Despite their best intentions, executives fall prey to cognitive and organizational biases that get in the way of good decision making. In this series, we highlight some of them and offer a few effective ways to address them.
Our topic this time?
Motivations under the microscope
The CFO at a chemical company is launching a new resource allocation process. Under it, the finance and strategy teams would no longer review requests business unit by business unit. Instead, they would consider proposals in the aggregate, rank them, and funnel resources to the most promising opportunities. It’s a nimbler way to manage resources, the CFO tells senior management—“and, really, the only way we can continue to keep up with the market.” Leaders in the life sciences and advanced-materials businesses are on board with the plan. They can easily point to strong sales growth and recent product innovations to support their resource requests. But other leaders are balking. The head of petrochemicals tells the CFO, “We’re not growing as fast or as much as everyone else, but the revenue from our polymers keeps the lights on around here. Under this new plan, our proposals are never going to get a fair shot.” They and some of the other business unit leaders have already started appealing to the finance and strategy teams for process exceptions, which would essentially defeat the purpose of the new approach.
How can the CFO make the new resource allocation plan work for everyone?
The CFO needs to recognize the dynamic at play here, which is a form of the collective action problem—a bias that has vexed business, social science, and political leaders since the dawn of organizations.1 It reflects situations in which individuals or teams would be better off in the long term by cooperating with others but fail to do so because of conflicting interests, prompting tensions to rise. The dynamic has also been described as the principal–agent problem, where an agent (an individual or group) acts on behalf of a principal (another individual or group), and if their motivations aren’t in sync, outcomes for both may be suboptimal.2 In the case of the chemical company, business unit leaders are being asked to cooperate with a new process that would have them “compete” with colleagues for access to limited corporate resources. The motivation here is for the different teams to act in their own best interests, which may lead to decreased growth and value to shareholders over time.
One way to counter the collective action problem is for the CFO and executive-leadership team to draw what we call a motivation map. The map could be a literal outline, captured in a spreadsheet or slideshow, or a one-time discussion. Either way, it’s a tool that the CFO and executive-leadership team can use to better understand how business unit leaders would be affected by the new allocation process. Through the mapping exercise, they would first take inventory of each leader’s primary motivations and priorities, looking at factors such as financial incentives, personal goals, and professional status. They could then consider how the status quo supports those motivations and priorities and plan for how to appeal to business unit leaders in a way that would help shift their thinking in a different direction.
In the case of the chemical company, such an exercise could be particularly useful for bringing the head of petrochemicals into the fold. For instance, the CFO and team could ask, “Is this leader’s compensation tied to the size of the business unit’s P&L? Are they currently in a position of influence within the organization—and looking for more?” Based on the answers, the CFO and team could tailor their messaging on the process change accordingly. For instance, if loss of status is a concern, they might offer the petrochemicals head an advisory role on the new resource allocation board. If compensation is the issue, the CFO and team can help redefine financial incentives to reflect the change in the company’s approach to resource management. A formalized mapping exercise can give the CFO and team more information than surface-level statements might.
It can be hard to convince individuals and teams to let go of long-established processes, rituals, and rewards. A motivation map can help senior management determine how best to bring together leaders with different priorities and perspectives, align their incentives, and ultimately move everyone toward a better, more productive place.