Wednesday, February 22, 2012

The Superman in the corner office

I was a remarkably simple-minded young man. To see this, you only need to know that I actually used to believe what I read in the business press. Since Businessweek told me that Jack Welch is a great manager, I believed them. All I can say in my defense is that all young people I've met have been stupid. That, though, is a subject for another post.

Now Felix Salmon shows us that Jack and Suzy Welch believe that they have a hammer, and that all employees are nails. This is their advice for Zuckerberg on how to manage post-IPO Facebook.
With all this exultant “barking,” there also needs be bite — in the form of frequent, rigorous performance reviews. The facts are, if Facebook wants urgency, speed and intensity around its mission, those behaviors must be explicit values that, when demonstrated, result in bonus money and upward mobility — or not.
This is how Welch managed GE. Why does he believe that this is a good way to run Facebook? Has he given it any real thought? Does he think all organizations are the same? As Salmon writes
What’s more, it’s far from clear that the best way to motivate a Silicon Valley engineer is to dangle an annual bonus in front of his face and tell him that if he works hard he could get an extra couple of months’ salary at the end of the year. Rather, the best way to get the most out of engineers is to surround them with other great engineers, in a collegial atmosphere where everybody works hard and everybody does really well building great products that everybody is proud of.
We are prone to self-serving bias. Successful people tend to assume that what worked for them will work for anyone, at any time. "Do as I did, and you will be alright" they say. To believe anything else would be to accept the power of contingency, to admit that their success may have no timeless lessons.

This, though, only explains why Welch is willing to supply a steady stream of unoriginal commentary. How about the demand side? Why is Welch paid good money to prattle on about how to manage a company he knows nothing about?

Economics is built on the principle that people respond to incentives. This is a useful guide when thinking about economic problems, but it becomes an ideology when you no longer think about the specifics of the situation. For example, it is elementary economics that a minimum wage increases unemployment, but does that mean that abolishing the minimum wage is the best way to reduce unemployment? In this post about the minimum wage, Dillow shows us that we don't live in an Econ 101 world
Let’s instead do some simple maths. There are 4.06 million 18-24 year-olds not in full-time education. 2.77 million of these are in work, and 1.29m - 31.8% - are unemployed or inactive. This means that to get the employment rate up to 80% for this group would require an increase in employment of 17.3%.
How could such a rise be achieved by abolishing the NMW? There are only two possibilities: either the abolition allows wages to fall a very long way; or the price elasticity of demand for young workers is very high.
He tackles the same question in this magnificent post where he explicitly calls the reliance of incentives an "ideology"
Nick Clegg says we need a cap on benefits “not least to increase the incentives to work.” This runs into an obvious objection - that the big problem right now is not so much a lack of incentives to work but a lack of opportunities to do so. There are 2.69 million unemployed chasing 459,000 vacancies - that’s 5.85 unemployed per opening.
He goes on to discuss the cognitive biases which cause people to over-estimate the importance of incentives to work. Read it all. Read it again.

Managerialism is the ideology of my generation. I see it all around, and I have not been immune to it myself. It is not the same as Management Theory but is the idolatry of Management. It is the belief that the problems of the world can be solved, that the solution is "management" (or "leadership"), that there are great leaders but (thank goodness!) you can learn to be one too. It is why journals on management have abandoned mundane matters of operations, trade, and policy to become glossy lifestyle magazines about the rich and powerful. Chris Dillow has described the problems with this ideology in yet another splendid post.

In this tweet, John Cook quotes Stanislav Datskovskiy
Employers much prefer that workers be fungible, rather than maximally productive.
This makes excellent sense for employers, since highly productive employees who are difficult to replace can claim most of the value they create. In today's large corporations, power resides with the managers, not with the shareholders who are ostensibly the owners of the business. Managerialist ideology makes firms themselves fungible: the good manager can be good in any context, and so the firm needs him far more than he needs it. The balance of power moves further towards the managers and away from the owners.

No comments: