Leadership as Human Buffer

May 27, 2009


Business Week recently described how Marvin Ellison, Home Depot’s newly-minted Executive Vice-President of U.S Stores, improved the store experience in the wake of Bob Nardelli’s infamous tenure.  Nardelli made several decisions that have been widely criticized, including some explicit cost/service tradeoffs that eroded Home Depot’s core advantage.  An earlier BW article described Nardelli’s run this way:

His military management style led to 100% turnover among his top 170 managers by the time he left the retailer in January. His cost-cutting moves replaced experienced salesclerks with low-wage students, devastating customer service and handing market share to rival Lowe’s.

Fast forward to today, where Home Depot’s service experience has been transformed by Ellison’s leadership: 

Sarah Larsen used to avoid Home Depot, having dealt for years with surly, hard-to-find employees and indifferent store managers. But about six months ago, faced with a major renovation project, the Naperville (Ill.) communications consultant gave the store another try. She immediately noticed the difference: Sales associates were friendly, helpful, and in large supply. Now, Larsen says, “it has become my go-to store.” 

Ellison made a number of crucial service plays, but I was most struck by his decision to limit the amount of communication that central managers could have with store personnel.  Essentially, Ellison told senior managers that they could communicate with him as much as they liked, and that he would be responsible for store performance.  But they could no longer communicate (read disrupt) store personnel directly.  In some cases, this meant reducing the number of daily e-mails and reports that store managers received from 200 to one.  He also gave his stores just three metrics to care about — cleaner warehouses, stocked shelves, and top customer service. 

Ellison made it crystal clear that managers’ most important constituents were the people in their stores — their customers and the employees who serve them — and not their corporate superiors pestering them from headquarters.  Ellison became a buffer between senior management and the front line, which created the time and space for his people to focus on what really mattered:    

More important, Ellison is enforcing a practice called “power hours”—weekdays from 10 a.m. to 2 p.m. and all day on Saturdays and Sundays—when employees are supposed to do nothing but serve customers. They can stock shelves, unload boxes, and survey inventory at other times. “We could not address customer service needs because we were too busy doing other things,” says Ellison.

The results? CEO Francis S. Blake explained Ellision’s rapid rise this way: “You could go blindfolded into two stores and know when you were in Marvin’s store.” Marvin’s stores, it turned out, had the sweet smell of success. 

Your People Are Not Equal

March 23, 2009

The Times recently did a great interview with Anne Mulcahy, chairwoman and chief executive of Xerox. Mulcahy started her career in sales, but then took an unconventional path to the corner office through the HR department, eventually running human resources for Xerox worldwide. She led the company from losing $300 million in 2002 to making over $1 billion by 2006.

The interview is worth reading in full, and a few comments stood out as particularly useful insights.

Mulcahy speaks to the idea of overvaluing “fairness” in organizations – and the price it can exact from culture and performance. Fairness has earned the right to be a cherished value, but it is often misinterpreted.  When it shows up as similar treatment for all people, regardless of their contribution, it undermines your ability to unleash a true meritocracy:

Not everybody is created equal, and it’s important for companies to identify those high potentials and treat them differently, accelerate their development and pay them more. That process is so incredibly important to developing first-class leadership in a company…

Companies get confused with egalitarian processes that they think are the fairest, and that is not what companies need. Companies need to be very selective about identifying talent and investing in those leaders of the future.

And yet most organizations don’t have good systems for telling people where they truly stand. From Mulcahy’s perspective, this is the real definition of institutional fairness – giving people clear signals about their value.  It may also be at the root of Xerox’s exceptional performance:

You discover quickly how little honest feedback people get in companies, and how important it is for people to have a sense of candid assessment. It became very much a mantra for me, to kind of influence a culture that assessed people accurately and really dealt with people fairly.

This type of system sends a more powerful signal, as well.  By paying close attention to the performance of individuals — by showing your people that you care enough to judge them accurately — you’re  making it crystal clear that what they do matters in a very serious way. You’re affirming the power of individuals to shape the company’s future, which increases the chance that they will. As Mulcahy notes:

There’s nothing quite as powerful as people feeling they can have impact and make a difference.

Righteous Indignation Doesn’t Make It Right

February 22, 2009

I have always had a soft spot for A-Rod. He is so exposed relative to other professional athletes. I suspect other high-profile players have gone to therapy, for example, but how many are willing to talk about it publicly? How many walk around without the public armor and discipline to prevent those disclosures? (It’s hard to imagine Derek Jeter going off message, for example, regardless of what’s going on at home.) It’s the combination of A-Rod’s fragility and pursuit of excellence that gets me. Occasionally, I simply can’t avert my eyes, in that accident-on-the-side-of-the-road kind of way, like when Madonna gets involved, but I’m riveted nonetheless.

A-Rod is human – replete with flaws and insecurities – and we’re not used to seeing that much humanity on the world stage. I guess it’s the lack of polish that I find so appealing, particularly as other players of his caliber lather it on. As for the steroid use, I’m also having a hard time blaming individuals. The system was designed to reliably produce abuse of its policies, which practically had a wink and nod attached to them. That we then blame the individuals and not the system’s architects seems absurd. Maybe if we perp-walked those who benefited the most first – the commissioner, the head of the players union, the owners and network executives seems like a good place to start – then it wouldn’t feel so ridiculous to be focusing on the players.

This is a classic case of addressing the symptom with righteous indignation while willfully ignoring the cause. History suggests that our response will not only perpetuate the problem, but it’s also likely to make it worse.

Contortionist Baseball

February 21, 2009


Can we pause for a second and talk about A-Rod? This all feels like another public hanging that obscures the origins of the problem. It seems clear that Major League Baseball – and by extension, all of us who consume its products and services – are unwilling to enforce a clean game. There are difficult problems to solve (see Afghanistan, toxic derivatives) and not-so-difficult problems to solve. As David Ortiz pointed out, this feels suspiciously like the latter:

“I think you clean up the game by the testing,” Ortiz said. “I test you, you test positive, you’re going to be out. Period.”

The system is perfectly designed to produce Alex Rodriguez. The testing policy is lax and bizarrely enforced. The rewards to owners, managers and players for performing well are astronomical, to say nothing of the sweeteners for breaking records and extending the life cycle of good players. And as fans, we’ve invested our viewing power and discretionary income in the game’s fireworks, the home runs and closers and inhuman endurance of the greats. That’s how we’ve defined entertainment, and MLB has delivered.

Changing that system is fraught with tremendous financial risk, and it’s clear that no one really has the stomach for it, particularly right now, when institutional trust is at a all-time low in this country. Kill baseball, too? In the middle of a recession? It’s not going to happen.

But it could, and it should, and this may be precisely the moment to do it, when Americans are ready to clean up the indulgence and toxicity in the rest of our lives. We could all keep contorting ourselves to preserve the illusion of a clean game, or we could take down the big tent and play baseball again.

What Business Can Learn from Basketball

February 19, 2009


One of the more remarkable sentences I’ve seen in a long time appeared in an article by Michael Lewis on  performance measurement in the NBA:

“Battier’s game is a weird combination of obvious weaknesses and nearly invisible strengths. When he is on the court, his teammates get better, often a lot better, and his opponents get worse — often a lot worse.”

Michael Lewis wrote Moneyball, a best-selling book about understanding performance in baseball. The story was a powerful example of how to use analysis to uncover undervalued assets, in this case, underpaid baseball players. Players who performed well in remote statistical categories (think number of walks, not home runs) turned out to be creating tremendous value on the field (in terms of runs scored or wins, for example), much more value than conventional wisdom had led managers to believe.

The most incredible part of the story was that everyone had the same numbers.  Everyone knew every player’s stats, and yet the experts were simply ignoring some data and overemphasizing other data. This is a common phenomenon, where data is used largely to illustrate existing knowledge rather than as a source for new knowledge.  Moneyball highlighted the value of analyzing all of the data to evaluate performance. The approach is sensible in its ease of implementation and potential for impact.

But basketball is different. A baseball player’s stats can be reflective of true impact. If you have a higher batting average, more home runs, and fewer errors, it’s a safe assumption that you’re a better player. In basketball, that assumption is less safe because of the interaction of players throughout the entire game. With the exception of free throws, there are no solo-sport activities in basketball; it’s all based on what everyone else on the floor is doing. Even though analysts know this, they still rely almost exclusively on individual stats because it’s the best they have. This is where the Lewis article shakes everything up.

Lewis articulates how Daryl Morey set out to analyze the game differently to see if he could gain new insight into player performance. And the results are powerful. Daryl found that individual stats could be looked at collectively to learn how the presence of one player influenced the performance of others. This is new territory — and it speaks to the essence of leadership, which is about making other people better as a result of your presence. Daryl measured how individual players performed on their own, and with the help of new data and improved processing, also assessed how other players’ performance changed as the result of each player.

With this knowledge, Daryl could uncover the “hidden gems” on the basketball court, undervalued players whose presence positively influenced the performance of his teammates, but whose individual stats were unimpressive. It’s an incredible shift in my mind, a way to begin measuring leadership that may have exciting application off the basketball court, in the domain of another team sport, namely business management.

Donors v. Clients: Overcoming the Tradeoffs

February 9, 2009

Measuring performance can be even harder in the non-profit sector, where satisfying the non-paying clients (e.g., poor children in Honduras) and the paying clients (e.g., rich donors in Houston) are often very separate challenges. This dynamic is complicated by the fact that survival depends more on serving donors with excellence than on wowing the kids with outstanding service. Their likelihood to recommend your services to other poor children is not economically relevant, at least in the most direct sense.   

Most non-profit organizations are not designed to serve both client segments well. One usually trumps the other in the organizational hierarchy, and either donors get neglected or the team under-delivers on advancing its mission.  Many Executive Directors end up embodying this tension. They got into this business to save the children, and now they’re spending most of their time eating Event Chicken and making conversation with eccentric oil executives.  In this scenario,  the mission often loses. Impact is undermined by the distraction of leaders who can’t fully leverage their talent to improve service delivery “on the ground.” 

The tension reminds of your research, Frances, on how difficult it is in the for-profit world to serve distinct customer segments with one service model. Tiffany’s is my favorite example. The difference between Tiffany’s mass-market customers and its traditional blue-blooded segment is wreaking havoc on company operations, and that’s got nothing on the gap between clients and donors in most non-profit organizations. Rural Honduras is a long way from C-suites and charity balls.

Trying to serve vastly different customers with one set of systems is widespread in the non-profit sector, a practice accepted as a cost of doing business with other people’s money. But it may be possible to overcome some of the tension by creating distinct service models for clients and donors. These models would coexist under one organizational umbrella, but each model’s resources – including its human resources – would be aggressively customized to the needs of one segment. There are hints of this structure in many organizations, where the fundraising team is often compensated differently, but there may be advantages in pushing the design towards its logical conclusion. At the very least, it might help coax a few Executive Directors I know back off the ledge.

Net Promoter Score – When Logic and Data Diverge

February 5, 2009

I am regularly asked for my opinion of a performance metric called the Net Promoter Score (NPS), which has become a popular way to assess an organization’s effectiveness by measuring the ratio of loyalists to detractors. Many companies have adopted the metric as a leading indicator of growth — the logic being that as the NPS score goes up, increased growth will naturally follow.  NPS is often adopted at the urging of very senior levels of management, and people want assurances that it’s worth the effort. My advice is always to not take anyone else’s word for its utility; test NPS with your organization’s own data, and if NPS correlates with growth (or whichever ultimate measure of performance you are trying to improve), consider using it.

A pattern I’ve observed is that many firms adopt NPS because of the rationale behind it — not because the evidence at their organizations supports its use. Indeed, an uncomfortably large number of managers have sheepishly admitted to me that they found no correlation between their NPS scores and ultimate performance, long after they’ve adopted NPS as a key organizational metric. This puts them in a terrible bind. NPS is often embraced with great fanfare, complete with incentives and systems that are redesigned to focus the organization on improving the metric.  When NPS is not a leading indicator of growth, organizations expend tremendous effort with little to show for it.

After seeing enough of these examples, I began to investigate what was going on.  Here’s what I’ve learned.  The logic of NPS is very persuasive. It’s clean and intuitive, and feeds our hunger for one clear goal on which we can focus the troops. If a company has more advocates than detractors, good things should happen. And the greater the imbalance, the better the things, right? The problem is that while this might be true as a general principle, it may not be true in a specific context. For example, if all those advocates are consuming your outstanding pre-purchase service, but closing the deal with cheaper competitors, as happened to Gateway computers, their advocacy is doing you little good.

Here’s my advice. Most organizations are already collecting the big three customer metrics — customer satisfaction, customer intention to repurchase, and customer likeliness to recommend.  I strongly encourage organizations to have a runoff between all three measures and the performance measure they’re trying to improve. If NPS is the strongest driver of performance, either in an existing time period or as a leading indicator, then by all means use it. But if it’s not, I suggest discarding it, regardless of the shiny appeal of its high-level logic.