3 comments on “You call yourself a Great Manager? Let Me Hear Your Theory of Performance!”

You call yourself a Great Manager? Let Me Hear Your Theory of Performance!

“No theory of Management is worth anything if it has no underlying theory of performance”. I am not sure where I read this sentence, but it stuck with me ever since. The performance question is the “holy grail” of any organizational theory. The very reason why companies exist is that they are there to perform something. The very function of the market is to root out low performing companies.

Still, most management advice is of the self-help nature: There is much advice given how to do this or that, without ever being clear on why this or that management action should work. This article is the first one in a series that drills down on the conditions of performance, the underlying theory of human performance as individuals, of groups and of companies.

After all, performance is the crowning discipline of anyone who is managing. A manager/ leader’s job is to get people to do things.

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But there are ways of getting people to do things which will cause people to achieve much and ways that won’t achieve much. So how can management practices be designed in such a way to maximize performance? To answer this question you got to look at the conditions that drive individual effectiveness.

Individual Effectiveness

Why does individual performance occur?

Here is the synopsis of what I learned from my research over the years.

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Internal Conditions

Internal conditions are, first of all, the capabilities that people bring into a job:

  • A set of skills at various levels
  • Cognitive abilities, such as  Intelligence (IQ), Emotional Intelligence (EQ) and specific talents

No big surprises here: You hire for skill. And slightly more advanced, you rely on some personality tests in order to select by cognitive ability (for more on this checkout Hiring like a Pro: Lessons from Google).

But capabilities are not enough. It takes the willingness to use those capabilities, the willingness to fully engage. Engagement can be triggered best by addressing the needs of a person’s intrinsic motivational structure. Of all the literature on intrinsic motivation, I have found the summary that author Daniel Pink made most useful:

  • The urge for mastery, to perfect oneself
  • The autonomy to act
  • To follow one’s own purpose

Of course, no one has the same urge for mastery, the same need for autonomy or the same clearness of purpose. Some people may like to hang loose, spend their time on youtube or engage in social media all day. These people are unlikely to be highly effective. Some may not have found their purpose, their need for mastery and autonomy just yet.

Internal conditions are more or less given to a person, at least at a certain point in time. People are endowed with capabilities and what drives them. It is a package deal. Although these attributes may change over time, they are pretty constant over a longer period of time. It’s hard to change IQ, it takes time to acquire new skills and it takes a transformational experience to shift one’s intrinsic motivations.

External Conditions

A popular myth in western culture is “you are able to achieve anything if you really want it”. Well, I guess that may true – at least as the laws of physics are not violated- but I think a more accurate version of this saying would be “you are able to achieve anything if you really want it, but some things are highly unlikely”. But that kills the motivational intent of this statement, doesn’t it?

To excel as an individual the circumstances of your whereabouts matter.  You need external help. Malcolm Gladwell researched the question of individual performance and dug-out three factors that explain individual excellence best:

  • A supportive context
  • An environment full of opportunities
  • Deliberate practice, ten thousand hours of reflective, focused, professional practice

These claims have been scrutinized in a business context. One of those factors is not important in a business context: Deliberate practice.  Shockingly for Protestant work ethics, which stresses the importance of hard work, deliberate practice is of low value in a business context. It is important for sports and arts, yes. But not in the much more complex, muddled world of business.

A work environment that provides people with opportunity and assistance to perform and grow is very relevant, though. In all organizational or educational research about performance, these factors stand tall.

I have added a third factor: Accountability and Rewards.

In a business context, it is important what people are assigned to do: What is their accountability? People may have great capabilities, possess a great intrinsic drive to excel, they may be part of an organization that provides them with truckloads of opportunities and support, but if they are kept inside a small, narrowly described job they may not be able to fulfill their potential. People need to have the authorization to act.

And not all people are easily intrinsically motivated. Some people respond better to extrinsic motivation, such as money or status that is given to them by others. Extrinsic motivators, financial bonuses, key performance indicators linked to individual pay, are used quite regularly in business settings. They are effective if well used, but tend to crowd out individual motivations or may even encourage reckless behavior, as all those things which are not rewarded will be relegated to secondary considerations.

Combining intrinsic and extrinsic motivation is tricky. The safest path seems to be to rely foremost on intrinsic motivation and to use extrinsic motivators only sparingly.

The Magnitude of Performance: 10X?

Suppose that all internal and external conditions for individual effectiveness are given: What is the difference between the performance of the highest performers and the lowest performers?

An interesting narrative is given by Jeff Sutherland in his 20014 book “SCRUM”. Joel Spolsky, a software developer, compared the time needed to complete a standardized programming assignment at Yale University. Just focussing on those people who managed to get the top 25% of grades, he researched the time spent on the assignment:

  • The top 10% of performers needed 10 times less time than the low 10% of performers
  • The 10X factor was pretty constant over the years and classes

This narrative is showing what the performance differential can be in a laboratory setting. It is illustrative, but not more. In a business setting a quantification of individual performance is much more complex. Even for more routine jobs, such as call center agents, it is very difficult, as there are so many things that are hard to quantify and measure. In a normal line job measuring individual performance quantitatively is nearly impossible. What is the value added by an ordinary accountant? How does that compare to another employee, say in logistics? Therefore, in traditional business settings, one has to rely on qualitative, gut-based judgments of managers.

But two things are sure:

  • Even one good or bad decision of an individual might sometimes determine the fate of the company.
  • The sum of all tiny, daily decisions of all colleagues in a company does a lot to determine the overall performance of the whole company

So optimizing the work environment and management practices in a way to foster the conditions for individual performance is a sure winner. You might disagree with the conditions I laid out, but you absolutely need a yardstick.

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Individual Performance Does Not Equal Team Performance

A question for you: Is most work actually done by individuals or by teams?  That question may sound silly. After all, the sum of each person’s work makes up the work of a team. But here is another perspective: How much of work is actually already structured, in established processes and daily, habitual work practices and therefore does need much personal interaction? I guess the latter is actually the bulk of the work in most companies. I.e. my answer to the first question is: Most work inside companies is done by individuals and not teams. True team tasks, that require intense collaboration between people and can only be solved by their close cooperation, are rare.

I share that view with Richard Hackman, a professor who was specialized in the research of teams. According to Mr. Hackman, most departments are work teams. In a work team, work is parceled out to each individual by a manager, through job descriptions, processes and day to day delegation. Close collaboration, “a true team” as he calls it, is not needed.

Indeed, treating work teams as true teams is very wasteful. Investments in team building of ordinary work teams have no measurable benefits. None, nada, niente, aucun, gar nichts. Still, companies send their so-called “teams”, which are really Work Teams, to team building exercises.

Companies confuse work teams, which make up the majority of teams inside most companies, with true teams. What a waste of resources.

The preponderance of work teams in organizations highlights the need to have a consistent and holistic theory of individual performance in business. The one given above is my best shot.

Let me know what you think!

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action adventure beach dawn
Photo by Pixabay on Pexels.com

This is part one of a series of articles on the underlying theory of performance in businesses.

More on the effectiveness of teams in the next article.

Sources

  • Gladwell, Malcolm „Outliers“, 2009 -> on the external supporting conditions to achieve “outlying” performance
  • Pink, Daniel “Drive”, 2009 -> On the the conditions of intrinsic motivation
  • Rosenzweig, Philip, “Left Brain, right stuff”, 2014 -> On the limits of deliberate practice in business
  • Keegan, Robert et al, ” An Everyone Culture”, 2016 -> On organizational learning that is built on individual growth

…and all the other books found on the Source page.

 

 

 

 

0 comments on “Experimental Management”

Experimental Management

Meet Emil and Marc. Emil just signed a contract to work for Marc. This makes Emil an employee and Marc a manager. With his signature, Emil has agreed to follow the orders of Marc. Disobedience is an option, but it comes with the risks of being fired.

Marc the manager points Eric to chop a stack of wood. By doing this Marc is using the most basic form of a management practice, the direct order. Next day, Marc orders Eric to stack the firewood on a need pile in that corner over there. On the third day, Marc is late. Eric sees a stack of wood, and being human and not an automaton, starts to chop it, like on day one. Without knowing, Eric has developed a job description for himself: “My job is to chop wood and staple it”. The job description is another basic form of a management practice. It spares Marc the Manager the time and effort to direct Eric. Unlike a robot Eric the Employee is able to see the work and do it, without being ordered. Marc may continue to supervise Eric, but he might find a better use of his time in carting the firewood to the market and sell it.

One day, after a heavy rainfall, Eric sees that the roof of the shack, where the firewood is stored, needs repairs. Without being ordered, he fixes the roof. What Eric did is to use his judgment of Marc’s interest and decided to act autonomously. Marc has not directed Eric to do that, but Eric has developed a sense of purpose in his work, and chances are that he feels responsible for it. Marcs comes back later in the day and wonders that Eric has not produced his usual stack size of firewood, but he sees that the shack is repaired. Marc may tell off Eric for not making the numbers, but he decides to praise Eric for having taken the initiative and prioritizing repairing the shack over his chopping duties. Thereby Marc has embraced another two basic management practices: Feedback and Delegation. Eric is no longer just following orders but he is empowered to do other things necessary to keep up the production of firewood.

Why has Marc opted to praise Eric and accept his autonomous acting? Marc, hard pressed to make living out of his business, see’s those management practices as being efficient. In his mind, Eric has saved him a lot of trouble, as wet firewood doesn’t sell. Marc may not know it, but he has developed the performance hypothesis in his mind that Job Descriptions, Feedback, and Delegation produce better results, than just ordering Eric the Employee around. Marc the Manager benefits from adopting those Management practices. Eric the employee likes being responsible, too, which is part of why these management practices are working. But even if Marc didn’t give a damn about Eric, he knows he would hurt himself by not employing these practices.

Over time Marc might decide to adopt other management practices, like

  • a regular, weekly meeting to discuss issues
  • providing a budget to Marc that he can spend on axes or saws
  • a bonus scheme based on Erics productivity
  • job sharing, so that Eric is assisting Marc at the market from time to time, in order to get a larger picture of his duties and exposure to customers
  • Annual objective setting and performance review  to clarify high-level targets for Erics work

Marc the manager will introduce and maintain these management practices only if he expects that these contribute to the performance. Margins in the firewood business are so slim these days.

The Case for Constant Experimentation with Management Practices

Shouldn’t any company seek to emulate Marc’s way of working? Things like…

  • Adding new management practices if they work
  • Getting rid of those that don’t seem to work
  • Constantly adapting practices to the need of the business

In a business world that is ever-changing, why do we emphasize so much the need to act like a daring entrepreneur, who finds ever better problem-solution fits, but overwhelmingly fail to engage in experiments with the very ways we are working together? Instead of seeking to constantly improve our way of collaborating with one another, we focus hard on business models, productivity figures, financial performance.

Marc would see that fixation with direct business results as being silly. Results are important, yes, but they can not be enforced directly. Instead, they need to be approached obliquely, by working better together. If we can achieve that, results are not guaranteed, but they will come much more easily.

What is a business if not a sum of decisions taken at all levels of the company? If we can just increase the quality of decisions by some minuscule percentage point, isn’t a companies performance bound to increase? Better management practices result in better decisions result in better performance.

Management practices are like the underlying factors of a companies performance formula.

  • Company Performance = f (Strategy, Execution, Chance)
  • Strategy and Execution = f (Management Practices, Chance)

In other words management practices, the way work in done, influence a companies ability to come up with a good direction (strategy) and competent implementation (execution).

This sounds like a no-brainer. But there are three caveats with this logic:

  1. Managers do not care too much about the performance of management practices
  2. Owners care about performance, but can’t really observe the impact of management practices on performance
  3. The empiric, scientific evidence of the link between management practices and company performance is weak

Manager’s Do Not Care so Much About Performant Management Practices

Marc the manager holds four distinct advantages over most other managers:

  1. Direct Feedback: The impact that the management practices he adopts have on Eric’s performance are very direct
  2. Underlying simplicity: The firewood business is simple. Causes and effects are directly visible
  3. Small numbers: It’s just Eric the employee, not a group of employees or a host of departments to coordinate. This spares Marc the manager from the otherwise inevitable power and social dynamics
  4. No agency problem: Marc is the owner and the manager. He is able to prioritize performance of the business very highly – his performance and the business’s performance are the same. Managers, who are not owners, quickly see their well being and the businesses well being as two separate things
  5. No ingrained, legacy practices: Most managers join companies that have a certain way to do things, a certain management culture. It’s much harder to experiment with management practices if social norms are already firmly entrenched

For a typical modern-day manager, it is not only much harder to see whether his way of managing works better than other ways. On top of that, an employed manager does not even share the same passion for performance than an owner. Risk minimization by not sticking out one’s neck, social conformity and self-optimization might be more important than performance optimization. The fact that the performance of one’s management practices employed can’t be measured easily compounds this agency problem.

The result is that performance becomes a secondary concern while selecting management practices. Control is much more important.

Owners Can’t Really Tell What Management Practices Work

Owners care about performant management practices, don’t they? After all, it is their money that is wasted. But even owners care for performant management practices is limited:

  • Ownership might be diluted. If an ownership share is sufficiently small, influence is very limited.
  • The Agency problem, again: Managers, who are in day to day contact with the business know a lot more about the business they are managing than owners. Owners might employ a few checks on managerial powers here and there, but finally, owners have no option, but to trust.
  • There are other factors easily observable, like those found in the P&L or balance sheet. By their very nature management practices do not lend themselves to be measured in hard numbers. Humankind is excellent at measuring financial systems, but we suck at measuring social systems

The point that I am making is not that no one is not concerned with the performance of organizations. Indeed, there are many people caring about profits and corporate outlooks. The point I am trying to make is:  Few people are making a major effort to influence the performance of an organization by virtue of its management practices.

Science found a bit of evidence, just a bit

Financial performance is a primary concern for any company. But it is usually tackled head-on by looking at market share, product portfolio, customer bases, competition, cost structures, distribution networks, business models etc. Management practices get into view only with hindsight: If a company is successful, it must have great management practices. Phil Rosenzweig, a professor at IMD in Lausanne,  has written a whole book about the ex-post sanctioning of management practices. He named this the “Halo Effect”. Huge business books bestsellers like Jim Collins “Good to Great” or its predecessor “Built to Last” or Robert Watermans “In Search of Excellence” fell for the Halo effect. Great stories, but no scientific value.

But there are a few recent studies that imply a link between good management practices and a companies performance. According to one of those (Bloom et al 2011)  management practices explain about 10% of the success of companies. And according to another study (Bloom, Mahajan, McKenzie 2011) that link is causal, i.e. management practices improved first, company results followed.

That is not overwhelmingly strong evidence. But this is only natural: We just can’t measure social matters with the same exactness as physics. Social systems are highly idiosyncratic things. Take for example the human invention of the stock market. The way prices on the stock market are determined is a result of the human social system, the value humans attach to the stocks listed. Despite hundreds of billions of investment, no one can predict stock values with any certainty. Great efforts are being made in analyzing stocks, but finally, all this effort is undermined because we suck at measuring social systems. It hard to predict human behavior with certainty. Social systems are even more complex than the individual human actor, so science is bound to fail. There are no social physics, no immutable rules. There are things that appear to work for a time, but that is no guarantee that those correlations will hold in the future.

Experimental Management

To sum up my argument:

  1. There is a clear logical link between management practice and a companies performance. The sum of all decisions of all employees should make a great deal of difference to a companies success.
  2. There is academic evidence of this link, but it is weak
  3. Owners and Managers prefer management practices that work over optimal management practices. All sing the hymn of performance, but asymmetrical information, the pure opacity of causes and effects in social systems and individual incentives let them focus on the observable, largely financial facts, instead of the underlying intangible social performance of the organization

My point is:

  • If we can’t say what management practice is really working, why are nearly all companies keeping their management practices static?
  • Do such companies suppose they already found the optimum?
  • Those companies implicitly assume that there is nothing to gain from experimenting with management practices
  • Is it not silly that Lean Start-ups, Entrepreneurial and Agile Movements all have a strong emphasis on experimentation, but experimentation with management practices are of a (at best) secondary concern for most companies trying to become fit for the Digital Age?

Therefore, I suggest Experimental Management. If we don’t know what works best at that time, we need to try things, observe the effects and tune and tune and tune our way of “doing things in a group”, of managing.

We do not need big theories of Leadership and Management for this. We just need to experiment and watch. In other words, managers need to work empirically, not ideologically. Find out what works themselves and not following snake oil selling business book authors, leadership gurus or opinionated non-empirically focused consultants.

Liberation?

Experimental Management is a term that is slightly provocative to our cultural norms. First, we expect competent management that knows which practice works. Dabbling in management practices smells like incompetence. We want certainty. For certainty, we are ready to prefer the professional illusionist to the empirically driven realist.

Second, we shouldn’t subject humans to experiments. Manipulating humans is rightly abhorred. We value freedom and self-fulfillment.

My hunch is that experimenting with better ways to work, will lead to more freedom and more self-fulfillment in the workplace. Why? The only way to get better decisions is to employ the abilities and senses of all the people in an organization. And we can’t get that level of engagement without offering more freedom and self-fulfillment.

The arch-capitalist quest for performance might just end up liberating people. 

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Sources:

  • Rosenzweig, Phil “The Halo Effect”
  • Bloom et al “Mangement Practices Across Firms and Countries”
  • More information about research on the link between management practices and companies performance can be found on WorldManagementSurvey.org

 

0 comments on “The Main Managerial Fallacy and the Full Stack Manager”

The Main Managerial Fallacy and the Full Stack Manager

The way most managers do their job is rather dull. It all begins with the very basic assumptions that managers have about their job. Most managers frame their job as being three things:

  • to lead some people
  • to make most decisions
  • to balance the organizational needs of performance with the needs of the ones performing

Basically, they think they are in charge. Which is perfectly right, only that they picture themselves to be in charge of the wrong things:

The Managerial Fallacy

Managers usually think of themselves as being in charge of a performance mission …but they are really in charge of getting people to do things.

This difference between these two frames is far from being subtle.  Being on a performance missions triggers you to think in terms of the mission, to dissect it into its component parts, to reassemble it into a better organizational machine, and to place the workers to operate that machine. It triggers a rational process of solving a performance problem.  This is exactly the thing we have been trained for at school and at universities. This way of working feels natural and comes easily to us. The frame is: “I am in charge of running this”. But it is wrong.

Analytical analysis is an optimal method to solve a mathematical equation, a physical, mechanical or most problem in natural sciences. Given sufficient information, you can rely on the stable causality of the natural laws to come up with an optimal solution. But an analytical approach does not work in social sciences. Here you never have all information, as the information does not lend itself to being measured well. Plus causalities are always hidden and unstable. You can’t predict individual behavior.

In such a much less predictable, social environment the best method to proceed is not an analytical one. It is an empirical one.  You need to try things to find out the best way of doing things instead of assuming that you found the optimal solution. In social systems there is no thing as an optimal solution, there are only solutions that work better at a certain point in time. People and organizations are volatile. The whole business environment is more and more volatile in this digital age. A stable optimum needs to be replaced by neverending tinkering to always try to come up with a better solution.

Therefore the much superior frame is: I am in charge of getting people to do things.

This frame prompts a manager to:

  • tinker for a better solution, continuously
  • to lead people in such a matter so that they can do things better
  • to consider oneself as a manager of a socio-technical system, the performing organization, not of a mechanical device with measurable in and outputs
  • to understand the work of a manager as a craft. A craft that is to be perfected over time, through tinkering, try, error and learning

After all, management (or leadership) is about this:  Getting people to do things. It is not primarily a problem to be solved by the manager. It is not constantly firing a barrage of orders or motivational messages, as this would be tiring and therefore ineffective. But it is about creating an environment where people do those things that need to be done because they want those things to be done.

Dwight

That environment is built from of Management Practices which are often unlike the ones we commonly take for granted. Here is a comparison.

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Management practices are the building blocks of the craft of management. There are hundreds or even thousands of management practices available. Many of those practices have their origins in the Agile or Lean Movements. But the goal is not to adopt as many advanced practices as possible. First, these are not necessarily better than existing ones in the context of a specific organizational challenge. Second, adopting too many practices means creating a highly regulated work environment. This is contra productive. The target is to create an environment where people do those things that should be done because they want to do those things.  Keep it simple – allow freedom.

The Full Stack Manager

Let’s summarize this modern understanding of a more clever way to manage. A manager is:

  • the builder of environments
  • the provider of freedom
  • the one who connects the performance missions of an organization to the calling of the individual
  • the one who experiments with different management practices in order to find ever better ways to engage groups of people

If you continue on this line of thinking, an optimal scenario to run a sociotechnical system may be to even delegate designing, building and running this system more and more to its component parts, i.e. the people doing the work. By going down that path you end up with a self-managed organization, that has left behind the hierarchical way most organizations are organized.

While this is attractive to more and more companies – even parts of the likes of Daimler, Porsche, Unilever, and Michelin – not to talk of AirBnB, Netflix, Haier etc. – this is not a natural given end state. Hierarchy, as an easily understood, time-proven coordination mechanism has its merits.

Nobody can say where the optimum is for your organization. Nobody can say which management practices are best for your organization. But you can find it out: Tinker, you Craftsman!

A Master Craftsman in the trade of Management is what I would call a Full Stack Manager. One who knows how to run meetings, to know how to create transparency, to know how to make decisions, to know how to create a feedback and learning-rich environment etc.

So, why are managers (so often) dumb?

There are a number of explanations:

  • Peter principle: Everyone is prompted to her or his level of incompetence. Only the competent get promoted. But their career stalls when they are incompetent. This leaves most managers incompetent. This logical argument is a heuristic, that is hard to prove or to disprove.
  • Principle-Agent Problem: Managers may appear to act incompetent, but they really have their own agenda. This agenda might entail risk minimization (or – less often -risk-taking), personal enrichment or aggrandizement, or just having a good time. They should be taking care of the organization, though. Alas, the amount of information that the principal (a superior or shareholders) is always less than the information the agent (the manager) has.
  • Getting things done is more important than doing things great: Success in business is a function of doing the right things on a strategic level, good execution and a good dose of luck. It’s not fully correlated with good management practices. In fact, there are studies that suggest that just 10% of a companies performance is related to good management practices.In other words: You do not necessarily need good management to succeed. Survival is mandatory, performance is optional.
  • Human Nature: Power corrupts. We tend to warm ourselves in the shine of it, making us blind to things going bad and feeling entitled to the status quo.

All of this is true and there is not much we can do about it.

But what we can do to decrease our dumbness as managers is to reframe management from “a solver of performance equations” to a “Gardner of socio-technical performance systems”.

Or to say it in simpler terms: From a Scientific Manager to a Gardner of Sociotops.

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Let me know what you think.

Sources:

I am such a sucker for recency bias. So here is what I read last and which therefore didn’t fail to influence this post:

  • Nissam Taleb, “The Black Swan” and “Antifragile“. Both great book if you want to learn the differences between physical and social systems
  • Phil Rosenzweig, “The Halo Effect“. If you want to know why 95% management literature are stories, but not science, read this. The bad thing is, you will be deeply depressed. The good thing is, re-read this article to cheer-up: Experimentation is the way to go, not dogma.
  • The other books I happened to rate highly on the Sources page

Other than this have a look at