Archive for the ‘Organization’ Category

Are CEOs several hundred times more important than frontline people? Their salary says they are

January 2, 2008

Organizations are social entities, and people are social creatures.  What this means for leaders is that social relations are important.   People compare themselves to others and derive feelings of worth and status from that comparison.  Consequently, pay differences have not only substantive but symbolic meaning.

Take the most notorious example [of pay differences], CEO pay.  CEOs who make several hundred times more than what the average employee in their company makes send the signal that what they do is several hundred times more important.  Is that really the right signal to send?  If frontline people think that what they do doesn’t matter very much for the organization’s success or in the opinion of senior management, why bother worry about how well they are doing their job?  It is not by accident or coincidence that many of the most successful, consistently best-performing companies have CEOs who are not outrageously overpaid –, CostCo, and Southwest Airlines are a few current examples.  By sending a signal that performance is a collective, not just an individual, endeavor, those companies are more likely to induce thought, creativity, and effort on the part of their people.

Hard Facts by Jeffrey Pfeffer and Robert I. Sutton

See this related blog:  Paradox: Embracing Decentralization while Hailing the CEO as Corporate Savior

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

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

Are you a traditional leader or a catalyst?

September 2, 2007

“In chemistry a catalyst is any element or compound that initiates a reaction without fusing into that reaction.  For example, take nitrogen and hydrogen, two of the most common elements on earth, put them in a container, close the lid, come back a day later, and … nothing will have happened. But add ordinary iron to the equation and you’ll get ammonia, an important ingredient in fertilizers, polymers, and glass cleaners. The thing is, ammonia doesn’t have any iron in it — it’s made solely of hydrogen and nitrogen. The iron in this equation remains unchanged, it just facilitates the bonding of hydrogen and nitrogen.”

“In an organization a catalyst is a person who initiates an activity and then fades away into the background. In a decentralized organization a catalyst gets the decentralized organization going and then cedes control over to the members. For example, Jimmy Wales started Wikipedia and then allowed the members to take over – content and administration. Another example: Craig Newark started craigslist, and now the users of craigslist decide which categories to list on the site.”

“In letting go of the leadership role, the catalyst transfers ownership and responsibility to the group. A catalyst isn’t usually in it for praise and accolades. When his or her job is done, a catalyst knows it’s time to move on.”

The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom