The Dennis Principle

Cover of "How to Get Rich: One of the Wor...

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In 1969, Laurence Peter and Raymond Hull wrote the book, The Peter Principle and since then the observation that every employee tends to rise to his or her level incompetence has been synonymous with the title of their book.

The idea is that folks tend to perform competently at some levels and then are rewarded with promotion until they eventually reach a level where they are no longer competent.

If only that were true.  In my experience, competence is not what is rewarded with promotion.

I think Felix Dennis describes the scene more accurately in How to Get Rich, when he discusses delegation (p. 186):

It used to be surprising to me why so many people appeared to have a problem with delegating.  But I finally figured it out, and the answer isn’t a pretty one.  It concerns our old bugaboo, ownership.

If you own a company and that company’s purpose is to make you wealthy, you will be content, delighted even, for any amount of glory to go to anyone who works there, providing you get the money.  It is in your best interests to delegate whenever it makes sense in such circumstances.

If you do not own the company, or any part of it, then it is possible you are only a senior manager because you like power. It is not true of everyone, of course. But often enough. You like bossing people about.  You enjoy telling them what to do.  If that is the case, then you might be understandably reluctant to delegate real power or opportunity, in case the person you delegate to proceeds to excel. This, in turn, may well demonstrate to the rest of the company what a ho-hum manager you really are.

This is a warped way of thinking. But I am convinced it lies behind much of the reluctance to delegate I have encountered in my business life.  I used to be surprised at this reluctance of others, both in and out of my own companies.  Now I’m not surprised at all.

Bossy people and glory hounds are mostly interested in building a power base so they can have yet more people to boss about. It’s pitiful and a little sad, but we have all seen it.  We saw it in school. We saw it in the playground.  We saw it in college. And we saw it in our first job. If you are observant, you have been seeing it nearly all your life.

This type of managerial toad will often talk about training and delegation in sepulchral tones, but then, as the old proverb tells us, “the Devil can quote scripture for his own purpose.”

You can’t deal with bossy, puffed-up sods who won’t train you and won’t delegate.  You can only move departments or change your place of work.  It isn’t worth the time to do anything else.

Based on my experience, such folks tend to reward inputs (did you do it the way I said to do it?) instead of outputs (was it successful ?).  They somehow manage to assume credit for successes (which they then don’t easily share) and masterfully distance themselves from failures. They are expert horn tooters.

I’ve often scratched my head at the behavior.  It seems counterproductive.  But silly me, I viewed it from the owners perspective for some reason.  As Dennis lays it out, it makes perfect sense.

What’s really sad to me is that this is the type of leadership that has been taught to us since we were young.  I often struggled when myself or my friends attended leadership development camps or training.

My intuition told me that even the leaders of the camps didn’t really have a grasp on true leadership.  What they discussed was more of the bossy/glory hound leadership — how to stand tall and speak with authority and how to make yourself look busy, even when you don’t know what you’re doing.  It’s about managing up and improving your image.

I’ll add my own observation to Dennis’.  These types of leaders tend to gravitate to organizations that are already successful.  They say things like, “we are professional managers that will take over where the founders left off” and “we can take the business to the next level”.

In reality, it’s the organization’s prior success that allows it entertain such leadership for awhile.

I prefer Dennis’ style of leadership.

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Pay for performance in education

Today the Wall Street Journal reports that School ‘Bonus’ Plan Comes Up Short.

In short, $57 million has been spent in a school bonus plan in New York City Public Schools since 2007 to see whether it could improve test scores.  It didn’t.

As pointed out in the article, part of the problem might be with the bonus plan design.  Generally, the bonuses were not paid to top-performing teachers.  Rather the bonuses were pooled at the school level based on test scores and distributed evenly.  That might be part of the problem.

Personally, I don’t expect much test score improvement from such pay-for-performance attempts for two reasons.

First, I don’t think test scores are a good measure on which to base performance.  There are too many variables that impact test scores when averaged at a teacher or school level.

I don’t choose new restaurants based on test scores, nor do I choose which school to send my kid to based on test scores.   I generally choose both based on reputation and recommendations of my friends and family.

The better measure of performance is the percentage of parents who would recommend the teacher to other parents and/or the number of parents who request a specific teacher.

In a world with a competitive education market, the teachers who garner high recommendations/requests from parents are rainmakers for the school.  Administrators would generally hire, retain and pay teachers who bring in students.  This would act as a buffer against the politics and arbitrary decision-making they currently fear from their administrators.  There would be no need for the faux and limited-dimensional accountability system that branches up to the highest levels of government.

Second, I don’t think pay-for-performance operates in the manner many people think it should.

Generally, when I hear pay-for-performance discussed, it seems people believe that it is supposed to improve the performance of the existing teacher population.  They seem to think it will make bad teachers mediocre and mediocre teachers better.

But, that’s not how pay-for-performance can improve education quality.  It improves education quality by attracting better and more talented teachers.

If you put me on an NBA team, do you think paying me more to produce better results will cause me to produce better results?  Probably not much.  The NBA pay-for-performance works because it attracts people with immensely greater basketball skills than most.

Gervais on Success

Ricky Gervais

Test Marketing

I recommend this 12 minute Harvard Business Review podcast with Ricky Gervais. These are the parts that stuck out for me.

First, he agrees with me about awards.

The awards.  They’re a thrill. But, deep down, I know its only the opinions of a few people and it doesn’t matter whether you win or lose.

I’ve often been amazed at how awards are generally accepted as some great honor, when many times they’re a results of nothing more politics.  If you follow any awards like the Nobel Prize or even the Oscars, ask yourself what you really know about the people making the selection.  How and why is their criteria better than ours’?

Gervais continues on what he thinks is important:

What matters is the work you did. You tried your hardest and you’re proud of it.  You brought something into the world.  That’s the important thing.

I don’t try to please anyone except myself.  And if people like what I do, that’s fantastic.  If they don’t like it, then that’s good too.  If you start to try to water it down or second guess people, you end up with something so safe and homogenized that a lot of people will like, but they won’t love it.

I’ve always wanted to rather do something that really moved a million people then washes over 10 million.

I think that’s an extremely important insight.  Many successful organizations who have established their million fans make the mistake of trying too hard to expand to 10 million to find out that they’ve lost their million fans and aren’t that well liked by the other 9 million people.  I’d rather keep the million and find something else that works for another million.

I like the following because I think many successful people have their collaborators that we hear very little about.  Buffett has Munger, for instance.  Vince has E.

These are the no bullshit people.  That means these guys are tight enough with the Talent that they don’t blow smoke up the Talent’s bohunkus just to earn a spot in the entourage.  And the Talent trusts, values and appreciates their opinion — though they may not always agree.

Gervais explains how his collaboration with Stephen Merchant works.

It helps with two people.  Two heads are better than one.  But, there’s a compromise, which is bad. The best things are a single vision. So, you got to find a single vision between the two of you.

One, it’s luck.  Out of 6 billion people, I bumped into someone who sees eye-to-eye on 90 percent on everything we talk about.

He and Merchant have a golden rule.  One veto and it’s out.  No justification or compromise.  It just goes.

So, what you end up with the compromise is that every second of that thing, you both love it.

I love how Gervais appreciates the luck of finding a good collaborator.  I see so many people who I believe could be much more successful if only that could find those people they hit it off with.

I liked this bit about how he gets his material because it ties in with the experimentation and crowd sourcing themes that I write about on this blog frequently:

The things I work up on my own, it’s an evolution.  It’s a process of natural selection.  So the audience chooses the best bits.  They either laugh or they don’t.

So, if I do something that isn’t funny, they don’t laugh and it doesn’t survive.

If I say something that is funny, it’s funny every time.

What you’re left with at the end of a series of gigs is a survival of the fittest.  It’s the best gene pool that I could come up with.

So, I’ve got a room full of 10,000 collaborators and critics.

I’ve found the same thing with business presentations.  The best presentation I do on a new subject is about the fifth time I’ve presented the material, because I try a variety of things to illustrate a point and I keep the stuff that worked in presentations one through four and drop the stuff that didn’t.  And it works.

That’s why it’s always good to find practice audiences, have a keen eye for body language and learn how to cull out honest feedback.

Finally, on dealing with the fact not everything is for everybody and his inspiration.

I just do things that make me laugh and I always think that if I do something that genuinely makes me laugh, with no ulterior motive other than ‘that’s funny’, then there will be someone else in the world that finds it as funny as me.

And with 6 billion people in the world, there’s probably quite a few people who find it as funny as me.

And, that’ll do for me. That really will do.

Felix Dennis on Talent

As I wrote about in this post, successful people have the resilience to recover from failure and try again.  I think they also have superior talent management capabilities.  Felix Dennis, who speaks much more from experience than I, agrees.

In his book, How to Get Rich, Felix Dennis describes five business start-up errors.  The fifth error is skimping on talent.  I like what Dennis has to say here (p. 105):

If you are determined to be rich, there is only one talent you require.  Can you think of it before your eyes skim down to the next paragraph?

Right.  You need the talent to identify, hire and nurture others with talent.

Sometimes, to ensure that a talented individual will work for you, or will stay working for you, you need to be flexible.  Money is not always the great motivator here.  Talented people want a good salary, of course, but surprisingly often they are more attracted to new opportunities and challenges.

When you come across real talent, it is sometimes worth allowing them to create the structure in which they choose to labor.

You must identify talent.  Then you must move heaven and earth to hire it.  You must nurture it, reward it properly and protect it from being poached.  If necessary, dream up a new project.  Better sill, get the talent to dream it up.

I’ve noticed that some leaders see themselves as the talent.  They do their best to outshine others and sometimes they reach good levels of success.  For awhile. Until the next beacon outshines them.  Then these guys are taken out.

Other leaders see their job more like what Dennis describes.  Jack Welch, former CEO of GE, was classic example of this.  These types of leaders seem to have better odds at superior, long-lasting success.  These guys tend to go out on their own terms.

Manage the right outputs

I believe one secret of good leadership is rewarding and punishing the right outputs, or results.  Bad leaders tend to fixate on inputs and/or the wrong results. 

For example, a business owner complained to me about one of his associates.  His gripes were personal preferences.  He didn’t like the way his associate did this or that.  He asked my opinion.  Rather than giving it based on my five minutes with the guy (which I didn’t think would be fair to anyone), I simply asked how are his numbers?  I thought it would be good to re-focus the owner on the results.  I could read it in the owner’s eyes, good question, I hadn’t thought of that.

My advice to folks who desire to be a successful leader is to grow accustomed and adept at asking and answering …and that resulted in what?

The next step is making sure you hold folks accountable to the right results.

A business professor of mine once told the class his story about bonus structures he experimented with when he owned and operated sandwich shops.

First, he wanted to grow revenue so he tied managers’ bonus to revenue growth.  That resulted in high food and staff costs as managers tried to attract business with over portioned sandwiches and always had more than enough staff on hand to handle unexpected rushes.  While customer traffic was good, profits suffered because of high costs.

Next, he tied rewards to costs to gets costs under control.  That resulted in long lines, under portioned sandwiches and customer complaints as managers tightly controlled staffing and portions to meet the cost targets.  Customer traffic slipped with service and product quality and profits suffered.

In both cases, he felt the store managers didn’t pay enough attention to the cleanliness of the store.  The owner was spent late hours scrubbing trash can lids and cleaning windows to meet his standards.

Finally, he tried a combination plan.  First, he came up with a 70 point inspection checklist that he would use to rate the cleanliness of things like the trash can lids, bathrooms, tables, floors, counters and doors.  He told his managers that he would inspect the stores any time, day or night, and to be eligible for a bonus store the store had to score 69 out of 70.

If the manager passed the inspections, then he or she would be eligible for a bonus that was based on year-over-year revenue and profit growth for the month.  Further, for each month that staff costs were less than a certain percent of sales, staff would receive a bonus making up the difference.

He was pleased with the results.  He said managing the operation became as simple as conducting the inspections.

He no longer spent late nights scrubbing trash can lids.  Managers and staff found ways to increase sales and control costs, rather than focusing on one at the expense of the other.

It took some experimentation, but he seemed to have have found the right outputs to reward.

How do you know?

Bad mental models held by management is a root cause of bad business performance.

The “not invented here” syndrome is an example of a bad mental model in business.  This syndrome  prevents management from adopting the practices of outside competitors because they don’t want to copy success, they want to create their own.  The fallacy here is that competitors can have good ideas.

Not my idea syndrome is a sub-variant of the “not invented here” syndrome. This is when managers will only support their own pet projects and give no credence to ideas that come from others in their organization.  The flaw here is that others can have good ideas.

The manager’s job is to try the best ideas, not just his or her ideas.

Credentialing syndrome is when managers hire, promote and reward folks based on  college degrees from certain institutions, or have specific degrees, certifications or licenses.  A great example of this is K-12 teachers.  School districts often pay their teachers based on the certifications they receive.  The fundamental flaw here is that there’s usually not a great deal of relation between effectiveness and certification level.  Not as much as there is between prior results and effectiveness.

Input management syndrome occurs when managers hire, promote and reward based on how people carry out their work, rather than the results they produce.  The fundamental flaw here is in managing the inputs rather than outputs.  This is also called micromanaging.  My father-in-law was a capable foreman for his crew and produced good results.  But, he said one of his bosses would always tell him that he was too easy on his men.  That boss didn’t look at the results.

The manager’s job is to hire and reward the people who produce the best results.  It’s not to get the people who have best credentials or do things a specific way.

The fatal conceit syndrome, inspired by F.A. Hayek, is when managers believe their job is to control how things are done in far flung organizations.   Rather than hiring people who can produce good results, they hire people who do what they are told to do.  Two fundamental flaws exist in this bad mental model.  First, managers rarely have the information they need to control things effectively in far flung organizations, aka the knowledge problem.  Second, innovation is suppressed and limited to few ideas of the managers and they are soon overrun by the many ideas of their competitors.

The manager’s job is to develop an organization that can function.

I’ll explore more bad mental models in the future.

Unfortunately, bad mental models are tough to change.  I’ve seen many leaders go down with the ship and get fired for producing bad results without giving consideration that they may be wrong. I’ve seen them take their bad mental models to other organizations and eventually get fired from them as well.

But, one way I like to plant the seed of doubt is to simply ask what evidence folks have that their way of doing things is right.  They usually haven’t tested that evidence as well as they think they have.

Succession planning and innovation

These are two important concepts.  Few companies get both right.  Perhaps getting both right is a matter a luck.  But, I enjoyed what Rich Kaarlgard had to say about Intel in his latest Innovation Rules column in Forbes.

Name a Silicon Valley giant that has managed CEO succession well. HP hasn’t. Sun blew it. Advanced Micro Devices never adequately replaced Jerry Sanders. Apple dropped the baton repeatedly its first incarnation – Steve Jobs to John Sculley, Michael Spindler and Gil Amelio — and it’s too early to tell if Tim Cook can replace Jobs this time around.

Among large companies, only Intel has mastered CEO succession multiple times. Founded in 1968, Intel has gone from founders Bob Noyce and Gordon Moore, who both served as CEOs, to Andy Grove, Craig Barrett and now Paul Otellini without losing its status as the world’s preeminent chip manufacturer.

I also like how Otellini attributed different aspects of Intel’s culture to each CEO:

Egalitarian. Merit based. That came from Noyce. Anyone can speak in a meeting, but you must speak with data. That came from Moore. Take risks. Embrace innovation, but do it with discipline. That’s Grove. World-class manufacturing came from Barrett. I’ve added a marketing component.

I enjoyed this last piece because I see these as key attributes missing from dysfunctional and bureaucratic organizations.

In dysfunctional organizations, politics override merit.  Rhetoric gets you further than data and experience.  Innovation is not embraced, rather its usually the pet ideas of the political masters that get the attention.