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Management happens
attract and retain talent, or decide that “from now on everybody
will believe in the same vision and aspiration”. It simply doesn’t
work that way. And apparently top managers are a lot more
comfortable with stuff they can decide than with things that are
not under their direct control: things they need to foster and
carefully build up over a longer period of time. And I don’t blame
them: that stuff is easier said than done.
How well do you know your company? (My guess is
not very well at all . . .)
So far, I have been explaining that in many companies and
decision-making processes there is a bias towards the things that
we can observe and measure. Numbers give us a (false) sense
of security, that we are objective and in control of the process.
However, how accurate are managers’ observations, and how well
do they generally know the numbers they so often talk about?
Let me give you a few examples.
In the 1970s, there was a series of academic studies which looked
at managers’ perceptions of the “volatility” of their company’s
business environments. These studies all found that different
managers within the same organization had widely varying
views on how volatile their business was: the correlation between
different people’s assessments was virtually zero. In addition,
these studies found that there was hardly any relation between
objective measures of business volatility and managers’ estimates
of these measures (if anything, the correlations were negative;
managers in stable environments thought their business was
relatively turbulent, and vice versa). Similar results were obtained
for other variables. The researchers concluded that managers’
perceptions of their own businesses were usually plain wrong.
Two business school professors, John Mezias and Bill Starbuck,
at the time at New York University, set out to examine this
claim further (and published their results a few years ago) simply
because they found it hard to believe, at least at rst. They
thought “‘business volatility’, that’s a bit vague and abstract, let’s
Business Exposed18
start with something simple” and they asked executives from a
wide range of companies to tell them their business unit’s sales
for the previous year. Then they looked up the units’ actual sales
gures. The average answer was 475.7 percent wrong. That’s
475.5 percent . . . ! Sales of their own business unit!!
Then John and Bill thought, “Perhaps we should pick something
they nd really important”. So they approached a blue-chip
company and asked it what the company’s absolute top-notch
priority was: the CEO declared that the absolute top priority
throughout the entire company was “quality improvement”.
And indeed, that seemed to be true: many managers attended
quality improvement training courses, each division had a
dedicated department focusing on quality performance, and the
company had developed various quality metrics. Furthermore, all
managers received quarterly quality improvement reports, and 74
percent of them indicated in a survey that they expected to receive
large increases in their personal rewards if their divisions managed
to increase quality. Yep, “quality” was important to them!
Quality was measured in the company, following the specialist
training techniques, in terms of “sigma” (a measurement of
the error rate in their production output). When John and Bill
asked the managers what the sigma of their department was, the
average error in their answer was . . . (wait for it) . . . 715.1 percent.
A whopping 715 percent! They really had no clue.
Note that these had been managers brave enough to give any
answer at all; 7 out of 10 managers, when asked, had refused
to give any estimate, declaring, “I don’t know”. It seems likely
that they had realized they had no clue, and rather than make
a complete fool of themselves, they opted not to say anything.
Granted, when John and Bill nally asked the brave ones who
dared to give an answer to express their unit’s error rate not in
terms of the illustrious “sigma” but in plain human terms of
“What percentage of products have errors?” they did a lot better:
almost 7 out of 10 managers managed to give an answer which
was less than 50 percent off the mark.
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