Saturday, September 26, 2015

Why is there more talent in lower ranks than in management?

At generally unmotivated companies, why can you find more motivation and talent in the lowest ranks than in management?

Not a number game

It obvious that at large, unmotivated organisations there are a lot of hidden gems: talented people at the lowest ranks who somehow just don’t belong there. One of the countless examples would be Nokia where, even when the company went into free-fall and was losing market share by the day, some of the best engineers in the world were still working there – mostly on the lowest rungs of the corporate ladder.

However, as we start to look up that ladder, we find fewer and fewer of these world-class talents; some might argue that this is just a numbers game. If there are 100 people on one rung of the ladder, then the next rung only has around 10 people, so it’s 10 times less likely to find someone exceptional there. That argument is incorrect. In an ideal setup, the selection criteria for attaining that next level should be 10 times more stringent, therefore we should find a much greater percentage of motivated and talented people on each upper level. We generally don’t.

The difference that the CEO makes

Before jumping to any conclusions, let’s try to look at the problem from the very top of the ladder. The influence of the CEO – or the lack thereof – has been researched since the 1930s. Jeffrey Immelt, the current CEO of General Electric, even argued that in the 1990s the company could have been run by a German shepherd – the job was so easy. His predecessor, Jack Welch, more or less agreed with this statement.

A study released in 1972, Leadership and Organizational Performance: A Study of Large Corporations, found that the so-called “CEO effect” explained only 14.5 per cent of the company’s profits. Industry effects, on the other hand, accounted for 30 per cent, while company effects such as size and history were responsible for 23 per cent. Of course, some CEO decisions were based on pure chance or luck, so the actual influence is even smaller.
If the overall influence of a CEO is debatable, what deters talent from joining management ranks?

Reinforcing effect

Two things generally happen that keep unmotivated and untalented managers in place and talented ones away. First, companies are actively canvassing for similarities. As the book Hard Facts, Dangerous Half-truths and Total Nonsense discusses, companies prefer to hire managers who are similar to the other managers in terms of gender, education, thinking, motivation and so on.

The other reason is that, even if there was a push from upper management to try to get different people with different ideas into management, the existing managers would strongly resist this idea; they would prefer to select people who are similar to them, a preference that’s partly human nature and partly a fear of talent. The pace of work and more extreme ideas talented people bring to a company simply scares them. If they promoted smart and motivated people, it would be only a matter of time before their job would be made redundant. They have to keep up the appearance of importance.

As James G March discussed in his 1980 book How We Talk and How We Act, “An intelligent manager learns that some of the more effective ways of improving measured performance have little to do with improving product, service, or technology. A system of rewards linked to precise measures is not an incentive to perform well.”

Upper management and lack of feedback

If a company doesn’t employ 360-degree feedback, it is not just a sign of upper management expressing very little interest in the actual performance of lower management. It also sets up an unidirectional interest: managing up.

Suddenly, anyone who reports to the manager becomes totally irrelevant, as they are not on the manager’s promotional path in any way. The job of the manager moves from managing people and their careers to pleasing his or her own boss. These managers become too busy and unavailable for anyone reporting to them because subordinates just generate problems and noise, which distracts the manager from pleasing their superiors. Such managers are generally only available to their subordinates if it concerns something that they can re-present to their own managers, so improving their own reputation.

This, of course, causes frustration in the lower ranks, where people lose control over their growth and career.

Movement in the lowest ranks

The lack of interest from management usually frustrates talented employees who are trying to achieve something; usually something larger than what they are explicitly asked to do. This in itself is a good enough reason to look around for opportunities in other companies, as talents are not only hard to find but hard to convince to join: smart companies do everything possible to lure talents in, like free meals, extra holidays, team events that are actually interesting … and so on.

Even if, for some reason, talented people get promoted to managerial level at unmotivated companies they would feel a lack of fulfilment very quickly since, while some of their previous peers were motivated, almost all of their new manager peers are unmotivated and untalented.

This frustration, of course, never affects less talented workers so they stay because they know there isn't much else for them out there. Also, they see that people like them once in a while get promoted, so there isn’t really any motivation to leave. This eventually leads to contra-selection.

Smart companies get smarter

For the same reason smart companies promote smart and motivated people into management, and these people tend to promote more and more talented employees, so the whole process is reversed at a smart company. This also means that in the long term the gap between these companies widens: as the unmotivated and untalented company gets duller and duller, the smart and motivated company gets more and more switched on. However, it’s not impossible that there are perfectly “balanced” companies, which on average neither grow more or less motivated.

This process is accelerated even further by the movement of employees between companies: talented people leave the unmotivated companies because they can’t really grow there and join the motivated ones; less talented workers at smart companies are asked to look for other opportunities so they join the unmotivated companies. It’s a process that widens the gap employee by employee.
This also means that, in the long run, the unmotivated companies will be simply overrun by smart companies. Not only are they not motivated to do anything about the appearance of fierce competition from smart companies, they simply don’t have the talent to fight back. Those people left a long time ago…

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