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.

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.

Moneyball for HR

photo by j9sk9s

Three years ago this month I started the research behind RoundPegg.  I’m a bit of a baseball nerd and love the assorted flavors of statistics that have brought evidenced-based management to the sport.

My goal was to help business professionals replace some of the subjectivity within talent management with statistical rigor.  We are still on step 2 of this process now, but the vision hasn’t changed.

At the risk of seeming narcissistic, I thought it was a good time (given Moneyball’s huge box office opening last weekend) to trot out a soliloquy I wrote to my soon-to-be business partners about the opportunity we had to make an impact.

———RoundPegg: The Beginnings———–

I’ve been thinking a lot more about RoundPegg’s place in the changing the future and why I get so fired up about all this.  I tried to elucidate the concept through an incoherent story I told on Friday about the conversation I had with a friend at the Houston Rockets and how they were using statistical measurements to assemble teams to predict the outcome of highly inter-connected interactions.  Particularly in a sport where individual success often comes at the expense of team success and the stats reported are selfishly obtained.  Like our workplaces.

Coincidentally that same conversation he and I had was recently played out by Michael Lewis (author of MoneyBall) in what makes a tremendously long article to read online, but if you’re into sports or using statistical measurements to build teams, an interesting one.

With that, I hope, a better explanation of why this is so huge and the direction we could take this is such a game-changer.

Ultimately, I see RoundPegg completely changing how people work together by changing how we evaluate, grow and utilize people.

Where we begin to de-emphasize previous experiences (having already done a task) and recognize the inter-connectedness of our work teams and the importance the ‘softer’ skills play on our work outcomes.  Where we stop managing and supervising and start coaching and leading.  Where we let people put their strengths to use and the current ‘managers’ are only there to herd energy and keep the bus running straight.  I wrote a post on why I thought this was important over the weekend.

A couple sentences that illustrated this point for me in the NYT article:

“Battier’s game is a weird combination of obvious weaknesses and nearly invisible strengths. When he is on the court, his teammates get better, often a lot better, and his opponents get worse — often a lot worse. He may not grab huge numbers of rebounds, but he has an uncanny ability to improve his teammates’ rebounding.”

What we’re trying to do now by making sure we get the right people on the bus is just the beginning.  It’s vital and quite lucrative, undoubtedly, but if we succeed in forcing the conversation to acknowledge that our working relationships are as much or more important than the tasks I’ve previously completed then it’s a foot in the door and we can continue that story into the workplace.

After that it comes down to providing the tools for personnel development on an ongoing basis.  Eliminating the bullshit, demoralizing annual review and collecting regular data on our performances, like box scores, that will enable organizations to develop and get more out of their employees and allow RoundPegg to collect data about how we all work together and what drives success.

We’ll be able to recognize whether someone is a net positive or negative to a team regardless of what his individual track record may be.  We can identify strengths and weaknesses in a far more objective measure than ever available before.  We will be able to put them in a position to capitalize on their strengths, figure out the secret sauce behind work teams and cobble them together for organizations in a way that drives the business like we only hope for today.

We’ll also change what we acknowledge as contribution.  Our organizations will foster collaboration as a way to move ideas forward instead of internal competition (e.g. boxing out the right guy so your teammate can grab the rebound).  And we’ll be able to measure the intangibles.  Where it’s not always the guy who speaks loudest or most or with the most conviction who is construed as having the best ideas.  It comes down to evaluating people for their unselfish play that often gets overlooked now.

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It’s been fun to re-read this.  Our vision remains and we’ve made a lot of progress to the goal.  But, obviously, this is something that is going to take time, but we’ll get there…for the good of us all.

Introducing HR3.0

photo by mysza831

RoundPegg was mentioned on NPR’s Marketplace program last week talking about HR3.0 in the context of the hiring process.  (Disclaimer: we may very well have made up the term.)

Despite that, we fervently believe in the idea behind it and want to define it a little more detail.

HR3.0 introduces transparency to the job search/hiring process.

Even with more of the hiring process moving online, we are only just now beginning to catch up with where the process was in the offline world 15 years ago.

That’s not to say the digitization and transition online hasn’t improved the process some.  But it’s mainly recreated what’s already existed into 1s and 0s and improved things at the margins (see after the jump for a brief history of the online job industry).

HR3.0 marks the day when the power of the Internet is brought to bear to actually do things that were difficult, if not impossible, to do in the offline world.  HR3.0 starts the process of changing the game.

At its core, it is about transparency.

Transparency to ultimately figure out whether you can work successfully within a company or whether a job candidate will return you a positive ROI.

That includes peppering who you know and their contacts for information on working at a company or peppering shared contacts to get the real scoop on a candidate.  It also means having the ability to drill deep into a company’s real culture or a team’s sub-culture or drilling into whether a candidate will be able to work well with a team.

Changing jobs/hiring is a massive commitment and one where the deal is typically sealed after a three dates.  If a job seeker makes the wrong decision the downstream effects could derail the individual’s career path for a couple of years.  And a bad hire costs a company a ton of money (~150% of compensation) and has ripple effects throughout the team.

The commitment for both sides though is largely psychic though.  Will a new hire ruin a team’s chemistry?  Will a new gig and manager make your life miserable?  Team politics (used neutrally – every team has them) can be crushing for a new individual who doesn’t quite fit.

Being able to put more of that work-style information in the hands of the players involved means better decision-making (usually).

LinkedIn and apps like BranchOut have made it much easier to be proactive in the process.  It’s much easier to collect information about potential managers and candidates alike to begin painting the picture of what working together may be like.

We at RoundPegg are taking an exhaustive, objective approach to help companies understand their culture and who best fits while GlassDoor has started on the other end and offers candidates a peek behind the wizard’s curtain.

Ultimately it all paints a better picture of whether the grass really is greener.  Calling provided references is a joke and asking your uncle’s college roommate what it’s like to work at GloboCorp is a silly, invalid data point of one.

The Internet is helping reveal the true drivers of workplace success and providing both sides the opportunity to do things differently (and better).

Welcome to HR3.0.  This is just the beginning.  It’s going to get really damn exciting especially when these approaches start to converge.

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