The cesspool syndrome

I’ve read and re-read the Arthur Bedeian and Achilles Armenakis article, The cesspool syndrome: how dreck floats to the top of declining organizations. In my opinion this article is worth the time to read. At its core it talks about how their research shows that unlike in successful organizations where the cream rises to the top, dreck often rises to the top of unsuccessful organizations. They argue that largely this is due to the fact that the more successful and desirable employees have greater opportunity to leave an organization that is on a decline. Whereas the less talented and desirable employees do not have the same options and stay with the organization and ultimately work their way to the top. Ultimately, the authors are suggesting that organizations need to do a better job of identifying valuable employees and putting programs and incentives in place to retain them.

I believe that this is incredibly important because an organization does not need to be in a full blown decline to experience this phenomenon. Many of our organizations go through lulls or short-term declines. In addition, I would also point out that the uncertainty that is created during a merger or acquisition can easily create an environment in which your best employees leave for new opportunities or more “stable” environments.

Read this article and treat it as a cautionary tale.  Lastly, ensure that your organization has programs in place to further develop and retain your best employees.

Mounting losses…here’s a raise?

I was reading the Beck and Fordahl article, “CEO pay climbs despite companies struggles” when three sentences leapt off the page at me.

Rick Wagoner, CEO of General Motors, (GM) announced this month the company had to close four plants that make trucks and SUVs because of lagging demand as fuel prices soar. That followed the posting of a $39 billion loss in 2007, a year when its stock price fell about 19%. And Wagoner? His pay rose 64%, to $15.7 million.

Did I read that correctly? GM posted a $39 billion loss in 2007 – well actually $38.732 billion but who is counting – and that is after posting a $1.978 billion loss in 2006 and $10.567 billion loss in 2005. The company is also closing four plants, which is expected to affect approximately 2,500 employees – while some may be able to transfer into positions vacated by approximately 19,000 employees who are expected to accept early retirement and buyout offers. And while GM and its employees struggle through a very tough time, Rick Wagoner’s pay rose 64% - a truly amazing figure, particularly in light of the current state of the company.

And while, Wagoner announced that the plant closings, transition to smaller and electric cars and other cost-saving measures will save the company close to $15 billion a year, those savings are not expected to be realized until 2010. While those changes may have a dramatic impact on the business, the company’s recent performance does not warrant an increase in pay for Wagoner – surely not a 64% increase.

Does short-term management pay?

Natalie Mizik and Robert Jacobson wrote an article entitled, The cost of myopic management for the July/August edition of the Harvard Business Review in which they explored the costs paid by the organization (and ultimately investors) when they become too focused on short-term revenue targets and begin inflating their earning by cutting expenditures. During their study executives would cut discretionary spending, which often included R&D, in favor of more impressive looking earnings. Mizik & Jacobson tracked over 400 companies and found that those firms that practiced “myopic management” would often have very impressive returns in the short-term, but long-term performed miserably. In order to begin to correct this behavior, firms need to begin to penalize executives for losses, not just reward them for gains. In addition, a portion of their compensation package should be tied to tenure, long-term growth and brand strength. Once an executive’s compensation is tied to long-term goals and objectives the myopic behavior will change as well.

The business environment has changed more rapidly than Middle management

Stephanie Armour in her USA Today article, “Who wants to be a middle manager?,” discusses the challenges facing today’s middle manager, and that a growing population of Generation X & Y employees do not view a move into middle management as a desirable career move.  The Gen X or Y managers that she interviewed discussed their challenges with work-life balance, struggling with increasingly wide-spread employees, pressures of managing the output (and the interpersonal issues) of employees while counterbalancing that against the objectives of senior management.  The article indicates that the role of the middle manager has dramatically changed over the years – becoming a less desirable role.

Some of the primary issues the article references are:

• Lack of flexibility in work schedule – often there is a need to be available nearly 24×7

• More demanding work and technology have forced managers to multi-task

• Generational differences between the Baby boomer senior managers and the Gen X & Y middle managers and front line employees – who often have different views on company loyalty, career paths and job security

• Work flexibility and security are perks that the middle managers do not get to take advantage

She finishes by pointing out that some organizations, like IBM, are attempting to offer executive-like perks to middle managers in the hopes of making the positions more attractive to employees.  Some companies, she points out, are being more flexible with valued middle managers.  One such company allowed a middle manager to retain her position, supervising a largely US-based team, when she relocated to Europe.

A few questions that occurred to me as I was reading this article: Has middle management changed more so than the work world?  Haven’t there always been employees – regardless of generation - who understand the additional commitments that management requires and would rather not have the additional responsibilities?  Are there a percentage of Gen X & Y managers who share similar views as Baby Boomers?  If so, how large is that group?  If Gen X & Y employees are wired differently than Baby Boomers, what ways will the business world need to change to accommodate this change once the Baby Boomers begin to retire from the workforce?

I believe that the work world has been and continues to change at an incredible pace.  Today you have companies that are less than 25 years old - that are among the most successful entities in the world (i.e. Google, Cisco, Microsoft, eBay, Dell, Lenovo, Yahoo).  My point is that there will be a company that starts in someone’s garage or basement tomorrow that may be a global brand within 5 – 7 years.  Those types of successes place an enormous amount of pressure on established businesses in many industries.  In addition, there is a greater amount of competition globally which has forced many organizations to face fierce new competitors.  And if that was not enough, businesses have additional focus on financial reporting – due to the misdeeds of senior mangers from organizations like Enron, Adelphia, WorldCom, etc.

All levels of management are facing enormous amounts of pressure.  Can you remember a time in which new CEOs were given such short amounts of rope before they were replaced?  So with senior managers facing a tremendous amount of pressure, it is understandable for middle managers – those who are tasked with implementing the organizations strategic plans – to feel incredible pressure as well.

I have known a number of Baby Boomer first-line employees who no desire of being in management.  The belief that this is a phenomenon that is owned by Gen X or Y employees is a myth.  You will always find that a fair number of employees do not want the additional responsibility that comes with being in management.  Every generation produces individuals who are driven to be the best that they can be, not every generation takes the same path to success, but Gen X & Y is no different in their drive.  If anything there is probably some truth in Gen X & Y wanting to move farther at a faster rate.  Not wanting to wait and “pay dues” over an extended period of time.  Some of this is due to the “peer pressure” of witnessing peers launch successful companies.  As a result they will increasingly look for opportunities of upward mobility outside their present organizations.  So while some Gen X & Y employees want to take charge of an organization, generally, they don’t want to wait 15 or 20 years to do it.

Workplace Stress

Jenna Goudreau wrote an interesting article in the August 6^th issue of BusinessWeek on stress in the workplace. I was particularly impressed with the way in which one organization handled an overworked and stressed out manager. Based on the amount of time that he was working, the organization proactively stepped in to offer some assistance. Unfortunately, most organizations are not proactive when it comes to worker stress. Instead they tend to react only after there is a major, and sometimes (very regrettably) deadly, circumstances.

 

It is easy for a leadership team to only focus on bottom-line results, but through taking steps to reduce stress, they could greatly improve the overall efficiency of the organization. Think of all of the colleagues who we have lost due to feeling completely and totally overwhelmed. More often than not, they have brought the issue to the attention of their superiors, but the issue was never addressed. This, as we know, leads to the employee leaving the organization. If you think hard, you can probably think of two or three colleagues who currently fit this description.

 

Many companies start out by helping employees repair the work-life balance. General Mills (GIS ) provides a range of personalized services while employees at headquarters work so they can spend more time recharging with their families and less time running errands on the weekends. Want your hair colored? An in-house stylist will do it. Car need an oil change? A mechanic will do it on your lunch break.

 

Given the amount of time that employees spend working – being on call nearly 24 hours a day – providing services to employees to allow them more time to unwind with family and friends in non-work hours is a major step in the right direction. But, so is listening to employees, and providing them with the assistance that they need. As the article stated, sometimes it is as simple as additional headcount.

Will the iPhone rule?

The Peter Burrows’s BusinessWeek article, How big will the iPhone be? discusses the potential impact that the iPhone may have on Apple.  Burrows projects that the iPhone could translate into a $10 billion business for Apple – even in a crowded and competitive market.  No one questions Apple’s brand strength and the fact that there is currently a large existing iPod customer base who will be lining up to purchase this phone, but the fact remains that the cell phone industry is crowded and highly competitive.

 

Two initial questions that popped into my mind were: (1) wouldn’t it have made more sense to offer this phone as an undocked phone – one that anyone can buy and add it to their carrier of choice.  That way you don’t limit your potential customer base to those willing to go with the AT&T network.  (2) Given the need for bandwidth for some of the phones services, wouldn’t it make more sense to focus the initial push for this phone in Asia and Western Europe?  These two regions currently employ 3G networks, whereas in the U.S. 3G networks are not nearly as widespread.

 

While the early months of the launch will most likely contain some bumps and bruises, overall it will be very successful.  But, whether the iPhone dominates the market will be determined by, in part, how successful this product is with corporate users.  Currently, it is suggested that the iPhone will not support Outlook very cleanly out of the box.  This will negatively impact the iPhone’s numbers – as potential buyers stick with their Blackberry’s and other smart phones due to the lack of Outlook support.  In the end, Apple will go from having no presence in the cell phone market to being a major player in this space virtually over night.

Privatizing America’s “public property”

 Emily Thornton’s cover story, Roads to Riches, in the May 7^th issue of BusinessWeek details the recent trend of State governments selling public assets – toll roads, parking garages, bridges and airports – to financial institutions and other private investors.  The governmental bodies that have done this so far, or who are considering, often point to their revenue shortfalls and increasing budget deficits as justification for supporting such moves. 
Thornton points out that a number of transactions have been completed over the last few years - the Chicago Skyway , Pocahontas Parkway (Virginia), the Indiana Toll Road and Chicago Downtown Parking System – while others are currently in discussions.

 

In the short-term this cash influx can greatly benefit the governmental entity as they can eliminate debt and improve social services.  The potential long-term issues may very well outweigh the short-term benefits.  While a private entity could more easily raise prices in order to pay for upgrades, without the fear of committing “political suicide,” it could effectively price out lower income individuals from being able to take advantage of once publicly owned properties.

While it is fairly obvious to see the immediate benefits to the states and the private investors, the long-term effects of these transactions will not be truly felt for years to come.  I would hope that our state governments would proceed cautiously and not recklessly chase the dollars that are in front of their faces.  I can’t help but wonder what will happen when the other shoe falls.

CEO Pay

I read an article on PC World about the rumored layoffs by IBM – the rumors are reportedly bogus – and I began to reflect on the Douglas Mattern article entitled, CEO Pay is Outrageous and It’s Undemocratic.  In particular, the following quote really stuck with me.

Business Week reports that the disparity between the ‘shop floor and the executive suite’ is at an all-time high. In 1980, CEOs made 42 times the average blue-collar worker. By 1990, this disparity rose to 85 times, and by the year 2000 the disparity between worker and CEO climbed to 531 times as much.

This trend is particularly bothersome because while it may motivate those employees who are striving to become CEOs, it mostly de-motivates blue collar and other lower paid employees – those that are most susceptible to layoffs.  While the CEOs role is critical and is a very stressful position, in general they are being disproportionately compensated – often with little or no direct ties to the performance of the company.  For example, Bob Nardelli when he accepted the position at Home Depot refused to have his compensation tied to the stock price of the organization.  Over his six year tenure, he made many moves to make the organization “lean and mean” which both drained morale at this once proud organization and had negative impacts on customer service.

While some organizations are cracking down on CEO pay packages, most still provide lucrative “golden parachutes” to CEOs.  The CEO severance package, which are often for multiple millions of dollars, include additional benefits on top of the enormous compensation packages that they received during their tenure with the company.  What’s maddening is that these packages are paid out after the organization decides that, based on a lack of performance; they need to replace the CEO.  Employees will see the total pay packages of the CEO and also witness hundreds, if not thousands, of their fellow employees get laid off due to budget cuts and restructuring and it is not hard to understand why they would lack motivation.

So while the IBM story may not be accurate, it is nevertheless tough to watch as employees get laid off due to ineffective, grossly overpaid executives.

Dell pcs to ship with Ubuntu v7.04 pre-loaded

According to a Peter Galli article on eWeek.com:

Dell and Canonical will announce a partnership on May 1 that will see the hardware giant ship Ubuntu Linux preinstalled on some of its desktop and laptop computers.

The article points to its sister site, DesktopLinux.com which suggests that the first machines loaded with Ubuntu’s “Feisty Fawn” will be the “Dell e-series ‘Essential’ Dimension desktop, an XPS desktop and an e-series Inspiring laptop, and that the systems will be available in late May 2007.”

As an Ubuntu user, who has quickly become a fan, I am excited by this news.  But my mind quickly fills with a number of questions.

• Is Dell hoping to increase PC sales by taping into those who have been building their own PCs and installing open source
  OSs?
• Is this move solely focused on the consumer market?  Or is a part of their strategy to grab some additional small / mid-size business user business who may have switched to open source?
• What impact, if any, will this have on the long-term marketplace? 
  • How nervous should Microsoft be about this move?
  • Assuming it is a successful move, how many years will it take to truly have an impact?
• Even if the numbers of buyers aren’t huge, how much of an impact will this move have on Dell’s bottom line since it is a freely available OS?

If you have an opinion, I would love to hear it.

Promise-Based Management

 

Most of the vexing challenges leaders face – improperly executed strategy, lack of organizational agility, disengaged employees, and so on – stem from broken or poorly crafted commitments.  Executives can overcome some of their thorniest problems in the short term and foster productive, reliable workforces for the long term by practicing what we call ‘promise-based management’: cultivating and coordinating commitments in a systematic way.

 

I came across this article written by Sull and Spinosa, Promise-Based Management: The Essence of Execution, in the April edition of the HBR and was fascinated by its title.  As I read the article I began to reflect on my own personal experiences with the organizations that I have worked for, and with my own staff.  I agree that one of the quickest ways to take the wind out of a person’s sails is to break a commitment – especially one that was made publicly.  Most employees realize that in business, as in life, that change is one of the few constants.  With that said, it is hard to justify breaking a promise that was made without adequately considering the impact.  I am suggesting that there are those around us who are “serial committers” – they always say yes and rarely say no, even when they should.  These individuals become so engulfed by the shear number of commitments that they have made that it becomes impossible for them to execute on any of them, at least not effectively.

 

I found Sull and Spinosa’s five characteristics of good promises particularly interesting.  They define good promises as those that individuals are committed to keeping.  And point out that they are:

1. Public – promises that are made, monitored, and completed in public are more binding.
2. Active – negotiating a commitment should be an active, collaborative process.
3. Voluntary – effective promises are not coerced.
4. Explicit – requests must be clear from the start.
5. Mission based – explanation of why the commitment matters.

In conclusion, it is time for us to retrain our staff, colleagues and senior executives that it is completely appropriate – if not valuable to the organization – to say no.  Or looking at it a different way, to put the commitment on hold until there is ample time to evaluate the entirety of what is being requested, and its impact on the organization.  It would provide us all with the requisite time to evaluate what the impact would be if the promise is not acted upon.