Maxims in Need of a Makeover
Forget those management cliches. These professors say it's time to follow the evidence
So why do so many companies keep trying it? Simple intellectual inertia, says Pfeffer: At some point, "it just becomes what everybody does; nobody thinks about it anymore. They don't ask if it's appropriate, if it fits their particular circumstances. They don't ask anything--they just do it." Managers don't seem to realize that equity incentives rarely improve company performance. But they should. "The lesson here," the authors write, "is a variant on an old adage: Be careful what you pay for, you may actually get it."
MYTH 2.
First-Movers Have the Advantage
There is something about this idea that appeals to the entrepreneur in every executive: Be the first to move into a market, and you'll have it all to yourself. Victory will be yours.
But actually, it may be better for a business in the long run to be second or even third. "Success stories that support first-mover [advantage] turn out to be false," says Sutton. "People believe in it religiously, but the evidence is mixed." There are plenty of infamous first-movers, after all, that did not go on to dominate their markets: Xerox invented the first PC, Netscape came up with the Internet browser, Ampex produced the first VCR--and yet none of these companies managed to hold on to their leads. Meanwhile, Microsoft has made a living coming in second: Windows is a copy of the Mac; Excel followed Lotus 1-2-3; Internet Explorer jumped into water warmed by Netscape. And Bill Gates isn't alone. Wal-Mart was hardly the first discount retailer. Apple wasn't the first company to sell MP3 players. And Amazon wasn't the first to sell books online. "At first blush, it sounds like a good idea," says Sutton, "but as soon as you start challenging assumptions, it's a half-truth."
Many other management experts concur. "We're still looking for the silver bullet: 'If you do this, you will guarantee success; if you do that, you'll guarantee failure,'" says Barry Staw, a professor of leadership and communication at the University of California-Berkeley's Haas School of Business. But being first to move into a market is not necessarily it. "A lot of what's effective management is doing things well and doing it over and over again," says Sutton. Too many managers become obsessed with being first, when coming in second, oddly enough, may be the most cost-effective way to be the best.
MYTH 3.
Layoffs Are a Good Way to Cut Costs
It seems like basic economics. If you have a company with 100 employees, and you're over budget by 10 percent, laying off 10 workers will solve your problem. In one stroke, there go hundreds of thousands of dollars in salaries, healthcare benefits, and 401(k) plans--and suddenly your balance sheet is looking much better.
Not so fast, say Pfeffer and Sutton. While some research shows that layoffs have no effect on long-term financial performance, and other data show they have a negative effect, there are few studies, if any, demonstrating that layoffs have a positive effect on company performance. A recent report by Bain & Co., in fact, found companies that manage to avoid layoffs--even in tough financial straits--end up better off financially in the long term.
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