that problems arise when individuals try to take on roles for which they are [00:02:00] not naturally suited or when they attempt to accumulate power by combining multiple roles. For example, if a cobbler tries to become a warrior or a warrior tries to become a legislator, it disrupts the social order and leads to chaos and ruin. This concept is part of Plato’s broader vision of a just society, where everyone contributes according to their strengths and society functions smoothly as a result.

The Power Shift.

Let’s take for example, the significant shift in power that occurred in many organisations due to the advent of digital technology. The rise of roles such as heads of digital, data, AI and E.S.G. transformed traditional industries, from media companies to physical retailers. These new roles require a different set of skills, mindsets and perspectives, often leading to friction within long-held hierarchies.

In many traditional organisations, digital leaders face resistance similar to what Plato described. Established professionals, [00:03:00] akin to the warriors and legislators in The Republic, often see these newcomers as threats to their traditional roles and authority. This resistance can be rooted in a fear of obsolescence or a reluctance to adapt to new methods and technologies.

For instance, the introduction of digital journalism revealed how technology can challenge the conventional roles within a newsroom. It changes the “speed to market”, it raises concerns about traditional journalists and the changing nature of editorial control.

This works both ways, where new power dynamics can lead to tensions when digital leaders overstep their bounds or when their innovations disrupt the status quo too abruptly. All of a sudden, their importance leads to ego problems.

Gold Crushes Ants: The Gradual Path to Power and Responsibility.

“If you give a ton of gold to an ant, it will only crush the ant.” — Sadguru

There’s a profound parable shared by Sadguru about a lion with the heart of a mouse, [00:04:00] it went something like this…

There was once a compassionate sage. One day while searching his home, the sage uncovered a mother and five baby mice. Terrified, the mother ran away, leaving the baby mice. The kind sage fed the babies with some grain. One day a cat came and devoured four of the mice, but one escaped. The old man continued to feed and care for the last baby mouse. The cat came back to finish the job and eat the last mouse, but the sage chased her away. Every time the sage closed his eyes to meditate, the wily cat came back. Eventually, the sage reasoned that this was not sustainable and he could not always protect the cat, so he had an idea.

He used his magical powers to turn the baby mouse into a fierce cat. The idea worked and the cat never came back. However, a wild dog soon discovered there was a tasty cat living with the sage and hung around waiting for an opportunity for a tasty meal. Once again, the [00:05:00] sage thought to himself, this is so inconvenient. Once again the sage used his powers and changed the cat, who was once a mouse, into a dog. Again, it worked, but only for a while.

One day, the dog ran home with his tail between his legs. The sage looked out to see that a large panther had been hunting the dog. After chasing the panther away, the sage sat down and thought. This was becoming too troublesome. He had an idea and used his powers one last time. He turned the dog into a lion — after all — a lion is the king of the jungle.

Now, when the lion — who was a mouse, then a cat, and then a dog — roamed through the jungle, all the other animals ran away in fear. However, the lion went through a constant internal struggle. Knowing he was a lion with the heart of a mouse, he thought to himself.

“What if the other animals find out that deep down I am just a mouse? What will they do to me?” The lion realised. The only other person in the world [00:06:00] who knows he is a mouse is the sage, so he had an idea. The lion returned home to the sage, intending to kill him. The savvy sage realised what the lion was about to do and apologised to the mouse inside the lion, saying it was wrong of him to change him. And so, the sage turned him back into a mouse.

So what is the moral of the story?

It is natural for a cat to chase a mouse, for a dog to chase a cat, for a panther to chase a dog. If you give them a position far beyond their capabilities for that position, it will bring misery to them and to the person who gave them the position.

Whenever we place someone in a position beyond their abilities, it can rack them with insecurity, fear and doubt. In an organisation, power can poison talented people. They may suspect that others will doubt their abilities, they will fear that others will find them out.

It happens with Innovation roles all the time. The organisation feels it should reward tenure and “gifts” an Innovation [00:07:00] Director or other “newly minted” role to executives who do not have transformation or innovation in their DNA.

It happens in family-owned organisations because of nepotism. The family member then reigns terror throughout the organisation, sometimes undoing decades of significant cultural work laid down by previous generations.

When we gift opportunities to others when they have not earned those opportunities, it rarely works out well. It is not about depriving the giver or the receiver; it is about the struggle and the rite of passage.

This concept is particularly relevant today, where new roles—like Head of Digital, Head of Innovation, or Head of Data—are created to meet the demands of rapidly changing organisations. While those filling these positions often possess technical expertise, they may lack the leadership skills and political acumen required to navigate complex corporate environments. This leads to a profound mismatch between the role and the person, where the weight of responsibility [00:08:00] becomes crushing.

The lion’s predicament is a metaphor for many modern professionals who find themselves thrust into positions of leadership. They have the title and the technical skills, but they haven’t developed the “muscle” to manage the power and responsibility that comes with the role. Just like the lion’s external strength hides its inner fragility, these professionals can struggle to wield their new authority.

The Physiology of Building Strength.

Building leadership capacity is much like developing physical strength. When muscles grow too quickly—often through artificial means like anabolic steroids—tendons and ligaments don’t have time to catch up with muscle growth. This creates an imbalance, increasing the risk of injury. The tendons can rupture because they’re not strong enough to support the rapidly growing muscles.

In the same way, individuals promoted too quickly may lack the “connective tissue” of leadership skills, such as emotional intelligence, political savvy, and strategic thinking. [00:09:00] These are the tendons that allow people to support the heavier loads of responsibility that come with leadership. Without developing these critical soft skills, individuals risk being crushed by the demands of their new roles, just as tendons snap under the weight of artificially strengthened muscles.

Organisations are complex ecosystems with intricate power dynamics, unspoken norms, and political undercurrents. New leaders, especially those in innovative or transformative roles, often find themselves in an organisational maze of competing interests and hidden agendas. Without prior coaching or development in leadership and political navigation, they may struggle to implement their visions.

The Danger of Ill-Fitting “Robes”

This theme echoes Shakespeare’s Macbeth, where the protagonist says: “Why do you dress me in borrowed robes?” (*Macbeth*, Act 1, Scene 3). The quote reflects how newly bestowed titles, roles, or responsibilities can feel like ill-fitting garments, [00:10:00] overwhelming the person wearing them. These “borrowed robes” serve as a symbol of unearned power—something that feels uncomfortable and burdensome until the person grows into it. Just like gold crushing ants, power and authority, if given too soon or too suddenly, can overwhelm individuals who have not yet built the necessary inner strength to bear them.

When individuals fail to develop the necessary leadership skills before stepping into senior roles, they risk being overwhelmed by the very responsibilities they seek. Like Macbeth in his ill-fitting robes, they find the weight of their new titles to be uncomfortable and burdensome. Without gradual preparation, the responsibilities of leadership can become too heavy, leading to burnout, failure, or organisational stagnation.

This is especially true for roles involving innovation or transformation, where the political landscape is often more complex. These leaders need more than just technical expertise; they must develop the [00:11:00] ability to navigate power dynamics, influence others, and build coalitions.

Conclusion: Empowering Leaders to Carry Gold.

“Rank does not confer privilege or give power. It imposes responsibility. “ — Peter Drucker

The wisdom of “gold crushes ants” serves as a powerful reminder that value and responsibility come with weight. To carry gold—or any significant power—requires strength built over time. Organisations must not only recognize the necessity of new roles like Head of Innovation or Head of Digital but also provide the pathways for individuals to develop the requisite leadership capabilities.

For individuals stepping into these roles, acknowledging the need for personal growth and seeking out development opportunities and coaching is crucial. Building the internal “muscle” to handle power involves embracing challenges, learning from failures, and cultivating resilience.

In a world where the pace of change is relentless, [00:12:00] organisations cannot afford to have their transformative efforts hampered by unprepared leadership. Former guest on The Innovation Show, Derek van Beaver calls this building the bench, Paul Nunes refers to it as the capability S-curve. By investing in the gradual and holistic development of their leaders, they ensure that when the time comes to carry the weight of gold, their people are not crushed but rather stand strong and capable.

Empowerment is a journey, not a sudden leap.

The END.

Forthcoming episodes of the Innovation show include:

Seth Godin.

Henry Mintzberg.

Jayshree Seth.

Steve Kerr.

Julia DiGangi.

Paul Nunes and Ian Morrison.

Stan Deetz Part 3.

Byron Reese.

And many more.

Until next week. [00:13:00]

Future-of-Consulting-Alexander-Osterwalder-Rita-McGrath-Ryan-Shanks

Rita McGrath, Alex Osterwalder and Ryan Shanks – The Future of Consulting in an Age of Ai

Explore the seismic shifts in the consulting industry driven by AI and technological advancements. Ryan Shanks, Alex Osterwalder, and Rita McGrath discuss the diminishing need for traditional “grinders,” the rise of new business models, and how organizations must embrace innovation to thrive in a rapidly changing landscape.

Digital Business Strategy_ How to Design, Build and Future-Proof a Business in the Digital Age Garvan Callan

Garvan Callan – Digital Business Strategy

Discover the essentials of crafting a robust digital business strategy with Aidan McCullen and Garvan Callan. This episode unpacks frameworks for digitization, digitalization, and transformation, while highlighting customer-centricity, leveraging platforms, and fostering cultural shifts for sustainable innovation. Perfect for businesses navigating the complexities of the digital age.

Ra and Horus

The Harmony of Ra and Horus: Bridging Exploit and Explore

In times of turbulence, leaders must balance the dual forces of exploitation and exploration to ensure organizational success. Drawing on the metaphor of Ra and Horus from Egyptian mythology, this post explores how uniting operational efficiency with visionary innovation fosters ambidexterity. Learn how organizations can thrive by harmonizing stability with adaptability.

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Michael Tushman and Charles O'Reilly – Mastering Ambidexterity: Core And Explore

Michael Tushman and Charles O’Reilly discuss the concept of ambidexterity, balancing core and explore strategies for organizational renewal. Explore challenges like cultural alignment, structural setups, and the role of leadership in managing this paradox. Learn actionable strategies to foster collaboration and purpose in your teams.

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