When Employees Misinterpret Managers
bhorowitz.com
bhorowitz.com
In a normal business environment, human cognitive biases about authority act very strongly. I think that a big part of what causes 'bad management' is that managers may tend to think of themselves as buddy-buddy with their subordinates, and rationalize that surely someone will tell them if they make a mistake, issue instructions that seem counterproductive, make bad tradeoffs like the ones in the article, et cetera, et cetera. That's almost always wrong. The incentive structure for normal employees means that you go along with the boss' idiot idea in almost every case, or alternatively that you take it on good faith that your wise and benevolent manager knows what they're doing, and in both cases employees do not critique managers in ways that the managers can hear (by which I mean, both covert conversations and social cues that managers miss).
Also, in his retelling, he skipped the part where the employees pointed out situations where they would be punished for making the right decisions, asked for assurance that doing the right thing for the business would be rewarded (or at least not punished) regardless of the official "goals" and "incentives", and were told not to expect any such consideration. I guarantee that happened, but for some reason he doesn't remember it as an important part of the story.
Power makes you stupid, a summary: http://www.washingtonpost.com/wp-dyn/content/article/2007/11... - the article in question cites work by Adam Galinsky of Northwestern University and Dacher Keltner of Berkeley.
"Keltner and others have shown that power exacerbates many cognitive biases. People who lack power turn out to be more accurate in guessing the opinions of those around them, whereas those in power tend to be inaccurate. Because subordinates are also hesitant to tell superiors things they do not want to hear, the problem gets worse, with powerful people having even less input and perspective about how others think and feel."
So I believe that that's a cause of a great deal of bad management - I also believe that's part of why the 37Signals folks have done so well with a minimal-management strategy, they're consciously trying to avoid the way that information becomes tainted when it travels vertically in a hierarchy.
I think instead, the manager simply failed to realize what his actions would do. He gave them different incentives, and they reacted to them.
Employees are there to work for the company, but they will not promote the company at their own expense. If your incentive plans incentivize the wrong things, you'll get the wrong things.
'Clever' incentive plans are rarely actually clever.
"The term 'Cobra effect' stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes. The Government therefore offered a reward for every dead snake. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually however the Indians began to breed cobras for the income.
When this was realized the reward was canceled, but the cobra breeders set the snakes free and the wild cobras consequently multiplied."
The story itself reminds me of John Gall's classic book on systems (originally Systemantics, now The Systems Bible).
I joke with my co-workers that we should immediately stop finding bugs once we reach X, since anything further than that is wasted effort (and sets the bar higher when the next doughnut offer comes around).
So, the managers failed to communicate what they wanted to the employees, but this is spun in the headline as the employees' fault.
Now: reading the article, that does indicate that it's the managers' fault, and it's a bang-up job of doing that. But the headline - oy!
Headline writing is hard.
I saw an old work training film about management with Jon Cleese as some sort of angel (god?). He keeps explaining over and over again to the manager that it's his responsibility for everything. It's at least the starting point for a manager to figure out what went wrong.
One thing that I think would have worked better is ask his sales team "why do most of our sales come at the end of a quarter?"
Yes, why? It seems to be that case in lots of organizations. My current theory has to do with negotiation positions: Salespeople want bonuses, they get bonuses per quarter. As the quarter ends, the customer can drive harder for bargains as salespeople get more desperate to make a sale. Consumer just exploit that.
Anybody with a better theory, or some reasons why my theory would be right or wrong?
If my theory was right and the primary cause, then remodelling salespeople's incentive to be independent of quarterly boundaries should remove the hockey stick.
Ways around this might be to look at some kind of rolling 3-month average when examining revenues/sales or comparing sales people to each other (although depending on the sales volume this might suck statistically). You could also do sales bonuses as a combination of numbers + manual review. Maybe eliminate bonuses altogether and go straight commission so that the salespeople's incentive is to close the biggest deal irregardless of when. This of course is predicated on the board not pushing for big quarterly numbers; if that is the case then they are possibly the ones being the "bad managers" (minus extenuating circumstances like shopping around for a buyout).
So, on one hand, sales people want to close as many sales as possible before the end of a quarter and, on the other, buyers are also pushed to spend the money towards the end of the quarter.
He's insightful here on how to avoid managing for short-term metrics in a way that sacrifices value and long-term growth, one of the most widespread and persistent management mistakes. Ultimately, no metric can substitute for having individual employees who really care about producing work that the end user will love.
His subject is covered very well by one of the best to write about this subject, Charlie Munger (Warren Buffets right hand man and Director of Berkshire Hathaway).
Charlie Munger discusses extensively the challenge of not only incentivizing managers and employees, but demonstrating that it is difficult to even fully understand what really incentivizes them (hint: it's typically different than what their superior thinks it is). He talks about human mis-judgement and its role in distorted intending incentives.
Munger says over 30+ years in business, this is the one area he continues to make judgement mistakes year after year, since this is such a difficult topic to get right. That doesn't mean you can't get it right or that proper incentives don't work however.
Check out the FedEx example in Munger's 1995 speech to Harvard.
maybe marginally related to the article...