Gamed by Bernie Smith Book Summary

Gamed, Why targets and incentives fail and how to fix them by Bernie Smith

Recommendation

Bernie Smith shares a goal and incentive design system he calls ROKET-DS. He offers at least a dozen examples of targets and incentives gone horribly wrong to make his point that proper goal-setting and incentive/reward design demand careful thought, process and discipline. Smith explains SMART goals, KPIs, OKRs, and various financial and non-financial rewards. For the beginner, Smith’s process – while exacting – makes great sense. Smith also offers resources to guide you in using his system as you work your way through his steps and strategies.

Take-Aways

• Target, goal and incentive design prove complex and risky in practice.
• Simple targets and goals don’t work on their own.
• The ROKET-DS method of designing targets follows 10 steps.
• Develop bulletproof incentives to motivate people to achieve your targets.
• Consider which incentives to offer – cash, non-financial and/or recognition. 
• Pressure test your incentives before implementing them.

Gamed by Bernie Smith Book Summary

Target, goal and incentive design prove complex and risky in practice.

Use targets and incentives to encourage desired behaviors, boost performance and achieve positive outcomes. Target and incentive design demand careful planning and observing specific practices to avoid disaster.

“It is possible to make targets and incentive tools for good. The question is how?”

Targets, incentives and KPIs (key performance indicators) differ. When you weigh yourself, the number you see is a KPI – neither good nor bad. If you aim to weigh 150 pounds, then you set a target – a context for your KPIs. If you need motivation to reach your target, you may give yourself an incentive. Incentives can be positive or negative. If you promise yourself a new pair of jeans when you hit 150 pounds, that’s a positive incentive – a reward. If you tell yourself that if you reach 175 pounds you will lock the fridge and hide the key, that’s a negative incentive – a punishment. 

Simple targets and goals don’t work on their own.

Set your targets using popular methods such as SMART goal-setting, which emphasizes clear stretch goals, feedback and realistic time constraints. SMART goals – like OKRs (Objectives and Key Results) – provide targets. Targets don’t always lead to intended results, so you must add incentives. Whether you use SMART goals or OKRs, add the Results-Oriented KPI Effective Target-Design System (ROKET-DS) to develop robust, widely-applicable targets and incentives.

“When the stakes are high, people are fantastically creative and devious.”

SMART goals and OKRs work well due to their simplicity. But people always test targets and goals for weaknesses, workarounds and shortcuts. When you set a goal that counts, its achievement must come with positive or negative consequences, otherwise the goal or target is irrelevant.

Highly consequential targets at Volkswagen, for example, led engineers to install software to fool United States’ emissions tests. The cheat worked for years, but VW’s actions led to deaths, reputational damage and billions in fines.

In the early 1970s, administrators gave ambulance crews in Britain specific targets concerning response times to emergency calls. Over the years, the targets became everything – crews would sacrifice all else to achieve them. Whether a caller lived or died ended up mattering less than whether a crew got to the caller inside the eight-minute goal. Crews artificially downgraded calls they thought they couldn’t reach in eight minutes, regardless of the urgency of a caller’s condition.

Countless examples of goals and incentives gone wrong demonstrate that you can’t expect simple targets and goals to work on their own. They require a system of target and incentive design that closes loopholes and avoids unintended consequences. Use the ROKET-DS Diagnostic tool to review how targets and incentives typically fail, diagnose your current programs and learn how to fix problems.

The ROKET-DS method of designing targets follows 10 steps.

No simple system can set the right targets nor design incentives that won’t backfire. Start by creating solid targets, then add stress-tested incentives. Print the ROKET-DS Target Canvas from your toolkit, then execute the following 10 steps:

“It is important that we understand the underlying, fundamental reason for setting a target. This deeper objective is going to be our ultimate measure of success.”

1. “Identify existing issues” – Assess problems with the targets and incentives you now have in place. List the main stakeholders who participate in or manage the programs. Conduct interviews or focus groups with those shareholders to discuss and document any problems.
2. “Plan outcome” – Know the root reasons – the overarching goal – against which you set your targets. When Wells Fargo, for example, wanted to cross-sell banking services to customers, it set a target of selling at least eight products to each client. Wells Fargo’s CEO called it “Going for Gr-Eight.” The high stakes surrounding the target caused employees to game the strategy by, among other things, signing customers up for services and accounts with fees of which they were unaware. The target subsumed the goals of productivity and profits. In the end, regulators discovered Wells Fargo’s corruption and the company paid large fines. Avoid disasters like this by considering six foundational business goals – profit, growth, innovation, legal compliance, risk management and “a balanced quality of life.” Build your targets to directly support one or more of these foundational goals. 
3. “Match KPIs” – Map a thoughtful and sufficiently large enough number of indicators of progress (KPIs) to your fundamental business objectives. Gather important stakeholders to discuss and agree to KPIs. Build “KPI Trees” that break larger goals into various measures. For example, if you want to increase your health, you might track a diet KPI supported by a calories KPI. You might track a quality of sleep KPI supported by an hours slept KPI. Your KPIs must be measurable.
4. “Identify and engage target owners” – List all those who directly and indirectly influence your KPIs. Determine their involvement, then gather them to discuss the process of target and incentive design and how they might contribute. Before gathering stakeholders, segment targets that aim at their managers; IT support; suppliers and training groups. Develop a meeting plan to outline how you will engage and communicate with each group.
5. “Check owner agency” – The people you aim your targets toward, and establish goals for, must have the “skills, time, authority and resources” (STAR) to accomplish them. Check your goals to ensure they target the right people with sufficient agency. If not, you may have to train, grant more authority or alter your targets. 
6. “Set draft target values” – Aim for a wide participation group for your targets. If you include only high performers, you miss out on the larger middle part of your workforce, which collectively, makes a greater impact than your top performers. Set motivating goals, not impossible ones. To establish challenging but achievable targets, conduct sessions with stakeholders to review past performance levels and averages, changes in IT, industry shifts and new regulations that may affect people’s ability to achieve goals. Discuss the anticipated gains you expect from achieving targets, and what percentage of the population you expect will hit your goal.
7. “Targets white hat testing” – Ask yourself and your team what you think will happen when they do what is expected of them to achieve your targets. Walk through the logic and processes of the previous steps.
8. “Targets black hat testing” – In this crucial step, you and your team play devil’s advocate and try to poke holes in your plan. Expose vulnerabilities, loopholes, shortcuts and potential unintended consequences by reviewing your targets from the perspective of those who will try to achieve them.
9. “Fix problems and re-test” – You most likely encountered potential issues in your black hat testing. Go back to the previous step in the process most appropriate to resolving the problem and work your way back up through the steps for each.
10. “Record and go live with your targets” – Having tested your targets and fixed problems, the time has come to launch. This means sharing your targets in multiple ways, many times and across various media to ensure your stakeholders thoroughly understand them. Include target details, the reasons for the target, associated rules and any specific OKRs or KPIs that lead to the targets. Display your targets, goals, OKRs and KPIs where participants work.

“Without engagement from those responsible for achieving the targets, targets are useless.”

Build desired behaviors into habits by using nudges and triggers to prompt thought and actions. These can include alarms, calendar notifications or standing items on agendas. When stakeholders ask about targets and progress – unprompted – in meetings and casual encounters, those targets have likely become habits.

Develop bulletproof incentives to motivate people to achieve your targets.

Much motivation comes from within. You do things due to your intrinsic interest or desire; you need no external reward or incentive. Otherwise, whether motivating yourself or others – as a boss, teacher, or parent – you use external incentives and rewards or punishments to encourage positive behaviors and outcomes. Rewards prove even more susceptible to gaming than targets, and the greater the stakes – the reward or punishment – the more people will seek workarounds or break the law to earn or avoid them. Follow these principles of design to create incentives that work.

“If the KPI provides the objective truth, and the target provides the context then an incentive is intended to provide the behavioral motivation.”

1. Offer levels of reward to encourage more effort – Offer higher value rewards for the greatest achievement. Incentivize more people by offering other, less valuable rewards for lesser achievement.
2. Differentiate rewards – Rather than offer a big trip, medium trip and little trip as your reward levels, offer a big trip, an exciting experience and a dinner for two. This prevents comparison and bad feelings when those who finish second or third receive lesser versions of the same reward.
3. Make rewards frequent – When it takes too long to earn a reward, interest wanes. Make smaller, more frequent payouts.
4. Leverage competitive pressure – Where you have surplus talent, employees will try harder for fear of displacement.
5. Don’t cap rewards – Whether commissions or other rewards, link achievement to payout so that the more a person achieves or, for example, sells, the better the firm performs and the employee earns – without limits.
6. Pay higher rewards for higher achievement – As a person does more, upgrade their commission percentage or reward.
7. Spread the love – Make sure that most people believe they can earn your rewards. Instead of prizes for the top two, offer prizes for the top six, for example. Middle performers won’t strive if they believe only the top performers have a chance at winning.

Consider which incentives to offer – cash, non-financial and/or recognition. 

Pure recognition costs nothing, but requires great skill to offer and may prove insufficient depending on the effort recognized. Most people appreciate cash, but money can be impersonal and lead to expectations of more. Non-cash rewards, such as tickets to events, gifts, trips, badges, trophies or parking passes convey caring and generate buzz among peers while avoiding problems that can arise with cash rewards. Across all types of rewards, individual preference matters. Don’t ask people what they want because they often don’t know. Get to know your team personally, so you can learn their likes and preferences. Avoid negative rewards and punishments.

Pressure test your incentives before implementing them.

As you white and black hat tested your targets, do the same for your incentives. Ask yourself and your team what you expect to happen when people pursue your incentives. Test to expose vulnerabilities, loopholes, shortcuts and potential unintended consequences. Fix the problems you find in black hat testing, and do the same with incentives.

“Offering rewards that can be achieved through extreme risk-taking, when the consequences of failure are not felt by the person taking the risks, stokes opportunism and leads to dire outcomes.”

Ensure that those you incentivize have skin in the game. If they can go hard to achieve a big reward with no downside should they fail, you created a mismatch. CEOs, for example, too often enrich themselves by pursuing short-term strategies that boost share prices but harm the firm in the longer run.

About the Author

Bernie Smith runs Made to Measure KPIs in the UK, where he authors KPIs, consults and trains.