In this newsletter I've combined my thinking with a presentation I made at the Alliance of Chief Executives and some survey work. It's a meaty article, but an excellent read if you have team from which you'd like higher performance. It includes five changes you can make to improve your work environment.
It’s become dogma that the only employees any CEO should have are satisfied employees. Gallup’s annual poll of big companies as well as a more recent survey of mid-market companies indicate that engaged, satisfied managers and workers are a very good thing to have. But I’m not so sure. In fact, many companies I work with get much more out of their dissatisfied employees than they get from the contented ones.
Let’s first examine the data behind the dogma. Gallup polls over the last 12 years have consistently shown that over two-thirds of employees at U.S. companies are not motivated to be productive. They are either “not engaged” or “actively disengaged.” But even more important, the same polls indicate that companies with high “employee engagement” financially outperform those with low engagement.
Similar numbers hold true for middle market companies. A February 2012 survey of 126 members of the Alliance of Chief Executives, a group whose members are in the San Francisco Bay Area, ranked a dedicated workforce third on a list of most important elements of their companies’ success.
But even though they recognize the importance of strong employee morale, middle-market CEOs don’t make it an investment priority. In an April 2012 survey by OSU/GE Capital’s National Center for the Middle Market, only 4% of the 1,000 respondents said they would allocate an additional dollar of investment into increasing HR training and development. They considered other priorities – building up cash, investing and other capital expenses, making acquisitions and others – to be far more important.
All too often CEOs delegate the “low morale” problem to HR. HR then tries to “make them happy” with parties and events, as well as bestow recognition on good performers. HR in conjunction with management often deals with issues that are upsetting the team, like problem employees and bad managers. These actions are laudable and not incorrect in themselves. But they pursue the wrong goal: making the workforce happy. The problem is that a happy and satisfied work force is rarely the prerequisite of a high-performing work force.
Dissatisfied employees are actually more likely to deliver higher performance. I don’t mean dissatisfied with their job, their company or their boss, but dissatisfied with their own performance, their team’s performance and their company’s performance. One of the most important jobs of the mid-market CEO is to create an environment in which the team is dissatisfied with the current state of things and are striving to become more satisfied.
Steve Jobs understood the importance of keeping a team hungry for success. When he regained control of Apple in 1997, he told his team they would all have to leave the company over the next two years because they were too content; they’d already tasted success. Fourteen years later, his new, much-hungrier team turned Apple into the world’s most valuable company.
Lack of investment in HR and training isn’t the primary cause of low workplace performance. A bigger factor is that many mid-market CEOs do not take a strategic and disciplined approach to shaping the workplace environment. The workplace environment is the sum total of what it feels like to work at the firm. Most CEOs I know feel responsible for achieving the company’s mission by using their management team and resources. They need their team to perform. But creating a highly productive working environment beyond the top team requires far more: a CEO and top team with a long-term commitment to create such an environment, and then a step-by-step plan to put it in place.
Elkiem, a firm that researches human high performance, spent 15 years investigating high-performance environments (workplace and otherwise). They found and developed:
- a way of describing such environments,
- a way of measuring those environments, and
- an approach to changing the environment for better performance.
There are five common causes of low-performance environments.
- The measures of individual and team performance are not spelled out and accepted. People aren’t clear about what they should do and how their success will be accounted for. Without good measures, people become political and try to stay on the boss’ “good side.” Only 7% of Alliance members believe they have completely clear performance measures. In fact, 60% do not measure employee performance.
- The definitions of success and failure are not crystal clear. Even if measures are in place, people aren’t sure at what point they have succeeded and will be commensurately rewarded. More often, they aren’t sure at what level of poor performance —the failure point— they will they be dismissed.
- Individual and team performance are not sufficiently visible throughout the organization. Without such exposure, low performers can hide behind their team’s performance without detection or peer pressure. Without enough team exposure, people may act selfishly and not work as a team for the greater good—since nobody can tell how the team is performing.
- The leader is not willing to make it emotionally uncomfortable for low performers. People aren’t held accountable. Deadlines are missed, results fall short and there are no consequences. The leader doesn’t counsel poor performers, doesn’t push them or give them “extra attention.” They’re not put on notice that if they don’t improve, they may be demoted or dismissed. In the Alliance survey, only 18% of CEOs report that their underperformers are “very uncomfortable,” with another 46% saying underperformers are “uncomfortable.”
- The range between high performers and low performers is too great. Average performers know that others on their team do much less, so they feel safe about easing up. Top performers become arrogant and hard to manage since they are “so much better” than their peers. From the recent survey, 82% of Alliance members believe they have an A player on the team, yet 50% believe their worst-performing executive rates a C+ or lower. This means at least half the Alliance firms report an A player and a C+ or lower player on the same team.
The Elkiem research has shown that the workplace environment affects the behavior of the people in that environment. In institutions from Harvard, Julliard and the Olympics to the Special Forces and corporate America, the research shows that shaping the environment around any population—including the workforce of a company—has profound effects on performance.
Over and over again, Elkiem has measured work environment, applied changes, then re-measured to observe the effect. While such measurement is the ideal approach to any new environment, the following is an approach that I have found to work well in a number of middle-market companies: Every six months, the CEO and the leadership team must review five elements that correspond to the root causes of low-performance environments noted above. No more than two elements should be chosen for adjustment in the given six-month period. Making two changes is a sufficiently ambitious challenge, since each move requires follow-through.
For firms with very low-performance environments, starting with the first and second levers makes sense. But most firms are not starting at ground zero—they have some level of proficiency in applying each of the levers. They may choose the two that will best shape the performance environment.
The creation of a highly productive working environment requires two things: a CEO and top team with long-term commitment to building such an environment, and a plan to put it in place. The most effective plans I’ve seen share five elements:
- Clear and accepted measurements. At the company level, there are business plan objectives, and in addition each department often has supporting objectives. Now extend this discipline to the individual level. Each employee should have one to three key objectives that, if achieved, represent success. Ideally, these objectives are agreed upon and communicated at the start of the review period, then evaluated at the end of the period. This notion of individual measures (management by objectives, or “MBO”) is not new (Peter Drucker, 1957). But individual measurement is seldom implemented properly and with full commitment. In a 1991 comprehensive review of 30 years of research on the impact of management by objectives, Robert Rodgers and John Hunter concluded that companies whose CEOs demonstrated high commitment to MBO showed, on average, a 56% gain in productivity. Companies with CEOs who showed low commitment only saw a 6% gain in productivity.
- A clear definition of success and failure. The next step after measuring the right results is to define the point at which we are successful, and the point at which we have failed. For example, we might say that if our year-end gross margin lands below 32%, we have failed and that if it is above 41% we have succeeded. Avoiding failure is a huge motivator. Winning by “planting the flag at the top of the hill” is a powerful motivator too. Don’t throw away the emotional incentive tucked away in a crisp definition of failure and success for each person and each team. For maximum performance, have a small number of goals, so that failure or success is a black or white matter. For instance, one biotechnology firm had a major opportunity to release a breakthrough product by the end of 2011. It set specific success and failure dates for the VP of product development. That galvanized the team, which beat the original launch date. All members of the leadership team had the same definitions of failure and success. If there is clarity on success and failure, a list can easily be generated of employees who succeeded and those who failed.
- Team and individual visibility. Visibility is a vastly underutilized motivator. Individual, team and department performance should be exposed for all employees to see. Would our Olympic athletes strive to be the world’s best if nobody knew they won the gold medal? The emotional pleasure of standing on the top podium, wearing the gold medal for the whole world, to see is a powerful motivator. Similarly, the image of a last-place finisher playing before his countrymen motivates athletes. In a firm I once ran, such exposure worked well. My shipping department had a high error rate. When we exposed the error rates to the entire company, the team’s pride was at stake, and their errors dropped. People care deeply what their peers think of them.
- Emotional discomfort with low performance. Anyone joining a rapidly growing company must know top management’s motto: “We’ll accept you if you perform.” Low performers must be made to feel uncomfortable. They should feel under the gun and seek help to step up their game, and the company should assist them. If they have what it takes, they’ll improve their performance and all will be well. If they don’t improve, they should be dismissed. Of course, this applies to the CEO too. It’s no fun being the tough leader who holds people accountable, schedules more frequent review sessions, measures their performance more closely and keeps the pressure on. But any leader owes it to the underperformer, to the team and to the company to signal the need for improvement. That signal is emotional discomfort.
- Tighten the range. People naturally measure themselves against their peers. Consider “Joe” the salesperson whose performance has him in the middle of a six-person team. He’s not at risk of getting fired; his performance is average. But after the company fires its two lowest-performing sales people, Joe becomes the worst of four salespeople. He’ll feel the pressure immediately and step up his game to avoid being the worst performer. The range has been tightened. The sales manager continually hires people she believes can challenge their best performers. If they don’t, she fires them quickly and hires new people. As she collects high performers, she narrows the range again, dismissing the poorer performers. She knows she has reached her goal when most of her team are “A” players who know they must run hard to stay ahead of their peers since all are equally talented.
This article only touches the tip of the iceberg flowing from the research and model pictured above. Yet these five elements are an excellent starting point for many firms to begin actively managing the work environment.
Consider all the money, time and effort companies pour into finding, training and retaining talent in the hopes of seeing performance rise. CEOs who want results must create a healthy state of dissatisfaction in the work environment. A credo of “Don’t worry, be happy” is a recipe for individual and organizational mediocrity.
At a presentation to 48 CEOs and top executives from mid-market companies, we took a pulse survey about their perception of their own work environment, and about the need for change. We’ve included some of the presentation slides that captured the mindset of the participants here. Where do you find yourself weighing in?
About 60% feel they track and share most performance data.
Even with a majority responding that they measure well and expose the results, 84% feel the need to step it up more—they want higher performance.
Only 15% of the middle-market attendees claimed to have a crisp and clear definition of success and failure at all levels. It is rare for firms to have a strong failure definition.
Despite having 55% of the group feeling fairly good about the definitions, 88% felt the need to do better.
This questions dives into the issue of whether poor performers are made to feel uncomfortable. That discomfort is a motivator to step up performance. 55% feel their poor performers feel the push to improve.
83% realize the need to hold underperformers accountable.
The majority have a wide disparity between high and low performers on a team.
Again, nearly everyone has work to do to narrow the range, and improve the work environment.