WEBVTT

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I need to make a confession
at the outset here.

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A little over 20 years ago,
I did something that I regret,

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something that I'm not
particularly proud of.

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Something that, in many ways,
I wish no one would ever know,

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but here I feel kind of obliged to reveal.

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(Laughter)

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In the late 1980s, in a moment of youthful
indiscretion, I went to law school.

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(Laughter)

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In America, law is a professional degree:

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after your university degree,
you go on to law school.

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When I got to law school,

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I didn't do very well.

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To put it mildly, I didn't do very well.

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I, in fact, graduated in the
part of my law school class

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that made the top 90% possible.

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(Laughter)

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Thank you.

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I never practiced law a day in my life;
I pretty much wasn't allowed to.

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(Laughter)

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But today, against my better judgment,
against the advice of my own wife,

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I want to try to dust off
some of those legal skills --

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what's left of those legal skills.

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I don't want to tell you a story.

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I want to make a case. I want
to make a hard-headed, evidence-based,

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dare I say lawyerly case,
for rethinking how we run our businesses.

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So, ladies and gentlemen
of the jury, take a look at this.

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This is called the candle problem.

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Some of you might know it. It's created in
1945 by a psychologist named Karl Duncker.

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He created this experiment

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that is used in many other
experiments in behavioral science.

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And here's how it works.
Suppose I'm the experimenter.

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I bring you into a room. I give you a
candle, some thumbtacks and some matches.

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And I say to you, "Your job
is to attach the candle to the wall

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so the wax doesn't drip onto the table."

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Now what would you do?

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Many people begin trying
to thumbtack the candle to the wall.

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Doesn't work. I saw somebody kind
of make the motion over here --

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some people have a great idea
where they light the match,

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melt the side of the candle,
try to adhere it to the wall.

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It's an awesome idea. Doesn't work.

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And eventually, after five or ten minutes,
most people figure out the solution,

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which you can see here.

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The key is to overcome what's
called functional fixedness.

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You look at that box and you see it
only as a receptacle for the tacks.

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But it can also have this other function,
as a platform for the candle.

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The candle problem.

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I want to tell you about
an experiment using the candle problem,

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done by a scientist named Sam Glucksberg,
who is now at Princeton University, US,

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This shows the power of incentives.

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He gathered his participants and said:

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"I'm going to time you,
how quickly you can solve this problem."

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To one group he said, "I'm going
to time you to establish norms,

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averages for how long it typically takes
someone to solve this sort of problem."

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To the second group he offered rewards.

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He said, "If you're in the top 25% of
the fastest times, you get five dollars.

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If you're the fastest of everyone we're
testing here today, you get 20 dollars."

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Now this is several years ago,
adjusted for inflation,

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it's a decent sum of money
for a few minutes of work.

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It's a nice motivator. Question: How much
faster did this group solve the problem?

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Answer: It took them, on average,
three and a half minutes longer.

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3.5 min longer.
This makes no sense, right?

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I mean, I'm an American.
I believe in free markets.

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That's not how it's
supposed to work, right?

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(Laughter) If you want people to perform
better, you reward them. Right?

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Bonuses, commissions,
their own reality show.

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Incentivize them.

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That's how business works.
But that's not happening here.

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You've got an incentive designed

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to sharpen thinking and accelerate
creativity, and it does just the opposite.

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It dulls thinking and blocks creativity.

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What's interesting about this experiment
is that it's not an aberration.

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This has been replicated over
and over again for nearly 40 years.

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These contingent motivators -- if
you do this, then you get that --

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work in some circumstances. But for a lot
of tasks, they actually either don't work

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or, often, they do harm.

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This is one of the most robust
findings in social science,

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and also one of the most ignored.

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I spent the last couple of years looking
at the science of human motivation,

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particularly the dynamics of extrinsic
motivators and intrinsic motivators.

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And I'm telling you, it's not even close.

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If you look at the science, there
is a mismatch between what science knows

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and what business does.

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What's alarming here is that
our business operating system --

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think of the set of assumptions
and protocols beneath our businesses,

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how we motivate people,
how we apply our human resources--

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it's built entirely around these extrinsic
motivators, around carrots and sticks.

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That's actually fine for many
kinds of 20th century tasks.

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But for 21st century tasks,

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that mechanistic, reward-and-punishment
approach doesn't work, often doesn't work,

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and often does harm. Let me show you.

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Glucksberg did another similar experiment,

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he presented the problem in a slightly
different way, like this up here.

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Attach the candle to the wall so
the wax doesn't drip onto the table.

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Same deal. You: we're timing for norms.

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You: we're incentivizing.
What happened this time?

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This time, the incentivized group
kicked the other group's butt.

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Why?

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Because when the tacks are out
of the box, it's pretty easy isn't it?

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(Laughter)

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If-then rewards work really
well for those sorts of tasks,

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where there is a simple set of rules
and a clear destination to go to.

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Rewards, by their very nature,
narrow our focus, concentrate the mind;

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that's why they work in so many cases.

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So, for tasks like this, a narrow focus,
where you just see the goal right there,

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zoom straight ahead to it,
they work really well.

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But for the real candle problem,
you don't want to be looking like this.

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The solution is on the periphery.
You want to be looking around.

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That reward actually narrows our focus
and restricts our possibility.

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Let me tell you why this is so important.

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In western Europe, in many parts of Asia,

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in North America, in Australia,

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white-collar workers are doing
less of this kind of work,

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and more of this kind of work.

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That routine, rule-based,
left-brain work --

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certain kinds of accounting, financial
analysis, computer programming --

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has become fairly easy to outsource,
fairly easy to automate.

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Software can do it faster.
Low-cost providers can do it cheaper.

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So what really matters

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are the more right-brained creative,
conceptual kinds of abilities.

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Think about your own work.
Think about your own work.

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Are the problems that you face,

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or even the problems we've
been talking about here,

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do they have a clear set of rules,
and a single solution?

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No. The rules are mystifying.
The solution, if it exists at all,

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is surprising and not obvious.

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Everybody in this room is dealing with
their own version of the candle problem.

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And for candle problems
of any kind, in any field,

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those if-then rewards,

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the things around which we've built
so many of our businesses, don't work!

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It makes me crazy. And here's the thing.

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This is not a feeling.

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Okay? I'm a lawyer;
I don't believe in feelings.

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This is not a philosophy. I'm an American;
I don't believe in philosophy.

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(Laughter)

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This is a fact -- or, as we say
in my hometown of Washington, D.C.,

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a true fact. (Laughter)

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(Applause) Let me give you an example.

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Let me marshal the evidence here.

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I'm not telling a story,
I'm making a case.

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Ladies and gentlemen
of the jury, some evidence:

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Dan Ariely, one of the great
economists of our time,

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he and three colleagues did
a study of some MIT students.

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They gave these MIT students a bunch
of games, games that involved creativity,

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and motor skills, and concentration.

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And the offered them, for performance,
three levels of rewards:

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small reward, medium reward, large reward.

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If you do really well you
get the large reward, on down.

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What happened? As long as the task
involved only mechanical skill

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bonuses worked as they would be expected:

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the higher the pay,
the better the performance.

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Okay? But once the task called
for even rudimentary cognitive skill,

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a larger reward led to poorer performance.

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Then they said, "Let's see if
there's any cultural bias here.

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Let's go to Madurai, India and test it."

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Standard of living is lower.

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In Madurai, a reward that is modest
in North American standards,

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is more meaningful there.

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Same deal. A bunch of games,
three levels of rewards.

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What happens?

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People offered the medium level of rewards

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did no better than people
offered the small rewards.

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But this time, people offered the highest
rewards, they did the worst of all.

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In eight of the nine tasks we
examined across three experiments,

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higher incentives led
to worse performance.

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Is this some kind of touchy-feely
socialist conspiracy going on here?

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No, these are economists from MIT,

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from Carnegie Mellon,
from the University of Chicago.

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Do you know who sponsored this research?

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The Federal Reserve Bank
of the United States.

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That's the American experience.

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Let's go across the pond
to the London School of Economics,

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LSE, London School of Economics,

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alma mater of eleven Nobel
Laureates in economics.

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Training ground for great
economic thinkers

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like George Soros,
and Friedrich Hayek, and Mick Jagger.

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(Laughter) Last month, just last month,

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economists at LSE looked at 51 studies

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of pay-for-performance plans,
inside of companies.

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Here's what they said:
"We find that financial incentives

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can result in a negative
impact on overall performance."

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There is a mismatch between what
science knows and what business does.

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And what worries me, as we stand here
in the rubble of the economic collapse,

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is that too many organizations
are making their decisions,

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their policies about talent and people,
based on assumptions that are outdated,

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unexamined, and rooted more
in folklore than in science.

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And if we really want to get
out of this economic mess,

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if we really want high performance

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on those definitional
tasks of the 21st century,

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the solution is not to do
more of the wrong things,

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to entice people with a sweeter carrot,
or threaten them with a sharper stick.

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We need a whole new approach.
The good news is that the scientists

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who've been studying motivation
have given us this new approach.

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It's built much more
around intrinsic motivation.

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Around the desire to do
things because they matter,

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because we like it, they're interesting,
or part of something important.

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And to my mind, that new
operating system for our businesses

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revolves around three elements:
autonomy, mastery and purpose.

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Autonomy: the urge
to direct our own lives.

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Mastery: the desire to get better
and better at something that matters.

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Purpose: the yearning to do what we do

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in the service of something
larger than ourselves.

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These are the building blocks
of an entirely new operating system

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for our businesses.
I want to talk today only about autonomy.

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In the 20th century, we came
up with this idea of management.

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Management did not emanate from nature.

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Management is not a tree,
it's a television set.

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Somebody invented it. It doesn't
mean it's going to work forever.

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Management is great. Traditional
notions of management are great

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if you want compliance. But if you want
engagement, self-direction works better.

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Some examples of some kind
of radical notions of self-direction.

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You don't see a lot of it,

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but you see the first stirrings
of something really interesting going on,

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what it means is paying people
adequately and fairly, absolutely --

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getting the issue of money off the table,
and then giving people lots of autonomy.

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Some examples. How many of you
have heard of the company Atlassian?

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It looks like less than half. (Laughter)

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Atlassian is an Australian
software company.

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And they do something incredibly cool.

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A few times a year they
tell their engineers,

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"Go for the next 24 hours
and work on anything you want,

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as long as it's not
part of your regular job.

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Work on anything you want."

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Engineers use this time to come
up with a cool patch for code,

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come up with an elegant hack.

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Then they present all of the
stuff that they've developed

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to their teammates,
to the rest of the company,

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in this wild and woolly all-hands
meeting at the end of the day.

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Being Australians, everybody has a beer.

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They call them FedEx Days.

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Why?

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Because you have to deliver
something overnight.

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It's pretty; not bad.

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It's a huge trademark violation,
but it's pretty clever.

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(Laughter) That one
day of intense autonomy

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has produced a whole array of software
fixes that might never have existed.

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It's worked so well that Atlassian
has taken it to the next level

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with 20% time -- done,
famously, at Google --

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where engineers can spend 20% of their
time working on anything they want.

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They have autonomy over their time,
their task, their team, their technique.

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Radical amounts of autonomy.
And at Google, as many of you know,

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about half of the new
products in a typical year

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are birthed during that 20% time:
things like Gmail, Orkut, Google News.

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Let me give you an even
more radical example of it:

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something called the Results
Only Work Environment (the ROWE),

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created by two American consultants,

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in place at a dozen companies
around North America.

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In a ROWE people don't have schedules.

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They show up when they want.

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They don't have to be in the office
at a certain time, or any time.

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They just have to get their work done.

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How they do it, when they do it,
where they do it, is totally up to them.

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Meetings in these kinds
of environments are optional.

00:15:47.040 --> 00:15:50.177
What happens? Almost across the board,

00:15:50.260 --> 00:15:53.407
productivity goes up,
worker engagement goes up,

00:15:53.490 --> 00:15:57.077
worker satisfaction goes up,
turnover goes down.

00:15:57.160 --> 00:15:59.077
Autonomy, mastery and purpose,

00:15:59.160 --> 00:16:01.717
the building blocks of a
new way of doing things.

00:16:01.800 --> 00:16:06.620
Some of you might look at this and say,
"Hmm, that sounds nice, but it's Utopian."

00:16:07.520 --> 00:16:09.000
And I say, "Nope.

00:16:10.520 --> 00:16:16.077
I have proof." The mid-1990s, Microsoft
started an encyclopedia called Encarta.

00:16:16.160 --> 00:16:19.417
They had deployed all
the right incentives,

00:16:19.500 --> 00:16:23.287
They paid professionals to write
and edit thousands of articles.

00:16:23.370 --> 00:16:25.907
Well-compensated managers
oversaw the whole thing

00:16:25.990 --> 00:16:28.290
to make sure it came
in on budget and on time.

00:16:30.160 --> 00:16:32.607
A few years later, another
encyclopedia got started.

00:16:32.690 --> 00:16:34.090
Different model, right?

00:16:35.510 --> 00:16:39.760
Do it for fun. No one gets
paid a cent, or a euro or a yen.

00:16:41.260 --> 00:16:43.117
Do it because you like to do it.

00:16:43.200 --> 00:16:47.347
Just 10 years ago, if you had
gone to an economist, anywhere,

00:16:47.430 --> 00:16:50.947
"Hey, I've got these two different
models for creating an encyclopedia.

00:16:51.030 --> 00:16:53.897
If they went head to head, who would win?"

00:16:53.980 --> 00:16:57.487
10 years ago you could not have
found a single sober economist

00:16:57.570 --> 00:17:02.627
anywhere on planet Earth who would
have predicted the Wikipedia model.

00:17:02.710 --> 00:17:05.347
This is the titanic battle
between these two approaches.

00:17:05.430 --> 00:17:08.437
This is the Ali-Frazier
of motivation, right?

00:17:08.520 --> 00:17:10.297
This is the Thrilla in Manila.

00:17:10.380 --> 00:17:13.497
Intrinsic motivators
versus extrinsic motivators.

00:17:13.580 --> 00:17:17.657
Autonomy, mastery and purpose,
versus carrot and sticks, and who wins?

00:17:17.740 --> 00:17:21.217
Intrinsic motivation, autonomy,
mastery and purpose, in a knockout.

00:17:21.300 --> 00:17:22.300
Let me wrap up.

00:17:24.680 --> 00:17:27.927
There is a mismatch between what
science knows and what business does.

00:17:28.010 --> 00:17:31.247
Here is what science knows.
One: Those 20th century rewards,

00:17:31.330 --> 00:17:34.247
those motivators we think are
a natural part of business,

00:17:34.330 --> 00:17:37.977
do work, but only in a surprisingly
narrow band of circumstances.

00:17:38.060 --> 00:17:42.787
Two: Those if-then rewards
often destroy creativity.

00:17:42.870 --> 00:17:46.617
Three: The secret to high performance
isn't rewards and punishments,

00:17:46.700 --> 00:17:51.077
but that unseen intrinsic drive--
the drive to do things for their own sake.

00:17:51.160 --> 00:17:53.077
The drive to do things cause they matter.

00:17:53.160 --> 00:17:56.317
And here's the best part.
We already know this.

00:17:56.400 --> 00:17:58.897
The science confirms what
we know in our hearts.

00:17:58.980 --> 00:18:03.747
So, if we repair this mismatch
between science and business,

00:18:03.830 --> 00:18:08.457
if we bring our motivation, notions
of motivation into the 21st century,

00:18:08.540 --> 00:18:14.547
if we get past this lazy, dangerous,
ideology of carrots and sticks,

00:18:14.630 --> 00:18:19.907
we can strengthen our businesses, we
can solve a lot of those candle problems,

00:18:19.990 --> 00:18:22.720
and maybe, maybe --

00:18:24.160 --> 00:18:27.187
we can change the world. I rest my case.

00:18:27.270 --> 00:18:30.270
(Applause)