A friend worked for years as a flat-rate mechanic. His job was to fix a car for a certain price. His shop didn’t bill by the hour. It billed by the battery installation or the transmission replacement or the tire change. What I learned from my friend is that a flat-rate mechanic will cut corners and compromise to get the job done, no matter what.
In a way, getting the work done quickly helps the mechanic because he gets more flat-rate jobs in a period. More brakes repaired in a day. More tires aligned in a day. At the same time, while the mechanic looks out for his economic interests, he may not necessarily do what’s best for the customer. Are corners cut to the customer’s detriment?
This is where economic incentives come into play. This is the lesson for business.
If you’re paying somebody a set fee for work, you must understand that you’re going to get what you pay for and it may be exactly what you wanted. But you may not get other things that could be beneficial. For example, when I provide legal services to my clients, I often notice other issues. I often help clients in areas that are tangential but not directly on point to the initial project. This benefits my client, often for little additional time and cost, with a high-impact outcome.
If I’m working for a flat rate like the mechanic, there’s no incentive for me to do more than I was hired to do. The important lesson is to think about the economic incentives you create for others. What are they economically pushed to do? Is that good? If not, you want to change the incentives so they work with you and help you do what is good for you and your business.
What is your experience? Have there been times when people haven’t done the right thing for you? Have you set the wrong economic incentives in the past? Tell us your thoughts and experiences.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Kerem Yucel.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment (www.rshawnmcbridelive.com/3laws), gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at firstname.lastname@example.org or (214) 418-0258.
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