Premeditated Thought

Coal in The Stocking For Circuit City

The Associate Press reports that Circuit City missed its earnings estimates:

Shares of the electronics retailer Circuit City Stores fell sharply on  Friday morning after the company reported a wider-than-expected loss.    

The loss was driven by lower extended-warranty sales and business interruptions the company attributed to restructuring efforts.

The chief executive, Philip J. Schoonover, said Circuit City underestimated the impact cost-saving moves would have on sales. “Our current focus is to rebuild our selling culture,” he said.

Shocked?  You shouldn't be.  As I wrote back in April, Circuit City chose this course for itself.  When will companies learn that layoffs are frequently a death spiral.  Layoffs sink morale and cause your best employees to leave while the gettings good.

Psychopathology of Our Bosses

The April 9, 2007 issue of New York magazine published Boss Science, a fun article by Steve Fishman studying "the psychopathology of the modern American corporate leader."  Fishman studies research that shows that the shows narcissists (also known as corporate climbers) are promoted more frequently than competent managers. 

Too frequently quick promotion does not correlate with high performance.  Fishman quotes research done by Fred Luthans at the University of Nebraska "What do successful managers - those who have been promoted relatively quickly - have in common with effective managers - those who have satisfied, committed subordinates and high performing units?" Luthans asks.  Surprisingly little is his answer.

Fishman associates narcissism with charisma.  People love charisma, he says, and they love to follow charismatic leaders.  Unfortunately for them, once promoted to a new position, the narcissist is quickly thinking about his next move.  Luthans quote one such climber: "I find that the way to get ahead around here is to be friendly with the right people... I find a common interest... and interact with them on that level.  The other formal stuff around the office is important, but I really work at this informal side and have found it pays off when promotion time rolls around." That anecdotal account may ignore some important roles played by the climber, such as network connector, but it probably rings true for many organizations.

Fishman the goes on to quote Robert Kaiser, one of the authors of "The Versatile Leader."  "Four scholarly studies have examined charisma.  Not a single one finds charisma and performance linked.  The only thing charisma correlates to is high salary."

But there is a competing point of view:

Simply put, you need a strong leader. The boss-as-guidance-counselor with nurturing instincts may be the rage, but a strong leader stirs the pot. Maccoby [ Michael Maccoby, author of The Productive Narcissist ], who has been writing about leadership for the better part of four decades, extols the virtues of the narcissist’s selfishness, ethical blindness, and lack of empathy as indispensable to being an agent of change in a large corporation—or the world. To move the cheese, a strong man is needed. The book is a paean to strong leadership of a kind that Leni Riefenstahl might have admired.

Andrew Grove, co-founder of Intel is quoted as encouraging confident blowhards: "'Act on your temporary conviction as if it was a real conviction,' he says, and when you change convictions, act sure of that one, too."

So who do you want to work for, the effective manager or the climber?  I have always thought there is a tension between wanting to work for a narcissistic leader and an effective manager.  The narcissist is likely to grab more power, more resources, and create more opportunities for their subordinates as climbs the ladder or expands his organization.  She or he will be maddening to work for, will make enemies, will be a poor mentor, and will leave a waste-pile of failed projects, but will help you be successful nevertheless.  You will just have to look elsewhere for coaching.

The effective manager, on the other hand, will run an admired organization and will treat employees respectfully and fairly.  You will receive better coaching from the effective manager, and will be a better professional for it.  But working under an effective manager rather than a climber may limit your opportunities.  And, in the end, if you yourself have the potential to be an effective manager at a higher level your organization, the climber may be better suited to give you that opportunity.

Circuit City and Corporate Culture

The AP reports (Circuit City to Cut More Than 3,500 Jobs) reports

The electronics retailer, facing larger competitors and falling sales, said Wednesday that it would lay off about 3,400 store workers -- immediately -- and replace them with lower-paid new hires as soon as possible.

Analysts and economists said the move is an uncertain experiment that could backfire for the chain. The risks: Morale could sink and customers could avoid the stores. Also, knowledgeable customer service is one of the few ways Circuit City can tackle competitors that include Wal-Mart Stores Inc., they say.

"This strategy strikes me as being quite cold," said Bernard Baumohl, executive director of The Economic Outlook Group. "I don't think it's in the best interest of Circuit City as a whole."

Contrast this with Circuit City's claim on their career website

You will see our "corporate culture" reflects our growth, stability and continuous desire to help our customers discover what’s best for them.  We cultivate a relaxed, open atmosphere. We communicate. Our Associates work together as a team. We encourage you to use our open-door policy by sharing ideas with anyone – including our CEO.

Circuit City is a place where you can put your talents and abilities to the test daily in one of our many diverse departments. A place where you will use your creativity, skills and abilities to complete important projects by working independently and as a team. With our continuous training, you will be given as much responsibility as you are willing to take on in order to help expand your knowledge and career. It’s time to use your ideas. Your opportunities are endless at Circuit City.          

Circuit City is a place where everyone is included and valued for their contributions to the company. In fact, respecting our Associates is one of our values—it's the way we run our business.

You have to wonder how many employees will be able to read these words without snickering.   Peter Cohan puts it well in Layoffs expose Circuit City's crossed wires:

It's expensive to spend money on advertising to attract new customers to replace existing customers who bolt to competitors due to lousy service. By contrast, it's far more profitable to get repeat business from your existing customers by giving them great value and super service.

But the key to doing that successfully is to attract and motivate the best people. If employees are happy, they'll give customers better service. And customers will keep coming back for more. As a result, the business will make more money since it doesn't need to keep spending to attract new customers.

But by driving out its best personnel, Circuit City will lose those people -- and their loyal customers -- to its top-ranked rival Best Buy. And while it might save some money in the short term by replacing those people with lower paid ones, the company will end up needing to spend more on marketing to replace the lost customers.

Cost cutting measures are usually applauded by investors.  In Peter's words, "Investors -- who sliced 4% off its stock price -- can see right through Circuit City's shallow management thinking."  Maybe the right approach cost saving at Circuit City is to cut incompetent executives' pay rather than your best service workers.

Circuit City, you fucked up.

 

Return on Talent

Profits are increasingly driven by innovative ideas rather than by capital investment.  The engine of such ideas are creativity and talent.  John Hagel, in his Wasting Talent blog post, says performance evaluation systems lag behind this new reality: "We are saddled with accounting and measurement systems that measure last century’s drivers of profitability, not the drivers of twenty-first century profitability."

An old saying goes that what doesn't get measured, doesn't get done.  If this is the case, companies are missing a big opportunity to improve their "return on talent." (Hagel humorously prefers "return on skills" because no executive will want to improve ROT.

Hagel quotes a Lowell Bryan's Mckinsey Quarterly article (The New Metrics of Corporate Performance: Profit per Employee) that focuses on the growing gulf between talent as a driver of corporate profit and metrics that are tracked to gauge performance.

. . . it’s time to recognize that financial performance increasingly comes from returns on talent, not on capital. . . . This shift in perspective would have far-reaching implications – for measuring performance, for evaluating executives, even for the way analysts measure corporate value.  Only if executives begin to look at performance in this new way will they change internal measurements of performance and thus motivate managers to make better economic decisions, particularly about spending on intangibles.

Hagel goes on to quote an HBR article that supports much more subjective measures of talent management.  And, yes, there is a plug for his book, The Only Sustainable Edge, in which he argues that "talent development hinges upon building effective networks of relationships far beyond the walls of the enterprise."

I'd recommend reading the whole blog post.

Mapping Your Site's Network

Ken Auletta, in the February 12, 2007 New Yorker, describes ubiquitous public relations man Howard Rubenstein (apparently the man doing the talking for the bland, mild George Steinbrenner of the past few years) as wielding power through a "special talent for bringing his clients together for their mutual benefit."  In Malcolm Gladwell's The Tipping Point, Rubenstein would be described as the ultimate network connector.

This got me thinking about my worksite and my notion of site power, the collective power of a geographical location in a company.  In that blog posting, I separated traditional sources of individual power from collective sources of power.   I assumed that a site's network was just the sum (or the union, to get technical) of everyone's personal networks.

However, that does not seem to go far enough.  The posting identified information sharing as a vital determinant of site power.  So how should one go about maximizing site power given individual networks?  Here is what I am thinking of doing:

• Make a map of everyone's personal networks.
• Publish the map to maximize knowledge and use of the networks.
• Identify weak links in the map with limited access to key external power-brokers.
• Cultivate new relationships to strengthen these links.

Our Schools are Failing Us

We do a lot of role playing in my negotiation classes at business school.  Yesterday I played a software manager responsible for delivering a project to a customer.  He was asked to revert to an old design instead of forging ahead with a new design.  If he went with the new design, which was technically better but was not approved by the customer, his engineers could deliver it in time, assuming they worked overtime.  If they reverted to the old, approved design, it would be a day late (incurring per diem late fees), also assuming the programmers worked overtime.

My project manager was played by a young MBA student with an economics undergrad degree.  When I suggested that my programmers would be less productive reverting to the old design instead of forging ahead with the new state-of-the-art design, she suggested throwing more money at them. 

NYU is dropping it's requirement for a Managing Organization's class where touchy-feely stuff like how to deal with people is discussed.  Bowing to pressure from its well-heeled finance department, students may now get an MBA thinking that people are motivated by money alone and not the intrinsic satisfaction of doing work they love.  What a shame.

Turning on the Power at Con Edison

An MBA colleague - who has wasted too many precious moments of his life disagreeing with me - had this to say in response to my "Location is Destiny" posting about site power.

I’ve had a somewhat different experience based on working at Con Edison.  In short, Con Edison is known by what goes on in the street or “the field;” everyone relates to the white trucks and the guy in the hardhat.  Although you can run into the VP’s and the CEO’s in the elevator every now and then, it’s very difficult to make any name for yourself at Con Edison working at headquarters.  The successful people at Con Edison pay their dues in the field, away from headquarters.  Your theory is very much a function of the company that you work for.

No doubt true. But this is all about personal power.

But I realized I left a question unanswered.  If personal power means being able to get others to do what they want, how would I define site power?  Here is one possible definition:  A site has more power than another site if working in the site enables a person to exercise more personal power than they would be able to exercise in the other site.

Location is Destiny

As an east-coast software industry veteran working for companies based in other areas of the country (SCO, Novell, BEA Systems), I have often wondered how my career would have been different had I been at corporate headquarters.  But given my reluctance to relocate, I have settled on a different question: what determines an organizational site's power and influence?  Not everyone can be at corporate headquarters, but we would all like to work at a location that allows our career to prosper.

An individual's power is understood to come from several sources (French and Raven breaks it down to five sources, but sometimes it is summarized as below):

• Positional Power: Legitimate, coercive, and reward power lumped together.  Where you are in the organization, your control of resources, and the ability to reward and punish people.
• Expert Power: What you know and its importance to the organization.
• Referent Power: The power that results from personal characteristics.  This includes relational power, or your personal network.

Using this as a framework, is it possible to a site's power just by summing the power of all the people in the location?   Simply looking at a site as a collection of individuals discounts several key factors:

• Gravitational Power: How often do employees (especially senior management) travel to the site?  Gravitational Power would include sources of power not summarized by a sum of personal power, such as a location's physical location.  For example, it is better to be five miles from headquarters than a plane ride away.
• Structural Power: I would argue that the organizational structure within a site is important to its power.  It is better to have one large organization reporting into senior management than multiple organizations reporting into less senior management.
• Information Power: How much information a site collectively has and how well the site collectively shares this information.   Also, to what extent does the site utilize this collective information as feedback to other sources of power.

I would love to learn about formal studies of site power.  The sources of site power I've identified above are based on my observation of a limited set of companies at which I've worked.  I would love to hear your views on this subject.