Maxims in Need of a Makeover
Forget those management cliches. These professors say it's time to follow the evidence
To many, they are the commandments of business management--truths to be ignored at a company's peril. Say them together now: Great leaders make great companies. Strategy is destiny. Change or die.
But here's a thought: What if some of the business world's most dearly held axioms are wrong? What if there is a better way? This is the argument Jeffrey Pfeffer and Robert Sutton, management professors at Stanford University, make in their new book, out this week, Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting From Evidence-Based Management. Gathering the work of psychologists, sociologists, and management experts, the authors make a compelling case that some of business's beloved truths are far from self-evident. Too many business leaders, they argue, are making decisions based on vague hunches, management fads, and heroic-success stories instead of on empirical data. Too often, the consequences are grave. "If doctors practiced medicine the way many companies practice management," Pfeffer and Sutton write, "there would be far more sick and dead patients, and many more doctors would be in jail."
More than a few management experts agree that some of these Olde Business Maxims are long overdue for a makeover. "They have really touched a nerve here," says Tom Donaldson, a professor of ethics at the University of Pennsylvania's Wharton School of Business: "Managers often don't know what they don't know." So what is a Jack Welch disciple to do? U.S. News sat down with Pfeffer and Sutton to discuss their five favorite myths of management--and to see who they think is practicing business their way.
Financial Incentives Drive Good Performance
Managers often think money can solve all their problems. Workers not performing the way you'd like them to? Tie their pay to performance. Executives haven't bought into the company's mission? Offer them stock options. Pfeffer and Sutton argue, though, that using financial incentives to improve performance isn't quite so simple.
Too many managers overlook the fact that incentives can inspire bad behavior as well as good--and often hurt performance as much as they help it. Take the incentive system put in place recently by the city of Albuquerque, N.M. To cut down on overtime paid to garbage truck drivers, the city began to encourage workers to finish their routes on time or early, by offering a driver who completed a route in five hours, say, three additional hours of "incentive pay." The results were not quite what the city had hoped. Drivers drove too fast, often in trucks that were overweight, and in many cases garbage didn't even get picked up. "When you tie money to incentives, people will not necessarily focus on what's best for the organization," says Sutton. "They'll focus on what it takes to get the incentive."
Which, of course, can lead down a slippery ethical slope. In a study conducted last year comparing 435 companies that restated their earnings with those that did not, researchers at the University of Minnesota found that the bigger the proportion of stock options in senior executives' payment packages, the more likely the companies were to have to restated their finances. Cooking the books, in other words, became increasingly tempting the more salary was linked to stock price.