A moral hazard occurs when someone insulated from risk behaves differently than they would behave if they were fully exposed to the risk. In this case the individual does not take the full consequences and responsibilities of their actions, and therefore has a tendency to act less carefully than they otherwise would. After thinking about this I was wondering if we set up “moral hazards” within our business by the way we manage. If we have a tendency to jump in and help any time an employee needs help or can’t get the job done, do we set up a safety net for that employee?
We tend to do that at home with our children and they become so isolated from reality that they can not cope in the real world. Anyway back to business, I spent a day at a business watching the interaction between the employees and the leaders. In this case it was a law firm and the employees were legal secretaries and the leaders were attorneys. When I pointed this out to the attorney the response I got was; I just don’t have time to wait for them to get the job done. That may be true, but the problem now is, the employees never learn how to do the assigned task or at least never find out how to do it better.
I took one small section and for one week made the assumption that all task would be the responsibility of the original person being assigned. Also, any error or perceived error would be attributed to the system (the process, tools or programs) and not to the employee. The employees were told that they could (were even encouraged to) ask any question about the task or the process during this period. Nobody would step in and take the task away.
I must admit that it was a little bumpy the first day. We got inundated with questions and the process was being updated a lot. Well we asked for it. We, by the way, were business coaches that were hired to improve the system. Our immediate analysis was that the system was never really used so it could never be perfected. We took a lot of razing the first two days but by day three our team was all smiles. Not running perfectly smooth yet but definitely on the move up.
By the end of the week we had a lot of attention and our team was a run away success. Have you ever seen commercials that have a disclaimer that says something like; we can not guarantee that you will see the same results. I kind of feel that way and would say it all depends on how good your system works today. My guess is that this moral hazard is more common than we think.
This can lead into all kinds of discussions. We did a lot more than make a few employees accountable. We drastically improved their morale because they saw a group of people that cared about them working to make their job better. They wanted to be accountable and really wanted the opportunity to do their job. The system was a combination of a procedure manual, a case management system and team leader. Once they understood that they had to produce and that they would be accountable they had a vested interest in making the system work. We were making major changes to all elements of the process, the procedures manual and the programming of the case management system.
I will also admit that we were acting as a buffer to make sure that no deadlines were missed. OK, so the secret is out – we told the law firm partners that we would make sure that their cases would not be impacted. The team was never told that but they probably figured that out. Either way, we did not allow anyone on our team to stop working on the task and made them accountable for completion. A few of them would probably say we let them sweat it out. We didn’t loose anyone during the week and at the start of the second week we had people trying to get on our team.
The conclusion after the first week was that the system was greatly improved and the team would be running on their own by the end of the second week. We were no longer part of the team at the start of week three.