Three foundational truths:
- Systems are perfectly designed to deliver the results they deliver.
- Systems respond to feedback loops and incentives.
- If you don’t like the results, you must modify the system.
Be alert to a common temptation to fix a failing system: wrapping it inside a management system. Rather than address the real problem, we prefer to “manage” it via another layer or system. This is not a solution.
Examples which illustrate the importance of incentives:
| Frustrating system result | Possible incentive problem |
| Cost of healthcare escalating faster than inflation | 3rd party insurance backed by corporate and government funding sources are incentivized to increase costs and hide real costs from patients |
| College grads without good job prospects and crushing student loan debt | Colleges incentivized to get students in rather than produce graduates with good prospects |
| A company’s tiny but exciting new line of business struggles to get resourcing commitment when competing against existing profit centers | Short-term maximum profit perspective |
| The “usual” people are picked for roles over others who are qualified but “just outside” the usual group | Zero weighting for “bring new and uncomfortable” experiences to the table |
The proposed solutions to each of these examples are often a “management layer.” Gird yourself to be deeply disappointed with the new results.
The path to improving a system centers on changing the incentives which drive the results. Blunt reality for leaders: Changing the incentives is difficult and will be opposed by those who currently benefit from the existing system.
I could tie my shoelaces as a youngster, but my shoes were often loose enough to come off my feet. My strategy was to keep tying more knots in the laces until I didn’t have any shoelace left to work with. My grandfather said to me, “Glenn, if the first knot isn’t tight, it doesn’t matter how many more knots you tie on top.”
It’s awkward and hard to untie knot after knot to get down to where the real problem exists. Yet this is the necessary work to transform a system to create desirable results. The key is stay focused on the value of the results from different incentives driving the system.
