What if Alfie Kohn Ran a Cafe?

9 February 2007 at 11:01 am 7 comments

| Peter Klein |

What if Alfie Kohn, Bob Sutton, Jeff Pfeffer, Fabrizio Ferraro, Sumantra Ghoshal, and other sociologically minded critics of economics ran their own cafe? Prices and wages would be out, because those constitute incentives for managers, employees, suppliers, and customers, and we all know incentives are bad. Everything would be done in a free, open, collaborative manner in an atmosphere of mutual trust and group love. It might look a lot like the Terra Bite Cafe

Entry filed under: - Klein -, Management Theory.

Posner versus Hayek I Do “Simplistic” and “Comical” Work

7 Comments Add your own

  • 1. Eric H  |  9 February 2007 at 11:59 pm

    I assume you heard about this on NPR? That’s where I heard it. It got me to thinking about alternative means of pricing in restaurants – perhaps you should empower the staff to bargain? “Okay, the sandwich for $5 – how about I throw in fries for $2? No, okay I give you the sandwich and fries for $6, but no refills on your tea. Or I upgrade you to the $8 sandwich, throw the fries in free, and no limit on refills?”

    Or use a computer-based vending machine to run some kind of inverted Dutch auction: put in a dollar, and it shows everything you can get at that price. Not satisfied with the choices? Put in another nickel and see what choices are added. Still not satisfied? Eventually, you will have put in as much money as you are willing to spend. Will that be more or less than if you had selected from a menu? The menu randomly varies the prices about some mean so that it’s a new game every time.

  • 2. Bob Sutton  |  10 February 2007 at 1:18 am

    Peter,

    I think you really have no idea what Pfeffer and I have written. You really ought to read our incentive chapters in Hard Facts and The Knowing-Doing Gap. The problem with incentives isn;t that they don’t work, the problem is that they are so hard to get right that they motivate behavior powerfully — just in the wrong direction. So paying CEO’s with options does motivate their behavior — they cheat more. And paying teachers for test scores does work — it causes them to cheat. We also talk about conditions when incentives do work — notably when employees have enough control over outcomes that their actions do influence team or organizational performance. I would also add that additional evidence of your ignorance is that Sumantra Ghoshal can’t run a cafe — unfortunately he is dead. But I can tell that Jeff is a damn good manager — when we ran the executive ed program as Stanfordh e had a huge positive effect on income, in part, because he improved the incentives… Jeff is also on the boards of multiple companies — many successful — and in the process has helped to set executive salaries and so on. We both believe incentives, we just don’t believe that they are solution to every problem, and we believe that when they are the solution, that it is hard to get them right and keep them right.

    I would also add that it is largely wrong to call Jeff a sociologist, if you actually read his papers, you would see that he uses all theories but leans toward psychology. And I am an organizational psychologist.

    Finally, if I ran a cafe, there is one rule I would apply — the no asshole rule. And if you see my new book on the subject, I do talk about incentives!

  • 3. Peter Klein  |  10 February 2007 at 10:56 am

    Bob, thanks for writing. I confess that lumping you and Pfeffer with Kohn and Ghoshal was a bit of a cheap shot. Call it dramatic license. That having been said, however:

    1. We do discuss your work with Pfeffer, in more detail and in a more serious fashion, elsewhere on this blog.

    2. Your objections to the careless use of incentives are fine but, with all due respect, wholly unoriginal. They are in any elementary managerial economics text on principal-agent theory. If you look at the responses to Kohn’s “Why Incentives Cannot Work” appearing in the December 1993 HBR, you’ll see the same points made by George Baker.

    3. The problem many of us have with your broad-based critique of economic theory is the failure to take a balanced, comparative approach. All compensation plans, all organizational structures, all monitoring and evaluation schemes have benefits and costs that must be weighed, on the margin, with great care. No compensation system is perfect. It is easy to take pot-shots at poorly designed incentive schemes and conclude that economists are tone-deaf to the subtleties and complexities of real organizations. (Or that Mike Jensen is responsible for Enron, which Ghoshal seemed to believe.) But such critics rarely assess the weaknesses in poorly designed “no-asshole” approaches, or other alternatives. (Ghoshal and Moran’s attack on Williamson in AMR is a good example of this strategy.)

    4. Um, yes, we all know that Ghoshal passed away. We blogged here at O&M about his posthumous piece in AMLE.

    5. I should not have described you and your fellow critics as “sociologically minded.” That was sloppy of me. (Kohn, for example, is quite explicitly a psychologist.) Perhaps I should have written “ill-tempered.” :-)

  • 4. Bob Sutton  |  10 February 2007 at 11:58 pm

    I must confess that I find your responses not very convincing, and in particular, it is clear that you still haven’t read what we wrote. Note the start of our Chapter 2 in Hard Facts — we are very careful to claim that most of the ideas we have, or anyone else has, about management aren’t very original, and originality isn’t over-rated — what is important is what is right. Indeed, when we writing the book, I wrote March and asked him if he could think of any new or breakthrough ideas in the field of management, and he said that he knew of none, and that claims of originality are usually signs of ignorance, hubris, or both. And if you want to talk about incentives, and I believe in incentives, people who are trying to get tenure our jobs do have incentives for pretending that the same old ideas are brand new. Just like management gurus.

    But if you really want to play the originality game with agency theory, consider a question I asked Jerry Davis at his dissertation orals (note Jerry was a psychology major and I knew him as an undergraduate). Jerry’s thesis had a lot of agency theory in it, so I asked “Jerry, this agency theory stuff just sounds like an application of Skinnerian rat theory, is that right.” Jerry stammered for awhile — a rare thing for him — and finally said that, from what he could tell, that is all it is, but applied very carefully to a very specific problem.

    I would also add that I think you seem to be talking about our AMR paper, which isn’t really about incentives, it is about how when you believe theories, they can become true even if they weren’t true to start — as with all norms and assumptions. Our chapters on incentives provide a much broader view — I would never claim they are original — but I challenge other scholars to come clean too, and to read the published literature more carefully before making such claims.

    Note that I had the dubious distinction of being named a “Business Guru” by Business 2.0 a few years back, something that led to relentless teasing from colleagues (which I deserved), but I am proud that they published “Sutton’s Law,” something like “If you think you have an original idea, you are probably wrong; someone else almost certainly already had it. This isn’t my idea either, I stole it from someone else.”

    Back to Skinner and Williamson. I have read most of what both of them have written and I have seen Skinner on video and been to several of Williamson’s talks… perhaps the main advantage that Williamson has over Skinner (besides the fact that Skinner is dead) is that everything I’ve ever heard or read from Skinner is simple and 100% understandable. Williamson has the advantage of one of the most incomprehensible writing and presentation styles I have ever encountered — I remember spending a full week trying understand what the heck one of his early books was about when I was doctoral student — and was only saved because an economist translated it for me. I know there are some good ideas in there, but it makes me wonder what we are rewarding…

  • 5. Chihmao Hsieh  |  11 February 2007 at 2:38 am

    [DISCLAIMER: The following USD .02 aren’t at all directed specifically towards anybody or anybody’s research.]

    The term ‘original’ has been used a few times in this thread. My understanding is that the term is being used to represent that which is strictly both ‘novel’ and ‘valuable,’ in which case the term ‘creative’ may be better.

    One of the more scientific concepts in the study of ‘creativity’ is ‘conceptual combination.’ A ‘clown’ is a concept, a ‘shoe’ is a concept, and a ‘clown shoe’ is a conceptual combination. What is a ‘clown shoe’? A shoe worn by a clown? A shoe shaped like a clown? A clown shaped like a shoe? A funny-to-look-at shoe? Some types of meanings are actually more widely accepted upon hearing that phrase, depending on characteristics of each of the concepts in isolation (i.e. clown, shoe).

    The research of organizations also can benefit from conceptual combination. I think it’s fair to assert that many conceptual combinations based on business terms have not yet been explored. Of course, one could rightly argue that the ideas captured by such conceptual combinations are implicit to past writings, perhaps obvious to the careful reader. But the explicit use of a novel conceptual combination can re-direct the light that shines upon business phenomena. And oftentimes, that’s the point, right? We’ve seen the entire landscape in some form or another, it’s a matter sometimes of detecting patterns that were until now latent.

    I have a particular opinion when it comes to the introduction of new concepts (or ‘labels’ or ‘categories’): To have anything approaching a rigorous science, we need simple concepts. Essentially, this boils down to associating any given term with a short definition. Whether an academic field agrees upon one universal definition or instead maintains as legitimate a small set of such definitions… that is probably not damaging (especially insofar that the definition referenced in future work is clear to all).

    But when I read papers that use a term and then require a 100-word paragraph to define it, that’s a bit irritating. More generally, authors that define a term that idiosyncratically are usually doing so merely to protect the logic in the rest of the paper.

    Good research should be written with the reader’s long-term memory and short-term (e.g. ‘working’) memory capabilities in mind. Especially if that reader is a researcher.

    Sometimes authors write papers that aren’t ‘original ideas.’ Perhaps they were already identified in the 1800’s. But maybe — maybe rarely — understanding the language used back then is too costly for managers today. Our job sometimes may be simply to translate it for today’s managers, along the way tweaking it a bit to reflect the current-day phenomena.

    As far as ‘what we are rewarding,’ I can also try sticking with a theory I casually concocted, posted here earlier (in the “Vertical Dis-integration of Higher Education” thread): If a professor must both research and teach to receive tenure, and the material s/he teaches derives from his/her research, then it pays to craft (unnecessarily) complex research. Students who attempt to learn complex, hard-to-understand material will make idiosyncratic errors, the corrections of which would require communication channels that are high in ‘richness’ or ‘bandwidth,’ like face-to-face interaction. Investments made by the professor to correct the student are thus not only student-specific, but also location-specific and temporally specific. Put differently, the prof must be in the classroom. If all professors did world-class research that was easy to understand and easy to apply, the efficient (ahem) rational universities would eventually deliver all instruction to students via communication channels such as the internet. And profs wouldn’t get tenure. Integration of researcher and teacher? Or easy-to-understand useful research? Pick one… [I think we’re moving towards disintegration, as evidenced by the boom in the use of adjuncts in business education. Rationale for this boom, cause or effect? I do not know. But anyways, I’m talking about one day seeing ‘adjuncts’ with PhD’s in business.]

    Like I said, this last is casual theorizing… I don’t mind animated discussion.

  • 6. bee  |  11 February 2007 at 5:57 pm

    Bob-

    I will start by saying that Williamson offers a clear and thoughtful theory. Your assertion that his writing is difficult to penetrate is puzzling (My initial training was in the cognitive sciences). The theory is simple and elegant. I have read a couple of his books and several of his papers with little difficulty. While I do not agree with all he offers, he is quite clear in laying out his case.

    Your insertion of Jerry Davis is puzzling ( I too know him and his work). How does this add anything to your argument? I can partially comprehend your rambling if I construe your comments concerning Skinner and Agency theory in a metaphorical manner. That is, I think in terms of structure mapping (Gartner). The problem is that Skinner and Agency theory are not really that similar (either at the element level or structural level). I would ask if I could be so bold, if you really understand either theory in a material manner.

    I will end with saying that current popularity to attack economic theory has not proven very productive. Behavioral Decision Theory has been attacking economists for decades but have not yet offered a real alternative. They simply find examples where respondents (a key word) violate economic assumptions. Many of the phenomena presented have little ecological validity. The problem with this effort is that they have not yet offered a theory that is either computational at the human level or meaningful at the exchange level (market or hierarchy). Economics is about exchanges not simply individuals. Assumptions are made at the individual level to allow exchange level theory development. What never ceases to amaze me is how robust economics is to violations of individual level assumptions. The theory degrades very gracefully.

  • 7. spostrel  |  12 February 2007 at 5:06 pm

    I’m not sure what the shouting is about here, but a few points that leap out at me:

    1) Skinnerian behaviorism and agency theory have low overlap. One is backward-looking, stimulus-response, and says that the scheduling of rewards is more important than their contents while the other assumes forward-looking, strategic behavior and says that the content (magnitude) of rewards is all-important. They only overlap in stressing the contingency of rewards on observable behavior, and even there the thrust is very different.

    2) Behavioral effects and incentive effects must be jointly considered in setting up compensation and monitoring schemes. That’s what Michael Jensen correctly inferred from the paper Dick Rumelt and I wrote on incentives and self-command back in 1990. We found lots of examples that suggested that the scheduling and context of rewards could amplify or dampen their effect on behavior.

    3) Sometimes people cheat. I think Williamson’s entire body of work depends heavily on that assumption (opportunism, anyone?), so I don’t see the big “gotcha!” in pointing out that high-powered incentives tempt some people to do break the rules.

    4) Regardless of your views of the social utility of corporate lawyers and investment bankers, it is ridiculous to think that they would expend so much effort and brain power on their often mind-numbing and/or soul-destroying tasks if they weren’t paid so much, and in the case of the I-bankers, paid contingently on their success. Adam Smith had this figured out a long time ago–now we call it a “compensating differential.” BTW, I think much of the increase in public-company CEO compensation over the last two decades comes from the transformation of that job into one that is simultaneously much less desirable and harder to fill.

    5) I’ve generally found that the originality/clarity/validity nexus is a point of conflicting tidal forces that can tear you apart. If you’re too clear, many referees will claim, simultaneously, that everybody already knows what you are saying and that it isn’t true. It’s like the old joke about the kid complaining to his parents about the food at camp: “It’s poison–and in such small portions!”

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