Whether it is certain bonuses in financial sector, or league tables and performance stars in the public sector, there have been numerous recent illustrations of the harm that poorly set business targets can cause.

It seems deceptively easy in theory to use targets and rewards to drive desired behaviour. Take the mine detecting bees for example. No, seriously - I know it is close to April Fools Day, but what you do is take an ordinary bee, expose it to the scent of high explosive for a short period in laboratory conditions and give it a sugary reward when it correctly identifies the scent. Then you release a sensitised swarm over a potential minefield and the bees congregate on the ground around any hidden mines. Very impressive, and potentially quite useful. So what is wrong with using the same techniques in business.

Well the key issue is that humans and the corporate minefield are significantly more complex. Humans are particularly adept at finding ways to maximise their rewards, so a simple, poorly defined target without suitable checks and balances has the potential to go badly wrong. Also there is often a temptation to concentrate on setting targets on things that are easy to measure rather than the right things – e.g. a simple revenue figure rather than a more complex, and potentially at least partly subjective, risk adjusted revenue figure. We are now seeing a greater focus on these types of target from the Turner Review and recent announcements in the US. It is a complex area that is not an MPIE speciality, but given its importance to how financial firms re-invent themselves, we are interested in speaking to firms who have experience in this area.  

* A version of this blog originally appeared in the MPI Europe monthly bulletin