In the late 1980s, as part of an effort to beef up its core IT business, Andersen Consulting (now Accenture) began to hire specialist strategy consultants from outside the company. These consultants were more experienced than the usual Andersen employees, and they were accustomed to "much more aggressive individual performance incentives" than was the norm among Andersen's existing IT staff, according to Wharton management professor Sarah Kaplan.
When these new 'hot-shot' hires began to ask for the kinds of compensation they had received in their former firms, the existing employees complained. After all, Kaplan notes in a recent paper -- "Inertia and Incentives: Bridging Organizational Economics and Organizational Theory," co-authored with Rebecca Henderson from MIT's Sloan School of Management -- the existing compensation system "had been reinforced through extensive training and socialization of all new hires." Efforts to change it were "complicated by the fact that no one at Andersen really knew how this new business would operate or what it would take to succeed."
The company came up with a few variations on the existing incentive system that it thought would satisfy the new hires' demands but not alienate the employees already there. It also tried to shoehorn the new hires into the mold of the existing IT staff. Neither effort was successful and many of the new hires simply left the firm. Andersen's efforts to build the new business had a rocky start.
Kodak faced similar issues when it made the switch to digital photography, a vastly different proposition and one that required not just a "transition of technical capabilities from chemical to digital," but a whole new business model, says Kaplan. Senior managers didn't see it that way; they wanted to keep the traditional economic formulas that had been established years earlier by founder George Eastman.
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