Gary Loveman, You’re my Hero….

Tongue in cheek blog title aside, I really was inspired by reading the Stanford Business School article on what Gary Loveman did at Harrah’s.  I did not know that prior to taking the COO position at Harrah’s he had no private sector management experience. None.  Taking over management of 15 casinos and 35,000 employees is one heck of an entry-level position.  And I’m sure his doctorate went over well with the entrenched dinosaurs from the school of hard knocks.  This would have been a great reality TV show. 

Seriously though, what an amazing success story.  What can I learn from this?  What did Gary do?  It seems to me he went into this incredibly daunting position with first principles and he stuck to them.  He learned the industry from those on the ground, but left the routine micro-management to others.  Instead, he kept his focus on strategic marketing, and he used evidence from customer data to develop Harrah’s marketing plan.  He also worked closely with HR to make sure the company’s selection process and management were reinforcing the overall goal of customer service.  He aligned his people from top to bottom with the overall strategy.

Another thing that strikes me about Gary’s leadership style (as depicted in this article–never met the man), is his humility in staying focused on playing a role for the shareholders.  People, including himself, don’t own their jobs.  The shareholders do.  They are obligated to produce for the company, not vice versa.  This philosophy enabled Gary to make some counter-intuitive personnel cuts that I’m sure were controversial.  Like so many other CEOs, he didn’t allow people to occupy a position in the organization based on squatter’s rights.  At some point in the past, they just moved in, and now felt entitled to inhabit it until retirement.  I see this all the time–people sitting in leadership positions growing moss on their backs, biding their time.  I want to upend them!  Gary Loveman turned Harrah’s into a meritocracy, which is the only path to excellence.

Diamonds in the Data Mine

This Harvard Business Review article by Gary Loveman illustrated how sometimes the greatest competitive advantage is just keeping it simple and focusing on the fundamentals.  (As a sidebar, I think it’s kind of cool that Gary is a business professor who succeeded swimmingly in the real world!  So much for those who can’t do, teach…)

Back on point, Harrah’s has achieved year over year growth by using hard data to zero in on their target market and then absolutely wowing them with customer satisfaction.  A key takeaway for me is that Gary did not automatically assume that Harrah’s had to compete with the spectacle of other hotels.  He also did not follow the conventional wisdom that “high-rollers” were the desired target market to be wooed.  Instead of devising a marketing plan and then trying to force it on the business like a square peg into a round hole, Gary took the data from the existing rewards program as a starting point.  After they discovered which customer segment provided the most revenue, they targeted their marketing toward their wants and needs.  This is a great example of the power of evidence-based management.

Another key lesson for me is that Harrah’s put its money where its mouth is when it comes to providing service.  Nothing discourages me more than an organization that purports to value service and then devotes almost no resources to it, and cuts staff hours as soon as the budget gets tight.  Harrah’s went the other way, and it paid off.  They directly linked compensation at all levels to service, and did not confound this reward with other metrics, such as financial performance. THAT is making a statement about what the organization values and what its expectations are.  They also did not cut staff in lean times, but rather increased it to leverage their competitive advantage.

The lesson here is that neither factor alone could have made Harrah’s succeed.  The power of data is lost without the implementation of the marketing and service, just as marketing value is lost when thrown in the wrong direction or not backed up by real service.

Evidence-Based Management

If it’s broke, why don’t we fix it? Pfeffer and Sutton point out in their article that there is a body of knowledge supporting evidence-based management, yet this form of management is not widely implemented.  Why? As they point out, the biggest impediment must be ideology.  We simply are too heavily invested in the status quo.  A paradigm shift would mean a re-balancing of power. 

It seems to me there are companies, perhaps even entire industries, that don’t even know this approach exists.  I recently had a conversation with an HR professional in the grocery industry who said she didn’t know anyone in the company who had an M.B.A. from an actual university as opposed to an online school.  This is not to say that said company has sub-standard management or that formal education automatically equals good leadership.  But I think there must be a substantial proportion of managers out there that just learn the ropes of an industry and never get exposed to controversial ideas, much less adopt them.

Another major hurdle for companies is the pressure to find quick, easy solutions.  Evidence-based management would take time, dedication of resources, and tolerance of experimentation.  That is just the first step.  The hardest part is getting managers to change course when the results are counter-intuitive.

Good To…ooops, Statistically Insignificant

Niendorf and Beck remind us that after a statistician gets a hold of you, well, you just can’t say much of anything about much of anything!  I really enjoyed reading this statistical critique of Collins Good to Great because it offers a good, sober, and yes, extremely dry, reminder not to get caught up in waves of irrational exuberance over the latest, greatest theory.  After all, the day somebody figures it all out, then we’re all out of business.

This article points out that despite Collins’ best effort and intentions, his method of data mining random patterns and mistaking correlation for causation led him to a conclusion that was never subjected to critical thinking, eg hypothesis testing.  I am a mere novice, a lowly grad student enrolled in an introductory statistics class, and even I know about hypothesis testing, and the fundamental error of attributing causality in a relationship.  So, I’m smarter than Jim Collins and can do it better? Not at all!  This dissection of Collins’ math just proves how hard it is to think outside a box once you’ve built it.  Good to Great has become a management Bible, and Collins worked hard on his study and believed in his results.  And yet, as the merciless math shows, he didn’t prove anything.  For ten years, managers have devoted resources to an unproven hypothesis about business success.  So, what do we know?  There is no Golden Key.

Report on Pre-Iraq Intelligence

This brief WSJ article summarizing the conclusions of the U.S. Senate Select Committee on Intelligence really highlights the gaping pitfall of groupthink that precipitated the U.S. invasion of Iraq.  Reading it, I got goosebumps.  Thank God the only thing hanging over my head for succumbing to groupthink would be a probable loss of market share.  These people started a war.

But the process is the same, whether you’re running a nation or a lemonade stand–an insulated group of people who all start with the same a priori assumptions will take evidence down the road that was already pre-determined.  It’s important to remember that this is done with the best intentions.  This is not conscious manipulation of the facts.  This is the ugly dark side of consensus, which is supposedly the holy grail of healthy leadership and group dynamics.  Really?  Even if we all hold hands and go skipping off a cliff singing “Kum-Ba-Yah”?

Strategies for Effective Team Leaders

This article, based on research in ten high-tech companies, illustrates how technical knowledge alone can bring the machinery of a company to a grinding halt if it is not coupled with soft skills and efffective personal interactions.  I was struck by the researchers’ opening query: Since so much knowledge about effective leadership is readily available, then why doesn’t everybody do it?  Well, because change is hard and paradigms are tyrants.  Change is especially hard and paradigms are especially tyrannical when senior management is not setting its leaders up for success.  This study bears that out.

The researchers found that effective New Product Development leaders created a climate of collaboration within the team and between departments, insisted on team ownership of decisions that impacted the team, fostered learning, and facilitated interaction.  The team leaders that were most able to do this were those who had a senior management that committed resources to soft skill training and made leadership just as critical as technical prowess.  Also, when senior management selected team leaders from throughout the organization and not just R&D, effective leadership was facilitated.

These results are not surprising, so why do negative paradigms still persist?  Why the knowing-doing gap?  This study talks frankly about the fact that ineffective leaders are often quite skilled at articulating the ingredients of effective leadership.  Likewise, senior management often pontificates at length in buzzwords like “cross-functional collaboration”?  Why does this talk so often never result in action?  Because ation takes guts. Action is not safe.  Action is revolutionary, and if you don’t win over the system, and if you don’t show immediate results on a quarterly spreadsheet, you may lose your job.  That’s the reality.  I think trust is a major ingredient in action for every level below the CEO.  People have to trust that they won’t be thrown under the bus for taking a chance and trying to make things better.  They have to trust that long-term vision won’t be penalized.  That is just not the reality in many organizations, so people behave according to the laws of self-preservation.

Arrow and Sins of Commission

Both the case study at Arrow and the article on “Sins of Commission” bring to the fore the problem with using financial rewards as extrinsic motivators.  At Arrow, the problem wasn’t only within the company, but within the entire industry.  There was no company loyalty because salespeople bounced from company to company following better offers.  The CEO, Steven Kaufman, worked hard to fight this trend by recruiting college grads and trying to keep them on by convincing them of the company’s superior position in the industry.  This plan failed for the most part, as Kaufman lost many grads to competitors after he refused on principle to meet their offers and risk turmoil among Arrow veterans.

The problem with company loyalty at Arrow is an example of exactly what Jeffrey Pfeffer is talking about in “Sins of Commission”.  The problem with pay for performance is that it has a whole host of negative side effects–its the solution that’s worse than the problem in many cases.  Incentivizing people with money encourages cheating and sabotage within an organization, which will rot the whole system from the inside out.  It also doesn’t address other motivating factors. 

I have to agree with Pfeffer that the issue of time and commitment of resources is a major impediment to developing alternative performance systems.  These days companies have to show immediate results quarter over quarter.  Who has the guts to forego the quick, lazy fix–dangle a bigger carrot in front of somebody’s face?  Would that noble executive have a job by next quarter?  Perhaps it will take a few execs falling on their swords to break this paradigm.

To PA or not to PA….

I remember sitting in one of my first management training classes and listening to the VP of HR tell us that the PA was our best friend–the PA, properly done, would document performance, establish clear communication, and enable goal-setting.  The PA was indispensable, unbeatable, inevitable.  In his WSJ article, Culbert says its a worthless farce. Get rid of it.  Oh, how nice that sounds!  And much of what Culbert argues rings true.  The PA does reduce both parties to gaming and manipulation, there is a built-in disparity, and, most importantly to me, the PA has nothing to do with pay.  That, I believe is the biggest problem with the PA and the strongest criticism Culbert has.  The other issues are avoidable for the most part if a good leader uses the PA properly, but the persistent group fantasy that pay has more to do with performance than market is damaging.  It makes all kinds of rationalizations, justifications, and other acrobatic stretches of truth and integrity necessary.  As a manager, I always felt ashamed when I had to sit across from a subordinate and try to relate their pay to my evaluation of their performance–it was never the truth, and we both knew it.

But I’m not sure Culbert really poses a goood alternative.  He suggests more frequent, informal feedback to build trust, as if relating in a less formalized way will prevent manipulation and subjective bias.  I don’t see that as necessarily true at all.  Also, Culbert’s underlying premise is that everybody wants to do their best and work hard and be on the up and up–this is not always the case.  What systems would be in place to prevent Machaivellian types from exploiting the free rein? 

The PA sucks to greater or lesser degrees depending on the leader and the organization.  There’s no doubt about it.  I just think Culbert’s proposed solution is prone to the same dysfunction.  That dysfunction ultimately exists in any power-stratified human relationship.  I don’t know if its totally fixable.  I think the best we can shoot for is to minimize it as much as possible.

SAS Institute and Nordtsrom–Intrinsic vs. Extrinsic Motivation

While reading the SAS Institute case I could barely believe my eyes–how does an organization thrive with such loose structure and minimal measurements?  The management methods used at SAS Institute go against every fundamental management principle I have had ingrained in me. My God, could it work?  The truth is, I would love to never have to deliver another performance appraisal or write-up.  But I was raised with the notion that these were indispensable tools–the manager’s best friend was documentation and the worst enemy was fear of confrontation.  And, let’s not forget, “you can’t manage what you can’t measure”.  And I believe in the functionality of these notions!  It is hard for me to understand how SAS thrived without PAs, sales quotas, top-down product direction. 

They relied explcitly and completely on the intrinsic motivation of the people to guide the company.  But something must be missing–by what process did they document the need to terminate someone who wasn’t intrinsically motivated enough?  Also, this hands-off-the-wheel approach relies heavily, almost entirely, on the employee selection process.  This will not work if you don’t have the right people, i.e. intrinsically motivated, internal locus of control,  creative thinkers who perform best with little structure.  If you don’t get these types, management becomes necessary.  SAS has succeeded in getting and keeping the right people because of the phenomenal reputation they have built as a wonderful place to work.  Indeed, the perqs from the case study made me envious.  In order to continue to thrive SAS will have to keep systems in place to keep its top-notch people highly satisfied.  Of course, the loose systems are part of the satisfaction…there’s a little bit of chicken/egg there.

Nordtsrom is the exact opposite, yet also hugely successful….until they weren’t.  I think it’s important to note the industry difference betweeen SAS and Nordstrom.  People are people, but all industries are not created equal, and the kinds of things you can get away with in an insulated, B2B, techie environment may not translate to retail.  In fact, I am pretty sure they never, ever can or will.  How’s that for negativity?  I would love to be proved wrong on that.  What Nordstrom did is what every retail company I have worked for has done, except Nordstrom did it better–or is that worse?  Nordtstrom relied heavily on extrinsic factors–Rewards & Recognition vs. Peer Pressure/Shame–to motivate its sales people.  The development of the SPH gave Nordstrom a quantitative tool to publicly measure all performance.  This system was hugely succesful for decades.  The problem is that a side-effect of this over-arching system is that it incented people to work off the clock.  This extrinsic motivator was the undoing of Nordstrom.

But more is going on with Nordtsrom than meets the eye.  This is complex–for example, it’s not just about top-down, tight controls.  The SPH system was a tight measurement tool, but upper management had so much faith in its efficacy that they took their hands off the wheel and really allowed department managers to do as they see fit to succeed.  In turn, this rolled down to the associates who also participated in buying and merchandising because they had a stake in it.  So, everyone within this system had arguably more autonomy than a person in a similar role at a competitor would.  However, at the end of the day, they were all slaves to the SPH.  They lived or died by it.  And, the faith that upper management put in this one measurement tool was their undoing.  As long as the money was pouring in and their employees were the highest-paid clerks in the industry, they thought everything must be fine.  They failed to evaluate all the outcomes of their system, good and bad.  So, their narrow focus on extrinsic motivators and pure financial incentives cost them.  Though, it must be said, many employees resented the union interference and appreciated the system Nordstrom provided that allowed them to succeed and make more money than they would anywhere else.

HBS Specialty Medical

In this case, a new CEO stuggles with the perceived limitations of his management team.  The company is not going in the direction he wants it to go in terms of growth and marketing, and he sees the entrenched roles of his leadership team as the primary issue.  Carl also feels that several people on his team are simply underperformers in over their heads.  He bases his assessment on their lackluster participation in meetings and the dearth of innovative thinking in their ideas.

Carl Burke’s solution is to hire a consultant to assess each individual member of the management team to help him determine who should stay and who should go.  Laura Wells enters the scene to apply her clinical skills to the problem.

The first thing I noticed about the interaction between Laura and Carl is that he was reluctant to participate in the assessment process, and she convinced him to do it as a tactic to allay suspicions.  She promised to “take it easy on him”.  I would think that if Carl really wants to improve the dynamic he would want to see his role in it, and not through rose-tinted glasses.  He is not apart from and above the group–they are who they are, but they may also be reacting to him.

The second thing that struck me was the similarity between Carl’s broad character sketches of his leadership team and the outcome of Laura’s clinical assessments.  There were som definite parallels there, particularly in the case of Craig, who is apparently dumb as a bag of bricks.  Now, perhaps Carl is just an amazing judge of people.  He must be a pretty smart guy to be CEO and all.  I just found it odd that he wasn’t off the mark once. 

All in all, I think there is some value in bringing in an independent, objective viewpoint.  But it seems in this case that the assessments were geared to a specific end.  In particular, Carl proposed a new management structure that he wanted to fit people into, and Laura got right on board without reservation or consultation.  In other words, every person and every viewpoint but Carl’s was  subjected to a very critical analysis. 

Perhaps quick, decisive shake-ups are needed in business.  They are certainly prevalent.   God knows every time I have seen a CEO switch-out, restructuring followed quickly after.  However, it seems that in this case Carl is moving too quickly and putting way too much weight on this one tool of clinical analysis that takes place over six weeks.  Six weeks out of an entire career!