Founded in 2000, Topcoder Inc. is a $20 million software company. The company breaks down its clients' software projects into modules and then opens up each module as a competition to its 120,000 programmers, inviting the programmers to complete the project within a set period of time. A typical contest may have 10-20 programmers participating. Those who develop the best solution win a financial prize—typically tens of thousands of dollars—and the losers get nothing. The company's founder, Jack Hughes, understands that the chance to win a prize is more motivating for many top programmers than being paid a steady salary. In creating a tournament-based model for work, Hughes taps into his employees' desire for peer recognition, as well as their competitive drive. Topcoder is succeeding: It's growing fast and attracting a lot of attention in the open-source software community.
Topcoder also has a somewhat distinctive business model, borne of its flexible cost base, but explaining the company's success solely in those terms would be a mistake. This company is doing well because it has chosen to think creatively about its management model. It's made unusual choices about how to set objectives, motivate people and coordinate work. And these choices have a dramatic impact on the quality, responsiveness and cost of the services the company offers.
Often, we read about leadership as being the dominating force in a company's success. But while leadership is about the traits and behaviors that make someone worth following, management is how we get work done through and with others.
Companies on the lookout for new forms of competitive advantage should consider their management models. The answers are not always clear or forthcoming, but one form of innovation may come from seeking out novel ways of enhancing the intrinsic motivation for paid work. Topcoder, with its prize-based system, aligned its reward structure with its programmers' desire for peer recognition. Simply put, it's got its employees much more engaged than it ever could through a salaried-employment model.
Or consider HCL Technologies Ltd., the Indian IT services company. Its CEO, Vineet Nayar, lives by the motto "employees first, customers second," and is always on the lookout for ways to upgrade his company's management so he can hire and retain the best employees. He has had all the company's managers post their 360-degree feedback online, so that everyone can read it. He also developed "service tickets" that employees fill out if they have a concern, such as about the work they do, expenses or something as simple as the chairs they sit on. Only employees can close the service tickets, and Nayar monitors how many service tickets remain open as a measure of how responsive his company is being to its employees.
Nayar's approach, treating his employees like customers, is designed to increase their motivation to stay with the company. "We are spoiling the employees," he says. "It's like 5-star treatment; they are getting used to a certain level of service, and they have trouble going to other companies where they can't even raise these issues. So we are creating a unique experience for the employee."
To be sure, extrinsic rewards still have their place in today's companies. Some individuals would prefer to channel their discretionary effort into nonpaid work. And some jobs are inherently unattractive, and no amount of creative reframing will convince an employee otherwise.
But most companies have a lot of freedom in how they balance intrinsic and extrinsic rewards. For example, debugging software code can be highly tedious, so software developers like Microsoft Corp. often hold "bug bash" competitions toward the end of a project, capitalizing on their work force's intrinsically competitive instincts. Winners receive recognition and prizes in categories such as "most bugs submitted," "most interesting/unique bug" and "most critical bug" discovered.
Looking at how to manage pay is just one way of rethinking your management model. Overall, executives need to examine their hidden assumptions about how the work of management should be done and consider how they could enrich their companies through new management practices.