Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University. He is the author or co-author of twelve books.Dr. Pfeffer received his B.S. and M.S. degrees from Carnegie-Mellon University and his Ph.D. from Stanford.
He began his career at the business school at the University of Illinois and then taught at the University of California, Berkeley, and he has been a visiting professor at the Harvard Business School, Singapore Management University, London Business School, and IESE in Barcelona.
Pfeffer currently serves on the board of directors of Audible Magic and SonoSite (SONO) and writes a monthly column on management issues entitled “The Human Factor” for the 650,000 circulation Time-Warner business magazine, Business 2.0
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Question: Why do companies do stupid things?
Answer: First, they ignore feedback effects. There has recently been a lot of interest, and apparent surprise, that programmers in India now cost a lot and their wages have been rising rapidly. Did people forget supply and demand? If everyone moves work to India, what did companies think would happen? Or, to take another example, when companies cut their retirement benefits, and people can not afford to retire, guess what, they won’t.
Second, companies often ignore the interdependence or connections between actions in one part and those in another. So, even as some departments are trying to cut the costs of benefits, others are worried about recruiting and retaining enough qualified people. Maybe the parts should work together.
Third, many companies presume that incentives are the answer to everything, and have a very mechanistic model of human behavior. That is also incorrect.
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Question: What can companies do to get smarter?
Answer: Companies learn just like people learn—by trying new things and seeing what happens. That requires, first, a tolerance for failure, since by definition, learning means doing things you aren’t very good at.
Second, it requires structured self-reflection—after-action or after-event reviews so that instead of having one year of experience repeated 20 times, people and companies actually accumulate learning over time.
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Question: How do you stop the misdeeds (for example, Enron) in organizations?
Answer: What is interesting is that there are few social sanctions—as contrasted with legal or financial ones—for bad behavior. Executives who have served jail time are back on TV and are still celebreties. More to the point, they aren’t shunned by their colleagues.
The prevailing mood seems to be, as long as people retain enough wealth, they can buy their way back by donating time and money. If we are serious about enforcing norms, then there have to be real sanctions. In the military academies, violations of important norms are met with expulsion or social ostracism—eating alone, for instance. Not so, not yet, for the most part in the corporate world.
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Question: How do you get a company to behave in a truthful manner?
Answer: You start by having leaders tell the truth—which includes admitting what they don’t know and what they have done wrong. It is impossible to manage successfully if you don’t know what is actually going on. But a lie takes two people: the person who tells the lie and the individual who signals that s/he wants to hear it. So, you don’t want to punish people for surfacing problems or telling you bad news. You don’t want to “shoot the messenger,” but thank them for bringing issues and concerns to light.
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Question: What’s the best way to improve customer relations?
Answer: This is almost too simple—actually take care of customers! I am sure we have all heard the recorded message, “you’re call is very important to us.” Well, if the call were important to the company who has recorded the message, maybe they would answer it in some reasonable time instead of either playing music or bombarding the caller with advertising messages. When you make a mistake, fix it and admit responsibility. Tell the truth. By the way, the airlines seem to be the worst at all of this, with a few exceptions.
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Question: I think I know what you will say, but what’s more important: CRM software or recruiting and training?
Answer: Before you can manage customer relationships through some software product, you first need to build those relationships. And relationships are still largely built through people. That’s why the most important three feet of real estate in retail—or in many industries—is the distance between the customer and the sales associate or individual who is serving that customer. Hiring the best people who are likely to stay, and investing in their training, will build relationships that CRM can manage. Without taking the first steps, there is nothing there.
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Question: What is the key to global competitiveness?
Answer: The data on this are clear—companies choose to locate their R & D facilities on the basis of the availability of talent. This is more important than tax abatements and certainly much more important than rates of pay. If location was determined by cost, Silicon Valley would be empty. The best way to build human capital is through education—both elementary and secondary as well as higher education that is truly world class. This costs money, but it is worth it.
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Question: What is the proper role for a CEO?
Answer: To develop others and their talents and to create an environment in which people can do their best and want to. It is not to make all the decisions or, like some kind of “sun king,” absorb all the light and the attention.
In fact, sometimes, as the Grammy-award winning Orpheus Chamber orchestra shows, the best leadership is less leadership. No seed can grow if it is dug up and examined every week, and for people to innovate and get things done, sometimes they need some time and space and resources.
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Question: How do you turnaround a company?
Answer: As the late Peter Drucker said, there is no business without a customer. Turning around a company is mostly about providing people a great value proposition—giving them more than they expect. Better products, services, more attention, than the competition. It is hard to do any of this if you lay people off. People—the best people—will head for the exits. And you can’t cut your way to success, because it’s a strategy that’s too easily duplicated. Look at Singapore Airlines—they are able to charge more for the same flights because they provide such a superior product and experience. I wish more companies would figure this out.
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Question: But what if it’s no fault of the company and people just aren’t buy, flying, etc…then what do you do?
If you are going to lay people off, do it once, tell the specific people who will be let go, do it with compassion and generosity, and get on with it. But often organizations can find ways of avoiding layoffs, such as reducing everyone’s work hours a little, reducing variable components of pay, or finding ways to capture market share from competitors.
If Southwest Airlines could come out of 9/11 without doing layoffs in an industry, airlines, that was devastated, then I am not sure they are ever necessary. But the typical way they are done—announcement of a number so that everyone is worried and distracted, and often doing the layoffs by escorting people out the door so they can’t say good-by, leaves “survivor guilt” and demotivated people.
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Question: What are the characteristics of a good work week and vacation policy?
Answer: We live in a world where ideas and innovation are paramount. But people can’t be creative if they are exhausted. And when people work when they are tired, they make mistakes. If we have learned anything from the quality movement, it is that the cost of finding and fixing mistakes is greater than the cost of preventing them. So, give people time off. And, by the way, the younger generations want a life as well as work. Work-life balance is a great way to attract—and retain—great people.
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Question: What are the characteristics of a good incentive plan?
Answer: Incentives should be large enough to provide an occasion for celebrating success but not so large as to distort behavior. And incentives can include recognition and things other than money. Companies get themselves into trouble all the time by being too clever with their incentives.
Stock options did reward leaders for getting the price of the stock up—it’s just that it was often for a short period, and was accomplished by distorting earnings. Be careful what you pay for—you might just get it.
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Question: What does it say about a company if it asks a candidate with twenty years of experience to submit school transcripts?
Answer: To tell you the truth, neither hiring on the basis of a resume—the positions people have held and the credentials they have acquired—nor hiring on the basis of a transcript makes much sense. In the first case of the 20 years of experience, you need to ascertain not just what the person has done but also how well s/he has done it—something that is difficult to do in a world in which lawyers will tell previous employers not to say much—and more importantly, what they are capable of doing in the future.
Every CEO was CEO for the first time, which meant that some company had to decide that “previous experience”—in this instance, in the CEO role—was not a requirement, and similarly for every other position. In the second case, transcripts mostly reveal whether people can succeed in school. There is little evidence in the one area I know best, business schools and MBAs, that grades in school predict subsequent career success, and to the extent there are positive correlations found in some studies, they are incredibly small.
The answer, in terms of hiring, is to first of all be clear about the relevant behaviors and then test for those behaviors, either using work samples or else interview questions that probe how people have handled or would handle relevant situations.
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Question: What role should budgets play in the management of an organization?
Answer: Budgets should be general guidelines. As hard and fast rules, they become subject to “gaming.” People delay doing sensible things, push expenses around, hide sales, etc. And also, budgets often just reward the best forecasters and negotiators. It is possible to make “budget” as you lose market share and go broke, as long as the targets are set low enough.
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Question: How should people judge a company’s results?
Answer: By comparison to its peers and by comparison to what its own aspirations are. Companies, as the balanced scorecard notes, depend on customers, employees, investors, suppliers, and others in the ecosystem. It is wrong to give one of those groups priority over the others. Brand loyalty and employee loyalty are both real assets, even if not reflected on balance sheets and income statements.
Just look at Apple Computer with respect to products and DaVita, the kidney dialysis company, which has few open nursing positions because it is a great place to work. As Herb Kelleher of Southwest Airlines recognized long ago, if you take care of your people, they will take care of the customers, who will keep coming back, which will make the shareholders happy. It is all interrelated.
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Question: What role should strategic planning play in the management of an organization?
Answer: Doing the right thing is important, which is where strategy comes in. But doing that thing well—execution—is what sets companies apart. After all, every football play is designed to go for a huge gain. The reason it doesn’t is because of execution—people drop balls, miss blocks, go to the wrong place, and so forth. So, success depends on execution—on the ability to get things done.
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