Friday, July 12, 2013

Shame Theory in our Business World

Snake Oil Inc. is a tough place to work in. Like Mckinsey and other large consulting companies, Snake Oil believes in firing 10 percent of its workforce each year based on some performance metrics. There are several employees, highly paid, but unsure of their longevity in the company. Our protagonist is Trusty Rusty. We will pick a representative from the rest of the employees who behave the same way- Honest Sam. Each employee considers his or her employment in the company as a zero sum game- meaning, their being or not being in the bottom 10 percent each year depends not only on themselves but on how others perform. It is in Trusty Rusty’s interest to ensure that Honest Sam does not get a performance rating ahead of him.

Consider the scenarios before Trusty Rusty:      

  • There are 2 possibilities for him: Getting rated above or below par.
  • There are 2 consequences: Getting retained or getting fired.
  • If he gets rated above par it is likely he will not get fired, but it depends on Honest Sam’s rating as well.
  • If he gets rated below par, it is likely he will get fired, but then again it depends on how Honest Sam does.

Trusty Rusty is highly qualified, and will have no problem finding a job, but this job is highly desirable, and his goal is stay as long as possible. The longer he stays the lesser his chances of being fired in the subsequent years. However, he figures Honest Sam is also thinking the same thing. There his best chance for being retained is to keep fighting the good fight and aim for a better rating than Honest Sam.

The above are not things he has complete control over. He could smear Honest Sam’s reputation by bringing to light his errors. Honest Sam could do exactly the same thing. What could the consequences be? If Trust Rusty exposes that Honest Sam has been upbraided by a client privately, he is sure to be rated below par. This increases Trusty Rusty’s chances of being retained. On the other hand, if Honest Sam does this to him (Trusty too has not been a client’s favorite), Trusty’s own rating would be below par. If they do it to each other, both will be rated below par.

Let’s give a score to each possible consequence from Trusty Rusty’s perspective alone:

  • Trusty Rusty gets fired: 0
  • Trusty Rusty is in a limbo- it is down to just him and Honest Sam and both have the same rating: 5 (it is now up to a coin toss, so beyond this point Trusty Rusty has not control)
  • Trusty Rusty is retained: 10

Consider what could trigger these consequences:

  • Accidental Cooperation: Trusty Rusty and Honest Sam separately decide not to rat each other out. In this scenario, both of them have equal chances of being retained or fired. According to our score chart, this carries a score of 5
  • Ratting Out Scenario 1: Trusty Rusty rats out Honest Sam, without any reciprocation from Honest Sam, ensuring his retention. Score: 10
  • Ratting Out Scenario 2: Honest Sam rats out Trusty Rusty, without any reciprocation from Trusty Rusty, and Trusty Rusty gets fired. Score: 0
  • Mutually Assured Destruction (MAD): Trusty Rusty and Honest Sam rat out each other, and both have equal chances of being fired: Score: 5

What should Trusty Rusty do?
  • Do not rat Honest Sam out: As we computed above, the potential score for this would be the sum total of the scenarios “Accidental Cooperation” and “Ratting Out Scenario 2”; i.e. 5 + 0 = 5
  • Rat Honest Sam out: The potential score for this scenario would be the sum total of the scenarios “Ratting Out Scenario 1” and “Mutually Assured Destruction”, i.e. 10 + 5 = 15.

This is clearly a case for Trusty Rusty to throw caution to the winds and rat out Honest Sam ASAP, and more importantly, hopefully a case for why our so-called performance appraisals are fostering an atmosphere of untrustworthy, uncooperative people in business. If business do not allow room for employees to grow and mature, they are bound to be filled with people like our protagonist, who I think we can all agree we should have less of.

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