[Music] I need to make a confession at the outset here um a little over 20 years ago uh I did something that I regret something that I'm not particularly proud of something that in many ways I wish no one would ever know but that here I feel kind of obliged to reveal um in the late 1980s in a moment of youthful indiscretion I went to law school now um in America law is a professional degree you get your University degree then you go on to law school and when I got to law school I didn't
do very well to put it mildly I didn't do very well I in fact graduated in the part of my law school class that made the top 90% possible um thank you um I never practiced law a day in my life I pretty much wasn't allowed to um but today against my better judgment against the advice of my own wife um I want to try to dust off off some of those legal skills what's left of those legal skills I don't want to tell you a story I want to make a case I want to
make a hard-headed evidence-based dare I say lawyerly case for rethinking how we run our businesses so ladies and gentlemen of the jury take a look at this this is called the candle problem some of you might have seen this before it's created in 1945 by a psychologist named Carl dunker Carl dunker created this experiment that's used in a whole variety of experiments in Behavioral Science and here's how it works suppose I'm the experimentor I bring you into a room I give you a candle some thumbtacks and some matches and I say to you your job
is to attach the candle to the wall so the wax doesn't drip onto the table now what would you do many people begin trying to Thumbtack the candle to the wall doesn't work somebody some people and I saw somebody kind of make the motion over here some people have a great idea where they light the match melt the side of the candle try to adhere it to the wall it's an awesome idea doesn't work and eventually after 5 or 10 minutes most people figure out the solution which you can see here the key is to
overcome what's called functional fixedness you look at that box and you see it only as a receptacle for the tax but it can also have this other function as a platform for the candle candle problem now I want to tell you about an experiment using the candle problem done by a scientist Named Sam gluber who's now at Princeton University in the US this shows the power of incentives here's what he did he gathered his participants and he said I'm going to time you how quickly you can solve this problem to one group he said I'm
going to time you to establish Norms averages for how long it typically takes someone to solve this sort of problem to the second group he offered rewards he said if you're in the top 25% of the fastest times you get $5 if you're the fastest of everyone we're testing here today you get $20 okay now this is several years ago adjusted for inflation it's a decent sum of money for a few minutes of work okay it's a nice motivator question how much faster did this group solve the problem answer it took them on average 3
and 1/2 minutes longer 3 and 1/2 minutes longer now this makes no sense right I mean ABS I'm an American I believe in free markets that's not how it's supposed to work right if you want people to perform better you reward them right bonuses commissions their own reality show incentivize them that's how business works but that's not happening here you've got an incentive designed to sharpen thinking and and accelerate creativity and it does just the opposite it dulls thinking and blocks creativity and what's interesting about this experiment is that it's not an aberration this has
been replicated over and over and over again for nearly 40 years these contingent motivators if you do this then you get that work in some circumstances but for a lot of tasks they actually either don't work or often they do harm this is one of the most robust findings in social science and also one of the most ignored I spent the last couple of years looking at the science of human motivation particularly the Dynamics of extrinsic motivators and intrinsic motivators and I'm telling you it's not even close if you look at the science there is
a mismatch between what science knows and what business does and what's alarming here is that our business operating system think of the set of assumptions and protocols benath our businesses how we motivate people how we apply our our human resources it's built entirely around these extrinsic motivators around carrots and sticks that's actually fine for many kinds of 20th century tasks but for 21 century tasks that mechanistic reward and Punishment approach doesn't work often doesn't work and often does harm let me show you what I mean so glurg did another experiment similar to this where he
presented presented the problem in a slightly different way like this up here okay attach the candles to the wall so the wax doesn't drip onto the table same deal you were timing for Norms you were incentivizing what happened this time this time the incentivized group kicked the other group's butt why because when the tax are out of the box it's pretty easy isn't it if then rewards work really well for those sorts of tasks where there's a simple set of rules and a clear destination to go to rewards by their very nature narrow our Focus
concentrate the mind that's why they work in so many cases and so for tasks like this a narrowed Focus where you just see the goal right there zoom straight ahead to it they work really well but for the real candle problem you don't want to be looking like this a solution is not over here the solution's on the periphery you want to be looking around that that reward actually Narrows our focus and restricts our possibility let me tell you why this is so important in Western Europe in many parts of Asia in North America in
Australia white collar workers are doing less of this kind of work and more of this kind of work that routine rule-based left brain work certain kinds of accounting certain kinds of financial analysis certain kinds of computer programming has become fairly easy to Outsource fairly easy to automate software can do it faster lowcost providers around the world can do it cheaper so what really matters are the more right brain creative conceptual kinds of abilities think about your own work think about your own work are the problems that you face or even the problems we've been talking
about here are those kinds of problems they have a clear set of rules and a single solution no the rules are mystifying the solution if it exists at all is surprising and nonobvious everybody in this room is dealing with their own version of the candle problem and for candle problems of any kind in any field those if then rewards the things around which we've built so many of our businesses don't work now I mean it makes me crazy and this is not here's the thing this is not a feeling okay I'm a lawyer I don't
believe in feelings this is not a philosophy I'm an American I don't believe in philosophy this is a fact or as we say in my hometown of Washington DC a true fact let me let me give you an example of what I mean let me Marshall the evidence here cuz I'm not telling you a story I'm making a case ladies and gentlemen of the jury some evidence Dan ay one of the great economists of our time he and three colleagues did a study with some MIT students they gave these MIT students a bunch of games
games that involved creativity and motor skills and concentration and they offered them for for performance three levels of Rewards small reward medium reward large reward okay do really well you get the large reward on down what happened as long as the task involved only mechanical skill bonuses worked as they would be expected the higher the pay the better the performance okay but once the task called for even rudimentary cognitive skill a larger reward led to poorer performance then they said okay let's see if there's any cultural bias here let's go to moai India and test
this reward standard of living is lower in in moerai a reward that's modest by North American Standards is more meaningful there same deal a bunch of games three levels of rewards what happens people offered the medium level of rewards did No Better Than People offered the small rewards but this time people offered the highest rewards they did worst of all in eight of the nine tasks We examined across three experiments hire incentives led to worse performance is this some kind of touchy feely socialist conspiracy going on here no these are economists from MIT from Carnegie
melon from the University of Chicago and do you know who sponsored This research the Federal Reserve Bank of the United States that's the American Experience let's go across the pond to the London School of Economics lsse London School of Economics alma mater of 11 Nobel laurates in economics training ground for great economic thinkers like George Soros and Friedrich Hayek and Mick Jagger last month just last month economists at lsse looked at at 51 studies of pay for performance plans inside of companies here's what the economist there said we find that Financial incentives can result in
a negative impact on overall performance there's a mismatch between what science knows and what business does and what worries me as we stand here in the rubble of the economic collapse is that too many organizations are making their decisions their their their policies about talent and People based on assumptions that are outdated unexamined and rooted more in folklore than in science and if we really want to get out of this economic mess and if we really want high performance on those definitional tasks of the 21st century the solution is not to do more of the
wrong things to entice people with a sweeter carrot or threaten them with a sharper stick we need a whole new approach the good news about all this is that the scientists who've been studying motivation have given us this new approach it's an approach built much more around intrinsic motivation around the desire to do things because they matter because we like it because they're interesting because they're part of something important and to my mind that new operating system for our businesses revolves around three elements autonomy Mastery and purpose autonomy the urge to direct our own lives
Mastery the desire to get better and better at something that matters and purpose the yearning to do what we do in the service of something larger than ourselves these are the building blocks of an enely new operating system for our businesses I want to talk today only about autonomy in 21st in 20th century we came up with this idea of management management did not emanate from nature okay management is an in it's like it's not a tree it's a television set okay somebody invented it and it doesn't mean it's going to work forever management is
great traditional Notions of management are great if you want compliance but if you want engagement self-direction works better let me give you some examples of some kind of radical Notions of of self-direction um and what this means you see you see you don't see a lot of it but you see the first stirrings of something really interesting going on because what it means is it means paying people adequately and fairly absolutely getting the issue of money off the table and then giving people lots of autonomy let me give you some examples how many of you
have heard of the company atlassian okay looks like less than half um atlassian is an Australian software company and they do something incredibly cool a few times a year they tell their Engineers go for the next 24 hours and work on anything you want as long as it's not part of your regular job work on anything you want so the engineers use this time to come up with a cool uh patch of code to come up with an elegant hack then they present all of these stuff that they've developed to their uh teammates to the
rest of the company in this Wild and Woolly All Hands meeting at the end of the day and then being Australians everybody has beer they call them FedEx days why cuz you have to deliver something overnight it's pretty it's not bad it's it's a huge trademark violation but it's pretty clever um that one day of intense autonomy has produced a whole array of software fixes that might never have existed and it's worked so well that at lastly has taken it to the next level with 20% time done famously at Google where Engineers can work spend
20% of their time working on anything they want they have autonomy over their time their task their team their technique okay radical amounts of autonomy and at Google as most of as many of you know about half of the new products in a typical year are birthed during that 20% time things like Gmail Orchid Google News let me give you an even more radical example of it something called the results only work environment the row created by two American consultants in place at about a dozen companies around North America in a row people don't have
schedules they show up when they want they don't have to be in the office at a certain time or anytime they just have to get their work done how they do it when they do it where they do it is totally up to them meetings in these kinds of environments are optional what happens almost across the board productivity goes up worker engagement goes up uh worker satisfaction goes up turnover goes down autonomy Mastery and purpose these are the building blocks of a new way of doing things now some of you might look at this and
say hm that sounds nice but it's utopian and I say nope I have proof in the mid- 1990s Microsoft started an encyclopedia called Encarta they had deployed all the right incentives all the right incentives they paid professionals to write and edit thousands of Articles well-compensated managers oversaw the whole thing to to make sure it came in on budget and on time few years later another encyclopedia got started different model right do it for fun no one gets paid a cent or a Euro or a Yen do it because you like to do it now if
you had just 10 years ago if you had gone to an economist anywhere and said hey I got these two different models for creating encyclopedia if they went head-to-head who would win 10 years ago you could not have found a single sober Economist anywhere on planet Earth who would have predicted the Wikipedia model this is the Titanic battle between these two approaches this is the Ali Frasier of motivation right this is the Thriller in Manila all right intrinsic motivators versus extrinsic motivators uh autonomy Mastery and purpose versus carrots and sticks and who wins intrinsic motivation
autonomy Mastery and purpose in a knockout let me wrap up there's a mismatch between science knows and what business does and here's what science knows one those 20th century rewards those motivators we think are the natural part of business do work but only in a surprisingly narrow band of circumstances two those if then rewards often destroy creativity three the secret to high performance isn't rewards and punishments but that unseen intrinsic Drive the drive to do things for their own sake the drive to do things because they matter and here's the best part here's the best
part we already know this the science confirms what we know in our hearts so if we repair this mismatch between what science knows and what business does if we bring our motivation Notions of motivation into the 21st century if we get past this lazy dangerous ideology of carrots and sticks we can strengthen our businesses we can solve a lot of those candle problems and maybe maybe maybe we can change the world I rest my case [Applause]
