Incentives Matter

It’s sad how much of an advantage econ 101 and basic game theory can give you in the real world. Most people don’t have a coherent internal model of how organizations work. Even the brightest few will usually just have a vague sense that accountability or culture or some other bucket of things matter. An intuition for what good and bad look like rather than a mental model. Understanding that incentives shape behaviour and that most but not all people act in accordance with their incentives puts you far ahead of the pack.

example:

In tech, teams are composed of engineers and product owners. The engineers build things. The product owner(s) decide what subset of possible things to build. One of the clients I work with has a product which is bad. Most of their projects tend to devolve into unworkable messes and need to be rewritten. There are many reasons for this. One of them is that product owners don’t focus on making their product work or be useful. They don’t focus on maximising revenue or user count or user satisfaction or any other metric which is a good proxy for value. Instead they focus on shipping features. They are determined to ship feature X by date Y. Even if feature X will deliver little to no value compared to, say, improving performance. Even if Y is unrealistic and X needs to be watered down to the point that it’s useless and it’s inclusion is nothing more than a box ticking exercise. Why do they do this? Simple. Incentives. If you look at the incentive structure of the product owners, they are not assessed based on the revenue the product delivers, it’s conversion or any other measure of value. Instead they are handed a list of features by an executive or other firms, negotiate when to deliver those features and are then judged based on weather the features are delivered on time. Deliver on time and all is well. Don’t and you’ll have career problems. Surprize surprize people who are not rewarded for trying to maximize value, and actually are actively punished because working on high value features means delaying lower value but committed to features, won’t optimize for value.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s