I’m midway through Nassim Taleb‘s latest book, Skin in the Game: Hidden Asymmetries in Daily Life. As is usual with Taleb’s writing, he provides thorough but humorous coverage of a concept which can be applied to many contexts. The premise of this book is that without skin in the game, asymmetries emerge which encourage unfairness, poor decision making and can contribute to a lack of understanding of realities.
One of the key principles discussed in the book is that there should be a negative incentive or cost to decision makers when things go wrong. Without this, we have an asymmetry since risks get transferred away from those who should have been held responsible. A common example of this is seen in companies where sales teams are compensated for initial sales but are not held accountable to some degree for customer satisfaction beyond the point of purchase. This can encourage salespeople to over-promise with inevitable expectation shortfalls. Another highly publicized example is that of the financial company executives who were never jailed for poor decision making which led to the 2008 financial crisis.
This principle can also be applied to some project teams.
There are industries such as large scale construction where the cost of poor quality in extreme cases (e.g. a bridge collapse) will result in punitive consequences to the engineers who were involved. However, in other domains such as software development for internal use where deadlines may be emphasized higher than product quality, there is no such downside. The teams who delivered the buggy release will have likely disbanded and the team members will have moved on to different departments or projects before the real cost of ownership is understood by the business owners.
On the other hand, when there is a product-centric model delivered by long-lived teams, there’s greater skin in the game. Escaped defects are no longer the responsibility of an operational group or some future project team. Quality issues will come home to roost in the delivery team’s backlog and the Product Owner has an incentive to focus on improved quality if he or she doesn’t want to have ongoing uncomfortable stakeholder interactions.
Taleb also states that skin in the game supports the principle of survival of the fittest. Product Owners or teams which consistently miss the mark with their releases are unlikely to be around for long in product-centric contexts whereas in project-centric organizations, it may be easier for individual mediocrity to fester if there isn’t ongoing vigilance.
“Skin in the game prevents systems from rotting” – Nassim Taleb