0:00:14.012,0:00:16.886 I need to make a confession, at the outset here. 0:00:16.886,0:00:20.950 A little over twenty years ago, I did something that I regret 0:00:20.950,0:00:24.380 Something that i'm not particularly proud of 0:00:24.380,0:00:27.954 Something that, in many ways, I wish no one would ever know. 0:00:27.954,0:00:31.079 but that here, I feel kind of obliged to reveal 0:00:31.079,0:00:35.737 In the late 1980's 0:00:35.737,0:00:38.878 In a moment of youthful indiscretion 0:00:38.878,0:00:41.245 I went to law school. 0:00:41.245,0:00:47.818 Now, In America 0:00:47.818,0:00:50.742 law is a professional degree. You get your University degree and then you go on to law school. 0:00:50.742,0:00:54.244 And when I got to Law School, I didn't do very well 0:00:54.244,0:00:58.644 to put it mildly, I didn't do very well. 0:00:58.644,0:01:00.642 I, in fact, graduated in the part of my law school class 0:01:00.642,0:01:04.939 that made the top 90%, possible. (laughter) 0:01:04.939,0:01:12.693 Thank you. 0:01:12.693,0:01:15.283 I never practiced law a day in my life. 0:01:15.283,0:01:17.122 I pretty much wasn't allowed to. (laughter) 0:01:17.122,0:01:23.238 But today, against my better judgement, 0:01:23.238,0:01:25.178 against the advice of my own wife, 0:01:25.178,0:01:31.040 I want to try to dust off some of those legal skills, or what's left of those legal skills. 0:01:31.040,0:01:35.345 I don't want to tell you a story, I want to make a case. 0:01:35.345,0:01:42.939 I want to make a hard-headed, evidence-based, dare I say, lawyer-ly case 0:01:42.939,0:01:46.081 for rethinking how we run our businesses 0:01:46.081,0:01:50.092 So, ladies and gentlemen of the jury 0:01:50.092,0:01:51.656 Take a look at this. 0:01:51.656,0:01:55.485 This is called the "Candle Problem". Some of you might have seen it before. 0:01:55.485,0:02:00.578 I was created in 1945 by a scientist named Karl Duncker 0:02:00.578,0:02:04.570 Duncker created this experiement that's used in a whole variety of experiements in behavioral science, 0:02:04.570,0:02:06.621 and here's how it works. 0:02:06.621,0:02:08.712 Suppose I am the experimentor. I bring you into a room. 0:02:08.712,0:02:14.501 I give you a candle, some thumb tacks, and matches, and I say to you, "Your job... 0:02:14.501,0:02:19.718 "... is to attach the candle to the wall so the wax doesn't drip onto the table." 0:02:19.718,0:02:22.226 So what would you do? 0:02:22.226,0:02:26.549 Now many people will begin trying to thumbtack the candle to the wall, it doesn't work 0:02:26.549,0:02:31.450 Some people, and I saw someone kind of make the motion over here, have this 0:02:31.450,0:02:34.824 great idea where they light the match 0:02:34.824,0:02:37.791 melt the side of the candle. Try to adhere it to the wall. 0:02:37.791,0:02:40.785 It's an awesome idea. Doesn't work. 0:02:40.785,0:02:46.456 And eventually after 5-10 min, most people figure out the solution, which you can see here. 0:02:46.456,0:02:51.173 The key is to overcome what's called, functional fixedness 0:02:51.173,0:02:55.058 You look at that box and you see it only as a receptical for the tacks 0:02:55.058,0:02:57.337 But, it can also have this other function 0:02:57.337,0:02:59.780 as a platform for the candle 0:02:59.780,0:03:04.528 Now,I want to tell you about an experiement using the Candle Problem. 0:03:04.528,0:03:08.902 by a scientist named Sam Glucksberg, who is now at Princton University in the US 0:03:08.902,0:03:12.225 This shows the Power of Incentives 0:03:12.225,0:03:15.174 Here's what he did, He gathered his participants and said 0:03:15.174,0:03:18.034 I'm going to time you. How quickly can you solve this problem? 0:03:18.034,0:03:24.039 To one group he said, "I'm going to time you to establish norms for how long it typically takes 0:03:24.039,0:03:27.017 someone to solve this sort of problem." 0:03:27.017,0:03:29.888 To the second group, he offered rewards. 0:03:29.888,0:03:34.133 He said if you are in the top 20% 0:03:34.133,0:03:36.391 of the fastest times, you get 5 dollars. 0:03:36.391,0:03:39.138 If you are the fastest of everyone we are testing here today... 0:03:39.138,0:03:41.799 you get 20 dollars. Now this is several years ago, adjusted for inflation 0:03:41.799,0:03:47.927 it's a decent sum of money for a few minutes of work, it's a nice motivator. 0:03:47.927,0:03:51.765 Question. How much faster did this group... 0:03:51.765,0:03:55.458 Solve the problem? Answer. It took them... 0:03:55.458,0:04:00.472 on average, three and a half minutes longer 0:04:00.472,0:04:03.919 Now this makes no sense, right? 0:04:03.919,0:04:07.203 I mean, I'm an American. I believe in free markets. That's not how... 0:04:07.203,0:04:11.476 it's supposed to work, right? If you want people to... 0:04:11.476,0:04:14.807 perform better, you reward them. Bonuses... 0:04:14.807,0:04:19.257 commissions, their own reality show, incentivise them. 0:04:19.257,0:04:23.256 That's how business works. But that's not happening here. 0:04:23.256,0:04:26.344 You've got an incentive designed to sharpen thinking and... 0:04:26.344,0:04:31.508 excellerate creativity and it does just the opposite. 0:04:31.508,0:04:35.068 It dulls creativity and blocks thinking. And what's interesting about... 0:04:35.068,0:04:38.395 this experiement, is that it's not an aberration 0:04:38.395,0:04:44.009 it's been replicated over and over and over again for nearly forty years. 0:04:44.009,0:04:47.084 These contingent motivators. If you do this... 0:04:47.084,0:04:51.279 Then you get that. Work in some circumstances but, if you do ... 0:04:51.279,0:04:54.122 a lot of taks, they actually don't work. Or often ... 0:04:54.122,0:04:59.002 They do harm. This is one of the most robust... 0:04:59.002,0:05:01.839 findings in social science... 0:05:01.839,0:05:06.696 and also one of the most ignored. I spent the last couple of years... 0:05:06.696,0:05:11.477 looking at the science of human motivation. Particularly the dynamics of extrinsic... 0:05:11.477,0:05:16.035 motivators and intrinsic motivators. and i'm telling ya, it's not even close. 0:05:16.035,0:05:20.178 if you look at the science, there is a mismatch between what science knows 0:05:20.178,0:05:24.063 and what buisness does. and what's alarming here 0:05:24.063,0:05:28.082 is that our business operating system. Thinks with a set of assumptions and protocalls 0:05:28.082,0:05:29.990 beneath our businesses. How we motivate people. How we apply our... 0:05:29.990,0:05:34.357 human resources. It's built entirely around 0:05:34.357,0:05:37.950 these extrinsic motivators. Around carrots and sticks. That's actually fine... 0:05:37.950,0:05:42.129 for many kinds of twentith century tasks. but for, many... 0:05:42.129,0:05:47.169 21st century tasks, that mechanistic, reward and punishment... 0:05:47.169,0:05:50.127 approach doesn't work , often doesn't work... 0:05:50.127,0:05:53.446 and often does harm. Let me show you what I mean. So Glucksberg... 0:05:53.446,0:05:56.504 did another experiement similar to this where he presented the problem in a slightly different 0:05:56.504,0:05:59.961 way. like this up here. 0:05:59.961,0:06:06.124 Attach the candle to the wall so the wax doesn't drip onto the table. Same Deal. You, we're timing for... 0:06:06.124,0:06:09.509 norms. You, we're incentivising. What happened ... 0:06:09.509,0:06:13.249 this time? This time the incentivised group... 0:06:13.249,0:06:17.508 kicked the other group's butt. 0:06:17.508,0:06:19.370 Why? 0:06:19.370,0:06:22.057 Because when the tacks are out of the box. 0:06:22.057,0:06:28.081 It's pretty easy, isn't it? 0:06:28.081,0:06:31.461 (laughter) If, then rewards work... 0:06:31.461,0:06:33.335 really well for those sorts of tasks. Where there is a... 0:06:33.335,0:06:36.648 simple set of rules and a clear desination to go to. 0:06:36.648,0:06:41.129 Rewards by their very nature, narrow our focus. Concentrate our... 0:06:41.129,0:06:44.661 minds. That's why they work in so many cases. So in tasks like this... 0:06:44.661,0:06:48.938 a narrow focus where you just see the goal right there ... 0:06:48.938,0:06:52.755 zoom in straight ahead to it, they work really well. But for the real ... 0:06:52.755,0:06:57.196 Candle Problem, you don't want to be looking like this. The solution is not over here. 0:06:57.196,0:07:01.307 The solution is on the periphery. You want to be looking around. That reward... 0:07:01.307,0:07:04.981 actually narrows our focus and restricts our possibilities. Let me tell you why this... 0:07:04.981,0:07:09.353 is so important. In Western Europe... 0:07:09.353,0:07:13.061 In many parts of Asia. In North America ... 0:07:13.061,0:07:18.037 In Australia, white collar workers are doing less of this kind of work 0:07:18.037,0:07:22.161 and more of this kind of work. 0:07:22.161,0:07:25.041 That routine, rule-based, left brain work... 0:07:25.041,0:07:29.371 certain kinds of accounting, certain types of financial analysis, certain kinds of computer programing... 0:07:29.371,0:07:33.027 has become fairly easy to outsource and fairly easy to automate. 0:07:33.027,0:07:38.021 Software can do it faster. Low cost providers around the world can ... 0:07:38.021,0:07:40.300 do it cheaper. So What really matters is... 0:07:40.300,0:07:44.689 more right brain, creative, conceptual kinds of ... 0:07:44.689,0:07:50.071 abilities. Think about your own work. 0:07:50.071,0:07:53.356 Are the problems that you face... 0:07:53.356,0:07:56.971 or even the problems we've been talking about here, are those the kinds of problems ... 0:07:56.971,0:08:00.520 that have a clear set of rules and a single solution? No! 0:08:00.520,0:08:04.259 The rules are mystifying. The solution, if it exists at all... 0:08:04.259,0:08:07.724 Is surprising, and non-obvious. Everybody ... 0:08:07.724,0:08:12.458 in this room is dealing with their own version of 0:08:12.458,0:08:16.760 the Candle Problem. And for Candle Problems of any kind... 0:08:16.760,0:08:21.285 in any field, Those if, then rewards, 0:08:21.285,0:08:28.728 those things we use in so many of our businesses, DON'T WORK. 0:08:28.728,0:08:32.938 Now, it makes me crazy. 0:08:32.938,0:08:36.387 Here's the thing. This is not a feeling. 0:08:36.387,0:08:38.105 Okay, I'm a lawyer. I don't believe in feelings. 0:08:38.105,0:08:44.622 This is not a philosophy. I'm an American. I don't believe in Philosophy. 0:08:44.622,0:08:48.737 This is ... 0:08:48.737,0:08:52.380 a FACT 0:08:52.380,0:08:54.477 Or as they say in my hometown of Washington, D.C. 0:08:54.477,0:08:56.916 a TRUE fact. 0:08:56.916,0:09:00.688 (Laughter) 0:09:00.688,0:09:04.445 Let me give you an example of what I mean. Let me marshal the evidence. 0:09:04.445,0:09:07.419 Because I'm not telling you a story, I'm making a case ladies and gentlemen of the jury. 0:09:07.419,0:09:11.715 Let me show you some evidence. Dan Realy, one of the great economists of our time. 0:09:11.715,0:09:15.532 He and three colleauges did a study of some MIT students. 0:09:15.532,0:09:18.980 They gave these MIT students a bunch of games. Games that involved... 0:09:18.980,0:09:23.472 creativity and motor skills and concentration. And they offered them ... 0:09:23.472,0:09:27.269 for performance, three levels of reward. Small rewards. 0:09:27.269,0:09:31.645 Medium Reward. Large Reward. Okay? 0:09:31.645,0:09:34.862 Do really well you get the large reward, and then on down. 0:09:34.862,0:09:44.159 What happened? (shown above) 0:09:44.159,0:09:57.099 (shown above) 0:09:57.099,0:09:59.175 Then they said, "Okay let's see ... 0:09:59.175,0:10:02.390 if there's any cultural bias. Let's go to India and test this. 0:10:02.390,0:10:09.338 Where the standard of living is lower, in India. A reward that is considered medium by ... 0:10:09.338,0:10:11.745 American standards is more meaningful there. Same Deal. 0:10:11.745,0:10:14.468 A bunch of games. Three levels of rewards. What happened ? 0:10:14.468,0:10:17.830 People offered the Medium level of rewards 0:10:17.830,0:10:21.069 Did no better that those offered the small reward. 0:10:21.069,0:10:28.095 And those that were offered the highest rewards, they did worst of all 0:10:28.095,0:10:36.561 (shown above) 0:10:36.561,0:10:38.306 (shown above) 0:10:38.306,0:10:40.494 Is this some .... 0:10:40.494,0:10:43.792 kind of touchy feely socialist conspiracy going on here? 0:10:43.792,0:10:46.057 No, these are economists from MIT. 0:10:46.057,0:10:49.719 From Carnige Melon, from the University of Chicago. And do you know what... 0:10:49.719,0:10:55.679 funded this research? The Federal Reserve Bank of the United States. 0:10:55.679,0:10:57.912 That's the American Experience. 0:10:57.912,0:11:00.610 That crossed the pond to the London School of Economics 0:11:00.610,0:11:05.581 alma mater of 11 Nobel Laureates 0:11:05.581,0:11:08.754 trainning ground for great economic thinkers like... 0:11:08.754,0:11:13.220 Geroge Soros, Freidrick Hayek, and Mick Jagger. 0:11:13.220,0:11:17.029 (laughter) Last month, 0:11:17.029,0:11:21.584 economist at LSE looked at 51 case studies 0:11:21.584,0:11:24.839 that had pay-for-performance plans inside companies. Here's what they found. 0:11:24.839,0:11:29.231 (Shown above) 0:11:29.231,0:11:33.554 (Shown Above) 0:11:33.554,0:11:36.244 There is a mismatch between what science knows, and ... 0:11:36.244,0:11:40.235 what business does. And what worries me as we stand here in the rubble ... 0:11:40.235,0:11:45.169 of the economic collapse is that too many organizations ... 0:11:45.169,0:11:49.109 are making their descisions, their policies about talent and people... 0:11:49.109,0:11:52.953 based on assuptions that are outdated... 0:11:52.953,0:11:56.933 unexamined and rooted more in folk lore 0:11:56.933,0:12:00.992 than in science. and if we really want to get out of this economic mess. 0:12:00.992,0:12:04.241 and if we really want high performance on those definitional tasks of the ... 0:12:04.241,0:12:08.539 21st century. The solution is not to do more... 0:12:08.539,0:12:12.476 of the wrong things. To entice people 0:12:12.476,0:12:16.117 with a sweeter carrot or threaten them with a sharper stick 0:12:16.117,0:12:21.350 we need a whole new approach. the good news about all this is that scientists studying ... 0:12:21.350,0:12:23.964 motivation have given us this new approach. It's an approach ... 0:12:23.964,0:12:27.956 built much more around intrinsic motivation. Around the desire to do things... 0:12:27.956,0:12:32.045 because they matter, because they like it, because they are interesting, because they are important... 0:12:32.045,0:12:35.477 and to my mind, that new operating system for a ... 0:12:35.477,0:12:39.981 businesses revolves around 3 elements: AUTONOMY, MASTERY, AND... 0:12:39.981,0:12:43.857 PURPOSE. Autonomy, the urge to run your own lives 0:12:43.857,0:12:48.272 Mastery, the desire to get better and better at something that matters 0:12:48.272,0:12:51.000 And Purpose, the yearning to do what we do, in the... 0:12:51.000,0:12:55.748 service of something larger than ourselves. These are the building blocks... 0:12:55.748,0:12:58.234 of an entirely new operating system... 0:12:58.234,0:13:01.316 for our businesses. I want to talk today only about autonomy. 0:13:01.316,0:13:05.349 In the 20th Century, we came up with ... 0:13:05.349,0:13:08.727 the idea of management. Management did not eminate from nature. Management... 0:13:08.727,0:13:13.222 is not a tree, it's a televison set. Somebody invented it. 0:13:13.222,0:13:16.668 and it doesn't mean it's going to work forever. 0:13:16.668,0:13:20.820 management is great and traditional notions of management are great if you want... 0:13:20.820,0:13:24.245 compliance. But if you want engagement, self-direction works... 0:13:24.245,0:13:27.862 better. Let me give you some examples of some radical notions of ... 0:13:27.862,0:13:32.748 self-direction. What this means, and you don't see a lot of it. 0:13:32.748,0:13:36.712 The first stirings of something really interesting going on. because what it means is... 0:13:36.712,0:13:40.236 paying people adequately and fairly, absolutely. Getting the issue of ... 0:13:40.236,0:13:44.467 money off the table and then giving people lots of autonomy. let me give you an example. 0:13:44.467,0:13:47.975 How many of you have herad of the company 'Atlassian' ? 0:13:47.975,0:13:53.146 Okay, looks like less that half. (laughter) 0:13:53.146,0:13:56.330 Atlassian is an Austrailian 0:13:56.330,0:13:59.626 software company. and they do something incredibly cool. A few... 0:13:59.626,0:14:02.176 times a year they tell their engineers, "Go for the next... 0:14:02.176,0:14:06.394 24 hours and work on anything you want. As long as it's... 0:14:06.394,0:14:11.297 not part of your regular job." So the engineers use this time ... 0:14:11.297,0:14:14.404 to come up with a cool patch of code, to come up with an elegant hack... 0:14:14.404,0:14:17.799 then they present all of the stuff that they develop to their... 0:14:17.799,0:14:21.666 teammates, to the rest of the company, in this wild and willy all-hands meeting... 0:14:21.666,0:14:25.557 at the end of the day. And then, being Austrailians everybody... 0:14:25.557,0:14:30.229 has a beer. They call them FEDEX DAYS. 0:14:30.229,0:14:32.753 Why? Because you have... 0:14:32.753,0:14:35.769 to deliver something over night. (laughter) it's not bad. 0:14:35.769,0:14:38.463 It's a huge trademark violation, but it's pretty clever. 0:14:38.463,0:14:43.611 That one day of intense autonomy has produced a whole array of software ... 0:14:43.611,0:14:47.472 fixes that might never had existed. and it's worked so well the Atlassian... 0:14:47.472,0:14:51.582 has taken it to the next level with 20%time, done famously at ... 0:14:51.582,0:14:56.125 Google. Where engineers can spend 20% of their time working on anything they want. 0:14:56.125,0:14:59.224 They have autonomy over their time, their task, their team... 0:14:59.224,0:15:03.078 their technique. Radical amounts of autonomy. and at Google ... 0:15:03.078,0:15:07.115 as many of you know, about half of the new... 0:15:07.115,0:15:11.192 products in a typical year are birthed during that 20% time ... 0:15:11.192,0:15:15.338 Things like G-Mail, Orchid, Google news. Let me give you and even more... 0:15:15.338,0:15:20.562 radical example of it. Something called the RESULTS ONLY WORK ENVIRONMENT 0:15:20.562,0:15:23.562 The ROWE. Created by two American consultants in place at... 0:15:23.562,0:15:25.400 about a dozen companies around North America. 0:15:25.400,0:15:28.535 In a ROWE people don't have schedules. 0:15:28.535,0:15:32.458 They show up when they want. They don't have to be in the office... 0:15:32.458,0:15:36.314 at a certain time or any time. They just have to get... 0:15:36.314,0:15:40.728 their work done. How they do it, Where they do it, When they do it... 0:15:40.728,0:15:44.346 is totally up to them. Meetings in these kinds of environments are... 0:15:44.346,0:15:48.301 optional. What happens? 0:15:48.301,0:15:51.290 Almost across the board. Productivity goes up. Worker ... 0:15:51.290,0:15:55.953 engagement goes up. Worker statisfaction goes up. Turnover goes ... 0:15:55.953,0:16:01.199 down. AUTONOMY, MASTERY AND PURPOSE these are the building blocks... 0:16:01.199,0:16:05.122 of a new way of doing things. Now, some of you might look at this and say... 0:16:05.122,0:16:08.693 "Hmm, That sounds nice but, it's utopian." and I say... 0:16:08.693,0:16:12.112 "Nope. I have proof." 0:16:12.112,0:16:16.801 In the mid 1990's, Microsoft started an encyclopedia called 'Encarta'. 0:16:16.801,0:16:18.470 They had deployed all the right incentives. 0:16:18.470,0:16:23.173 They paid professionals to write and edit thousands of articles. 0:16:23.173,0:16:27.718 Well compensated managers oversaw the whole thing to make sure it came in on budget, and on time. 0:16:27.718,0:16:32.267 A few years later another encyclopedia... 0:16:32.267,0:16:33.979 got started. Different model. 0:16:33.979,0:16:39.622 Do it for fun. No one gets paid a cent, or a Euro, or a Yen. 0:16:39.622,0:16:42.526 Do it because you like to do it. 0:16:42.526,0:16:47.743 Now if you had, just 10 years ago, gone to an economist, anywhere, and said... 0:16:47.743,0:16:51.184 "Hey, I've got these two different models for creating an encyclopedia" If they... 0:16:51.184,0:16:55.256 went head to head, who would win? 10 years ago you could not have found... 0:16:55.256,0:16:58.063 a single, sober economist anywhere... 0:16:58.063,0:17:03.266 on planet earth (laughter) that would have predicted the Wikipedia Model 0:17:03.266,0:17:05.832 This is the Titanic battle between these two approaches. This is the... 0:17:05.832,0:17:10.087 Ali v. Fraiser of motivation. This is the Thrilla in Manilla. 0:17:10.087,0:17:12.890 Intrinsic Motivators vs. Extrinsic Motivators 0:17:12.890,0:17:17.221 AUTONOMY, MASTERY and PURPOSE vs. Carrots and Sticks. Who wins? 0:17:17.221,0:17:21.488 Intrinsic Motivation. AUTONOMY, MASTERY and PURPOSE in a knockout. 0:17:21.488,0:17:25.614 Okay, let me wrap up. There is a mismatch between ... 0:17:25.614,0:17:28.666 what science knows and what business does. and here's what science knows. ONE. 0:17:28.666,0:17:33.843 Those 20th century rewards, those motivatiors we think are the natural part of... 0:17:33.843,0:17:37.430 business, do work. But only in a surprisingly narrow band of circumstances. 0:17:37.430,0:17:40.574 TWO. Those IF, THEN rewards often 0:17:40.574,0:17:45.486 destroy creativity. THREE. The secret to high performance isn't ... 0:17:45.486,0:17:48.196 rewards and punishments but, those unseen intrinsic... 0:17:48.196,0:17:51.583 drives. The drive to do things for their own sake. The drive to do things... 0:17:51.583,0:17:56.113 because they matter. And here's the best part. We already know this. 0:17:56.113,0:17:59.930 The science confirms what we know in our hearts. So, if... 0:17:59.930,0:18:03.781 we repair this mismatch between what science knows and what business does. If we... 0:18:03.781,0:18:08.673 bring our notions of motivation into the 21st century. 0:18:08.673,0:18:10.812 If we get past this lazy, dangerous... 0:18:10.812,0:18:13.902 ideology of carrots and sticks 0:18:13.902,0:18:18.983 we can strengthen our businesses. We can solve a lot of those Candle Problems. 0:18:18.983,0:18:22.753 and maybe, maybe, maybe 0:18:22.753,0:18:28.297 we can change the world. I rest my case.