The Human Factor - Gumming Up the Efficient Corporation?
A huge amount has been written about both the fundamental efficiency of the market and the fatal flaw in that efficiency assumption brought on by the human element. The realization that a company is not a sentient being, but a collection of individual humans in an organizing construct....but still acting primarily as individual humans act. Some would argue that the human element doesn’t conflict with market efficiency but rather just introduces a set of new variables. For example, the decision by someone in a job search to forego a larger cash salary in favor of a non-financial gain like a fancy title is not an irrational decision but simply a failure of the economic model to take into account the intangible, but very real value, of being admired by your peers.
Whether non-quantitative factors are rational or not, they are omnipresent in our culture and are not magically wiped from the slate by the business environment. And ironically the bigger the business decision, the more likely those human factors are to impose themselves. Human factors can include the direct and indirect impact on players’ careers, personal brands, relationships, roles, and even their sense of self-worth. Sometimes these impacts are easy to spot. When Company A merges with Company B, who will be the CEO, and who will be set out to pasture (and how big will their golden parachute be). But often the human factor is much more subtle or multivariate. Will Executive A support a strategy proffered by Executive B because they have a relationship or because the strategy also implies investment in Executive As a business unit? Will a business leader pursue a growth strategy because it offers near-term enhancement to their brand – even if they don’t believe in the long-term prospects of the strategy? This must be the driver for at least some of the business initiatives tied to the “hot technology of the day” (currently IoT and AV/AI but the same can be said for the early days of the internet and BI). I wonder if some of our ancestors tried to add the wheel in improbable places because “everything cool has wheels on it.”
The key to success is NOT to abstract away from this human element of business decision-making but to accept and even embrace it. When working with colleagues and counterparties, you need to understand the complete spectrum of incentives and motivations that are driving them. Assuming that other people operate like efficient capital allocation and business decision-making machines almost guarantees unpleasant surprises in their behavior.
The cultural challenges faced by many of our technology giants are probably a good cautionary tale. Perhaps someone somewhere underestimated what would happen when you took a population of young intelligent men and gave them huge amounts of money and power. Perhaps it was predictable that some subset of them would be motivated not just by pure economic optimization but by their baser instincts. Hindsight is of course 20-20 but the lesson is important – human foibles, preferences, biases, and character (or lack thereof) are not shed at the office door.
What do you think??
