Leadership Strategies Blog

Is your 360-degree feedback system actually valid?

One of the most popular recent advances in leadership development is the 360-degree feedback system. Many organizations use this type of assessment to collect information from various people who can accurately rate the performance of a specific manager with whom they work. In the eyes of most users, the strength in such instruments is their capacity to capture multiple perspectives that most often include manager, self, peers, and direct reports. If your organization has purchased and used a 360-degree instrument, do you know the validity of the feedback?

 

The results of these surveys provide the basis for important human resource decisions—such as individual development goals, promotion, and training emphases—that, cumulatively, can make or break the success of an organization over time. Most organizations do not use multi-rater feedback for selection or promotion decisions, in large part because the results rely on subjective perspectives, and the instruments are not designed for these purposes. Despite the popularity of these instruments, however, the majority do not report validity data to confirm that they actually measure the underlying leadership factors they purport to assess.

 

What is Multi-rater/360-degree Evaluation? Although leadership performance historically has been measured through performance appraisals delivered solely by an individual’s supervisor, the last three decades have seen the emergence of multi-rater, 360-degree feedback systems. Effective leadership is a complex construct, requiring leaders to master a host of sophisticated cognitive, strategic, and interpersonal skills. Starting in 1967, researchers began to note that using only a single rating source to evaluate leadership might not provide all of the information necessary to evaluate a leader’s performance properly. Since then, relevant research has convincingly demonstrated that a single assessment of a leader, either by self-evaluation or by a supervisor, is inadequate to capture that leader’s performance fully. First, individuals are not always the most astute evaluators of their own performance. Self-ratings of any behavior are often widely different in comparison to ratings of that same behavior when completed by another observer (Atwater & Yammarino, 1992). Second, various rating perspectives (i.e., supervisor versus peer, manager versus direct report) actually assess different underlying performance constructs (Turkel, 2008). That is, individuals in differing organizational roles have limited opportunities to observe a specific individual’s behaviors, so we need multiple perspectives to measure performance accurately. However, this leaves the question of how to interpret the variation in ratings between raters.

 

Measuring Validity and Reliability. Concern about inter-rater agreement focuses on the meaning of low agreement across organizational perspectives. If two perspectives disagree substantially in their ratings, the meaning of that discrepancy remains unclear. Theories range from those claiming that the data are inaccurate or meaningless, to those concluding that differing perspectives supply equally valid data. Tornow (1993) suggested that, “the very differences in perspectives among those who provide feedback can enhance the personal learning that takes place.” Therefore, the differences in rater perspectives are not treated as error variance (variation that needs to be reduced), but rather as critical additional information that makes the findings more reliable and gives them deeper perspective.

 

Further, Scullen et al., (2000), hypothesized that observed variations in ratings might reflect actual differences in performance, because a manager is likely to perform differentially in front of diverse groups of people. Specifically, they found that both supervisor and subordinate perspectives capture something unique to those perspectives, but peers do not. They suggest that these rating differences are more a function of true differences in the observed performance than of variations in the observers themselves (bias). Despite the fact that differing perspectives exist on each individual leader, Scullen, Mount and Judge (2003) also have shown that raters across various perspectives share a common conceptualization of a specific leader’s overall performance.

 

Knowing that it is crucial to gather multiple perspectives when attempting to create the most accurate possible picture of performance, and with so many instruments from which to choose, how can you know where to start? According to VanVelsor et al. (1997), authors of these instruments must meet the guidelines of a comprehensive process for evaluating 360-degree instruments. According to them, an author of this type of instrument must:

 

1. Attempt to identify the full range of behaviors or skills believed to represent leadership competencies.

 

2. Provide reliability information regarding whether the instrument items cluster in behavioral competencies that are internally consistent, distinct from each other and useful for feedback.

 

3. Provide validity information about whether the scales actually measure the behavioral dimensions they purport to measure (construct validity).

 

If your company is currently using some form of multi-rater feedback, did someone scrutinize it for these three features? The majority of multi-rater feedback providers designed and implemented their 360-degree feedback tools with the assumption that they accurately measure the leadership skills necessary for success in a particular organization. They picked items that logically seemed important to leader success, or they evaluated data they collected on competencies that support or undermine leader success. Some used a combination of logic and data collection, but most did not assess them for validity.

 

 

Works Cited

Atwater, L.E. & Yammarino, F.J. (1992). Does self-other agreement on leadership perceptions moderate the validity of leadership and performance predictions? Personnel Psychology, 45, 141- 164.

Scullen, S.E., Mount, M.K., & Goff, M. (2000). Understanding the Latent Structure of Job Performance Ratings. Journal of Applied Psychology, 85, 956-970.

Scullen, S.E., Mount, M.K. & Judge, T.A. (2003). Evidence of the construct validity of developmental ratings of managerial performance. Journal of Applied Psychology, 88, 50 – 66.

Tornow, W. (1993). Perception or reality: Is multi-perspective measurement a means or an end? Human Resource Management, 32, 221-229.

Turkel, C.C. (2008). Female Leaders’ 360-degree self-perception accuracy for leadership competencies and skills. Dissertation Abstracts.

VanVelsor, E., Jean-Brittain, L. & Fleenor, J.W. (1997). Choosing 360: A Guide to Evaluating Multi-Rater Feedback Instruments for Management Development. Greensboro, N.C.: Center for Creative Leadership

What are you doing to protect your organization's future in these troubled times?

In a shaky economy, many organizations take dramatic steps to freeze expenses related to new hires and promotions, downsize, and suspend or limit expenses.  This is the conventional response and it makes good economic sense.  In fact, these moves, plus a focus on protecting the existing business revenue, are often critical in the short-term to insure that organizations remain viable. 

For the most part, senior executives have little illusion about the severity of the current economic crisis, or the chance of emerging from it soon.  Most corporate leaders are taking deliberate, intentional actions to manage through the challenges, and part of that is to lower costs and increase efficiency by reducing headcount and restructuring jobs.

The conventional response.  Laying off a percentage of the workforce is one option companies choose, but often is not the best way to reduce expenses.  A 2001 study by Bain & Company, for example, found that it took companies six to 18 months to realize savings from job cuts after the 9/11 attacks.  The actual time to realize savings is probably longer, since these numbers do not reflect the additional costs of recruiting, hiring, and training new people when the economy turned back around.  Other options to decrease cost, and often better ones, include cutting salaries, reducing benefits and perks, mandating a standard number of unpaid vacation days for everyone, or offering financial incentives for voluntary separation.

For example, in a March 2009 study by Roselle Leadership Strategies, Minneapolis, that included 30 companies ranging in size from below $50M to more than $10B, 67% are making targeted cuts in workers and managers in what they deem the least critical areas, and 70% are working with vendors to reduce cost and/or inventory.  Nearly 100 percent indicate they are taking some steps to reduce costs.  The specific steps they identify include:  institute pay cuts, increase virtual meetings, freeze or limit new hires, close marginal business lines, reduce travel and other discretionary expenses, require all employees to take unpaid vacation time, delay the filling of vacant positions, make changes to existing health plans or 401K matching contributions, and put off various consulting expenses. 

Not all cost reductions are equally helpful.  The key to effective cost reduction is to keep your organization’s core competencies intact.  Leaders need to have clear understanding of, and commitment to, the capabilities that differentiate them from the competition.  Organizations cannot succeed long-term by making short-term decisions that undermine this strategic differentiation.

The challenge for leaders in trying times like these is to be courageous and strategic, and at the same time, practical and realistic.  This is the paradox at the core of an unconventional response to an economic  downturn.

The unconventional strategy involves four facets:

• tapping into the creative ideas of the entire organization
• creating a distinct process for strategic expenditures
• investing in leadership development for the stars
• attending to the personal lives of employees.

Tap all creative ideas.  While leaders seek areas in which to make financial cuts, it is important to tap into the creativity of the entire organization for future-oriented ideas.  In difficult situations, leaders too often hunker down and try to make all the brilliant decisions themselves to save the organization.  A better strategy is to tap into others at multiple levels to harvest their thoughts and energy.

Many corporate leaders recognize the importance of developing innovative approaches to address business challenges.  One way to foster creativity is to cultivate an open and collaborative culture.  The key is to develop a corporate mindset that stimulates people to think and do things differently, and then stays out of their way enough to let ideas percolate.  Workforce diversity helps fuel this process.

Success often depends on leadership’s ability to use open-ended questions to nurture inventive problem solving, encourage information exchange and scenario analysis, and challenge the status quo with a motivated vision.  Leaders must identify the innovators in the organization, the ones that can focus on the most important kernels without getting lost in the peripheral chaff.  Successful innovators can look at business challenges from multiple perspectives and identify those approaches most likely to fly in the organization’s culture. 

In our study, we found that fully 70% were making deliberate attempts to tap into creative ideas across the organization.  How are they doing this?  By asking questions and listening (57%), encouraging information exchange at multiple levels (53%), developing various future scenarios (60%), and sharing a motivating vision of the future (60%).

Create a process for strategic expenditures.  Recognizing that this economic downturn will not last forever in its current condition, and that the marketplace may not return to its former condition, organizations must develop new strategic initiatives, and set aside money to fund them.  These might include new products, reconfigured services, expanded marketplaces, new business models, and improved talent base.

The key here is to develop some likely strategies and allocate sufficient resources to test them.  History tells us that in the lean times, future orientation rules the day.  For example, from early 1973 to late 1974, the U.S. stock market experienced a 45% drop in market value.  Spikes in oil and gas prices, easy credit, and a murky military endeavor (Vietnam) preceded this dramatic drop.  Sound familiar?  Despite these challenges, companies like FedEx, Southwest Airlines, Microsoft, Apple, Genentech, Oracle and others were born during this difficult economic time.  

This next generation’s growth companies will be the ones that exploit technology and innovation and learn to thrive during periods of deflation, inflation, and delusion.  Even in this economic downturn, such companies will invest in new products and services, nurture innovation, leverage technology, and expand into new markets.  They will expand segments of their workforce in potential growth areas, at the same time they decrease headcount in other areas.   

The new growth companies will search their high potential talent pool to find innovative people and give them future-oriented projects with few parameters to limit their thinking.  Since innovators need access to resources and networks of people against whom they can bounce ideas, leaders will also remove obstacles, and encourage mentoring and peer feedback. 

Some companies will look for opportunities to increase the level of their talent by intentionally seeking innovative and self-motivated individuals from other companies who are frustrated at the reduced career options with their current employer.  In a 2009 Deloitte study conducted by Forbes Insights, nearly half of the 300+ senior business leader respondents indicated they would focus on product development and innovation this year.  Fully 40% indicated their organizations would recruit more for critical talent. 

These recruitment efforts might include deliberate steps to build a marketplace brand that identifies them as a highly desirable employer.  From our work with Target, for example, we know that their brand image, built on a combination of business success, appealing products, and corporate philanthropy, is a major attraction to potential employees. 

In our study, 83% of responding companies indicate they are intentionally setting aside funds and creating distinct processes for developing future-oriented products or services.  Most (70%) indicate a focus on expanding or re-defining existing marketplaces, while 43% indicate they are budgeting for new or re-configured products or services.  About a third indicate they are creating pilots of new business models, and another third that they are exploring new product test markets.

Invest in leadership development.  One type of expenditure that many organizations consider a strategic priority is to retain and develop the critical talent they currently employ, while they attract similar talent for their future needs.  Downturns present the perfect opportunity to enhance and deepen workforce skills and capabilities.  It is smart business to use this time to help high performing managers and high potential stars expand and deepen their leadership skills in areas like collaboration, team play, and big picture strategy. 

Talented people are difficult to recruit and retain, and even more difficult to replace if they choose to leave.  Retention of key talent is a major concern across many organizations this year.  In the Deloitte study, nearly half of the senior business leaders who responded indicated their intention to invest in building new workforce skills despite the economic climate.  The companies in this survey came from across the globe, and ranged in size from $500M to more than $20B. 

Market leading companies recognize that leadership development is not just nice to have; it is essential to maintain and build competitive advantage, especially in tough economic times.  For example, Toyota pulls people offline in these times and provides training.  They utilize this strategy because the costs involved in providing leadership preparation and coaching are relatively small when compared to the potential future ROI.  Growing leaders from within an organization by using strategic work assignments, internal mentors, external coaches, performance feedback, and structured succession planning is a strategy increasingly employed by successful organizations. 

72% of those polled in the Deloitte study indicated the intention to direct limited human resource dollars to the development of leaders and high-potential individuals.  The same group of business leaders indicated that 48% intended to invest in building new skills in their workforce.

We determined in our study that 100% plan to invest in their key leaders during this downturn.  With more specific responses, they indicate their intention to take steps to maintain high motivation and productivity (80%), enhance skills and develop leadership capability (70%), and work to increase the likelihood of success once the economy turns around (50%). 

Pay attention to the personal lives of employees.  It seems obvious that creating personal relationships will help leaders get the most out of their employees, but most managers believe they are better at this than they actually are.  Times of dramatic change create predictable stress and fear in your workplace.  In the Deloitte study, an average of 44 percent of surveyed leaders indicated a decline in the morale of their employees, and almost 30 percent reported a decrease in trust/confidence in leadership. 

Greater attention paid to employees’ lives outside of work, and the personal toll on them caused by the changes, usually results in greater productivity, morale, and trust.  Acknowledging the pressure and affirming people for their efforts creates greater loyalty and effort.

Among the methods utilized by the organizations in our study, 93% indicate they are taking steps to acknowledge and show concern for the toll taken on those who remain after layoffs.  More specifically, 77% point out that they are affirming employees for their efforts and 67% indicate they are showing compassion for the emotional toll and the strain on their families.  Only 30%, however, say they are providing individual or workshop-based counseling for those who remain.

Peter Drucker describes the essence of leadership as the balance between managing what you have, and creating future capacity.  The dilemma in this economy is how to make the best choices in the dynamic tension between surviving now and thriving in the future.  The key to the courageous response is to be adaptive, imaginative, and practical.  Tomorrow’s industry-leaders will be those that position themselves to move quickly and effectively when the economy inevitably comes back around.  They will do this by cutting the fat, nurturing creativity, encouraging new strategic initiatives, and developing the talent that remains.

When the economic outlook seems grounded, invest in the stars!

When storms keep fishermen at port, they spend the time mending nets, repairing their boats, and discussing strategy so that they will be more productive once the storm clears.

 

The conventional response.  In a shaky economy, many organizations choose to freeze expense related to new hires and promotions, to downsize, and to suspend or dramatically limit expenses for things like travel and capital expenditure.  These moves, plus a focus on generating new revenue, are often necessary in the short term to insure that organizations remain viable for the long term.  However, it is critical to offset the increases in workload and frustration on remaining employees caused by such measures.  Even the most talented and motivated workers will respond with fear and sub-optimal performance in response to such changes in the work environment. 

 

The courageous response.  A great way to offset the negative impact of cost-cutting measures is to invest in high potential and high producing leaders throughout the organization during the slow economic times.  Relative to the savings netted by freezing new hires or downsizing overall head count, the cost of leadership development is small.  However, to engage in such initiatives during an economic downturn, even a major one, sends a strong and reassuring signal to the star performers who remain.  This is the courageous response, and it leads to stronger companies long-term. 

 

Though it may run counter to conventional thinking, it is even more important in the midst of an uncertain business environment to invest in your star performers.  Although the tendency may be to put leadership development in the “nice to have” category, smart organizations invest in their retained talent.  They maximize the productivity of their people now, even with limited resources, to prepare for a quick and competitive start when the general business climate improves.

 

Some companies actually increase their market strength during tough times.  Toyota, for example, pulls people offline in the slow times and provides classroom training for them (based on an article in the December 2008 Training + Development Journal, American Society for Training and Development).  They do this to better position themselves for the inevitable upswing. 

 

Why develop your leaders?  It is helpful to remind ourselves why successful organizations invest in leadership development initiatives in the good times.  Our research with clients over the last decade indicates these primary reasons for investment in their leaders:

 

·         Increase productivity:  From a quality/continuous improvement point of view, people—like products and processes—need to become more effective; greater effectiveness yields greater productivity.

·         Retain top performers:  The relationship between manager/executive and his/her subordinates is the key factor in retention; when leaders are ineffective at building and maintaining relationships, when top performers are not developed to their full potential, retention suffers.

·         Plan for Succession:  Senior managers and managers must look at how to leverage strengths and manage their development edges every year to be ready for greater responsibility.  The leadership pipeline needs to be robust for the future, and stars need to see opportunities on the horizon.

·         Foster a Motivated Environment:  The effective role model of leaders who are motivated to become better, themselves significantly impacts the drive to continuously develop and improve.  Leaders set the tone, especially in economically shaky times.

·         Form More Effective Teams:  When leaders at multiple levels identify obstacles to the effectiveness of their team and exhibit a commitment to work through these, the team becomes more effective.  Often, their own leadership style and capacity is one of the obstacles.

 

The compelling three reasons.  If these five outcomes are important in the good times, how much more critical must they be during business downturns?  Here are three reasons your organization should plant leadership development seeds in its stars now (based on the results of several recent leadership surveys described in the Training + Development journal of the American Society for Training and Development), in order to harvest their increased capacity when business turns around later in 2009:

 

• Increase motivation, productivity.  Though 75 percent of senior leaders identified leveraging leadership talent as a top priority, 60 percent of leaders at lower levels were not satisfied with their leadership development options.  This leads to reduced satisfaction and a less motivated and productive environment.

• Maintain competitive edge.  Star performers want on-the-job opportunities for skill development, and this is even more important when their options for promotion or increased responsibility decrease in a sluggish economic climate.  With many organizations already lowering salary increases or freezing them in 2008, providing development opportunities is a way to offset the lack of financial reinforcement.

• Retain top talent.  Close to 50 percent of high performers leave their jobs due to ineffective leadership above them and/or a poor relationship with their immediate manager.  Though these employees might not have the opportunity to leave your organization in slow economic times, up to 30 percent will likely jump ship quickly when opportunities open up in the marketplace. 

The bottom line.  Leadership development is not just nice to have; it is an essential competitive advantage in propelling your organization into the future.  Tomorrow’s industry-leading companies will be the ones that leverage the current economic climate by cutting the fat and elevating the talent that remains.  In so doing, these leading organizations position themselves to move quickly and effectively when the economy inevitably comes back around.  The cost of providing leadership training and coaching is relatively small compared with the potential ROI in the next year.

My Vote on November 4th will be for Entrepreneurship

These days, the presidential race hangs like a 45 pound weight around the neck of the collective American psyche.  Whether you’re a ‘bleeding heart’ liberal, a ‘staunch’ conservative or somewhere in between, there are likely a handful of issues that are legitimately salient to you.  There may be another 20 or so issues that you either don’t completely understand, or that you understand but do not feel strongly one way or the other.  This is the essence of our two party system—millions of citizens voting either A or B (in our case, McC(A)in or O(B)ama) on a test question that involves 25 subscales, each of which offers multiple subjective solutions. 

 

The reality is that few, if any, of the many and profound domestic challenges confronting our next president are fully resolvable by a single term in office.  The issues of ensuring greater access to and affordability of healthcare, addressing our looming entitlements crisis, making significant headway against poverty, and restraining man-made climate change will take much more than four or eight years under one president.

 

Above these important issues, improving the economy is of utmost importance and the policies our future presidents champion will have a dramatic impact on how rapidly our economy grows.  Continued growth in per capita incomes, generated through ongoing improvements in productivity, is what will drive improvements in living standards.  This faster growth is what will give us the requisite, sustainable resources to address each of our major domestic and foreign policy challenges.

 

Of course, government does not directly generate growth.  However, the private sector’s success, and thus the pace at which the economy advances, depends heavily on the rules, incentives, and basic infrastructure that government sets and provides.  None of our long-term challenges, or the opportunities afforded by faster growth, will be achieved in the future without continued innovation—new products, services, technologies, and ways of doing things.

 

American history reveals that many of the most important radical innovations—the telegraph, telephone, radio, television, automobiles, airplanes, computers and the software that operates them, and many of our current Internet-based successes (Google, Amazon, eBay)—have been introduced and commercialized first by entrepreneurs.  What we all should demand, regardless of our political affiliation, in our next president and governmental officials, therefore, is their deep understanding and promotion of policies that will best foster the entrepreneurial spirit that drives radical innovation.

 

For two decades from 1973-1993 the economy grew at only 2.5 percent.  However, from 1994 to 2000, annual growth jumped to about 4 percent.  Even after the 2000–2001 ‘recession’, and until the downturn this year, the economy still grew at roughly a 3 percent annual rate.  So what happened?

 

The conventional wisdom is that, beginning in the mid-1990s, growth surged because of the information technology (IT) revolution.  This revolution featured new technology, as well as the freedom for and support of entrepreneurs to take that technology to market.  Think for a moment about which firms made all this IT so easy to use.  The answers that immediately come to mind are companies like Microsoft, Apple, Sun Microsystems, Intel, Oracle, and Google.  The success of these entrepreneurial enterprises made it possible for the rest of us to change the way we live and for the firms we work for, or run, to churn out more products and services with ever fewer resources.  The days of large, established firms (Big Steel, Big 3 automakers, the old AT&T, etc.) driving the economy are over.

 

Looking ahead, rapid growth could not be more important.  30 years from now, per capita income will be roughly 35 percent higher if we can grow at the 4 percent annual rate we achieved in the last half of the 1990s, rather than the 3 percent annual rate that many now project for the future.  Further, over the next century the economy would be three times larger if it grew by 4 percent annually instead of 3 percent.

What can be done to maximize our chances of growing at the more rapid clip?  A few answers are apparent to me: improve education to build a more skilled workforce, reduce poverty through incentives, address our energy dependence, welcome high-skilled legal immigrants, and continue to open global markets.

 

The clear lesson from our recent past is that the central task for U.S. policymakers is to ensure that our entrepreneurial revolution continues, and that we do not slip back into anything like the Big Firm economy we once had.  Without entrepreneurs, economic growth stagnates.  Without economic growth, most of our country’s social problems will worsen.  Growth is life; stagnation is death.  In November when I walk into the voting booth and carefully choose between candidates A or B, above all else, my vote will be for entrepreneurship.

 

The entrepreneur in us sees opportunities everywhere we look, but many people see only problems everywhere they look. The entrepreneur in us is more concerned with discriminating between opportunities than he or she is with failing to see the opportunities.
-Michael Gerber

Pay for Performance?

The goal of organizational architecture is to create an organization which will be able to continuously create value for present and future customers—essentially creating systems that will optimize and organize themselves.  Organizational Architecture involves three important aspects:  the assignment of decision rights (who makes what decisions), the methods of rewarding individuals, and the structure of systems to evaluate the performance of both individuals and business units.  Corporate America has re-engineered decision rights fairly well over the last 15 years by flattening out organizations and shifting manager responsibilities.  However, most companies are falling painfully short when it comes to administering rewards and evaluating performance.

 

Rewards are extremely important in corporate America.  Rewards can be anything from receiving a restaurant gift card for finishing a project, to getting a 100-inch plasma TV for being the best sales person in the nation that year.  In order to make a reward system successful three things must be true (expectancy theory).  The first is that employees must feel that if they put in the requisite effort, that they will be able to achieve the desired performance level.  Second, they need to trust that if they achieve the desired performance level, they will receive the reward from the company.  Third, the valence of the reward must be such to motivate the employee to put in the effort in the first place.   

   

Increased emphasis in American corporations is being placed on incentive pay, or performance-based pay, in an attempt to incent workers to achieve maximum results (or at least perform above the minimum level required).   One of the problems with performance-based pay is that in order to institute a policy of rewards, the company has to put some of each employees’ pay at risk—money is taken right off the top of their salary, and now they have to earn it by performing, in many cases, at a higher level than they have in the past.  This problem is often alleviated by the company building in the ability for the employees to earn more than they used to earn by achieving the highest performance threshold.  However, this system is suboptimal for employees who will never be able to perform up to the highest level, no matter how hard they try.  Although some degree of turnover is beneficial and necessary, most organizations can’t afford to lose up to 50% of their workforce at one time.  For this reason, sometimes companies will implement an incentive program without putting any of its employees’ money at risk all—simply by adding the incentive on top of regular compensation. 

 

So why doesn’t every organization use a pay for performance system?  Critics of incentive pay have two arguments: the first argument is that money does not necessarily motivate employees; and the second is that it is difficult to design an effective compensation plan that truly rewards the highest performers.  To me, the second argument is a lot closer to reality than the first. With increasing reliance on teamwork in companies today, the already vague line between acceptable and poor performance is getting evermore hazy.  For this reason a system for performance appraisal is vital to organizational architecture.  In order for a performance appraisal system to work, the employee or team output must be observable at low cost and difficult to manipulate by employees or the company.  In addition, when evaluating teams of employees, a measure of team performance is required while still recognizing individual contributions to the team.  For example, giving individual bonuses for work toward the team goal, and then giving a separate team bonus if the team reaches its goal.

 

Where most incentive programs fall short is in the expectancy link between achieving performance and being rewarded.  That is, when a company asserts that high performance is necessary to stay in business, but does not reward high performers, what does that say to those high performers who could go to another company and perform at the same level and be rewarded for it?  The opportunity costs for high performers to work at companies that do not adequately compensate for performance are the rewards (money, recognition, job security) they could be receiving elsewhere for the same effort.  To me, the extreme disconnect between performance measures and rewards is what will drive these companies out of business.

 

It all comes back to operant conditioning: why would the mouse keep trying to learn how to get out of the maze if she never got cheese when she found her way out?  Business leaders need to invest the requisite time and resources needed to design a maze that truly separates the high performing mice from the poorer performing ones.  Then, give your mice the cheese they deserve!

Reason for Optimism

If you have picked up a newspaper or watched any sort of news or financial coverage in the last 6 months or so you are assuredly aware of the fact that the U.S. is headed uncontrollably into the worst financial times since the 'mild recession' of 1990.  My question is, when did speculation start creating reality?  Only about half of Wall Street investors can even use speculation to pick a bundle of securities that will beat a basic market index like the S & P.  To avoid creating an economic self-fulfilling prophecy Americans need to focus their attention on the positive.  A few reasons for optimism are that unemployment is low, interest rates are low, and the dollar is poised for a world market correction.  As a provider of high-level services to mid and large cap companies, RLSI's survival is dependent on the survival of the U.S. economy as a whole.  Inspired by Rich Karlgaard, the publisher of Forbes Magazine, I believe that the grim outlook for the economy is oversold at this point, and that there are four main reasons for the unjust pessimism: The president is unpopular, it is an election year, the business press is scared and ineffectual, and the subprime mortgage mess is overstated.

At the moment, George W. Bush's approval rating is hovering around 30%.  In other words, 70% of Americans disapprove of the job the president is doing currently.  Not surprisingly, this is the exact same percentage of Americans that report that our country is on the wrong economic track.  I wonder if these percentages could be related in some way…  On the other hand, half of Americans report that they feel positive about the future, and 84% say that they are satisfied with their lives.  This is an example of how confusing statistics can be, and why we have to be very careful not to jump blindly behind the results of the latest empirical study.  So, who do you believe?  Do you believe the 70% that say that the whole country is on the wrong track, or the 50% who are rosy about their own economic futures and the 84% who are completely satisfied with their lives?  My opinion is that the 70% who say that we are on the wrong track are merely expressing their Bush fatigue, not their pessimism about our economic future.

Related, we are wholly engulfed in an extremely compelling election year.  One thing that can be guaranteed about all elections is that the out party - this year the Democrats - will always say that the economy is in bad shape.  For example, in 1992 Bill Clinton's slogan was: it's the economy stupid.  In 1980 Ronald Reagan asked Americans if they were better off than they had been four years earlier - These men were on different sides of the aisle, but used the same message to get elected because it works.  In our current case, the Democratic primary season has been by far the more dramatic of the two races.  Understandably, both Democratic candidates are justifying their positions on the basis of a weak economy.  Since the democratic race offers incredible daily drama, it is justifiably getting much more attention in the press, and thus, the negative economic platforms of the candidates are getting lots of air time.

Exacerbating this issue is the fact that, according to Karlgaard (not me), most business journalists are not necessarily the best people in the world to have analyzing complex economic and business topics; most of them are, after all, just failed sports writers.  Think about what it takes to be a first-rate business journalist: facile with numbers and financial statements, confidence talking with top executives, board members, etc., deep knowledge of the industry, coherent global economic views and exceptional storytelling ability.  Karlgaard argues that the people who actually have these credentials and abilities become Wall Street analysts, Booz Allen consultants, or go into business on their own; they do not become journalists.  Another issue with business journalists is that they are in a fearful mood in general due to the fact that journalism itself faces threats of disruption from the Internet.  This thin talent pool, combined with the fearful moods of the writers and the fact that the majority of journalists are hostile to business anyway, often is interjected into their stories.

Lastly, as is commonplace in the media, numbers get stated as astronomical, but are not put into proper context.  For example, one of biggest issues with the economy today is the subprime mortgage mess.  It strikes fear in the hearts and minds of Americans to hear that banks have had to write off $150 billion in bad loans; how could our economy possibly survive this?  To put it into perspective, $150 billion is less than 1% of the market capitalization of U.S. stocks, and in a typical trading day U.S. stocks gain and lose $150 billion every hour.  The nearest historical comparison we have to our current mortgage situation is the savings-and-loan crisis of 1986-1995. Back then, the S&L crisis saw $700 billion in bad loans - nearly 5 times our current level - and during this period the U.S. economy grew and stocks went up.

All of this to say, maybe we shouldn't be so doom and gloom about the future of our country.  Are the current economic conditions ideal?  No, not by any stretch of the imagination; but the economy was due for a correction for the prosperity of the last 10 years.  As was the case in the mid-90s, it will be business innovation and consumer confidence that decides our economic fate for the next decade.  It is up to us as business owners, executives, strategists, teachers, leaders, professionals and consultants to lead the economy away from the impending downturn and create our own reality - let us not just sit back and allow political speculation and economic pessimism to shape our futures.

'...by the best cultivation of the physical world, beneath and around us; and the intellectual and moral world within us, we shall secure an individual, social, and political prosperity and happiness, whose course shall be onward and upward, and which, while the earth endures, shall not pass away.'                  
-Abraham Lincoln (1859)

About Roselle Leadership Strategies

Our Web Site: http://www.roselleleadership.com/

Founded in 1995, Roselle Leadership Strategies, Inc. (RLSI) is a group of psychologists, educators, business strategists and human resources professionals who help organizations become more productive and profitable by identifying top talent and developing them into highly functioning leaders. Our approach is comprehensive and fully integrated. We offer a full range of products and services to help you select top talent from the marketplace, identify high potential leaders for future promotion, and develop your current leaders through training, multi-rater feedback, and coaching.

The core of our approach is our FULLVIEW Feedback Inventory™ and its twelve leadership competencies. These competencies form the framework of our Wholehearted Leadership™ training series, inform the written questions we use in our Selection Assessments, and provide the tools for our executive coaching. The foundation of our coaching is our innovative Leading Fearlessly™ approach which is based on Bruce Roselle's award winning book, Fearless Leadership (2006). Clients choose us because our products and services work together in a clear and cohesive manner and deliver profound results.