Myth Smashing

Saturday, November 1, 2008 - 09:44

Good managers act on hard facts not flimsy stereotypes or the latest trend, argues Stanford University's management myth buster, Professor Jeffrey Pfeffer. By Georgina Jerums

It's late afternoon in San Francisco and Professor Jeffrey Pfeffer from Stanford's Graduate School of Business is on the phone in his home office, looking out over his garden where shadows are lengthening in the fading sunlight. Holding court about where managers trip up, when the chat turns to business trends, Pfeffer lets fly.

"In business, imitating the US is a fool's game," he says. "When people ask me what I do, I tell them, 'I go around the world telling people to stop copying the US'." We should all be looking to northern Europe for management inspiration, he adds.

Provocative remarks, certainly, but as an in-demand seminar speaker and author of 12 management books, the Professor of Organisational Behaviour at Stanford is not particularly bothered if people perceive him as something of a cage rattler. Provided it gets his message out.

Pfeffer, you see, is keen to convince managers worldwide to act on evidence-based facts rather than blindly following ideology, media headlines or the HR plans of other organisations. By implementing facts - studies into social theory with qualitative and quantative components - managers will be able to work out how to motivate and nurture better performances from staff.

It's a theory he has been chipping away at since he started teaching at Stanford's Graduate School of Business in 1979. In the decades since, Pfeffer has analysed thousands of peer-reviewed business studies into evidence-based organisational theory, and even testified to US Congress last year about evidence-based practices, advising that body on how to manage the civilian workforce for higher levels of performance.

"The facts are out there, so why don't managers use them?" Pfeffer says, sounding a little piqued. "It is astounding how little executives study and read the basic facts. Data is not hypothetical; you can test it and measure performance."

That's why he recommends managers read up on business magazines like The Economist and get into the habit of examining published research. It's about managers thinking harder and more strategically about what, exactly, is right for their organisation. Similar to evidence-based medicine, he warns, the process ought to be a lifelong habit.

Driving his 'study the facts' message, Pfeffer has taken the podium at Harvard Business School, London Business School, Singapore Management University and IEASE Business School in Barcelona, in addition to hosting seminars in 33 countries including Australia. In fact, in November, his mission led him to our shores for the sixth time, for a speaking tour, sponsored by AIM Western Australia, titled Evidence-based management: Debunking myths of management to make better decisions.

Pfeffer never tires of the travel-and-talk treadmill. Loves it, in fact. "My job is as an educator, to tell people the truth. I've spent my life doing this. I'm passionate about it. My wife jokes this is the one, and only, job that fits me perfectly."

Myth busting
Country competitiveness is one area Pfeffer reckons has been getting a lot of incorrect press lately and, in turn, that's leading private and public sectors astray.

"The myth is that countries that are the most competitive are ones like the US that have the least government intervention, the least labour unions, the lowest wages and the most deregulated markets.

"But look at any of the World Economic Forum data, data from The Economist magazine's Intelligence Unit Study [World Investment Prospects to 2011 ranking 82 countries] or Richard Florida's book, The flight of the creative class. You'll find that the most competitive countries tend to be, believe it or not, Scandinavia, Denmark, Finland, Sweden, even Germany. These countries have stronger labour unions, very activist government and social policy, and relatively high wages."

On those findings, governments need to assess where they source their policy-making information, Pfeffer says, because "countries around the world are building public policies on a set of assumptions that turn out to be inconsistent with the data".

Pfeffer maintains that such inconsistency relates not only to countries but also to organisations, especially when it comes to salaries. In his view, what you should pay people in an organisation is often extremely misguided.

"There's this whole cost cutting, wage cutting and benefits cutting that goes on in an effort to save money and make companies more profitable. And none of it works."

What does work, Pfeffer counters, is to not cut financial corners, as demonstrated in the aviation industry where the highest-paying airline in the US, Southwest, is the most profitable. Similarly, Singapore Airlines, one of the highest cost airlines in the world, is also one of the most profitable, because if you provide a superior level of service, people will pay more for it, and therefore profits are higher.

And Qantas? "As for Qantas," he chimes in, "it is always a mistake to cut wages, flights, employees and service. The evidence is clear that downsizing your workforce does not increase stock price, productivity, or innovation but instead induces fear and reduced morale. Cutting wages loses discretionary effort and your best people."

Cutting back on service is the opposite of what Qantas should be doing to gain a competitive toehold in the current difficult times triggered by fuel price spikes, Pfeffer adds.

Forced curve ranking
Still on the pay issue, the idea that you ought to pay people based on their individual level of performance - the forced curve staff ranking system made famous by General Electric - is a shocking idea, according to Pfeffer. And that's despite it being adopted enthusiastically by countless CEOs.

"Many companies are trying to copy General Electric's system where you rank people against each other to ensure you achieve some moderate level of differentiation in the wage increases that you pass out," says Pfeffer.

"American baseball, high-tech companies and studies of quality all suggest that the greater the degree of wage dispersion - or inequality - that you have in your wage structure, the worse the performance is going to be.

"A forced curve ranking sets people against each other and causes all kinds of troubles in knowledge sharing, or peers not helping each other out. I'm giving management a free pass on this, telling them, 'Don't model yourself on Jack Welch'."

The myth busting doesn't end there. Another area where managers can be seduced into believing the hype, according to Pfeffer, is that 'the early bird catches the worm' in product or service innovation. Being the first company to introduce a new concept does not mean profit will follow, with Compaq and Apple computers cases in point.

Supporting his argument that it can be the followers instead of the leaders who reap the rewards, Pfeffer applauds US chain, Whole Foods Market, the world's largest retailer of natural and organic foods with 270 stores and 54,000 employees throughout the US and the UK.

As a company, it held back, followed the lead and then clinched the profit. Established in 1980, it has grown primarily through mergers and acquisitions, capitalising on the early adapters who first established a consumer demand for organics.

A road to suicide
Not every organisation listens, though. "People disagree with me all the time," says Pfeffer lightly, "but if they don't listen, then I can't help them; they're on a road to suicide."

Of managers who argue they have neither the time nor money to study data and test in their organisation, Pfeffer's response is pointed: these are usually the same managers who willingly hand over a similar amount of time and money to consulting firms.

Yet given the current global credit crisis, does Pfeffer find his evidence-based research theories are more widely accepted now, as some companies scramble to halt financial losses? Has fear of recession, in other words, made people sit up and listen to his ideas more readily?

"No, they don't do that," Pfeffer acknowledges. "They should. Because when people are in financial difficulties, that's when they really need to stop looking at the myths, and start acting on the facts. The CEO of Procter & Gamble, A.G. Lafley once said that when a company is in retreat, to not do what everyone is doing is the best way to gain competitive advantage.

"When your company is in financial difficulties, that's the best time to go for competitive edge. It's about changing your mindset. It's about thinking of a different way to do things."