Everybody Matters

“Wait,” I said, somewhat surprised, “I think I have that book.”

My wife was relating a story she heard on a podcast with Simon Sinek, the author and leadership consultant. He was talking about examples of enlightened management, and he mentioned a manufacturing company that refused to lay off employees during a downturn. The company’s somewhat strange name, “Barry-Wehmiller,” caught my attention. I went to get my copy of Everybody Matters, written by their CEO, and started reading.

Barry-Wehmiller is a 130-year old manufacturing company, made up of 11,000 employees who design and build machines that do things most of us never think about, like injecting shampoo into bottles, or making toothpaste boxes. That might not sound particularly interesting, but their financial performance is on par with Warren Buffet’s. 

More importantly, when it comes to how their employees relate to each other and to the work they do, Everybody Matters serves as an inspiring example of the way things could be. 

“Enron had wonderful cultural statements too”

Like many CEOs, Bob Chapman worked with his management team to craft a set of management principles that could guide the company. Once they did, a division president pointed out that Enron, an iconic symbol of greed, abuse, and mistreatment of its employees, also had a similar document. Here’s an excerpt:

“We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness, and arrogance don’t belong here. We work with customers and prospects openly, honestly, and sincerely.”

Then she asked, “How is this not just going to be something that’s on the wall?”

Doing what most managers don’t do

The answer was in how Bob Chapman related to employees. When he visited a factory, he would ask questions - and he would listen to the answers. What he heard often gave him ideas for experiments to try and changes to make. Then he would ask more questions. How do you feel about these programs? What are we doing that doesn’t match up to what we say?

Workers were understandably skeptical. One factory worked asked, “If I tell you the truth, will I still have a job tomorrow?” Then he made this observation.

“Well, I see you have the word ‘trust’ near the top of this document…

Why is it when they go to the office and I go into the plant, we are treated completely differently? If the lady in accounting wanted to call home and see if her kids made it to school, she could just pick up the phone and call; I had to wait until I had a break and then use a pay phone. If I have a doctor’s appointment, I have to get my supervisor to sign off on my card and I get docked for the time; she just goes to her appointment. I had to wait for the break bell to get a cup of coffee or to use the bathroom. 

You trust them to decide when to get a cup of coffee or call home, but you don’t trust me.”

The CEO was taken aback. “How could we treat our people - thoughtful, responsible adults - with such disrespect and distrust?” Chapman, despite the objection of the personnel director, had the time clocks removed from all of their operations.

In another plant, he noticed people working in the parts storeroom were fully enclosed in a metal cage. He asked, “What did those people do wrong?” and was told, “Well, we always secure the inventory. It’s the responsible thing to do.” The cage was removed.

It wasn’t a document or set of values that made a difference. It was the actions and changes over time. The more that management listened, the more opportunities they discovered to build trust and a sense of shared humanity. 

“Our eyes were opening to things we had never noticed before. People came to understand that we truly cared and would not just pay lip service but really listen to them.”

“I’m more excited about where I’m at in my life”

As a manufacturing company, there was of course a focus on quality, and they implemented Lean Manufacturing principles. Yet Barry-Wehmiller expanded the focus beyond reducing costs and jobs to improving employee satisfaction and safety. That shift in focus changed the quality initiatives from a threat into an opportunity to contribute. But they had decades of cultural inertia to overcome.

Larry, one of their long-time workers, shared his story of how, early in his career, he had an idea for improving things.

“I think if we just change this…” 

The supervisor interrupted him: “Stop right there. We don’t pay you to think. Go back to your machine and make the part right this time.”

From that moment on, Larry didn’t share any more ideas for improvement with the organization. He maintained his silence for forty-two years!”

Randall’s experience was similar. 

“We had four supervisors who circled throughout the work area all day, making sure everyone was working. It was a very aggressive environment. You came to work every day, didn’t ask any questions or make any waves, and made sure that you got your work done.”

The CEO asked Steve, an employee in a Green Bay, Wisconsin plant, about what work was like for him. 

“Do you know what it’s like, Bob, to work in a place where you show up every morning, you punch a card, you go to your station, you’re told what to do, you’re not given the tools you need to do what you need to do, you get ten things right and nobody says a word, and you get one thing wrong and you get chewed out? You feel empty. That was basically every day.”

But over time, the approach to work changed - and so did the workers. The changes even rippled outside of work, affecting their home life.

“I’ve been part of making things better. People ask me what I think; they listen to me, and I can have a chance to impact things including my own job. When I feel respected and know I’ve done a good day’s work, I feel pretty good about myself, and I find when I feel better about myself, I’m nicer to my wife, and when I’m nicer to my wife, she talks to me.”

“I went from the guy who didn’t want to do it to now teaching it! Everything about me is different, and everything in my life has changed….It’s opened my eyes to the possibility that even though I’m fifty-two years old, I can still make a difference in the world. I’m more excited about where I’m at in my life than I’ve ever been.”

Larry, after seeing that ideas were taken seriously and implemented, stood up at a continuous improvement event and said he wanted to be an ambassador of the program because he saw that “everybody was treated with respect and dignity, something that’s too often lost in our organization.”

Now what?

The quotes about employees feeling like cogs in a machine reminded me of the quotes from Studs Terkel’s classic, Working, published in 1973. In Out of the Crisis in 1980, Deming railed against common management practices at that time, and argued for giving employees a voice and the opportunity to take pride in their work.

Decades later, not much has changed. Perhaps Barry-Wehmiller is just an exception to the rule. Perhaps the gap between where most companies are and where we need to be - in any industry - seems like too big of a leap, so we never take a step.

My hope is that Working Out Loud can help get us moving in the right direction. The people in these companies deserve better. We all deserve better.

The life & death of Quality Circles (and a more modern way to implement them)

By the time I first heard of a Quality Circle, the idea was already almost 30 years old. It’s “a group of workers who do the same or similar work, who meet regularly to identify, analyze and solve work-related problems.” I was in my twenties at the time, doing research for my first book, and I believed these Circles could make a huge difference.

The method was introduced in the 1960s by Professor Kaoru Ishikawa. By the late 1970s, more than 10 million Japanese workers were in Circles. More recently, China is reported to have formed over 20 million Circles in a a range of industries.

But in the US, at least, “quality circles are almost universally consigned to the dustbin of management techniques.”

Why? What can we do to make a good idea even better?

Out of the Crisis

Dr. W. Edwards Deming, a pioneer of the quality management movement, was one of my early heroes when it came to work. His management philosophy wasn’t just for managers, but for everyone. Remarkably, his 14 principles put people at the center of quality and statistical process control.

“8. Drive out fear. 
12. Remove barriers that rob people of pride of workmanship.
13. Institute a vigorous program of education and self-improvement for everyone.
14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.”

When Out of the Crisis was published, Deming was already in his 80s. He referenced Quality Control Circles (or QC-Circles) several times. Though he was familiar with their success in Japan, he had also seen failed implementations in the US, and he was not optimistic about their success there.

“The idea has appeal. The production worker can tell us a lot about what is wrong and how improvements can be made: why not tap into the source of information and help?
[But] a QC-Circle can thrive only if the management will take action on the recommendations of the Circle. Many QC-Circles are, I fear, management’s hope for a lazy way out.”

Do you treat them as human beings? Or not?

Something went wrong. QC Circles were designed to be a way for people to actively take pride in their work by having a voice in making it better. But Circles often became a management tool focused on cutting costs (and jobs), and on finding fault. 

In his book, Deming excerpted a speech from Dr. Akira Ishikawa (who became president of Texas Instruments in Japan) about why Circles worked in Japan but not in the US.

“In the U.S., a QC-Circle is normally organized as a formal staff organization, wheres a QC-Circle in Japan is an informal group of workers. A manager in Japan serves as an advisor or consultant. In the U.S., a manager of production, to get rid of the job, appoints facilitators for Quality of Work Life, Employee Involvement, Employee Participation, QC-Circles, all of which disintegrate. 
The second contrast is the selection of the theme for a meeting and the way in which the meeting is guided. In the U.S., the selection of a theme or project and how to proceed on it are proposed by a manager. In contrast, in Japan, the things are decided by the initiative of the member-workers.
The third feature is the difference in hours for a meeting. A meeting in the U.S. is held within working hours. A meeting in Japan may be held during working hours, during the lunch period, or after working hours.
In the U.S., monetary reward for a suggestion goes to the individual. In Japan, the benefit is distributed to all employees. Recognition of group achievement supersedes monetary benefit to the individual.”

These aren’t just procedural or technical differences. They’re fundamental. The way that Circles are implemented can determine whether or not employees tap into their innate needs for control, competence, and connection. 

“One Japanese plant manager who turned an unproductive U.S. factory into a profitable venture in less than three months told me: ‘It is simple. You treat American workers as human beings with ordinary needs and values. They react like human beings.’
Once the superficial, adversarial relationship between managers and workers is eliminated, they are more likely to pull together during difficult times and to defend their common interest in the firm’s health. Without a cultural revolution in management, quality control circles will not produce the desired effects in America.”

“WOL for Quality”

When Deming observed Quality Circles, it was well before enterprise social networks, before 4 billion people were using the Internet, before modern research on why people do what they do. Today, it’s easier than ever for employees in any environment to make their ideas visible, to tap into what others in the company know, and to connect and collaborate with them. 

One experiment I plan to work on is to apply the basic elements of WOL Circles - a voluntary, self-organized, safe and confidential space using structured guides - to making work better in a wider range of environments. Call it “WOL for Manufacturing” or “WOL for Hospitals” or even “WOL in the Classroom.”

To suit each specific kind of environment, I would adapt the guides to include different ways for Circles to form and interact, different contributions to make, and different technologies for making them. If a company is already spreading WOL Circles, then such an experiment would be a natural extension, a way to include people in non-office environments.

Perhaps, instead of waiting for “the cultural revolution in management” that Deming thought was necessary, we can take action now. Perhaps we finally have the tools and practices we need to create grassroots movements that matter, that can show management what’s possible and inspire them to enable broader institutional changes.

The missing piece in most quality programs

I fell in love with W. Edwards Deming over twenty-five years ago. He was already in his 90s by then, but his philosophy of work and management was only gradually spreading. I felt like I had discovered A Fundamental Truth. But like other Truths, it was inconvenient to people in power, and was ignored or purposefully misinterpreted.

So when I saw a recent article titled “Deming, Finally!” I was curious. When I noticed it was co-authored by Celine Schillinger, I made a point to read it carefully, since I greatly respect her work driving change at the pharmaceutical company, Sanofi.

“Today, everyone in the manufacturing quality world has read, heard, spoken about Deming. His vision for quality and “14 points of management” as well as the “System of Profound Knowledge” in particular are inescapable reference points.
However, Pharma may have got this all wrong for the last 30 years. By focusing on processes, control and exhortations, manufacturers have missed the essence of Deming’s message.
Deming advised us to actually put the Human at the center of quality and to focus on how the system works.”

The missing piece in most quality programs is the human being. Deming understood that and most of the elements of “the Future of Work” decades ago, but he wasn’t really heard.

Deming would have benefited from better communications & behavior change methods, and I think Working Out Loud Circles can help with both - whether it’s work in an office or in manufacturing plants, in hospitals or schools. I’ll offer some specific suggestions in an upcoming post. In the meantime, read Celine’s article if you can, and let me know what you think about the topic. 

How would you make quality and continuous improvement more human?

Three kinds of fear

I’m not talking about the real threats - safety and shelter, for example - but the perceived threats that are largely in your head. When are you afraid? How often do you feel that way and what do you do about it?

I routinely experience three kinds of fear. By sharing them, I thought I might help those of you who face them too.

Fear of the uncomfortable and unknown

Trying something new

“I’m surprised you were nervous,” she said. This Tuesday in my Working Out Loud circle I was describing a presentation I gave to a few hundred people, something I’m usually comfortable doing. This one, though, was in front of a camera instead of an audience. I was anxious for days beforehand, my nervousness peaking when the director said “30 seconds before broadcast.”

I have this same feeling whenever I’m trying anything I’m not comfortable with, and I’ve learned two tricks to deal with it. One is preparation. With practice comes familiarity and that reduces the anxiety. The other trick is to frame things as a learning goal, to focus on the process and not the outcome. I’m not good or bad at it, I’m just getting better. This growth mindset defuses my fear and can help me improve at anything.

Being vulnerable

I’m the kind of person, I realize, who wants to be liked, who wants people to say nice things. “Good talk, John!” “I liked the book!” Of course that feels good.

Yet it’s the critical feedback that makes me and my work better, and this presents a conflict. My aversion to negative feedback can make me avoid doing things that will help me improve.

Here again, I’ve learned two tricks. One is to separate feedback about my work from feedback about me, the human being. So when my wife read my final draft and said “I don’t like it,” she wasn’t saying “I don’t like you.” (It felt that way at the time, but I’m slowly learning that her candor is a gift.)

The other trick is to have a “lean startup” mindset. You frame your work as a series of experiments, share them early for the purpose of getting feedback - before you’ve invested heavily in them - and adapt. That way, rejections and negative feedback aren’t hurtful, they’re helping me find a better path sooner.

Seeking meaning and fulfillment

This third fear is the toughest for me to deal with. It’s a fear of not trying to do something more with my life. In writing today's post, I found something I wrote more than 3 years ago titled “When are the best years of your life?”

“If I have a hero, it’s W. Edwards Deming. Born on a chicken farm in 1900, he was a statistician who worked with the census bureau into his 40s. At 47, he travelled to Japan to help with the first census after the war. While there, he met with people about statistics and quality control. And his subsequent fieldwork with factory managers in Japan marked the beginning of the Japanese quality movement.

His efforts unlocked tremendous commercial value while also helping individual workers regain their pride of workmanship. In 1950, Japan awarded the first Deming Prize. Still, for decades, Deming was largely unknown in the US, where he lived and worked. It was only after he was mentioned on a television show (“If Japan can, why can’t we?”) that his consulting business took off. He was 80. At 82, he published his most popular book.”

That’s the kind of fulfilling, meaningful work I want to do. But I’m afraid to try. I’ve worked in big companies for 30 years and changed jobs only twice. While helping people and companies as Deming did is inspiring, it's also daunting. The prospect of such a shift in my work and life makes me afraid.

I don’t have any tricks for this one. If you do, please let me know. For now, I just focus on one step at a time. I figure if I keep taking steps, getting feedback and getting better along the way, it will lead me somewhere I want to be.

If Abe Lincoln had a social network

What would Lincoln do? Last week, my coach and friend, Moyra Mackie, wrote a good post about the value of management by walking around (MBWA) and about the benefits of managers being available for their teams.

She described how Lincoln is credited with using this technique during the Civil War. How Hewlett-Packard executives practiced it in the 1970s and Tom Peters and others wrote about it in the 1980s.

Now, modern managers will nod their head knowingly when you mention this useful practice. But an incredibly small number of managers are taking advantage of an improvement to the technique that’s available today - one that Lincoln could have only dreamed about.

MBWA

It’s the unplanned, unfiltered nature of MBWA that results in the manager receiving useful information. Here’s a helpful definition from Wikipedia:

“The term management by wandering around (MBWA), also management by walking around, refers to a style of business management which involves managers wandering around, in an unstructured manner, through the workplace(s), at random, to check with employees, or equipment, about the status of ongoing work. The emphasis is on the word wandering as an impromptu movement within a workplace, rather than a plan where employees expect a visit from managers at more systematic, pre-approved or scheduled times. The expected benefit is that a manager, by random sampling of events or employee discussions, is more likely to facilitate the productivity and total quality management of the organization, as compared to remaining in a specific office area and waiting for employees, or the delivery of status reports, to arrive there, as events warrant in the workplace.”

Lincoln in the 1860s

In the Lincoln biography, “With Malice Toward None”, Prof. Stephen Oates asserts that Lincoln invented MBWA. And Moyra writes about why he did it:

 “During the American Civil War, President Abraham Lincoln would surprise his generals and their men with impromptu troop inspections. By seeking out and listening to ordinary soldiers and observing what was happening, his habit of unannounced visits allowed him to get an unfiltered view on which to base future decisions.”

Instead of waiting for information to come to him, perhaps tainted by the interests of generals, Lincoln went and got it himself. (Over a hundred years later, Deming noted “If you wait for people to come to you, you’ll only get small problems. You must go and find them.”)

In addition to this valuable feedback leading to better decisions, Moyra describes how Lincoln’s direct interactions with troops could also “kickstart a two way process of communication and learning”.

Lincoln today

MBWA, when done well, does indeed have these benefits. But even for Lincoln it was incredibly limited: the time required to travel to meet troops in the field; the very small number of people he could interact with; the difficulty of getting honest feedback from a private to the President. It was easy for MBWA to devolve into just speeches to large crowds or staged tours to meet a few pre-selected soldiers.

If Lincoln had a social network, he would complement his historic trips by virtually walking around his organization. From the White House, he would see what soldiers across the country were saying when they didn’t think he was listening. He would provide feedback and encouragement that everyone could see. Inspiration that everyone could read and share. Lessons and directions that everyone could learn from.

He would still go to the field. But he would augment the practice he invented with modern techniques that would make him even more effective and help his troops be even more engaged in their mission.

Modern managers, more pressed for time than ever before, could learn a lot from what Lincoln did - and would do.

If Abe Lincoln had a social network

What would Lincoln do? Last week, my coach and friend, Moyra Mackie, wrote a good post about the value of management by walking around (MBWA) and about the benefits of managers being available for their teams.

She described how Lincoln is credited with using this technique during the Civil War. How Hewlett-Packard executives practiced it in the 1970s and Tom Peters and others wrote about it in the 1980s.

Now, modern managers will nod their head knowingly when you mention this useful practice. But an incredibly small number of managers are taking advantage of an improvement to the technique that’s available today - one that Lincoln could have only dreamed about.

MBWA

It’s the unplanned, unfiltered nature of MBWA that results in the manager receiving useful information. Here’s a helpful definition from Wikipedia:

“The term management by wandering around (MBWA), also management by walking around, refers to a style of business management which involves managers wandering around, in an unstructured manner, through the workplace(s), at random, to check with employees, or equipment, about the status of ongoing work. The emphasis is on the word wandering as an impromptu movement within a workplace, rather than a plan where employees expect a visit from managers at more systematic, pre-approved or scheduled times. The expected benefit is that a manager, by random sampling of events or employee discussions, is more likely to facilitate the productivity and total quality management of the organization, as compared to remaining in a specific office area and waiting for employees, or the delivery of status reports, to arrive there, as events warrant in the workplace.”

Lincoln in the 1860s

In the Lincoln biography, “With Malice Toward None”, Prof. Stephen Oates asserts that Lincoln invented MBWA. And Moyra writes about why he did it:

 “During the American Civil War, President Abraham Lincoln would surprise his generals and their men with impromptu troop inspections. By seeking out and listening to ordinary soldiers and observing what was happening, his habit of unannounced visits allowed him to get an unfiltered view on which to base future decisions.”

Instead of waiting for information to come to him, perhaps tainted by the interests of generals, Lincoln went and got it himself. (Over a hundred years later, Deming noted “If you wait for people to come to you, you’ll only get small problems. You must go and find them.”)

In addition to this valuable feedback leading to better decisions, Moyra describes how Lincoln’s direct interactions with troops could also “kickstart a two way process of communication and learning”.

Lincoln today

MBWA, when done well, does indeed have these benefits. But even for Lincoln it was incredibly limited: the time required to travel to meet troops in the field; the very small number of people he could interact with; the difficulty of getting honest feedback from a private to the President. It was easy for MBWA to devolve into just speeches to large crowds or staged tours to meet a few pre-selected soldiers.

If Lincoln had a social network, he would complement his historic trips by virtually walking around his organization. From the White House, he would see what soldiers across the country were saying when they didn’t think he was listening. He would provide feedback and encouragement that everyone could see. Inspiration that everyone could read and share. Lessons and directions that everyone could learn from.

He would still go to the field. But he would augment the practice he invented with modern techniques that would make him even more effective and help his troops be even more engaged in their mission.

Modern managers, more pressed for time than ever before, could learn a lot from what Lincoln did - and would do.

When are the best years of your life?

A group of us were in the hotel bar late one night after an all-day business conference. Fueled by some polychromatic cocktails, I asked the people I was with - all of us in our 40s - whether they thought their best years were ahead of them or behind them.

“Ohhhh,” said one woman. “No question. My best years were in college.”

“Really?” I asked. I was surprised. She was smart, attractive, and had a successful career. Not only was college decades ago, but she had 30, 40, or even 50 more years of living to do.

Why would she spend that time looking backwards?

“I always thought you’d be something special”

I was surprised and yet I understood. I used to look backwards, too, thinking of times that seemed more full of promise and potential. Of things I could have done but didn’t.

That feeling was particularly strong one night when I reunited with an elementary school friend I hadn’t seen in 30+ years. After a few minutes, she asked me with particular curiosity “What did you wind up doing? I always thought you’d be something special.”

She meant it as a compliment. We grew up in the Bronx but she knew I’d been admitted to the city’s best high school and had high hopes for me.

I paused, unsure of my response. I’d had a fine career and life, but I remember wistfully thinking “Yes, I thought I’d be special, too.”

The wrong model

The problem was that the woman in the bar and I both had the wrong modeI for how life really works.

We viewed life as a continuously dwindling set of possibilities. You start with an almost infinite set of things you can do or be. (When I was 5, I declared I was going to be a paleontologist. At 11, a baseball player. At 17, a psychologist.) But, over time, your options - particularly the special ones - become fewer and fewer.

Then I started to think differently.

Body and mind

My change in perspective started with how I viewed my health. I also had the wrong model for that, thinking of my body as a machine which, over time, inevitably started to wear down and break. So my best physical days were necessarily in the past.

Then a friend gave me a book called “Grow Younger Next Year”. It taught me, in simple language and accessible science, that my body is a much more dynamic system than I’d imagined. That by moving and eating differently I could change my circulatory system and produce new possibilities. I changed my habits and I changed my outlook.

Similarly, I learned how thinking and learning differently could change how my brain works and open up new possibilities there, too:

“During most of the 20th century, the general consensus among neuroscientists was that brain structure is relatively immutable after a critical period during early childhood. This belief has been challenged by findings revealing that many aspects of the brain remain plastic even into adulthood”

The same is true in other parts of your life. Working differently and relating to people differently open up possibilities you might have never even imagined when you were younger.

The road ahead

If I have a hero, it’s W. Edwards Deming. Born on a chicken farm in 1900, he was a statistician who worked with the census bureau into his 40s. At 47, he travelled to Japan to help with the first census after the war. While there, he met with people about statistics and quality control. And his subsequent fieldwork with factory managers in Japan marked the beginning of the Japanese quality movement.

His efforts unlocked tremendous commercial value while also helping individual workers regain their pride of workmanship. In 1950, Japan awarded the first Deming Prize. Still, for decades, Deming was largely unknown in the US, where he lived and worked. It was only after he was mentioned on a television show (“If Japan can, why can’t we?”) that his consulting business took off. He was 80. At 82, he published his most popular book.

He died at 93, having experienced things he could never have imagined as a young man on a chicken farm or in mid-life at the census bureau.

Deming is a great role model for me. And now it's even easier to create the kind of full life he led. With new tools and practices developed since his time, it's easier than ever to shape your reputation, control your career, and make a difference. Easier than ever to create new possibilities.

The best years of your life? They’re ahead of you.

Why smart managers do stupid things

Large firms hire some of the smartest, most capable people. Yet, when those people become managers, they do stupid things. For example, they cling to concepts like “pay for performance” and “talent management” without any critical thinking - without questioning whether the systems and processes in place actually work.

When it comes to management, there’s a clear absence of intellectual rigor. And I always wondered: “Why?”

Thinking Fast and Slow

Recently, I came across an answer that’s both encouraging and dispiriting. It’s because of the way our brains work.

In the brilliant book, “Thinking Fast and Slow”, Nobel prize winner Daniel Kahneman describes the brain as having two systems:

“System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control.

System 2 allocates attentions to the effortful mental activities that demand it, including complex computations.”

If you see two objects, for example, you’ll use System 1 to detect which one is further away. But to calculate the distance, you’ll use System 2. While System 1 is easier for us - largely automatic - System 2 can come up with a better answer.

But using System 2 requires effort and attention. And attention is a scarce resource. So we systematically take shortcuts so we can make sense of the world around us.

Kahneman’s book is full of incredible insights. Chapter after chapter, you’ll face uncomfortable truths about how you think, all grounded in excellent research and careful studies, yet written so all of it is accessible and engaging.

Of the many fascinating stories in the book, two struck me as particularly relevant to management practices at most firms.

The Illusion of Validity: Evaluating Leaders

Throughout the book, Kahneman refers to the WYSIATI principle - What You See Is All There Is. Over and over, he demonstrates how people systematically disregard basic probability and other facts in order to (quickly and easily) make up a story that fits with the things they see.

“The sense-making machinery of System 1 makes us see the world as more tidy, simple, predictable, and coherent than it really is.”

Kahneman describes a story from the Israeli Army, where he participated in a formal review to determine soldiers’ leadership abilities, complete with a numerical rating, detailed observations, and a recommendation per soldier.

Months later, they were able to learn how well the candidates actually performed in officer-training school and, repeatedly, the correlation between the leadership evaluation and actual performance was negligible.

But that didn’t change anything.

“The dismal truth about the quality of our predictions had no effect whatsoever on how we evaluated candidates and very little effect on the confidence we felt in our judgments and predictions about individuals.

We knew as a general fact that our predictions were little better than random guesses, but we continued to feel and act as if each of our specific predictions was valid...Because our impressions of how well each soldier had performed were generally coherent and clear, our formal predictions were just as definite.”

It was a case of WYSIATI. The evidence in front of them (impressions of the soldiers) outweighed their knowledge about their flawed process, and gave them an illusion of validity.

Every firm with a “talent management” process, rigorously evaluating employees’  potential, is subject to that same illusion.

The Illusion of Validity: Rewarding Results

Decades after his experience in the Israeli Army, Kahneman was invited to speak to a group of investment advisers.

Before the talk, he analyzed the investment outcomes of the advisers over eight consecutive years. Then he computed correlations to see if there were differences in skill. The results “resembled what you would expect from a dice-rolling contest.”

“Our message to the executives was that, at least when it came to building portfolios, the firm was rewarding luck as if it were skill...But their own experience of exercising careful judgment on complex problems was far more compelling to them than an obscure statistical fact.”

Unfortunately, every performance review and every distribution of performance rankings suffers from these same biases. And yet we persist.

After his talk, Kahneman spoke with one of the investment advisers:

"He told me, with a trace of defensiveness: 'I have done very well for the firm and no one can take that away from me.'"

What successful manager would want to admit that their success is largely due to chance? That the system that promoted them was fundamentally flawed?

The Red Beads

But we’ve known all this for decades - even without the additional proof in Kahneman's work.

Deming talked about the inherent errors in most evaluations of performance, and he wrote about it in the early 1980s in “Out of the Crisis”:

“A common fallacy is the supposition that it is possible to rate people; to put them in rank order or performance...The performance of anybody is the result of many forces - the person himself, the people that he works with, the job...his customer, his management...

These forces will produce unbelievably large differences between people. In fact, as we shall see, apparent differences between people arise almost entirely from action of the system that they work in, not from the people themselves. A man not promoted is unable to understand why his performance is lower than someone else’s. No wonder; his rating was the result of a lottery.”

Deming then introduced the Red Bead experiment to prove his point. In that experiment, workers with the same skills, instructions, and tools are put in front of a bin of red and white beads and asked to select only white beads (not red ones) with a special paddle. And they produce wildly different results.

The process is "in control" and the variations are to be expected.

“It would obviously be a waste of time to try to find out why Terry made 15 red beads, or why Jack made only 4. What is worse, anybody that would seek a cause would come up with an answer, action on which could only make things worse henceforth.”

“Anybody that would see a cause would come up with an answer.” Make up a story to fit the facts. Kahneman couldn’t agree more.

What to do?

So, our brains’ ability to make sense of the world involves some devastating trade-offs in terms of biases and systematic errors. But if we’re wired to make substitutions, to overlook simple statistics, to make up causes and coherent stories where there’s only luck, then is there anything we can do?

Yes.

We can recognize that “the laziness of System 2 is an important fact of life.” And that “System 1 is radically insensitive to both the quality and the quantity of information that gives rise to impressions and intuitions.”

Knowing our natural tendencies and biases, we can ask more questions. We can insist on more evidence.

“The way to block error that originate in System 1 is simple in principle: recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.”

We can think more. We can refuse to accept management practices that don’t work just because that’s the way things are.

We can do better.

Why smart managers do stupid things

Large firms hire some of the smartest, most capable people. Yet, when those people become managers, they do stupid things. For example, they cling to concepts like “pay for performance” and “talent management” without any critical thinking - without questioning whether the systems and processes in place actually work.

When it comes to management, there’s a clear absence of intellectual rigor. And I always wondered: “Why?”

Thinking Fast and Slow

Recently, I came across an answer that’s both encouraging and dispiriting. It’s because of the way our brains work.

In the brilliant book, “Thinking Fast and Slow”, Nobel prize winner Daniel Kahneman describes the brain as having two systems:

“System 1 operates automatically and quickly, with little or no effort and no sense of voluntary control.

System 2 allocates attentions to the effortful mental activities that demand it, including complex computations.”

If you see two objects, for example, you’ll use System 1 to detect which one is further away. But to calculate the distance, you’ll use System 2. While System 1 is easier for us - largely automatic - System 2 can come up with a better answer.

But using System 2 requires effort and attention. And attention is a scarce resource. So we systematically take shortcuts so we can make sense of the world around us.

Kahneman’s book is full of incredible insights. Chapter after chapter, you’ll face uncomfortable truths about how you think, all grounded in excellent research and careful studies, yet written so all of it is accessible and engaging.

Of the many fascinating stories in the book, two struck me as particularly relevant to management practices at most firms.

The Illusion of Validity: Evaluating Leaders

Throughout the book, Kahneman refers to the WYSIATI principle - What You See Is All There Is. Over and over, he demonstrates how people systematically disregard basic probability and other facts in order to (quickly and easily) make up a story that fits with the things they see.

“The sense-making machinery of System 1 makes us see the world as more tidy, simple, predictable, and coherent than it really is.”

Kahneman describes a story from the Israeli Army, where he participated in a formal review to determine soldiers’ leadership abilities, complete with a numerical rating, detailed observations, and a recommendation per soldier.

Months later, they were able to learn how well the candidates actually performed in officer-training school and, repeatedly, the correlation between the leadership evaluation and actual performance was negligible.

But that didn’t change anything.

“The dismal truth about the quality of our predictions had no effect whatsoever on how we evaluated candidates and very little effect on the confidence we felt in our judgments and predictions about individuals.

We knew as a general fact that our predictions were little better than random guesses, but we continued to feel and act as if each of our specific predictions was valid...Because our impressions of how well each soldier had performed were generally coherent and clear, our formal predictions were just as definite.”

It was a case of WYSIATI. The evidence in front of them (impressions of the soldiers) outweighed their knowledge about their flawed process, and gave them an illusion of validity.

Every firm with a “talent management” process, rigorously evaluating employees’  potential, is subject to that same illusion.

The Illusion of Validity: Rewarding Results

Decades after his experience in the Israeli Army, Kahneman was invited to speak to a group of investment advisers.

Before the talk, he analyzed the investment outcomes of the advisers over eight consecutive years. Then he computed correlations to see if there were differences in skill. The results “resembled what you would expect from a dice-rolling contest.”

“Our message to the executives was that, at least when it came to building portfolios, the firm was rewarding luck as if it were skill...But their own experience of exercising careful judgment on complex problems was far more compelling to them than an obscure statistical fact.”

Unfortunately, every performance review and every distribution of performance rankings suffers from these same biases. And yet we persist.

After his talk, Kahneman spoke with one of the investment advisers:

"He told me, with a trace of defensiveness: 'I have done very well for the firm and no one can take that away from me.'"

What successful manager would want to admit that their success is largely due to chance? That the system that promoted them was fundamentally flawed?

The Red Beads

But we’ve known all this for decades - even without the additional proof in Kahneman's work.

Deming talked about the inherent errors in most evaluations of performance, and he wrote about it in the early 1980s in “Out of the Crisis”:

“A common fallacy is the supposition that it is possible to rate people; to put them in rank order or performance...The performance of anybody is the result of many forces - the person himself, the people that he works with, the job...his customer, his management...

These forces will produce unbelievably large differences between people. In fact, as we shall see, apparent differences between people arise almost entirely from action of the system that they work in, not from the people themselves. A man not promoted is unable to understand why his performance is lower than someone else’s. No wonder; his rating was the result of a lottery.”

Deming then introduced the Red Bead experiment to prove his point. In that experiment, workers with the same skills, instructions, and tools are put in front of a bin of red and white beads and asked to select only white beads (not red ones) with a special paddle. And they produce wildly different results.

The process is "in control" and the variations are to be expected.

“It would obviously be a waste of time to try to find out why Terry made 15 red beads, or why Jack made only 4. What is worse, anybody that would seek a cause would come up with an answer, action on which could only make things worse henceforth.”

“Anybody that would see a cause would come up with an answer.” Make up a story to fit the facts. Kahneman couldn’t agree more.

What to do?

So, our brains’ ability to make sense of the world involves some devastating trade-offs in terms of biases and systematic errors. But if we’re wired to make substitutions, to overlook simple statistics, to make up causes and coherent stories where there’s only luck, then is there anything we can do?

Yes.

We can recognize that “the laziness of System 2 is an important fact of life.” And that “System 1 is radically insensitive to both the quality and the quantity of information that gives rise to impressions and intuitions.”

Knowing our natural tendencies and biases, we can ask more questions. We can insist on more evidence.

“The way to block error that originate in System 1 is simple in principle: recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.”

We can think more. We can refuse to accept management practices that don’t work just because that’s the way things are.

We can do better.