Chicken or the Egg

There is a rumor going around that sacrifice and hard work always precede happiness; that they are somehow harbingers of it.  This could explain the fact that over the last two to three decades, the average American has seen the typical work day grow from eight to nine and even ten hours. Somehow we began to form this collective misconception that all these extra hours at the office will equate to success, which will equate to promotions, while will equate to more money, which will equate to more happiness.  I remain unconvinced.

The problem with this kind of thinking is that it also makes the assumption that more hours always equal more productivity.  This is where we get ourselves into trouble.  I’m sure some very smart people out there could show, with years of research and some complicated math, that this is false.  I don’t really need to do all that because I know it’s false.  As our work weeks extend, so too does our burnout. Burnout causes mistakes.  These mistakes take time to fix.  This rework time has a cancelling effect on the productivity you thought you were gaining by working an extra ten to twenty hours last week.

So why even bother presenting an argument on something thatmost likely won’t change any time soon (and, in fact, while probably just get worse)?  Because the answer is a lot more simple than you might think: reverse the formula.  Let happiness lead you to success,promotions, more money and whatever else you may think will plug those holes inyour life.  Of course, this tactic may require a little bit of help from your employer, and that’s where your friendly neighborhood HR team can make themselves useful.

If we can entertain, just for a few minutes, that happiness, not a longer work week, is the key to solving organizational productivityissues, then we’ve got to start with another great TED lecture¹:

http://www.ted.com/talks/shawn_achor_the_happy_secret_to_better_work.html

In the lecture, Shawn Achor explains to his audience thatall our beliefs about the source of happiness are completely backward.  He explains that, regardless of whether ornot all this extra working is increasing our productivity, it’s not making ushappier; we’re focusing on the wrong things.

As we already know, people react to incentives.  This means that as a function, human resources, is responsible for creating systems that will incent people to behappy.  How we accomplish this willdepend completely upon the makeup of our workforce.  Remember, incentives must be individualized.

At first, I imagine, your employees won’t believe the shiftin your culture.  The natural suspicionof mankind will tell them it’s all some clever ploy to raise revenue and cutcosts.  Their suspicions are, of course,well founded, but here’s the best part: there’s something in it for them aswell; something pretty great.  They getto enjoy work!  They get to enjoy being at work and whenpeople are happy at work they work harder, get along better, team up more oftenand are far more creative (did you know that few things stifle creativity inthe workplace more efficiently than stress?).

So be bold.  Find away to get your leadership bought into a culture of happiness.  As with anything else, this won’t ever workif your GMs, VPs, SVPs, C-whatevers don’t buy in.  So don’t get too frustrated.  This kind of culture isn’t for everyone.  I’ve seen it fail miserably with the wrong leader.  But if you’re lucky enough to be surroundedby a team that believes in the power of happiness, you’ve already taken a verylarge step in the right direction.

As always, your feedback is welcome!

1. Achor,Shawn. "Shawn Achor: The Happy Secret to Better Work." TED: Ideas worth Spreading. TED, Feb. 2012. Web. 12 June 2012.<http://www.ted.com/talks/shawn_achor_the_happy_secret_to_better_work.html>.

Points the Way

If your business has never experienced the tug-of-war between absenteeism and attrition because of your attendance policy, you can probably just stop reading now.  For the rest of us, it’s a conundrum that keeps us up nights.  Where is that fair line that balances all the following questions:

1.    What’s fair to my employees?

      2.    When is it cheaper just to hire somebody who may show up to work?

      3.     How much absenteeism can the business afford? 

      4.  What am I willing to enforce?

Attendance policies are a topic that cut straight to the heart of microeconomics from both points of view: business and employee.  It all comes down to the rational behavior of the users.  If your attendance policy is far too strict and doesn’t allow for life to happen, you’re probably finding yourself with high attrition.  It’s rational, at some point, for your employees to find a job that allows them to schedule dentist appointments, stay home with sick kids and any other miscellany that life may dispense.

If, on the other hand, your policy is too liberal or is not strictly enforced, you are probably finding yourself pulling out your hair trying to figure out why certain employees aren’t showing up to work.  This is also a rational behavior as human beings will quickly figure out the balance between how much money they need to live and how much they feel like working.  Not enforcing your policy is also a fairly rational behavior for any organization that puts a high value on reducing attrition.  Turnover can be extremely expensive for any business with high cost of training and/or a high time-to-productivity rate.

There’s always going to be a complicated mathematical answer to all of these questions but, this time at least, I advocate a different strategy: eliminate your old “points” attendance policy and focus on your behaviors and your culture; put simply, terminate for attendance issues only when you, the company, are presented with no other option.  Focus on the behaviors that really hurt a business such as unapproved leaves (i.e. extended, undocumented absences) and “No Call No Shows” (which in my opinion show a lack of respect for managers).  As long as you’re consistent and address the unacceptable behaviors each time they arise, I see no reason you should ever find yourself in legal hot water.  You won’t be separating anybody for absenteeism.

Perhaps the more vital piece of this theory is your culture.  To trust that, in the absence of a policy, your employees will make the choice to come to work every day, you’ve got to make coming to work every day the rational decision.  How you do that is up to you.  Individual incentives I’ve already touched upon.  Job enrichment is a possibility (more on that topic on a later date).  My personal favorite is relationship building.  If you give your employees someone to trust in a manager that cares about them and their development, they’re going to start making the conscious, and sometimes unconscious, decision to come to work more often.

I guess this is where I add the disclaimer that I’ve never actually been able to test this theory.  I have, however, watched all the components work in little pockets.  What do you think?  Can we build workplaces that depend on such high levels of trust given in exchange for a more caring work environment?

Ex • ter • nal • i • ty

Externality.  Unintended consequence.  Positive or negative.  What you never saw coming.  Pollution.  Lower unemployment rates.  Higher unemployment rates. Success.

Failure.

There lies, in current media attempts to describe the behavior of our economy, a gross intentional oversimplification of one of the most complicated things in the entire man-made world.  In reality, nobody truly understands why we’re here now or how we get back to a better place.  Why?  Because a million tiny little things had to align for underemployment rates to skyrocket to almost 20%.  Because a million tiny little things have to align for us to replace that gaudy number with one that gets Americans back to work; and not just back to work but back to work in the jobs they deserve.

Externality.  For every decision you make as a manager, these consequences will eventually show themselves.  Firing low performers leads to an immediate increase in productivity.  Two months later your numbers are worse than they ever were before.  Maybe it’s because morale is low; maybe it’s because you fired the wrong low performers.  In either case, you certainly never intended to murder your productivity.  It doesn’t matter anymore.  It happened.

How do you avoid these things?  You don’t.

How do you at least mitigate them?  You play the odds.

What odds?  The odds hidden in the numbers of business.  It doesn’t particularly matter what business you’re in.  There are numbers.  You’ve just got to find the right ones; to filter out all of the white noise.  No matter what business you’re in, there will be people above you, telling you which numbers are the right ones.  Have the courage to figure it out for yourself.  Figure out if those are the right numbers or if they are merely symptoms.

I realize this is reading more like a monologue than an econ blog but I’m just not sure how to better convey the seriousness of the topic than with a little bit of passion.  You cannot be afraid of the externalities of your business decisions if you know the decisions you’re making are the correct ones.  Good decision making doesn’t produce success.  Conviction and consistency produce success.  Trying to make the right decision every single time will only lead to knee jerk reactions, more hard decisions and more externalities.  Why is consistency so important?  Because consistent decision making leads to consistent results which leads to fewer unexpected consequences which leads to a reduction in variation.  If you reduce your variation you’re going to find yourself with a reliable product whether we’re talking about HR processes or widget making.

And so this is supposed to be a discussion.  What do you think?  Can we take something as mind-blowingly complicated as the US Economy or even just a small business and simplify them just by finding a way to make consistent decisions?  If we play the odds long enough and endure the losing streaks, won’t the numbers eventually turn in our favor?  Don’t they have to?

How to “Make ‘em” Do it?

As I write this, two of the three top headlines on a popular news website are about money.  Our culture is, to a very large extent, based on the tenet that money is the most important thing; so important, in fact, that it can buy you happiness (which is the OTHER most important thing).  Take the example set by the “Occupy *” movement.  What’s the picture that just popped into your head?  Was it a protestor holding up a sign proclaiming something like, “I’m part of the 99%!”?  The idea that money makes us happy is, at best, ridiculous and at worst is exactly what the Bible claims; “For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows”.  Somewhere in the complex mathematics of social anthropology there is certainly an algorithm that correctly identifies the perfect amount of money one needs to be happy.  The Nobel Prize in economics surely awaits the person to write it.  For now, we’re stuck, once again, with our biases.

The misnomer that money motivates is rampant in business.  I believe it is the number one incentive on any managers list of things to throw at an underperforming team (“Incentive” and “money” are practically synonyms in American Business); and this is precisely the trouble with managers these days: they’re usually trying to manage entire teams all at once.

So what is the best way to motivate people?  Well it turns out it may actually be money.  But even if that’s the case and most of your employees respond positively to promises of trading more cash for better performance, there are still all sorts of dilemmas left over.  How much is the right amount?  Where do the diminishing returns begin?  How long can I ask them to sustain performance before the money loses its value?  The answers to all of these questions are going to be different for everyone.

My personal philosophy on incentives is much simpler than worrying about complex compensation and reward systems: ASK THEM.  That’s right, it’s that simple.  Just ask.  Anything that incents can technically be called an incentive.  This means that a smile, a high five, a sticker and even the words “thank you” can be used as extremely powerful incentives.  The problem is these things are underutilized and I think it’s leading the largest companies in the world to spend billions of unnecessary dollars a year on long term bonus systems that don’t offer line of sight from performance to payout.  This is not rocket science.  If an employee does not look at their annual bonus check and immediately flash back to the accomplishment of all of their specific goals over the past 12 months, the bonus system has failed.  If instead the employee sees dollar signs and starts daydreaming about that new car or their new hot tub, the bonus system has failed.

The biggest risk with any incentive, big or small, is entitlement.  The line between earned and entitled is so razor thin that it becomes extremely important to carefully track and gauge employee reaction to your incentive.  Too much negative reaction when the stimulus is suddenly absent denotes expectation and expectation will almost always lead to entitlement.  So vary it up.  Find out a number of your employees’ personal interests so that there’s always a new and exciting way to say thank you for a job well done.  I’ll touch on desired and undesired behaviors at some point but, for now, suffice to say that if you’re appropriately incenting your employees, eventually the natural byproduct is going to be the most coveted thing in all of business: discretionary effort.

None of this is easy unfortunately.   Unless we’re ever somehow miraculously able to oversimplify human behavior, designing an incentive program that works for your team is always going to be hard work.  The point I’m trying to make is that, well, it’s worth it.  Not only will you eventually start to see that discretionary effort, your people are actually going to enjoy coming to work (almost) every day.

I Think vs. I Know

Data is everywhere in business. It makes no difference whether your company makes widgets or sells a service. You would think that it should be obvious, then, that using data to make business decisions is the right thing to do. It turns out, even with the best intentions at heart, our brains are still programmed to make decisions based on illogical bias. Have you ever been sitting in a meeting, looking at a set of numbers and heard somebody say something like, “What’s wrong with Team A? Their numbers are way down this week.”? I’m going to just assume you have. Did the speaker analyze the data visually or statistically before they commented? Here’s an example for you. The following number sets are production numbers from two teams at a widget production factory over the course of a week:

Team A: 5, 5, 5, 6, 4, 5, 7, 6, 5, 5, 5, 5, 6, 7, 6, 6, 5, 6, 6, 6, 7, 7, 5, 5, 6, 6, 6, 6, 5
Team B: 4, 5, 4, 4, 4, 5, 5, 9, 4, 4, 5, 5, 9, 8, 8, 3, 9, 9, 4, 3, 4, 5, 8, 4, 3, 3, 9, 3, 3

Which team had the higher average production rate? Is there enough evidence to say there is even a valid statistical difference between the two groups? ..

..Did you run the numbers or did you eyeball them and start making inferences? I’d be willing to bet that even though I started this post by implying inherent danger in assuming when it comes to data, your brain probably took over and made some kind of guess as to which was the top group. The interesting thing about that is that it’s natural. Perhaps even more interesting is that I bet, despite my best efforts to bait you into thinking Team B came out on top, some readers will probably still “guess” that A is the top team. My belief is that your guess has a lot to do with what you’ve learned is most valuable. People who guessed Team A most likely consciously or subconsciously value consistency over gaudy numbers. On the flipside, Team B choosers were drawn to the numerous 9’s and 8’s in that data set.

The truth here is that we can say, with a lot of statistical confidence, that Team A’s production rate was just under half a widget higher per interval than Team B’s. The extreme high intervals were outweighed by the extreme lows. The point that I’ve hopefully made is that this would never be obvious unless you take the time to calculate the averages and test the significance of the results.

I believe as HR evolves as a business function, it is going to be increasingly vital that we become the mathematical conscience of our leaders. I realize this is a departure from the conventional thinking but if we’re already being relied upon to be a “Business Partner”, who better to save our managers from their natural bias than the person who is already trusted as the organizational conscience?
This will of course require us as a group to be better prepared with basic math and statistics skills but everything you need to know you can probably learn from an online course from your local community college. Sure there is some value in becoming enough of a stats master to know when it would be appropriate to use a rank correlation coefficient test (I fairly certain I do not), but if you can test a simple hypothesis and understand how to properly use multiple regression, you’ve already made yourself more valuable to your organization.

I got really into statistics during an internship early in my career and haven’t stopped running numbers since. I went on to go through a five week Six Sigma course (basically a method of statistical process control through project planning) and there’s a basic tenet of the philosophy that I’ll never forget: “If you can’t measure it, you can’t understand it; if you can’t understand it, you can’t control it.” The further I go and the more I learn, the more obvious this idea becomes. I struggle on a daily basis to understand the data at my current place of business so that, hopefully, I can help my managers control their results. Our industry, like most, values reliability and continuous improvement. Neither is possible without first understanding your results.

I’ll close my statistics diatribe by mentioning that if you’re at all interested in not-so-obvious links between baseball and business, and you haven’t already read it, pick up Moneyball. The book is a treatise on the danger of statistics misuse. Michael Lewis is a talented writer and understands a lot more about microeconomics than I think he lets on. Moneyball will make any baseball or statistics nerd’s jaw drop when they see that baseball executives have been making multi-million dollar business decisions for over 100 years based on completely bogus statistics. For me it was a lesson in how dangerously easy it can be to convince yourself that you completely understand a thing when a lot of people who don’t understand math very well reach a consensus. I leave you with a quote from Bill James, the original “sabrematrician” that may very well be known someday for changing the way Major League Baseball is run:

“I do not start with the numbers any more than a mechanic starts with a monkey wrench. I start with the game, with the things that I see there and the things that people say there. And I ask: Is it true? Can you validate it? Can you measure it? How does it fit with the rest of the machinery?..Why doesn’t anybody say, in the face of this contention or that one, ‘Prove it’?”<sup>1

1</sup> James, Bill, and Bill James. The New Bill James Historical Baseball Abstract. New York: Free, 2001. Print.

A Good Start

To kick things off here I think I need to confess to something: I'm not an economist. I just wish I were. My training is in Human Resources and my experience is in, well, a lot of things. I'm not sure when this fascination began but at some point in the last few years I started asking myself why there aren't more HR Economists. As the Human Resources field has morphed over the last thirty years into something more akin to a traditional "business" function, why hasn't it crossed paths with a social science that is all about how and why individuals and groups make decisions on how to allocate their own resources?

I wish I could claim some super original source that only the truly "hip" Economists and HR professionals have heard of but it really all started with Steven Levitt, the mastermind behind Freakonomics¹ and SuperFreakonomics². During my exploration of the "hidden side of everything" I began to realize that if patterns could be identified in the behavior of test scores, the behavior of drug dealers and in the tendencies of real estate agents, there must be some way to explain the behavior of large groups of employees as well.

I became even more convinced of this reality when I watched a Ted³ lecture (http://www.ted.com/talks/elizabeth_pisani_sex_drugs_and_hiv_let_s_get_rational_1.html) about the rational decision making of drug addicts all around the world. Finally, the icing on the cake was the discovery that someone had translated the work of B.F. Skinner and his rats into the human world and uncovered some evidence that certain types of positive and negative reinforcement can increase certain behaviors in employee populations. His name is Aubrey Daniels⁴ and even though it may be difficult to discern his scientific methods of management from a number of other popular organizational systems, the basic principles of his research make a lot of sense to me.

So here I am. I've known for a long time that I wanted to start a research blog but I didn't know where I wanted to start. I still don't. I have no clue where I'd like this to go or what I want to discuss. I do know that the ideas in my head could easily evolve into powerful tools of organizational development but I'm just not sure I'm smart enough to go it alone. That's where the internet comes in. What better way to generate discussion and ideas that may someday allow me, or somebody else I suppose, to solidify a basic set of principles (i.e. a Business Algorithm) that will help any HR professional or business leader create an environment of success in any company in the world?

Suddenly this sounds like a much loftier goal than I had originally imagined but I suppose with any goal, no matter the size, you've got to start somewhere. I just started the journey toward mine with this post.

***

Realistically I know nobody is going to read this to begin with, but if you do happen to be out there and you do happen to have any ideas on topics that may connect the worlds of HR and Economics that I can research and discuss, please comment.

¹ Levitt, Steven D., and Stephen J. Dubner. Freakonomics: a Rogue Economist Explores the Hidden Side of Everything. New York: William Morrow, 2005. Print.

² Levitt, Steven D., and Stephen J. Dubner. Superfreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance. New York: William Morrow, 2009. Print.

³ TED: Ideas worth Spreading. Web. 26 Nov. 2011. .

⁴ Daniels, Aubrey C. Bringing out the Best in People: How to Apply the Astonishing Power of Positive Reinforcement. New York: McGraw-Hill, 2000. Print.