The Fallacy of Past Performance Predicting Future Performance
photo by pasukaru76
“We only hire ‘A’ players.”
“Past performance predicts future performance.”
We use all sorts of shortcuts when hiring people. They sound good and make us feel like we’re being very discerning.
But are we really doing a great job?
Before launching into why we need to update our thinking on past performance, let’s start by acknowledging that if someone has been successful in the past that’s a great indicator that they can be again. By all means, a positive sign.
But we shouldn’t exclude people who haven’t been ‘A’ players, ‘rockstars‘ or ’1-percenters.’
Here are some fallacies behind the ‘past performance’ mindset:
1. Situational performance
2. Team effects
3. Opportunity
Performance is situational.
Most of us have worked with people we couldn’t stand. If they were our boss then it made coming in to work and doing great work incredibly difficult. We had to shift how we thought, how we operated and how we spoke just to make sure that we sort of ‘fit in.’
All that takes energy that could be better applied to completing our projects. And it does little to motivate us to think about our job outside of the office. We become less engaged and while we’ll still capable of doing a good job on our projects we’re not going to shine like the person who goes the extra mile and dedicates ‘off-hours’ thinking to solving problems out of their realm.
When we aren’t ideally suited for the environment, success will be far more difficult to attain.
Imagine asking Tom Brady (the not so swift-footed quarterback for the New England Patriots) to run a new style of offense that requires him to run the option (less throwing, more running). He may do alright but he’s not going to be the top-caliber performer he is today. How well someone fits ‘the system’ is a leading predictor of success.
Team effects.
Work today is highly interconnected. Everyone of us has to rely on colleagues in order to get things accomplished. It takes a village. Rare is the project that gets hammered out without the contributions, feedback and improvements from others.
Which brings us back to the question of how much success should we attribute to a single person?
Using the Tom Brady analogy again, how much of his success should be attributed to his offensive line? An extra second to throw the ball is an eternity and can turn an average quarterback into a star. How much to his wide receivers who know how to read the defense to break off a route sooner? To the coach who designed the system? You get the idea…
Opportunity.
On the macro level, most people change jobs every 3.5 years which means that unless one is 20 years into their career it’s very possible a candidate hasn’t found the right situation where they can be most successful.
It’s like saying someone who has had three or four relationships in their life will never get married because they haven’t been successful in a relationship before.
On the micro level, politics often play a large role in who gets the plum assignments. Being successful in the professional world requires we have the opportunity to do something impactful that is in our ability wheelhouse. Capable people are often passed over for people who are more adept at playing the political game. Are those the ones you really want to hire?
So don’t ignore past performance, but don’t put all your eggs in that basket either. Ignoring whether someone is a strong fit to your culture is the first step to making a bad hire. Even if all of your hires have been overwhelmingly successful in the past, if they don’t like how you operate and what your company rewards they aren’t going to want to put their best foot forward.
The Hidden Costs of Misaligned Culture Values
photo by WetSun
[Disclosure: Zynga is a RoundPegg customer.]
At RoundPegg, we quantify the impact of culture in a number of ways.
There is the hard cost of turnover (RoundPegg has saved companies well into the 7-figures by aligning culture and reducing turnover), the decrease in performance by having to conform to the values of others and the long-term benefits of having everyone pulling in the same direction (Jim Collins’ research showed companies with ‘strong, well-aligned cultures were 6x more successful’).
Opportunity cost is ever-present, but we never lean on it because it’s so squishy.
Yesterdays’s article in the NY Times about Zynga’s hard-diving culture however starts to put some real figures to the opportunity cost. At least two deals, totaling over $3Bn, were never consummated because, according to the article, the would-be acquiree had reservations about working within the Zynga culture. In fairness, there’s likely more to the story, but it is a telling that it was a big enough a factor for them to share with the New York Times.
The folks at Zynga are super sharp so they wouldn’t make an acquisition if they weren’t expecting to make money on the deal. Assuming they were expecting a 20% return, their cultural misalignment with the acquired companies cost them $640 million.
The article unfairly paints the Zynga culture as a less than desirable one. What they don’t account for is that there IS NO ONE ‘RIGHT’ CULTURE. People are not all the same. Some thrive on that sort of internal competition and others find it suffocating.
Would you love working in that type of environment? Maybe not, but that doesn’t mean it’s wrong. It just means that it’s not the right employer for you or for these companies about to be purchased.
The goal is to align the culture around similar values so that everyone understands the expectations and are motivated by the actions being rewarded. If that means cultivating a work first, hard-driving, metric-centric mentality then so be it. Plenty of employees are as happy as a FarmVille pig in mud, but that would have made for a less interesting article.
Ultimately, those failed acquisitions were probably a good thing because they recognized beforehand that integrating the cultures of the companies would have been a challenge. But leaving $640M on the table is never easy.
Company Culture & Employee Engagement
photo by stuttermonkey
In a recent post about boosting employee morale, David Irvine sites a number of compelling and depressing stats about the disengaged state of the workforce amidst this global recession.
If you are a stats person and would like to see the damage, I recommend you visit last week’s RoundPegg post on the Modern Survey results. Today, however, I would rather focus on the solution – CULTURE.
David Irvine would agree and listed culture as one of his three solutions.
The reason? Culture is the one of the main reasons employees thrive and stay engaged. It is the alignment of unique individuals through shared values, and a well-aligned culture is one of the biggest drivers of a company’s success.
Person-Environment Fit research shows that when people fit their work environment they perform better, turn over less and are more committed to the company.
Another way of putting this is that when people can go to work and be themselves then they have a lot more energy to apply to the challenges the company requires solving.
When your computer is asked to process multiple programs at once you often see the spinning beach ball or the hourglass, right?
Well, as complex as the human brain is, it too only has so much processing power. When we ask people to conform to an unnatural (for them) behavior it requires a chunk of that processing power. They are no longer 100% free to process work challenges.
You are probably wondering if this is the case, then why aren’t all companies quantifying their culture and hiring for cultural fit?
Culture initiatives are hard because they are typically conducted by the senior leadership team, a high-priced outside consultant, several flip charts and a lot of debate about which values (e.g. respect, integrity, communication, excellence)* matter. Nothing ever changes.
What nobody does is ask all of their employees what they value. It’s no wonder employees are disengaged because they’re being asked to live by somebody else’s values. And probably pretty vanilla ones that are only occasionally followed at that.
Active culture management can’t happen if you don’t know what you’re dealing with already. If you’re lost in the woods a new map isn’t going to do you any good. The most helpful thing is knowing where on that map you are at the moment you’re lost.
Culture matters in getting your people to perform. If you want to make a difference, then you need to know what your culture is from the bottom-up. Because the values pasted on your lobby wall are probably nothing more than very cheap decoration.
*Sound like your company? Those were Enron’s.
Employee Engagement – Bored Cubed
photo by nicholas t
The latest employment numbers are bad. Not for those who don’t have a job, but for those who do.
A recent Modern Survey study pegged the number of engaged employees at a mere 8%. Since their numbers didn’t quite add up I re-opened a more credible source, Blessing White’s 2011 engagement report. They note only 1 in 3 employees are engaged and barely half (56%) of all employees say they will definitely stay with their current employer for the next 12-months.
This doesn’t bode well for companies now or when the economy improves. An avalanche of voluntary turnover awaits as soon as these folks can find other pastures, green or not. Meanwhile a huge chunk of your personnel is quite content to do only enough to not get fired…indefinitely.
Intuitively, none of this is good. But you can find any number of ways around the web to ‘improve’ your engagement levels (we’ve also been known to push our agenda).
You’re most difficult job, however, likely isn’t figuring out what to do as it is convincing those around you that this matters. Disengagement would take on more meaning if we had better ways to quantify its effects. Nobody likes to lose money.
While there are data aplenty to show the relationship with business performance the data are generally based on stock market results which seems too nebulous for those of us managing business unit budgets. Instead, let’s take the available research to put some dollar numbers to the cost of disengagement at a more granular level.
To make the math easier, let’s use a couple of conservative, round assumptions:
- Business unit size: 100
- Average salary: $50,000
- Disengaged Employees: 18 (18% of unit)
- Turnover: 20%
Top line performance differences
According to Gallup the top quartile of engaged business units generate 16% more profit than those in the bottom quartile.
You wouldn’t be in business if you weren’t getting a positive ROI on your employees so let’s assume a 10% ROI on an employee. A $50,000 employee creates $55,000 in value on average.
The difference, therefore, is $8,800 in lost profitability per disengaged employee.
Total costs: $158,400
Replacement costs
Every company will have different costs to replace, but most don’t count enough of the soft costs. The time spent interviewing, training costs, lost productivity, etc. Estimates range between 30% of annual salary (for hourly workers) to 400% (for senior executives).
For most mid-level knowledge workers the number will be roughly 150%.
Thus, every employee who leaves will cost $75,000 to replace. Since disengaged employees turn over 49% more often, a quick goal seek in Excel shows that we could save 1.5 employees from turning over by lessening our disengagement level.
Total cost: $112,500 (rounded down since most companies don’t have any half people)
Bottom line rule of thumb: The disengaged folks cost you an extra $15,050 each (given the assumptions). To figure out what the lack of engagement costs your company, take the number of total employees and multiply by $2,709.
This is incredibly conservative, but even so, it’s not chump change. It’s time to focus on re-engaging.
Creating Cohesive Teams
photo by jczart
I never would have imagined that my beloved Boston Red Sox would ever cross paths with my day-to-day work; presenting company and team culture analyses at RoundPegg.
Then, over the weekend, The New York Times published an article by Neil Paine in Keeping Score: Collapse of Red Sox Offers Stark Lesson in Team Chemistry that tied these two worlds together.
“If you could quantify Boston’s chemistry for the 2011 season, it probably would be revealed as the worst in baseball. But therein lies a major problem for objective baseball analysts: team chemistry, as perhaps baseball’s most beloved intangible, defies all measurement.”
The reality is that you can quantify team chemistry – that is, you can assess the cultural preference, personality traits, and communication style of individuals and aggregate those results into a quantifiable profile of the team.
That is the analysis we at RoundPegg are doing for our clients via our automated TeamPegg software. The output is a development guide that summarizes strengths and misalignments of individuals in comparison to the team, and recommended actions to improve team cohesion.
Would the Red Sox have won another Championship had they been aware of team misalignments – probably not, bad pitching is bad pitching. But much of the “historic late-season collapse” may have been avoided had Terry Francona been aware of his player’s attributes and worked to develop a well-aligned squad.
One of the reasons RoundPegg came about was because of this very reason. Quantifying people isn’t easy, but it’s a data point.
Maybe next year the Red Sox will take my advice and even start scouting for players that are well aligned with their clubhouse culture – call me John Henry…
