Final Score from Boston: Incentives 19, IT 53

One of the biggest differences I’ve noticed between MBA and executive education students at HBS is that the former are much more likely to advocate using incentives as tool to increase performance, change behaviors, or effect organizational change. It sometimes seems as if they treat incentive alignment not as a first principle of management, but as the first principle. It happens occasionally that we faculty ask students questions for which they’re clearly not prepared, and a common strategy in this situation is to start talking while hoping that an idea will occur. A frequent opener to one of these playing-for-time comments is something like "Obviously, incentives are misaligned here, and this problem we’re talking about now comes from the misalignment. So we have to fix the incentives. I’d…"

Executive education participants are much less likely to reach for the hammer of incentive alignment, in part because they don’t see the nails of severe misalignment everywhere in their organizations. But their reluctance to tinker with incentives also comes, I believe, from bitter experience; they’ve seen the resentments and unintended consequences that come with changes to incentive schemes. They’ve seen, in other words, the truth of what my colleague Brian Hall in our finance department says: that incentives are a powerful tool, but a blunt one. MBAs see incentives as a sculptor’s mallet; executives see them as something closer to a jackhammer.

I told my students on the first day of class that my mission for the semester, which ended yesterday, was to convince them that IT is the single best tool they’ll have throughout their careers as business leaders. Cases and modules showed them (I hoped) that IT lets them define and impose new ways of working, and that they can also use information technology to essentially get out of the way and see what new ways of working emerge. In addition, technology lets them monitor and analyze phenomena of interest. In short, I told them in the wrap-up class yesterday, modern IT gives them an unprecedented ability to stay on top of and shape companies, and to overcome the problems of growth and decentralization summarized by the Chinese proverb that "The mountains are high, and the emperor is far away."

I wondered if they bought what I’d been selling, and so decided to do an on-the-fly poll in the wrap-up class. Each seat in our classroom has four buttons in front of it labeled A through D, and the instructor has a console that tallies the buttons everyone’s pressed. After telling my students that I wouldn’t reveal any individual’s choice, I said:

"Imagine you’ve just assumed responsibility for whatever type of company you’d most like to run. You have two hypothetical options. Option A is that you can make as many changes as you’d like to the incentives of as many people as you’d like, but you have to leave the IT infrastructure unchanged. Option B is that you can make as many changes as you’d like to the IT infrastructure, but you have to leave everyone’s incentives unchanged. Options C and D don’t exist. Please make your choice now."

The final tally was 19 votes for option A (wielding the tool of incentives) and 53 votes for option B (wielding the tool of IT).

How should we interpret this result? First of all, I don’t think my students were voting against their true beliefs. They rarely say things they don’t mean in an attempt to curry favor with their instructors, so I very much doubt that their votes represented a last-ditch effort to nudge their grades up.

Still, it’s important not to read too much into this single vote. It’s true that the students in my course were, on average, bigger technophiles than HBSers as a group, so it could be that this group was skewed from the start toward favoring IT over incentives. I wish I had thought to ask the same question at the start of the semester so I could assess whether the course in fact changed people’s opinions. It would also be interesting to ask the same question to a ‘control’ group of HBS MBAs who didn’t take Managing in the Information Age.

So this vote is a data point, not anything like a piece of research. But I find it a very interesting data point. It gives me some confidence that what I was trying to communicate over the semester actually sunk in a bit — that my incessant proselytizing about the power of IT, and my attempts to convey this power via case studies, class guests, in-class discussions, the course wiki, and the rest of our pedagogic bag of tricks had some success.

I don’t think the vote would have been the same at the start of the semester, and I don’t think a random cross-section of our MBAs (or anyone else’s) would vote almost 3 to 1 in favor of IT over incentives as a tool for improving organizations. What this vote indicates, I believe, is that when presented with enough information — the right mix of factual and conceptual material — about the impact of IT, sharp business people will come to (what I think is) the right conclusion. They’ll conclude that IT’s impact is both broad and deep, and that information technology is a tool they should reach for early and often as they work to make their organizations stand out.