Management solutions that belong in the trash

Let us now give praise to the officials at City Hall in Albuquerque, who in many ways are the inspiration behind this entertaining new book.

A few years ago, managers of refuse collection in that city were facing a knotty problem. The garbage trucks were taking too long to complete their rounds, creating a huge overtime bill.

But those officials were not stupid. They knew all about the power of incentives to motivate employees.

Emboldened by this knowledge, they hit upon a brilliant plan. They would pay the drivers only for an eight-hour shift, regardless of how long it took the crews to get around town. Thus inspired, the drivers would get a move on and finish their rounds in plenty of time.

You can probably finish this story for yourself.

The teams started skimping on collections. Irritated citizens called to complain, demanding that an extra refuse truck be sent to pick up their rubbish. That caused costs to rise further.

Worse, speeding refuse truck drivers, trying to finish their routes in only eight hours, caused road accidents, pushing up insurance claims. The so-called incentive to improve efficiency had turned out to be a catastrophe.

It is this sort of management disaster that Jeffrey Pfeffer, a professor at Stanford University’s Graduate School of Business, has enjoyed analyzing for readers of Business 2.0 magazine in recent years. This book is an extended and revised selection of those articles.

In 28 succinct chapters, Pfeffer provides a kind of alternative MBA in how not to run a business.

Although this may not be a book you would want to sit down and read from cover to cover -- we can take only so much reality -- its thematically grouped chapters would serve as a useful crib whenever you are faced with apparently insoluble management problems.

Pfeffer talks a lot of sense. He is skeptical about so-called customer relationship management software.

“Before you can manage a customer relationship, you first need to build or create that relationship,” he writes. “And customer relationships are not really built by fancy data mining and statistical analysis packages that track people’s behavior, nor by the now-ubiquitous automated phone systems that basically just irritate people.... Relationships and their quality are determined by what happens to customers when they actually make contact with organizations.”

U.S. firms are cutting benefits, even when most of Fortune magazine’s “best places to work” offer benefits that are more generous than standard for their industry or for the economy as a whole.

“It seems ironic,” the author says, “ that companies are cutting one of the ways that they have traditionally attempted to achieve an advantage in attracting employees, just at the moment that the competition for labor is about to increase.”

Where else could Pfefferian common sense be introduced? Perhaps in the area of budgets.

The familiar problem here is executives who rig the system.

“Senior executives have every incentive to set targets they can meet or, even better, exceed, while their boards typically try to set more ambitious goals,” Pfeffer writes. “This process essentially rewards forecasting ability -- can we predict what we are going to be able to achieve? -- and the ability to negotiate with one’s bosses.”

And so we end where we began -- with dodgy incentives.

We should provide recognition and share success, the professor says, “but you certainly don’t want to make the incentives so large that they begin to drive and distort behavior.”

The next time a half-baked, performance-related pay scheme is suggested as the answer to your company’s problems, don’t forget to share the story of the Albuquerque refuse truck drivers.

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Stefan Stern is a columnist for the Financial Times of London, where this review first appeared.