To be successful, organizations must align their rewardstructure with their intended goals. Eduardo Porter, in a New York Times article titled, When Public Outperforms Private in Services, writes:

The success or failure of an organization often depends on whether it can clearly identify its goals and align the interests of managers and employees to serve them. Yet whatever reward structure an organization picks can skew incentives in an undesirable way.

A lack of goal clarity and alignment can have detrimental effects. When oil companies reward profit over both safety and protecting the environment, loss of life and environmental disasters are the result. When pharmaceutical companies reward sales people only for the quantity of drugs sold, patients will be prescribed drugs they don’t need. When states judge schools on the basis of test scores, not learning, students graduate unprepared for college and work. When banks reward mortgage agents for quantity rather than quality, a high percentage of loans fail and the entire economy suffers.

I don’t think it’s a question of private vs. public. Some public institutions and government agencies reward the wrong behavior as do some businesses. I remember consulting with a nonprofit health insurance company that rewarded customer service reps for the number of phone inquiries they handled in an hour. The tradeoff was quantity of transactions for customer satisfaction. Treating a customer with respect and solving the customer’s problem were given lip service but not rewarded in practice.

The problem, as Porter says, is tradeoffs. A company that truly values customers, might have to sacrifice MC900438796 some portion of profit in the short term for a satisfied customer who will continue to come back to that business over the long term. A government or nonprofit that truly values its mission, might have to sacrifice some portion of revenue in order to achieve its service goals. Neither type of organization can afford to run at a deficit but neither is sustainable without alignment of rewards with goals.