Practically, you are hired to make your direct manager happy, and then his manager, and then his manager, and so forth.

The more levels of management separates you from CEO, the further in line the company and shareholders are.

That’s Hippo, or HiPPO. It represents a decision making concept often used in large corporations. You know, what is it?

HIghest Paid Person Opinion.

In the end, the idea is that you can only have either perfect hiring or only perfect performance reviews. If you make both tight, you will become so fit to the current environments, that any radical change in economy will drive you the way of dinosaurs… See more in the original post.

If not, here it is. You force every team manager rank the members of their teams by the “bell curve”. It means that you sort people into three buckets: a few over-achievers, a few under-achievers, and the rest in the middle. Specific proportion may vary but normally it’s 10-20% on either side and 60-80% in the middle. Then you fire bottom 10% and hire new people instead. Lather, rinse, repeat. The theory says that you get great results. The fame of Jack “The Butcher” Welch says the same.

Have you ever thought that it’s essentially introducing evolutionary environment in the corporation? It’s like some forest, where various species dwell, and 10% of specimen are eaten by the end of the year. The fittest survive and procreate, making overall forest population more and more fit to the environment. Everybody (except those that are eaten) wins.

Speaking of procreation, one thing essential for the evolution is procreation that passes winning traits. How does it work in business? Simple: through the interview process. You see, interview process is designed to accept only those, who are deemed worthwhile by the people, who are already in. Granted, that’s not really procreation, but that’s pretty close analog of it. For example, in software development, if the team believes that C# is great and Java is not, it is not likely for anybody who is good at Java to pass an interview, simply because to be good at Java you have to believe that it’s good to spend the time learning it. Interview process is one of the examples of so called “club system”, where new members have to be recommended by existing ones. In a nutshell, it’s the way fittest (those who were not fired) procreate in any organization: by hiring those similar to them in some aspects.

So, with procreation and natural selection in place, astringent performance review systems a la Jack Welch convert your corporation into an evolutionary environment. Does it work? Well, in the wild evolution worked ok so far — it produced humans, right? And we all like humans, of course, so if it worked so well for us in the long run, it has to work well in managing businesses too. Right?

Wrong!

Lets assume that we have a perfect hiring process, when we get the new people of the same quality as the best people we already have, and a perfect performance review process, not tainted by misunderstandings, differences in styles, personal vendettas and straight incompetence of the management. Would you agree that if that perfect system does not work, there is something really wrong in the whole idea? And, unfortunately, it does not.

To illustrate, I made a small program that simulates such an evolutionary environment or corporation. To make it easily visible, the competition happens between dots of different color in the environment where some specific color is “ideal”. Think about the dots as bugs with masking color, like those white butterflies hiding on white birch trees. The more some dot’s color is different from the “ideal” color of the environment, the less fit the dot is, the less likely it is to procreate, the more likely it is to be eaten in the current cycle.

So, let’s run the program and you’ll see something like that:

Evolution in a static environment

Yes, I said it does not work. Yes, I understand that considering this picture it worked perfectly, or nearly perfectly. The problem is: yes, it does work, as long as the ideal color of the environment stays the same. Unfortuantely, the environment does not stay the same. In the example with white butterflies coal powered factories made the birch trees black, that eliminated white butterflies and forced them to become black. Fortunately for butterflies, their selection process and procreation was not that perfect, they did mutate and they had enough genetic diversity to become black and survive. Corporations with the perfect hiring process and perfect performance reviews process are not that lucky. Lets run the program again but include catastrophic change in environment every here and now, like it happens in a real economy with some crisis happening every 5-10 years. Here is the new picture:

Evolution with Catastrophic Changes

You see? I even made hiring process not-so-perfect and introduced some mutations allowing to hire not that perfect candidates, and it still does not work. The picture with the “perfect” hiring process is even worser.

In fact, the only hope for a corporation with the perfect performance review system to survive strong changes in the economy is to hire pretty much at random. Then, it does adapt:

Evolution with High Mutations Rate

Granted, that’s what some of them do when it comes to hiring new CEOs, but who can afford hiring at random the rest of the staff in the modern world? And if your hiring process works, then all astringent performance review system does is a long-term harm. It pretty much drives the diversity out of the workplaces to the point, when your company doesn’t have the source material to adapt to sharp environment changes.

By the way, this phenomena is well-known in biological evolution. Many species got exstinguished exactly because they’ve become too fit to the current environment, and got killed, eaten, or starved to death once the environment had changed dramatically. Dinosaurs are just one great example, and we’ve lately seen a few corporate dinosaurs of the American economy following their way. By the way, according to the book “Truth About Managing People” by Dr. Stephen P. Robbins, that’s pretty much what happened in General Motors in the last 10-20 years. Notice that the book was written before the company was forced into the bankruptcy.

Of course, with the modern system, when CEO’s horizon is just 1-2 years, and then they are off destroying some other company, it works for them. It also works for speculative holders of shares. Unfortunately, it does not work for the business in question, and it does not work for those shareholders, who expect their shares to appreciate by the time, when they hit the retirement.

References:

Truth About Managing People, The (2nd Edition) by Stephen P. Robbins – FT Press, 2 edition (September 30, 2007), ISBN-10: 0132346036, ISBN-13: 978-0132346030, 240 pages

Dear Eldar,

I am writing you on behalf of the trade union Brain Cells of Eldar Corps (”the Union”). It came to our attention that you are violating our trade agreement (”Agreement”), specifically, chapter 4.34.(b) stating that members of the Union are entitled to the daily norm of 7 hours of the reduced work shift generally referred to as “sleeping”. While we recognize that members of the Union (brain cells) are exempt employees, who are supposed to work overtime in case of emergency (chapter 4.37.(k)), let us remind you that it was supposed to be a temporary emergency (chapter 4.38.(q)), like a need to run from a jaguar in an African savannah. We contacted respective unions of senses and muscle cells, and they haven’t reported any jaguars or elevated muscle activity, so it seems clear to us that you are violating the terms of our Agreement.

While the Union recognizes your authority as CEO of Eldar Corps., we remind you that you have to live to the terms of the Agreement. Maybe you should move out of jaguar country, or find a safe lair to hide, we don’t know. But unless you want to become a blithering idiot (which you already are, considering that you are writing this letter on our behalf), you have to provide us with the daily allowance of sleep.

Considering that you have consistently violated this point of the Agreement for the significant time (months), the Union has no other option as to declare a 24-hour strike, when you must provide us with sleep or some other form of rest. We also have to inform you that the Union co-opted and is now in negotiations with the reputable company Cold & Flu Business Protection and Worker Representatives, LLC. from Chicago, who say they may be able to make you an offer you can’t refuse.

Yours Truly,
Your Brain, Esq.

P.S. Cold viruses are saying “Hi!” and thanking you for your hospitality. They are impressed with your tolerance to cultural diversity and promise to make every third toast to your health, while they are feasting in your body.

Say, if you want to herd sheep, it make sense to buy the best breed of sheep that give the best, most expensive wool, right? Same with any business… The problem is that in the knowledge economy, for example, in the software development, managing the best is a little more complicated than herding the sheep. In fact, it’s often compared more to herding the cats. And if you don’t manage “the best” properly, you may easily end up with a serious trouble and get significantly poorer results than by hiring average and managing them properly. Of course, to manage the best properly, your managers should be the best. Ironic, isn’t it?

So, here is the trouble with hiring the best. Philip Su, who works as a development manager at Microsoft, suggests the following recipe to create great software. Get a lot of great developers; give them a lot of computers; provide them with good salaries, stock options, awards and bonuses, so that they don’t have to think about it; then don’t forget to feed them as needed. That’s it. Once they don’t have to worry about money, they’ll do what they love and know — creating great software. Simple, isn’t it?

The only problem is that such creative heaven is very hard to maintain, even if you have money. Shareholders and Wall Street shout at you that you are wasting money. Yeah, like they did not prove lately again that they don’t have a clue how to manage money, their own or otherwise… Analysts look down at you and write articles about you not following the latest fad and not managing your people properly. No, they don’t create software, they find their reward on Earth by teaching others how to do that. Still, the market listens and your company, including your employees, who have tons of company’s stock, suffer.

Then you give up and introduce performance reviews, bell curve, or even layoffs when other companies lose money and have tough times. Well, Adam tasted the prohibited fruit, started to use metrics, heaven is gone and replaced now by an evolutionary environment. That is, the place where the fittest survive, and the rest, well… perish.

Notice, the “fittest”. Fittest is not the smartest. It’s not the strongest. It’s not even the best professional. It’s just that, the fittest. “The boy who lived,” no matter how the survival was achieved.

But maybe it’s not that bad, is it? After all, all nearest relatives of humans – chimps, pigs, rats – they all live in an evolutionary environment and succeed, right?

Speaking of rats, let me tell you an interesting piece of trivia, I’ve heard long ago. On medieval ships rats were a huge problem. One of the ways to get rid of them was called “A Rat King.” Sailors were catching as many rats as they could, put them into an empty barrel, and did not feed them. The weakest rats were eaten fast by others, of course, so very soon you only had “the best” rats in the barrel.


However, and here comes the catch, in the evolutionary environment there is no such thing as strong and weak. There are only those who are stronger, and those who are weaker. Once all the weakest are eaten, one of the strongest become the weakest. And then another one. And the next one. And so on, until there is only one Big Rat in the barrel called a Rat King. The fittest.


After that the sailors release the Rat King, and by this time it already knows that fellow rats taste much better than scraps and moldy grain. So, it does the job much better than any cat could, leaving the ship mostly ratless, “best rats” or otherwise.

Oh, well,… so what did we talk about? Sorry, I’ve got carried away with an irrelevant story… Oh, yeah, corporations that hire the best and then force an evolutionary environment! So, what I am trying to say, is that hiring the best is a fine idea, as long as you know how to manage them. Unfortunately, too many don’t. If you hire the best, you have to put them into a creative environment. If instead you put them into an evolutionary environment, you may get, well, “the fittest” instead. And you’ll have nobody to blame for that but yourself.

Seriously. Evolution is a harsh mistress. Wherever there are resources and competition for them, there are parasites. Turn on evolution in your corporation, and parasites will fill your management ranks. Ever wondered why Wall Street guys were so insistent in their advice to you? They wanted these jobs for their kin!