Friday, August 04, 2006

Examining the Unexamined

Do leaders get the performance they expect from those who report to them? Known as the “Pygmalion effect”, the answer from numerous studies remains a strong affirmative. Does forced ranking, made famous by Jack Welch, former CEO of GE, result in higher productivity? That is, managers rank 20 per cent of employees as A players, 70 per cent as Bs, and 10 per cent as Cs. The Cs get fired and the lion’s share of rewards go to As. The answer from the research is a resounding no. The forced ranking in fact negatively impacts employee engagement, collaboration, trust and productivity.

You might say: “I’ve been duped!” Well, no---you just did not ask enough questions, test the assumptions and do your own field tests. You may also have been influenced by the oversupply of business books—30,000 + according to Barnes and Noble and Amazon with around 3,500 new ones each year.

Given the complexity of today’s business environments, it’s getting harder to transfer success methods from one organization to another. Healthy skepticism is in. Careful field work and pilot tests, long a tool of scientists, to prove that something really works are also in. We’re now calling this approach, “evidence-based management’ akin to “evidence-based” medicine that McMaster University’s David Sackett has promoted successfully for many decades along with others such as, Dr. David Eddy, a heart surgeon and health-care economist in the United States.

Take a scenario from my experience. The kind, gentle and apparently wise Executive VP asked us to determine a prominent high tech firm’s success formulae for integrating new technology companies into its culture and operations. Through our research we discovered that the other tech company had a sophisticated and focused method for welcoming and integrating newcomers. It also had a very different history---it had grown through acquisition from its inception. Our client organization had not. Different cultures and histories—like comparing apples and oranges.

We recommended great caution. Our client said, “thank you very much” and proceeded to buy high tech organizations at a breathtaking pace. Its top lawyer exclaimed to us several months later: “we’re underwater”. That very strategy was instrumental in reducing the firm to a shadow of its former self. The cost and rapidity of the acquisitions made the firm extremely vulnerable when business conditions took a nose dive.

At the time, we did not realize the significance of our research. We were doing our “thing”—being scientists and working within the constraints of our client wanting an answer fast. We did our due diligence on the secondary research: what the literature did and did not tell us from multiple fields. We knew the client organization. The members of our research team combined had both deep and broad expertise. But, we had no time to test our conclusions in the field. We were aware the client was searching for the methodology of the other—the intent was to implement it.

In retrospect, even if we’d made a big fuss and insisted on seeing the President, we would have been rebuffed. We know this now from having since talked with several executives who were part of the President’s inner circle. He wanted proof his views were correct.

Unexamined ideologies can produce “train wrecks”. We’ve seen this with all aspects of the management of Katrina, the hurricane that destroyed New Orleans. With incentive pay, the field is littered with large disasters such as Enron (motivating executives with stock options) and smaller failures in many organizations that attempt to entice more productivity out of employees when they have little control over the results. In economics, many theorists still believe people in organizations and society act primarily out of self-interest because we are hard wired that way. Considerable research paints a more nuanced picture: self-interest is learned and varies widely across people, groups and countries. This is a far more optimistic picture and it provides significant latitude for leaders to work with.

Let’s look at a few examples in more detail.

Back to forced ranking. According to the July 24, 2006 Fortune magazine, Jack Welch remains adamant that “weeding out the weakest” is best for the organization. He exclaims, “The Red Sox and the Mets are not putting on the field guys in the minors. It’s all about fielding the best team…..the cruel system is the one that doesn’t tell anybody where they stand.” But, I say, what about all those other sports team examples, where the raw talent wasn’t obviously present and yet great coaches created great teams?

It’s true that people want feedback even if it’s negative. However, the feedback can be flawed if a manager is working from unproven assumptions or an absolute belief system about the world and how it works.

Hmmm. I wonder what Jack thinks of his successor’s approach. Jeff Immelt has kept the idea of ranking but has added a new system of rating---red, yellow, or green---on five leadership traits. Employees are rated against themselves, not one another. Immelt does not mention getting rid of the bottom 10 %. Instead, he says he’s focused on building a team.

What does the research say on this topic? It cannot be explained simplistically as the limitations of forced ranking depend on a combination of factors. The leader’s theories (assumptions or ideologies) plus the organization itself figure in the conundrum.

As mentioned previously with the “Pygmalion Effect”, a leader’s theories of performance and ability become self-fulfilling. According to Jeffrey Pfeffer and Robert Sutton’s research described in Hard Facts, Dangerous Half-Truths and Total Nonsense, if a leader believes that ability is fixed and communicates this, employees will gage performance as related to where they fall with respect to their native intelligence (or, simply to the expectations of the leader-manager). On the other hand, if a leader views performance as more adaptable, employees will tend to see tasks as learning opportunities not tests of competence because of their so-called pre-ordained capabilities.

On the organizational side, NASA’s space shuttle program amply points out that being smart is not enough. Talented people cannot succeed in a flawed environment in which resources, help from colleagues and infrastructure are obstacles to success. For example, over 15 years of research in the auto industry underlines the importance of de-emphasizing status among employees. The lean or flexible production systems characterized by teams, training and job rotation result consistently in the building of higher quality cars at lower cost. This does not refute that there are differences in performance among employees. The system aims to help all employees perform better than they would within a culture that pits one against the other according to criteria which are suspect.

But wait. Smart and skilled people do fuel performance. Jim Collins Good to Great research found that getting the “right people on the bus” is more critical than strategy. Michael Schrage humorously points out that “a collaboration of incompetents, no matter how diligent or well-meaning cannot be successful”. We should not assume, however, that the top 10 per cent are “were it’s at” and the heck with the 90 per cent who don’t qualify.

Talent isn’t fixed, although IQ and conscientiousness are strong predictors. Just as important, talent depends on how a person is managed or led. Exceptional performance, according to Pfeffer and Sutton, happens when people work hard, have good coaching and believe they will keep getting better. We see this in many fields of endeavour: natural gifts cannot be manifested without lots of practice. It takes about 10 years of daily, deliberate practice to become a superstar, as University of Florida’s Anders Ericsson has found. Thus, leader-managers have a key role in hiring talented people and helping them become superstars.

Even creativity research supports this contention. Teresa Amabile and her colleagues in the Spring/Summer 2006 edition of the University of Toronto’s Rotman Magazine explain that people’s subjective experience at work matters as does the emotional side of their organizations. “Positive affective experience is related to outcomes such as job satisfaction and how creatively they will think on the job”. They found that when reactions to ideas are encouraging a virtuous cycle of creativity is established (and vice versa).

Albert Einstein said that “not everything that can be counted counts, and not everything that counts can be counted.” Many centuries before, Plato spoke of wisdom: “knowing what you know and knowing what you don’t know”. In these complicated times in which we live, a more conscious effort by leaders in all fields to “examine the unexamined’ will help us move forward not backward.