Sunday March 12, 2006
Heroic leaders are a disaster. Seventy per cent of mergers fail. In most organisations, financial incentives cause more problems than they solve. There is no connection between high executive pay and company performance (well, there is - the wider the pay differentials, the lower the commitment of the less well paid). The main result of many consultancy assignments is another consultancy assignment. All 'silver bullet' or 'big ideas' on their own are wrong.
These are not theories, but facts. Yet companies trip over themselves to buy others, launch change initiatives, introduce pay for performance, flit from one big idea to the next - and pay their CEOs stratospherically. It's hardly surprising so many go belly up. If doctors were as cavalier with the evidence, a lot of their patients would be dead and many medics would be behind bars.
The last is a line from what bids fair to be one of the management books of the year. Hard Facts, Dangerous Half-Truths and Total Nonsense (Harvard Business School Press), by Stanford professors Jeffrey Pfeffer and Robert Sutton, is a compelling tour of management conventional wisdom and why it so often turns out to be unwise, untrue and a stranger to fact - bollocks, in fact. Every potential manager should be made to read it before they are allowed to be in charge of anything, even a whelk stall.
So why don't managers make judgments on evidence, as doctors at least try to do? The book pinpoints a number of factors, many of which come down to the human factors economic theorists carefully exclude. They overestimate power, fail to cut losses, underestimate cost and difficulty, and ignore the lessons of failure. They put too much faith in superficial impressions and repeat what worked in the past. Or they fall back on unexamined but deeply held ideologies. (An unqualified belief in anything, except the likelihood of being wrong, is a certain predictor of tears ahead.)
Another factor is the messiness of the market for ideas, not least the quantity of information and the self-serving interest of gurus in talking up successes and downplaying the side effects of their prescriptions. People prefer simple solutions, even if there aren't any: 'If someone tells you they have the answer,' one candid guru noted, 'they probably haven't understood the question.'
Less obvious is the effect of facts on conventional leadership. If only the facts matter, it shouldn't matter where they come from. That undercuts the traditional justification for hierarchy: that the boss knows best. Facts force the boss to choose between being 'in control' and being right. Many choose the former.
All this sets up a bizarre corporate amnesia - a kind of conspiracy not to learn in which organisations find new ways of repeating mistakes in an endless loop. They are suckers for half-truths - more dangerous than total nonsense because they are not entirely wrong, except when treated as whole truths, in which case they become total bollocks. Pfeffer and Sutton line up a number of these, often naming names, showing how some of management's ingrained habits of thought cause them to undermine their own organisations.
Thus, leaders do make a difference, but not as much as you might think, and more on the downside. Yes, strategy and recruiting good people are important. But strategy is usually overrated, to the detriment of implementation; and overestimating raw talent can impede learning. It's no use putting good people to work in a crappy system; conversely, putting people in a good system and expecting them to improve increases their individual and group capabilities - another example of the (ignored) self-fulfilling nature of so many assumptions.
Incentives do incentivise - but be careful what you wish for. As W Edwards Deming said, people with sharp enough targets will probably meet them even if they have to destroy the company to do so. And what about change or die?The trouble, they say, is that companies are so bad at it that 'empirically it is change and die'.
It's a weird paradox. Despite management's obsession with hard numbers, many organisations are a fact-free zone, swirling with untested assumptions. Horrifying sums of money are committed on superstition or whim. Thus, fact-based management is really triple-distilled common sense. It's hard. It requires judgment, practice, help, humanity and wisdom. It needs scepticism and experimentation. It needs reasoned optimism and learning, and, as F Scott Fitzgerald put it, the ability to function while holding two contradictory ideas in your head at the same time.
Ironically, applying such honed common sense is a great recipe for competitive advantage because so few do it. Despite the heroic efforts of the professors, this will almost certainly continue. As Peter Drucker says: 'Thinking is very hard work. And management fashions are a great substitute for thinking.'
Which is why most companies and managers will continue to ignore the facts, make the same mistakes and perpetrate the same old bollocks: not fact-based so much as voodoo management.