Tuesday, January 31, 2012

How NOT to implement a policy of discrimination

To align the incentives of employees with the goals of an organization, you have to give employees (i) enough information to make good decisions; and (ii) the incentive to do so. The most important part of creating good incentives is measuring performance.

When you want employees to devote effort to more than one task, you have to worry that they spend the right amount of effort on each task, e.g., so that sales employees spend the right amount of time cultivating new clients in addition to serving current clients. In this case, you might have to adopt more complex evaluation metrics, e.g., existing sales and sales from new accounts. With more than two tasks, this becomes even more complicated, and you are probably better off using subjective performance evaluation, using the observed metrics as inputs into the subjective evaluation.

When the two tasks compete with one another (to do more of one, you have to sacrifice the other), the management problem becomes almost intractible.  I was reminded of this when I heard about the Episcopal Church's competing "norms" for disposing of churches left empty by schismatic congregations: it wants "fair market value" for the property, but it also would prefer that the church not be sold back to the schismatic church.

When the Church of the Good Shepherd in Binghamton, N.Y., left the Episcopal Church ..., the congregation offered to pay for the building in which it worshiped. In return the Episcopal Church sued to seize the building, then sold it for a fraction of the price to someone who turned it into a mosque.

When the schismatic church is the highest bidder for the property, their bid represents market value. In fact, this is the point of using an auction to sell the property. A diocese, like Binghamton, then faces a dilemma about which norm to follow. They cannot follow both. In this case, they gave up on fair market value in favor of discrimination against the schismatic bidder.

A better way to discriminate would be to specify a bidding "tax" on the schismatic churches, e.g., to win they have to bid 10% more than rival bidders. This would give the diocese clear direction on when they should prevent the schismatic church from buying the property. And if the schismatic church is likely to be the high value bidder for the property, then such a tax has the potential to increase revenue, e.g., as in this application. However, a bidding tax could also result in some inefficiency (the high value bidder does not always win), and it makes the discrimination against the schismatic churches very visible, which could generate opposition to the policy.


  1. This is so far from the truth about the balanced scorecard, I don't know where to begin! It is NOT " a performance metric designed to measure employee performance when you want employees to devote effort to more than one task." It is a business management system designed to ensure that we not only focus on lagging financial measures, but on those measures that drive the financial outcomes. The measures should be integrated and linked following the y=f(x) model: Outcome Y is a function of Input Variable(s) X.

    Luke, I suggest you bone up on what the Balanced Scorecard really is and how it is effectively utilized to set and achieve strategic objectives and operational excellence. I highly recommend Balanced Scorecard Strategy for Dummies (Wiley 2007), which I co-authored (http://www.amazon.com/Balanced-Scorecard-Strategy-Business-Personal/dp/047013397X/ref=sr_1_1?ie=UTF8&s=books&qid=1263930108&sr=1-1) I must be frank, here - if this is the level of "teaching" about the BSC that is going on within academia, we are in very serious trouble, as you seem to not have the slightest concept about what the BSC really is.

  2. Sorry for the Anonymous response. That isn't fair to you. My name is Charles Hannabarger and can be reached at Charles.Hannabarger@PSIAssociates.com. You can visit the Balanced Scorecard and Dashboard Group on LinkedIn to gain more knowledge and information on the BSC&D: http://www.linkedin.com/groups?gid=104037&trk=hb_side_g

  3. thanks. Fair criticism. Most of what I have learned about the balanced scorecard, I learned from my students, who almost invariably complain that the competing metrics are confusing that none of them pay attention to it, or focus on only one of the metrics.

    I have changed the title and edited the post. thanks.