There’s a fair amount of discussion around at the moment about motivation and incentives, largely inspired by the recent book “Drive” by Dan Pink (of which more another time).

Paul Hebert at the i2i blog has got an interesting observation, that what Dan Pink regards as motivation is not the same as what drives behaviour within companies.

So how do we at IncentiveDirect define motivation and incentives? To us, motivation is about personal desires and drives. Incentives are about behaviour and performance.

Incentive programs drive behaviours, provide direction, and they can help feed motivation.
But motivation, like The Force, only comes from within.

A fascinating article in BusinessWeek looks at the unique culture of online shoe retailer Zappos. The company, founded and run by Tony Hsieh, and now part of the Amazon retail empire, believes it has a unique corporate culture that in itself is a marketable commodity. Visitors pay to tour the companies offices and get an insight into the DNA of the company.

As on online business, all you have is your reputation. You have no physical presence. So Zappos goes out of its way to show a human side to the organisation.

Lots of companies like to make out they’re wacky places to work in order to disguise actually how drone like the work is, and where Zappos fits in this picture is uncertain. It’s definitely not something that would come naturally to a British or European company.

If there is anything to learn from Zappos, is that making a unique company culture can be not only good for staff loyalty but also PR and marketing. Motivation systems have a part to play in building a unique company culture, by rewarding the behaviours you want to encourage.

Progressive companies can target certain actions, for instance internal show-and-tell sessions that help staff communicate and build understanding, and reward good presentations. Prizes for internal company team competitions, logged on an online leaderboard, can act to focus everyone’s attention on key issues and create a healthy competitive atmosphere. Many organisations suffer loss of staff morale when employees do not get a sense of the bigger picture and their place in it, and what else is going on around them, Instead, cliques, petty politics and internal dogfighting – negative competitive aspects – undermine the organisation.

A big part of what Zappos do is to try and make work like play. At IncentiveDirect, we believe a more powerful concept is to try and make work like a game.

Discounts reward the people who pay for goods or services, not the people who buy or use them, and if they are not the same person, are an ineffective form of incentive. This is one area where a B2B incentive is very different to a B2C incentive, where the consumer is usually both buyer and user of the service or product being sold.

An incentive scheme aimed at increasing sales should always be aimed at those who make buying decisions.

Extending this further, it is clear that an incentive that is based on rewards rather than on discounts should be targetted at individuals, not organisations. If the people making the buying decisions are not the ones receiving the reward, then it is obvious that the reward has no influence to the person buying that service or product. There is no added incentive for them to buy that brand, or from that supplier, or to buy more, or a better model – the reward has no effect.

Only individuals can be influenced to change their behaviour through the emotional lure of a reward. Considered in the abstract, organisations make decisions based entirely on logic. But individuals within that company will still act emotionally. Buyer Decision Processing is still an emerging field of cognitive science.

There is no point in rewarding a company, you should be rewarding the person within the company who makes the choice to buy from you. Rewarding customer loyalty involves engaging individuals.

Attracting a fair amount of press coverage recently has been the publication of a book Scroogenomics: Why you shouldn’t Buy Presents for the Holidays by Joel Waldfogel. In it, Waldfogel argues against buying gifts at Christmas, suggesting that people consistently value the gifts they receive as less than their actual cost.

“When other people choose for us they do a poor job compared to when we choose for ourselves,” explains Mr Waldfogel, and calculates that “dollars on gifts for you produce 18 per cent less satisfaction, per dollar, than dollars you spend on yourself.” As an economist, Waldfogel views this as value destruction, to the tune of about $12 billion per year in the US alone.

There’s some interesting ideas here, and it’s tempting to think that it leads to the conclusion that cash makes a better gift choice than a present. However, studies have consistently shown that cash gets absorbed into satisfying needs rather than wants, making it harder to justify buying something they really want. ‘Buyers remorse’ is the name for the guilty feeling that people feel for treating themselves.

Waldfogel isn’t a total miserypants – “my beef is not with level of spending at Christmas but rather with the waste that this generates”, and acknowledges that presents, if well chosen, can actually add value,

Interestingly, Waldfogel proposes that giftcards could potentially be a less wasteful way of giving, if the amount that is wasted via non-redemption (euphemistically called ‘breakage’ by the voucher industry), could revert to charitable donations when they expire. But there is a greater chance of Christmas being cancelled before retailers adopt this practice,

We believe that our online points system iD-points provides the best of both worlds. It provides a mean for a recipients to choose their own gift, and get something they really want but without the buyers remorse that comes with cash. Recipients have no alternative but to treat themselves with great products from leading brands.

In an interesting presentation from the July TED conference, career analyst Dan Pink makes a convincing case that incentives are ineffective at enabling innovative thinking. This is something that social scientists know, argues Pink, but that business seems keen to ignore. Incentives are only effective at improving performance along already established paths, not in enabling the forging of new paths.

It’s an interesting presentation because it should force all operators of incentive solutions all to think about whether they are stifling the behaviours we are trying to promote.

There is a flip side to this, and this is the success of prize funds such as the X-Prize, or the Netflix recommendation engine prize.

Called the Netflix prize, a reward of $1 million dollars was offered by the movie rental company, to any team that could improve film recommendations that were 10% better than those produced by its current system. Earlier this year, a team managed to achieve this, after nearly 3 years and a massive collaborative effort. In fact, thousands of people entered the competition, many of whom would have had no chance of winning, but saw the opportunity to learn about machine intelligence with a state of the art set of test data.

So the question is whether the prize hindered the finding of a solution, or enabled it? Certainly Netflix has earned marketing and PR coverage and respect from the development community to more than justify the $1 million prize, but how many teams would have persevered if there had been no prize at the end of it.

Perhaps the answer lies in a blog post by one of the participants of the Netflix contest, Justaguyinagarage. In his post, Reflections on the Netflix competition, he gave kudos to Netflix for running the competition in such a well structured way:

“It was run in an exemplary fashion throughout and should, I believe, become the model for other competitions that people might choose to run. Some of the key features that made it such a success are:

a. A clear, unambiguous target and challenging target. How a 10% target was chosen, will I suspect, remain forever a mystery but it was almost perfect – seemingly unattainable at the beginning and difficult enough so that it took almost 3 years to crack – but not so difficult as to be impossible.

b. Continuous feedback provided so one could identify whether the approaches you were investigating were going in the right direction.

c. A forum so that the competitors could share ideas and help each other (more about that later).

d. Conference sessions so competitors could meet and discuss ideas.

e. Zero entry cost (apart, of course, from the contestant’s time).

f. A clear set of rules.”

As a set of guidelines for anyone looking to run an incentive, these could hardly be bettered. An objective, unambiguous target, a clear set of rules, feedback and discussion forums to promote knowledge sharing – these are surely the ingredients for successful incentives, whether the objectives are simply to sell more stuff, or something that requires creativity or innovative thinking.

For Dan Pink, the answer lies in what he calls “intrinsic motivators”, understanding peoples inner desires, which Pink subdivides into three categories: autonomy -”the urge to direct our own lives”; mastery – “the desire to get better and better at something that matters”; and purpose – “the yearning to do what we do in the service of something larger than ourselves”, which can be achieved giving employees more freedom to choose their own destiny. So is it possible to use incentives to drive people to achieve these goals? The Netflix prize would seem to show that it can.