If you ask the HBS graduates who are business owners or hired chief executives (and in fact any seasoned business owners) what the single most difficult thing in managing a business is, the answer would most likely be “people.” Hiring, training, motivating, and retaining people are extremely important but challenging. To me, the best business is one that generates income without any employees. That’s why I like writing books and investing in real estate and stock markets. These lines let me work largely on my own.
Why is the “people” issue so difficult? First, you have to find the right people. That is critical to success. For the book Good to Great, Jim Collins, a best-selling author and formerly a faculty member at Stanford Business School, and his team of 20 researchers spent five years on in-depth analysis of almost 30 major companies, trying to understand what the best CEOs did to make their good companies into truly great companies. This is one of his major findings:
First Who . . . Then What. We expected that good-to-great leaders would begin by setting a new vision and strategy. We found instead that they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats—and then they figured out where to drive it. The old adage “People are your most important asset” turns out to be wrong. People are not your most important asset. The right people are.1
Later, Collins adds, “When (we asked one of the good-to-great CEOs) to name the top five factors that led to the transition from mediocrity to excellence, (he) said, ‘One would be people. Two would be people. Three would be people. Four would be people.’ ”2
David Ogilvy, the legendary advertising giant and founder of the major global advertising agency Ogilvy and Mather, believed that hiring the right people could even mean hiring people more capable than the hirer. It was said that whenever someone was appointed to head an office at his firm, Ogilvy would give him a Russian nesting doll. These dolls open to reveal a smaller doll, which opens to reveal a yet smaller doll and so on. Inside the smallest doll was a note from Ogilvy: “If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.”3
Jack Welch, ex-CEO of General Electric, an HBS graduate and a man many revere as one of the most respected and successful CEOs in U.S. history, shares the same philosophy. When asked what counsel he would give junior executives to help them become future leaders, Welch answered: “The biggest advice I give people is you cannot do these jobs alone. You’ve got to be very comfortable with the brightest human beings alive on your team. And if you do that, you get the world by the tail. . . . Always get the best people. If you haven’t one who’s good, you are short-changing yourself.”4
Of course, this may or may not be applicable if you are a middle or even a senior hired manager. Since you are not the ultimate boss, the company culture and your own boss’s attitude affect how you might want to hire. HBS teaches its students to be realistic. It would be unrealistic if you were a middle manager to go to your boss and say, “I really don’t know the strategy for my department. But just let me hire the best team and then we can figure out what to do with my department.” You will probably get fired. It would also be unrealistic to advise you to hire people smarter than you are if your company does not reward this behavior and your boss does not have the same vision as Collins, Ogilvy, and Welch. A friend of mine got fired when his boss decided the friend’s assistant could do his job at a much lower salary.
As Harvey Mackay says, “It isn’t the people you fire that make your life miserable, it’s the people you don’t.” You should take your time to find the right people. You should give each employee a detailed description of your expectations and follow-up with regular feedback. When things do not work out, you must be decisive and let the person go. To build the best business, you need the best people, as Jim Collins found out from his in-depth analysis:5
“When in doubt don’t hire—keep looking.” As the CEO of the companies that went from good to great told Collins, “You don’t compromise. We find another way to get through until we find the right people.”
“When you know you need to make people change, act.” But how do you know “when you know”? According to Collins’s research, two key questions can help: Would you hire the person again? And if the person came to you to resign, would you feel disappointed or relieved?
Jeffrey Fox, an HBS alumnus and a best-selling author, shows why making the right hiring decision is so important by explaining the cost of mishiring:
Mishiring costs include compensation paid, termination settlements, recruitment expenses, management time, and placement fees. The biggest costs of a mishire are harder to identify and quantify, but they are real: costs to replace, disruption to the organization, management errors, lost opportunities, strategy failure, wasted training, and damaged morale.6
Jim Collins explains why firing decisively is important:
“All the time and energy we spend on that (wrong hire to try to improve performance) siphons energy away from developing and working with all the right people. . . . 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. . . . (It’s) equally unfair to the people who need to (be let go.) For every minute you allow a person to continue holding a seat when you know that person will not make it in the end, you’re stealing a portion of his life, time that he could spend finding a better place where he could flourish.7
Jack Welch is also a best practice guru of this philosophy. When he was at General Electric, Welch personally interviewed anyone who was hired from the outside for any of the top 500 posts, not just the few posts of his direct reports. This is because he understands the cost of a wrong hire. If the mistake of mishiring was made, he also made sure the system was set up to make appropriate correction swiftly and decisively. At Welch’s General Electric, all employees were more or less classified into A, B, and C class depending on their capability. At a meeting attended by General Electric’s 500 top operating managers, Welch said:
Too many of you work hard to make C’s (into) B’s. It is a wheelspinning exercise. Push C’s on to B companies or C companies, and they’ll do just fine. . . . We’re an A company. We want only A players. We can get anyone we want. Take care of your best. Reward them. Promote them. Pay them well. Give them a lot of (stock) options and don’t spend all that time trying to get C’s to be B’s. Move C’s out early. It’s a contribution.8
Just as Collins suggests, Welch considered firing the C’s quickly a contribution not just to General Electric but to the C employees. Employees whose capabilities were C grade for General Electric might do well in other organizations where different capabilities were required. I have seen many people who did not do well in consulting end up very successful in sales or in stock trading where different skills are critical.
But firing decisively is not easy. Even to this day, after all my business school education, sometimes I am less decisive than I should be. Case in point—I have someone on staff in my company now. He is extremely loyal and hardworking. But he is just not efficient and he keeps making mistakes. I find myself spending a lot of time catching and correcting his mistakes. I have been thinking about firing him for the last two months. I know I am committing the classic mistake described by Jim Collins in his book:
We’ve all experienced or observed the following scenario. We have a wrong person . . . and we know it. Yet we wait, we delay, we try alternatives, we give a third and fourth chance, we hope that the situation would improve, we invest time in trying to properly manage the person, we build little systems to compensate for his shortcomings, and so forth. But the situation doesn’t improve. When we go home, we find our energy diverted by thinking (or talking to our spouses) about that person. . . . 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 okay job and it would be a huge hassle to replace him, so we avoid the issue.9
If you have not been a manager, you may not have experienced this. But keep it in mind. When you are a manager, you may see yourself falling into this trap. It is hard to avoid, but at least you should be aware of it—that will at least help you act sooner than you otherwise might.
Hiring the right people and firing the wrong people is only half the battle. once you have employees, you need to put significant and continuous effort into retaining and developing them. An HBS classmate once commented in class: “My ex-boss taught me that to focus only on recruiting and not retention and development will be like playing the slot machine—you put a lot of resources into recruiting and you leave it to luck to get a few, if any, wins.”
Losing a good staff member is costly. Direct costs include loss of productivity during the transition period, mourning and insecure coworkers, and a costly candidate search and then training of the new recruit. Indirectly, high staff turnover will affect the company’s ability to attract top recruits. High turnover is often seen by recruits as a sign of organizational problems.
The better the employees, the more costly they are to lose, and the more difficult it is to retain them. While money is always a consideration, competent and capable people look for much more. At HBS, whole courses address the topic of management and leadership as related to staff morale and retention. Here are the points that I have found most useful:
Tell people what they need to know, including clear, well-defined goals and priorities. One of the professors explained this by saying, “If I tell you: to get an A in this course, you have to write me an excellent 10-page paper tonight. Do you think it is easier if I tell you the topic of interest to me or if I tell you to write whatever you want?” The class almost unanimously voted for the former. Research by almost all academics and management trainers has concluded that unclear or constantly shifting priorities leave employees confused, insecure, stressed, and unsatisfied.10
Give people effective feedback. When they are doing well, they want to be praised for it, privately and, better still, publicly. When they are not doing well, they also appreciate private constructive criticism that can help get them back on track. Whether it is positive or negative feedback, reasons and specific examples are very useful to help the recipient understand and accept the feedback. (See sidebar for things that do not help.) One of my all-time favorite books is The One Minute Manager by Kenneth H. Blanchard and Spencer Johnson. The book describes an effective manager as someone who gives a brief but concise praise immediately if work is well done and a brief and concise reprimand when work is not so well done. While this is a simplification, I find it a very useful reminder—to be effective, feedback should be concise, factual, non-condescending, and timely.
Grooming includes coaching, training, and mentoring. As noted in Chapter 1, many capable people look at a paid job as an opportunity to learn instead of just an opportunity to earn a linear income. My husband once offered to double someone’s salary—but the employee still resigned, saying, “Learning is more important than money.” To enable people to learn effectively:
Everybody appreciates being listened to. Everybody appreciates having their ideas given sufficient consideration, even when the ideas are eventually rejected. It makes people feel valued. (A digression here—besides retention, listening to everyone, not just the capable and experienced staff members but even the most junior ones, can generate ideas valuable to management and business. In How to Become a Great Boss, Jeffrey Fox cited a true story where a leading U.S. lawyer won a major lawsuit based on a suggestion from his office cleaning lady! A law had to be changed as a result of the case!)
Minimize unnecessary roadblocks, especially bureaucracy, policies, and paperwork that alienate and frustrate. This seems like common sense but it is shocking how many companies are still losing talent because they throw up roadblock that people refuse to live with. Key reasons I have seen include office politics, incompetence of senior management, and failure to recognize the gravity of these issues for staff retention. Companies with such roadblocks tend to have low retention of competent staff but high retention of mediocre people who like the security of bureaucracy and paperwork or who cannot find a better working environment. (See the following sidebar for more on these problems)
Even if you do all four kinds of promoting measures I’ve described and maybe more, staff turnover is still inevitable.
I have had people resign for no other reason but desire for “a new environment to stimulate new learnings.” I can do nothing to retain someone who’s reached that conclusion. It is painful to lose people for reasons like that. I used to get very depressed and have had many sleepless nights from loss of key staff members. But now I have learned to keep it in perspective—the loss is painful and I will do anything I can to retain the good people, but in the end no one is irreplaceable.
In business, everyone wants power. To have power means you can make things happen: you can make decisions that will be enforced without resistance; you can have access to information that you need to make decisions; you can allocate resources that can affect careers, job satisfaction, and remuneration, and so on.
At HBS, students take classes devoted to the topic of power. As with networking, some people are born with a talent for acquiring and using power. But for someone who (like me) lacks such natural talents, I find two discussion topics particularly useful. The first is an analytical framework to understand the sources of power. This framework can help you think through how to get power, or at least how to navigate within the power structure. The second topic is recommendations on how to start building power beyond the formal power bestowed to you by your position. Even if you run your own company and have all the power, it is important to understand both these topics, if only so you can monitor the development of your subordinates’ power. This is critical to ensure that none of your subordinates is developing an inappropriate power base.
At HBS, we discussed three major sources of power. The same sources are elaborated in the Harvard Business Essentials book, Power, Influence, and Persuasion.13 The first is formal and can be exerted directly and forcefully. The second and the third are informal and often take the form of influence that is applied more softly.
This is the formal power that comes with having a position and title in the organization. Typically, the power will include managing your subordinates (work assignment, appraisal, and so on), access to certain information, inclusion in certain management meetings, and the authority to make certain decisions and mobilize certain resources.
This is the informal power that comes because of who you are as a person:
In particular, expertise that is valued and rare in an organization can give you great power, because your opinions will be sought after and given significant weight. You can be put into leadership or advisory roles beyond your formal position. Expertise is what gives consultants their access to the ears of senior management in key positions.
This is another form of informal power. It comes from your relations with others in the organization. Key sources of relational power include mentorship, coalition, dependencies, and reciprocity.
Mentorship is a source of relational power. Mentors can use their relational power to influence the behavior of their protégés. I still remember many years ago when Mr. A, my mentor and my boss at BCG, asked me to take on an assignment that required stationing at a very remote area for many months. He could have used his positional power and simply told me to go. But instead, he used his relational power and said to me, “Hey Emster (a nickname he made up), will you do it for me, please? I need you there.” Of course, I could not say no.
On the flip side, protégés can also leverage relational power with their mentors. I have often gone to Mr. A to ask him for information that I had no right to get—such as “am I getting a good reputation among the seniors?” I have also gone to Mr. A to get him to use his positional and other powers to help obtain high-profile assignments for me.
Being part of a coalition within the company can give you relational power. As described in Power, Influence, and Persuasion,14 there are two types of coalitions: a natural coalition or a single-issue coalition. The former endure for a long time, and are developed based on shared fundamentals over a range of issues. For example, at my property investment client, the head of strategy had a natural coalition with the head of property management. Both had business school training, made decisions based on data and analysis, and were very execution-oriented. At my consumer electronics client, the marketing team, sales team, and engineering team had a shared interest to push the R&D team for faster, better, and lower-cost products. They also had a shared interest against the finance team, which was always looking for cost-cutting maneuvers. They formed a natural coalition on these issues.
Single-issue coalitions develop as parties come together for one goal. Their relational power does not extend beyond that issue. For example, many traditional Hong Kong companies work half the day on Saturdays. I have seen coalitions forming in many such companies to lobby for eliminating Saturdays as a workday. Individuals in the coalition do not have positional or personal power to lobby for the change. But appropriate coalitions can bring the issue to management’s attention. Such a coalition may include many who are adversaries on other issues but are allies on this one.
Having dependents will give you relational power. Dependencies exist when your colleagues depend on you for information, services, assignments, or anything else. At my property investment client, for example, the sales VP, who was also on the Board of Directors, had very limited control over some of her general managers. The VP, for a variety of reasons, stopped focusing on getting involved with many of the tenant negotiation and relationshipbuilding issues. She delegated most of this to her general managers. Over time, the general managers became very powerful because the VP had to depend on them for tenant relations, which was key to the rental business.
Exploiting the Law of Reciprocity can also give you significant relational power. This law was discussed in Chapter 4, in the context of networking. The better you are at giving out favors effectively, the broader and deeper relational power you have. It is like depositing into a bank account that you can draw from when you need a favor in return.
The first thing to do is make sure you understand the company. When I first started doing business in Beijing, I asked a powerful mainland Chinese politician for advice on how to start developing powerful government relations in Beijing. I still remember exactly what he said: “As a newcomer to Beijing, don’t do anything. The best is to read all the government news, listen, observe, and ask appropriate questions very discreetly. Meet everybody but choose your friends carefully.”
I’ve found this advice useful—not just in a politically sensitive place like Beijing but in any new business environment. And do not wait until you first join a company; start absorbing information during your job hunt to ensure you are joining a company where you can fit. This effort should not stop until you leave the company as politics is never static.
All sources should be tapped into for as much information as possible: company annual reports, press releases, ex-employees, current employees, whoever and whatever you can find. All information is useful, especially anything that helps answer the following questions:
Being a trained engineer and basically a straight-arrow nerd, I made plenty of mistakes in my early career because I did not appreciate the importance of understanding corporate culture. A couple of my blunders immediately come to mind:
Developing a strategy to gain power has a lot of similarities to developing a strategy for a start-up. The company is your market. You need to decide your principles, values, vision, long-term strategy, and short-term tactics. These are some of the key questions to think through:
Based on your answers to these questions, you can start developing your road map—what power you need and how to attain it:
Key relationships. Naturally, focus should be on building key relationships with the people you have identified as critical to your power base. You will want to put most of your effort into creating the dependencies, extending favors, and building coalitions.
Non-key relationships. You should not ignore people with no immediate value for your power base. Unless it would run into conflicts with key relationships or require a lot of effort, it is worth extending appropriate and easy-to-afford favors even when it is to a colleague of no apparent value to your power base.
The plan should also be one that you are comfortable in executing. Do you have the personality, capability, and determination necessary for the plan? If not, are you going to adapt yourself? Or are you going to find another company that is a better fit?
Executing the plan to attain power and then using the power is like the game of chess.
As my chess teacher always says, “You cannot become a chess champion without learning to envision the game many moves ahead.” Lack of time or discipline often makes people focus too much on the present instead of thinking about future moves by others. In addition, the chess metaphor is also useful as a reminder to look at it all as a game. This can make it more interesting and easier to accept when failures (inevitably) occur.
Power, especially personal and relational, can be further enhanced if you develop a strong reputation based on winning traits, relationships, or track record. A strong, positive reputation can significantly increase your personal power. In the cynical but insightful book The 48 Laws of Power, Robert Greene and Joost Elffers explain: “so much depends on reputation—guard it with your life. . . . Through reputation alone you can intimidate and win. . . . Reputation is the cornerstone of power. . . . Your reputation inevitably precedes you, and if it inspires respect, a lot of your work is done for you.”15
There are two ways to get a reputation: passively or actively. Passive development is the style generally used at HBS. Different people got a reputation over time: “he is really smart,” “she really knows finance,” “he always puts his foot in his mouth,” and so on. Reputation mostly develops naturally as people interact with each other in and out of class.
Active reputation building is not taught in any HBS course, and I have not noticed anyone feeling a need to try this at HBS. But in their book, Greene and Elffers suggest you can also actively build your reputation by
I have seen active reputation building outside HBS, and when I notice it, it makes me more skeptical and careful about the person. For example, a few years ago, almost overnight, two unknowns became recognized by all of Hong Kong as “the richest couple in Shanghai.” By combining charity donations and appearances, high-profile real estate purchases, press conferences on their businesses, and frequent sightings with socialites in Hong Kong, and befriending socialites who then introduced them to the rich and the famous, the pair built a reputation that allowed them to attract business deals and attention from all over Hong Kong. They never publicly proclaimed themselves “the richest couple in shanghai,” but their friends, associates, and the media constantly introduced them that way. unfortunately, recently they were arrested for corruption. This taught me two lessons:
It is interesting to point out that acquisition and exercise of personal and relational power is more or less the same as what is often referred to as “playing office politics.” At HBS, many agree that, like formal power, politics is the natural by-product of human interaction. It cannot be eliminated or ignored. understanding personal and relational power can help you decide how much politics to use and how to fit it with your own career goals and ethical standards.
Notes
1. Jim Collins, Good to Great (New York: HarperCollins, 2001), 13.
2. Ibid., 55.
3. Story available online: www.newworldencyclopedia.org/entry/David_Ogilvy (access date: January 17, 2009).
4. Robert Slater, Jack Welch and the GE Way (New York: McGraw-Hill), 41.
5. Jim Collins, Good to Great (New York: HarperCollins, 2001), 54–56.
6. Jeffrey J. Fox, How to Become A Great Boss (New York: Hyperion Books, 2002), 21.
7. Jim Collins, Good to Great (New York: HarperCollins, 2001), 54–56.
8. Robert Slater, Jack Welch and the GE Way (New York: McGraw-Hill), 38.
9. Jim Collins, Good to Great (New York: HarperCollins, 2001), 56.
10. Management books and research on the importance of goal setting abound. Recent books I have read include How to become a Great Boss by Jeffrey J. Fox, Why Employees Don’t Do What They’re Supposed to Do and What to Do About It by Ferdinand Fournies, and First Break All the Rules by Marcus Buckingham and Curt Coffman.
11. Rob Goffee and Gareth Jones, “Leading Clever People,” Harvard Business Review (March 2007).
12. Ibid., 5.
13. Harvard Business Essentials, Power, Influence, and Persuasion (Boston: Harvard Business School Press, 2005). I find the Harvard Business Essentials series quite useful as a summary on many topics. As explained in the inside cover of each book, “the series is designed to provide comprehensive advice, personal coaching, background information, and guidance on the most relevant topics in business. . . . To ensure quality and accuracy, each volume is closely reviewed by a specialized content adviser from a world-class business school.”
14. Harvard Business Essentials, Power, Influence, and Persuasion, (Boston: Harvard Business School Press, 2005), 20.
15. Robert Greene and Joost Elffers, The 48 Laws of Power (London: Profile Books, 1998), 15.