Senior Leaders, Organizational Performance and Sir Fred

When I'm doing presentatations on leadership, I often like to throw in the quotes from Jeff Pfeffer and Robert Sutton's well known book,  'Hard Facts, Dangerous Half Truths and Total Nonsense', which summarises the academic evidence on the (lack of) impact of senior leaders on organizational performance. 

'Scholars who conduct and evaluate the best peer-reviewed studies argue over how much leadership matters and when it matters most. But when they set aside their petty differences, most agree that the effects of leadership on performance are modest under most conditions, strong under a few conditions, and absent in others.

'Studies from leaders from large samples of CEOs…, university presidents to managers of colleges and professional sports teams show that organizational performance is determined largely by factors that no individual - including a leader - can control’. Pfeffer & Sutton, 2006 (p. 192).

However, they do make the point that senior leaders that senior leaders can have an enormous negative effect, especially on reputations!

In the august Academy of Management Journal this month, there is an excellent article which explains why Sir Fred Goodwin may have be one of the few leaders to have had a strong effect, positively and negatively on RBS - he went from hero to zero in a few years, like many of his counterparts in the banking crisis.  For those interested, the reference is Li, J. & Tang, Y. (2010) CEO hubris and firm risk taking in China: the moderating role of managerial discretion, Academy of Management Journal, 53: 45-68.

Popular views of the impact of leadership are that CEOs have a big effect on firm performance, partly explained by our need to attribute relatively simple causes to complex issues.  The underlying theory and data that Pffeffer and Sutton are referring to, however, comes from two different stables of research - popular ecology and neoinstitutionalist theories - both of which argue that CEO and senior leaders can have little effect on firm performance, except under certain conditions, because of overwhelming external forces such as market pressures, etc.  The two Chinese authors point to recent attempts to reconcile these views through something called 'Upper Echelon' theory, which highlightlights the role of managerial discretion.  In bringing this idea together with the notion of managerial hubris - the exagerated belief that some managers have about the their own judgements against objective standards - they help us understand the dark side of management.  For example, they point to research which shows that CEO hubris is associated with paying over the odds for acquisitions, and that cross-border acquisitions are often driven by managerial hubris.  Which brings us to Sir Fred Goodwin's impact on RBS's failure.

Li and Tang demonstrate in a Chinese context that CEO hubris is postively related to firm risk-taking, which is facilitated by the market context to support risk, the complexity of the market, room for opportunities to take risk and the degree of market uncertainty. When the context is munificent, when there are opportunities and when information is ambigious, overconfident CEOs can, and do, feel compelled to take greater risks.  At the organizational level, there are also key constraints on CEOs, including the age of the firm, its size, its resources and the governance structures of the board.  If a CEO has greater control over the board and has resources, s/he is more likely to act on the basis of hubris in making risky decisions.  What is evident from the RBS case is that most of these factors were evident, so providing a better good explanation than  some of the woolier theories of semi-detached, narcisisstic leadership and its negative effects.  What do readers think?

Employee Voice and Engagement

A very good colleague of mine, Paul Gollan, from Macquarie University in Sydney has been writing and researching on employee voice for a number of years, assessing whether employee voice has a positive impact on participation and through it, key outcomes for organizations and employees. The usual distinction made in this important stream of literature is 'between direct communication, upward problem-solving, or representative participation. The first two of these are essentially direct and individually focused, often operating through face-to-face interactions between supervisors/first line managers and their staff. Some take the form of informal oral or verbal participation, while others are more formalized in the form of written information or suggestions. The third form centres on the role that employee or trade union representatives play in discussions between managers and the workforce, via mechanisms such as joint consultation, worker directors or collective bargaining in the form of problem solving communications' (Budd, Gollan & Wilkinson, 2010).
Paul and his colleagues have just produced a special issue on this topic for the journal Human Relations, which has some excellent articles in it.  He is also running a seminar series this month at the LSE which looks excellent (and, he tells me, is free!), where he will also launch a new book on this important strand of work.
Among the best (for me) papers in the Human Relations collection is one by Kim, McDuffie and Pil, who write about the impact of different kinds of voice and engagement in the automative industry, and their impact on productivity (see the last post).  The results of this study are complex but generally support the importance of employee voice as an engagement strategy, so resonating with the findings in the earlier post on Steve Wood's research.  Here's a summary of the Kim et al paper by the editors - no need for me to do it. 
'Turning from the determinants of individual participation in voice mechanisms to the effects of employee voice and participation, Jaewon Kim, John Paul MacDuffie and Frits Pil (this issue) analyse the effects of team voice and worker representative voice, as well as their interaction, on labour productivity in ‘Employee voice and organizational performance:

'Of particular note, this research centres on teams’ influence on key work-related issues and worker representatives’ influence on collective voice issues rather than simply assessing the presence of teams or unions. Drawing data from automotive assembly plants from around the globe, the findings reveal that when examined solely, neither channel of voice has a significant effect on labour productivity. Rather, the influence of team voice and representative voice on worker efficiency depends on the interaction between these channels of voice. These findings challenge the conventional assumptions of advocates of both direct and indirect voice because neither type of voice on its own consistently predicts better labour productivity. Significantly, even when the two forms of voice are combined, these findings suggest their relationship with labour efficiency is complex because the positive effects of one type of voice are partly offset by them being partial substitutes. Consequently, the two forms of voice can interfere with, or neutralize, each other’s positive effects on productivity. The findings suggest that this occurs more frequently than the mutual reinforcement some might expect. However, consistent with recent European policy-making on employee participation and voice, the combination of both forms of voice does ultimately have a positive impact on performance and productivity. Overall, the findings therefore reinforce the importance of increasing various forms of employee voice for greater positive organizational outcomes'.

Solid Evidence that HRM and Engagement can Work

As HR academics and practitioners we are consistently looking for good evidence that HRM actually works - that the adoption of high performance work practices pays off in terms of ley measures of performance, such as productivity, quality, customer service, etc. We need such evidence to build our respective cases, and there has been quite a bit of it around for the last twenty years beginning the Mark Huselid's large-scale statistical studies in the 1990s. Often, however, the academics have have failed to look at this issue over long periods of time, so demonstrating consistent and long terms effects of the use of high performance work practices and related engagement strategies, which, if done well, would represent something of a gold standard of proof that investment in HRM actually works.

This morning I and quite a few of my HRM academic colleagues were sent the results of a paper that goes some way to delivering such proof, though they are more modest and, like good academics, highlight their study's shortcomings. The work comes out of the Institute of Work Psychology stable at Sheffield University, run by Stephen Wood. Here's his summary of the paper and its contribution in the email he sent out.

'My colleague, Lilian de Menezes, and I examined the integrated use in British manufacturing of a set of lean management practices in which employee empowerment was a major component over 22 years. We found in all 22 years that those firms that used the integrated lean approach (my emphasis) has higher levels of productivity (measured by value-added). In addition, we found that the pioneers of the high lean approach continued to outperform even those that subsequently adopted it. These later adopters gained the performance advantages associated with the integrated approach, but their productivity growth was not sufficient to catch up with those which had adopted it earlier. This shows that the employee engagement, so central to lean production, achieves its aim of continuous improvement.

The practices included in the study are: empowerment, intensive training and development, team work, TQM, Just-in-time, integrated computer-based technology, and supply-chain partnering

The study was financed by the ESRC and will appear in: L. de Menezes, S. Wood and G. Gelade, ‘A longitudinal study of the latent class clusters of modern management practices and their
association with organizational performance in British manufacturing’, Journal of Operations Management'.

Lilian, Steve and Gerry acknowledge the limitations of their study, suggesting that gold standard proof would need to consider not only productivity data but also evidence on quality and lead times in manufacturing. Nevertheless, this study represents an important step forward and substantial argument for integrating engagement strategies - team working and empowerment - with lean techniques. Given the widespread adoption of the latter in healthcare in the UK, maybe its time to puut in place a similar study to test the impact of these large scale and somewhat controversial initiatives.

Back in the Frame and Following up on Engagement

I’ve had a (partly enforced) break over the holiday period (and beyond), due to some many writing deadlines, being overseas and being laid low for a few weeks (first time for me), so I'm likely to be a little ring rusty in the blogging sense. Anyway I would like to follow on with the post from November regarding engagement. In that post I was critical of the Macleod report’s discussion on the subject because it lacked the necessary rigour to make engagement a useful practitioner tool that would stand real scrutiny. Susan Hetrick and I first raised this issue of engagement in our 2006 book on corporate reputations and HR, suggesting it was little more than consultancy re-packaging of old ideas designed to refresh their HR product portfolio. Since then, I’ve come around to the idea of engagement, in part because it is so big in practice. So I’ve been working on developing a model of how leadership and high performance HR work systems influence different components of engagement to produce critical business and public sector outcomes. This model will be published in a forthcoming chapter on employer branding (with Saskia Dyke from Switzerland) and another in an article on leadership branding (with Julie Hodges from Durham). Susan and I will also be using it as the basis for a forthcoming financial services presentation.
Co-incidentally, two prominent HR academic colleagues of mine, Elaine Farndale from Tilburg and Paul Sparrow from Lancaster have been working on engagement, both of whom have made major contributions to the literature on the topic and have influenced my thinking significantly.
I’ve mentioned Paul’s work before and his Centre for Performance-led HR at Lancaster University. Along with Shashi Balain, he produced a really insightful contribution to the notion of engagement in a white paper. As part of that contribution, Paul and his colleagues have also made a series of short videos summarising their work. These are really worth looking at.
However, to my mind Elaine’s work on engagement with colleagues from Tilberg, represents a major breakthrough in bringing some rigour and evidence to the topic and anyone seriously interested in engagement should contact Elaine to get a hold of this paper by Bejier, Farndale and Van Veldhoven . For me , the most important contribution has been to define two different foci of engagement – work engagement, which I’ve already written about on this blog, and organizational engagement, which is what most consultants typically refer to as employee engagement. It also makes a key distinction between state engagement (attitudes and emotions which people hold to work and their organization) and behavioural engagement (actions that employees report taking to display engagement with their work and the organization). For example, many professionals are engaged in their work but not the organization, often to the point of over-engagement or burnout. Conversely, managers can become over-engaged (or over-identified) with the organization, which can lead to a form of collective blindness, intolerance of others who are not ‘organization men’ and a failure to privilege professional and moral values in decision-making. This is a topic that Elaine, Japp Paauwe and I hope to be discussing at a forthcoming symposium on HR’s contribution to corporate governance at the Academy of Management in August – the ‘darkside of engagement’ – something most of us can recognise but which has rarely featured in the practitioner literature..
Currently, we’re working on expanding the range of engagement foci – what people at work engage with – to show how they are distinct but related. For example, in healthcare and financial services, it is clear that people are engaged or can become disengaged with the industry, which is very important in explaining recruitment and retention. It is also clear that people can be more or less engaged with each other in the performance of their work, which is related to team-working and distributed leadership, both critical drivers of effective performance.

Much Shorter Reflections on the CIPD Annual Conference and Engagement

Picking up on the previous blog, a key theme of conference was employee engagement, which ran through a number of sessions I attended. Perhaps the most important was the presentation of the MacLeod Report by no less than David MacLeod himself and Nita Clarke. I've previously expressed a mild form of disappointment with this work during an earlier blog on Saturday 18th July, to which I want to return in the spirit of critical friendship. David McLeod encouraged this during his presentation, so I'll try to oblige.

To focus on the positive, firstly, these two advocates have turned into evangelists for their work and cause, and this can only be to the benefit of the British economy and for HR professionals seeking ways in which they can add strategic value. Secondly, they have also enlisted and marshalled an impressive set of fellow travellers and evidence to support their cause. Thirdly, they have produced a highly readable and informative report, which they outlined with vigour and dedication during their presentation.

However, they still have not yet nailed down the concept for my liking, nor shown how this consultancy-generated idea is an advance on what academics have been talking about for years. Indeed, listening to the presentation, a harsh reading might question - what's new! If you have any sense of history in the field, you could justifiably argue that the same message and mode of enquiry has re-surfaced at least five times in since the 1920s and 1930s, beginning with the reporting of some dubious human relations experiments by the arch-evangelist, gifted self-publicist and, some would claim, charlatan, Elton Mayo (I've written about this in the Managing People book) and most recently popularised by Peters and Waterman in the early 1980s when they began the culture-excellence movement with some sketchy research on so-called excellent companies. As many readers will know, half of these excellent companies experienced a significant fall from grace five years after they did their initial research. You can guess where I'm going with using only 'excellent' case study companies as the basis for providing long term predictions - not very clever, and a trap the McLeod report is in danger of falling into.

That said, just like In Search of Excellence, we should be careful of throwing out the baby with the bathwater, as some academics did and are likely to do with the MacLeod report. Instead, we should be building on its positives and its capturing of the zeitgeist. What David MacLeod needs to do, contrary to his dismissal of fifty-plus definitions as a way of avoiding the problem, is to begin to get some definitional clarity on the concept. For it is only by doing so that we will be able to measure engagement's impact and understand its drivers. Paul Sparrow's group at Lancaster are beginning to do just that; so are we in some forthcoming papers, where we have begun to disentangle the conflation of engagement into four related but distinct sets of ideas about what workers can engage with (and, just as important, measure them with valid and reliable scales with known drivers and outcomes) .

In the corporate reputations book I examined a number of consulting approaches to the concept and found them to be inconsistent in what people were supposed to be engaged with and just plain wrong in confusing correlations with prediction - are engaged workers likely to create high performance organisations, or are high performance organisations likely to create the conditions for engaged workers?. These are not just academic niceties but have important practical implications. Unfortunately, David MacLeod's presentation gave the impression of falling into into both traps.

To conclude, we are now at the stage that engagement is too important a concept for academics to dismiss as yet another consultancy-generated fad. It has a lot going for it and needs to be treated a little more rigourously; otherwise the MacLeod Report will loose a lot of its relevance - just like its predecessors!

Reflections on the CIPD Annual Conference and The Future of HR

I've just spend an enjoyable and highly informative two days attending the CIPD annual conference in Manchester as one of their guests. The invitation to spend time with the senior team of the CIPD was, in part, a result of my involvement as a judge on the technology and HR awards. So, first of all, I've want to congratulate the team at Intercontinental Hotels for their leadership learning portal and two extremely able guys at Beds and Bars - both of whom read this blog - who have created something new and practical in the field of e-HR and Web 2.0 with very limited resources and good use of iPhones.

My involvement, along with some good academic colleagues, was also to provide academic input and feedback into the CIPD's future initiatives and suggest ways in which the academy and HR professionals can get the best from each other. Again, this was a very welcome and excellent initiative on behalf of the CIPD. So with this last point in mind, I suggest that one of our most important jobs is to act as 'critical friends', though there are additional roles for us in helping contribute to 'thought leadership' (I'm not keen on that term), as advocates of rigour as well as relevance in producing actionable knowledge about HR , and in helping ask the right questions for the CIPDs future research and knowledge agenda. On this last point, for the most part we're typically dealing with 'wicked' problems for which there is no real solution, programme or end point; instead we are only able to resolve inevitable tensions, especially at the strategic level (see earlier post on leadership and negative capabilities) by distributing ownership to those people who have either a better grip on the issues or who have to live with the consequences.

So with the critical friend role in mind, I would like to offer some comments on two very important initiatives launched by the CIPD and one that they actively support. The first was the launch of the HR Profession Roadmap, which is one of the most important exercises in competence mapping and building HR capability ever undertaken - at least as far as I'm aware - (download here). The launch breakfast meeting was poorly attended because of heavy rain in Manchester but deserves greater publicity (which I'm sure it will get) because of its potential impact on shaping thinking and practice in HR and building current and future capabilities of the profession. My advice is that any organisation seeking to build HR capacity, and there can't be many not seeking to do so, would be well advised to take advantage of the thinking, frameworks and evidence produced by this project team. I'm working with a number of organisations on capacity building in HR projects and I know I'll be using these standards to help build strategic leadership capacity among senior HR people. Which is where I want to begin my critical friendship!

In a piece of work we completed recently on developing a model of strategic leadership for HR directors in NHS Scotland, we cautioned senior HR directors on the limitations of 'atomistic lists of competences. To paraphrase Henry Mintzberg, even when joined up in a circle (or triangle or other geometric shape)', competence models do not provide testable models of relationships among the complex range of factors that produce effective strategic leadership in HR. This is an important cautionary note for practitioners because it is really only by devising causal models (or, dare I say it, theories) of effective leadership that you can truly evaluate the impact of competences, knowledge, attitudes, EQ/ IQ etc) on performance. These causal models should show how,why and what people bring to a job, the styles of leadership they choose, the attitudes and behaviours they demonstrate, etc., result in effective performance (itself a contestable issue). In addition, practitioners also need to understand the complex range of so-called moderating factors which influence this line of sight. By moderating factors I mean how market or stakeholder context, business models of how to create value, values and leadership aspirations, HR architectures, and the capacity of the HR team to create and leverage networks for innovation, combine to influence the process of strategic leadership in HR.

Sarah Miles, Organizational Effectiveness and Development Director, and her team at the CIPD have done an excellent job in bringing us so far with the new mapping exercise but were ready to admit they don't have all of the answers. If they are able to build on what they have achieved so far by devising better causal models and setting out the full range of contextual factors organisations need to take into account when implementing them, they will do the profession an even greater favour - a direction we're certainly travelling in.

The second major initiative, discussed by Jackie Orme and Lee Sears at the conference and on a recent CIPD podcast, was the results of the Next Generation HR Study. Again this initiative is extremely important because it aims to build a picture of future strategic leadership in HR based on research into what leading firms in the UK are thinking and doing. You can read about it in People Management in the November 19th edition or download reports/listen to discussions from the above links, but basically the project has highlighted three trajectories along which organisations are moving - creating greater organisational agility for sustainable performance, (re)building a culture of authenticity and trust, and demonstrating a balanced approach to risk management.

Again, I'm really pleased to see this work because it is important for the profession to understand its role in resolving the tensions created by shaping the innovation or 'agility' agenda while focusing on the legitimacy agenda. We've been researching and writing about these agendas and tensions for some time now, and these have been the subject of a number of posts, our book on corporate reputations and HR, a forthcoming one with Ron Burke and Cary Cooper on corporate reputations, some academic papers, and a new chapter on HR's role in contributing to better staff, innovation and financial governance. Our approach has been to discuss them in terms of the wealth creation role of corporate governance (innovation by doing different things and doing things differently) while managing the wealth protection role of governance (developing corporate reputations for being excellent and trustworthy employers, providing effective and ethical leadership and governance, and exercising corporate social responsibility).

In other words, both the CIPD and our agendas seem to converge on issues that strategic HR leaders need to address, which is both comforting for us and, if they ever needed it, a degree of validation for the CIPD Next Generation project. Furthermore, I suspect our agendas are likely to become even more important because HR has not only to find ways of adding strategic value but also contributing longer term reputational value to the nowadays somewhat tarnished business sector and its senior leadership teams (at least in the eyes of many). It also has to find ways of contributing to public value in an under-threat public sector, which is having to deal with decreases in public spending because parts of the financial sector have been unable to manage the tensions between the wealth creation and wealth protection roles of governance.

I'm going to leave the third sets of comments on the engagement agenda and the McLeod report to a separate post. This one is getting far too long!

Putting People Back into HR Strategy

My apologies for the time I've had off from posting. I'vebeen very busy participating in some events which have provided me with excellent examples of how to 'put people back into strategy', the subject of some recent posts

I've recently written a paper with Paul Gollan and Kerry Grigg on HR strategy, suggesting that a strategy-as-action approach has much to teach us as practitioners and academics about strategic management in general and developing workable HR strategies in particular (see the strategy-in-action website). Over the last couple of weeks I've taken part in two health service-related events which have demonstrated the benefits of a strategy-in-action perspective, although participants didn't use this label as such.

The first was a large event run by the leadership team of Dumfries and Galloway Health Board, facilitated by an ex-postgraduate student of mine, Sharon Millar, and colleagues from the CIPD, Drs John McGurk and Jill Millar. This event was one of a series they have run aimed at developing workable strategies for building dynamic capabilities in the health board as it moves closer towards partnership working. What was impressive about this process was the volume, intensity and numbers of people involved in the leadership and strategy-making process. In other words, the emphasis at this event and the others which preceded it was very much on strategising and human resource development as much as strategic content.

The second was an event I participated in yesterday, run by the Allied Health Professions of Scotland to develop an integrated professional and educational strategy for a group of key workers in the NHS in Scotland. Drawing on a methodology to creating a consensus around the principles and content of such a strategy, it was fascinating to watch how they used inputs from internal and external speakers to develop a progressively more refined series of consensus statements. The process was driven by discussions during previous events where questions about what mattered to staff were posed by about 180 participants at all levels from all Allied Health Professions in all healthboards in Scotland. These questions were then turned over to 'experts' to write research-based papers on the issues raised by participants (of which I was one). During the actual consensus event at Murrayfield Conference Centre in Edinburgh, experts fed back their findings, which were fully discussed by the conference participants and their views were summarised in the form of a progressive series of consensus statements by a panel who acted as facilitators rather than directors of the process. Though the process may not be without its flaws, as a methodology of developing strategy for a group of rather disparate set of professional groupings - around which there was a strong need for consensus - it was a real lesson in how to put people back into strategy and in how to use the strategic journey to develop workable strategies that have much more chance of buy-in.

There are important lessons from these events not only for organisations in healthcare, which are dominated by the need to gain the consent of influential professions to survive, but also for the private sector. For example, I'm currently being asked to think about how a large multinational organisation gain insight into values that stakeholders can understand, agree on and draw on to shape their future direction and current actions. I think there are lessons from these two projects that help address this question.