Incentives
“Incentives: The Architecture of Behaviour and Outcomes”
The Win-Won Business Mindset (#9):
Let’s think in terms of simplicity. What we need in the short term is prioritized and often determined by our immediate biological needs. When we are hungry, our body and mind will drive our attention toward obtaining food. If we are facing starvation, not much else matters; we will use all available resources to obtain food to survive. This would have been a persistent struggle for our ancestors. However, in our modern era, food is more widely accessible and abundant. We could even argue now that our wants often exceed our needs.
Most countries throughout the world have solved basic scarcity, such as food and shelter. Developed nations have built complex systems that provide much of what their societies need to survive. This transition has drastically changed how we live, interact with people, and relate to the natural world. We now think more in terms of longer-term trade-offs, as opposed to immediate needs. In our modern era, incentives have become more complex and depend on many factors. Yet, you can still understand much of the decision-making and behaviours of individuals by examining what drives their interests.
Let’s contemplate what might make an ideal incentive structure—a type of hierarchy that aligns an individual’s behaviour towards positive outcomes. The following points offer a direction for how incentives could be integrated into one’s thinking:
A) Service to an Ideal
A purposeful and meaningful life requires directing your consciousness to an ideal. What do you value most? What makes you feel alive? What can you do that brings something good into your life and the world at large?
B) Sacrifice for the Future
The more effort one puts into mastering oneself, the greater the probability of satisfaction or success. Long-term commitments are the best way to develop deep expertise and wisdom.
C) Fulfillment of Identity
One may not have full control over this process; society may mirror this back onto you based on your actions. Individuals maybe viewed as a reflection of their decisions and actions over time. When you build a strong identity, people begin to understand who you are (a core building block of trust).
D) Individual Recognition & Reward
People’s time and resources are extremely important. When those are applied towards a goal or outcome, they require something in return. Outcomes are not equal; performance exists on a hierarchy. Reaping the fruits of one’s labour and effort is a key component of incentive.
E) Improvement of Others
Most people rely on their societies and institutions; these create the conditions that allow individual achievement. When individuals have the freedom and self-determination to pursue their destiny, they will inevitably bring others along the way. At this stage, they may become leaders or mentors.
From Theoretical to Practical Business Application:
You want to try and align the interests of a business with the different stakeholders as best as possible. Ideally, a business exists to solve a specific societal need, want, or problem, with the expectation that the voluntary exchanges benefit all parties and do an overall net good for society. Business is a collective ecosystem made of individuals operating in a larger community and market with competing interests.
“What’s in it for me?”
It's a question that people ask themselves consistently. There are many ways to think about this question, and many different ways to try and answer it. Requesting someone’s time, energy or resources bears a level of responsibility.
“What’s in it for us (over time)?”
This is perhaps the better question, when dealing with people. All parties should feel like the relationship is beneficial to them; otherwise, there is no reason to participate. Here are some ideas to consider:
- Discover: Determine what the desired outcomes are
- Align: Converge interests and expectations
- Commit: Trust is built on the ability to act predictably toward a desired outcome or expectation
- Reciprocity: Build trust over time by consistently delivering on your commitments
Creating an incentive structure is a challenge, requiring the balancing of many variables. Whether it’s a society, community, business, or group of people, everyone must have a unifying ideal or driving force that compels them to act. It must consider their interests and account for the interests of others. When a properly oriented incentive structure is in place, individuals can make informed decisions and all parties can potentially thrive.
Understanding incentives is a reliable determinant of behaviour. Understanding behaviours helps you design incentives to shape outcomes. Incentives go far beyond money; they are an important motivating force in how people live out their lives.
“The Win-Won Business Mindset” is a series by Win-Won Business Consulting designed to share insights, ideas, and strategies for small businesses and entrepreneurs.