Archive for the ‘companies’ Category

Your company needs to long-range forecast? Don’t depend on a single person!

January 18, 2008

Companies try to forecast the future. For example, a printer company tries to forecast the future demand of printers. Based on their forecasts, they make planning decisions. Thus, decisions are made in the face of uncertainty.

The more power you give to a single individual in the face of complexity and uncertainty, the more likely it is that bad decisions will get made.

Conversely, decisions made by aggregating the collective wisdom of a diverse group of people will outperform even the smartest person most of the time.

— Paraphrasing The Wisdom of Crowds by James Suroweicki

Corporations versus the Marketplace

December 22, 2007

It’s useful to compare the way things work within companies versus how things work in the marketplace.

  1. How people are paid:
    • Company: people are paid based on whether they do what they’re expected to do. In a company how much money you make depends on someone’s expectations of you.
    • Marketplace: people get paid based simply on what they do. In the market you don’t get paid any more money if you exceed your (or someone’s) expectations. Example: your local deli owner doesn’t make any more money if his sales at the year end beat his expectations.
  2. What happens to information:
    • Company: people have an incentive to hide information. Example: people don’t want to upset their bosses, so they don’t reveal problems; further, they avoid disagreeing with their boss.
    • Marketplace: businesses have an incentive to uncover valuable information and act on it. Example: a shoe store owner wants to know what kinds of sneaker kids will be buying this summer.

Ideally, inside a company employees would be paid based on what they do, not on someone’s expectations.

Companies should be looking for ways to provide their employees with the incentive to uncover and act on private information.

The Wisdom of Crowds by James Suroweicki

Democracy doesn’t mean endless discussion, it means a wider distribution of decision-making power

December 5, 2007

During the 20th century organizations wanted to include more workers in the decision-making process. That is, organizations wanted to be more democratic.

To accomplish this, organizations formed lots of committees and groups for workers to participate in.

However, the actual decisions were still made at the top.

Democracy doesn’t mean endless discussion. Democracy means a wider distribution of decision-making power.

— Extracted from The Wisdom of Crowds by James Suroweicki

Consensus + Management Hierarchy = Poor Decision-Making

December 2, 2007

The idea that top-down organizations are oppressive and damaging, and that workers should be given more decision-making power is well-known to managers.

To involve as many employees as possible in the decision-making process, management forms lots of teams and committees, comprised of a variety of workers.

Thus, before a CEO makes any decision, the issue makes its way through each layer of management hierarchy. At each level the issue is vetted by a committee.

Each committee resolves the issue by reaching consensus (lowest common denominator).

As the issue bubbles up through the hierarchy the opinions and ideas become more and more watered-down.  By the time it reaches the CEO there is little innovation or diversity left.

Paradoxically, in trying to make the decision-making process as inclusive as possible, companies actually make top executives more — not less — insulated from the real opinions of the workers.

Layers of management, coupled with a “can’t we all get along” (consensus) attitude is a recipe for poor decision-making at the top.

— Extracted from The Wisdom of Crowds by James Suroweicki

Here is a related blog: Consensus versus Collective Decision-Making

Organizations: focus on creating a great system, not finding great talent

November 28, 2007

People’s performance (in an organization) depends on the resources they have to work with, including help they get from colleagues, and the infrastructure that supports their work.

It is impossible for even the most talented people to do competent, let alone brilliant, work in a flawed system.

A well-designed system filled with ordinary — but well-trained — people can consistently achieve stunning performance levels.

Consider investment analysts: they are treated like stars, hired away at enormous salaries, and many achieve great media notoriety. Boris Groysberg found that after a company hires a star, bad things happen all around: “The star’s performance plunges, there is a sharp decline in the functioning of the group or team the person works with, and the company’s market value falls.” In particular, “46% of the research analysts did poorly in the year after they left one company for another … their performance plummeted by an average of about 20% and had not climbed back to the old levels even five years later.”

Why do so many companies still place so much emphasis on getting and keeping great people and so little on building and sustaining great systems? A big part of the answer is that Western countries glorify rugged individualism so much that we make cognitive errors. We give too much credit to individual heroes when organizations do things right and place too much blame on individual scapegoats when things do wrong.

Hard Facts by Jeffrey Pfeffer and Robert I. Sutton

A related blog: Myth: talent is completely fixed and predetermined at birth

Organizations: Implement the No Asshole Rule

November 13, 2007

In a Harvard Business Review essay, Robert Sutton urged companies to implement no asshole rules: to refuse to hire people – even superstars – who are known jerks, and when insiders had episodes in which they belittled and bullied others – especially those with less power – they should be called on immediately. Sutton pointed out that firms that applied such rules would likely enjoy less turnover and absenteeism, lower health care costs, and reduced litigation risks. He also pointed out that some companies already have such rules, and such rules do help them maintain more civilized workplaces.

Hard Facts by Jeffrey Pfeffer and Robert I. Sutton

Here’s a related blog: Do Rules of Polite, Civilized Behavior Apply at Work?

Antidote for the “not invented here” syndrome

September 28, 2007

Want to discover something or invent something? Discovering or inventing something that is completely new, that no one has ever conceived, is very unlikely (virtually zero probability). You are much more likely to succeed by taking an existing idea and applying it in a novel way.

Below is a quote from the book Hard Facts by Jeffrey Pfeffer and Robert I. Sutton. They are talking about the benefits to companies of using old ideas in new ways. However, I think this benefit applies to all of us, not just companies.

I have always (mistakenly) thought that research meant discovering/inventing something totally new. If I were Albert Einstein then perhaps I could do that. Since I’m not, I now realize that a better approach is to expand my learning to many different areas and then apply ideas from other areas to my area of research.

“Creativity is mostly sparked by old ideas. Both major creative leaps and incremental improvements come from fiddling with ideas from other places and blending them in new ways.”

“Better ideas result when people act like nothing is invented here and seek new uses for others’ ideas.”

“Unfortunately, too many companies are plagued by the not invented here syndrome, where people insist on using homegrown ideas, especially ideas that can be ballyhooed as new and different.”