Steve Fenton

Avoiding Moral Hazard in your organisation

Although the term was coined for economics, and insurance in particular, moral hazard is a useful lens to view your work, your organisation, and your interactions with other people. If you are making decisions that result in some other team or individual “feeling the pain”, you are in dangerous territory. So, what is moral hazard?

In economics, moral hazard occurs when someone increases their exposure to risk when insured, especially when a person takes more risks because someone else bears the cost of those risks. Wikipedia

Within an organisation, you’ll see a number of common scenarios that fit the description of moral hazard. They are all made up based on squashing together myriad real life cases, but all names have been changed. I’ve made up the company “WritePress” for this example.

WritePress and Moral Hazard

Roger invented WritePress, an amazing blogging platform. He asks Sarah in his programming team if they can add support for customers to link their WritePress website to their in-house CRM system. Most of Roger’s customers are using the same popular CRM and they have built a workflow that allows the content to be created and approved within the CRM. Currently they need to copy and paste the content into their WritePress website as the final step in the process. It would be nice if they could publish it automatically from the CRM when it gets approved.

Sarah gets to work, looking at the integration. It’s going to take a few days to link up the publishing. She also needs an extra couple of days to create a UI in WritePress that allows the customer to manage their CRM integration by entering the key that the CRM will use to publish.

So far, so good. But during the pilot Roger is excited about the new feature and wants to get it out straight away, and doesn’t value the UI to allow customers to set up WritePress as Sarah already set up the first few customers as part of the pilot. He’d rather Sarah moved onto the next thing.

Here comes the moral hazard… the result of Roger’s decision to ditch the “linking” screen is that Sarah will lose an increasing number of hours each week manually configuring customers that want to use the WritePress CMS integration. In fact, as more customers sign up to use WritePress thanks to the CRM vendor making a big deal of the integration, Sarah spends more time setting up customers than working on her original job as a programmer. Within a month, she’s spent more time manually configuring customers than it would have taken to just create the UI.

Summary

To resolve this issue, we need to complete the pain loop. Roger needs to be on the hook in some way for this manual configuration process, even if it is just performing some kind of preparation task that means he has “skin-contact” with the problem. As the demand for this manual work increases, it should pinch a bit and inspire everyone to just do the right thing and get this UI screen into WritePress.

Keep an eye out for moral hazard and look out for instances where the pain loop is open as this is where you are bleeding productivity.

Dangerous Zone photograph by Michael. Attribution 2.0 Generic (CC BY 2.0)

Written by Steve Fenton on