Successful Management by Motivation: Balancing Intrinsic and Extrinsic Incentives

K. Narasimhan (Bolton Business School Bolton Institute, UK)

The TQM Magazine

ISSN: 0954-478X

Article publication date: 1 April 2002

6725

Keywords

Citation

Narasimhan, K. (2002), "Successful Management by Motivation: Balancing Intrinsic and Extrinsic Incentives", The TQM Magazine, Vol. 14 No. 2, pp. 133-135. https://doi.org/10.1108/tqmm.2002.14.2.133.2

Publisher

:

Emerald Group Publishing Limited


This is a concise book comprising 11 chapters grouped into five parts, based on the research findings of the Swiss Association for Organization and Management (SGO). A total of 15 authors (including the editors that led the project) who are authorities in the field of management and/or business economics have contributed to this book. As Markus Sulzberger, the president of the SGO, points out in his foreword to the book, “Motivation lies at the center of a highly controversial debate” in today’s context of globalization, privatization of public institutions, and equal rights, individualization, entrepreneurism, etc., becoming central issues in managing organizations. In this book, the authors have identified the various aspects of intrinsic and extrinsic motivation required to get a right balance to motivate people.

Motivation as a function of management forms the basis of discussions in Part I comprising Chapters 1 and 2. In Chapter 1, Frey and Osterloh first define the intrinsic and extrinsic motivation and their constituent elements. This is followed by an explanation of how intrinsic motivation can be corrupted or undermined by external intervention. Finally, they explain why intrinsic motivation is crucial for a company, and external motivation is indispensable.

In Chapter 2, Margit Osterloh and Jetta Frost, an Assistant Professor at the University of Zurich, explain with examples why motivation and knowledge management are important sources of sustainable resources for gaining a competitive advantage. They point out that innovation and the development of new core competencies depend on the exchange of tacit organizational knowledge.

Motivation and compensation are the theme of Part II – comprising three chapters. Bruno S. Frey deals with how pay influences motivation, in Chapter 3. The key topics covered are: when do wages reduce motivation resulting in reduced performance, externally and internally motivated people, the effect of performance‐related pay, and motivation beyond wages. They point out that management by motivation involves selecting the types of people who are best suited to the work required to be done, in addition to achieving a balanced combination of extrinsic and intrinsic motivation.

In Chapter 4, the question of whether top managers can be additionally motivated by stock options is dealt with. Based on empirical research the authors conclude that stock options do have an unintentional negative impact such as allowing and at times even encouraging managers to act in a selfish manner. Hence, they recommend that institutional reforms should be implemented to ensure effect control of senior managers.

Performance‐related pay, which has become more prevalent in recent years, is the topic of Chapter 5. Based on an empirical study of 1,400 Swiss companies between 1989 and 1998, the authors conclude that larger rewards do not lead to more valuable suggestions. This is due to the fact that larger rewards also lead to the generation of useless ideas from employees with little talent for development of ideas.

In Part III, comprising three chapters, the focus is on creating and nurturing intrinsic motivation in organizations. It is shown, in Chapter 6, how different forms of organizational structures influence employee motivation directly; and the requirements for making profit center organizations more effective are briefly discussed. The importance of perceived fairness and justice and the influence such perceptions have on employees’ behavior are covered in the next chapter. Research evidence from the USA is used in the next chapter, to illustrate how participation and communication can significantly improve the quality of work relationships. Survey questionnaire and variables and results are given in the appendix to the chapter.

Part IV comprises two chapters based on case studies in the service sector. Chapter 9 is a discussion of motivation management in the banking sector using motivational tools used by ING Bearings Bank, in turning the bank around since 1995. The motivational tools covered are the compensation structure, SMART objectives, professional development and training, the internal communication system, discussion groups and internal suggestion system, the Synergy Award, the Spotlight Award, and community investment program.

Chapter 10 deals with motivation management in software development using a case study at SAP AG. Based on a comparison of successful and unsuccessful projects the authors conclude: “successful projects harmonize ideally with the nature of employee motivation at SAP. In contrast, less successful projects clash with these motivation factors”.

In the final chapter (Part V), Osterloh and Frey briefly deal with performance‐based compensation’s five problems and the solution to overcome the problems. The five problem areas covered are:

  1. 1.

    (1) performance measurement;

  2. 2.

    (2) team working;

  3. 3.

    (3) selection of staff;

  4. 4.

    (4) manipulation of the scheme; and

  5. 5.

    (5) trade‐off between intrinsic and extrinsic motivation.

The solutions to these problems lie in tailoring the incentive scheme to the type of activity, use a variety of motivational instruments, designing proper structures, ensuring fairness of treatment.

The authors have, in such a concise book, very ably given enough information to inform and whet the appetite of keen managers to do extra reading on the topics of their interest. A number of diagrams, tables, and vignettes are included to support the text. To enable managers interested in reading the original material, all chapters have a list of further reading, which is compiled together in a list of references (152 references in all), at the end of the book. I have found the book not only very enjoyable to read but also useful.

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