Blair McHaney Discusses The Cobra Effect

By Rachel Zabonick on October 18, 2016 in Club Solutions

In “Primed to Perform: How to Build the Highest Performing Cultures Through the Science of Total Motivation,” authors Neel Doshi and Lindsay McGregor discuss a concept called the Cobra Effect.

The Cobra Effect is an unintended, negative consequence that occurs as the result of a not-fully-thought-out incentive. The name is derived from an incident that occurred in India in the 1800s, which Doshi and McGregor explain:

“During the 1800s, when India was under colonial rule, the British government reportedly set out to reduce the number of cobras in the city of Delhi by paying bounties for dead cobras … A few shrewd entrepreneurs realized there was good money to be made from dead cobras. So what did those enterprising citizens do? They built cobra farms to raise more snakes. In the end, the cobra population of Delhi increased.”

According to Blair McHaney, the president of ClubWorks, the Cobra Effect can happen to any organization. Here, he discusses some recent examples of the effect in action, and how to avoid accidentally triggering it.

CS: What should health club operators know about the Cobra Effect?

BM: Let’s put it in the context of compensation. Frequently in business we use incentives to drive our objectives. Our belief is that if we put some money out there at some objective, that people will work harder toward that objective. The point that Doshi and McGregor make on compensation is sometimes the result you end up with is not the one you intended. You see it all the time. It’s when people start to create opportunities to make money, that have nothing to do with what you wanted in the first place.

CS: Have you seen the Cobra Effect in health clubs?

BM: I’ve seen this happen in health clubs many times when there’s low-base pay, heavy incentives on sales, and systems that don’t have the right checks and balances. As a result, for example, people will write contracts for members that don’t exist or set people up on contracts they don’t agree to. That’s the Cobra Effect.

Recently, what happened at Wells Fargo is a good example of the Cobra Effect outside our industry. They were just chasing the money, not the best interest of the customer.

CS: How can clubs avoid the Cobra Effect?

BM: They can do three things. One, less incentive and more base pay is helpful. Two, more team-based incentives as opposed to individual ones. And three, apply more critical thinking to the incentives. Really think through what happens if you place the biggest incentive on X objective — what are the potential things that could go wrong?

This is especially if the base pay is not enough for someone to live on. That’s a big part of it. If I’m feeling the financial pressure of base pay not being enough to live on, and then on top of that you put a big incentive out here on two-year agreements, for example, then there’s a good chance that there’s going to be some negative repercussions for the customer.

Really think incentives through and think about how your employees in particular positions will react to incentives. If you just go with the first layer of thinking that says “We want X, so we’re going to incentivize X,” and that’s all the further you’re going to think about it, you’re going to have some negative effects from it.