Good to Great Part III: Building the Team

Read the following previous parts to catch up on our journey.

Amateur Radio Clubs: Good to Great; Good to Gone; Lost in Mediocracy
Good To Great Part II: The Gift of Governor Rod Blagojevich

The Case Study Approach

A compelling aspect of Jim Collins books Good to Great and Built to Last is that they are both based on empirical research of real companies over an extended period of time.  Books based on real companies, real data, and an established methodology certainly have an advantage over theoretical ideas on prescriptive organizational behavior that have not been tested or validated.

This approach of real world analysis of real companies, real people, real events, real data, and so on is one of the defining characteristics of the Harvard Business School case method of learning that has been copied by many other schools.  Such an approach keeps ones feet on the ground and avoids the risk of one propounding elegant idealistic theories that really don’t work in reality.

If you have been following along with our previous parts you know that Jim Collins set out to study the phenomenon of companies that made and sustained the transition for Good to Great.  His books describe what he found.

First Who, Then What

When we began the research project, we expected to find that the first step in taking a company from good to great would be to set a new direction, a new vision and strategy for the company, and then to get people committed an aligned behind that new direction.

We found something quite the opposite.

The executives who ignited the transformation from good to great did not first figure out where to drive the bus and then get people to take it there.  No, they first got the right people on the bus ( and the wrong people off the bus) and then figured out where to drive it.  They said in essence “Look, I don’t really know where we should take this bus.  But I know this much: if we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great.

Get the right people ON the Team

Collins argues that it is better to assemble a cohesive team of “A players” with perhaps differing perspectives on organizational direction and strategy than it is to have a predetermined direction and then assemble a team that is (already) committed to that direction.

The reason that the fist approach has an advantage has to to with the obvious reality of uncertainty and change.  If the external circumstances change and you have an executive management team dedicated to a established purpose which is no longer relevant then the organization is at a distict disadvantage – the organization may continue on a losing path due to the dedication of these team members to a specific goal, or the team may not be able to adapt to the new circumstances and direction.

Collins quotes Wells Fargo CEO Dick Cooley

… he and chairman Ernie Arbuckle focused on “injecting an endless stream of talent” directly into the company.  The hired outstanding people whenever and wherever they found them, often without any specific job in mind. “That’s how you build the future”, he said.  “If I’m not smart enough to see the changes that are coming, they will. And they’ll be flexible enough to deal with them.

Get the Wrong People OFF the Team

The other side of getting the right people ON the team in the righ roles is to get the wrong people off the team.  According to Collins and many others, getting the wrong people off the team takes rigor, not ruthlessness.

To be rigorous in people decisions means first becoming rigorous about top management people decisions.

Indeed, if we’re honest with ourselves, the reason we wait too long often has less to do with concern for that person and more to do with our own convenience.  He’s doing an OK job and it would be a huge hassle to replace him, so we avoid the issue.  Or we find the whole process of dealing with the issue to be stressful and distasteful.  So, to save ourselves stress and discomfort, we wait.  And wait.  And wait.  Meanwhile, all the best people are still wondering, ” when are they going to do something about this?  How long is this going to go on?

Bottom line, it takes a commitment to the organization above all else – above personal relationships, above social relationship, to make these difficult people decisions.  Being decisive on these matters is a hallmark of strong leadership and commitment to the organization.  Not making such decisions undermines the organization.  From Collins:

Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people.  Worse, it can drive away the best people.  Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated.

Summed up one Wells Fargo executive: ” The only way to deliver to the people who were achieving is to not burdened them with people who were not achieving.”

Jack Welch – Tough Love and the Vitality Curve

General Electric, founded by Thomas Edison in 1876 (Edison General Electric Company) and still going strong is arguably one of the most successful companies in history.  In its modern incarnation, GE owes much of its continued success to Jack Welch.  Welch was named a vice president of GE in 1972, became senior vice president in 1977, vice chairman in 1979, and CEO in 1981. Welch retired in 2001 handing over the reigns to Jeff Immelt.

To the degree that Jim Collins is an academic, Jack Welch is “in the trenches”.  There are many things that Welch is known for during his tenure as CEO  at GE.  One of those relevant to this posting is how he dealt with people decisions.

Welch differentiated people into three categories based on performance – the Top 20%; the vital 70%; and the bottom 10% (A, B, and C people).  He called this the Vitality Curve.

The A people (Top 20%) are those that make things happen and energize people around them.  They have the four “E”s of GE Leadership: high Energy Levels; the ability to Energize others around common goals; the Edge to make tough decisions; and the ability to Execute and deliver on thier promises.

The B people (Vital 70%) are at the heart of the company and are critical to its operational success.  According to Welch, “the managers job is to make B people into A people.”

The C people (Bottom 10%) are those who can’t get the job done.  The undermine others rather then energize them. They procrastinate rather than deliver.  According to Welch, “You can’t waste time on them, although we do spend resources on thier redeployment elsewhere.”

Welch confirms Collins – from the Trenches

Welch confirms what Collins has to say about getting the wrong people off the team.  That it is a painful act and it takes a commitment to the organization to do it.  From Jack: Straight from the Gut

Managers will play every game in the book to avoid identifying their bottom 10 [percent].  Sometimes they’ll sneak in people who were planning to retire that year or others who already have been told to leave the organization.  Some have stuck on these lists the names of employees who are already gone.

One business even went to the extreme of putting into the bottom 10 category the name of a man who had died two months before the review.

This is hard stuff.  No leader enjoys making the tough decisions.  We constantly faced severe resistance from even the best people in our organization.  I’ve struggled with this problem myself and have often been guilty of not being rigorous enough.  Every impulse is to look the other way.  I’ve fought it.  If a GE leader submitted bonus or stock option recommendations without identifying the bottom 10 [percent], I’d send them all back until they made differentiation real.

Are we adopting an Entitlement based culture over a merit based culture?

If you are paying attention to the news then you have probably heard how some High Schools have done away with grades.  Letter grades of A-F which provides differentiation is now being replaced by Pass and Fail.  The thinking is that students who get a lesser lette grade would lose “self-esteem” or would it may appear that one set of students – those getting a A – were “better” than those who did nto get a letter grade of A.

Some High Schools have gotten rid of the Valedictorian-   an academic title typically conferred upon the highest ranked student among those being graduated from an educational institution.  Why?  For the same reason.  To try to eliminate differentiation and ranking.

Some High School sports teams are eliminating keeping score.  There are no winners and losers.   Again, to eliminate differentiation among people.  Somehow, we should all be equal and  “to lose” would be a blow to our egos.

President-elect Barack Obama in a 2001 interview on WBEZ in Chicago talked about the basic issue of Political and Economic Justice.  Economic Justice?  That is the redistribution of wealth.  So we can all be equal without differentiation?  This idea of economic justice or economic equality is consistent with what Obama told Joe the Plumber in an offhand comment: “I just want to spread the wealth around.”

The end of achievement and fall into mediocrity

Whereas Obama wants to “spread the wealth around” how about this as an alternative – “spread the opportunity around”.  That was the response from the McCain camp.  The difference between Obama and McCain is the difference between socialism and capitalism.  Inherent in Capitalism are winners and losers.  The free market economy rewards winners and punishes losers.  The goal of socialism is to converge to equality.

There is this term “American Exceptionalism” and it is built on the concept of differentiation.  Great companies are great-not-good companies for the reason that Collins points out.   From good to great requires differentiation.  This is the Vitality Curve of Jack Welch of differentiating people 20/70/10.

Many of the things that Welch mentions below are under attack – grading, honor societies, Valedictorian, and other differentiators.

The argument that Welch makes (2001) is that individuals have been differentiated all through school – the first twenty years of life.  So why shouldn’t this continue in the workplace?  In a sense, Welch wants to “grade on a curve” – always eliminating the bottom 10% of the workforce – no matter how well you do.  This places one in competition, not against an absolute, but against each other.

What happens when we are not “graded” (differentiated) for the first 20 years of our life?  Does this mean that organizations should not differentiate  their employees for fear they would be demotivated or be a blow to thier ego if they get a poor evaluation?

From Jack: Straight from the Gut

Some think it’s cruel or brutal to remove the bottom 10% of our people.  It isn’t.  It’s just the opposite.  What I think is brutal and ” false kindness” is keeping people around who are not going to grow or prosper.  There’s no cruelty like waiting and telling people late in their careers that they don’t belong-just when their job options are limited and they’re putting their children through college or paying off big mortgages.

The characterization of a vitality curve as cruel stems from false logic and is an outgrowth of a culture that practices false kindness.  Why should anyone stop measuring performance when people leave college?

Performance management has been a part of everyone’s life from the first grade.  It starts in grade school with advanced placement.  Differentiation applies to football teams, cheerleading squads, and honor societies.  It applies to the college admissions process when you’re accepted by some schools and rejected by others.  It applies at graduation when honors like summa cum laude or cum laude are added to your diploma.

There’s differentiation for all of us in our first 20 years.  Why shouldn’t stop in the workplace, where most of our waking hours are spent?

Our vitality curve works because we spent over a decade building a performance culture with candid feedback at every level. Candor and openness are the foundations of such a culture.

Six minutes with Jack Welch

Identifying and grooming leaders, growing others, differentiating employees in the organization, and “winning is everything”.

Conclusion

Both Collins and Welch take it for granted (unquestioned) that a performance based organization and a performance based culture is what is desired.    Why should this be?  Why not have an entitlement based culture?  Why not encourage a “false kindness” as a sort of politeness to each other?  We could eliminate the openness and candor that might hurt people’s feelings about their ability and competency.

It’s not hard to buy into an ideology at the opposite extreme of Collins and Welch.  In school why should anyone try to achieve an A when a C is good enough?  Why should anyone work hard at work when one can work at a level just enough to get by?  Why prefer Harvard or Yale over a junior college?  Why go to college at all?

Collins and Welch may be two folks whose time has passed – espousing ancient and archaric ideas of differentiation of good and great.  Why even be good if mediocracy is an viable and acceptable option?

Resources

Good To Great: Why Some Companies Make the Leap… and Others Don’t

Good to Great and the Social Sectors

Built to Last: Successful Habits of Visionary Companies

Jack: Straight from the Gut

Redistribution of Wealth “Basic Issue of Political and Economic Justice

Links on opinion of eliminating tests and grading in schools

“The practice of teachers assigning students letter or number grades to illustrate how students are performing is an outmoded method, left over the times when schools were regarded as factories, teachers were supervisors, and students were workers. Not only is grading just outdated, research has shown that grading students is damaging as well. Researcher Alfie Kohn has found that grades can cause students to regard learning as a chore; avoid challenging tasks; think less deeply; fall apart when they fail; and to value ability more than effort. In today’s society the process is as important as the outcome; schools should reflect that.”
http://www.freechild.org/grades.htm