Should Performance Reviews Be Fired?

Many observers have suggested that performance reviews cause too much stress (for the benefit generated). Even when reviews work as advertised, R&D managers do not have the right tools to use performance evaluations.  There are no easy ways to reward good performance, as neither financial incentives nor stock options may be very effective.  Furthermore, &D managers do not often have the right approach to address poor performance.  A new article from the Wharton School of Business provides some useful information about performance reviews (Should Performance Reviews Be Fired? – [email protected]):

Performance reviews typically are not done often enough and all too often are done poorly. A good performance review gives employees constructive, unbiased feedback on their work. A bad one demonstrates supervisor bias and undermines employee confidence and motivation.

Clearly, a vast majority of companies use performance reviews

Cappelli cites studies showing that 97.2% of U.S. companies have performance appraisals, as do 91% of companies worldwide.

So, what are the main problems with performance reviews and what can we do about it?

  1. Frequency: Annual feedback on performance is just not enough in today’s fast paced world.

    In addition, reviews encourage employees not to speak out about problems they observe because it could adversely affect their career paths and compensation, Culbert states. As examples, he points to “employees at Toyota, BP and the nuclear reactor site in Japan who knew about defects” in their companies’ products, but failed to report them because of a lack of trust between employees and management.

    It might be better to have a project / task based continuous evaluation, a quarterly or semiannual development reviews followed by annual incentive / raise review.

  2. Competing Agendas: Most organizations have two completely different goals for reviews. One is to help employees improve performance and the other is to rank them to decide who gets what rewards. Combining the two in one review ensures neither objectives are satisfied.

    Performance reviews “are rarely authentic conversations,” writes Daniel Pink in “Think Tank.” More often, “they are the West’s form of Kabuki theatre — highly stylized rituals in which people recite predictable lines in a formulaic way and hope the experience ends quickly.”

    As discussed above, it is probably better to separate performance, development and reward reviews from each other.

  3. Performance Metrics: In many cases, especially in R&D, it is not clear how to measure performance and compare it.

    “Companies are concerned that if it isn’t a quantifiable, very objective measure, then it’s not a good measure.”

    However, if we do 1 and 2 above, it is possible to make performance reviews more quantitative:

    But in recent years, with the explosion of knowledge-based companies, “the ability to assess performance in a subjective and qualitative way” requires a process that looks at “first, what are the key performance criteria that are important, and second, how do you measure them when they are qualitative.” He suggests asking employees during the assessment process “how they do their job, what [competencies] they have developed and whether they are continuously improving their knowledge skills.”

  4. Checking the box:  Many managers do reviews just to check the box. This actually is the worst of both worlds – neither do employees know how to improve performance, nor do they feel rewarded for their work.

    Finally, some performance reviews under the auspices of human resources departments focus only on getting reviews completed — “100 percent compliance” — not on their quality. A Sibson Consulting/WorldatWork survey found that 58% of HR executives give their performance management systems a “C” or below, in part because managers don’t receive the training they need to deliver effective appraisals.

    Points 1, 2 and 3 above might help managers move away from checking the box.

The article shares a case study about SAS which saw improvement when they moved from annual performance reviews to more frequent appraisals.  The article also talks about a new performance management tool (for software companies):

Indeed, the importance of frequent feedback crops up in almost every discussion of how to improve performance reviews. Daniel Debow is co-CEO of Rypple, a Toronto-based social software company that creates products designed to help people share continuous real-time feedback and provide coaching. Rypple’s target market is the 50- to 1,000-person knowledge worker firm focused on creative collaboration “where the model of a social network describes what is going on.”

Finally, here are some more ways to improve performance reviews.

Article first published as Should Performance Reviews Be Fired? on Technorati.

Impact of Employee Stock Options on Performance

[email protected] has a great article Incentive or Gift? How Perception of Employee Stock Options Affects Performance.  It appears that the idea that stock options drive people to work harder to increase the stock price is not quite true.

The story is not that people work harder to make the share price go up,’ Cappelli noted. ‘It is that if the share price goes up and people make money, they feel an obligation to work harder. That’s a bit of a surprise.

Employees seem to feel that the company has given them a gift ONLY if they can exercise the options at a profit.  Even then, they only work hard in that they feel some gratitude for the gift!  This is important for R&D managers to understand because options are increasingly a part of benefit packages.

The issue is significant because over the last two decades, American firms have both greatly increased use of a stock option plan as a form of employee compensation, and broadened the class of eligible employees to include more than just the most elite executives. According to the National Center for Employee Ownership, only one million U.S. employees held stock options in 1990. That figure has since skyrocketed to nine million workers now participating in roughly 30,000 different plans.

We have discussed incentives to drive R&D performance many times.  Most recently, we discussed that financial incentives alone might not be the best way to drive performance.  That post has a list of related articles that you might want to check out.  This article follows the same theme that we have discussed in the past. Lets dig in…
Incentives have to be aligned with required behavior to improve behavior. Most R&D team members can not define what they can do to improve share prices, so they do not actually see options as an incentive to work harder.

Boosting the research effort was a large amount of data provided by a major American public corporation. The firm granted stock options to the 4,500 employees — primarily store managers — based solely on their level within the company hierarchy, as opposed to job performance. Because these lower-level managers were largely responsible only for the sales performance in individual stores, there was little chance that their day-to-day work would actually directly influence share price, or that the manager would perceive such an impact.

So, what are some of the positives of employee stock options?  Clearly, employee retention is better – employees are not likely to leave if they have a lot of un-vested options.  The impact on performance seems to come from improved morale and is related to the actual profit employees make from the options.

… employees who profited handsomely from exercising their stock options appear to give a lot of the credit to the positive attributes of the company.

The article claims that there is significant improvement in performance.  It looks quite small to me and I wonder if a much better improvement can be gained from bonuses tied directly to required behavior…

The researchers found that a doubling of the profits from a sale of options resulted in a 1.3% increase in performance appraisal scores and a 1.1% decrease in performance-related dismissals — numbers that were statistically significant and meaningful in the broader context of the company data. According to Cappelli and Conyon, the data suggests that a company would have to increase the number of options awarded to employees by sevenfold to achieve the same impact on worker performance as a doubling of the profits from options.

The key problem is that profit from options are seen as gifts and any improvement in performance comes only once the profits are realized.

This shows that we’re not strictly economic in our relationships,” Cappelli says. “The proof of that is these folks who feel that they have been given a gift that they didn’t expect for their performance. There is nothing that requires them to reciprocate by performing better, but they do anyway.” Indeed, the research suggests that the improved performance after a profitable exercise of stock options typically lasts for a year or longer.

So instead of driving performance now, when we need it, we will drive performance when the share prices are actually higher…  Not quite a direct approach to improving performance and quite unpredictable in efficacy.

But the findings also raise questions for the many firms that offer stock options as a benefit, since the research shows that the impact on employee performance really depends on the price at which employees sell their shares, which changes in ways that are essentially unpredictable — and mostly out of the control of company leadership.

Finally, the most important problem: Employees need to know when to exercise the options to receive maximum profit.  The data shows that employees are not good at that (Personally, I have been very ineffective at timing).

One of the most critical variables was showing that the size of the stock profits realized by the managers was essentially the result of good luck in when they decided to sell, and not an indicator of either inside company knowledge or a special knack for timing the stock market. “Even top executives don’t do better than the average investor in making these selling decisions,” Cappelli states, noting that the majority of the employees in the study were store managers, not experienced stock traders. “Markets are pretty unpredictable, and there’s strong evidence that they don’t do well in timing the market.”

In summary, R&D managers should probably look elsewhere to motivate their teams – stock options are not it.

Sparking creativity in teams

McKinsey Quarterly has a useful guide in Sparking creativity in teams:

In fact, our experience with hundreds of corporate teams, ranging from experienced C-level executives to entry-level customer service reps, suggests that companies can use relatively simple techniques to boost the creative output of employees at any level.

The article has four simple suggestions to increase creativity.  Lets dig in:
1. Immerse yourself: As we discussed in Steve Jobs Methodology, an engaged R&D manager is crucial to motivating R&D teams.  Many senior R&D managers I have met seem to have a hands-off approach to their teams.  As the McKinsey article points out, there is no alternative to clear engagement from the leadership:

The antidote is personal experience:p in ways that abstract discussions around conference room tables can’t. It’s therefore extremely valuable to start creativity-building exercises or idea generation efforts outside the office, by engineering personal experiences that directly confront the participants’ implicit or explicit assumptions. 

2. Overcome Orthodoxies: Personal engagement from leaders in required for the success of any organizational change.  However, the leaders also need to question conventional thinking and challenge teams to do better:

All organizations have conventional wisdom about “the way we do things,” unchallenged assumptions about what customers want, or supposedly essential elements of strategy that are rarely if ever questioned.
By identifying and then systematically challenging such core beliefs, companies can not only improve their ability to embrace new ideas but also get a jump on the competition.

3. Use Analogies: This is a new and interesting point. As the article points out, leaders need to frame the problem with analogies to actually help the teams do better.  The examples include: “How would Google manage this Data?” or “How would Southwest Airline cut these costs?”

Our own experience confirms the power of associations. We’ve found a straightforward, accessible way to begin harnessing it: using analogies. As we’ve seen, by forcing comparisons between one company and a second, seemingly unrelated one, teams make considerable creative progress, particularly in situations requiring greenfield ideas. We’re not suggesting that you emulate other organizations—a recipe for disappointment. Rather, this approach is about using other companies to stir your imagination.

4. Create Constraints: As we have discussed many times, managers are key to driving innovation.  Only managers have the cross-enterprise visibility to help frame the challenge for the R&D teams.

Imposing constraints to spark innovation may seem counterintuitive—isn’t the idea to explore “white spaces” and “blue oceans”? Yet without some old-fashioned forcing mechanisms, many would-be creative thinkers spin their wheels aimlessly or never leave their intellectual comfort zones.

The Problem with Financial Incentives

We have often talked about incentive plans and their impact on motivating R&D teams.  In”Impact of Incentive Bonus Plan” we discussed that unless the bonus plan can be tightly coupled with real metrics, they may actually reduce performance.  The article “You are getting a bonus so why aren’t you motivated,” we learned that bonuses are not effective at motivating R&D teams.  We have discussed other forms of motivation for R&D teams and what drives satisfaction in virtual R&D teams here..  Now there is another interesting article in [email protected]The Problem with Financial Incentives — and What to Do About It – [email protected] that talks about aligning incentives with work.

Bonuses and stock options often improve performance. But they can also lead to unethical behavior, fuel turnover and foster envy and discontent. In this opinion piece, Wharton management professors Adam Grant and Jitendra Singh argue that it is time to cut back on money as a chief motivational force in business. Instead, they say, employers should pay greater attention to intrinsic motivation. That means designing jobs that provide opportunities to make choices, develop skills, do work that matters and build meaningful interpersonal connections.

There are three important risks that excessive reliance on financial incentives brings:
1. Incentives may enhance performance but do not guarantee that the performance improvement will come with ethical behavior and actual improvements

“Several years ago, Green Giant, a unit of General Mills, had a problem at one of its plants: Frozen peas were being packaged with insect parts. Hoping to improve product quality and cleanliness, managers designed an incentive scheme in which employees received a bonus for finding insect parts. Employees responded by bringing insect parts from home, planting them in frozen pea packages and then ‘finding’ them to earn the bonus.

This is even more difficult when behavior being rewarded (R&D) is so complex that the what expected results to be rewarded are difficult to measure at best and unknown until a much later date at worst.

Research by Wharton management professor Maurice Schweitzer and colleagues demonstrates that when people are rewarded for goal achievement, they are more likely to engage in unethical behavior, such as cheating by overstating their performance. This is especially likely when employees fall just short of their goals. Harvard Business School’s Michael Jensen has gone so far as to propose that cheating to earn bonuses — such as by shipping unfinished products or cooking the books to exceed analysts’ expectations — has become the norm at many companies.

It is the last statement above that I have seen abused often in bonuses in R&D environment.

When strong financial incentives are in place, many employees will cross ethical boundaries to earn them, convincing themselves that the ends justify the means. When we value a reward, we often choose the shortest, easiest path to attaining it — and then persuade ourselves that we did no wrong. This tendency to rationalize our own behavior is so pervasive that psychologists Carol Tavris and Elliot Aronson recently published a book called Mistakes Were Made (but not by me) to explain how we justify harmful decisions and unethical acts.

2. Incentives demoralize employees who do not get them and actually reduce performance and fuel turnover.

Numerous studies have shown that people judge the fairness of their pay not in absolute terms, but rather in terms of how it compares with the pay earned by peers. As a result, pay inequality can lead to frustration, jealousy, envy, disappointment and resentment. This is because compensation does not only enable us to support ourselves and our families; it is also a signal of our value and status in an organization. At Google in 2004, Larry Page and Sergey Brin created Founders’ Awards to give multimillion-dollar stock grants to employees who made major contributions. The goal was to attract, reward and retain key employees, but blogger Greg Linden reports that the grants “backfired because those who didn’t get them felt overlooked.”
This claim is supported by rigorous evidence. Notre Dame’s Matt Bloom has shown that companies with higher pay inequality suffer from greater manager and employee turnover. He also finds that major league baseball teams with larger gaps between the highest-paid and lowest-paid players lose more games; they score fewer runs and let in more runs than teams with more compressed pay distributions. The benefits to the high performers are seemingly outweighed by the costs to the low performers, who apparently feel unfairly treated and reduce their effort as a result.

Similarly, Phyllis Siegel at Rutgers and Donald Hambrick at Penn State have shown that high-technology firms with greater pay inequality in their top management teams have lower average market-to-book value and shareholder returns. The researchers explain: “Although a pay scheme that rewards individuals based on their respective values to the firm does not seem unhealthy on the surface, it can potentially generate negative effects on collaboration, as executives engage in invidious comparisons with each other.”

Other studies have shown that executives are more likely to leave companies with high pay inequality. The bottom line here is that financial incentives, by definition, create inequalities in pay that often undermine performance, collaboration and retention.

3. The final risk is that financial incentives generate a sort of addiction. Better performance requires increasingly higher bonuses.

In the 1970s, Stanford’s Mark Lepper and colleagues designed a study in which participants were invited to play games for fun. The researchers then began providing rewards for success. When they took away the rewards, participants stopped playing. What started as a fun game became work when performance was rewarded. This is known as the overjustification effect: Our intrinsic interest in a task can be overshadowed by a strong incentive, which convinces us that we are working for the incentive. Numerous studies spearheaded by University of Rochester psychologists Edward Deci and Richard Ryan have shown that rewards often undermine our intrinsic motivation to work on interesting, challenging tasks — especially when they are announced in advance or delivered in a controlling manner.

The authors suggest emphasizing the intrinsic reward of doing something interesting and being creative. In fact, I have personally been in situations where the financial incentives were more than adequate, but my creativity, ability to learn new skills and a sense of purpose were completely unfulfilled.  I was dissatisfied and had to leave.  So, the solution the authors suggest follow rather logically from the risks:  provide employees with Autonomy, Mastery and Purpose.

Autonomy means the freedom to create new solutions, when to do it and how to do it. Creativity, in my opinion, is one of the strongest motivators.

Extensive research has shown that when individuals and teams are given autonomy, they experience greater responsibility for their work, invest more time and energy in it, develop more efficient and innovative processes for completing it and ultimately produce higher quality and quantity. For example, in a study at a printing company, Michigan State’s Fred Morgeson and colleagues found that when teams lacked clear feedback and information systems, giving them autonomy led them to expend more effort, use more skills and spend more time solving problems. Numerous other studies have shown that allowing employees to exercise choices about goals, tasks, work schedules and work methods can increase their motivation and performance.

The problem with autonomy is also R&D management. Unless managers are able to generate clear goals and metrics for measuring results, autonomy will not actually produce any results. Since these objectives and metrics are hard to define, many managers just avoid giving autonomy.

Mastery involves ability to learn new skills and develop knowledge / expertise.  Ability to learn is limited because it requires exploration of new problems.  R&D managers need to setup interesting challenges for their employees – this is probably the single most important driver of innovation.

Research shows that when employees are given opportunities for mastery, they naturally pursue opportunities to learn and contribute. For instance, research by the University of Sheffield’s Toby Wall and colleagues documented the benefits of giving operators of manufacturing equipment the chance to develop the skills to repair machines, rather than waiting for engineers, programmers and supervisors to fix them. The operators took advantage of this opportunity for mastery to create strategies for reducing machine downtime, and worked to learn how to prevent problems in the future. As a result, they were able to complete repairs more quickly and reduce the overall number of repairs.

Purpose is the experience that one is contributing in meaningful ways:

Adam Grant (one of the authors of this piece) has shown that when employees meet even a single client, customer or end user who benefits from their work, they gain a clearer understanding of the purpose of their jobs, which motivates them to work harder and smarter. For example, when university fundraisers met a single scholarship student who benefited from the money that they raised, the number of calls they made per hour more than doubled and their weekly revenue jumped by 500%. And when radiologists saw a photo of the patient whose X-ray they were evaluating, they felt more empathy, worked harder and achieved greater diagnostic accuracy. In The India Way, Wharton management professors Peter Cappelli, Harbir Singh, Jitendra Singh (one author of this piece) and Michael Useem observe that Indian companies have found success in motivating employees by cultivating a strong sense of purpose and mission. As Adam Smith, the father of economics, wrote in A Theory of Moral Sentiments: “How selfish soever man may be supposed there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary to him, although he derives nothing from it except the pleasure of seeing it.”

Neither the authors nor I think that financial incentives are a bad idea.  I believe that bonuses can be a great motivator for R&D teams / managers.  However, they have to be tied to real metrics to ensure that the resulting behavior is what the company needs.  Many companies decide on short-term measures such as stock prices to determine performance bonuses because metrics that actually measure performance in longer-term R&D / long product development cycles are much harder to develop.

Researchers Amy Mickel of California State University, Sacramento, and Lisa Barron of the University of California, Irvine, have argued that managers should think more carefully about the symbolic power of financial incentives: who distributes them, why they are distributed, where they are distributed and to whom they are distributed.

Apple R&D and Steve Jobs Methodology: Small Focused Design Teams

We discussed user centric design as the fundamental tenet of new product development under Jobs. We talked about how a long-term vision, bounded by user centric design and supported by deep understanding of technology roadmaps is critical to long-term success.  We also talked about how a leader has to be engaged in R&D to make the vision of a user centric design practical.

Let us now focus on next attribute of a successful R&D manager: Building strong and driven team.  Having a vision and ability to engage in the detailed R&D goes a long way towards motivating teams.  However, Steve Jobs seems to have some more characteristics that helped him become successful. Again, I will be gleaning information from several sources to see if we can build a better picture.  Let us start off with the information from the transcript of an interview with ex-Apple CEO John Sculley and see what we can learn…

When I first saw the Macintosh — it was in the process of being created — it was basically just a series of components over what is called a bread board. It wasn’t anything, but Steve had this ability to reach out to find the absolute best, smartest people he felt were out there. He was extremely charismatic and extremely compelling in getting people to join up with him and he got people to believe in his visions even before the products existed. When I met the Mac team, which eventually got to 100 people but the time I met him it was much smaller, the average age was 22.

So, the user centric design, a vision for the future and an ability to engage in R&D (along with a charismatic personality) helped Steve Jobs attract talent.  More importantly, he kept his design team small:

The Mac team they were all in one building and they eventually got to one hundred people. Steve had a rule that there could never be more than one hundred people on the Mac team. So if you wanted to add someone you had to take someone out. And the thinking was a typical Steve Jobs observation: “I can’t remember more than a hundred first names so I only want to be around people that I know personally. So if it gets bigger than a hundred people, it will force us to go to a different organization structure where I can’t work that way. The way I like to work is where I touch everything.” Through the whole time I knew him at Apple that’s exactly how he ran his division.

So, the team size is a corollary of the level of engagement.

The other thing about Steve was that he did not respect large organizations. He felt that they were bureaucratic and ineffective. He would basically call them “bozos.” That was his term for organizations that he didn’t respect

Many people have asked me about how this level of engagement and this size of team is possible in their industry (where teams are thousand engineers strong).  Here is one answer: keep product development focused:

The organization can become bigger but not the Mac team. The Macintosh was set up as a product development division — and so Apple had a central sales organization, a central back office for all the administration, legal. It had a centralized manufacturing of that sort but the actual team that was building the product, and this is true for high tech products, it doesn’t take a lot of people to build a great product. Normally you will only see a handful of software engineers who are building an operating system. People think that it must be hundreds and hundreds working on an operating system. It really isn’t. It’s really just a small team of people.

Clearly, in larger development projects, it may not be difficult to limit the team to one hundred people.  As we will discuss below, the team developing iPhone had several hundred engineers.  Furthermore, segregating product development from manufacturing and marketing (as suggested above) may also have significant disadvantages.  But, the idea probably remains valid: One should have a core team of designers driving the process and the rest can follow.

Engineers are far more important than managers at Apple — and designers are at the top of the hierarchy. Even when you look at software, the best designers like Bill Atkinson, Andy Hertzfeld, Steve Capps, were called software designers, not software engineers because they were designing in software. It wasn’t just that their code worked. It had to be beautiful code. People would go in and admire it. It’s like a writer. People would look at someone’s style. They would look at their code writing style and they were considered just beautiful geniuses at the way they wrote code or the way they designed hardware.

The other important point is the respect for designers.  As you saw above, designers are more important at Apple compared all other disciplines.  Here is some more evidence:

An anecdotal story, a friend of mine was at meetings at Apple and Microsoft on the same day and this was in the last year, so this was recently. He went into the Apple meeting (he’s a vendor for Apple) and when he went into the meeting at Apple as soon as the designers walked in the room, everyone stopped talking because the designers are the most respected people in the organization. Everyone knows the designers speak for Steve because they have direct reporting to him. It is only at Apple where design reports directly to the CEO.

Later in the day he was at Microsoft. When he went into the Microsoft meeting, everybody was talking and then the meeting starts and no designers ever walk into the room. All the technical people are sitting there trying to add their ideas of what ought to be in the design. That’s a recipe for disaster.

I am definitely not suggesting that everyone make designers the top people just like Apple.  Apple is a design focused company, not everyone needs to be like them.  However, R&D leaders should decide on their strategy and build the necessary culture around it.  This is easy to say and hard to do.

Microsoft hires some of the smartest people in the world. They are known for their incredibly challenging test they put people through to get hired. It’s not an issue of people being smart and talented. It’s that design at Apple is at the highest level of the organization, led by Steve personally. Design at other companies is not there. It is buried down in the bureaucracy somewhere… In bureaucracies many people have the authority to say no, not the authority to say yes. So you end up with products with compromises. This goes back to Steve’s philosophy that the most important decisions are the things you decide NOT to do, not what you decide to do. It’s the minimalist thinking again.

Clearly, respecting engineers does NOT mean accepting whatever they do:

Largely because Steve would shift between being highly charismatic and motivating and getting them excited to feel like they are part of something insanely great. And on the other hand he would be almost merciless in terms of rejecting their work until he felt it had reached the level of perfection that was good enough to go into – in this case, the Macintosh.

Of course, not all Steve Jobs did was perfect.  Wired article The Untold Story: How the iPhone Blew Up the Wireless Industry gives us some more information that we can learn from:

It was a late morning in the fall of 2006. Almost a year earlier, Steve Jobs had tasked about 200 of Apple’s top engineers with creating the iPhone. Yet here, in Apple’s boardroom, it was clear that the prototype was still a disaster. It wasn’t just buggy, it flat-out didn’t work. The phone dropped calls constantly, the battery stopped charging before it was full, data and applications routinely became corrupted and unusable. The list of problems seemed endless. At the end of the demo, Jobs fixed the dozen or so people in the room with a level stare and said, “We don’t have a product yet.”

The effect was even more terrifying than one of Jobs’ trademark tantrums. When the Apple chief screamed at his staff, it was scary but familiar. This time, his relative calm was unnerving. “It was one of the few times at Apple when I got a chill,” says someone who was in the meeting.

Or this:

For those working on the iPhone, the next three months would be the most stressful of their careers. Screaming matches broke out routinely in the hallways. Engineers, frazzled from all-night coding sessions, quit, only to rejoin days later after catching up on their sleep. A product manager slammed the door to her office so hard that the handle bent and locked her in; it took colleagues more than an hour and some well-placed whacks with an aluminum bat to free her.

The stress was so high that people actually quit, but they came back!  May be that is the proof of the respect they faced.  However, respecting designers does not mean that Jobs shared all the information with them.  The desire to control actually won out:

Through it all, Jobs maintained the highest level of secrecy. Internally, the project was known as P2, short for Purple 2 (the abandoned iPod phone was called Purple 1). Teams were split up and scattered across Apple’s Cupertino, California, campus. Whenever Apple executives traveled to Cingular, they registered as employees of Infineon, the company Apple was using to make the phone’s transmitter. Even the iPhone’s hardware and software teams were kept apart: Hardware engineers worked on circuitry that was loaded with fake software, while software engineers worked off circuit boards sitting in wooden boxes. By January 2007, when Jobs announced the iPhone at Macworld, only 30 or so of the most senior people on the project had seen it.

I guess the take home message is this: If the R&D staff are respected and they are motivated (with a vision and engagement), they will put with a lot and keep delivering!

Apple R&D and Steve Jobs Methodology: Engaged Leader

Let us continue our discussion on the Steve Jobs methodology. We discussed user centric design as the fundamental tenet of new product development under Jobs. We also talked about how a long-term vision, bounded by user centric design and supported by deep understanding of technology roadmaps is critical to long-term success.  However, it is not enough to just have that understanding.  A good R&D manager is able to roll up her or his sleeves and get engaged.  A leader has to take part in the product development – that is probably the only way one can really understand technology challenges and translate desired user experience into real delivered products.

In fact, when we look around, all great innovative companies seem to have leaders that are completely engaged in their R&D.  Bill Gates was driving product development personally in Microsoft’s hay day.  As we have all seen, Zukerberg has personally driven R&D at Facebook.  Google had to bring back their founders to actually get back to innovating.  It is important for the leaders to be engaged because only they can have the cross organizational perspective.  Steve Jobs also seems to personify this engaged leader.  However, there may be many ways in which the leaders can be engaged.  Let us start off with the information from the transcript of an interview with ex-Apple CEO John Sculley and see what we can learn…
Steve Jobs was engaged completely from the perspective of industrial design and user experience:

Whether it’s designing the look and feel of the user experience, or the industrial design, or the system design and even things like how the boards were laid out. The boards had to be beautiful in Steve’s eyes when you looked at them, even though when he created the Macintosh he made it impossible for a consumer to get in the box because he didn’t want people tampering with anything.

Furthermore, this interest was not just high level.

On one level he is working at the “change the world,” the big concept. At the other level he is working down at the details of what it takes to actually build a product and design the software, the hardware, the systems design and eventually the applications, the peripheral products that connect to it.

He actually worked to understand how better industrial design can be achieved:

The one that Steve admired was Sony. We used to go visit Akio Morita and he had really the same kind of high-end standards that Steve did and respect for beautiful products. I remember Akio Morita gave Steve and me each one of the first Sony Walkmans. None of us had ever seen anything like that before because there had never been a product like that. This is 25 years ago and Steve was fascinated by it. The first thing he did with his was take it apart and he looked at every single part. How the fit and finish was done, how it was built.

Many people can take apart products and learn from them. A great R&D leader actually builds a culture around the user experience.  Jobs learned about manufacturing from Sony and built it into the Apple manufacturing:

He was fascinated by the Sony factories. We went through them. They would have different people in different colored uniforms. Some would have red uniforms, some green, some blue, depending on what their functions were. It was all carefully thought out and the factories were spotless. Those things made a huge impression on him.

And the results were impressive:

That went all the way through to the systems when he built the Macintosh factory. It was supposed to be the first automated factory but what it really was a final assembly and test factory with a pick-to-pack robotic automation. It is not as novel today as it was 25 years ago, but I can remember when the CEO of General Motors along with Ross Perot came out just to look at the Macintosh factory. All we were doing was final assembly and test but it was done so beautifully. It was as well thought through in design as a factory, a lights out factory requiring many people as the products were.

The same thinking is also visible in Pixar’s building architecture.  Jobs personally got involved in the design of the building to drive an interactive culture:

Our building, which is Steve Jobs’s brainchild, is another way we try to get people from different departments to interact. Most buildings are designed for some functional purpose, but ours is structured to maximize inadvertent encounters.

The same trend is also visible in the design of the iPod supply-chain:

If you look at the state of the iPod, the supply chain going all the way over to iPod city in China – it is as sophisticated as the design of the product itself. The same standards of perfection are just as challenging for the supply chain as they are for the user design. It is an entirely different way of looking at things.

So, the take home message is this: R&D managers have to be system level thinkers that can drop down into detailed development when needed to help translate the system vision for their employees.

It was always an end-to-end system with Steve. He was not a designer but a great systems thinker. That is something you don’t see with other companies. They tend to focus on their piece and outsource everything else.

Not to say that there are no problems with an engaged leader.  In case of Jobs:

His tradeoff was he believed that he had to control the entire system. He made every decision. The boxes were locked.

This desire to control can also lead to (arguably) poor decisions:

Before they could start designing the iPhone, Jobs and his top executives had to decide how to solve this problem. Engineers looked carefully at Linux, which had already been rewritten for use on mobile phones, but Jobs refused to use someone else’s software. They built a prototype of a phone, embedded on an iPod, that used the clickwheel as a dialer, but it could only select and dial numbers — not surf the Net. So, in early 2006, just as Apple engineers were finishing their yearlong effort to revise OS X to work with Intel chips, Apple began the process of rewriting OS X again for the iPhone.

However, as they say, the proof is in the pudding.  Apple’s market value has surpassed that of Microsoft! An example from the Wired article The Untold Story: How the iPhone Blew Up the Wireless Industry:

After a year and a half of secret meetings, Jobs had finally negotiated terms with the wireless division of the telecom giant (Cingular at the time) to be the iPhone’s carrier. In return for five years of exclusivity, roughly 10 percent of iPhone sales in AT&T stores, and a thin slice of Apple’s iTunes revenue, AT&T had granted Jobs unprecedented power. He had cajoled AT&T into spending millions of dollars and thousands of man-hours to create a new feature, so-called visual voicemail, and to reinvent the time-consuming in-store sign-up process. He’d also wrangled a unique revenue-sharing arrangement, garnering roughly $10 a month from every iPhone customer’s AT&T bill. On top of all that, Apple retained complete control over the design, manufacturing, and marketing of the iPhone.

In summary, it is my opinion that great leaders get engaged in product development for their companies.  They participate in the development and get to know their development teams (more about this in the next Apple post).  They have a vision for where the company wants to go and they communicate it through actions, not just words.  They have to realize that only they can tie together all the different disciplines involved in getting a product to the market and help achieve that.  What do you say?

For more, please continue to the next component of the Steve Jobs Methodology: Small Focused R&D Team.

What Makes Teams Smart

An interesting paper in Science extends the concept of intelligence to teams and defines Collective Intelligence.  Based on study of 699 people working in small teams of 2-5 people, the study found that team intelligence is driven by three factors:

  1. Social sensitivity of team members increases team intelligence.  More sensitive the team members are about social cues such as facial expression, the better the team performs
  2. Teams where everyone participated in the discussion were more intelligent.  If few people dominated the discussion, the collective intelligence went down.  This is something R&D managers should keep in mind.  It is very easy for managers to dominate team discussions.
  3. Teams with women members were more intelligence than others.  This is likely because women tend to have higher social sensitivity than men.

Equally interesting is the list of factors that does not drive team intelligence. (via MIT Sloan Review and
What Makes Teams Smart):

Interestingly, the researchers found that collective intelligence wasn’t strongly correlated with the average intelligence of the individuals in the group — or with the intelligence of the smartest person in the group. They also found, as they wrote in Science, ”that many of the factors one might have expected to predict group performance — such as group cohesion, motivation, and satisfaction — did not.”

So what can you do about improving team performance?  Check out the article How to Keep Your Team Loose.  Or this one on where to focus on driving performance.

Performance Management

A couple of articles (Handling the Underperformer on Your Team, & The Dirty Secret of Effective Sales Coaching) have good pointers on how to improve team efficiency:

One of the challenges that today’s busy managers struggle with is how to divvy up their precious people management time. Not everyone is a star performer so you should focus your limited bandwidth on the people who are doing the most for the organization, right? Unfortunately, high performers usually demand little time. They are self-sufficient, self-motivated, and often produce great work regardless of how much interaction they have with their manager.

Nor should the worst performers need a lot of attention.  In fact, focusing on the tails is the wrong thing to do:

Left to their own devices, sales managers often skew their coaching efforts dramatically toward the ‘tails’ — the very best and the very worst reps on their team. They engage with poor reps because they feel they must in order to meet territory goals, and they work with their best reps because, well, it’s fun. Few managers can resist the lure of reliving their glory days by passing along their wisdom to the one or two reps who remind them most of their younger selves. To combat managers’ tendency to coach just laggards and leaders, companies implement elaborate systems to allocate coaching equally across the sales force. They imagine that ‘all boats will rise’ as a result.

The recommendation is to focus on the middle 60% (Not the top or bottom 20%)

The real payoff from good coaching lies among the middle 60% — your core performers. For this group, the best-quality coaching can improve performance up to 19%.* In fact, even moderate improvement in coaching quality — simply from below to above average — can mean a six to eight percent increase in performance across 50% of your sales force. Often as not, that makes the difference between hitting or missing goals.

And how do you provide constructive feedback to improve performance: Provide detailed and constructive feedback.  Here are the four steps (pretty intuitive)

  1. Diagnose the issue. Understand what can improve performance: lack of motivation, skill deficiency, misalignment with goals, personal conflicts, or home/ family issues. 
  2. Share what you are seeing. Discuss with the employee, Be specific and use examples. Ask for the employee’s perspective
  3. Specify necessary changes. Decide what needs to change and how he should go about changing. It’s critical to set up processes by which the performance can be improved. Set clear goals and timelines. If you’re not sure how to support him, ask for help from an HR partner or an external coach.
  4. Evaluate and take action. If the performance improves, congratulations.  If not, take action.  

Here are some important factors to consider if the employee is a perennial under-performer and you want to take action:

Reflect on the person’s value to the organization. He may be invaluable in one arena but underperforming in another. Can you change his job description so that it better plays to his strengths? Or can you find another position in the organization that’s better suited for his skills? If the answer is no, you may need to terminate. Of course, making a firing decision shouldn’t be taken lightly. Whatever you decide, don’t leave it up to them as to whether they leave. That’s a surefire way to create deadweight and hurt the morale of your team.

Here are related posts that you might find relevant: Mentoring, Performance Reviews, & Team Performance.

Down with fun

Another great article by Joseph Schumpeter in the Economist: Down with fun.

These days many companies are obsessed with fun. Software firms in Silicon Valley have installed rock-climbing walls in their reception areas and put inflatable animals in their offices. Wal-Mart orders its cashiers to smile at all and sundry. The cult of fun has spread like some disgusting haemorrhagic disease. Acclaris, an American IT company, has a “chief fun officer”. TD Bank, the American arm of Canada’s Toronto Dominion, has a “Wow!” department that dispatches costume-clad teams to “surprise and delight” successful workers. Red Bull, a drinks firm, has installed a slide in its London office.

I am not sure how important FUN is to R&D teams.

This cult of fun is driven by three of the most popular management fads of the moment: empowerment, engagement and creativity. Many companies pride themselves on devolving power to front-line workers. But surveys show that only 20% of workers are “fully engaged with their job”. Even fewer are creative. Managers hope that “fun” will magically make workers more engaged and creative. But the problem is that as soon as fun becomes part of a corporate strategy it ceases to be fun and becomes its opposite—at best an empty shell and at worst a tiresome imposition.

This does feel like an excuse for poor R&D management in my opinion.  I do not know what makes my employees more innovative or more effective.  I am going to assume that creativity is related to fun.  So, I am going to encourage my workers to have more fun at work!  As the author rightly points out:

Behind the “fun” façade there often lurks some crude management thinking: a desire to brand the company as better than its rivals, or a plan to boost productivity through team-building. Twitter even boasts that it has “worked hard to create an environment that spawns productivity and happiness”.

And here is the clincher…

The most unpleasant thing about the fashion for fun is that it is mixed with a large dose of coercion. Companies such as Zappos don’t merely celebrate wackiness. They more or less require it. Compulsory fun is nearly always cringe-making.

Wal-Mart tried to impose alien rules on its German staff—such as compulsory smiling and a ban on affairs with co-workers…

Boosting R&D productivity

Here is an article from the McKinsey Quartely on a topic of great personal interest to me: how to boost performance of R&D workers.  I believe knowledge barriers are increasingly important in increasingly complex and increasingly virtual R&D teams and have written about it quite often.  Clearly, the idea of forming focused virtual communities is new to many R&D executives:

Nonetheless, many executives have a hazy understanding of what it takes to bolster productivity for knowledge workers. This lack of clarity is partly because knowledge work involves more diverse and amorphous tasks than do production or clerical positions, where the relatively clear-cut, predictable activities make jobs easier to automate or streamline. Likewise, performance metrics are hard to come by in knowledge work, making it challenging to manage improvement efforts (which often lack a clear owner in the first place).

The article points out five significant barriers to effective R&D community building and what to do about them:

  1. Physical: As I have discussed in the past, even R&D workers separated by just one floor become more or less virtually connected.  The article suggest building communities of practice (COP).  However, COP need help to overcome barriers 2, 4 and 5 below.
  2. Technical: Much R&D collaboration involves different technical disciplines.  Each technology has its own specific jargon.  It is quite difficult to have effective communications across different different disciplines.  The article suggests role rotation as a possible solution.  However, these rotations are expensive and provide mixed results because of 4 and 5 below.
  3. Social / Cultural: Pretty obvious for multi-national teams.  However, as I have pointed out, significant cultural differences exist between two different organizations (such as marketing and manufacturing) in the same office.  The article again focuses on COP.  In my experience, COP are a good start, but not the ultimate answer to addressing social barriers.
  4. Contextual: This to me is the most important barrier.  Most R&D communication occurs through documents (reports, papers, etc.).  These communications describe the results, but rarely provide the context of why particular decisions were made.  Some of it is between different technologies or organizations (2 and 3 above), but the barrier is even more critical to team members in the same discipline… The article focuses on forums and meetings as a possible solution.  I do not think you can understand the context of another discipline through meetings.  
  5. Time: Given enough time, it is possible to overcome the barriers above.  However, there is never enough time.  Most people need the right information, at the right level of detail – instantaneously. The article suggests a central database of learnings.  I think that is a great idea.  However, it is critical to structure the database so that the information is easily accessible.  That is easier said than done.
I believe that our solution provides a revolutionary new approach to address all of these barriers…