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Global The free business magazine featuring articles from the world's most prestigious business schools.

Also including articles from: OXFORD, COLUMBIA & HARVARD

Special HR issue


Global The free business magazine featuring articles from the world's most prestigious business schools. Quarterly: March, June, September, December. All articles are authorized reproductions

March 2014 h t t p : / /www. G l o b a l B u s M a g . c o m / info@globalbusmag.com Papegaaistraat 76, 9000 Gent Belgium


INSIDE this issue Editorial

5

Breaking Bad Leadership Habits

6

Havoc in the Workplace: Coping with ‘Hurricane’ Employees

9

Empowerment

14

Forget about CEOs, how should we pay employees?

16

Why 80 percent of front-line leaders flop (and how to break the cycle)

19

Redesigning Knowledge at Work

21

What your employees really think

27

The human drama

34

The Dark Side of Power

36


Editorial This special HR issue contains a selection of the most innovative and forwardthinking articles from 2013 in the field of HR and behavioural sciences from the world’s most respected business schools. We welcome your comments. Please let us know by email if you wish to receive next year’s HR issue: info@globalbusmag.com We encourage HR managers to incite their personnel to subscribe for free to Global magazine. Global provides managers with a conceptual and practical foundation for understanding and applying the latest techniques and insights in management, leadership and people management. Furthermore, the magazine features interdisciplinary articles on new trends in marketing, e-commerce, innovation, entrepreneurship, social media and much more. With Global your employees get free consulting and coaching from the world’s top experts. Global also invites Talent Managers to join a brand new Linkedin group. Not a group with meaningless, low level boring discussions like we too often find on Linkedin. We think there is a specific need for a Talent Management & Training group focusing on practical training issues to develop employees strengths and their ability to contribute within their organization. A variety of trainings are available, choices are endless. So what are the good ones? This platform allows you to confer with other Talent Managers about the quality and relevance of trainings, conferences, seminars or consultancy providers you are taking into consideration. Who had experience with them, what is their assessment? Are they as good as they claim? How customized are their trainings? How can you negotiate their fee? Value for money? Furthermore you can look for advice from your peers how to organize in house training or develop evaluation processes. Finally, we encourage members to post their messages and discussions on the second Tuesday of the month. Indeed, HR managers don’t have the time to view Linkedin pages and groups daily. This will ensure you only have to view the group’s page once a month. We look forward to your membership, you can click on this picture: Dr. Pierre Heyndrickx Director Global


Breaking Bad Leadership Habits Jean-Francois Manzoni, INSEAD Professor of Management Practice, The Shell Chaired Professor of Human Resources and Organisational Development

Leaders have to learn and practice new management techniques to overcome the habits that could be holding them back. In two articles, I examine the obstacles, and later, the factors that can help senior executives overcome them. We have known for a long time that leaders need to continue to learn throughout their careers. About 50 years ago, U.S. President John F. Kennedy, argued that “leadership and learning are indispensable to each other”. And about 40 years ago, Alvin Toffler became famous by saying that tomorrow's illiterate will not be the one who can't read; he or she will be the one who has not learned how to learn. This has become ever truer in the VUCA world. This Volatile, Uncertain, Complex and Ambiguous environment, characterised by an ever increasing rate of knowledge creation and change, increasingly demanding investors, employees, publics and regulators who keep presenting leaders with new challenges that require new types of responses. In that world, “what got (leaders) here may not get them there”, as Marshall Goldsmith put it a few years ago. In fact, increasingly, what got them here may not even help them stay here.

So it is absolutely necessary for leaders, including senior leaders, to continue to develop new responses and capabilities. Well, there’s good news: Years of leadership research shows that it is indeed possible for senior executives to learn new capabilities. Their personality does not change, but it does not have to. You can learn new skills, new capabilities – i.e., the ability to do something new effectively and without having to think about it too much – without having to change the set of preferences that we call our personality.

Mastering the cycle The bad news is that it is difficult to do. Despite being armed with greater access to knowledge and training than ever before, executives still need to be able to integrate that knowledge into their behaviour back at work. To do so, they must go through three major steps. First, one must identify a need for improvement. When we feel satisfied with our performance in a particular area, we don’t devote time and energy to improving it. The first step is hence to move from Unconscious Incompetence to Conscious Incompetence. Most of us have been here before. When learning to ride a bike, this was the part where we took off our training wheels and realised we couldn’t balance. We then have to master staying up straight, which moves us from Conscious Incompetence to Conscious Competence. This requires a tremendous amount of attention, practice and persistence, especially when you fall off. When practice makes perfect, you move from Conscious Competence to Unconscious Competence, “just like riding a bike”. Once you know it, you will always be able to do it without thinking. Unfortunately though, for senior executives, it’s even more complicated than a child riding a bike, because unlike the child, executives are not


trying to learn a new leadership behaviour from scratch. The new leadership behaviour will typically have to override an existing – and by now well ingrained – habit.

The four obstacles to change So how do we overcome these habits? First, let’s examine the obstacles. Over the last twenty five years I have spent more than one hundred days per year researching, consulting, coaching, teaching or facilitating meetings for executives, including as programme director of INSEAD’s new Leadership Excellence through Awareness and Practice (LEAP) programme, which has led me identify four major obstacles. 1.

The knowing-doing gap:

Today’s executives often know a lot about leadership; they’ve read books and articles, watched webcasts and videos, attended MBA or executive development programmes… But they tend to know a lot more than they do! Knowing something doesn’t guarantee that one can implement it. In fact, sometimes, quite the opposite! Knowing the words and having understood the concept can lead executives to think that they’re already implementing it. If they did not know or understand the concept they would devote more attention to it, but when they understand it and the whole thing makes a great deal of sense, it seems that “the box is ticked” – at least until the individual gets strong feedback that his or her behaviour actually does not

measure up. 2.

Insufficient investment:

Too often, today’s senior executives underestimate how much effort is required for them to learn new leadership knowledge in a way that will be helpful in practice. They are too quickly satisfied with a vague understanding of the principle and as a result they often underinvest in developing a more granular understanding of the concept and in ensuring that they remember this additional granularity clearly enough. If it’s not in your head you can’t use it under real time conditions. And if you want the knowledge to be in your head and usable quickly, you must make notes and review these notes regularly. To develop mastery of the practice, you must first develop mastery of the knowledge. 3. Implementation insufficient persistence

difficulties

lead

to

If we want to behave differently from the habitual response and more consistently with our new objective, we need to a) intercept the habitual response before it is produced (e.g., not say or do what we would normally say or do under these circumstances), b) search our mind to identify a more appropriate response, and c) produce that more appropriate response – all of this in real-time and under performance pressure. These three steps require significant time and attention, two commodities that senior executives tend to have in short supply. They


also require self-control, which recent research has shown functions a little bit like a muscle: Exercising it makes it stronger in time, but weaker in the short run. As a result, executives will often end up “reverting” to their “natural behaviour”, especially when they are not paying enough attention or they’re tired. Executives don’t like to fail and to feel consciously incompetent. The temptation is hence very strong to rationalise the failure away in order to be able to move back to the “unconscious incompetence” stage. 4.

Insufficient support from their ecosystem

When executives do manage to become conscious of their shortcomings and to invest enough time and energy to develop and practice new behaviours, they are often tripped up by their environment. The first disappointment occurs when executives fail to receive positive reinforcement on their efforts, as people with whom they interact fail to notice their efforts (because they are producing inconsistent outcomes and/or because the observers have blinders of their own). More problematic still, members of executives’ ecosystem – at work and at home – were used to interacting with them in certain ways, and changing an equilibrium is sometimes difficult. Some of these individuals

may be unwilling and/or unable to change the way they interact with the executives. For example, an executive working harder at delegation is going to need subordinates and peers who are willing and able to step up their contribution, which may be less comfortable for some of these individuals than complaining about the executive’s lack of delegation.

Overcoming the obstacles Each of these four challenges can be overcome through the application of a few enabling conditions. Most individuals will face more than one of these obstacles, which makes it hard to specify a set of enabling conditions that will apply equally well to all executives who wish to continue to develop their skills over time. However, with focus, mindfulness, reflectiveness and persistence, I will explain in the next article how these four pillars can help executives to develop their leadership skills throughout their career. Jean-Francois Manzoni is an INSEAD Professor of Management Practice, The Shell Chaired Professor of Human Resources and Organisational Development and the Programme Director of LEAP: Leadership Excellence through Awareness and Practice part of INSEAD’s suite of Executive Development Programmes. Read more at http://knowledge.insead.edu/leadershipmanagement/breaking-bad-leadership-habits3173?nopaging=1#RgWGz73ZGqwWBob5.99 The article above is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu


Havoc in the Workplace: Coping with ‘Hurricane’ Employees

They have been called many things: toxic, negative, dysfunctional, narcissistic, territorial, sociopathic, de-motivating, vampire-like. The words describe employees – from CEOs on down to mid-level managers and their subordinates – who tear through an office, disrupting everyone’s work environment and leaving a path of destruction in their wake before finally moving on, like a hurricane. Hurricane employees are nothing new: While most people have encountered some version of them during their working lives, HR practitioners and experts alike suggest that today’s business climate is more susceptible to their influence. Studies show that recruiters spend an average of five to seven seconds looking at resumes – focusing mainly on previous experience and salary requirements — while job seekers have learned to game the online application system by using words they know will trigger interest in their resumes. Candid reference checks beyond a person’s name and employment confirmation are rare. In short, it is harder than ever to predict whether the new hire on the block will meet the company’s needs or sabotage the company’s culture.

Blowing Away Social Networks Organizations experience hurricane employees in many different ways, but in general they are employees who “destroy the social fabric of the organization by creating friction, drama, tension and hostility among other employees,” says Michelle K. Duffy, a professor at the Carlson School of Management, University of Minnesota. Research has shown that “strong and healthy social networks lead to better outcomes for employees and organizations alike,” Duffy adds. “Hurricanes damage not only the people in the network, but also the ties among them.” Karol Wasylyshyn, a Philadelphia-based clinical psychological and executive consultant, recently looked for repetitive patterns of behavior among the hundreds of people she has coached over the past 25 years. She came up with three common personas, one of which she labeled “toxic” — people “who may be very bright and were hired into the organization because they have certain backgrounds, experiences or technical knowledge. But they are not able to think in an integrated way,” she says. “They are unproductive narcissists who consider only their own needs,” a self-absorption that acts as a “demotivating” influence on team performance. In short, “they contaminate the system.” Tim Withers, president and co-founder of Bostonbased Parallel Consult, a management consulting firm that focuses on family-owned and private businesses, describes a hurricane employee as “the antithesis of a team-oriented player…. It takes time, energy and momentum to build a team. It doesn’t happen overnight. A hurricane employee can [undo] a year of teambuilding within a couple of weeks.” While some hurricane employees bring varying degrees of difficult personalities into an organization, they can also be people who create havoc because they simply don’t fit into the culture. “When someone who has typically been a high performer as an individual contributor is


put into a role that requires working through others, not surprisingly,” it doesn’t end well, says Peter Cappelli, director of Wharton’s Center for Human Resources. “An employee who comes from a hard-driving culture of frank feedback, setting tough goals and badgering people to meet them — a culture where conflict is how things get done – will come across as very toxic in an environment where consensus and conflict avoidance are high,” adds Wharton management professor Matthew Bidwell. A company might say it wants people who are candid and straightforward, “but actually it doesn’t. It wants a friendly collegial atmosphere. So it’s important for a [company or team] to be honest with themselves about their culture.”

“Hurricanes damage not only the people in the network, but also the ties among them.” –Michelle K. Duffy Withers points to the “talent model” ethos popular in the financial services industry, among others. “A lot of people in hurricane mode come out of the talent model environment where there is little emphasis on building teams or rewarding groups. It is very much of a ‘me’ culture in which employees don’t mind burning down the bridges as long as they elevate themselves.” The source of dysfunctional behavior, however, is not always easy to determine. “I hear people say that a particularly disruptive person is acting out or can’t get with the program, but I think of that person as a symptom,” says Jeff Klein, executive director of the Wharton Leadership Program. “The problem tends to be around alignment within a team: Are we clear about the roles people play, about the norms and expectations, and about the way we work together? If the answer to any of these questions is no … then the problem may be at the group level, or it could between two people. It is rarely the person.”

Hurricane behavior, whatever its origin, tends to be found these days in large organizations that experience high turnover. “Companies are trying to plug holes so fast that it is challenging to build teams and teamwork,” says Withers. “They don’t get to know people on a personal level.” It becomes especially tricky when a hurricane employee is also the top sales person in the company. “If the organization has a good culture, it will be clear that the primary goal is to create a good team and build efficiencies across groups,” he notes. “Another company, however, looks at the quarterly numbers and sees that this person is producing twice as much as the person next to him.” Consequently, it is slow to act on the dysfunction that the employee is causing. “And once leaders are slow to act, they are crushing the internal culture even more because they are showing that they are willing to put up with the hurricane employee despite the disruptions he brings.”

Discounting EQ Emotional intelligence, or EQ, a phrase dating back several decades, was popularized in a 1995 book by Daniel Goleman titled, Emotional Intelligence: Why It Can Matter More Than IQ. In general, the term refers to one’s ability to build relationships by understanding other people’s emotions and motivations as well as his or her own. EQ has gained increasing importance as both academics and management practitioners acknowledge the role that emotions – as opposed to more measurable metrics such as IQ, technical skills or analytical ability — play in the workplace. Research in this area includes analysis of the influence that hurricane employees — or “bad apples” as they are often termed – have on the organization as a whole. Different studies show, for example, that negative interactions have a more dramatic – and long-lasting – impact on individuals and groups than positive interactions. This phenomenon is evident in other kinds of interactions as well,


such as performance reviews, in which employees tend to focus on the negative comments made by their supervisors more than they do on the positive comments. Sandra Robinson, a professor at the Sauder School of Business, University of British Columbia, suggests that hurricane employees “are more likely to show up when hiring managers pay too much attention to task competencies, formal credentials or experience over seriously weighing and considering the individual’s character or potential fit with the culture…. The former is easier to evaluate and more likely to dominate the decision process.” Robinson has seen two cases where the job candidate raised red flags during the interviews: One involved a top executive “who went out of his way to tell anyone who would listen that he had very high emotional intelligence. Another elaborated upon how he manipulated his way into a corner office in his last position.” Wharton management professor Sigal Barsade has spent two decades researching the area of emotions and work dynamics. In a paper titled, “Why Does Affect Matter in Organizations?” Barsade and co-author Donald Gibson of Fairfield University’s Dolan School of Business note that “affect matters because people are not isolated ‘emotional islands.’ Rather, they bring all of themselves to work, including their traits, moods and emotions, and their affective experiences and expressions influence others.” (“Affect” is another word for “emotion” in organizational behavior studies.)

“If a leader is not holding everyone to the same standard, that will erode employee loyalty.” –Jeff Klein In another paper titled, “The Ripple Effect: Emotional Contagion and Its Influence on Group Behavior,” Barsade looked at emotional contagion – the way a person or group can be influenced by emotions and/or the behavior of others. A group, she writes, “could unknowingly

be affected by a particular negative group member … who causes the entire group to feel apprehensive, angry, or dejected, leading to possible morale and cohesion problems, unrealistic cautiousness, or the tendency to disregard creative ideas.” The better approach is for group members to acknowledge the contagion and “understand its possible ramifications for their group dynamics and decision making.” That, of course, is easier said than done. In “How, When, And Why Bad Apples Spoil the Barrel: Negative Group Members and Dysfunctional Groups,” authors Will Felps, Terence R. Mitchell and Eliza Byington study how the behavior of one negative group member “can have [a] powerful, detrimental influence on teammates and groups.” The authors cite three types of destructive team member behavior: “withholding of effort, being affectively negative and violating important interpersonal norms.” Teammates themselves, the authors note at one point, “may not have the power needed to respond to a negative member. In many cases, group members may look to their leader to punish” the offender. A leader or leaders who aren’t up to the task “may allow a negative person to persist in their destructive activity.” The authors cite other research suggesting that negative relationships “have a greater impact on job satisfaction and organizational commitment than do positive or neutral associations” – an example of the “bad is stronger than good” effect already noted. In addition, “negative effects are more pronounced in high density, high interdependence situations, [such as] teams.” Finally, as the authors note in their conclusion, when an individual in the workplace begins to display negative behavior, “it consumes inordinate amounts of time, psychological resources and emotional energy,” and it may “underlie many people’s reluctance to fully commit to teams.” Management commentators frequently cite a study done by Felps, a professor


at Rotterdam School of Management, demonstrating that one negative employee can cause his or her team’s performance to drop by 30% to 40%.

and are not welcome.”

When Leaders Let Down the Team

How does an organization steer clear of hiring, or promoting, hurricane employees? These mistakes “could be avoided with a little more care,” says Cappelli. “They often occur when senior managers buy into the vision of change that the employee presents – the goals – and don’t think through how likely it is to be achieved.” If prospective top-level hires “don’t explain how they are going to go about changing the operation, if they don’t talk about the role their subordinates will play, if they are only talking about themselves” – those are all tip-offs that this person might be a problem.

Does the manager who hired a hurricane employee find that his or her staff may no longer trust his judgment, or feel he is not looking out for the welfare of the team? Absolutely, says Cappelli, but “but my guess is that in these situations, the team already knows that, because feedback from the team probably wasn’t part of the hiring process. Often these candidates are brought in with the goal of ‘shaking things up.’” Bringing in a person who is “just not getting with the program threatens the leader’s credibility and authority,” adds Klein. “Ultimately, one of the things a group looks for in a leader is stability around how that group is going to function. If a leader is not holding everyone to the same standard, that will erode employee loyalty.” Wasylyshyn agrees. When a manager keeps hiring employees who don’t work out, then the staff will begin to feel they can’t trust the manager’s judgment, she says. “Or they may wonder if the manager really believes in teambased leadership. Because if he does, why does he keep importing hurricane employees?” Hurricane employees “cost companies a lot of money in ways that may not be obvious,” says Duffy. “Even if they are star performers … they can be quite damaging to the bottom line through lost work hours, people avoiding the hurricane, talking about the hurricane, being worried about dealing with the hurricane, witnessing others harmed by the hurricane and so forth.” The way to avoid this situation, she adds, is for leaders to define their company’s code of conduct as part of the job. “Some companies, like Southwest Airlines, explicitly make it clear that employees who verbally, emotionally or physically damage others are not part of the team

Hurricane Prevention: Avoiding a Category 5

Hiring mistakes can occur “when senior managers buy into the vision of change that the employee presents – the goals – and don’t think through how likely it is to be achieved.” –Peter Cappelli Klein, who led teams at AT&T for 10 years before coming to Wharton, says managers can test job candidates’ fit in the organization in several ways. One is to set up a virtual inbox in which the job candidate is asked to review six pieces of information and decide how to respond to and prioritize them. Another approach is for candidates to participate in a half-day simulation where they work in teams on a project, such as building small cars out of paper. “The task doesn’t matter,” Klein says. “What we are looking at is the way these people interact over a longer period of time. Usually the results corroborate what we have already seen, but occasionally there are people who are revealed as potential hurricane employees — destructive, demanding, self-focused as opposed to teamfocused. The trade-off for the company is that this approach takes time.”


Klein points to a colleague who operates a series of climbing gyms. “He won’t hire someone until he has gone climbing with [him or her] at least six times.” Companies with better track records, he adds, pay attention to two things: selection – does the employee’s attitudes toward work mesh with the company’s approach – and training, one way that the company indicates it is willing to invest in the new employee. Too many companies “are looking for a certain pedigree, a certain set of experiences, but fail to pay attention to the behavioral side,” says Wasylyshyn. When they write their job specs, they don’t include a section describing the behaviors they would like to see in the candidates, such as interpersonal skills, ability to work in a team-based environment or executive presence. “It’s important to flesh out what it would take for a person to fit into the company’s culture. Doing this is not rocket science.” The tip-off that a candidate may not be a good fit, she adds, comes from someone who might present an aggressive profile and who is focused on results, but has little to say about how he or she would get things done, given the nature of the company’s culture. “So they will sound strong on the ‘what’ but not on the ‘how,’” says Wasylyshyn. “Their relationships are primarily transactional, not connective.” One company that stands out in the hiring process, in spite of its size, is LEGO, the number two toymaker in the world. According to a November 14, 2013, Wall Street Journal article, the company recently filled several openings for designers by inviting 21 men and women to spend two days (at LEGO’s expense) at headquarters in Billund, Denmark. Rather than go through formal interviews, the candidates were asked “to sketch and build LEGO sets in front of a panel of senior designers.” The men and women were judged not just on their design concepts – including “color schemes, buildability and the elusive element of fun” — but also on “the way they interacted with each other.” After

all, as the article pointed out, the town of Billund has just 6,500 inhabitants and “night life is limited to an Irish pub.” "Republished with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania."


EMPOWERMENT Or, when the apes run the zoo

By IMD Professor Stefan Michel - October 2013 Empowerment means that individual employees are given increased freedom to take decisions and can choose the best solution depending on the situation. The English word “empowerment” is used in German to describe this phenomenon, because the corresponding German term “Ermächtigung” has negative historical connotations. The opposite of empowerment is thus working through detailed checklists, assembly-line work and following defined procedures. Two trends favour empowerment. Firstly, flat hierarchies have greatly fostered the prevalence of empowerment. Flat hierarchies mean that the number of management levels is reduced, which mathematically is only possible if the span of control is increased. In other words, managers have more employees under their direct supervision. This gives them less time to manage these individuals directly and they have to delegate decisions downwards. Secondly, the transition from an industrial society to a service-based economy has led to a seismic change in work methods and tasks. It is hardly surprising that empowerment holds great appeal for service providers in particular: after all, each

and every customer interaction is unique and no checklist can cover every eventuality. The fastfood chain McDonald’s is the exception that proves this rule. Many service providers put the onus on seeking customer-tailored solutions, and this in real time. Service processes are often highly complex as they imply the coordination of several partners. A good example of this is a flight from A to B, in which several hundred companies are involved in some way – from the airline to the car rental company for the cleaning staff. Empowerment should enable employees, via direct contact with the customer, to identify the customer's needs, find a solution with the customer, coordinate the necessary resources and supervise the successful conclusion of the customer experience. Well, that's the promise. However, there are three problems, because when everyone does as they please, no-one knows what is being done. On the management level there is therefore the risk of “the apes running the zoo”, to quote the provocative title of Stefan Kühl's book. On the employee level, there is the risk that it is too difficult for employees to make the right decisions because they lack the relevant training, are not motivated, and may be punished rather than praised. Thirdly, a point which is often forgotten is that empowerment can be irritating for customers. They receive inconsistent service and are subject to the whims of the individual employees.

The Empowerment formula My colleague David Bowen, Human Resources Professor at the Thunderbird School of Global Management, has therefore developed an empowerment formula which indicates that the success of empowerment is dependent upon four factors: skills (S), information made available (I), motivation (M) and decision-making competency (D). The formula does not take account of corporate culture. This is not an isolated factor, but one which influences all the other factors. However, this puts us in a chicken-


egg paradox. Empowerment encourages an open, positive, customer-oriented corporate culture, but this culture is a prerequisite for successful empowerment. Management can therefore foster empowerment through these four factors – and simultaneously influence corporate culture. Empowerment = S x I x M x D

Skills Employees who need to take decisions in complex processes need the skill to identify connections quickly and precisely in order to find the best solution. To continue the example of the airline: if a flight is cancelled, this has farreaching consequences. For example passengers may need to be booked onto another flight; overnight accommodation and transport options may need to be found; there could be issues with luggage; the crew and the airplanes may be grounded at the wrong airport etc. An airline passenger travelling on the last day of validity of his visa has to apply for an emergency visa, another passenger has missed his meeting and wants a return flight and his expenses reimbursed. Some of these procedures can be carried out using checklists, but many decisions can only be taken if the employees involved are trained and understand the various repercussions.

Information Empowerment is risky, because individual errors can often have far-reaching consequences. Employees must therefore have various types of information at hand, to allow them to find the right solution rapidly. First of all, they have to have access to the data which is relevant for the current clients. To take the example of a hospital, this would certainly include the patient files with all test results. When teaching a class, a lecturer must know what stage the students are at and what learning objectives are to be fulfilled. Although it may seem trivial, we as consumers experience situations every day in which we wish that employees knew that we were already customers and were aware of the products and

services we use. Accessing internal information is, however, even more difficult. Managers cannot expect employees to be able to make the right decisions when they do not allow any transparency with regard to expenses, profit margins and other command variables. This transparency is necessary, but it does however entail management giving up a major source of power (“Knowledge is power”).

Motivation Most employees want to do their job well. Particularly good performances should be rewarded, either financially (bonus, pay rise) or in a non-monetary way (promotion, increased responsibility, more autonomy, praise at the right time). If we assume that employees do not make mistakes on purpose, then we have to ask ourselves the following questions with regard to empowerment: how should employees be rewarded when they make the right decisions, and what happens when they make mistakes? However, another delicate issue is: what happens when employees do not make any decisions? As the saying goes, “You can't make an omelette without breaking eggs”, and employees might prefer not to make an omelette to ensure that no eggs are broken. Managers are therefore faced with the task of creating a structure of incentives that encourages pro-active behaviour even when this leads to mistakes.

Decision-making competency Employee decision-making competency is at the core of empowerment. However, we consciously chose to place it at the end of the calculation. Mathematically, of course, this has no bearing, but as a management principle, decision-making competency should only be given to employees when they have the necessary skills, access to the relevant information and the ability to use this. And only when they understand that taking proactive decisions is worthwhile, even if it can lead to error. Every management concept is only worth as


much as its implementation. How can managers apply the empowerment formula in practice? The first step is undoubtedly to create clarity about the goals of the organisation in terms of empowerment. Secondly, employees should be involved in analysing the current situation and identifying weaknesses. The empowerment formula can be useful here in providing a structure. In a subsequent step, empowerment can be enhancedin short workshop sessions. Here, it is essential that employees are also given and feel responsibility for the successful implementation of empowerment.

Forget about CEOs, how should we pay employees? By Vanessa Sumo, Hal Weitzman Many large firms award year-end bonuses based on the total profits earned by a company or a division. But, with the exception of a firm’s top executives, such bonus plans are a poor incentive for rank-and-file employees, says Michael Gibbs, clinical professor of economics at Chicago Booth.

Professor Stefan Michel is Director of IMD’s In all but very small companies, each individual EMBA program. For fast-rising, internationally employee is unlikely to have a noticeable effect experienced executives, IMD now offers two on the entire company’s profits. “The signal-toEMBA sessions per year. noise ratio is nearly zero, so such an approach is tantamount to using a lottery ticket as the This article first appeared in Tages-Anzeiger performance measure,” writes Gibbs in a 2012 The article above is republished courtesy of study. http://www.imd.org/research/challenges/ Plans like these are probably used because they are easy to administer, but that’s not a good justification if they don’t motivate. Instead, an employee’s evaluation should reflect the effects of his or her actions on the company. Performance reviews are the most important component of a good incentive plan, says Gibbs. But choosing the right mix of numeric and subjective measures is tough—and important.

Problems with numbers Numeric goals have an advantage: employees know how they will be evaluated and how close they are to achieving objectives. The goals leave little room for argument and are, in theory, beyond manager discretion. However, no numeric measure is perfect. One potential flaw is that numeric measures ignore intangible activities such as service and innovation. A manager whose bonus is based on annual profits might avoid spending money on plant maintenance or research and development,


for example. Another flaw is that company performance measures such as stock prices can be too broad to motivate employees. While incentive pay shouldn’t depend on uncontrollable risks, companies ought to reward employees for uncertainties they can manage, says Canice Prendergast, W. Allen Wallis Professor of Economics and Booth Faculty Fellow at Chicago Booth. Imagine a firm with large-scale construction projects around the world, Prendergast says. The company has more experience in, say, Canada, than in Armenia. “If one were to make predictions about compensation using the standard trade-off between risk and incentives, one would expect to see more pay for performance for the project manager in Canada than in Armenia, since the manager’s performance can be measured more precisely in Canada,” writes Prendergast. If the Armenian manager’s performance and pay are tied to the profitability of the project, the uncertainty in her pay is beneficial for her and the company. By tying pay to the performance of the project, the company delegates decision making to the Armenian manager, which compensates for the firm’s lack of information about the country and pushes the project manager to figure out the best way to perform the job. The information advantage that employees have over their supervisors can sometimes be used to manipulate performance measures in damaging ways. Consider a hospital that measures surgeons’ performance solely by the number of deaths on their watch, says Prendergast. Surgeons could improve their evaluation by operating only on patients with simple medical problems, avoiding more complex cases.

The importance of judgment Subjective evaluation by supervisors can address the shortcomings of numeric measures, Gibbs says. When numeric measures focus employees on one goal, a second, subjective bonus can make

employees pay more attention to other objectives that may be difficult to quantify, like managing controllable risks. If a plant manager’s bonus depends on profits alone, he might postpone maintaining equipment. A supervisor can motivate the plant manager to consider the longer-run profitability of the machines if part of the bonus is discretionary. A subjective review can also help deter manipulation if employees know their supervisors will assess them beyond numeric targets. If a supervisor suspects that an employee has manipulated a performance measure, the employee will be penalized accordingly. Foreseeing this may deter such manipulation in the first place. In a survey of 250 US car dealerships, Gibbs and his coauthors find empirical support for these ideas. Discretionary bonuses mitigated the flaws inherent in numeric-based bonuses, helped motivate managers to make long-term investments, rewarded cooperation across departments, and kept sales managers motivated during events such as an economic downturn, when sales targets were tough to meet. In other words, they allowed owners to avoid punishing employees too much for bad luck that was not within their control. Finally the research team found that discretionary bonuses were more likely to be used if numeric measures were reported to be easier to manipulate—evidence that subjectivity is used to punish and deter manipulation. Granted, subjective evaluation isn’t perfect. “Subjectivity opens the door to favoritism,” write Prendergast and Robert H. Topel, Isidore Brown and Gladys J. Brown Distinguished Service Professor in Urban and Labor Economics at Chicago Booth, in a research paper on favoritism in organizations. Discretion allows supervisors to play favorites with their staff. Knowing that bosses can be bribed encourages employees to spend time currying favor with bosses, ignoring more productive tasks. It’s also harder for


companies to tell who truly deserves a promotion or reward if supervisors tend to favor certain employees. A good performance rating could be due to either favoritism or a genuinely good performance. Even a hint of favoritism in the workplace could make it hard for employees to trust their supervisors. “If subordinates do not trust their evaluators to make informed and unbiased assessments, then the result could be employee frustration, demotivation, and turnover,” write Gibbs and his coauthors. In the study on car dealerships, managers who had been working at a dealership for a long time, which suggests that they were more likely to trust their supervisor to give them a fair evaluation, were happier with the discretionary bonuses they received. Rewards based on subjective reviews also increased sales productivity and net profit per employee among sales managers with more tenure at a dealership. Greater trust makes incentive plans more effective. Empirical studies of subjective evaluation are rare, because it is difficult to quantify the concepts. The paper by Gibbs and coauthors that focused on this topic was awarded the Notable Contribution to Management Accounting Research award by the American Accounting Association. This article originally appeared alongside Are CEOs overpaid? The case against.

Works cited Michael Gibbs, “Design and Implementation of Pay for Performance,” Oxford Handbook of Managerial Economics, Oxford University Press: July 2013. “Designing Incentive Plans: New Insights from Academic Research,” World at Work Journal, Fourth Quarter 2012. Michael Gibbs, Kenneth Merchant, Mark Vargus,

and Wim Van der Stede, “Determinants and Effects of Subjectivity in Incentives,” Accounting Review, April 2004. Canice Prendergast, “The Provision of Incentives in Firms.” Journal of Economic Literature, March 1999. “The Tenuous Trade-off between Risk and Incentives,” Journal of Political Economy, October 2002. Canice Prendergast and Robert H. Topel. “Favoritism in Organizations.” Journal of Political Economy, October 1996. http://www.chicagobooth.edu/capideas/magazine/ fall-2013/how-should-we-payemployees?cat=business&src=Magazine


Why 80 percent of front-line leaders flop (and how to break the cycle) “A leader is best when people barely know he exists. When his work is done, his aim fulfilled, they will say: we did it ourselves.” Lao Tzu

By Jennifer Johnson You know the scenario. After a year of performing exceptionally, Emily, a mid-20s analyst, moves to a manager role supervising three former peers. Within weeks, Emily’s manager observes that she stays late every night, completing work that should be done by her team. After promising to delegate, Emily regresses. Her team members have disengaged, and Emily shows signs of burnout. All are considering leaving the company. If you work in a professional environment, then chances are you have witnessed a front-line leader like Emily fail. You have worked for an overwhelmed front-line leader, been one yourself, and hired or promoted one. You have watched as he struggled to balance the work he felt responsible to complete, unable to delegate effectively and unable to manage the anxiety growing within himself and his team.

In its study, “How Companies Manage the Front Line Today,” McKinsey found that 80 percent of front-line leaders report dissatisfaction with their job performance, and 70 percent of senior managers agreed. These failures create many unintended and expensive consequences. Employees cite their manager as a primary reason for leaving an organization. The cost for organizations is staggeringly high. Research suggests it costs roughly 50 percent of an employee’s salary to find and train a replacement. For a company with 10,000 workers, the estimated cost to replace entry-level workers is $11.5 million annually. This figure does not take into account the more


common outcome: employees stay but produce less, with lower quality. Given that front-line leaders manage a majority of the workforce, companies have a compelling business case for providing them with the tools they need to be successful. So, what can senior managers and companies do to help front-line leaders? The answer starts with understanding what motivates front-line leaders. Throughout their early careers, they are rewarded for completing tasks and solving problems. Presented with a challenge, they work to overcome it and earn praise and satisfaction for a job well done. Over time, a three-part cycle [see figure] becomes a conditioned pattern. New managers begin to anticipate a reward as soon as they encounter a challenge. Those with the strongest desire are most likely to be promoted to leadership roles. However, when an individual contributor becomes a front-line leader, the cycle is disrupted. Literally overnight, with a promotion to front-line leadership, the new manager is expected to forego two steps in the cycle: the action and the reward. Not surprisingly, and in too many cases, she adapts poorly to the new behavior required (e.g., delegating) and reverts to the old habits of working as an individual contributor. Successful companies recognize that habits eat intentions for breakfast. Despite intending to delegate to their team members, habitual patterns take over and front-line leaders find themselves doing the work. They justify stepping into situations involving high stakes (whether or not the situation warrants it) or erroneously believe that the best way to teach others is to have them observe. Thus begins their struggle to accomplish more work than can be completed by one person, and their team members quickly become alienated.

Thankfully, this outcome can be avoided. If guided correctly, new managers can progress smoothly from individual contributor to frontline leader and beyond. This occurs when frontline leaders learn to acknowledge the cycle and modify their behavior rather than fight it. Instead of seeking praise as a reward, front-line leaders learn to take pleasure in the successes of their team members. Their own managers can help as well. When senior managers make clear to frontline leaders why they must delegate, reward them for doing so, and hold them accountable when they don’t, they retain the most important part of the cycle—the reward—and make the new behavior easier to achieve and sustain. Once front-line leaders equate the success of their direct reports with their own success, other behaviors, such as coaching, mentoring, and giving feedback, become easier to put into

practice. The new way of behaving lowers the risk of employee turnover and creates more engaged, higher performing teams. A virtuous cycle has replaced a doomed one. For more information on Thunderbird Executive Education’s work with front-line leaders, contact Jennifer Johnson at (602) 978-7354. The article above is republished courtesy of http://knowledgenetwork.thunderbird.edu/researc h/ http://www.thunderbird.edu/article/why80-percent-front-line-leaders-flop-and-howbreak-cycle


REDESIGNING KNOWLEDGE WORK MARTIN DEWHURST, BRYAN HANCOCK and DIANA ELLSWORTH © 2013 Harvard Business School Publishing Corp. Distributed by The New York Times Syndicate

HOW TO FREE UP HIGH-END EXPERTS TO DO WHAT THEY DO BEST. Experts with prized skills are too rare to squander on jobs others can do. That’s why some organizations are relieving their valuable talent of those responsibilities so that they can spend more time on the tasks only they can perform – by redesigning job roles within the company or by turning to external providers of specialized expertise. Consider these examples: + Orrick, Herrington & Sutcliffe, a San Franciscobased law firm with nine U.S. offices, shifted routine discovery work previously performed by partners and partner-tracked associates to a new service center in West Virginia staffed by lowerpaid attorneys. + The Narayana Hrudayalaya Cardiac Hospital in Bangalore has junior surgeons, nurses, and technicians handle routine tasks such as preparing the patient for surgery and closing the chest after surgery. Senior cardiac surgeons come to the operating room only when the patient’s chest is open and the heart is ready to be operated on. This approach helps the hospital provide care at a fraction of the cost of U.S. providers while maintaining U.S.-level mortality and infection rates. + In the United Kingdom, a growing number of public schools are relieving head teachers, or principals, of administrative tasks such as

budgeting, human resources, facilities maintenance, and community relations so that they can devote more time to developing teachers. In today’s knowledge economy, competitive advantage is increasingly coming from the particular, hard-to-duplicate know-how of a company’s most skilled people: talented (and highly paid) engineers, salespeople, scientists, and other professionals. The problem is that across the private, public, and social sectors there aren’t enough knowledge workers to go around. And the situation promises to get worse: Recent research by the McKinsey Global Institute suggests that by 2020 the worldwide shortage of highly skilled, college-educated workers could reach 38â(euro) ¯million to 40â(euro) ¯million, or 13 percent of demand. In response, some firms are taking steps to expand the talent pool – for example, by investing in apprenticeships and other training programs. But a number of companies are going further: They are redefining the jobs of their experts, transferring some of their tasks to lowerskill people inside or outside their organizations, and outsourcing work that requires scarce skills but is not strategically important. Such moves aren’t new, of course. Firms have long been carving off repeatable, transactional work – such as call center services, payroll, or IT support – and either shifting it to lower-cost locations or outsourcing it. What is new is that companies are now doing this with knowledgebased jobs that are core to the business. In the past five years, we have worked with or studied more than 50 companies in a wide range of industries on talent management issues. We found that redefining high-value knowledge jobs not only can help companies address skills shortages. It also can lower costs and increase job satisfaction. Some organizations are already familiar with ways to break work into highly specialized


pieces. In this article, we’ll show how to do that for high-end knowledge work. The process involves several basic steps: identifying the gap between the talent your firm has and what it will need; creating narrower, more-focused job descriptions in areas where talent is scarce; choosing from various options for filling the skills gap; and rewiring processes for talent and knowledge management.

IDENTIFY THE SKILLS GAP The first step in redesigning knowledge work is to conduct an inventory of skills and create a detailed estimate of the kinds and amounts of skills your firm will need to execute its strategy over the next five years or more. This will require a thoughtful discussion among top managers, leaders of business units, and HR team members, and should be part of the strategic-planning process. We’ve found that many companies don’t have this conversation. They simply reuse the job descriptions already embedded in their organizational chart, year after year, and become alert to the need for new skills only when they find themselves having to play catch-up to moreprescient competitors. Companies must be explicit and precise in defining their must-have skills. Here are some illustrations: + A multichannel retailer may determine that to beat online competitors, it will need not only consumer-insight experts with the analytical skills to mine vast amounts of consumer data but also marketing specialists who can build a brand using social media. + A professional services firm may require deep expertise in certain industry-specific niches to address the needs of its clients – for instance, capabilities in credit-risk modeling for financial institutions or patent law for semiconductor manufacturers.

+ A consumer goods company may discover that it needs a cadre of general managers and marketers with proven track records in emerging markets to maximize its potential in geographies projected to account for more than 50 percent of world economic growth over the next decade. + A pharmaceutical firm, in light of the intensive data analytics now involved in that industry, may need more bioinformatics experts with both scientific and technology expertise.

IDEA IN BRIEF A worsening shortage of high-skill knowledge workers is one of the biggest challenges facing organizations. These talented and highly paid experts – doctors, lawyers, engineers, salespeople, scientists, and other professionals – are companies’ most valuable assets. In response, some firms are redefining the jobs of their experts, transferring some of their tasks to lower-skill people inside or outside their organizations, and outsourcing work that requires scarce skills but is not strategically important. Redesigning jobs in this fashion involves several basic steps: identifying the gaps between the talent your firm has and what it will need; creating narrower, morefocused job descriptions in areas where talent is scarce; choosing from various options for filling the skills gap; and revamping talent- and knowledgemanagement processes to accommodate the new way of working.


After identifying the critical skills your strategy will require, create a detailed inventory of how many people in your organization possess them. Then estimate how those numbers will change over the next five years given the current pace of hiring, training, moves, and retirement. This analysis typically demonstrates that demand is higher than expected – and that the likely supply (at least internally and potentially externally) will fall short without significant action. Such skills gaps can put key strategies at risk. For example, one global construction company we worked with discovered that it had only a third of the experienced leaders it needed to execute its strategy in China. Unfortunately, many companies do not rigorously document their employees’ specialized skills in either hiring or annual performancemanagement processes. One financial services firm whose market position was slipping wanted to staff its marketing department with people who could think strategically. It suspected that such strategic thinkers already worked in different parts of the organization, but that skill was not explicitly listed in job descriptions. HR staffers realized that to identify credible candidates they would have to comb through every employee’s performance evaluations and read between the lines. Precision in identifying the must-have skills is crucial. An airline may underappreciate its current talent pool if it defines its scarce skill as “revenue management” rather than “generating insights from large data sets.” The latter is likely to be an underlying skill present in many areas of the company, including marketing and operations planning. One mining company we worked with developed detailed descriptions for every key role, specifying not only job responsibilities but also the required skills (“ability to understand financial models”), competencies (“leadership courage”), and mind-sets and behaviors (“strong sense of purpose in initiating difficult conversations”).

Some companies now focus on competencies rather than tasks in employee evaluations. Two people in the same role, when evaluated solely on tasks, could both be high performers but might have different underlying competencies; conversely, two people in very different roles might have the same underlying competencies. Their competencies have implications for what their career paths could be and where the organization could best use them today and five years down the road.

ANALYZE HOW SKILLS ARE UTILIZED Once your company has identified its talent gaps, it must then determine the workforce implications: Should current and future roles be restructured? How should recruitment, hiring, and training change? What new talent sources, if any, should be considered? Begin by assessing how effectively your company is leveraging existing talent. That will provide insights into how it might better utilize scarce experts. A number of tools can be used to do this: TIME ALLOCATION SURVEYS, in which people document how much time they spend on tasks, can produce eye-opening results. Companies often find that highly skilled people are spending significant amounts of time on general management or administrative activities that don’t require their scarce skills. A retail bank, for example, discovered that its salespeople were spending a mere 25 percent of their time selling and the rest on administrative work, such as rewriting contractual documents and processing orders, and other activities. SOCIAL NETWORK ANALYSIS, a quantitative method for surfacing and depicting informal interactions among people in an organization, can show which individuals are sought out for different types of expertise and how they are connected to others in the company who need


their skills. A professional services firm we worked with discovered that only three people in one of its largest divisions controlled access to experts whom many in the firm relied on, constraining them from working effectively with the broader business.

and its cost; assessing the actual versus aspiredto quality of the end product; identifying the people deployed at each step of the process; and using that information to identify opportunities to simplify the process and ensure a good match between skills and tasks.

ANALYSIS OF OUTCOMES OR VALUE can be used to quantify the effectiveness of any given contributor or process. Some companies use assessment surveys to determine whether experts feel their skills are well matched to their current roles and to understand how colleagues perceive experts’ performance. Other companies evaluate the process for getting to an end product. (For a marketing department, an end product could be a brand plan.) The analysis involves mapping the current process and figuring out the time it takes

REDEFINE JOBS Using the results of a skills-gap analysis, your company can redefine jobs to ensure that experts devote almost all their time to tasks that require their specialized skills. One organization that has embarked on an ambitious program to do this is the division of the United Kingdom’s National Health Service that serves London. In its quest to make the most of scarce resources, NHS London took a close


look at the entire “patient journey” through its system, including the locations where patients receive care, the practices that have led to the best patient outcomes, and the skills required to deliver high-quality care. Through interviews, observations, and time allocation surveys, the leaders of the effort identified opportunities to redesign roles. For example, to ensure that specialist doctors and general practitioners at independent providers could focus more on the tasks that they alone could do, NHS London recommended that the local NHS trusts shift some of their clinical and administrative responsibilities to nurses, paramedics, and assistant practitioners. To smooth transitions into the redesigned roles, NHS London created new training programs for both clinicians and the senior managers who would lead the change. In redefining jobs, companies should also consider technological advances that make it easier to perform work remotely. Companies and employees today have more choices for where work is done and by whom. In cases where inperson interactions and sophisticated judgment are core to value delivery – performing medical procedures, sales, and giving financial advice fall into this category – the goal is to redesign the role so that people are spending all their time at the high end of their skill set.

locations. This is happening in the U.S. legal industry, where clients are increasingly questioning the traditional full-service model of lawyers who charge $300 an hour or more for their time, regardless of the task. For instance, fewer companies are willing to pay high hourly fees for routine discovery work. In response, more law firms are shifting such tasks to lower-cost employees, some of whom are located remotely. As we mentioned above, Orrick shifted discovery work to a service center staffed with salaried attorneys who aren’t on a partner track, which has allowed the firm to significantly lower costs without sacrificing quality. Other law firms send discovery-related tasks to attorneys who are employees but work from home and charge lower rates in exchange for flexibility. Regardless of how a company chooses to virtualize work, a performance management system is crucial to success. Performance of individuals who work remotely should be regularly reviewed. Managers may need training to do this effectively. A U.S.-based cable company, for instance, created a program for supervisors of remote employees that teaches them how to manage results, not activities.

If tasks are appropriately segmented, a lowercost solution shouldn’t mean inferior quality work. When a provider of data storage and management solutions we worked with separated sales and post-sales support tasks, it freed up key personnel to spend more time selling – and it allowed the company to provide better customer service after the sale, increasing customer satisfaction. Consider the following options for disaggregating tasks:

OUTSOURCING OR CONTRACTING. When a company has a onetime or infrequent need for expertise (an oil company needs a certain type of engineer for a specific project or an auto parts firm needs specialized expertise to develop a pricing model) or when a firm experiences periodic surges in demand for certain skills, hiring an external provider could be the best option. In recent years, the availability of highly capable “knowledge professionals on call” has increased.

VIRTUALIZATION. Tasks that require scarce skills but do not depend on in-person interaction or physical proximity – screening mammograms or conducting complex pricing analytics, for example – can be shifted to people in less costly

In making the decision to outsource, organizations should consider strategy as well as cost: Does having direct ownership of the work confer any competitive advantage? If so, keep that work in-house and make sure that those


responsible for the work are freed from lowervalue tasks that others could accomplish. If a company does decide to outsource, it must take pains to connect its external providers to the broader organization. This starts with an orientation or onboarding program that gives contractors an insider’s understanding of the firm and provides them with points of contact. The company must facilitate frequent interaction and communication between contractors and internal experts and decision makers, and establish a wellthought-out process for the handoff of work to internal owners.

Aggressive companies are shaking off conventions about where, how, and by whom knowledge work is done. Without those mechanisms in place, external providers may produce work that is technically accurate but lacks company-specific nuance or the internal buy-in necessary for it to stick. A case in point: A midlevel executive at a large retailer contracted with an analytics firm in India to run detailed analyses to inform the retailer’s pricing strategy. The firm produced high-quality technical work, but when the results were shared with senior management, they fell flat; they were seen as “interesting” but disconnected from the overall sales strategy – especially since an internal group at the retailer had undertaken similar but less sophisticated analytics and reached different conclusions. Had the executive linked the analytics firm more closely to people in the business who had historically set pricing strategy or had he briefed the contractors about the company’s broader business strategy and objectives, the project would have delivered much greater value.

REWIRE PROCESSES FOR TALENT AND KNOWLEDGE MANAGEMENT The solutions we’ve described will be effective only if an organization also retools its processes

and culture to support the new ways of working. In particular, firms must learn how to manage specialists and external providers and integrate them into the business. First, companies must excel at attracting, motivating, and retaining specialists. Some large retailers such as Walmart and Staples are luring tech talent, for instance, by opening offices in technology hubs like Silicon Valley and Cambridge, Massachusetts, and by offering topnotch technical training and clear career paths. Second, companies must develop mechanisms for cultivating specialists who have the potential to take on broader roles or become leaders in the organization. A telecommunications firm we worked with created a job-rotation program that allows high-performing specialists in remote offices to spend a few months at corporate headquarters, where they can get exposure to senior executives and expand their knowledge of the company. A U.S.-based financial firm monitors the performance of analysts at low-cost offshore locations who produce basic reports for its traders at company operations in the U.S., Europe, and Asia. Top performers are identified and developed to take on higher-skill trading roles. Third, companies must capture the knowledge of internal and external specialists so that others in the organization can benefit from it. This requires robust, easy-to-use knowledge management processes and systems. Some companies categorize each project up front according to the insights it is likely to generate (for example, “distinctive,” “proprietary,” or “common”) and create a road map for how insights should be documented and shared. The road map specifies templates for codifying knowledge, lists of people and groups within the company who might find the knowledge useful, and suggested schedules for knowledge-transfer meetings. Fourth, companies should ensure that specialist


employees working remotely engage with both the employees who use their work and business leaders. Ways to make this happen include inviting them to join cross-functional teams, having company leaders meet with specialist groups regularly, and embedding specialists in business units.

What your employees really think

As with any major workforce change, it’s often best to start small: Move one subset of work to specialists or external providers and expand that base over time. This allows a company to test new talent pools and management processes and build stakeholders’ confidence in them. Aggressive companies are shaking off conventions about where, how, and by whom knowledge work is done. But as traditional roles are redefined, workers are bound to struggle with uncertainty. It’s crucial that leaders redouble their efforts to ensure that key managers are fully engaged. All employees must understand how the transformation is connected to them, know what is expected of them, and be clear on how their success will be evaluated. In this way they can unlock both increased productivity and personal satisfaction.

Julian Birkinshaw examines innovative approaches to seeing the world through the eyes of your employees.

We have all had bad bosses, and we know how much damage they can cause in an otherwise healthy working environment. But did you know they can also damage your health? One study in Sweden showed that the worse an employee’s boss, the greater was their level of emotional exhaustion and likelihood of heart disease. A (Martin Dewhurst is a director in McKinsey & study by Gallup showed that disengaged Company’s London office. Bryan Hancock is a employees were reporting greater levels of illprincipal in the Atlanta office. Diana Ellsworth is health and higher levels of absenteeism. an engagement manager in the Atlanta office.) Why is there so much bad management out there? The article above is republished courtesy of Over the last five years I have asked many http://hbr.org/ executives for their views on this question. A common answer is that the system is to blame — dealing with corporate bureaucracy pulls us away from our role as a manager of others, and it doesn’t reward us for being good at that job either. The few that succeed do so despite, not because of, the rules and procedures within which they work. A second view is that there is a form of knowing-doing gap — managers know they should be delegating more and giving credit to others, but they struggle to do so because their default behavioural setting is one of control and self-promotion.


Of course there is some truth in both these answers. But I believe there is also a third reason for the paucity of high-quality management in many large organisations, namely that most managers have a remarkably narrow or illthought-out understanding of how their employees actually look at the world. In the movie What Women Want, Mel Gibson played a chauvinistic advertising executive who suddenly found he could hear what women were actually thinking. Imagine what would happen if managers could get inside their employees’ minds, and relate to their genuine motivations, needs, and fears. My guess is they would do a dramatically better job. Not only would they know which buttons to press with each individual employee, they would also become less selfcentred. Ultimately, your role as a manager is to enable your employees to do their best work. It is hard to do that if you believe the world revolves around you.

Inverting the lens The TV show, Undercover Boss, attracts 18 million regular viewers, and it provides important insights into the employee’s-eye view of management. In the show, a chief executive goes “undercover” for two weeks in his own company, he sees problems that he had not been aware of, and he is typically astounded by the dedication and skills of his workforce. The first ever undercover boss, broadcast in the UK in 2009, featured Stephen Martin (an alumnus of London Business School), CEO of Clugston, a construction and logistics company based in Yorkshire. When initially asked to appear in the show he said no, as he didn’t fancy himself as a reality TV star. But eventually he came round, as he saw it as an opportunity to push through some changes in how the company was working. I discussed Martin’s undercover experience with him. “When I did Undercover Boss, I wanted to experience the company from the viewpoint of

the workforce. I just found it fascinating to see how everything I thought was working wasn’t really working, or if it was, it wasn’t working the way I thought it would be. And I also saw the damage I could do, accidentally, by putting in place a new procedure or idea”. On one large construction site, for example, it took ten minutes to walk its length, so workers were spending most of the half-hour tea break travelling to and from the dining area. Martin endorsed a plan to “decentralise” the tea-break, so workers could take a break wherever they happened to be working. But somehow this plan got interpreted as the tea break had been cancelled. Immediately after his undercover stint, Martin made some changes that are still in place three years later. “Seeing things from the front line, I realised how poor we were at communicating. So now we have daily briefings for the direct labour force, weekly meetings with team reps, site notice boards, regular visits from senior managers, and a monthly newsletter, the ‘Clugston Insider’. I also introduced skip-level meetings where you discuss things with your boss’ boss, and brown-bag lunches where I sit down informally with the direct labour force to discuss what is going on. We also brought in a mentoring scheme so that our most experienced workers heading for retirement could pass on their knowledge to the next generation.” Here is the key point from Undercover Boss. Many bosses spend a lot of time on the front line, getting to know their people and exposing themselves to the day-to-day issues they are facing. But in these situations, the hierarchical nature of this relationship between boss and subordinate creates an invisible barrier that makes it difficult for employees to be themselves. As Martin recalls, “When I did site visits as the CEO, I felt people were just telling me what I wanted to hear. When I was working undercover, even with a camera crew following me round, people were incredibly open. It was just a completely different conversation to anything I


had heard before.”

Build insight

This is the human equivalent of Heisenberg’s Uncertainty Principle (by trying to measure a particle, we disturb it). It is said that the Queen of England thinks the world smells of fresh paint, as she spends so much time going to grand openings of buildings and sites that have all been spruced up prior to her arrival. Most executives have experienced this phenomenon in some form. You show up on the shop-floor, or in the bar after work. You want to know what is going on, but your mere presence changes the dynamics of the conversation. Sometimes the workers may be overly polite and positive; at other times they may pluck up the courage to be critical, but in both cases the message is a “noisy” one that may or may not be representative of what is really happening.

We know from many years of market research that what customers say and what they do are not the same thing. The same is true of employees, and perhaps even more so as they potentially have a lot to lose if they speak out. So just as marketers often use “ethnographic” methods to divine the true motivations of their prospective customers, bosses sometimes have to use fairly creative tactics to cut through the hierarchy and understand what makes their employees tick. My research uncovered a spectrum of approaches to building employee insight:

So what can you do to gain the benefits of going “undercover” without subjecting yourself to a reality TV show? My research over the last five years has attempted to provide an answer to this question. Conceptually, it is as simple as inverting the lens. Practically, it means taking a systematic approach to understanding your employees — building insight into what motivates them and how they experience their job, so that you can make their work more effective and fulfilling. I call this the Employee Value Proposition (see Figure 1).

Institutionalised “skip-level” meetings, where the boss meets one-on-one with employees two levels below them in the hierarchy. Some companies have a strong informal norm that you don’t break the chain of command. This norm helps to build accountability, but at the same time it restricts the flow of information. Stephen Martin realised this was happening at Clugston, so he introduced skip-level meetings as a way of getting senior executives more involved in the day-to- day realities of the business. By scheduling them regularly — every two months — they simply became a standard part of the managers’ job. • Web-enabled chat and discussion forums. In large companies, it is simply impossible for all employees to meet their top executives. But


technology provides a mechanism to give people at least a virtual connection to the top. For example, the Indian IT Services company, HCL Technologies, has a tool on its intranet called You & I, where Vice Chairman Vineet Nayar gives direct answers to questions posed by employees. A voting system is used to prioritise the questions, and then, once a week, Nayar sits down for a couple of hours and writes answers to the questions at the top of the list.

developments in technology. For example, Ross Smith, a late- forties executive at Microsoft is mentored by a 28-year old, to keep him up-todate on new social media applications, and to get him into the mind-set of so-called “Gen Y” employees. Unlike traditional mentoring, this ends up as a two-way relationship, and they end up discussing a wide range of issues, on a much more informal basis than would be possible usually.

• Executives doing front line work. This is the simplest and best-known way of cutting through the hierarchy. For example, executives at Tesco, the biggest UK supermarket chain, spend one week every year working in the stores — on the check-out desk, behind the fish counter, stacking the shelves. While this isn’t undercover work — everyone knows the grey-haired guy behind the counter is the CEO — it still serves to remind executives of the day-to-day issues their employees have to deal with, and it makes them look a lot more human as well.

Of course there are many other approaches, from town hall meetings to “Management by Walking Around”, that help you cut through the hierarchy to various degrees. The trick is to choose something that fits your own style of working, so that your employees recognise it as an authentic attempt to understand their point of view.

• Smokers’ corner. These days, smokers find themselves driven out into the parking lot, or onto the streets outside their office building, to indulge their craving for nicotine. But the one silver lining for these marginalised individuals is that they often find themselves chatting to people they wouldn’t otherwise bump into, while having their cigarette. This is the sort of forum where gossip is shared, and perhaps because the relationship is smoker-to-smoker, rather than employee-to-boss, the usual hierarchical barriers seem to be suspended. The same is true of other pursuits, such as the squash and running clubs that many companies have. I have often heard senior executives comment that they pick up on the “pulse” of the company more in these crosshierarchical activities than they do in any number of formal meetings. • Reverse mentoring. Unlike a traditional mentoring relationship, reverse mentoring is where a young, tech-savvy employee helps an older manager to get up-to-speed in the latest

Individualise the relationship Peter Drucker once wrote, “The goal (of management) is to make productive the specific strengths and knowledge of each individual”. But the truth is this rarely happens. In most organisations, senior executives design structures and roles then they allocate people to those roles. It is an efficient process, but by shoehorning individuals into predefined roles, these organisations don’t make full use of their employees’ skills, and they run the risk of demotivating and losing them. There is an alternative logic: first, hire a bunch of really good people, then build an organisation that makes full use of their skills. Consider the case of Microsoft Lync, the instant messaging service formerly known as Microsoft Office Communicator. Software testing is intense and tricky work. It needs smart people, but the work isn’t always that intrinsically interesting. So for Ross Smith, the director of Lync testing, the biggest challenge is to keep his 85-person team focused and motivated. When Microsoft Lync 2010 was released, Smith was asked to reorganise his team so that the


testing of the next generation product could begin. Reorganisations can be highly disruptive, and often result in good people leaving. So Smith thought he would try an experiment: rather than decide everything himself, he would let the team lead the reorganisation. “I have always believed some people want to follow their manager, others want to follow their technology, but for this to work you need to let them choose. So I decided to let them. The team were surprised: “We can go wherever we want?” The process became known as a “we-org”. Rather than ask his four direct reports to pick their teams, Smith explained that individual contributors would select which teams they would like to be in. As explained by Dan Bean, one of Smith’s management team, these individuals “became free-agents, looking for an optimal position, much like a sports star”. The four managers were not in a position to offer more money to these free-agents, but they could offer them opportunities for growth, new technologies to work on, and new colleagues to work with. The individual contributors quickly warmed up to this new process. “The initial feeling was, oh, it’s a reorg again, nobody was excited that it was happening. But after the meeting with Ross, it became clear they were really serious about accommodating everyone’s choices. The next couple of days we saw marked changes. Now it was about, what have you decided? rather than, what did you get?” The weorg took longer than anticipated, but the bottom line was that 95 per cent of the team liked or somewhat liked the new method, and only two individuals out of 85 felt that they did not end up with a satisfactory placement in the new structure. As well as being highly motivational for the team, the we-org also gave Smith important feedback on which technologies people were more excited about, which products were the most promising, and who the team saw as the best managers. During my research, I came across several

executives, like Ross Smith, who were trying to build the structure around their employees, rather than the other way round. For example, HCL Technologies has developed a tool called “Employee Passion Indicative Count” (EPIC). This is a survey employees fill in to indicate how excited they are about various aspects of their work — who they are as individuals, what work they like to do and where, and who they like to work with. At an aggregate level, this survey provides the company with important insights into what motivates their workers. But EPIC also works as a management tool. “Each line manager reviews his employees’ EPIC scores,” explains Anand Pillai, former head of talent management at HCL, “and this opens up a conversation about what sort of work he should be doing. We discovered some employees wanted to do customer-facing work, while others showed a preference for back-office activities like testing software and doing documentation. In many cases, we are able to move people to jobs they are more excited about. In cases where we cannot make the match immediately, we help them build the competencies they need to move”. These two examples build on the principle that structuring work around the individual skills of employees (rather than the other way round) is the foundation for a high-performance organisation. This approach is certainly more costly in the short term — it involves much more upfront investment in “By changing how you relate to your employees, you are likely to see a reciprocal change in behaviour on their part as well.” understanding your employees, and in letting them have their say about what they do — but when used it typically leads to a higher level of engagement and higher quality outputs.

Manage the experience Our day-to-day life at work is a set of experiences, some which make us feel excited and involved, while others drain us of our energy and make us question our choice of employer. So just as airlines and hotels know how the


“moments of truth” between their staff and customers define what the customer thinks of them, the best employers are conscious of shaping how their employees experience everyday life in the company. Of course the quality of the employees’ day-today experience is defined largely by their direct boss, as they are the person who defines what the employees works on, as well as setting the tone for how people interact with one another. So for large organisations, managing the employee’s experience is a decentralised responsibility — it is up to each individual manager to do as they see fit. But in addition, some companies have sought to create mechanisms that institutionalise a commitment to a high-quality experience. Consider the case of (24)7 Customer, headquartered in Campbell, California, and a provider of innovative customer service solutions to its clients. Most of its 10,000 employees work in service centres in India, the Philippines and Guatemala, and annual employee turnover rates in these locations are often as high as 100 per cent. The company’s cofounder and Chief People Officer, Shanmugam Nagarajan (Nags), explained how he keeps turnover rates down to about half the industry average. “I spend about a quarter of my time on the road, meeting with around 500 front line employees every quarter, listening to their concerns and following up with fixes. Transparency and accessibility are key values in the company. We have also put in place what we call ‘90 day surveys’. Our analysis showed that if new employees make it through the first 90 days, they are likely to stick around. So we focus a lot on those first touch points when a new employee starts, and we survey them: are you satisfied with the office? The food? The transportation to work? Do you have the support you need? Often we can make small changes as a result of these surveys, and that creates a positive experience that encourages employees to stay. For people who have been with us a while we also have a training

programme, ‘Wings Within’ for helping employees to make internal transfers into different functional areas.” Another example is HCL Technologies, which has created what it calls a “Smart Service Desk” (SSD) for its employees. This concept was borrowed directly from the world of marketing. Many companies use service tickets as a way of monitoring and following up on customer complaints. Vineet Nayar had the bright idea of applying this approach inside the company. As he explains, “value is created by employees in their relationship with customers. So management’s job is to serve the employees. The Smart Service Desk is one of several tools we have created to help management serve the employees better.” As an employee at HCL, if you are unhappy about some aspect of your work, or need a problem resolving, you open a Service Ticket with the relevant manager, perhaps the head of human resources or the facilities manager in your office. It is up to that person to resolve the problem, and the ticket is only closed when the employee is satisfied. This IT-enabled system keeps track of the number of tickets being opened and how quickly they are closed. Unresolved tickets are then escalated to higher levels in the company. The SSD concept puts the onus on managers to become more service-oriented, so that employees feel they are getting a good experience. These examples are based on low-end jobs in the high turnover IT sector, largely because the challenges are so acute here. But clearly the concept of improving the employee experience applies much more broadly as well. There is room for considerable creativity here, in dreaming up novel ways of enriching your employees’ experiences in the workplace. Through their eyes There are many ways to improve our understanding of the people who work for us, all


of which to some degree involve trying to see the world through their eyes. There are three reasons why this sort of mental transposition is so by KELLY E. SEE powerful in the workplace. New research sheds light on management and First, it allows you to understand properly what behavior motivates and concerns the other person. Business to the lay person is all about numbers Second, by playing up the view of the other and dollar signs. But within a management person, you automatically downplay your own context there exists a complex world of human perspective. This approach helps you take your dynamics where success and failure are not just own ego and interests out of the equation — an functions of the bottom line. The following three important trait in a good manager. research articles delve into different elements of Third, putting yourself in the position of the other that world: the serendipitous advantage person makes you more human in their eyes. By conferred by easy-to-pronounce names, the changing how you relate to your employees, you subtle effects of power versus status on the are likely to see a reciprocal change in behaviour motivation to be fair, and the pernicious impact on their part as well. The idea of looking at the of power on managers’ willingness to seek and world through our employees’ eyes isn’t a new accept advice.

The human drama

one.

The Name Game

But by thinking through this approach in a systematic way, that is, by identifying the three steps of the employee value proposition and the things that can be done in each step, we are able to turn this old idea into a practical tool for improving the quality of management in our organisations

People with easy-to-pronounce monikers tend to fare better

The article above is republished courtesy of London Business School http://bsr.london.edu/lbsarticle/780/index.html

If a rose were known by one of its more formal names, say, rosa berberifolia or even rosa maximowicziana, it might not smell as sweet or be as popular, according to new research into the relationship between easy-to-pronounce names and how they’re judged. Adam L. Alter, assistant professor of marketing at NYU Stern, and fellow researchers Simon Laham and Peter Koval found that – for people at least – those with easy-to-pronounce names are judged more positively than others. “Names activate a reservoir of semantic information, which then informs judgment,” Alter explained in the paper he wrote with Koval and lead author Laham, “The Name Pronunciation Effect: Why People like Mr. Smith more than Mr. Colquhoun.” The authors cite previous research that links first name characteristics with income and educational attainments, as well as studies showing that


people with African-American sounding names are less likely to get call-backs for job interviews than those with typically white-sounding names. At heart, the authors’ thesis builds on the wellestablished concept that easy-to-process stimuli – whether Chinese ideographs, pictures of furniture, or collections of dots – are evaluated more positively than difficult-to-process stimuli. Not quite merit-based The authors conducted five studies, four of which asked student participants to rate a selection of names, chosen from Anglo, Asian, and Western and Eastern European backgrounds, and presented with varying degrees of context – that is, the names alone and the names placed in context, even as potential candidates for election with hypothetical political positions. The final study involved a real-world analysis of names of 500 lawyers, randomly chosen from ten different law firms, that were rated by experiment participants on the basis of pronounceability and foreignness. When crosschecked against the lawyers’ actual positions within their firm hierarchies, those with easier-topronounce names turned out to occupy superior positions, independent of firm size, firm ranking, or mean associate salary. The authors wrote: “The practical consequences of such effects could be numerous and significant and thus warrant future research. In classroom contexts, for example, preferences for students with easy-to-pronounce names may result in selective treatment, engendering self-fulfilling prophecy effects often detrimental to educational and social outcomes.” Indeed, Alter, who conducted the law firm analysis, said the effect probably also exists in other industries and in many everyday contexts. “People simply aren’t aware of the subtle impact that names can have on their judgments,” he explained.

The research builds on Alter’s earlier work, which suggests that financial stocks with simpler names tend to outperform similar stocks with complex names immediately after they appear on the market. ADAM L. ALTER is an assistant professor of marketing at NYU Stern. SIMON LAHAM is the ARC Research Fellow and lecturer at the University of Melbourne. PETER KOVAL is a PhD candidate at the University of Leuven.

Can the Powerful be Just? Status, more than power, motivates managers to act fairly Power may corrupt, but it appears that status confers on its holders the opposite effect. In new research, Steven L. Blader, NYU Stern associate professor of management and organizations, and co-author Ya-Ru Chen of Cornell University’s Johnson School of Management investigated the effect that selfperceived power and status have on how people relate to others. How justly people in positions of authority – whether civic leaders, police officers, or corporate managers – treat others is of universal concern. In “Differentiating the Effects of Status and Power: A Justice Perspective,” Blader and Chen presented research demonstrating that socalled high-status individuals are more likely to behave fairly because “their status-maintenance concerns make them more attentive to others and more likely to act in ways that others find respectable and commendable.” Blader and Chen constructed five studies that tested how people react in various roles that varied according to their and others’ status or power. The studies progressed from simple acts of divvying up bonus money to more complex negotiations for the purchase of a business. “All five studies showed consistent evidence that


status is positively associated with justice toward others, while power is negatively associated with justice toward others,” they wrote. Power breeds entitlement Throughout the studies, participants who had an elevated sense of their own power behaved less fairly towards others and made decisions that reflected a weakened concern for fairness. In contrast, participants who had an elevated sense of their status – and were thus concerned about maintaining their high-status positions – behaved more fairly toward others and made decisions that reflected a greater concern for fairness. Blader asserted that the results have important implications for managers and for organizations more generally. “They help us understand the determinants of whether managers treat their subordinates fairly or unfairly,” he explained. He and Chen suspect that the tendency by organizations to encourage managers to focus on elements of power – such as headcount, budget control, bonuses, and a wide range of other economic factors – contributes to managers’ unfair behavior to their subordinates. In contrast, the authors expect that if organizations motivated managers to value status – how they are regarded by peers, subordinates, and superiors – workplace relations would improve. “Unfortunately, there is much less emphasis in organizations on highlighting issues of respect and prestige. These are the factors that drive a person’s sense of his or her own status and that would, therefore, encourage fairer treatment toward others,” said Blader. STEVEN L. BLADER is an associate professor of management and organizations at NYU Stern. YA-RU CHEN is the Nicholas H. Noyes Professor of Management at Cornell University’s Johnson School of Management.

The Dark Side of Power It can make confident leaders deaf to advice Masters of the universe, take note: your perception of your own power could be skewing your leadership ability. NYU Stern Management Professors Kelly E. See and Elizabeth W. Morrison, along with co-authors Naomi B. Rothman of Lehigh University and Jack B. Soll of Duke University, have investigated the relationship between power, self-confidence, and openness to taking advice. The results are not particularly encouraging. “The decisions made by powerful individuals in business, government and other important organizations arguably have some of the most serious and broad-reaching consequences for society at large, and yet the very power entrusted to those individuals may induce a mindset that prevents them from taking advice, and thus from making sound decisions,” warned See. In “The Detrimental Effects of Power on Confidence, Advice Taking and Accuracy,” the authors constructed various studies to test their hypotheses. For instance, they asked managers to rate their own power and confidence and then had co-workers rate the managers’ decision- making capabilities and willingness to accept advice; asked graduate students to rate their self-confidence and then assigned them to estimate tuition at several universities, before and after receiving guidance; and, after determining the self-described power of 254 online participants, asked them to estimate the value of coins in jars, with and without peer advice. The research confirmed three key findings. First, a high-power mindset increased


confidence in one’s own judgment, which resulted in individuals being less willing to take advice in general and to discount even good advice. Second, despite their higher confidence, one of the studies revealed that high-power individuals had “significantly less accurate final judgments” than lowerpower participants. Finally, the authors wrote, “We demonstrate that the psychological experience of power elevates confidence and exacerbates the already strong tendency for individuals to overweight their own initial judgments and insufficiently incorporate the input of others.” See, Morrison, and their co-authors acknowledge that their findings could have “troubling organizational and societal implications,” but at the same time believe that an awareness of the behavior they identified could open the door to an enlightened attempt to moderate it. “By directly addressing the inflated confidence level of powerful individuals,” they wrote, “organizations may be able to help people with power take and/or seek advice when it is valuable to do so.” KELLY E. SEE is an assistant professor of management and organizations and ELIZABETH W. MORRISON is the ITT Harold Geneen Professor in Creative Management at NYU Stern. NAOMI B. ROTHMAN is an assistant professor of management at the College of Business and Economics, Lehigh University. JACK B. SOLL is an associate professor of management at the Fuqua School of Business, Duke University. The articles above is republished courtesy of http://www.stern.nyu.edu/sternbusiness/


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