Harvard Business School Confidential

by Emily Chan

  Why is the “people” issue so difficult? First, you have to find the right people. That is critical to success. For the book Good to Great, Jim Collins, a best-selling author and formerly a faculty member at Stanford Business School, and his team of 20 researchers spent five years on in-depth analysis of almost 30 major companies, trying to understand what the best CEOs did to make their good companies into truly great companies. This is one of his major findings:

  First Who . . . Then What. We expected that good-to-great leaders would begin by setting a new vision and strategy. We found instead that they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats—and then they figured out where to drive it. The old adage “People are your most important asset” turns out to be wrong. People are not your most important asset. The right people are.1

  Later, Collins adds, “When (we asked one of the good-to-great CEOs) to name the top five factors that led to the transition from mediocrity to excellence, (he) said, ‘One would be people. Two would be people. Three would be people. Four would be people.’ ”2

  David Ogilvy, the legendary advertising giant and founder of the major global advertising agency Ogilvy and Mather, believed that hiring the right people could even mean hiring people more capable than the hirer. It was said that whenever someone was appointed to head an office at his firm, Ogilvy would give him a Russian nesting doll. These dolls open to reveal a smaller doll, which opens to reveal a yet smaller doll and so on. Inside the smallest doll was a note from Ogilvy: “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.”3

  Jack Welch, ex-CEO of General Electric, an HBS graduate and a man many revere as one of the most respected and successful CEOs in U.S. history, shares the same philosophy. When asked what counsel he would give junior executives to help them become future leaders, Welch answered: “The biggest advice I give people is you cannot do these jobs alone. You’ve got to be very comfortable with the brightest human beings alive on your team. And if you do that, you get the world by the tail. . . . Always get the best people. If you haven’t one who’s good, you are short-changing yourself.”4

  Of course, this may or may not be applicable if you are a middle or even a senior hired manager. Since you are not the ultimate boss, the company culture and your own boss’s attitude affect how you might want to hire. HBS teaches its students to be realistic. It would be unrealistic if you were a middle manager to go to your boss and say, “I really don’t know the strategy for my department. But just let me hire the best team and then we can figure out what to do with my department.” You will probably get fired. It would also be unrealistic to advise you to hire people smarter than you are if your company does not reward this behavior and your boss does not have the same vision as Collins, Ogilvy, and Welch. A friend of mine got fired when his boss decided the friend’s assistant could do his job at a much lower salary.

  HIRE SLOWLY, FIRE DECISIVELY

  As Harvey Mackay says, “It isn’t the people you fire that make your life miserable, it’s the people you don’t.” You should take your time to find the right people. You should give each employee a detailed description of your expectations and follow-up with regular feedback. When things do not work out, you must be decisive and let the person go. To build the best business, you need the best people, as Jim Collins found out from his in-depth analysis:5

  “When in doubt don’t hire—keep looking.” As the CEO of the companies that went from good to great told Collins, “You don’t compromise. We find another way to get through until we find the right people.”

  “When you know you need to make people change, act.” But how do you know “when you know”? According to Collins’s research, two key questions can help: Would you hire the person again? And if the person came to you to resign, would you feel disappointed or relieved?

  Jeffrey Fox, an HBS alumnus and a best-selling author, shows why making the right hiring decision is so important by explaining the cost of mishiring:

  Mishiring costs include compensation paid, termination settlements, recruitment expenses, management time, and placement fees. The biggest costs of a mishire are harder to identify and quantify, but they are real: costs to replace, disruption to the organization, management errors, lost opportunities, strategy failure, wasted training, and damaged morale.6

  Jim Collins explains why firing decisively is important:

  “All the time and energy we spend on that (wrong hire to try to improve performance) siphons energy away from developing and working with all the right people. . . . Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people. Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated. . . . (It’s) equally unfair to the people who need to (be let go.) For every minute you allow a person to continue holding a seat when you know that person will not make it in the end, you’re stealing a portion of his life, time that he could spend finding a better place where he could flourish.7

  Jack Welch is also a best practice guru of this philosophy. When he was at General Electric, Welch personally interviewed anyone who was hired from the outside for any of the top 500 posts, not just the few posts of his direct reports. This is because he understands the cost of a wrong hire. If the mistake of mishiring was made, he also made sure the system was set up to make appropriate correction swiftly and decisively. At Welch’s General Electric, all employees were more or less classified into A, B, and C class depending on their capability. At a meeting attended by General Electric’s 500 top operating managers, Welch said:

  Too many of you work hard to make C’s (into) B’s. It is a wheelspinning exercise. Push C’s on to B companies or C companies, and they’ll do just fine. . . . We’re an A company. We want only A players. We can get anyone we want. Take care of your best. Reward them. Promote them. Pay them well. Give them a lot of (stock) options and don’t spend all that time trying to get C’s to be B’s. Move C’s out early. It’s a contribution.8

  Just as Collins suggests, Welch considered firing the C’s quickly a contribution not just to General Electric but to the C employees. Employees whose capabilities were C grade for General Electric might do well in other organizations where different capabilities were required. I have seen many people who did not do well in consulting end up very successful in sales or in stock trading where different skills are critical.

  But firing decisively is not easy. Even to this day, after all my business school education, sometimes I am less decisive than I should be. Case in point—I have someone on staff in my company now. He is extremely loyal and hardworking. But he is just not efficient and he keeps making mistakes. I find myself spending a lot of time catching and correcting his mistakes. I have been thinking about firing him for the last two months. I know I am committing the classic mistake described by Jim Collins in his book:

  We’ve all experienced or observed the following scenario. We have a wrong person . . . and we know it. Yet we wait, we delay, we try alternatives, we give a third and fourth chance, we hope that the situation would improve, we invest time in trying to properly manage the person, we build little systems to compensate for his shortcomings, and so forth. But the situation doesn’t improve. When we go home, we find our energy diverted by thinking (or talking to our spouses) about that person. . . . Indeed, if we’re honest with ourselves, the reason we wait too long often has less to do with concern for that person and more to do with our own convenience. He’s doing an okay job and it would be a huge hassle to replace him, so we avoid the issue.9

  If you have not been a manager, you may not have experienced this. But keep it in mind. When you are a manager, you may see yourself fallin
g into this trap. It is hard to avoid, but at least you should be aware of it—that will at least help you act sooner than you otherwise might.

  DON’T PLAY THE SLOT MACHINE

  Hiring the right people and firing the wrong people is only half the battle. once you have employees, you need to put significant and continuous effort into retaining and developing them. An HBS classmate once commented in class: “My ex-boss taught me that to focus only on recruiting and not retention and development will be like playing the slot machine—you put a lot of resources into recruiting and you leave it to luck to get a few, if any, wins.”

  Losing a good staff member is costly. Direct costs include loss of productivity during the transition period, mourning and insecure coworkers, and a costly candidate search and then training of the new recruit. Indirectly, high staff turnover will affect the company’s ability to attract top recruits. High turnover is often seen by recruits as a sign of organizational problems.

  The better the employees, the more costly they are to lose, and the more difficult it is to retain them. While money is always a consideration, competent and capable people look for much more. At HBS, whole courses address the topic of management and leadership as related to staff morale and retention. Here are the points that I have found most useful:

  Tell them

  Groom them

  Listen to them

  shield them

  Let them go

  Tell Them

  Tell people what they need to know, including clear, well-defined goals and priorities. One of the professors explained this by saying, “If I tell you: to get an A in this course, you have to write me an excellent 10-page paper tonight. Do you think it is easier if I tell you the topic of interest to me or if I tell you to write whatever you want?” The class almost unanimously voted for the former. Research by almost all academics and management trainers has concluded that unclear or constantly shifting priorities leave employees confused, insecure, stressed, and unsatisfied.10

  Give people effective feedback. When they are doing well, they want to be praised for it, privately and, better still, publicly. When they are not doing well, they also appreciate private constructive criticism that can help get them back on track. Whether it is positive or negative feedback, reasons and specific examples are very useful to help the recipient understand and accept the feedback. (See sidebar for things that do not help.) One of my all-time favorite books is The One Minute Manager by Kenneth H. Blanchard and Spencer Johnson. The book describes an effective manager as someone who gives a brief but concise praise immediately if work is well done and a brief and concise reprimand when work is not so well done. While this is a simplification, I find it a very useful reminder—to be effective, feedback should be concise, factual, non-condescending, and timely.

  Ineffective Feedback

  I made plenty of mistakes at giving out feedback when I first became a manager, especially in giving negative feedback. I still remember one of my biggest mistakes. . . . I was managing a team at BCG. One of the team members was new to the firm. He had a strong résumé and a great attitude. I was also flattered as he kept telling people he really liked working with me. But he kept making errors, both in crunching data and in drawing big-picture conclusions from the data. I was getting more and more frustrated. I would point out his mistakes. But instead of having any serious discussions on his poor performance, I would just say, “Do not make the mistake again. Do not get depressed. You are doing well.” I kept hoping he would improve but things just got worse. He even made some grave mistakes on one of my team’s final presentations, the day before we had to deliver it. His mistake resulted in the whole team—all five of us—working overnight. When the project was completed, company policy required that I gave him a formal evaluation. To be fair to the other team members, I could not help but give him a very low grade. He was furious. He said I had given him positive feedback along the way. When I tried to give him examples of his mistakes, he kept saying, “but you said I was doing well!” He asked for more examples and I could not remember the others. I have since learned to give honest and timely feedback and keep good record of facts such as examples and incidents that I will need to support the feedback.

  Groom Them

  Grooming includes coaching, training, and mentoring. As noted in Chapter 1, many capable people look at a paid job as an opportunity to learn instead of just an opportunity to earn a linear income. My husband once offered to double someone’s salary—but the employee still resigned, saying, “Learning is more important than money.” To enable people to learn effectively:

  They want both pull and push—to pick up the knowledge and skills they know they want to acquire, and also to have their superiors guide and help them on the learning process and career paths.

  They want to constantly deepen and broaden their knowledge and skill base in the areas of interest to them. They have a low boredom threshold.11

  They want grooming in all its different forms: formal training, on-the-job coaching, well-planned job assignments, exposure to key projects, and so on—anything that can help them learn.

  Listen to Them

  Everybody appreciates being listened to. Everybody appreciates having their ideas given sufficient consideration, even when the ideas are eventually rejected. It makes people feel valued. (A digression here—besides retention, listening to everyone, not just the capable and experienced staff members but even the most junior ones, can generate ideas valuable to management and business. In How to Become a Great Boss, Jeffrey Fox cited a true story where a leading U.S. lawyer won a major lawsuit based on a suggestion from his office cleaning lady! A law had to be changed as a result of the case!)

  Shield Them

  Minimize unnecessary roadblocks, especially bureaucracy, policies, and paperwork that alienate and frustrate. This seems like common sense but it is shocking how many companies are still losing talent because they throw up roadblock that people refuse to live with. Key reasons I have seen include office politics, incompetence of senior management, and failure to recognize the gravity of these issues for staff retention. Companies with such roadblocks tend to have low retention of competent staff but high retention of mediocre people who like the security of bureaucracy and paperwork or who cannot find a better working environment. (See the following sidebar for more on these problems)

  Roadblocks

  I once worked for a client whose CEO and chairman both adamantly proclaimed themselves leading-edge thinkers who want to build a leading-edge company with the best talent. But this is what I witnessed when I was with the company:

  SHOOTING YOURSELF IN THE FOOT

  The client was in the middle of changing its accounting system. This was a very important project as any loss of accounting data could lead to major business issues. The IT department was working day and night. Then one day, one of the key programmers hurt his leg really badly in a traffic accident. The doctor told him to rest at home for two months to let his leg recover. This created problems for both the company and the programmer. The company really needed his work to complete the accounting system change on time. Because two months was longer than the sick leave the programmer was entitled to, company policy required him to take unpaid leave. This would cause financial difficulties for the programmer. Also, he would be home for two months with nothing to do. His leg could not move but his mind and fingers had no problem programming.

  So the programmer suggested he could work from home. It was actually more efficient for him to be programming at home as he would save a lot of commuting time and could focus better without the normal distractions in the office environment.

  This would have solved the problem for everyone. Since his direct boss could monitor his output, the company could be sure that he was spending his time programming. But Human Resources vetoed the suggestion, saying “We cannot pay him a salary since we cannot monitor how much time he actually spends programming at home.” I was speechless when I heard this. Why d
o we need to monitor the input if we get the output that is win-win to everybody?

  CUTTING OFF YOUR NOSE TO SPITE YOUR FACE

  The client owned two office buildings a few blocks from each other that it rented out for income; call them A and B. The client used a floor in building A for its own office. The car parks in both buildings were underutilized, but the one in Building B had a bigger vacancy rate because its narrow driveway made it too easy to get a car scratched. The client decided to provide parking to senior executives as a perk. This was supposed to be a win-win as it cost the company nothing but was of value to the executives. But the head of HR decided that only the board of directors should get parking in A. The rest would get parking in B, to “differentiate seniority.” The result—instead of appreciating the parking space, the executives who were assigned to B resented it and became more alienated. The company was perceived as idiotic. People said, “This place is so bureaucratic that it would choose to give us parking that could scratch our cars. There are so many free spaces in A. It is also inefficient as we have to waste time to walk from B to A daily.”

  GETTING IT RIGHT

  My client offers a major contrast with some of the best practice firms. In their 20-year study of “what followers want from their leaders,” Rob Goffee and Gareth Jones of London Business School found the following best practice examples on rules and policies: