I need to make a confession at the outset here. A little over 20 years ago I did something that I regret, something that Im not particularly proud of, something that, in many ways, I wish no one would ever know, but here I feel kind of obliged to reveal. (Laughter) In the late 1980s, in a moment of youthful indiscretion, I went to law school. (Laughter)Now, in America law is a professional degree. You get your university degree. Then you go on to law school. And when I got to law school, I didnt do very well. To put it mildly, I didnt do very well. I, in fact, graduated in the part of my law school class that made the top 90 percent possible. (Laughter) Thank you. I never practiced law a day in my life. I pretty much wasnt allowed to. (Laughter)But today, against my better judgement, against the advice of my own wife, I want to try to dust off some of those legal skills, whats left of those legal skills. I dont want to tell you a story. I want to make a case. I want to make a hard-headed, evidence-based, dare I say lawyerly case, for rethinking how we run our businesses.So, ladies and gentlemen of the jury, take a look at this. This is called the candle problem. Some of you might have seen this before. Its created in 1945 by a psychologist named Karl Duncker. Karl Duncker created this experiment that is used in a whole variety of experiments in behavioral science. And heres how it works. Suppose Im the experimenter. I bring you into a room. I give you a candle, some thumbtacks and some matches. And I say to you, Your job is to attach the candle to the wall so the wax doesnt drip onto the table. Now what would you do?Now many people begin trying to thumbtack the candle to the wall. Doesnt work. Somebody, some people, and I saw somebody kind of make the motion over here. Some people have a great idea where they light the match, melt the side of the candle, try to adhere it to the wall. Its an awesome idea. Doesnt work. And eventually, after five or 10 minutes, Most people figure out the solution, Which you can see here. The key to to overcome whats called functional fixedness. You look at that box and you see it only as a receptacle for the tacks. But it can also have this other function, as a platform for the candle. The candle problem.Now I want to tell you about an experiment using the candle problem, done by a scientist named Sam Glucksberg, who is now at Princeton University in the U.S. This shows the power of incentives. Heres what he did. He gathered his participants. And he said, Im going to time you. How quickly you can solve this problem? To one group he said, Im going to time you to establish norms, averages for how long it typically takes someone to solve this sort of problem.To the second group he offered rewards. He said, If youre in the top 25 percent of the fastest times you get five dollars. If youre the fastest of everyone were testing here today you get 20 dollars. Now this is several years ago. Adjusted for inflation. Its a decent sum of money for a few minutes of work. Its a nice motivator.Question: How much faster did this group solve the problem? Answer: It took them, on average, three and a half minutes longer. Three and a half minutes longer. Now this makes no sense right? I mean, Im an American. I believe in free markets. Thats not how its supposed to work. Right? (Laughter) If you want people to perform better, you reward them. Right? Bonuses, commissions, their own reality show. Incentivize them. Thats how business works. But thats not happening here. Youve got an incentive designed to sharpen thinking and accelerate creativity. And it does just the opposite. It dulls thinking and blocks creativity.And whats interesting about this experiment is that its not an aberration. This has been replicated over and over and over again, for nearly 40 years. These contingent motivators, if you do this, then you get that, work in some circumstances. But for a lot of tasks, they actually either dont work or, often, they do harm. This is one of the most robust findings in social science. And also one of the most ignored.I spent the last couple of years looking at the science of human motivation. Particularly the dynamics of extrinsic motivators and intrinsic motivators. And Im telling you, its not even close. If you look at the science, there is a mismatch between what science knows and what business does. And whats alarming here is that our business operating system - think of the set of assumptions and protocols beneath our businesses, how we motivate people, how we apply our human resources - its built entirely around these extrinsic motivators, around carrots and sticks. Thats actually fine for many kinds of 20th century tasks. But for 21st century tasks, that mechanistic, reward-and-punishment approach doesnt work, often doesnt work, and often does harm. Let me show you what I mean.So Glucksberg did another