Competitive Incentives: Working Harder or Working Smarter? Improvement Management

A performance gap has occurred. How should we respond now?

The actual performance of any process depends on 2 factors: the amount of Time Spent Working and the Capability of the process used to do that work. The performance of any process can be increased by dedicating additional effort to either work or improvement.

First, you can try to increase the amout of time people actually spend working. Figure 2 shows this option, which forms a balancing loop, the Work Harder Loop. Figure 3 (see below) shows the loop by using a filter.

The process represented by this loop works as follows: Managers facing a performance gap are under pressure to increase performance. They pressure people to spend more time and energy doing work. An increase in the time spent working increases the performance of the process and closes the performance gap.

This figure shows the consequences that arise when employees are permanently under pressure to perform (to spend more time doing work). Burnout and performance degradation are the results.

A second option to close a performance gap is to improve the capability of the process. Figure 4 shows this option, which forms a balancing loop, the Work Smarter Loop. Here, managers respond to a performance gap by increasing the pressure on people to improve capability. They may launch improvement programs, encourage people to experiment with new ideas, and invest in training. If successful, these investments will, with time, yield improvements in process capability, boost throughput, and close the performance gap.

This figure shows how working smarter and working harder are connected. The most important interconnection arises because organizations rarely have excess resources. Increasing the pressure to do work leads people to spend less time for improvement. This link creates the Reinvestment loop, a positive Reinforcing Loop, that tends to reinforce which-ever behavior currently dominates. An organization that successfully improves its process capability will experience rising performance. As the performance gap falls, workers have even more time to devote to improvement, creating a virtuous cycle of improved capability and increasing attention to improvement. Conversely, if managers respond to a performance gap by increasing work pressurce, employees increase the amount of time spent working and cut the time spent on improvement. Capability begins to decay. As capability erodes, the performance gap grows still more, forcing a further shift towards working harder and away from improvement. Here, the loop operates as a vicious cycle, driving the organization to ever-higher degrees of work pressure and minimal levels of process capability.

To illustrate these dynamics, the next 2 figures shows 2 simulations of the model in which is shown how a process reacts to working harder versus working smarter. The first simulation (see above) shows the respond to an increased emphasis on working harder. As more effort is dedicated to work, the performance immediately rises. Time spent improving falls immediately, but capability does not. Performance therefore rises. The benefit of working harder is, however, short-lived. With less time devoted to improvement, capability gradually erodes, more than offsetting the increased time spent working. Working harder creates a better-before-worse situation.

Conversely, as seen in the second simulation (see figure above), increasing the time spent on improvement reduces output in the short run. However, capability rises more than enough to offset the drop in work effort and performance is permanently higher, a worse-before-better dynamic.