What does Jamestown Teach us about Incentive Compensation?

This weekend, Jamestown, Virgina celebrates its 400th birthday. For those of you that don't remember your grade school history, Jamestown was a settlement in the Virgina colony, which was privately funded and run by the Virgina Company under a charter granted by King James I of England. Jamestown, as an investment, was a terrible one -- it lost tons of money and, obviously much worse, lives. Neither the addition of a desirable cash crop (tobacco), slaves, or fines for bad behavior seemed to help until, in 1623, the colony established private property rights. With the advent of private property, the company aligned rewards with behavior which led to success for the investors and colonists of the struggling Virgina Company. In this article, I'll point out a few parallels between the group behavior in 17th century Virigina and your technical department, and point out why aligning rewards with desired behavior is so important.

Jamestown was worse than your tech department

Life in Jamestown was bad. Very bad. 80% of the settlement died in the winter of 1609-1610 and, worse, some attribute the massive loss of life to lazy colonists (Morgan). Upon his arrival less than 2 years after the devastating winter, their new leader, Sir Thomas Dale found the colonists at "their daily and usuall workes, bowling in the streetes" (Morgan). Dale put laws into place that forced them to grow corn so they didn't die. The system of punishments was overbearing by most accounts; it helped, but not enough. It was not until the advent of private property in 1623 that the starvation had been reversed (Boettke). With private property, the colonists could see a direct correlation between the quality of their work and their personal gain. With incentives properly aligned with the goals of the company (the settlement was, after all, an investment by a group of individuals) the settlement thrived.

Let's take a minute to process this: people were dying and it took someone, a very mean person by most accounts, to force people to plant food instead of going bowling. To survive. It is estimated that the colonists worked, on average, about 3-4 hours a day (Morgan) even though if they just worked a little more, lives would have been saved. Even the religiously based Plymouth colony in Massachusetts had similar experiences until they instituted private property (Bethell). One thing is very clear from these examples: even the best intentioned have difficulty working together for the greater good when not properly incented to do so.

my tech department isnt lazy, they work a lot

But are they working for you or themselves? A problem in this field, as I'm sure in many, is that there is greater incentive to work for your next job than your current one. With technology, it is often what you can list on your resume that will land you your next job and not what you've done for your employer, in terms of their success. Of the hundreds of resumes I've reviewed, rarely have I seen anything related to company performance. As a Programmer, or even a higher level position like System Architect, why bother? The recruiters do keyword searches, and many technical managers barely, if at all, understand the technologies used in their departments. In short, there is a very good chance that your company is paying people to work inefficiently so they can keep their resume current.

How Do I Know if they're doing it the right way?

That's tough; you probably won't. You you may, as I did, catch someone doing something really stupid like using web services to do post a form to itself, but removing that contractor doesn't do much overall. The problem is deeper than that: it is too expensive to review everything people do -- you must give them a good reason to work in the interests of the company.

You may want to respond to inefficient workers like the Virginia company first did: get tough. Getting tough, as the Virigia company soon learned, doesn't work either. In less than 3 months after he instituted his harsh laws, Sir Thomas Dale was removed from office (Morgan). Even if you do last longer than Dale did, you run the risk that your best team members may leave for greener pastures (many left Jamestown for other settlements to the north). In short, heavy handed dicipline is a no-win option.

Develop appropriate Metrics and Incentives

The best way, overall, is to make sure that the technical team is measured -- and rewarded -- based on their impact on the company. Further, this reward must exceed that of jumping ship with an extra buzzword in their pocket. If you can't measure the benefit of the technical team on the company's overall operations -- if there is no benefit to having the tech team -- then find one soon or quit. CEOs are getting smarter about technology and if you can't find the value, they probably can't either. The mystery that existed in prior decades of the technical genius is over; now you've got to prove your value or be risk being replaced.

One way to further encourage good behavior is to neutralize the benefits of bad behavior. Rather than let new technologies run wild and impact project success, develop a routine training and evaluation program where people are encouraged to learn a technology that may be relevant to something you're already doing. Budget time to investigate emerging technologies, and determine which can directly benefit the business. The advantages will be more than just a happy tech team; if done properly, you increase shareholder value. Happy shareholders and a happy, productive and efficient team: what could be better?

References

Bethell, Thomas. "How Private Property Saved the Pilgrims." Hoover Digest Online (1999) http://www.hoover.org/publications/digest/3507051.html

Boettke, Peter. "The Role of Private Property in a Free Society." Virginia Viewpont. http://www.virginiainstitute.org/viewpoint/2005_04_2.html

Diamond, Sigmund. "From Organization to Society: Virginia in the Seventeenth Century." The American Journal of Sociology. March, 1958.

Morgan, Edmund S. "The Labor Problem at Jamestown, 1607-18." American Historical Review. 1971. pages 595-611

What are your scarce resources?

If you are a PMI certified project manager, you may have caught a quote of mine in the cover story (available in PDF form), where I laid out a simple -- but often forgotten -- principle: "every firm is short on some resource -- cash, employees, executive mindshare, etc. -- so you've got to pick the best opportunity." This idea of scarce resources is the foundation of Neoclassical economics, not to mention a very important priciple in technical design and project management, but somehow the importance of the idea is often ignored.

This will be the first in a series of blog entries about the importance of considering scarce resources. In a recent article, I gave some interview tips, so lets take hiring as the starting point.

Scarce resource: In House Talent

Consider a case in point: at a former company, we had several seasonal accounts, one of which could, at a moments notice, double or triple the resources required, then needs could drop by the same or greater amount. At another company, outsourcing might have been a good option, but several factors prevented it in this scenario: culture, contractual obligations, and the almost patented ambiguity that define technical specifications at advertising-based firms. To be successful, something had to change, but what?

Take Inventory: What do you have and what do you need?

Let's say that its May now. We know that the we've got a launch soon, so we'll probably have slightly more technical resources than we need just after the launch. We don't know what is coming in when, but a lot of it will come in with almost no time to respond.

At first glance, one might assume the scarce resource is programming talent, but more than enough talent exists in our market at prices we were willing to pay. Our scarce resource, the thing we could not afford to spend, was time of the senior people during busy season.

Thinking in terms of exactly what we need, something obvious emerges: the contractors we need are not at all like our full time employees. We need contractors who can do a narrow set of things, without a lot of direction, and do it fast -- but how do we find them reliably?

The solution: Allocate Scarce Resources Appropriately

Here we have at least a few options:

1. Begin looking for people now using the existing process: Use a lot of senior resource time now, and potentially a lot during busy season


2. Hire later using an abbreviated version of our existing interview process: Use very little senior resources up front, but potentially huge abouts during busy season if the contractors are sub-standard.


3. Hire later using a completely new specialized interview process:Use a lot of senior resources now (when we have them) to define the test, but, if done well, very little when they are most in demand.

The third option, keeping in mind which resources are scarce, is clearly the best option. Here is what we did:


We established specialized interview roles for team members that would work with the contractors, develope a practical test that simulated the working environment and tested ONLY the key skills they would need during the period. In under half a day, we were able to accurately access, compare, and make offers. Many candidates were objectively weeded out in the first half hour, minimizing our time spent evaluating unsuitable candidates, allowing more time to discern the good from the great.

Several years later, the creative work on the account has since moved on, but the technical work remains at my old firm, where they continue to use the same process successfully today.

In Summary

You obviously can't solve every problem by an analysis of scarce resources (risk is a major factor), but it is far too often removed from the decision process entirely -- especially in determining things like which projects to take on (the subject of this the May edition of PM Network) and when evaluating overall technical strategy.

Recommended Related Readings

A few books I thought about while writing this blog entry. I think you'll enjoy any and all.

Fisher, Robert. Getting to Yes: Negotiating Agreement Without Giving In (1992)
People negotiate all the time. This is the classic text on how to make lasting and successful negotations by understanding what you -- and they -- really want. If you enjoy this, I would also recommend the Harvard Program on Negotiation Newsletter.

Nalebuff, Barry and Ian Ayres. Why Not?: How to Use Everyday Ingenuity to Solve Problems Big And Small (2006)
A very entertaining look at 4 seperate methods of solving problems. This book may turn the way you solve problems -- and the way you eat bananas -- upside down.

Polya, G. How to Solve It (1945)
Intended for mathematics educators and students, this books shows how to solve virtually any problem. A new edition came out in 2004, which I have not read, but I assume it is as good as the original. Also quite different in content and approach to Why Not?, both have similar underlying messages about the way to solve problems.

Skousen, Mark. The Making of Modern Economics: The Lives and Ideas of the Great Thinkers (2001)
A brilliant and highly entertaining history of economics, the perculiar yet fascinating lives of its major contributors, and the evolution of its major schools of thought.