Should You Hire for Cultural Fit or Not?

For decades, executives have stressed the importance of hiring for cultural fit.  You often hear discussions about cultural fit among people on recruitment and selection committees, as well as by people working for executive search firms.   Recently, though, Adam Grant of the Wharton School has made an important point about the downside of hiring for cultural fit, and he's received a great deal of attention for his thought-provoking and insightful comments.  Here's what Grant has said, as reported in an interview with Dan Schawbel for Fortune. 

First, stop hiring on cultural fit. That’s a great way to breed groupthink. Emphasizing cultural fit leads you to bring in a bunch of people who think in similar ways to your existing employees. There’s evidence that once a company goes public, those that hire on cultural fit actually grow more slowly because they struggle to innovate and change. It’s wiser to follow the example from the design firm IDEO, and hire on cultural contribution. Instead of looking for people who fit the culture, ask what’s missing from your culture, and select people who can bring that to the table.

Is he right?  I htink he makes a strong argument for avoiding groupthink.  Managers do have a very unfortunate tendency to hire people who look, think, and act much as they do.  To be effective, leaders need to consider hiring people who think differently, who complement and augment their own skills and abilities (rather than replicating the expertise and modes of thinking already on the team).   

Having said that, I think there are some important aspects of "fit" that need to be considered when hiring.  Otherwise, new employees will either face organ rejection at their new firms, or they will have an adverse impact on the organization's effectiveness.  First and foremost, it's very important to make sure that a new hire shares the same values as the organization he or she will be joining.  Second, does the new hire believe in the mission of the enterprise?  Do they feel passionately about the organization's purpose?   They may have different views about the means to achieve those objectives.  That's healthy.   Finally, will the person's leadership approach enable others to succeed?  Hopefully, the hiring organization has leaders in place who have created a safe place where others can speak up, discuss mistakes, express dissent, and ask challenging questions.   New hires have to be able to create a safe climate for their employees as well.  If they a history of acting in ways that discourage others from speaking up, then they won't "fit" and they will have an adverse impact on the organization's effectiveness.  

Preparing for a Storm: Lessons for Business Leaders from Hurricane Research

Knowledge at Wharton features an interview this week with Professor Robert Meyer regarding his research on hurricane preparation (or lack thereof, by many citizens). Here's an excerpt: 

Knowledge@Wharton: How difficult is it to get people to be proactive?

Meyer: It varies. We’ve done some studies as to who is prepared for storms and who isn’t. What we find is that the people who are the most at danger of not preparing are those who have been through a storm but not a very strong one. Effectively, they think that they’ve survived a hurricane, but they actually haven’t.

On the other hand, surprisingly, people who are often better prepared are people who move into an area and have never been through a storm. They’re listening to the end-of-the-world broadcasts that are coming on television and saying, “I’ve just moved to Miami or the mid-Atlantic, and I’m going to believe what they tell me on the news, that I’d better really prepare.” These people do prepare. Unfortunately, what happens is that then when the storm comes through and they find nothing really happened, then the next time they figure, well, maybe I might prepare a little bit but not as much.

Source: Wikipedia

What's the lesson for business leaders?  How does this research finding apply beyond the scope of hurricane preparation?  Consider the types of competitive threats that your company faces?  Have you coped with similar threats in the past?  If you have, and if the threats were mild in nature, that might make you less likely to take future threats seriously.   You might think, "I've been through this before, and it wasn't so bad. It won't harm our business."   

Repeated mild threats leads to a sort of dampening of our sensivity to risk.  Diane Vaughan wrote about this concept many years ago in her research on the Challenger space shuttle accident.  She described the phenomenon as the "normalization of deviance."  Basically, the unexpected can gradually become the expected, which can then gradually become an acceptable risk.   To an outsider, of course, a threat can seem much more serious and severe. They have never seen this type of risk in the past.  The lesson, then, is that you might want to make sure that you engage both new leaders and incumbent managers in a constructive debate when assessing competitive threats.  The new voices can bring a necessary sense of urgency to the conversation, and they can perhaps help the organization assess the risk in a more accurate way.  

Generalists vs. Specialists: Boosting Creativity on Your Team

Scholars Florenta Teodoridis, Michael Bikard, and Keyvan Vakili have completed a new study regarding the role of generalists vs. specialists in the creative process. They posed the following hypothesis, as described in a recent Harvard Business Review post:

We theorized that the benefits of being a generalist are strongest in fields with a slower pace of change. In these fields (think oil and gas, mining), it might be harder for specialists to come up with new ideas and identify new opportunities, while generalists may be able to find inspiration from other areas. We also theorized that the situation flips for fields with a faster pace of change. In this case (think of quickly evolving fields such as quantum computers and gene editing), generalists may struggle to stay up to date, while specialists can more easily make sense of new technical developments and opportunities as they arise.

How did they study this question, and what did they find? The researchers examined the breakthroughs in mathematics by scholars in the Soviet Union from 1980-2000. They specifically wanted to look at the work being conducted during the Soviet era, when the pace of change was slow, to the period after the Soviet Union collapsed, when the pace of change increased substantially. Their detailed study confirmed their initial hypotheses. As they noted, "Generalists appear to be relatively successful as long as the pace of change is not too rapid, but their productivity decreases when the pace of change increases. At the same time, specialists appear to perform better when the pace of change accelerates."

Experts and Innovation

Stanford Professor Riitta Katila describes the role experts should and should not play on a team when it comes to developing breakthrough innovations. Check out the video clip below, in which she describes lessons from her research:

The Economics of Vacations

Kellogg Insight has published an interesting feature about key research findings from its faculty with regard to the economics and psychology of summer vacations. One of my favorite segments focuses on Tom Hubbard's research on demand shocks. Full disclosure: Tom , his sister, and I went to high school together. He's a terrific strategy researcher. Here's an excerpt, explaining what he learned about demand shocks by studying how the interstate highway system's development affected the gas station industry:

Perhaps you’ll decide to drive to your destination. You probably didn’t know that the gas stations you will pass reveal an interesting economic lesson about demand shocks.  Demand shocks represent a sudden rise or drop in consumers' desire to purchase a good or service. Empirical evidence of how companies and industries respond to demand shocks is hard to come by in large part because shocks, such as a particularly effective advertising campaign, happen everywhere at once.

Strategy professor Thomas Hubbard found inspiration for a way to study demand shocks in memories of family vacations.  "When I was a kid riding in the car to Florida, I-95 wasn't completed yet, and we had to take side roads," he says. What, he wondered, happened to the gas stations in towns after the interstate arrived? "I realized that these were demand shocks."

Studying demand shocks to gas stations during the construction of the interstate highway system was useful because "they're observable many times over many years in many regions," Hubbard says.  He combined government data on gas stations with data on when every mile of the interstate opened. He also poured over old maps to figure out what the best route was between two cities in the 1950s, before the interstate arrived, then measured how far that route was from the new interstate.

Hubbard found that when interstates were built close to existing roads, gas stations responded to the increased demand by expanding in size and hiring more employees, but few additional stations were built. When a new interstate opened several miles or more from the previous highway, entirely new gas stations opened up to service the demand, but the size of existing stations stayed the same.  The results suggest that entry opportunities in expanding markets are not as simple to exploit as they might seem.

New Version of Columbia Multimedia Case Study

I'm pleased to announce that Harvard Business Publishing has released a completely updated version of the award-winning multimedia case study about the Columbia space shuttle accident that Amy Edmondson, Richard Bohmer, and I created, along with our research associates Erika Ferlins and Laura Feldman.  The updated technology provides a much better experience for students and instructors, while maintaining the rich detail about the communications and information flow among managers and engineers during the shuttle mission.  The case offers important lessons about how to manage ambiguous risks and threats, create a culture where people feel comfortable speaking up and sharing bad news, make timely and effective high-stakes decisions, and build high performing teams.  Thank you to the entire technology team at HBS for working so hard to design this updated multimedia experience!  

Design Thinking is Hard on the Brain

In a new article published in Research-Technology Management (When Cognition Interferes with Innnovation:  Overcoming Cognitive Obstalces to Design Thinking), my colleague Allison Butler and I offer one plausible explanation for why many individuals struggle with the design thinking process. We argue that design thinking is "hard on the brain."   In developing our argument, we draw upon six years of work in curriculum design, teaching, and research on design thinking - including the creation and execution of Bryant University's IDEA program (an intense, three-day design thinking experience that all 850+ first-year students undertake each year).   

We believe that all individuals have the capacity to be creative, yet we often think, reason, and process information in ways that hinder our ability to innovate. Our brains are wired to operate as efficiently as possible, which is ideal for making our way in the world in daily life, but an impediment to successful design thinking.  The article examines the cognitive obstacles at each stage of the design thinking process, and we offer strategies for overcoming these impediments.  

For instance, we describe how our tendency to engage in top down processing when we observe a situation can cause us to miss important details about user behavior.   Moreover, we explain how inattentional blindness and confirmation bias afflict many people trying to conduct field research and empathize with users.  During the ideation stage of the design thinking process, fixation becomes a significant problem.  People get stuck on ideas within a particular category during the brainstorming process, and they fail to generate a sufficiently diverse range of concepts and solutions.   Finally, during the prototyping and testing stage, a number of cognitive obstacles impede our ability to learn, adapt, and iterate effectively.  For instance, our tendency to rationalize our own failures as due to external circumstances rather than internal causes (the fundamental attribution error) prevents us from using feedback effectively to iterate and improve our solution.   Similarly, the sunk cost effect means that we often find ourselves throwing good money and effort after bad, rather than abandoning solutions that receive negative user feedback. 

How do individuals overcome these obstacles?   That's the key contribution of our article.  Based on our work with many students and practitioners, we describe countermeasures to address these cognitive obstacles.  The article offers a number of such strategies.  One of my favorite is the notion of engaging in parallel rather than serial prototyping.  We draw upon research that shows how parallel prototyping can help people avoid fixation and premature convergence on one type of solution, and it can help individuals receive and utilize user feedback more effectively.   For an in-depth explanation of each our countermeasures, I hope you will take a look at the article.  

Looking for Labor Market Inefficiencies

Miriam Gottfried and Laura Cooper have written an article in the Wall Street Journal this week about billionaire investor Robert Smith and his private equity firm, Vista Equity Partners. The article examines the company's secretive "formula" for evaluating investment opportunities and enhancing performance in portfolio companies. I was particularly struck by the fact that the company uses an intelligence test to evaluate job candidates. Here's an excerpt describing this test: 

A proprietary cognitive assessment, similar to an IQ test, includes questions on logic, pattern recognition, vocabulary, sentence completion and math. The test inspires consternation and fear among existing employees, according to former employees. Vista primarily hires job applicants who do well, often young people with modest credentials or experience. These are its “high performing entry-level” workers, or HPELs.

Later in the article, Gottfriend and Cooper describe the people often hired by Vista Equity Partners:

Most of the people Vista hires score highly on the cognitive test. Often they are young employees with less-impressive credentials or experience. These HPELs, as they are known, may have gone to state universities and be willing to do a job for $75,000 that an Ivy League graduate in a high-cost market would demand twice as much for.

I've always been highly skeptical of using intelligence tests to evaluate job candidates for several reasons. First, I'm never quite sure of the validity of the tests being used. Second, I think performance on the job is driven by many factors beyond raw intellectual horsepower. Emotional intelligence, ability to work on a team, communication skills, and other skills play a major role in a new employee's success in the workplace. Finally, I wonder if these tests do have a bias toward younger candidates who have recently completed school (the article discusses this point). 

Having said that, the interesting part of Vista's strategy seems to be its use of the test to target exceptionally intelligent candidates from lesser-known colleges and universities. Vista seems to recognize that companies often pay a hefty premium for graduates from elite institutions such as Columbia, where company chief executive Robert Smith earned his MBA. Companies have a hard time evaluating young candidates, and so they use a diploma from an elite school as a signal of quality. 

However, firms may be missing the opportunity to recruit great talent if they focus exclusively on the "signal" provided by a degree from an elite institution. What if a firm could identify the best talent from the non-elite schools and thereby acquire great talent at a much lower price? That seems to be the question that Vista has asked and tried to answer using this intelligence test and other tools. They appear to be using the test to exploit a labor market inefficiency. The article, unfortunately, does not have too much detail on the Vista approach, given the highly secretive nature of the firm's methods. It would be interesting to know more so as to ascertain the merits and drawbacks of this aproach.

Shrink to Grow: Why Don't More Companies Adopt This Strategy?

As we witness the breakup of GE, a thought comes to mind regarding a rarely used corporate strategy - namely, the "shrink to grow" approach.   Many years ago, I went to work for General Dynamics after graduation.  When I began working there, General Dynamics was #44 on the Fortune 500 list of the largest American firms by revenue.  However, the company had been hit by acquisitions scandals and a string of very disappointing financial results.  Then the firm witnessed the fall of the Berlin Wall and the collapse of the Soviet Union, and the US government began to shrink defense spending in key areas affecting the firm's businesses.  The company's leadership knew that consolidation needed to occur in the defense industry.   General Dynamics sold many of its major businesses, including its largest business unit (which manufactured the F-16 fighter jet) as well as smaller units such as its Cessna Aviation division.  

By the mid-1990s, General Dynamics had two major divisions remaining:  one unit produced nuclear submaries, and other manufactured tanks and other armored vehicles.   In 1996, General Dynamics ranked only #350 on the Fortune 500 list.  In the years that followed though, the company began to grow again, building on these two remaining platforms.  It acquired Bath Iron Works, for instance, to expand its shipbuilding business beyond submarines (Bath produced destroyers).   It made a series of other acquisitions as well.  By 2005, General Dynamics had risen to #115 on the Fortune 500 list.   Moreover, the company became highly profitable and delivered strong shareholder returns in this era.   

Why don't more companies adopt a "shrink to grow" approach when experiencing poor financial results and/or other crises/scandals?   Many executives hate the thought of shrinking, of leading a much smaller organization.   They focus on the top line (revenue) and market share, rather than thinking about how to position the organization to thrive in the long run.   As we watch GE shrink now, perhaps we will see that it positions the organization to succeed and grow again over time.  More companies should consider this strategic approach. 

The Downside of Open Office Environments

Harvard scholars Ethan Bernstein and Stephen Turban have published an intriguing new study regarding open office environments. The study is distinctive because of its methodology. The scholars used sociometric badges and microphones to monitor the face-to-face interactions of employees before and after the switch from cubicles to an open-office layout. As a result, they did not rely on people's feelings and perceptions about the layout, but instead, they collected objective data about the impact that a change in office environment had on human interactions. The scholars discovered that face-to-face interaction dropped substantially after the shift to an open-office layout. Here is a summary of the research findings, from the British Psychological Society's Research Digest:  

The results were stark: after the shift to an open-plan office space, the participants spent 73 per cent less time in face-to-face interactions, while their use of email and instant messenger shot up by 67 per cent and 75 per cent respectively.

A second study involving 100 employees at another Fortune 500 company was similar but this time the researchers monitored changes to the nature of the interactions between specific pairs of colleagues before the shift to an open-plan office compared with afterwards.

There were 1830 interacting dyads and, of these, 643 reduced their amount of face-to-face interaction after the workspace became open-plan, compared with just 141 showing more physical interaction. Overall, face-to-face time decreased by around 70 per cent across the participating employees, on average, with email use increasing by between 22 per cent and 50 per cent (depending on the estimation method used).

How Do You Respond to Bad News?

Source: Flickr stock photo

As a leader, you should be creating an environment where people feel comfortable sharing bad news.  You don't want them hiding problems, or worse yet, manipulating data to make it seem as though things are proceeding smoothly.   When people do surface issues and concerns, leaders face a moment of truth.  How should you respond?   You only need to shoot the messenger once to poison the organizational culture for years to come.  People have long memories.  They will remember if a prominent leader reacted poorly to the messenger who delivered bad news.   

What is the right way to respond to someone brings forward a key risk or problem with potentially damaging ramifications for the business?   

• First, leaders need to express their gratitude and praise the courage that it took to raise the issue.  
• Second, they need to point out the harm that hidden risks can pose to the organization, and encourage others to come forward in the future with similar concerns or problems.  
• Third, leaders have to avoid the natural instinct to ask, "Why did this happen, and who is responsible?"  Certainly, there will be time to delve into the causes of this problem.  However, in the moment, leaders want to avoid finger-pointing and assigning blame.  Instead, they must focus on bringing people together to solve the problem.  They need to ask, "How can we resolve this problem?  What do we need to do moving forward?"  Naturally, answering these questions will require some investigation as to the cause of the problem.  However, the focus on problem solving rather than "investigation and interrogation" will mean a world of difference moving forward.  
• Fourth, leaders must encourage the team to look systemically at the problem, rather than individualistically.  They can't focus on the individual(s) involved, but instead must address the systemic issues that led to this failure.  It's not about the one rotten apple usually... it's about the damaged barrel that caused the apples to spoil.  
• Finally, leaders must look inward.  How did their behavior, leadership style, goal-setting tactics, and means of rewarding employees lead to this problem?  Acknowledging your own role in the situation not only helps the organization improve and avoid making a similar mistake again, but it makes others more comfortable discussing the mistakes and errors that led to this failure.  

Jimmy Kimmel on Shark Tank

As I was looking for some creative ways to teach my students about building new business models, I came across this hilarious Jimmy Kimmel video.  In this clip, he takes his "bold" ideas to Shark Tank and pitches to the panel.  Let's just say he doesn't receive an overwhelmingly positive response.  

The Value of a Decision Journal

Source: Wikimedia Commons

Village Global, an early-stage venture capital firm, recently posted some excerpts on Medium from a talk that Pinterest CEO and co-founder Ben Silbermann gave at the company.   In particular, I was intrigued by this suggestion that leaders keep a decision journal.  Here's Silbermann explaining the concept and why it's valuable for leaders: 

Write down decisions you make — and your rationale at the time — into a “decision journal.” Next time you hire someone, cut a partnership deal, decide on a key product spec — or make any hard decision — write down your reasoning in a journal. Later, you can see how the decision played out relative to your reasoning at the time you made the decision. You can learn whether you should have trusted your gut at the time or not.

Ben has been doing this for awhile and swears by the technique: I feel like if you don’t write down a decision you made and why, there’s so many things going on that it’s very hard to remember exactly what you were thinking at the time, because you have this kind of running dialogue that’s being updated along the way. So that’s been really helpful for me.

I love the concept because it provides leaders a structured opportunity for reflection and learning.   I think it has additional value though.  For many leaders, performance suffers not because they made a poor decision, but because they communicated it ineffectively to others in the organization.  Why can the decision journal help?  By forcing themselves to write down the rationale for their decisions, leaders then have an opportunity to improve the clarity of their explanation.  They can clarify their own thinking about the criteria they used to make critical choices, and consequently, they can explain that rationale clearly and concisely to their team members.  Before people commit to and support a decision, they want to know more than just WHAT the plan is... they want to know WHY leaders chose those particular actions and strategies.  The decision journal can help leaders clarify their own thinking about the WHY behind their decisions.  

Lessons from the Theranos Debacle

Several years ago, journalists far and wide heralded college dropout Elizabeth Holmes for her bold vision, innovative strategy, and charismatic leadership at her well-funded startup, Theranos. Holmes proclaimed that she had invented an entirely new blood testing regimen for patients.  Journalists drew parallels to Steve Jobs, even noting that she dressed in a similar fashion. Holmes did not only fool journalists though.  She allegedly managed to deceive an array of investors and board members with extensive experience in industry and government.   Of course, the governnent now charges that the entire organization turned out to be a massive fraud. Last week, Elizabeth Holmes and her firm's former president, Ramesh Balwani (also her boyfriend at one point), were indicted for engaging in an elaborate scheme to defraud investors, patients, and doctors.   

What can we learn from this debacle?  Dr. Greg Licholai, a Yale faculty member and biotech entrepreneur offers the following advice regarding how to prevent another Theranos from occurring:  

So what can we do? First, investors should maintain a “trust but verify” attitude toward companies. We want to enable innovation by providing appropriate resources to creative people—but simultaneously scrutinize their claims, especially when it comes to technology that affects patient safety. Second, companies should foster open cultures and allow for feedback and safe environments for whistleblowers when necessary. Third, industry must continue to embrace transparency and recognize that in the long run, those companies that listen to their constituents achieve sustainable success.

These lessons are highly valuable.  I think there's a broader point though.  We have to be careful about becoming too enamored with a bold and highly appealing vision.  We fall in love with dreams.  We have to ask: Is this vision technically feasible and economically viable?  Sometimes, we find the vision and the desired end state so desirable, and the leader proclaiming that vision so appealing, that we begin to put too much faith in their ability to do the highly improbable.  We stop asking tough questions.  We want to believe that the vision will become reality, and that fervent belief erases some of the natural skepticism that would be healthy in scrutinizing the organization.   Does this make you think of any other visionary leaders these days pursuing what are perceived to be very socially beneficial outcomes?  Hmm... 

Are There Too Many All-Stars on Your Team?

When an important project must be completed, do leaders assign the best players to a team? Do they look for the superstars who can tackle this challenge? Research by John Hildreth and Cameron Anderson suggests that teams can suffer when too many all-stars are assembled together.   These scholars conducted a series of experimental studies in which they examined the creativity of groups consisting of high-power individuals versus groups with a mix of people with differing levels of power.  Here's the conclusion from their research, published in the Journal of Personality and Social Psychology in 2016:  

Source:  Wikimedia Commons

Our research posed the question of how leaders’ power affects their ability to work with other leaders. The answer we found was disheartening. When individuals with power are assembled to work as a group on difficult issues, their power had a negative effect on their group’s collective performance. Groups comprised of more high power individuals, be they students given temporary power or executives endowed with actual organizational power, perform worse than groups comprised of neutral or low power individuals. And, these detrimental effects of power on group performance are explained in part by members of these groups experiencing higher levels of status conflict, being less focused on the task at hand and sharing information less effectively with each other compared to other groups. 

Writing about this research and other studies similar to it, David Rock and Mary Slaughter of the NeuroLeadership Institute conclude that, "While a few a-players can be enormously helpful, it’s possible that success is not about out-hiring the competition for these people. It is more about how you form teams, and then how people work together as teams." Indeed, their conclusion parallels the insights from Google's Project Aristotle, where the company tried to identify the attributes of the "rock-star teams" at the search giant. At Google, researcher Julia Rozovsky concluded that, "Who is on a team matters less than how the team members interact, structure their work, and view their contributions."  I could not agree more with this insight.  Talent is a necessary, but not sufficient, condition for team success.  Moreover, much like any great sports team, role players are important. Not everyone can be LeBron James.  

Immediate Regret: Why Did I Take This Job?

Joann S. Lublin recently wrote a Wall Street Journal column titled, "What to Do When That Shiny New Job Isn't the Right Fit." Actually, the article mostly focuses on why and how people end up in that difficult predicament. Lublin recounts the story of one tech executive who discovered soon after landing a new job that it would not be the opportunity that he anticipated. Here's an excerpt from Lublin's column:

Technology industry veteran Puneet Goel says he wishes he had done greater due diligence a few years ago before taking charge of product management at a midsize tech company He never reached out to his immediate predecessor who no longer worked there. He says the firm’s CEO and founder asked Mr. Goel to draw up a road map for a more competitive version of its software—and promised him autonomy to devise product strategy. But once Mr. Goel joined, the company chief promised potential customers product capabilities that didn’t exist and weren’t part of his new road map.

“He wanted to do what I thought was my job,’’ Mr. Goel explains. “I just couldn’t be successful in that way.’’ According to Mr. Goel, the CEO defended his approach by telling him, “‘This is the way I have always done it and this is how we are going to do things here.’’’ Concluding “there are no good options here,’’ Mr. Goel resigned after seven months. He’s now a product manager for Google. an Alphabet Inc. unit.

Many reasons exist for this type of regret after landing a new job.  The example above identifies a common problem for new hires - the lack of expected and promised autonomy.  Leaders often do not want to let go, and though they might promise a new hire a degree of autonomy during the recruiting process, they simply cannot avoid the desire to micromanage.   Naturally, some good due diligence will help in this case, but you have to be a bit skeptical of the promises made to you.  You have to learn about the decision-making style of those for whom you will work.   Don't be foolish and believe people when they tell you that they are suddenly going to change their spots.  A candidate might hear, "I've managed this function tightly in the past, but I'm ready to provide the new manager much more autonomy."  Be careful!  It's highly unlikely that someone with decades of micromanagement in his or her past will suddenly shift leadership style.  

Are You Signaling a Desire to Cooperate?

Emma Levine, Alixandra Barasch, David Rand, Jonathan Berman, and Deborah Small have published an interesting new paper titled, "Signaling emotion and reason in cooperation," in the Journal of Experimental Psychology.  They conducted a series of experiments to examine how people decide whether to cooperate with another individual.   The experiments used two-player prisoner dilemma games to examine what might cause someone to be more or less cooperative with another party.   Their findings identify an interesting distinction between emotional and rational cues.  Here's an excerpt from NYU Stern's concise summary of the article: 

The experiments revealed that people infer that emotional actors are more likely to be prosocial, or altruistic, than rational actors. That is, people assume that individuals who make their decisions emotionally are more likely to cooperate, and then respond accordingly by cooperating more with them. “We find that people associate one’s reliance on emotion with prosocial motivations and feelings such as empathy and compassion, rather than selfish emotions, such as greed,” says Professor Barasch.

In addition, reaction to these signals depends on how people themselves make decisions. While people who rely on emotion themselves are quite responsive to signals of emotion and reason, people who rely on reason do not respond as strongly to these cues, instead making their decision to cooperate through calculated self-interest. “We show that people see emotion as a signal of cooperation, and will cooperate more with individuals who make their decisions emotionally. However, signals like this are less important to people who make their own decisions using reason – they cooperate less overall, and are not responsive to these social cues.”

The study has important implications as we work on new teams or with new partners on a project or initiative.   We not only need to be aware of the cues that we are emitting, but we must understand how others make decisions.  Are they more rational or emotional? What does that mean for our ability to engage in cooperative behavior?   Naturally, we also need to be careful not to put ourselves in a precarious position, where others might try to take advantage of our altruism.   Finally, we need to think carefully about our own behaviors that might suggest a powerful desire to pursue self-interests.  Those cues might harm our ability to elicit cooperation from the very people we need to work with to achieve our personal goals as well as the broader organizational objectives.  

Busting Myths about Successful Tech Entrepreneurs

The typical successful startup founder in Silicon Valley is in his or her twenties, right? Millennials have the creativity and fresh thinking required to disrupt entrenched incumbents in industry after industry, right? A comprehensive new study debunks this popular myth.  Kellogg Insight describes new research by strategy professor Benjamin Jones and his co-authors.   Here's a quick summary of their findings:

In a new study, Jones, along with Javier Miranda of the U.S. Census Bureau and MIT's Pierre Azoulay and J. Daniel Kim, use an expansive dataset to tackle that question. The researchers find that, contrary to popular thinking, the best entrepreneurs tend to be middle-aged. Among the very fastest-growing new tech companies, the average founder was 45 at the time of founding. Furthermore, a given 50-year-old entrepreneur is nearly twice as likely to have a runaway success as a 30-year-old.

Here are a couple more intriguing statistics from their research:

• The average age of the founder of one of the fastest-growing tech companies in their massive sample was 45 years old.
• The average age of the founder of firms that achieved successful exits either through IPO or acquisition was 46.7 years old.  

Why is it important to debunk the popular myth about millennials and successful tech startups?  First, we have to consider the biases that might shape investor decisions.  Might some be inclined to think that the best ideas come from founders in their 20's and perhaps find themselves biased against older entrepreneurs?  Second, we have to consider how the myth might discourage older individuals from taking the risk to launch a startup.  I applaud the authors for such an extensive study that shines a light on the actual experience of successful tech startups and their founders.  

Building Trust: Admitting When You Screwed Up

Wharton's Adam Grant recently interviewed Daniel Coyle, author of The Culture Code: The Secrets of Highly Successful Groups.   They focused at the start of the talk on the issue of building trust.  Grant explains what he learned from reading Coyle's book:

A huge theme in [The Culture Code] is trust. I’ve always thought about trust as the willingness to be vulnerable and take a risk together, but you convinced me that I had it backward. I always thought, “Once we trust each other, then I can go out on a limb, because I don’t have to worry about you harming me or taking advantage of me or letting me down.” You said, “Actually, you take risks together first, and that’s how you build trust.” 

After Grant shares this lesson, Coyle goes on to explain this process of building trust by first becoming vulnerable and acknowledging mistakes.  Coyle tells Grant:

One of the places I saw it first was with Ed Catmull, the president and cofounder of Pixar. We’re walking around Pixar’s new Brooklyn Studio, and it’s a $20 million building, the coolest building I’ve ever been in. I say to Ed, “This building is really cool!” He goes, “Actually, this building was a huge mistake—the hallways are too narrow, the atrium is too small, the cafeteria is in the wrong place. But the real mistake we made was that we didn’t realize we were making a mistake.” [There was] this moment of total candor and openness, and he does this all the time.

Then I would go to the [Navy] SEALs, and the commanders there are doing the same thing. They’re saying, “The most important words a leader can say are, ‘I screwed that up.’” It’s not that we’re going to slowly build trust and then have the willingness to be vulnerable—it’s actually this exchange of vulnerability between two people that creates that closeness.

Take risks and become vulnerable together first, and in so doing, build trust with colleagues and team members.  That's the core lesson here.  As a leader, how can you put this lesson into practice with your team?  What will the benefits be?  Trust clearly leads to higher team performance, more engaged employees, and better talent retention.   Building trust takes time and effort, but the payoff is substantial.  

Layoffs at Tesla: What Does It Mean?

Yesterday, Elon Musk announced substantial layoffs at Tesla (9% of its workforce).  Successful, high-growth companies typically do not let go of that many employees.   What's wrong at Tesla?  Clearly, the company has struggled with production of the Model 3.   Many analysts have said that Tesla will need to raise significant amounts of capital in the near future.  Musk has denied that such a move is necesssary.  His recent announcement regarding the scaling back of capital expenditure spending plans, and now the layoffs, suggest an ambitious effort to conserve cash.   Tesla's challenge is not the lack of profitability (it has not been profitable for 15 years).  Instead, it's problem is cash.  Many investors clearly have not been worried too much about the lack of profitability.  However, they would become very concerned if the company started running out of cash and then faced challenges raising new capital at attractive terms. 

Peter Eaves of the New York Times has an interesting take on the dilemma that Tesla now faces. He writes, 

"Still, sizable layoffs and moves to conserve cash typically are not the acts of growth companies that are having just a little trouble achieving their goals.And there is a danger for Tesla if it starts to behave like a normal company: Investors may start to value it as one, and its highflying stock may tumble.

Eaves' point is that investors have ignored the lack of profitability for years.   They have expressed profound belief in the growth story, and they have been willing to fund huge capital expenditures in pursuit of that growth.  If investors suddenly started valuing the company differently, then the stock price would face significant pressure. 

Tesla's competitors must watching this situation with much curiosity.  After all, the incumbent car companies have faced their own dilemma for years.  Consider a company such as BMW.  Investors have valued the strong profitability it has generated over the years.  It cannot simply persuade investors to absorb hugeTesla-like losses for years in pursuit of an electric vehicle future.  Somehow, BMW has to invest in the future while still maintaining enough profitability to placate investors.  In some ways, Tesla has had a huge advantage over firms such as BMW, because investors have given Musk essentially a license to lose money for years in pursuit of an EV future.   Is that changing now, and will it change the competitive dynamic in the industry?   We will learn a lot more in the coming months, as we see whether Tesla can ramp up Model 3 production successfully without raising more capital.  

Sudden-Death Aversion: It's About More Than Football

Your favorite National Football League team is trailing 31-24 with 30 seconds remaining in the game.  The star quarterback throws a 35 yard touchdown to the tight end, and the crowd goes wild.  The score sits at 31-30.   The coach has a decision to make.  Your team can either kick the extra point to tie the game, or go for the two-point conversion and the victory.   If they tie the game, it goes to overtime.  What does almost every coach do in this situation?  They kick the extra point.  It's the safe strategy in the moment; after all, kicking the extra point has a higher chance of success than going for the two-point conversion. However, have you ever asked yourself: Does kicking the extra point give you the best chance of winning the game eventually? 

Source: Wikipedia

Scholars Jesse Walker , Jane Risen , Thomas Gilovich , and Richard Thaler have examined this decision-making situation.  They describe the typical coach's behavior as exhibiting "sudden death aversion."  Here's the crux of their argument:  

We argue that sudden-death aversion reflects a common bias that can lead to non-optimal decision making in a great many contexts, some far removed from the gridiron. When decision makers face a choice between a “fast” option that offers a greater chance of ultimate victory but also a non-trivial chance of immediate defeat, and a “slow” option with both a lower chance of winning and a lesser chance of immediate defeat, they often opt for the slow option because of their aversion to sudden death. In so doing, they lower their chances of ultimate success.

The researchers found that 89% of NFL coaches took the safe strategy of kicking the extra point to tie the game over a ten-year period.  However, those teams often did not end up winning the game in overtime.  In fact, the percentage that won the game eventually was lower than the average success rate of two-point conversions in the NFL.   These data suggest that sudden-death aversion ends up leading to a sub-optimal outcome. 

The scholars turned to the NBA to conduct further research.  Do teams go for the two-point shot to tie the game, or the three-point shot for the victory?   Coaches tend to prefer to tie the game, but again, that appears to be the sub-optimal outcome.  

The scholars have studied this phenomenon in other settings as well, and they discover a similar "sudden-death aversion" that shapes decision making.  Do business leaders face the same problem?  Surely, they do.  The researchers argue that managers experience "sudden-setback aversion" and thus take what appears to be the safer option in the here and now to avoid a loss in the moment, even if that risk-averse strategy is suboptimal in the long run.  

Learning from Your Customers

Our family loves games produced by a Massachusetts-based company named Gamewright.  The copmany's hit products include Sleeping Queens,  There's a Moose in Your House, and Rat-a-Tat-Cat.   Our latest favorite is Qwixx, a simple dice game that all ages can enjoy.  When we first purchased the game, though, we were frustrated with the fact that we were using up the colored scoring sheets rather quickly.  You could order additional sheets.  However, to save money, we simply laminated the scoring sheets, used dry-erase markers, and wiped them clean after each game.  As it turns out, other customers did the same.   Amazon customer reviewers apparently noted the same thing online.  Recently, we purchased Qwixx Deluxe, a new and more complex version of the game.  Immediately, I noticed a change to the scoring sheets.  Gamewright now makes them out of a dry-erase board that can wiped clean after each game.  

What's the lesson of this story?  Designers can learn a great deal from workarounds - i.e. adaptations invented by customers to address a pain point or unmet need (think tennis balls on the bottom of an elderly person's walker).   I don't know for sure, but it seems that Gamewright learned from the customer workaround (laminated score sheets), and they adapted their product based on observing that adaptation.  Well done!  

What workarounds do your customers employ?  What pain points or unmet needs do these adaptations address?  How can you modify your product or service to alleviate these pain points?

Clinging to Old Mistaken Assumptions

Why do leaders cling to assumptions that are outdated, and/or long since proven untrue by reams of data?   Many reasons exist for this cognitive trap.  However, one common reason is that flawed decisions and strategies have resulted from those mistaken assumptions.  Leaders don't want to acknowledge those failures, and thus, they somehow convince themselves that the assumptions are actually true despite the evidence to the contrary.   They rationalize away the data that demonstrates the failed outcomes of strategic choices that have been made.  

Of course, leaders also confuse facts with assumptions all the time.  Consider the following statement:  We need X units of volume to cover our fixed costs.  That seems like quite a reasonable statement, presumably grounded in the data about revenues, contribution margin, and the like.  However, the statement contains a powerful hidden assumption.  It presumes that those fixed costs are set in stone, forever unchanged.  What if the organization could reduce those fixed costs over the longer term?  Of course, that would change the breakeven volume level, perhaps by a considerable degree.  Asking the what if question is critical.  It often opens up new possibilities.  

Of course, asking the what if questions about critical assumptions can be threatening to leaders.  Consider the example above once again.  Asking the what if question might mean initiating a dialogue about a pet project or favorite strategic initiative endorsed or perhaps even created by the leader.   Eliminating that project or initiative might reduce fixed costs considerably, and change the breakeven level.  However, the leader doesn't want to have a debate about that possibility.  Thus, they never ask the what if question about this assumption.  

Rethinking the Job Interview

Professor Tomas Chamorro-Premuzic wrote a terrific Fast Company column recently titled, "What If We Killed The Job Interview?"  He summarizes the argument against relying so heavily on interviews to evaluate job candidates: 

  

The most comprehensive scientific study to date on the predictive power of different recruitment tools suggests that the typical job interview provides very little valuable information over and above psychometric tests, which tend to be both quicker and cheaper to administer.

For example, once you know a candidate’s score on a test of general learning ability, a typical job interview will only improve your ability to predict their performance in a given role by 4%, the analysis found. Interviews are more useful when they’re totally structured and standardized, to the point of resembling a multiple-choice questionnaire; this can increase their accuracy by up to 13%. Yet very few real-world interviews follow a rigorous format. Interviewers usually prefer to go with the flow, stubbornly relying on their own intuition.

Most of the attributes interviewers try to evaluate by gut feel–a candidate’s competencies, skills, personality, values, “culture fit,” and so on–are more rigorously inferred from other data like resumes, simulations, tests, and past performance ratings. Interviews certainly create opportunities for candidates to make claims about these qualities, but as I argue in my latest book, there’s little reason to believe them. Indeed, there’s not much overlap between the talents people saythey have and the ones they actually possess. (Plus, interviewers often use the idea of “good culture fit” to justify hiring people from their own in-groups.)

As Chamorro-Premuzic points out, though, many business professionals can't let go of the interview as a principal tool for evaluating job candidates.  Why?  People THINK that they are awesome talent evaluators, and that they can conduct an interview much more effectively than most others can.  Our supreme self-confidence clouds our judgment about the validity of interviewing.  If we kill the interview, though, how can we judge talent?  We have to find other ways for people to demonstrate what they have actually accomplished, rather than simply asking them to describe their skills and capabilities.  We have to see them in action, rather than letting them simply talk about themselves.  It's time to rethink the hiring process from start to finish.  

The Strategic Chief Human Resource Officer

Adam Bryant, formerly of the New York Times, continues to conduct fascinating interviews with senior executives. He now posts them on LinkedIn on a regular basis. In a recent interview, he spoke with Jorge L. Figueredo of McKesson Corporation about the role of the Chief Human Resource Officer in an organization. Here's an excerpt that I found particularly illuminating: 

Question: What would you say to a CHRO who called you looking for advice because they were frustrated that they weren’t getting the strategic role they were promised?

Answer:  I would tell them, first off, you’re not alone. This is not a unique situation. Many CEOs say they want a strategic CHRO, but they often don’t think through what it really means.  People should see this as an opportunity to educate and help your CEO to understand what it actually means. But whatever you do, do not whip out an article or book about it. You need to personalize the discussion to your company – not offer generic advice. Start by talking about the most important and critical people and organizational issues that you need to tackle as the CHRO in order to achieve the strategic goals.

Figueredo's comments offer an important reminder to all of us.  In many cases, CEOs and other business leaders articulate a strategy, and they focus on allocating the appropriate financial resources to enact that strategy.   A key question, though, is whether the organization has the right human resources in the right positions to be able to implement that strategy effectively.   A good chief human resource officer can help inject that critical talent management question into the strategic planning conversation.  Does the organization have the talent and capability to make that strategy work?  Will new talent have to be acquired?  What development must take place for the existing people in the organization?   How might people have to be shifted into new roles?  Many strategies fail not because of a lack of  effective financial resource allocation, but because the human resource question has not been addressed effectively.  

CEO Power: How Does It Affect Performance When an Industry Experiences a Downturn?

Vishal K. Gupta and his colleagues have published a new paper titled, "When Crisis Knocks, Call a Powerful CEO (or Not)." One of the co-authors, Vikram Nanda, explains the core research question examined in their study: "When you have concentrated power in the hands of the CEO or a small group of decision-makers, does that lead to better decision-making or worse?”   One could argue that a concentration of power helps during a crisis or downturn, because it speeds up decision-making processes.  On the other hand, the organization may suffer because the CEO does not gather information and advice from a diverse range of voices, and because poor governance leads to insufficient oversight and control.    

Gupta, Nanda, and their colleagues studied 3,724 CEOs over a 17 year period.   They examined various measures of CEO power and the relationship to firm performance.  The scholars discovered that, "For innovative firms with powerful CEOs, an industry downturn results in a notable decrease in the firm’s value, or book-to-market ratio, relative to a less powerful CEO, the study found. For firms with powerful CEOs in competitive industries and high-discretion industries, a downturn results in a decrease in firm value."  

The lesson here is straightforward:  Urgency or crisis is no excuse for autocratic leadership or micromanagement.  Inclusive leadership, done well, can lead to effective and timely decisions.  

Do Temporary Incentives Harm Intrinsic Motivation?

For many years, the conventional wisdom has been that offering temporary incentives reduces intrinsic motivation. University of Chicago Professor Oleg Urminsky summarizes the view held by many scholars and practitioners in the fields of business and education:   

The view that a temporary incentive could undermine intrinsic motivation has had a major impact on policy, particularly in relation to children and education. The author and lecturer Alfie Kohn has published several books on the topic, including one called Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A’s, Praise, and Other Bribes. Appearing on the Oprah Winfrey Show in 1996, he explained why he saw rewarding kids as a bad idea: “One of the findings in psychology that has been shown over and over again [is that] the more you reward people for doing something, the more they tend to lose interest in whatever they had to do to get the reward.”   He went on to talk about grades as problematic incentives, and he went further in his book, writing that verbal praise is coercive and should be avoided because it contains an implied threat to withhold praise in the future.

Urminsky describes new research conducted by University of Buffalo’s Indranil Goswami.  He points out that Goswami doesn't just measure what happens immediately after an incentive disappears.  Instead, he tracks the effects of incentives over time.   What did Goswami find?  Indeed, intrinsic motivation appears to drop when a temporary incentive is removed. However, that drop is extremely short-lived. After a short period, motivation returns to the pre-existing level, and in fact, it increases rather quickly to a point slightly higher than the original level. The charts shown here demonstrate the prediction from prior research vs. the new findings. Urminksy concludes, "The results are inconsistent with the dire warnings about incentives. Providing a temporary incentive can yield a boost in behavior while people are being paid, and only a small and brief decline afterward. Maybe incentives work pretty well after all."  He calls for more research given these interesting findings that challenge our conventional wisdom.  I agree.  We certainly need to learn more before we simply adhere to the pre-existing beliefs that incentives absolutely reduce intrinsic motivation.  

Advice for Graduates - Class of 2018

As commencement approaches for the Class of 2018, I would like to take a moment to offer a few words of advice.  This year, I write with a fresh perspective, as I have a graduating senior. My daughter, Grace, will be graduating high school in two short weeks (sigh!).   I ask that you consider these words from former President Teddy Roosevelt.  

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. 

In today's world, we have far too many critics and not enough doers.  It is far too easy to point fingers and find fault with the actions of others, without looking in the mirror.   It is too easy to explain what's wrong with the way things are done now, without offering alternative paths forward.  Be solution-oriented.  You do not have to set out to change the world with one bold leap.  Instead, consider how you can make your workplace, community, or home a better place tomorrow, with one small step or two.  If we each take those small steps, together we can make a real difference.  

How will you make a difference?  You do not have to possess formal authority to create positive change.  Hone your skills of persuasion and influence.  Build coalitions, marshal resources, and connect with others who can help and support you.   Demonstrating true leadership often means exercising influence without authority.  

Finally, be passionate about your ideas, but never allow yourself to become too rigid.  As they say, argue as if you are right, but listen as if you are wrong.   The best thinkers and leaders have "strong opinions, loosely held" as Stanford's Bob Sutton has suggested.  Do not succumb to confirmation bias.  Seek out discordant data and disconfirming evidence.   Consider why the opposite might be true.  Encourage those around you to speak up, express dissent, and ask provocative questions.  

I wish you all the best of luck in future endeavors, with hopes for much personal and professional success.   Congratulations, Class of 2018!  

Making Sure People Recognize Their Impact

Adam Bryant, formerly of the New York Times, interviewed Deborah Bothun recently and posted her comments on LinkedIn.   Bothun spent 21 years at PricewaterhouseCoopers.  The two now owrk together at Merryck & Co, a leadership development consultancy.   Bothun explains that she wants everyone in an organization to understand that they can make an impact on the customer, the organization's mission, and the P&L.   She explains about the latter in this excerpt:

Another one of my themes is that often people don’t think of their role as having a P&L impact. Everybody’s role ultimately has a P&L impact. No matter what functional area you’re in, you need to be responsible for the commercialization of that organization.   Regardless of what you do, you need to understand how what you do drives revenue or drives cost. That way, you become more knowledgeable about the drivers in your area and how they intersect with the drivers of growth in other areas, and you become more integrated into the whole team. And if you can start to think that way, you’re going to have a much better chance of moving in the direction you want.

I'm in full agreement with Bothun.  If people at all levels understand how they can make an impact, they can be encouraged and empowered to bring forth ideas for making the organization more successful.  People will be more motivated if they recognize the ways in which their work matters, and how their efforts can enhance the organization's overall success.  

Better Governance: Redesigning Board Meetings at Netflix

David Larcker and Brian Tayan have written an article about Netflix redesigned management's relationship with the Board of Directors, while also rethinking how board meetings should be conducted. They describe how Netflix built a more transparent relationship with the board, while helping the directors gain a better understanding of the business and the management team. Larcker and Tayan explain:

Netflix takes a radically different approach. It incorporates two unique practices. First, board members periodically attend (in an observing capacity only) monthly and quarterly senior management meetings. What’s more, communication with the board comes in the form of a short, online memo that allows directors to ask questions and comment within the document. Executives can amend the text and answer questions in what is essentially a living document. We believe these two innovations meaningfully contributed to Netflix’s extraordinary performance in recent years.

I find the memos be particularly interesting as a means of preparing directors for a fruitful discussion at the board meeting itself.   The roughly 30-page online memos provide links to supporting analysis and to the Netflix systems, so that directors can examine raw data behind the conclusions.  Directors can post questions and comments on this memo before the meeting.  Fellow directors, as well as the executive team, can review these questions prior to the board gathering.  The board meetings themselves become a dialogue, rather than a series of canned presentations filled with tons of powerpoint slides.  

This format provides for a much more productive board meeting.  In my view, management and board meetings should always involve a healthy dose of preparation.   The meetings themselves should be about dialogue, not documents.  The written materials should be distributed and reviewed prior to the in-person meeting.   Insuring equal access to information means that people can come to the table prepared to discuss a topic and not disadvantaged because some in the room have seen the data while they have not.   

What's stopping many boards from adopting these types of practices?  Of course, you know the answer.  It takes a chief executive who is very secure and confident in their abilities, and one who is willing to listen to tough questions and dissenting views.  Moreover, it takes a committed board with members who are prepared to put in the work prior to the meetings.  

Crediting the Team vs. the Individual

Min Kay, Devon Proudfoot, and Rick Larrick have written a new article titled, "There’s No Team in I: How Observers Perceive Individual Creativity in a Team Setting."   The authors focus on the extent to which we attribute the quality of creative output to an individual vs. the team as a whole. In a discussion about the research, Larrick explains, "“Any time that you have so much of a company’s success tied up in the perceived success of a single individual, there’s a risk.” 

Source: Wikimedia

In explaining the experimental research findings from the research he conducted with his colleagues, Larrick states, "“It’s striking how little people adjust for the role of a team unless they’re hit over the head with the image of a team."  Indeed, in their studies, these scholars found that showing people an photographic image of all team members actually enhanced the extent to which they attributed the creative success to the group vs. an individual. However, if people are simply told about the presence of a team, but not shown the visual image, they are more likely to give an individual a great deal of the credit for the creative output. 

Larrick concludes, "If you want people to have faith in a team that can sustain success over time even with potential turnover, that’s when you want to call attention to it being a team output that is more about process and culture than one person.”  I would add that the best leaders insure that others know about the importance and the contribution of the entire team.  Moreover, they don't attribute to much of a project's success to their own actions, but instead recognize the valuable contributions of those working with them.  

Leaders: It's Not About You!

Amy Modglin wrote a terrific column for Forbes titled, "Leadership: It's Not About You." She explains that shifting the focus to your people enables an organization to achieve much greater success.   Modglin argues:

View your people as your biggest success. A good leader supports those around them. Your focus should be on developing them, helping them succeed, and watching them grow into the people they want to become. When your people are successful, it is a reflection on you as a leader... Acknowledge and appreciate people. Everyone wants to be valued. It is critical as a leader to give your people credit and recognition for the incredible things they do. One of the reasons people leave a job is because they feel underappreciated. A leader should never take the credit for the work that their people do. A good leader is a generous leader who recognizes people.

Now you might conclude (rightfully) that this philosophy is rather obvious.  Of course, it's not about you as a leader.  Of course, you should appreciate and recognize your people's contributions.  Yet, so many leaders do not do so effectively.   Why?

1.  The longer you stay in a job with considerable success, the more you become convinced as a leader that you are the reason for a great deal of those results.  

2.  Outsiders often attribute FAR too much of an organization's success to the leader at the top.   Leaders begin to believe their own press clippings.  

3.  Fundamental attribution error:  We blame others' failures on their internal weaknesses, but explain away our own failures as a result of uncontrollable outside forces. 

4.  The Board often exacerbates the problem by reinforcing the notion that the leader is "indispensable" to the organization.  

Scattered Priorities

Author and consultant Ron Carucci wrote an article recently for Harvard Business Review, and he described how some leadership teams struggle with scattered priorities. He writes:

One study, done by the consulting firm RHR International, showed that among high-performing leadership teams, 93% are able to prioritize the most important issues and 96% focus on the right issues. By contrast, in low-performing leadership teams, only 62% prioritize well and 53% are seen as being focused on the right issues. The implications for an organization whose leadership team is poorly focused are serious: Wasted resources, wasted effort, and widespread confusion become the norm.

Why do leadership teams find themselves exhibiting scattered priorities?   Here are a few reasons based on my own work with various organizations:

Source: Juan Martinez via Flickr

1.  Top executives engage in reactionary behavior based on a recent event or trendy topic that struck a chord with them.   

2.  Executives don't want to make the hard choices.  Therefore, they spread resources around to too many initiatives, in part because they don't want to disappoint key managers.   Conflict avoidance plays a role here too. 

3. Leadership teams always add items to the strategic agenda, but never step back and consider removing key initiatives.  Thus, the breadth of the agenda grows larger and larger over time.  

4.  Executives make the mistake of thinking that they will grow revenue more quickly if they simply expand their product and service offerings.   They expand and diversify because it seems the easy route to growth, rather than thinking about how to deepen their existing competitive position as a means of achieving growth objectives.

5.  Top leaders assume that declaring issues as priorities is motivating for employees.  They don't realize that employees actually become demotivated if they experience confusion about the strategic agenda, and if they feel stressed and torn in different directions.  

The Death Spiral at Struggling Restaurants

Source: Wikimedia

I see it time and again.  A restaurant begins to face declining revenues for competitive reasons.  Perhaps fast casual restaurants begin to take share, as Panera and others have done.  Perhaps dietary trends cause a shift in consumer preferences.   As the restaurant grapples with declining sales, it makes two moves to try to reverse its fortunes.  First, it broadens the menu, adding a variety of new dishes.  This move often backfires for two reasons.  The new menu items blur the firm's distinctive positioning in the marketplace.  What precisely is this restaurant all about, and what does it specialize in these days?  Broadening the menu also adds a signficant amount of complexity to the operation.   Speed and quality of service suffers.  As the menu expansion fails to generate strong revenue growth, the restaurant makes its second big move. It cuts costs, particularly with regard to staff.  Of course, speed and quality of service declines even further as a result of the cost cutting.  The death spiral intensifies.   

We have seen this death spiral transpire at Bertucci's, a pizza restaurant based here in the Northeastern United States.   Over the course of the past two years, I have seen the menu continue to expand.  Service has suffered.  As service declined, people stopped going to the restaurant.  Cost cutting affected the quality of the experience.  Several weeks ago, the company filed for bankruptcy.  It's unfortunate, as the company once offered a terrific family dining experience.