To ensure a comprehensive view, four measures of financial performance were obtained for each of the offices in this study:
- Two-year percentage growth in revenues
- Two-year percentage growth in profit
- Profit margin
- Profit per employee
These were then combined into a single financial performance score by averaging each office's performance on all four measures, giving equal weight to all four measures, and constructing a financial performance index (Appendix 1). Full financial information was available for 96 offices, compared to the 139 offices that completed the employee survey.
The employee survey was a series of 74 questions with which the respondents were invited to agree or disagree. The full results are shown in Appendix 2.
Seventy-four questions are a lot to examine simultaneously. Fortunately, a technique known as factor analysis allows us to group
individual questions into (statistically) related groups or factors.
Applying this technique generated nine groupings or factors (Appendix 3). The nine factors do not include all of the questions, but they are useful as a quick shorthand to look at the results. The nine factors (or question groups) are:
- Quality and client relationships
- Training and development
- Commitment, enthusiasm and respect
- High standards
- Long-term orientation
- Fair compensation
- Employee satisfaction
The employee responses for each factor are shown using the following scale:
6 = Strongly agree; 5 = Agree; 4 = Somewhat agree; 3 = Somewhat disagree; 2 = Disagree; 1 = Strongly disagree
The message here is clear. The 5,589 respondents in the 139 offices rate quality and client relationships as the area of performance that is currently done best in their office. (Of course, this is what the employees say, not the clients. These results may reflect pride as much as reality.)
They also give high marks for their degree of empowerment, or autonomy (not surprising in a professional environment). It is encouraging to note that they give slightly above average grades to high standards and coaching, although these averages are not high in an absolute sense (4.26, where 4 stands for "somewhat agree.") Employee satisfaction also achieves only modest agreement, overall.
The results for the final four factors are not so encouraging, at least on the surface. Rated lowest of all is training and development. What is immediately apparent is that those things to do with clients are ranked highest, while issues to do with managing people were consistently ranked as being done least well, across offices, across different businesses, across the world.
It is not too surprising that the highest overall average was "only" 4.7. Remember, this is an average across 5,589 individuals in 139 offices. It would take an amazing degree of consensus about true excellence for the average of all these people to be much higher. When it comes to the factor groups, we are also averaging across questions, and hence failing to observe some highs and lows.
On the other hand, when the average is as low as 3.5 on a 6-point scale (halfway between somewhat disagree and somewhat agree), as it is for training and development, you can be pretty sure that the few who are doing this well are swamped by the many who are not.
To validate these responses, I asked an additional question in the survey, giving people ten (traditional) goals of a firm and asked them to evaluate how well they thought their individual office was performing on each goal. The scale was from 6 ("We're superb at this") to 1 ("We're very weak at this").
The lesson is the same. Client-related goals are rated highest, while anything to do with managing people falls to the bottom.
It is intriguing that the employees rate profit and growth in the middle of the pack. Most of these companies are actually very profitable, among the highest in their industry, and growing very fast. So why do the staff think their office is doing them only moderately well?
One theory is that when it comes to financial results in business, management's desire is always for "more, more, more." Any financial accomplishment is immediately reset as the minimum benchmark, and people are left with the impression that what they have achieved financially is insufficient. It is thus not surprising that they feel that they are only doing "reasonably" well on these financial things, and hence they award average ratings.
Are you surprised by all of these results? I am not. While all companies (in every industry) acknowledge their obligations to their three constituencies of clients, shareholders and employees, employees are almost always the third priority on this list.
I have worked extensively not only in the industries covered by this survey, but also in the professions at large, and these results are very familiar. When it comes to meeting its goals for its people, this group of 139 offices is, in my experience, no worse than its competitors (and perhaps, overall, no better).
There is, of course, a troubling paradox here. Many businesses, including professional firms, have nothing to sell except their people. Surely it would be a matter of simple logic (or simple self-preservation) for such firms to excel at energizing their people! But, of course, they don't.
One possible explanation is that many firms assume that people will be self-starting and inherently self-motivating, and therefore don't work very hard, if at all, at managing them. If managing means reaching out to energize, challenge, exhort, inspire and enthuse individuals on a real-time basis, then little managing takes place inside most firms.
Instead, what passes for management in these businesses is a system of strict financial controls, with periodic general meetings to listen to the latest inspirational speech and unfold the latest branding slogan or mission statement poster. This represents a combination of tight administration and weak attempts at visionary leadership. Even when done well, neither of these is managing.
When there are only people at stake, as in a professional firm, interpersonal skills, social interactions, emotional context and personal psychology all play crucial roles. As Charlie Green (my co-author on The Trusted Advisor) points out, people are not just the brains of professional firms, they are the heart, the soul, the guts and the rest of the anatomy as well.
What surprised me, and continues to surprise me, is how many people I meet for whom this is an uncomfortable and, sometimes, unfortunate necessity. Many managers feel most comfortable within the financial, intellectual, rational or artistic boundaries of their field. The realm of dealing with people (yeuch!) and human emotions (horrors!) is something they feel unprepared for and inclined to avoid whenever they can.
I confess to sometimes feeling this way myself. Wouldn't it be nice if, even occasionally, we could just be purely rational and analytical, without having to deal with the sloppy, messy emotions that interactions with human beings require? Yes, it would be great, but it's not an available option for most of us! And certainly not for those charged with managerial responsibilities.
Further, when selecting people to become managers, firms tend to focus on "business skills" (business development or financial management) rather than people skills. The ability to energize others (i.e., manage) is rarely a primary criterion for choosing managers.
Perhaps the most important questions that follow from this are those that this book is devoted to. Does all this matter? Is it of any consequence that the people-related questions were ranked lowest? Should you care if your office's employees give low marks to the level of commitment, enthusiasm and respect? The answer to all these questions, as this book will show, is: Yes, all of this matters a great deal.
Just so you know what's coming, here's an overview of the quantitative analysis, which I present in steps of increasing statistical rigor.
- In chapter 3, we look at the most financially successful offices, and see how their scores on the questions differ from all the other offices.
- In chapter 5, we examine the "correlation coefficients" between each question and the financial performance index, looking to see which employee attitudes tend to move up and down in synch with the financial index across the entire range of offices.
- In chapter 7, we'll look at all the questions simultaneously and analyze which set of questions best predicts financial performance.
- Finally, in chapter 9, we'll use an advanced technique to ask which questions (or question groups) can be said to cause financial performance.
- Later quantitative chapters will explore the impact of office size, age, and line of business on the results.
Interspersed with the quantitative chapters are case studies of the offices that performed best, both financially and on employee attitudes. We now turn to the first case study, one of the most financially successful offices among all the offices in the database.
Copyright © 2001 by David H. Maister
What Managers Must Do to Create a High Achievement Culture
Practice What You Preach
What Managers Must Do to Create a High Achievement Culture
Through in-depth interviews, Maister explores the crucial role of the individual manager in promoting high morale among employees. Practice What You Preach boasts specific action recommendations from the managers of these "superstar" businesses on how to build an energized workplace, enforce standards of excellence, develop people, and have fun -- all in the name of profit. As a result, Practice What You Preach can help any manager increase profitability, and provides proof that great financial rewards come from living up to the standards that most businesses advocate, but few achieve.