Targets and the Perversity Principle

One of my favourite writers and speakers over the years has been Dr Myron Tribus. His "Perversity Principle" states:

"If you try to improve the performance of a system of people, machines, and procedures by setting numerical goals for the improvement of individual parts of the system, the system will defeat your efforts and you will pay a price where you least expect it."

And he is so right. There is a serious point here for all organisations that is routinely flouted. As a result the unintended consequences that Tribus is referring are occurring all the time.

There are countless examples including the trader in City of London who ran up billions of pounds sterling of losses in order to protect his bonus and the PPI mis-selling scandal. Standard practice for these bonus systems is a numerical target. Individual incentives evoke the wrong mental processes, which are close to those in fight or flight.

The better alternative is profit sharing and everyone in the organisation focused on delivering value to customers.