What Were They Thinking?
Originally published: 02.01.08 by Guy Kawasaki
Companies can learn from their failures.
D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University. He is the author or co-author of 12 books. Pfeffer received his B.S. and M.S. degrees from Carnegie-Mellon University and his Ph.D. from Stanford.
This interview is based on his latest book: “What Were They Thinking?: Unconventional Wisdom About Management” (2007, Harvard Business School Press).
1. Question: Why do companies do stupid things?
Answer: First, they ignore feedback effects. There has recently been a lot of interest, and apparent surprise, that programmers in India now cost a lot and their wages have been rising rapidly. Did people forget supply and demand? If everyone moves work to India, what did companies think would happen? Or, to take another example, when companies cut their retirement benefits, and people cannot afford to retire, guess what, they won’t.
Second, companies often ignore the interdependence or connections between actions in one part and those in another. So, even as some departments are trying to cut the costs of benefits, others are worried about recruiting and retaining enough qualified people. Maybe the parts should work together.
Third, many companies presume that incentives are the answer to everything, and have a very mechanistic model of human behavior. That is also incorrect.
2. Question: What can companies do to get smarter?
Answer: Companies learn just like people learn — by trying new things and seeing what happens. That requires, first, a tolerance for failure, since by definition learning means doing things you aren’t very good at.
Second, it requires structured self-reflection — after-action or after-event reviews so that instead of having one year of experience repeated 20 times, people and companies actually accumulate learning over time.
3. Question: What’s the best way to improve customer relations?
Answer: This is almost too simple — actually take care of customers! I am sure we have all heard the recorded message, “Your call is very important to us.” Well, if the call were important to the company who has recorded the message, they would answer it in some reasonable time instead of playing music or bombarding the caller with advertising messages. When you make a mistake, fix it and admit responsibility. Tell the truth.
4. Question: I think I know what you will say, but what’s more important: CRM (Customer Relationship Management) software or recruiting and training?
Answer: Before you can manage customer relationships through some software product, you first need to build those relationships. And relationships are still largely built through people. That’s why the most important three feet of real estate in retail — or in many industries — is the distance between the customer and the sales associate or individual who is serving that customer. Hiring the best people who are likely to stay, and investing in their training, will build relationships that CRM can manage. Without taking the first steps, there is nothing there.
5. Question: What is the proper role for an owner?
Answer: To develop others and their talents and to create an environment in which people can do their best and want to. It is not to make all the decisions or, like some kind of “sun king,” absorb all the light and the attention.
In fact, sometimes the best leadership is less leadership. No seed can grow if it is dug up and examined every week. For people to innovate and get things done, they need some time and space and resources.
6. Question: How do you turn a company around?
Answer: As the late Peter Drucker said, there is no business without a customer. Turning around a company is mostly about providing people a great value proposition — giving them more than they expect. Better products, services, more attention than the competition. It is hard to do any of this if you lay people off. People — the best people — will head for the exits. And you can’t cut your way to success, because it’s a strategy that’s too easily duplicated. Look at Singapore Airlines — they are able to charge more for the same flights because they provide such a superior product and experience. I wish more companies would figure this out.
7. Question: What are the characteristics of a good work week and vacation policy?
Answer: We live in a world where ideas and innovation are paramount. But people can’t be creative if they are exhausted. And when people work when they are tired, they make mistakes. If we have learned anything from the quality movement, it is that the cost of finding and fixing mistakes is greater than the cost of preventing them. So, give people time off. And, by the way, the younger generations want a life as well as work. Work-life balance is a great way to attract — and retain — great people.
8. Question: What are the characteristics of a good incentive plan?
Answer: Incentives should be large enough to provide an occasion for celebrating success but not so large as to distort behavior. And incentives can include recognition and things other than money. Companies get themselves into trouble all the time by being too clever with their incentives.
Stock options did reward leaders for getting the price of the stock up — it’s just that it was often for a short period, and was accomplished by distorting earnings. Be careful what you pay for — you might just get it.
9. Question: How should people judge a company’s results?
Answer: By comparison to its peers and by comparison to what its own aspirations are. Companies, as the balanced scorecard notes, depend on customers, employees, investors, suppliers, and others in the ecosystem. It is wrong to give one of those groups priority over the others. Brand loyalty and employee loyalty are both real assets, even if not reflected on balance sheets and income statements.
Just look at Apple Computer with respect to products and DaVita, the kidney dialysis company, which has few open nursing positions because it is a great place to work. As Herb Kelleher of Southwest Airlines recognized long ago, if you take care of your people, they will take care of the customers, who will keep coming back, which will make the shareholder happy. It is all interrelated.
10. Question: What role should strategic planning play in the management of an organization?
Answer: Doing the right thing is important, which is where strategy comes in. But doing that thing well — execution — is what sets companies apart. After all, every football play is designed to go for a huge gain. The reason it doesn’t is because of execution — people drop balls, miss blocks, go to the wrong place, and so forth. So, success depends on execution — on the ability to get things done.
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