Slideshow pfeffer 24 09

Mensen maken het verschil
(People make the difference)
Luc Sels
Dean
Faculty of Economics and Business

The next book on the shelf?
Guiding principles
1. Balancing between strengths and giftedness approaches
2. Relating to the talent mismatch debate to raise awareness
3. Appealing to the responsibilities of (line) management
4. Evidence-based (where evidence is available)
5. Non-prescriptive nor normatively framed

1. Balancing between strengths and
giftedness approach
“… essentially a
euphemism for
‘people’”
“… a select group of
employees – those
that rank at the
top in terms of
capability and
performance –
rather than the
entire workforce”
“… a person’s recurring patterns of
thought, feeling, or behavior that can be
productively applied”
“… the human resources that organizations
want to acquire, retain and develop in order to
meet their business goals”
“… competence [being able
to do the job] times
commitment [willingness to
do the job] times
contribution [finding
meaning and purpose in
work]”

1. Balancing between strengths and
giftedness approach
Giftedness approach Strengths approach↔
Top 1-10% Everyone has talent↔
Gift = innate ability Strengths = systematically developed↔
Gifts can manifest themselves in different talents ↔ People should develop strengths, not weaknesses
Manual dexterity, painter OR pianist Opposite of ‘gap’ thinking in HR
Exclusive versus inclusive

2. Relating to the talent mismatch debate to
create awareness

2. Relating to the talent mismatch debate to create
awareness (historical and projected replacement demand)
Interpretation: of all employees aged
50-plus in 2007 281.800 left the labor
market in the period 2007-2012

The shortage we createThe shortage we create
ourselves…ourselves…
Aiming ever higher in recruitment and selection
Expecting supreme productivity as of day one
Wanting to be lean (and mean)
Searching for the white crow
Focusing on credentials instead of competencies
Always fishing in the same pond (with bigger baits)
Not recognizing bottleneck vacancies as ‘first priority’

3. Appealing to the responsibilities of (line)
management
1. (Express your) believe that your team members can grow in
their capabilities (Incremental implicit theory)
2. Expect a lot of your team members, reinforce your expectations
with positive messages (Pygmalion effect)
3. Keep your promises (Behavioral integrity)
4. Admit mistakes when they occur (Psychological safety)
5. Allow all members of the team to voice their opinions even if
they differ from your own (Inclusive leadership)
6. Ask for feedback about your actions and plans (Feedback seeking)
7. Stimulate all members to become engaged in the leadership of
the team, to influence and guide fellow team members in an
effort to maximise the team’s potential (Shared leadership theory)

4. Evidence-based (where evidence is
available)
Common mistakes in retention management
1.All voluntary turnover is bad: the lower, the better!
2.‘Most voluntary turnover is avoidable’ versus ‘there is little
managers can do’
3.Turnover is primarily a pay issue
4.People quit because they are dissatisfied with their jobs
5.Exit interviews are the prime source of information

-.15-.1-.050.05
LogLaborProductivity
0 .1 .2 .3 .4 .5 .6 .7 .8
Volunta ry T urnover R ate
L in ea r Q uadratic T hird Ord er
F ourth O rder F ifth Ord er
Im pact V olu ntary Turnove r R ate on Labour P roductiv ity
Relationship voluntary turnover and
productivity

Turnover and firm performance
Where are they going?
Voluntary turnover
Firmperformance
Quitter moves
to competitor
Quitter moves
to client or
supplier

 Failure to manage expectations about career progression
 Disillusionment with the employer (e.g. peers progressing at faster rate)
 High potential ‘burnout’, work-life balance tensions (mid-career)
 Using inadequate high potential identification criteria – Peter Principle
 Management cloning/homosocial reproduction
 Not paying enough attention to non-leadership talent (e.g. experts)

1. Should HiPo’s be identified at all?
2. Why not ‘buy’ instead of ‘make’ future leaders?
3. Someone with ability, engagement, and aspiration to
rise/succeed in … in what?
4. How to identify the ‘talented’?
5. How to develop the ‘talented’?
6. Should we share talent decisions?
7. The ideal size of a talent pool?
8. One or more than one talent category?
9. How to balance employee and employer interests?
10.How to track progress?

Masterclass, Brussels,24th September 2013
Lut Crijns
The return on investment in talent

Why (now) a book about talent management and
ROI?
• Economic change: the pressure
on organizations, and
consequently on people, is
increasing.
• Demographic change: the aging
workforce and diversity on the
work floor: we are in need of a
paradigm shift regarding work
(and workers).
• Technology change: the
information technology and data
intelligence.

5 levers
1. First, you need a perspective on people
2. Talent is not enough
3. HR practices make strategy work (or not)
4. Care about the hardware
5. Develop HR Intelligence

1. First, you need a perspective on people

HR practices can only be efficient if they are applied in alignment with
the underlying perspective on people.
• What lies below the surface? Do you believe humans want to work
and are self-motivated?
• Do you believe in their potential and their ability to improve upon
themselves?
• Are you willing to set the bar high, to challenge, to give responsability
and to tell the truth as it is?
• Do you think that workers want to build co-operative and intimate
working relationships with those that they work for and with, as well
as the people that work for them?
• How much confidence do you have in the ability of people to
participate in decision making process?
• Do you not only care about how management views employees, but
also about how workers might perceive management?

Douglas McGregor
(Theory X & Y)
William Ouchi
(Theory Z)
Tends to categorize people as one type or another: either
being unwilling or unmotivated to work, or being self
motivated towards work. Threats and disciplinary action
are thought to be used more effectively in this situation,
although monetary rewards can also be a prime motivator
to make Theory X workers produce more.
Believes that people are innately self motivated to
not only do their work, but also are loyal towards
the company, and want to make the company
succeed.
Theory X leaders would be more authoritarian, while
Theory Y leaders would be more participative. But in both
cases it seems that the managers would still retain a great
deal of control.
Theory Z managers would have to have a great
deal of trust that their workers could make sound
decisions. Therefore, this type of leader is more
likely to act as "coach", and let the workers make
most of the decisions.
McGregor's managers, in both cases, would seem to keep
most of the power and authority. In the case of Theory Y,
the manager would take suggestions from workers, but
would keep the power to implement the decision.
The manager's ability to exercise power and
authority comes from the worker's trusting
management to take care of them, and allow them
to do their jobs. The workers have a great deal of
input and weight in the decision making process.
This type of manager might be more likely to exercise a
great deal of "Power" based conflict resolution style,
especially with the Theory X workers. Theory Y workers
might be given the opportunity to exert "Negotiating"
strategies to solve their own differences.
Conflict in the Theory Z arena would involve a
great deal of discussion, collaboration, and
negotiation. The workers would be the ones
solving the conflicts, while the managers would
play more of a "third party arbitrator" role.
Appraisals occur on a regular basis. Promotions also occur
on a regular basis.
Theory Z emphasizes more frequent performance
appraisals, but slower promotions.
Theory X,Y :Mc Gregor, The human side of enterprise, 1960
Theory Z: How American business can meet the Japanese challenge, W. Ouchi, 1982

What perspective on people guides your HR practices?
HRM X
• Recruits in the moment,
when the need arises
• Selects based on proven
knowledge and skills
• Provides jobspecific
training
• Is forced to hire externally
for functions with
more/higher responsability
• Pays a fixed salary, not
linked to performance
management
• Recruits in the moment,
when the need arises
• Selects based on proven
knowledge and skills
• Provides jobspecific
training
• Is forced to hire externally
for functions with
more/higher responsability
• Pays a fixed salary, not
linked to performance
management
HRM Y
• HRM Y +
• Driven by the will to
succeed: has a simple
but strong
performance
management system
• Builds stronger teams
with delegation of
power
• Encourages
generalization versus
specialization:
jobrotation,
broadening of skills
• Strong cultural
leverage
• HRM Y +
• Driven by the will to
succeed: has a simple
but strong
performance
management system
• Builds stronger teams
with delegation of
power
• Encourages
generalization versus
specialization:
jobrotation,
broadening of skills
• Strong cultural
leverage
• Has a workforce plan
stretching over 2 to 3
years
• Selects internally and
externally based on
performance and
potential
• Provides training and
development possibilities
beyond job specific
requirements
• 2 out of 3 “next level” jobs
are filled in internally
• Pays a fixed salary, and a
bonus linked to
performance
management
• Has a workforce plan
stretching over 2 to 3
years
• Selects internally and
externally based on
performance and
potential
• Provides training and
development possibilities
beyond job specific
requirements
• 2 out of 3 “next level” jobs
are filled in internally
• Pays a fixed salary, and a
bonus linked to
performance
management
P&O Z

2 Talent is not enough
• Gifted or strength? Everyone has talent, but not
everyone is born with an exceptional talent in a
specific field.
• Every talent can be developed into a strength,
through “10.000 hours of deliberate practice”.
• Talent leads to results and efficiency if deployed in
combination with other talents for a specific goal.
• If talent isn't used in the right context, it will not pay.

3 HR-practices make strategy work (or not)
• Coming up with a strong strategy is a challenge. Excellent
execution of strategy is infinitely more challenging.
• The performance level a company can achieve, is determined
more by the capability of people and organizations to execute
strategy, rather than the choice between strategies or the
sector in which you operate.
• The strategic role of HRM is not in defining the strategy, but
in developing the ability to execute the strategy.
How to connect people and their daily
work with strategic objectives?

Example: Performance management (Acerta)

Klantenkompas:
Wij willen de beste zijn in
geïntegreerde HR dienstverlening
voor de klant
Medewerkerskompas:
Wij zijn klantgedreven
experten in alles wat
te maken heeft met
het werken van
mensen.
Financieel kompas:
Wij willen ons aandeel
in de HR Wallet van
elke klant verhogen
3 compasses

Getting results and measuring them :
3 Acerta compasses = 3 lagging indicators
De NPS peilt bij de klant en de
boekhouder in welke mate hij Acerta als HR
dienstverlener aan anderen (vrienden,
collega’s, familie, …) zou aanbevelen.
Het is de meest duidelijke
indicator voor onze capaciteit om klanten te
houden en aan te trekken.
De NPS van de
medewerker meet in
hoeverre medewerkers,
bereid zijn Acerta als
werkgever bij vrienden en
bekenden aan te prijzen.
Het is de meest duidelijke
indicatie van onze
aantrekkelijkheid om
goede mensen te houden
en aan te trekken
De totale omzet van
Acerta gedeeld door het
aantal voltijdse
equivalenten Acerta
medewerkers is een
simpele en krachtige
meter van onze efficïentie.

Getting results and measuring them :
3 Acerta compasses = 15 leading indicators

Net promotor score van de
medewerker
Net promotor score van
de klant en partner
klantenkompas
financieel kompas medewerkers kompas
Tevredenheid over
kwaliteit coaching
Tevredenheid over kwaliteit
coaching eigen
medewerkersfinancieel kompas medewerkers kompas
N coachingacties
per medewerker
N coachingacties per
medewerker
toepassen
van coachingmethodiek
Acerta
Wij willen de beste zijn in geïntegreerde HR dienstverlening voor onze klanten
Contributie
klantenkompas
% medewerkers die tevreden
zijn over de kwaliteit van de
coaching
% medewerkers van mening dat
ze hun talenten effectief kunnen
inzetten en ontwikkelen
% medewerkers die tevreden zijn
over de werkcontext (organisatie,
reward, infrastructuur, cultuur)
Wij zijn gedreven experten
Wij willen ons aandeel in de HR
Wallet van elke klant verhogen
Resultaatmeters en resultaatbrengers van
Managing director : Astrid De Lathauwer
Verantwoordelijk voor Consult
1
Net promotor score
van de medewerker
Net promotor score
van de klanten die
Consult diensten
afnemen
% verstrekte services dat voldoet aan de
kwaliteitsnorm.
% verstrekte services waarvan de klant
aangeeft dat ze voldoen aan de
minimumscore voor toegevoegde waarde
Contributie per
business unit
N klanten dat in één jaar
diensten van minimum 3
business units afneemt
Systematisch leren uit alle
klantenbevragingen
4
N werknemers waarvoor werkgevers min.
€500 per wn/jaar besteden bij Acerta
N werknemers
waarvoor
werkgevers min.
€500 per wn/jaar
besteden bij Acerta
Acerta compasses
Unit compasses
Individual compasses= coachingtool
Every coworker contributes to Acerta’s strategy

4 Care about the hardware
Work and work environment have to answer to 3 basic and
universal needs:
1. Autonomy: can I make my own choices and is
there room for independence?
2. Involvement: is there room for positive
relationships, allowing me to feel accepted and
valued?
3. Competence: do I feel like I have the right skills,
and can I fully make use of them?

Organizations eat talent for lunch, every day
M. Seligman, flow Karasek, Job demand control
talent
challenge
flow

Identify work characteristics
• Motivation and involvement are a complex system (not
personal traits), built on the basis of work processes, job
design, organizational structures and culture
*
40

Intention of recommandation
• Who are the detractors?
• Experience the employer, the corporate values and culture, job satisfaction
and career possibilities as hardly attractive
• Experience significantly more verbal abuse and harassment at work
• Are unsatisfied and have a donkey or exhausting job
• Who are the active promotors?
• Don't feel overstretched mentally, and experience their career possibilities
and job satisfaction, corporate values and culture, and their employer as
highly attractive
• Are engaged in their work
• Who are the passive promoters?
• Experience little pressure at work, a high level of job satisfaction and view
their career possibilities and employer as attractive

Job design or job crafting?
• The central idea of job crafting is for people to be
able to craft their own jobs, based on their
motivation and talent.
• This can be an individual or a team process .
• A positive or negative effect on performance is not
yet proven, but people are significantly more
motivated when allowed to shape their job.

5 Develop HR Intelligence
Effects of HR practices are measurable on three
levels:
Immediate HR effects: employee satisfaction,
turnover, absenteeism,…
Operational effects: productivity, quality of
service, process improvement,…
Financial results: profit evolution, cost
management,…

Impact analysis & predictive analysis
• Does modifying the bonus system of your salesteam leads to
more revenue?
• Does your investment in account management leads to a
higher customer satisfaction?
• Do retention efforts (higher merit, faster career growth, more
training facilities) lead to a higher customer satisfaction and
better product quality
• Does a higher NPS of your employees lead to a better NPS of
your customer?
• …

WHY PEOPLE ARE THE
BEST SOURCE OF
SUSTAINED COMPETITIVE
ADVANTAGE—THE
EVIDENCE, THE LOGIC, AND
WHAT COMPANIES MUST
DO
Jeffrey Pfeffer
Graduate School of Business
Stanford University

CONVENTIONAL WISDOM ABOUT
SOURCES OF COMPANY SUCCESS
• Being first with an idea is important
• It is important to be in the right industry
• Being large matters--accounting for the wave of
mergers and consolidations
• Being in a high technology industry is the path to
success
• Downsizing and reducing labor costs are
important for increasing profits

DO YOU NEED TO BE FIRST WITH
THE IDEA?
• Amazon.com was at least the fourth company to
begin selling books online
• Xerox invented the first personal computer, and
also developed the first word processing program
• Diner’s Club predated the Visa credit card
• Pfizer’s Lipitor was at least the third statin
(cholesterol lowering drug) on the market
• There is no evidence for a consistent first-mover
advantage

THE EVIDENCE: DOES INDUSTRY
MATTER?
• According to one study of 1,800 companies by Booz
Allen, industry growth rates were unrelated to a
company’s ability to create shareholder value over a ten
year period
• A study by Mercer Management Consulting found no
correlation between industry growth rates and the growth
rate of any individual company within an industry

THE EVIDENCE: DOES INDUSTRY
MATTER?
• A 2012 study by Booz & Company of 6,138 companies
from 2001-2011 concluded: “if you throw out the number
one and number 65 industries in our study…the median
returns of the ‘best’ and ‘worst’ industries are within 16%
of one another. The gap within industries is far greater:
The top companies in each industry have annual TSRs
that are 72% higher, on average, than the TSRs of the
worst companies.”
• Although profit margins do vary by industry, there is
tremendous variation within each industry.

30 YEAR TOTAL SHAREHOLDER RETURN—
FROM MONEY’s 30TH
ANNIVERSARY ISSUE
• Southwest Airlines—25.99%
• Wal-Mart Stores—25.97%
• Kansas City Southern Industries—25.61%
• Walgreen Company—23.72%
• Intel Corporation—23.49%
• Comcast Corp.—21.99%
• Circuit City Stores-Carmax—21.71%
• Forest Laboratories—21.69%
• State Street Corporation—21.45%
• Kroger Company—21.16%

The conclusion: you are better off
being a great company in a “bad”
industry than an ineffective, poorly
managed company in a great industry.

THE EVIDENCE:
DOES SIZE MATTER?
• In 44% of the industries covered by Value Line,
there is a negative correlation between company
size and measures of profitability
• Across the 80 nonfinancial industries, the
average correlation between size and percent
earned on net worth was just .11.
• Toyota was not as large as General Motors in
sales, but it has been much more profitable.

THE EVIDENCE:
DOES SIZE MATTER?
• The most profitable airline in the U.S. is
Southwest; it is not the largest
• The only other airline to have been profitable
every year for the past 30 is Singapore; it is also
not the largest
• Most mergers (about 70%-80%) fail according to
academic and consulting firm studies, with failure
defined as destroying market value and as not
achieving the intended financial objectives

THE EVIDENCE:
DOES SIZE MATTER?
• On Forbes list of America’s best and worst banks
for 2013, based on their financial health, of the
top 40, only 4 have assets over $200 billion and
of the top 15, only 1 does.
• On the ABA Banking Journal’s list of the top
performing big banks Ranked by return on
average equity, of the top 10, only 2 have assets
of more than $200 billion.

THE EVIDENCE: EFFECTS OF
DOWNSIZING
• Downsizing does NOT increase stock price,
either immediately or over a two year period.
• A study using Census of Manufacturing data
found that establishments that increased
productivity over a ten-year period were as likely
to add as reduce people.
• An American Management Association survey of
700 companies found that productivity rose in
34% of the cases but fell in 30%

DOWNSIZING
• A study of the S & P 500 by Wayne Cascio found
that downsizing did not increase profitability
(either return on assets or stock returns)
• A Society for Human Resource Management
study found that only 32% of respondents
reported that layoffs improved profits
• An AMA survey reported that only 35% of
respondents increased product or service quality
following downsizing

DOWNSIZING
• A survey of 720 companies found that 1/3 had
brought back laid off employees as temps or
contractors—downsizing often doesn’t even
reduce costs
• On average, 2/3 of companies that lay off people
in one year do it again the next year
• 45% of companies that downsized rehired laid-off
employees full time, 17% rehired people as
consultants, and 56% hired employees after the
layoff

DOWNSIZING
• A Right Associates survey reported that 70% of
senior managers remaining in downsized firms
reported that morale and trust declined
• A survey of “survivors” found that:
54% felt overworked
59% lacked time for reflection
45% reported having to multitask too much

DOWNSIZING
• A study of 300 large and midsize firms discovered
that stress-related disorders among employees
(including mental health and substance abuse,
high blood pressure, and other cardiovascular
problems) at downsizing companies increased
between 100% and 900%
• Downsizing hinders innovation, by breaking the
networks of relations necessary for developing
new things

WHAT ARE THE SOURCES OF
COMPANY & COUNTRY SUCCESS?
• Low wages—and consequently, low labor costs?
• Low taxes—and consequently, lower costs?
• Absence of governmental regulation—and
consequently, more flexibility?

WHAT ARE THE SOURCES OF
COMPANY & COUNTRY
SUCCESS
• Education and skills?
• Lack of strong labor unions, facilitating
managerial autonomy?
• An engaged, committed, motivated work force?

ACCORDING TO THE WORLD ECONOMIC
FORUM, WHICH COUNTRY GOES WITH WHICH
GLOBAL COMPETITIVENESS RANK?
• China
• South Korea
• India
• Sweden
• Switzerland
• #1
• #3
• #4
• #59
• #29

MISPERCEPTIONS ABOUT
COUNTRY SUCCESS
• World Economic Forum 2012-2013 competitiveness
rankings
Switzerland ranked #1
Sweden ranked #4
Singapore, the U.S., Germany, Japan, Finland, Hong Kong,
Denmark, and the United Kingdom complete the top 10
South Korea ranked #19
China ranked #29
India ranked 59th

Which Pilot Hourly Wage Goes With
Which Airline (in 2004)?
• United
• US Airways
• Southwest
• Alaska
• Frontier
• $194
• $175
• $151
• $149
• $143

PILOT WAGES
(similar seniority and flying the same
plane type
• Alaska
• Southwest
• Frontier
• United
• US Airways
• $194
• $175
• $151
• $149
• $143

CIRCUIT CITY:
THE HIGH PRICE OF THE SEARCH
FOR LOWER COSTS
• An electronics retailer that, in late March, 2007, laid off
3,400 of the company’s most experienced sales clerks (to
save money by hiring less expensive replacements);
sales associates are paid in part on the basis of how
much they sell.
• Can you guess what happened?

Circuit City v. Best Buy, 2006-
2007
Circuit City
-77.9% TSR
-5.5% sales decline
EPS went from $0.47
to <$1.25>
Best Buy
-14.1% TSR
11.4% increase in
sales
EPS grew 11.5%
($2.79 to $3.11)

Having lost its best sales
associates (many of which were
hired by its competitors), Circuit
City lost sales, cut more costs, and
went into a death spiral. It went
into bankruptcy and was liquidated.

CHOOSE A STRATEGY TO COMPETE IN
THE GROCERY STORE INDUSTRY
• Minimize labor costs by
Lean staffing
Minimizing wages, benefits,
and training
Getting by with few skills
• Minimize product costs by
Centralized purchasing
In large quantities
• Staff the store generously
• Let individual store
department managers do
their own stocking
• Hire more qualified people
• Pay more and train more

WHICH LOOKS MORE SUCCESSFUL
TO YOU?
• Grocery store industry
29.6% gross margin
5.8% operating margin
8.4% return on total
capital
14.7 P/E ratio
• Whole Foods Market
37.4% gross margin
8.7% operating margin
11.3% return on total capital
31.6 P/E ratio
16.5% 10 year CAGR in sales
22.0% 10 year CAGR in
earnings
293% five year TSR

WAL-MART v. COSTCO
• Average Costco employee earned $15.97 an
hour in 2004, 39% more than the average Sam’s
Club employee who earned $11.52
• Costco provides benefits such as health
insurance (82% of employees covered), Sam’s
does not (47% covered by a less generous plan)
• Which discount chain is more profitable?

WAL-MART v. COSTCO
• Turnover is 6% in the first year at Costco v. 21% at Sam’s
• Costco generated $795 sales per square foot, Sam’s Club
$516.
• Therefore, profit per employee was $13,647 at Costco v.
$11,039 at Sam’s Club
• Labor rates do not equal labor costs or profits!

WHY DOES TOYOTA OUTPERFORM
GM, FORD, AND DAIMLER-
CHRYSLER?
• Lower retiree health care and pension costs?
• Lower wages?
• Higher labor hour productivity?
• Higher realized revenue per vehicle sold?

In 2004 (the last year for which data are
available), Toyota received, on
average, about 30% ($6,000) more per
vehicle sold than GM. GM’s health care
and retirement costs were about $1,500
per car higher. Lesson: in this case, as
in many, the key to economic success
is revenues, not costs!

WHAT MATTERS FOR
SUCCESS?
THE EVIDENCE
• Semiconductor fabrication
• Integrated steel manufacturing and steel minimills
• Apparel manufacturing
• Automobile assembly
• Oil refineries
• Medical and electronic devices

WHAT MATTERS FOR SUCCESS?
THE EVIDENCE
• Telephone call centers
• Financial services
• Survival rate of initial public offerings
• Multi-industry studies of the effects of
management practices on performance

Productivity and Quality Comparisons
Among Four Automobile Plants
Framingham GM-Fremont NUMMI
Takaoka
1986 1978
1986 1986
Overall Productivity
Hourly 36.1 38.2 17.5
15.5 Salaried 4.6 4.9
3.3 2.5
Total 40.7 43.1 20.8
18.0
Adjusted Productivity
Hourly 26.2 24.2 16.3
15.5
Salaried 4.6 4.9 3.3
2.5
Total 30.8 29.1 19.6
18.0

Productivity, Quality and Work Organization
in 62 Automobile Plants
Dimension Mass Flexible % Difference
Production
Quality (defects
per 100 cars) 94.1 49.5
47.4%
Productivity (hours/car) 36.6 20.9
42.9%
% Work force in teams 5.0 70.2
1,304%
Suggestions/Employee .24 36.5
15,108%
Training New Hires
(0=Low to 3=High) 1.0 1.9 90%
Job Rotation Index
(0=None; 4=Much) 1.2 3.0 150%

Productivity, Quality and Work Organization
in 62 Automobile Plants
Dimension Mass Flexible % Difference
Production
Contingent Pay
(0=None; 4=Based on
plant performance) .72 3.0
317%
Status Differences
(0=Extensive; 4=Little) 1.1 3.4
209%
Inventory Level
(in days for 8 parts) 2.8 .63
-77.5%

Effects of Control Versus
Commitment Human Resource
Systems in 30 U.S. Steel Minimills
• 57% less turnover in commitment systems
• 34% fewer labor hours required to produce
one ton of steel in commitment systems
• 63% better scrap rate in commitment systems

Effects of Control Versus Commitment Human
Resource Systems in 30 U.S. Steel Minimills
Dimension Control Commitment
%Difference
Wage Costs $18.07 $21.52
19.1%
Benefit Rate 27.3% 32.01
17.2%
Bonus Rate 30.0% 13.62%
-54.6%
Percent
Unionized 38 57 50%
% in teams or

Effects of Control Versus Commitment
Human Resource Systems in 30 U.S.
Steel Minimills
Dimension Control Commitment
%Difference
% of all employees
who are craft or
maintenance
(skill level) 14 19 35.7%
Number of company
organized social
events per year 3.94 7.31 85.6%

Effects of Human Resource Practices on
Organizational Survival for IPOs
Human Resource Value Scale
• Executive with HR responsibility
• Use full-time employees
• Have an employee training program
• Cite employees as strategic asset
• Quality of employee relations
Rewards Scale
• Stock plan for all employees, or just
management
• Profit sharing for all employees, or just
management
• Other incentives for all employees, or
management

PROBABILITY OF AN INITIAL PUBLIC OFFERING
FIRM SURVIVING FIVE YEARS
87.0%
79.0%
45.0%
60.0%
Human Resource Value Rewards
PERCENTOFIPO'SSURVIVINGAFTER
FIVEYEARS
One Standard Deviation
above the Mean
One Standard Deviation
below the Mean

FINDINGS FROM THE STANFORD
PROJECT ON EMERGING COMPANIES
• Sharing information doubles the odds of an
IPO
• Having peers involved in hiring (hiring for
fit) triples the odds of an IPO
• Firms founded under a “commitment”
model have 12 times the odds of going
public
• None of the firms founded with a
commitment model failed during the study
period

PARTICIPATIONS LEVELS COMPARED
TO PERFORMANCE RANKS FOR
SEMICONDUCTOR FABRICATION
PLANTS
(Participation includes information, rewards,
knowledge, and decision making power)
Participation Defect Line Cycle
Density Yield Time
High 5.83 6.92
5.50
Medium 7.00 7.00
8.60
Low 12.50 10.88 11.00

THE LINK BETWEEN EMPLOYEE
MANAGEMENT AND PATIENT
MORTALITY IN HOSPITALS
• A study of 61 hospitals in the U.K. found that, for
instance, an increase of one standard deviation in
team work—approximately 25% more staff
working in teams—is associated with 275 fewer
deaths per 100,000, a 7.1% reduction
• A study in the U.S. of hospitals that were able to
attract and retain good nurses and provided
opportunities for good nursing care had 4.6%
lower mortality than the control hospitals

FORTUNE 100 BEST PLACES TO
WORK—SHAREHOLDER RETURN
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
"100
Best"
Reset
Annually
"100
Best" Buy
& Hold
S & P 500
Annual Return

EFFECTS OF HIGH PERFORMANCE WORK
PRACTICES ON COMPANY FINANCIAL
PERFORMANCE
A study of 100 German companies in ten industrial
sectors found that companies higher on employee
focus earned a greater total shareholder return than
those that did not. Employee focused companies
also created the most jobs
A study of 129 Korean firms found that those higher
on organizational commitment to their employees
earned a higher return on assets

WHY DOES PEOPLE
MANAGEMENT/ORGANIZATIONAL
CULTURE MATTER?
• An M.I.T. study found that investments in information
technology, by themselves, had no effect on productivity.
It was IT investment, when coupled with an engaged and
motivated labor force, that produced important
differences in company performance.
• The service profit value chain: motivated, committed
employees provide service and productivity advantages
that translate into higher profits

WHY DOES ORGANIZATIONAL
CULTURE MATTER?
• Frederick Reichheld, The Loyalty Effect, found
that customer retention was the key to
profitability, because it is much more expensive to
attract new customers than to retain existing
ones. The key to customer retention was
employee retention, as long-tenured employees
were more productive, could provide a higher
level of service, and were essential for building
relationships with customers.

WHY DOES ORGANIZATIONAL
CULTURE MATTER?
• It is easy to copy technology or even
imitate products. Copying organizational
culture and capabilities is much more
difficult.
• Relatively few companies see their people
as assets, as contrasted with viewing them
as costs.

It is almost impossible to earn exceptional
economic returns by doing what everyone
else is doing, by being average, and by
benchmarking what others do. If you want
to achieve exceptional results, you must
take the risk of doing things differently.

HIGH PERFORMANCE
MANAGEMENT PRACTICES
• Employment security and a policy of mutual
commitment
Commitment is reciprocal—if you want someone to be loyal and
committed to the company, the company must be loyal and
committed to them
This does not mean not firing individuals; it does mean not
laying off people for economic fluctuations over which they have
no control
After 9/11/2001, neither Southwest Airlines nor EADS (the
manufacturer of Airbus planes) laid people off
• Selective recruiting for fit with the culture and values,
not just skill
Don’t select on the basis of skills that can be learned relatively
quickly; use qualities that are important and more permanent in
your hiring decisions

HIGH PERFORMANCE
• Sustained and substantial investment in training and
development
Investment in people signals their importance and invokes the
norms of reciprocity
Training builds skills, including leadership as well as technical
skills
Investments in human development, by signaling people’s
importance, raise their self-esteem and self-confidence, thereby
making them more effective
• Decentralization of decision-making, often to self-
managing teams
This reduces costs by eliminating unnecessary supervision and
control
Creates more learning
Enables decisions to be taken closer to where the
organizational action is

HIGH PERFORMANCE
• Promotion from within
Avoids the “outsider” bias—outsiders often appear to be more
attractive candidates, even if they aren’t
Doesn’t send the wrong signal—that people in the company don’t
really have a future and aren’t “good enough”
• Information sharing—open book management
People need data to make decisions
Keeping secrets implies a lack of trust
An important part of employee involvement and engagement

HIGH PERFORMANCE
• Pay that is contingent on group and organizational, not
just individual, performance
Don’t implement pay systems that fail to provide incentives for
employees to help each other out, make suggestions, and
improve things
Share the benefits of enhanced company performance with the
people who contributed to that performance—the front line
employees
• An egalitarian culture with few status distinctions
Enhances teamwork
Encourages people to surface problems and to make
suggestions for improvements

WHY DO THESE PRACTICES
WORK?
• Discretionary effort
• More learning
• More sharing of knowledge and, therefore,
more collective learning
• Leaner and faster

SELF-ASSESSMENT
• How does your organization score on the
practices required to build a high
performance culture?
• What do you and your associates need to
do differently?

SELF-ASSESSMENT
(1=very little to 7=a great deal)
• Employment security ___
• Sustained investment in training &
development___
• Selective recruiting for cultural fit___
• An egalitarian culture___
• Information sharing with everyone___
• Decentralization of decision-making___
• Promotion from within___
• Pay that is contingent on group & organizational
performance___

SAS INSTITUTE
• Largest privately owned software company in the world,
founded in 1976 in North Carolina
• 2012 revenues of over $2.8 billion
• More than 13,000 employees
• 90 of the top 100 companies on the 2012 Fortune Global
500 list are customers
• SAS has customers in more than 130 countries
• In 2006 (height of the economy), 34,761 job applicants
• Turnover of less than 4% (software industry is typically
25%-30%

SAS INSTITUTE
• 10th
straight year was on Fortune’s “100 Best Companies
to Work For” list
• SAS Norway named #1 best place to work in Norway in
2007
• SAS Sweden named best place to work of small
companies in Sweden
• SAS Mexico named among the best places to work in
Mexico

SAS INSTITUTE
• 96 of the top 100 Fortune U. S. companies are SAS
customers
• High (98%) customer retention, and customers typically
spend more money with the company over time
• 25% of their revenue reinvested in research and
development

SAS INSTITUTE: WHAT DO THEY
DO?
• Generous benefits—that signal that employees are valued
and cared for
Onsite, high quality, subsidized day care
Physical recreation facilities
Onsite, very low cost (to employes), healthcare
Onsite massage
Elder care and adoption assistance

SAS INSTITUTE: WHAT DO THEY
DO?
• Shorter work hours (typically 35-40, unusual for
the software industry)
Puts pressure on the company to avoid wasted time
(e.g., unproductive meetings)
Avoids mistakes—people mess up when they are tired
Permits people to have a job and a life
• Everyone has a private office
• Beautiful physical facilities (two full-time artists to
ensure the décor is attractive and there is a lot of
good art)
• Management is based on mutual trust

THE MEN’S WEARHOUSE
• Retailer of off-priced, tailored men’s clothing (a declining
business, since in the U.S., fewer men wear dress
clothes) with operations in the U.S. and Canada. They
also rent and sell tuxedos.
• Founded in 1973 in Texas by George Zimmer.
Headquarters now in Fremont, California, near San
Francisco.
• Since becoming a public company in 1992, has achieved
a compounded annual growth rate of 14.4% in sales and
16.8% in net income
• 2012 revenues of about $2.5 billion
• The company has made money every year, even during
recessions—they have never suffered an annual loss

• Basic marketing strategy is to use television and radio
advertising, not print; tag line is, “I guarantee it.”
• Business strategy is to locate its stores (about 5,000-
7,000 square feet) in strip centers, not in big malls with
higher rents, and to provide an outstanding customer
service experience coupled with excellent selection of
merchandise. The idea is to produce higher margins
through the differentiated service
• The company today sells between 20%-25% of all men’s
suits sold in the U.S.
• Ranked #50 on Fortune’s Best Places to Work list (12th
time they have been ranked in the top 100)

THE MEN’S WEARHOUSE: WHAT
DO THEY DO?
• Visible leadership
• Put employees first, customers second, suppliers third,
the community fourth, and shareholders fifth in priority
• Pay better than the average retailer
• Provide more training than typical in retail
• Use fewer part-time employees
• Offer benefits, including medical and retirement
• Provide assistance to employees having financial
difficulties
• Emphasize fun and the social connections among
employees—elaborate holiday parties

THE MEN’S WEARHOUSE: WHAT
DO THEY DO?
• Many of their practices would seem to drive up their costs
—training, benefits, wages, for instance. But they take
the position that what is important is not what people cost,
but what they accomplish in terms of sales and service.
In other words, their business model emphasizes
revenues and margins.

ALIGNING MANAGEMENT
PRACTICES WITH BUSINESS
STRATEGY: AN ANALYTICAL
PROCESS

THE ALIGNMENT PROCESS
What is your organization’s strategy?
What differentiates you from the competition?
What are your companies intended distinctive
capabilities and competencies?

What skills, abilities, attitudes, and behaviors, are
required for your company to successfully execute its
intended strategy?
(reduce the list to no more than six or seven key qualities)

What are your companies current policies and practices
with respect to:
Recruitment (sources of people and the promises that are
made)
Selection (the criteria and methods used to choose
among applicants)

Compensation, including both level of pay and variable
compensation plans
Career development, including training, movement
through and across jobs, and progression in the
organization

Use of contract labor, part-time people, and temporary
help
Work organization (e.g., use of teams, number of levels,
amount of decentralization in decision making)
Mechanisms for employee voice

To what extent are each of these policies and practices
consistent, or inconsistent, with obtaining the skills,
attitudes and behaviors required to execute your strategy?

To what extent are the various management practices
consistent with each other (internally consistent)?

Alignment in a Health Care Organization
Critical Skills
Practices
Recruitment
Selection
Compensation
Training
Career Development
Use of Contractual
Help
Governance
Management
Teamwork
CustomerFocus
Skills/Training
Commitment
Problem
Solving
Caring
HardWorking
Flexible
Values(SocialMission)
L L L L
L
L
L L L L
O
OO
O O O O O O
O-L
O-L O-L
O/L O H-L
O O O O
O
O
O
O
O
O
OO
OOOOO O
O O O
OOOL-O
D*
L-H L-H
O-L O-L
L-O
O O O O O
O
L
L
H-LL-O L-O
O O
OOO
H = Highly consistent
L = Not consistent
O = Neutral in effect
* = Dysfunctional

SOME EXAMPLES OF HIGH
PERFORMANCE WORK
PRACTICES
Jeffrey Pfeffer
Stanford University

SAS INSTITUTE
• Largest privately owned software company in the
world, founded in 1976 in North Carolina
• 2012 revenues of over $2.8 billion
• More than 13,000 employees
• 90 of the top 100 companies on the 2012 Fortune
Global 500 list are customers
• SAS has customers in more than 130 countries
• In 2006 (height of the economy), 34,761 job applicants
• Turnover of less than 4% (software industry is typically
25%-30%

SAS INSTITUTE
• 10th
straight year was on Fortune’s “100 Best
Companies to Work For” list
• SAS Norway named #1 best place to work in
Norway in 2007
• SAS Sweden named best place to work of
small companies in Sweden
• SAS Mexico named among the best places to
work in Mexico

SAS INSTITUTE
• 96 of the top 100 Fortune U. S. companies are
SAS customers
• High (98%) customer retention, and
customers typically spend more money with
the company over time
• 25% of their revenue reinvested in research
and development

SAS INSTITUTE: WHAT DO THEY DO?
• Generous benefits—that signal that
employees are valued and cared for
Onsite, high quality, subsidized day care
Physical recreation facilities
Onsite, very low cost (to employes), healthcare
Onsite massage
Elder care and adoption assistance

SAS INSTITUTE: WHAT DO THEY DO?
• Shorter work hours (typically 35-40, unusual for the
software industry)
Puts pressure on the company to avoid wasted time (e.g.,
unproductive meetings)
Avoids mistakes—people mess up when they are tired
Permits people to have a job and a life
• Everyone has a private office
• Beautiful physical facilities (two full-time artists to ensure
the décor is attractive and there is a lot of good art)
• Management is based on mutual trust

• Retailer of off-priced, tailored men’s clothing (a declining
business, since in the U.S., fewer men wear dress clothes)
with operations in the U.S. and Canada. They also rent and
sell tuxedos.
• Founded in 1973 in Texas by George Zimmer. Headquarters
now in Fremont, California, near San Francisco.
• Since becoming a public company in 1992, has achieved a
compounded annual growth rate of 14.4% in sales and
16.8% in net income
• 2012 revenues of about $2.5 billion
• The company has made money every year, even during
recessions—they have never suffered an annual loss

• Basic marketing strategy is to use television and radio
advertising, not print; tag line is, “I guarantee it.”
• Business strategy is to locate its stores (about 5,000-
7,000 square feet) in strip centers, not in big malls with
higher rents, and to provide an outstanding customer
service experience coupled with excellent selection of
merchandise. The idea is to produce higher margins
through the differentiated service
• The company today sells between 20%-25% of all
men’s suits sold in the U.S.
• Ranked #50 on Fortune’s Best Places to Work list (12th
time they have been ranked in the top 100)

THE MEN’S WEARHOUSE: WHAT DO
THEY DO?
• Visible leadership
• Put employees first, customers second, suppliers
third, the community fourth, and shareholders fifth
in priority
• Pay better than the average retailer
• Provide more training than typical in retail
• Use fewer part-time employees
• Offer benefits, including medical and retirement
• Provide assistance to employees having financial
difficulties
• Emphasize fun and the social connections among
employees—elaborate holiday parties

THE MEN’S WEARHOUSE: WHAT DO
THEY DO?
• Many of their practices would seem to drive
up their costs—training, benefits, wages, for
instance. But they take the position that what
is important is not what people cost, but what
they accomplish in terms of sales and service.
In other words, their business model
emphasizes revenues and margins.

HOW TO ACCOMPLISH CULTURE
CHANGE
• Begin with the end in mind—what are the
most important (no more than 3) values that
are…
Critical to your organization’s business success
(most companies do not know the answer to this
question)
Values/objectives that will engage the hearts and
emotions of your customers and employees
Are different than what you are currently doing

CHANGE
• Begin with a reasonably short deadline,
because the idea that the culture change is
going to take a long time means that….
You won’t ever begin the process (the deadline
effect)
You send a message that the culture change is not
that important
You imply that the task is difficult
Effective culture change requires no more than 6
months to 1 year—what you haven’t achieved in
that time, you almost certainly never will

CHANGE
• Put people first—and mean it
Support people during personal difficulties (such
as illnesses or family problems)—SAS Institute
keeping children of a deceased employee in
subsidized day care
When “tested” (as will be inevitable),
demonstrate the importance of people through
actions and investments—Boise Cascade’s
willingness to repave an employee parking lot at a
paper mill
Southwest Airlines’ culture committees

CHANGE
• Measure progress
Gordon Bethune, CEO of Continental Airlines,
measured employees’ purchases of company-
insignia merchandise, reasoning that when
employees would be willing to voluntarily spend
their money on items with the name
“Continental” on them, the company would be on
its way to turning its employee relations around
DaVita’s survey of adherence to values and
assessing whether or not the company “walks its
talk”

CHANGE
• Celebrate/recognize success
Kimberly Clark Andean region taking 140 people
on a three-day offsite at a cost of more than
$400,000; local recognition and celebrations,
also
DaVita’s annual rewards dinners/celebrations with
almost 2,000 employees in attendance
Continental’s bonus payments to all employees
for on-time performance
Harrah’s Entertainment’s bonus payments for
improvements in service quality (regardless of
financial results)

CHANGE
• People must have a personal connection to
and stake in what you are asking them to do;
few employees care about shareholder value
or even profits. The question you must able
to answer is: what’s in it for me?
Profit sharing/gain sharing
Promotion/advancement opportunities
Personal job security (the New Zealand Post)

CHANGE
• Let people know how they and the company
are doing
DaVita posts labor hours efficiency and DaVita
Quality Index scores in the employee area of each
of its dialysis centers
Harrah’s posts operating information for all its
employees to see at each facility to see how they
are doing

CHANGE
• Reduce barriers between senior management
and employees so that two-way
communication can occur
Kimberly Clark—informal dress, no security to get
onto the executive floor, everyone called Sergio
Nacach, the leader of the Andean region, “Sergio”
DaVita—the CEO answered all e-mails, showed up
at town hall meetings and would answer any
questions, dressed informally

CHANGE
• Use language that motivates and reinforces
the culture
Kimberly Clark: “dreams” not budgets
DaVita—teammates and associates, never
“employees” or “workers”
The Men’s Wearhouse—”wardrobe consultants,”
not clerks or salespeople

CHANGE
• Let people make decisions
Kimberly Clark: decentralized decision making to
local units so they could respond to local
conditions and tailor marketing programs to local
customs and holidays
DaVita: devolved decision making to the
individual centers

CHANGE
• Invest in Training that Builds Values, Not Just
Skills
Kimberly Clark: invested in the training and
development of people at all levels, to signal that
a) they had a future with the organization, b) they
were important, and c) to improve skills to
enhance operational performance
DaVita: built DaVita University, with programs for
front-line teammates, facility administrators (FAST
—facility administrator survival training), and
more senior leaders

AN EXAMPLE:
KIMBERLY CLARK, ANDEAN REGION
(Peru, Columbia, Ecuador, Bolivia, and
Venezuela)
from a presentation by Sergio Nacach, at
the time, head of that region and now in
charge of all of Latin American operations
for Kimberly Clark

During the first Andean meeting in 2006 we set our
first dream:
- Align the organization (after 3 attempts)
- Be a global benchmark in organizational culture
- Achieve excellence in execution
In order to: Be the best region in top & bottom line
growth

x 2
17 %
32 %
26 %
Andean Net Sales
US$ MM
Winning Culture

Winning Culture
x 3
79 %
+$63
27%
+$17
40 %
+$57
Andean Operating Profit
US$ MM

06 07 08
GPTW # 1 1 3 Ecuador
GPTW # 1 1 7 Perú
GPTW # 2 4 5 Colombia
GPTW # 3 Bolivia

By December 2007, We Set another dream &
Started Building Our Legacy :
• Talent generation and recognition
– By 2010
• 6 persons from Andean region in key Latin American
Operation ($2.5 billion regional organization overseeing
Central and South America) positions
• 3 persons from Andean region in key D&E (headquarters)
positions
– By 2015
• 20 persons from Andean in key positions in or outside K-C

Talent Exports to LAO
• Rafael Ravettino – HR Director CA&C / BCC LAO
• Mario Loor – Category Director Family Care Brazil
• Luiz Marcel Padilla – Country Manager Venezuela
• Carlos Rupay – Country Manager Bolivia
• Ximena Galvis – Strategy Manager BCC LAO
• Lazlo Belmont – Marketing Coordinator Adult Care LAO
• Alex Schuller – LAO Tissue Manufacturing & Eng.
• Nhora Tobon – Equity BCC LAO

Talent Exports to D&E
• Sergio Cruz – Managing Director KC Philippines
• Marcelo Hernandez - Family Care Product Supply Director
• Mario Escudero – Marketing Director Eastern Europe
• Sergio Nacach – VP D&E Baby and Child Care

A CASE STUDY:
COLORADO PERMANENTE
MEDICAL GROUP TUNRAROUND
(from a presentation by Dr. Jack
Cochran, the elected head of the
physician partnership)

KP COLORADOKP COLORADO
19981998
ON THE BRINKON THE BRINK

CPMG Physician SatisfactionCPMG Physician Satisfaction
Would Recommend KP to a FriendWould Recommend KP to a Friend
‘94-’98‘94-’98
96%
89%
80%
30%
40%
50%
60%
70%
80%
90%
100%
1994 1996 1998
% Probably/Definitely
“%yes”

Would Choose CPMG Again 1994 -1998Would Choose CPMG Again 1994 -1998
94%
84%
77%
30%
40%
50%
60%
70%
80%
90%
100%
1994 1996 1998

61%
46%
39%
30%
40%
50%
60%
70%
1994 1996 1998
% Extremely/Very Satisfied
CPMG Physician Satisfaction
Overall Satisfaction w/CPMG ‘94-’98

91% 89%
85%
30%
40%
50%
60%
70%
80%
90%
100%
1994 1996 1998
Would Choose A Career In MedicineWould Choose A Career In Medicine
AgainAgain

People Pulse Care IndexPeople Pulse Care Index
50.5
51
51.5
52
52.5
53
53.5
54
54.5
55
55
52
1998 1999

Overall Patient SatisfactionOverall Patient Satisfaction
89% 89%
88% 88%
86%
80%
82%
84%
86%
88%
90%
PercentHighlySatisfied
1994 1995 1996 1997 1998

Net IncomeNet Income
(in millions)(in millions)
29.02
26.587
11.788
10.18
-0.02
-5
0
5
10
15
20
25
30
1994 1995 1996 1997 1998

MULTI-DIMENSIONALMULTI-DIMENSIONAL
TURNAROUNDTURNAROUND
Employee MoraleEmployee Morale
Physician Morale/CareerPhysician Morale/Career
Service and Customer SatisfactionService and Customer Satisfaction
Financial ViabilityFinancial Viability

Initial Team FociInitial Team Foci
Leadership DevelopmentLeadership Development
Team DevelopmentTeam Development
CommunicationCommunication
Balancing Short/Long TermBalancing Short/Long Term

Defining and Creating the Culture
Clear Values
and
Expectations
Recruit
Orient
Evaluate
Promote

We Must Fortify theWe Must Fortify the
Physicians Voice in thePhysicians Voice in the
Business of Health CareBusiness of Health Care

Would Recommend KP to a Friend ‘94-’02Would Recommend KP to a Friend ‘94-’02
96%
89%
80%
95% 98%
30%
40%
50%
60%
70%
80%
90%
100%
1994 1996 1998 2000 2002
“%yes”

Would Choose CPMG Again ‘94-’02Would Choose CPMG Again ‘94-’02
94%
84%
77%
90%
97%
30%
40%
50%
60%
70%
80%
90%
100%
1994 1996 1998 2000 2002
% Probably/ Definitely

Overall Satisfaction w/CPMG ‘94-’02Overall Satisfaction w/CPMG ‘94-’02
61%
46%
39%
57%
74%
30%
40%
50%
60%
70%
80%
1994 1996 1998 2000 2002
% Extremely/Very Satisfied

Would Choose A Career In MedicineWould Choose A Career In Medicine
AgainAgain
91% 89%
85% 82%
88%
30%
40%
50%
60%
70%
80%
90%
100%
1994 1996 1998 2000 2002

8.9
4.2 3.6
0
1
2
3
4
5
6
7
8
9
2000 2001 2002
Physician Turnover RatesPhysician Turnover Rates

People Pulse Care IndexPeople Pulse Care Index
0
10
20
30
40
50
60
70
55 52
1998 1999 2000 2002
59
67

Overall Patient SatisfactionOverall Patient Satisfaction
89% 89%
88% 88%
86% 86%
89% 89%
92%
80%
82%
84%
86%
88%
90%
92%
PercentHighlySatisfied
1994 1995 1996 1997 1998 1999 2000 2001 2002

Colorado RegionColorado Region
Voluntary Termination RateVoluntary Termination Rate
1.7%
2.4%
3.6%
2.7%
3.2%
2.6%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
1995 1996 1997 1998 1999 2001
Voluntary Term. Rate KPPG Goal
2.0%

NY TimesNY Times
American Heart AssociationAmerican Heart Association
NCQA - Best in the WestNCQA - Best in the West
QUALITYQUALITY

0
10
20
30
40
50
60
70
80
90
100
Adol Imm
Combo 2
Cholesterol
Management
Screening
Cholesterol
Management
Level
Contolling High
Blood Pressure
Eye Exams for
People with
Diabetes
Follow up After
MH Hosp. 7
Day
Follow-up after
MH Hosp. 30
day
HEDIS MEASURES
PERCENTAGE Kaiser Colorado HMO/PPO
National Average
HEDIS 2002
REPORTING PERFORMANCE FOR 2001
SELECTED EFFECTIVENESS OFCARE MEASURES
National NCQA Benchmark
#2 in USA #1 in USA #1 in USA #1 in KP #3 in USA #2 in USA #1 in USA

The New York Times on Colorado Kaiser
Permanente’s Mammography Program:
• “Every mammography program in the country should be
doing something like this.”
• “The team’s accuracy is close to what experts say is the best
mammography can offer.”
• If Kaiser Permanente’s improvement were duplicated across
the country, it “ . . . could mean finding upwards of 10,000
more [breast cancers] annually.”

Net IncomeNet Income
(in millions)(in millions)
29
26.5
11.8 10.2
-0.02
29
38 39
49
-5
0
5
10
15
20
25
30
35
40
45
50
1994 1995 1996 1997 1998 1999 2000 2001 2002

The lesson: All of the performance
metrics move together. There are
not trade-offs. A strong, positive
employee culture drives better
customer outcomes and better
financial results.

In all kinds of companies, industries,
and geographies, companies have
built people-centered cultures with
remarkable results. Don’t make
excuses for why things can’t change.
Change them.

WE ALL KNOW THIS—
TURNING KNOWLEDGE
INTO ACTION
Jeffrey Pfeffer
Stanford University

There is No Knowledge
Advantage! Everyone Knows
• More than 50,000 business books published
per year
• More than $60 billion spent on training
• More than $80 billion spent on management
consulting
• More than 140,000 business school graduates
just in the U.S. each year, and lots of business
school research

There is No Knowledge
Advantage! Everyone Knows
• There are translations among languages of
articles in the various sciences and engineering
• Information—both business but also technical
information—diffuses more rapidly and more
completely
• Therefore, simply possessing information can not
provide sustained competitive advantage

“We’ve deliberately, as an organization,
downplayed the importance of ideas. Ideas
are cheap. If you build your culture right,
you get a zillion. If you’ve got a good
idea, everyone else probably has the
same idea, too. What’s hard is the
articulation of the idea and the execution of
the ideas by the team and the company.
Coming up with ideas, is easy, the
implementation is hard.”
John Lilly, former CEO of Mozilla

Does the Knowing-Doing Gap
Matter?
• The success of most interventions to
enhance organizational performance
depends mostly on implementing what is
already known

Honda’s BP (Best Practice, Best
Process, Best Performance)
Program…
• Achieved an average 50% productivity
improvement in 53 suppliers
• By implementing “concrete and simple rather
than abstract and complex” changes on the
production line, most changes being small,
simple, and quite common sense
• Actual part, actual place, actual situation

Measuring the Knowing-
Doing Gap
• Is important to assess the degree of the
problem and to chart progress in its
resolution
• Is a very useful way of measuring the
effectiveness of organizational learning,
training, and change efforts—a successful
effort should reduce the gap

Measuring the Knowing-Doing
Gap
• Construct a list of management practices
and actions
• Ask people the extent to which they believe
each is related to organizational
performance
• Ask people throughout the organization the
extent to which they think the practices and
actions are occurring

Measuring the Knowing-Doing Gap:
What You Learn
• Is there agreement on what produces success?
If not, work on building a common understanding
of the business and its strategy.
• Is there agreement on what the company is
actually doing? Understand what is really going
on.
• Is the company doing what it knows it should? If
not, why not?
• Measure over time!

Knowing v. Doing In
A Restaurant Chain
Knowing Doing
Sharing financial information 4.3 3.8
Active suggestion program 4.8 3.9
Getting good ideas from
other units 4.9 4.0
Detailed assessment for hiring 5.0 4.2
Posting all jobs internally 4.2 3.5

Knowing v. Doing From a
Survey of General Managers
Knowing Doing
Learning from mistakes 5.5 3.3
Setting direction & empowering
team members 5.9 4.0
Regularly reviewing team
purpose, goals, & tactics 5.3 3.5
Getting ideas from customers 5.5 3.7
Expressing unpopular point of view 5.6 4.1

Knowing v. Doing: A Korean
Company Sample
Knowing Doing
Actively listening to employees 5.4 4.5
Sharing information 5.4 4.2
Involve employees in decisions 5.2 4.1
An environment of experimen-
tation and creativity 5.0 3.8
Opportunities for personal
growth and development 5.4 4.0

Some Causes Of The
Knowing-Doing Gap
•Talk, presentations, meetings, and
decisions substitute for action—for
actually doing something
•Memory, precedent, standard
operating procedures, unexamined
cultural values and beliefs substitute
for thinking

Some Causes Of The
Knowing-Doing Gap
•Fear prevents acting on knowledge,
or for that matter, learning or taking
any action at all
•Measurement, too many of the wrong
things using the wrong time horizon,
obstructs good judgment

Some Causes Of The
Knowing-Doing Gap
•Internal competition turns friends into
enemies, reducing knowledge
sharing, collaboration, learning, and
disrupting the social networks
necessary for innovation

How Talk (Presentations) Substitutes
for Action
“I spent almost two weeks of every month flying
back and forth to Melbourne…sitting in a
darkened room…I kept trying to remind my
associates that we weren’t in the business of
making overheads, but in the business of mining
and smelting ores, making steel, refining oil, and
so forth.”
Burgess Winter,
Former CEO of Magma Copper while working for
BHP

How Some Organizations Avoid
Hollow Talk And Value Action
• Career systems that put people
in senior positions who actually
know and do the organization’s work.
SAS Institute
Southwest Airlines’ day in the field
DaVita “Reality 101”

Having Leaders Who Know and Do the
Work
• Promotes assessments based on performance
rather than on how people sound
• Gives leaders credibility with those doing the jobs
• Keeps leaders in touch with the core technology
and work processes of the firm

How Some Organizations Avoid Hollow
Talk And Value Action
• A culture that values simplicity,
in which “common sense”
is valued

The Importance of Simplicity
“When I talk to people about the lessons
the turnaround taught us, they say, “those
seem simple enough.” Saving Continental
wasn’t brain surgery…you can’t afford to
think too much during a turnaround”
Greg Brenneman,
Former President and COO,
Continental Airlines

Simplicity Is a Barrier to Imitation
They [people] have many ways of saying,”If the
solution were simple, we would already have thought
of it.”
Greg Brenneman,
Former COO, Continental Airlines

The SAS Institute “Strategy” (or
Business Model)
• “Listen to your customers. Listen to your
employees. Do what they tell you”
John Sall, co-founder
“If you treat your people as if they make a
difference to the company, they will
make a difference to the company.”
SAS Institute Annual Report

•Be sure to have systems the ensure
follow-up
The GE work-out process
After action reviews in the Army—one
instructor per leader, who gives detailed
and specific feedback right after each
simulated battle

•Don’t accept excuses
for why things won’t work
or can’t be done

Don’t Accept Excuses
• Donald Regan at Merrill, Lynch
• David Russo explaining the SAS Institute’s
success

Build A Philosophy That Promotes
Action
• “Enlightened trial and error outperforms the
planning of flawless intellects.”
• “Fail early and fail often.” This is better
than failing once, failing at the end, and
failing big.
David Kelley,
IDEO Product Development

How Companies Avoid “Memory as a
Substitute for Thinking”
• Start a new organization or subunit
• Use dramatic means to break with the past
• Surface underlying assumptions
• Build organizations where people
constantly question precedent and are
forced to do new things, in different ways

Breaking From the Past in an Existing
Organization
• Mitel Corporation’s “attacking the sacred
cows” workshop
• Magma Copper

At Mitel, R & D employees spent three days
identifying rules, rituals, and attitudes that
stood in the way of doing things fast…the
list filled 71 pages. Every participant had to
identify two “personal cows” and to devise a
plan for attacking them the following
Monday morning. The session ended with
a celebratory beef barbecue.

Results of a “Sacred Cow” Exercise
• At Pillsbury and Winthrop, LLP, sacred cow task
forces launched to get rid of ingrained and
dysfunctional practices in early 1999
Example: attorneys and offices handled collections in
idiosyncratic ways, replaced with consistent procedures
and monitoring
Result: Average bill paid in 3.2 (instead of 4.5 months);
related labor costs cut by more than 25%

We have stopped complaining about the
quality of our ore bodies and each other and
instead have focused on what can be done to
make our core operations productive and
profitable. We gave up our attachments to
conversations regarding transgressions and
events of the past, and committed ourselves
to the fulfillment of a future which we invented
together.
Burgess Winter,
former CEO, Magma Copper

Magma Copper…
• Enlisted 140 people from all levels, departments, and
backgrounds to work in a “Future of Magma” visioning
committee
• Eventually fired managers who did not adapt and adopt
the organization’s new way of working and leading

Fear of Job Loss Causes Problems
• At Analog Devices, layoffs stalled a TQM effort
and a plant that been #1 on H-P’s list of best ten
suppliers became #2 on its list of ten worst
suppliers in two years
• At H-P’s Roseville plant, “downsizing curtailed
any remaining effort to implement self-managing
teams.”

Fear of the Boss Restricts Information
Flow
• Leaders often have inaccurate images of their
firms and the problems
NASA engineers risk estimate of rocket engine failure= 1
in 300
NASA top administrators’ estimate=1 in 100,000

Other Effects of Fear
• Focus on the short-term rather than the
long-term
• Focus on the individual’s survival rather
than the welfare of the entire organization

How Organizations Drive Out Fear
• Encourage open communication
• Give people second (and third) chances
• Admit that leaders are fallible, too

“This is the best we can think of right now. But
the only thing I am sure of is that it [the
structure] is temporary and it is wrong. We just
have to keep experimenting so it keeps getting
better all the time.”
David Kelley announcing a
major reorganization at IDEO

How Organizations Drive Out Fear
• Learn from, and even celebrate, mistakes
• Don’t punish people for trying new things

Error is the Result of Action
• At Skyline Toy Design
4,000 ideas generated
226 developed into a nice drawing or prototype
12 sold
2-3 are moderate commercial successes
The studio had a good year!

How Measurement Obstructs Good
Judgment
• Too many measures
• Incomplete measures (e.g., measuring
costs but not associated benefits)
• Excessive focus on short-term financial
performance
• Too little focus on in-process measures,
and too much emphasis on final results

Too Many Measures
• Theory: “what gets measured gets done;
therefore, if you measure more, more will get
done.”
• The magic number 7, plus or minus 2.
• Focus on a few, central drivers of the business
Southwest Airlines: on-time performance, lost bags,
customer complaints
DaVita: labor hours and the DaVita Quality Index
SAS Institute: the attraction and retention of employees
and customers and software quality

“The company that is not in control has far more
measures because they’re not changing the basic
management systems that are in place. We’ve got
to shrink the number of measures, get the
organization focused on them, and then build a
pyramid that says, ‘these are the primary
measures, progress measures, and in process
measures,’ so everybody can link their job to the
overall measures.”
Tom Lasorda, formerly with General Motors and
Vice-chair of Daimler-Chrysler

Avoiding Measurement Problems
• Measures should be relatively global in
scope, focusing less on individual
performance, and focusing on factors
critical to organizational success
• Measures should be focused on processes
and on means to ends rather than solely on
end-of-process outcomes

Avoiding Measurement Problems
• Measures should reflect the business
model, culture, and philosophy of the
company
• The measures should result from a mindful,
ongoing process of learning from
experience

When Internal Competition Turns
Friends into Enemies
• Absence of a “company effect” on
performance measures in multi-site
organizations
• Software development at Microsoft
• Southwest and American Airlines—the
paradox of individual accountability

American Airlines: Crandall’s
Philosophy
“People are naturally competitive. They absolutely
need to know the score.” If a delay occurred on a
flight making connections, “Crandall wants to see
the corpse,” said one field manager.

American Airlines: The Results
“If you ask anyone here, what’s the last thing you
think of when there’s a problem…the customer…
There is so much internal debate, and reports
and meetings [sorting out the cause of delays]…
This is time that we could be focusing on the
passengers.”
Field Manager

Southwest Airlines
Southwest has a “team delay” with the goal of
diffusing blame and encouraging learning. “We
could have more delay categories,” said Jim
Wimberly, EVP of operations,” but we only end up
chasing our tail.”

Overcoming Destructive Internal
Competition
• Focus attention on external competitive
threats and challenges
Southwest Airlines
Apple Computer
• Hire team players and fire people who do
not work collaboratively with others
SAS Institute
The Men’s Wearhouse

Overcoming Destructive Internal
Competition
•Avoid using measures and
compensation systems that
emphasize individual success at the
expense of others
Willamette Industries
Guidant Cardiovascular

“If you tie pay to individual performance…it just
becomes very hard to manage. You start to get
people competing with each other about which
department they’re going to be in, or which team
they’re going to be on, or who’s going to assess my
performance….We just decided we don’t want to
deal with that. We want to incent the company and
we’re going to incent people across the board, and
it’s worked out very well for us.”
Peter McInnes, Vice President, Guidant

Guidelines for Action
• Why” before “how”—the importance of
philosophy
“We have been benchmarking the wrong
things. Instead of copying what other
companies do, we need to copy how they
think”

• Reward smart action, not just smart talk.
As David Sun of Kingston Technology has
said, if you know by doing, there is no gap
between what you know and what you do.
• If you really want to break from the past,
work on creating a new future and make it
difficult to go back to the past

• There is no doing without mistakes; what
is the company’s response?
• Fear fosters knowing-doing gaps; drive out
fear
• Beware of false analogies: Fight the
competition, not each other

• Measure what matters –intermediate
outcomes and processes
• What leaders do,not just what they say--
how they spend their time and how they
allocate rewards and resources—is
critical

MAKING THE CASE:
PRACTICING EVIDENCE-BASED
MANAGEMENT
Jeffrey Pfeffer
Stanford University

Why evidence-based
management is important

REASON #1: REACTIONS TO THE
KNOWING-DOING GAP

REASON #2: THE EVIDENCE-BASED MOVEMENT
IN MEDICINE AND POLICY SCIENCES
• Evidence-based criminology

Example: the effects of incarceration on juveniles

Example: the use and effects of youth curfews

Example: using incarceration and parole resources
more effectively

REASON #2: THE EVIDENCE-BASED MOVEMENT
IN MEDICINE AND THE POLICY SCIENCES
• Evidence-based education

Singapore’s decision about how to teach
mathematics

New Zealand’s governmental mandate to have all
education policy be evidence-based

The policy to end “social promotion” and its effects

IMPETUS #2: THE EVIDENCE-BASED MOVEMENT
IN MEDICINE AND POLICY SCIENCES
• Evidence-based medicine
Effects of being up to date on patient outcomes
Understanding what are the most important
interventions to save lives—the 100,000 lives project
Reimbursement established on the basis of
adherence to clinical practice guidelines

IMPETUS #3: ORGANIZATIONAL EFFECTS ON
PEOPLE AND SOCIETY
• Public opinion data on employee attitudes and
disengagement
• Studies of workplace bullying and intimidation
• The effects of workplace conditions on
employee mental and physical health

THE “FAILURE” TO USE EVIDENCE
• Would you (voluntarily) undergo a medical
procedure that has a 70% failure rate?

• Would you (voluntarily) undergo a medical
procedure that has a 70% failure rate?

Proudfoot Consulting estimates the failure rate of
mergers at 83%

Other studies (including peer-reviewed journal
articles) estimate the failure rate at approximately
70%

Most mergers fail to create value; many destroy
it

• Would you use a managerial intervention
where an analysis of more than 200 studies
had concluded it was ineffective?

• Would you use an intervention where an
analysis of more than 200 studies had
concluded it was ineffective?

A meta-analysis of more than 200 studies found
no relationship between senior management
equity ownership and any measures of company
performance

There is no evidence for the effectiveness of
stock options (except in increasing the likelihood
of financial restatements)

THE FAILURE TO “USE” EVIDENCE
• Research by Penn State professor Donald
Hambrick and colleagues has shown that stock
options (not surprisingly) increase risk taking,
leading to a) more volatile organizational
performance and b) to more acquisition activity
and to overpaying for acquisitions
• Nonetheless, most compensation consultants a)
don’t know about this research and b) aren’t
interested in learning about it

• After trying a policy for a decade or more
and watching it fail, would you recommend
its continuation and expansion?

• After trying a policy for a decade or more
and watching it fail, would you recommend
its continuation and expansion?

Ending social promotion in schools leads to
higher dropout rates, lower graduation rates, and
fails as schools get overcrowded

ORGANIZATIONAL DECISIONS ARE OFTEN BASED ON…
• What senior leaders have done in the past and think
has been effective—their “experience”
• What others are doing—casual benchmarking
• Ideology and belief—ideas about how things ought
to work
But NONE of these Lead to Better Decisions

ORGANIZATIONAL DECISIONS ARE OFTEN BASED ON…
• What senior leaders are good at doing—their
specialty
• What is being advocated or talked about in
the business press—what is being hyped
• What consultants and other vendors are
selling
But NONE of these Lead to Better Decisions

WHAT IS EVIDENCE-BASED MANAGEMENT?
• A way of thinking

The attitude of wisdom—knowing what you know
and knowing what you don’t know—and being willing
to act on the basis of what is known at the time while
learning as you act

Being committed to “fact-based” and “evidence-
based” action

Being committed to hearing and telling the truth

WHAT IS EVIDENCE-BASED MANAGEMENT?
• Treating your organization as an unfinished
prototype—an “experimenting”/learning mindset
IDEO, Yahoo, Harrah’s, Google, the Home Shopping
Channel
• Knowing what the theory and evidence is, and
using it in formulating decisions and actions
• A set of standards for evaluating information and
making decisions

WHAT EVIDENCE BASED MANAGEMENT IS NOT
• An excuse to endlessly delay taking action
• Using data without judgment
• “Benchmarking” without taking into account
differences in the situations
• A reason to not consider alternative
explanations and issues of causality

WHY MANAGERS DON’T USE EVIDENCE-BASED
MANAGEMENT
• Too much information
• Recommendations that are not integrated, so they
can’t be remembered—lists
• Vendors who have agendas and products, and
who often aren’t completely candid about what
they know about what works and downsides and
side effects

WHY MANAGERS DON’T USE EVIDENCE-BASED
MANAGEMENT
• “Not enough time” to reflect—and learn—
and not enough interest in doing “after
action” reviews and learning from
experience
• Inconsistent guidance and
recommendations

WARRING BOOK TITLES
In Search of Excellence
Charisma: Seven Keys to
Developing the Magnetism
that Leads to Success
Love is the Killer App
The Peaceable Kingdom
Managing with Passion
Out of the Box
Built to Last: Successful Habits
of Visionary Companies
The Myth of Excellence
Leading Quietly: An Unorthodox
Guide to Doing the Right
Thing
Business is Combat
Capitalizing on Conflict
Managing by Measuring
Thinking Inside the Box
Corporate Failure by Design:
Why Organizations are Built
to Fail

WHY MANAGERS DON’T USE EVIDENCE-
BASED MANAGEMENT
• Reluctance to “face the facts” and the evidence

“What’s done is done”—an unwillingness to evaluate,
and therefore learn from, past decisions and decision
processes

Delivering bad news is dangerous; hearing bad news is
unpleasant

Human beings “see what they believe”
Result: not telling or ”hearing” the truth is
pervasive inside organizations of all types!

WAYS TO PRACTICE
EVIDENCE-BASED MANAGEMENT
• Developing skill at uncovering assumptions
and examining them
• Looking Inside: Challenge conventional
wisdom and be an advocate for “evidence
based management”
• Looking Outside: Avoid the “dangerous half
truths” of management

UNCOVERING ASSUMPTIONS: WHAT DO YOU DO
WHEN YOU CAN’T KNOW ALL THE EVIDENCE?
• Every organizational intervention and management
practice—and every piece of HR software—is
premised on (sometimes implicit) assumptions
about people and companies—what are those
assumptions?
• Confront the assumptions with evidence, or at least
the wisdom and informed opinion of you and your
colleagues
• Change to different and more effective mental
models—and practices—on the basis of the
evidence and what you know to be true

FORCED-CURVE RANKING SYSTEMS
• Made famous by General Electric and featured in The
War for Talent
• Forces people to “grade” their employees on a curve
• Top performers receive outsize rewards, lower
performers are counseled out or fired, and the middle is
largely ignored
• What do such programs assume about

People (subordinates and their managers)?

Sources or causes of organizational performance?

MERIT PAY IN SCHOOLS
• To fix problems of school performance, many
districts have instituted individual merit pay for
teachers
• Rewarded on the basis on increases in student
test scores over the course of a year
• Typically amounts to less than 5% of salary,
often about $1,000 to several thousand dollars

MERIT PAY IN SCHOOLS
• Because of limited budgets for bonuses,
typically could not be given to all (or even most)
teachers in a given school or district
• What do such incentive programs assume
about
Students?
Teachers?
Schools as organizations?

LOOKING INSIDE—GARY LOVEMAN AT HARRAH’S:
COVENTIONAL WISDOM IN THE GAMING INDUSTRY
• Comping” rooms is a great way of attracting
customers
• It is important to make casinos and their associated
hotels more “family friendly” to draw business
• High rollers are an important source of profits
• Building beautiful edifices with convention and
meeting space is a good way to attract business

THE FACTS—AS DISCOVERED BY HARRAH’S
• Free chips and meals are more important than
rooms—most frequent gamblers live nearby
• Families with young children have neither much
discretionary time nor income
• Most profits come from regular players of slot
machines, not from high rollers
• Investing in data mining,“experiments,” and HR
practices to cut turnover and provide better service
provides a better return than building palaces

GARY LOVEMAN
• In 1998, was a Harvard Business School
untenured associate professor in the service
management group
• Hired as COO by Harrah’s
• Appointed CEO in 2003
• Increased profitability and shareholder value
dramatically

GARY LOVEMAN AND EBM
• Built a culture of admitting mistakes (starting
with him)
• Encouraged experimentation—learning by doing
• Questioned conventional wisdom and
assumptions
• Emphasized learning, teaching, and the process
of decision making

LOOKING OUTSIDE:
THE BEST EVIDENCE REVEALS MANY
DANGEROUS HALF-TRUTHS
• Work is Fundamentally Different From The Rest
of Life, and Should Be?
• The Best Organizations Have the Best People?
• Financial Incentives Drive Company
Performance?
• Strategy is Destiny?

LOOKING OUTSIDE:
THE BEST EVIDENCE REVEALS MANY
DANGEROUS HALF-TRUTHS
• Change or Die, and Change is Difficult &
Takes a Long Time?
• Great Leaders are in Control of their
Companies, And Ought to Be?

THE COMPANY WITH THE BEST PEOPLE WINS?
• In an increasingly competitive world, companies
must get the best performance in order to
succeed.
• Research shows that, in many tasks such as
computer programming, book writing, and
music composition, the most productive
outproduce the least productive by many times,
and therefore, selection matters.

THE COMPANY WITH THE BEST PEOPLE WINS?
• It is possible to identify better performers in
advance

Measures of ability, such as intelligence

Work samples

Values, attitude, and character measures

THE COMPANY WITH THE BEST PEOPLE WINS,
BUT…
• Talent is neither fixed (unless you think it is) nor
necessarily easily assessed

Michael Jordan was cut by his high school basketball
coach

Kurt Warner (football MVP) was available in the 1999
draft

J. S. Bach was not considered a great musician until
long after his death, because what is great art is
determined by the times and tastes

THE COMPANY WITH THE BEST PEOPLE WINS,
BUT…
• Deming and the quality movement maintain that
it is the system that determines performance,
not individual ability or motivation—and there is
evidence for this
• Research by Carol Dweck (Mindset) contrasts
the effects of an “evaluative” versus a “learning”
or “growth” mind set

PRODUCTIVITY AND QUALITY OF THE SAME PEOPLE, DIFFERENT SYSTEM
Performance GM-Fremont NUMMI
Overall Prod. 43.1 hrs./car 20.8 hrs./car
Adjusted Prod. 30.8 hrs./car 19.6 hrs./car
Quality Index 2.6-3.0 3.6-3.8

MANAGING TALENT
• Treat talent and performance as something that
almost anyone can achieve through effort and
practice—be aware of the self-fulfilling prophecy
• Worry about the “system,” management
practices, and the culture, not just the individual
people

FINANCIAL INCENTIVES DRIVE COMPANY
PERFORMANCE?
• Reward systems help people self-select (e.g.,
performance-based systems attract those who
are—or at least believe they are—better at their
jobs and who are more motivated)
• Reward systems signal what is important and,
therefore, focus attention
• Rewards motivate and direct behavior

REWARDS CAN MATTER A LOT
• There is evidence that, for instance, piece work
systems at Safelite Glass (an installer of glass
windshields in cars) increased productivity,
because of motivation, selection, and learning
effects
• Using differential rewards is consistent with
Western ideas about tying pay to performance

INCENTIVES MATTER, BUT…
• Surveys consistently show that people at work
are motivated by many factors that they rate as
more important than money
• There is an “extrinsic incentives” bias, in which
people believe that others are motivated by
money even as they are not

• Sometimes you get what you pay for, but don’t
actually want it

Albuquerque garbage truck drivers

Nordstrom shoe sales people

Putnam Toyota car sales people

Corporate CEOs & the effects of stock options

• Sometimes you don’t want people who have
joined your organization just for the money
• The use of variable pay increases pay
dispersion, which can have negative effects on
both individual and organizational performance

• Extrinsic financial rewards can undermine
intrinsic motivation (interest in the work itself)
• Monetary rewards are expensive and lose their
effectiveness: “a raise is only a raise for 30
days, after that, it’s your salary.”

SOME GUIDELINES FOR USING INCENTIVES
• Don’t try to solve every problem with financial
incentives
• Sometimes “less” is more effective
• Be careful what you reward, you might just get it
• Worry about comparisons and distributions, not
just individual pay

STRATEGY IS DESTINY
• Companies and their senior leadership spend most of
their emphasis, and most of their consulting dollars, on
strategy. Strategy consulting is more expensive and
“higher end” than HR or IT implementation.
• The logic is that doing the wrong thing well is a recipe
for failure. Success comes from knowing what to do to
compete effectively.

STRATEGY IS DESTINY, BUT…
• Strategy can almost certainly not provide
sustainable competitive advantage.

Consulting firms will provide the same answers to
anyone who buys their services (the Towers, Perrin
“problem”)

Strategies are often easy to discern—they are
frequently announced—and therefore are easy to
imitate.

STRATEGY IS DESTINY, BUT…
• What is difficult to imitate is the ability to execute, which
comes from culture and processes that are a) harder to
ascertain and b) more difficult to copy

“I could leave our strategic plan on a plane, and it
wouldn’t make any difference. No one could execute
it. Our success has nothing to do with planning. It
has to do with execution.”
Richard Kovacevich, CEO, Wells Fargo Bank

CHANGE/INNOVATE OR DIE
• In an increasingly competitive world in which product life
cycles are shorter than ever, innovation is critical for
success.
• Because sustainable competitive advantage is difficult
to maintain, the only effective strategy is to continually
change as circumstances/the environment changes

CHANGE/INNOVATE OR DIE, BUT…
• Research in the “population ecology” of organizations
reveals that change is disruptive. Fundamental changes
in organizational form, and changes in leadership,
increase the risk of organizational mortality.
• Data from the Stanford Project on Emerging Companies
shows that companies that changed their HR “blueprint”
to a “commitment” model increased their risk of failure,
even though this model was more effective overall.

ORGANIZATIONAL CHANGE IS DIFFICULT & TAKES A LONG TIME
• Most culture change efforts fail—indeed, most
organizational change efforts of any sort are
unsuccessful
• People develop habitual ways of doing tasks
and relating to each other and their company—
these habits die hard

ORGANIZATIONAL CHANGE IS DIFFICULT & TAKES A LONG TIME, BUT…
• Continental Airlines went from “worst to first” in one
year, in the process fundamentally altering the
relationship with employees (and customers)
• Magma Copper went from the verge of bankruptcy to
the cover of Industry Week magazine in less than two
years
• People (and companies) change all the time.

PARTING THOUGHT 1:
TREAT YOUR ORGANIZATION AS AN UNFINISHED
PROTOTYPE
• IDEO’s David Kelley shaved off his mustache—
showing anything can be changed, and
changes can be temporary
• Yahoo does about 20 controlled experiments a
day, each with a sample of several hundred
thousand visitors.

PARTING THOUGHT 2 :
PRACTICING EVIDENCE-BASED MANAGEMENT IS ABOUT
BEING MASTER OF THE OBVIOUS AND MUNDANE
• The Obvious: Nothing works unless you actually do
it, but action requires believing that improvement
and competitive advantage are possible
• The Mundane: Conscientious people, setting goals,
wanting to fly on time, washing hands, and
standing-up

PARTING THOUGHT 3:
THE BEST SINGLE DIAGNOSTIC QUESTION
• What Happens When People Fail?

Forgive and remember

The importance of setbacks, for leadership
development and for organizations

FOR HR TO LEAD, HRFOR HR TO LEAD, HR
LEADERS NEED TOLEADERS NEED TO
DEVELOP THEIRDEVELOP THEIR
POWER SKILLSPOWER SKILLS
Jeffrey PfefferJeffrey Pfeffer
Graduate School of BusinessGraduate School of Business
Stanford UniversityStanford University

FUNDAMENTAL IDEASFUNDAMENTAL IDEAS
 Things are “not always so”—because we areThings are “not always so”—because we are
dealing with the probabilities of predicting humandealing with the probabilities of predicting human
behavior, not physical laws of naturebehavior, not physical laws of nature
 Also “not always so” because there areAlso “not always so” because there are
differences in situations and circumstances thatdifferences in situations and circumstances that
affect what worksaffect what works
 However, there are principles that generally holdHowever, there are principles that generally hold
that you can use to increase your probability ofthat you can use to increase your probability of
successsuccess
 Acquiring power is about changing how youAcquiring power is about changing how you
think, what you see, and your mind setthink, what you see, and your mind set

 PathPathss (there are more than one) to power(there are more than one) to power
 Power is not the same as happiness—in fact, thePower is not the same as happiness—in fact, the
two are often inversely relatedtwo are often inversely related
 Power isolates those in powerPower isolates those in power
 Power creates trust dilemmasPower creates trust dilemmas
 Power is inversely related to autonomyPower is inversely related to autonomy
 Obtaining and maintaining power requires time andObtaining and maintaining power requires time and
efforteffort
 You get to choose, consciously or lessYou get to choose, consciously or less
consciously, how much you will seek power andconsciously, how much you will seek power and
what you will do to obtain itwhat you will do to obtain it

 We are often our own biggest impedimentWe are often our own biggest impediment
to having powerto having power
 Do we have both the will and the skillDo we have both the will and the skill
to seek and attain positions of power—to seek and attain positions of power—
what goals do we set for ourselves—dowhat goals do we set for ourselves—do
we opt out of “the game”?we opt out of “the game”?
 Do we limit ourselves by being afraidDo we limit ourselves by being afraid
to take chances or fail (engaging into take chances or fail (engaging in
self-handicapping) or worry too muchself-handicapping) or worry too much
about what others think about us?about what others think about us?

 We are often our own biggest impedimentWe are often our own biggest impediment
to having powerto having power
 Can we “accept” status andCan we “accept” status and
hierarchical differences, being willinghierarchical differences, being willing
to subordinate ourselves and also useto subordinate ourselves and also use
power over others?power over others?
 Can we surmount the “just world”Can we surmount the “just world”
effect, to see things as they are, noteffect, to see things as they are, not
as we wish them to be (includingas we wish them to be (including
ourselves)?ourselves)?

Slideshow pfeffer 24 09

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