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Smart Managers Don't Punish Failure -- They Reward People Who Flag Problems and Punish Those Who Don't Help Solve Them

Organizations Are Risk-Averse and Good at Blame -- but People Who Fear Punishment Hide Problems, Which Then Get Worse, Say the Authors of Six Simple Rules, a New Book by The Boston Consulting Group

BOSTON, MA -- (Marketwired) -- 07/16/14 -- Most organizations are risk-averse and good at assigning blame. They reward success and punish failure. But this approach can backfire. People who fear punishment hide problems -- which then get worse and hurt performance.

Smart managers take a different approach. They reward people who bring problems to the surface. They reserve punishment for when it really matters -- they punish people who hide problems or who don't contribute to a solution.

This radical approach to failure is one of the ideas at the heart of Six Simple Rules - How to Manage Complexity Without Getting Complicated (Harvard Business Review Press, April 2014), a new book by Boston Consulting Group partners Yves Morieux and Peter Tollman.

The rules show managers how to go beyond the traditional management toolkit and instead embrace "smart simplicity" -- a set of principles designed to make people more autonomous, cooperative and better able to solve problems, so that organizations become more competitive.

The first step for organizations that need to solve problems is to find out they exist. But the blame game can keep that from happening.

"If people are afraid to fail, they will hide problems from you and their peers," Tollman says. "If they are not afraid, they will bring problems to the surface much faster than you could find out about them on your own. Managers should reward people who surface problems -- and punish those who don't come together to help solve them."

"Blame and risk aversion are at the heart of organizational culture," Morieux explains. "But smart organizations accept that problems happen for many reasons, and the only way to solve them is to reduce the payoff for people who don't contribute to a solution. Performance and reward systems are key -- but instead of using them to punish failure, use them instead to punish failure to cooperate or to ask for help."

The book includes the example of a major railroad where on-time performance deteriorated. Management responded by creating a "monitoring department" to investigate each failure and find out where to lay the blame. But performance didn't improve. Workers feared punishment -- so they didn't alert others to problems that might cause delays. When they couldn't solve the problem themselves, the delays spread through the system.

The solution fell into place when management changed its approach -- the railroad created rewards for workers and departments that called attention to problems and asked for help. Punishments were reserved for those who failed to ask for help, or failed to help when they were asked. The result was a radical improvement in on-time performance -- it jumped from 80 percent to over 95 percent within four months after the new reward system was put in place, with no other changes made in the railroad's operations.

The railroad succeeded because its reward system promoted autonomy and cooperation, the authors say. Autonomy and cooperation are essential if organizations are to respond effectively to the demands of an increasingly complex business environment.

"The business environment is becoming more complex -- and organizations respond by getting complicated," Morieux says. "They add management layers, dedicated functions, processes and 'best practices' -- all of which make the organization clumsy and slow to respond. What's needed is more autonomy and cooperation -- qualities that make companies more agile, flexible, responsive and competitive."

Reward and punishment systems are powerful ways to influence behavior -- which means they need to be designed to encourage autonomy and cooperation, so that the organization benefits. The specific behaviors these systems should promote include sharing, helping, cross selling, informing others, finding ways to standardize, compensating for other's problems, etc. -- all elements of "cooperation."

"Without cooperation, organizations find themselves allocating more resources -- time, equipment, systems, teams, etc. -- to compensate for the loss of quality and/or quantity of what they produce," says Morieux. "Conversely, companies who cut resources without strengthening cooperation will find that their end products are negatively impacted by shortages, defects, safety issues and accidents, or people's disengagement and burnout."

According to Morieux and Tollman, rewarding cooperation, like the other rules of "smart simplicity" starts with the reality of how people behave.

"The basic approach of smart simplicity comes down to this," Tollman says. "Find out what your people are really doing in the organization; remember that whatever they are doing is rational -- for example, they are trying to protect their jobs or avoid punishment -- then give them rational reasons for doing what you need. They will help you identify and solve problems -- if you make it safe and rewarding for them to do so."

For more information, or to schedule an interview with Yves Morieux or Peter Tollman, contact Frank Lentini, Sommerfield Communications at +1 (212) 255-8386 / [email protected].

About the Authors

Yves Morieux is a senior partner and managing director in the Washington, DC office of The Boston Consulting Group (BCG). He is a BCG Fellow and director of the BCG Institute for Organization.

Peter Tollman is a senior partner and managing director in BCG's Boston office. He leads BCG's People & Organization practice in North America.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

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