What should a leader do when she arrives at a company that is struggling?
The founding director of the Center for Neuroeconomics Studies recently wrote a book, Trust Factor: The Science of Creating High-Performance Companies to answer these and other questions. Paul J. Zak, PhD, is also a professor at Claremont Graduate University. He recently answered some of my questions about his extensive research into trust. His book is fascinating and contributes to the body of work on trust and organizational culture.
Survey of 200,000 employees: 71% of companies have mediocre to poor cultures.
In one part of the book, you tell a story of walking into an office full of cobwebs, old furniture, and a struggling culture. What are some of the signs of a low-trust culture?
Distrust drains employees’ energy, so people move slow, think slow, and lack a passion for their jobs. Organizations with low trust also have lower profits, so offices often look out-of-date, even while new employees show up as turnover tends to be high. We have also shown that people take more sick days when they work at low-trust companies, so one sees empty desks. All these factors are signs of a low-trust syndrome and a downward cycle of productivity, innovation, and profits.
“High-trust companies invest in employee health and productivity.” –Paul J. Zak
Why is a healthy culture based on trust so vitally important to its success?
Companies are, first and foremost, people. As social creatures, we naturally form teams to accomplish goals together. Extensive research shows that teams are more effective when they have a clear objective and when team members are trustworthy. Trust reduces the frictions that can arise in teams so getting things done takes less effort and as a result more and better work is done. By measuring brain activity while people work, we’ve shown that people are more relaxed when they trust their colleagues. They innovate more and shed the stress from work faster than those in low-trust companies. Creating a culture of trust provides powerful leverage on performance because it harnesses what our brains are designed to do: cooperate with others in teams. And the neuroscience I’ve done shows how to create a culture of trust in a system so it has the maximum effect on brain and behavior.
Workers in high trust organizations are paid an average of $6,450 more.
They may seem, at first glance, to have nothing in common—different industries, challenges, experiences, leaders, competition, you name it. But there is something about this group of organizations that drew attention and merited study.
How did you arrive at the common characteristics of organizations achieving excellence?
Effectively these emerged gradually through the research. We studied each institution with an open mind and on its merits. Then we shortlisted, at the conclusion of our research in each case, what we thought were the fundamental drivers of that institution’s enduring outperformance. When we compared the lists we had created across several of the institutions, the common characteristics became evident.
Secondly, because our research process was quite extended, we had the opportunity to use some of the later studies to test and validate hypotheses emerging from the earlier ones.
Finally we used some of our client work, which was progressing in parallel, to further refine our thinking.
I often ask leadership experts whether leaders are made or born. You take on that question with regard to high-performance organizations and say that they are made, not born. What leads you to this conclusion?
Simply put, the leaders who we spoke to in the organizations we researched were consistent in articulating and reinforcing that view. Without exception they talked about how they viewed the enduring sources of their advantage as being their people and their organizations, and they each described their roles as being about setting direction and ambition and then facilitating and enabling their organizations to achieve and extend those ambitions over time.
Even more particularly, given that many of the organizations we researched could be reasonably described as “values-driven,” their leaders saw a fundamental aspect of their roles as being about defining, representing, facilitating and rewarding those values in their organizations. The Mayo Clinic, Tata, Doctors Without Borders (Médicins sans Frontières) and the US Marine Corps were particularly strong examples in this regard.
“Overengineered engagement initiatives can become impersonal and feel false.”
Let’s talk about the four-pillars to delivering high-performance.
Copyright Brian MacNeice and James Bowen, Used by permission
Every organization knows it needs a plan. Where do most go wrong?
There are lots of ways in which organizations go wrong when it comes to planning, but for this discussion we will highlight two that we observe again and again in our work.
First, we suggest that organizations go wrong by planning on a basis of “inside-out” rather than “outside-in.” That is to say, their leaders tend to look at last year’s model and last year’s performance and identify tweaks they can make with a view to delivering incremental performance improvements next year. This model of planning tends to be short-term and tactical in nature and anchored in a historic, likely outdated, view of the world.
High performance organizations plan from the outside-in, not inside-out.
High performance organizations come at planning from the outside-in, using a much more strategic, future-oriented approach. They start by looking outside their organizations to understand how the context within which they operate is changing. Sometimes they do this by looking at their organizations through a series of discrete “lenses” – for example industry, market, customer, competitor, technology, regulatory, people – to understand (a) what dynamics they observe, (b) what opportunities and/or challenges arise as a result of these dynamics, and (c) how these dynamics might play out over the course of their planning horizon. Armed with these insights – in particular a much deeper understanding of cause-and-effect – they are better positioned to create strategies that bridge from where they are now to where they want to be over time. Relative to the first approach we discussed, plans developed this way tend to be more ambitious, radical and lower risk all at the same time.
Second we would suggest that organizations go wrong because they view planning as a task rather than as a capability. They view it as a chore to be endured once a year to fill a template, and which brings with it a significant cost in terms of time away from the frontline. Their engagement and investment in planning reflects this attitude – for them it’s about getting to the end of the process as quickly and painlessly as possible.
The approaches we observe in high performance organizations, by contrast, are more consistent with Eisenhower’s famous mantra that, “Plans are nothing, planning is everything.” They understand that their organizations, and the worlds in which they are operating, are always changing, and as such they develop planning as a dynamic, enduring competence. They operate “with their heads up,” tracking changes in their context all the time, taking on board the lessons of their experience and factoring insights into their plans on an ongoing basis. Some of these organizations have moved away from a traditional, annual model of budget-based planning towards a more continuous, iterative model of strategy development and deployment.
“Plans are nothing, planning is everything.” -Dwight Einsenhower
Don Yaeger is an expert on what it takes to cultivate a champion mindset. He was associate editor of Sports Illustrated for over a decade; he has made guest appearances on every show from Oprah to Good Morning America, and he’s also authored more than two dozen books. Now a public speaker, he shares stories from the greatest winners of our generation.
Don, you’ve seen the inside of great teams in the sports and the business worlds. Your new book focuses on 16 characteristics of great teams. Let’s talk about a few of them.
Your first point is that great teams understand their why. Purpose motivates both individuals and teams. How does the personal “why” interact with the team “why”? Do they ever conflict?
In the business world, a “why” is often misunderstood as a company mission statement or code of ethics—which couldn’t be further from the truth. Author and motivational speaker Simon Sinek has described a company’s corporate “why” as “always disconnected from the product, service, or the act you’re performing.” If an organization desires to become a Great Team in the business world, then it must understand how to utilize the “why” properly in order to galvanize support from its professional ranks. “When an organization lays out its cause, how it does so matters,” explained Sinek. “It’s not an argument to be made, but a context to be provided. An organization’s ‘why’ literally has to come first—before anything else.”
“People don’t buy what you do, they buy why you do it.” -Simon Sinek
Companies that understand the purpose and philosophy behind the “why” are usually astute, high-performing organizations that tap directly into the pulse of those they benefit the most. When utilized correctly, this understanding can create a powerful sense of duty and purpose for business teams because the employees know exactly whom they are working for and to what end.
“Great teams build a deep bench at all levels of the organization.” -Don Yaeger
You talk about letting culture shape recruiting. In a large company, how do you make this a reality so that every single hiring manager is thinking about culture and not just reviewing a resume?
Purpose and leadership are essential to building a team culture. Once an organization determines its “why” and aligns its leadership style with the needs of its members, it is on the right path to becoming a Great Team. But culture building doesn’t stop there. A team must also recruit the right talent. If done well, recruiting will result in a highly competitive team that is consistently motivated to seek and claim success.
Great Teams recruit players who fit—who will thrive within the established team culture and add value to it. The talent of the employee or teammate is important, but fit trumps all. These organizations understand that Great Team culture establishes an environment conducive to success, but that success ultimately depends on the right kind of personnel.
In today’s marketplace, it is very easy to be wowed by decorated resumes. When the “ideal” candidate—the one with the outstanding CV—arrives, many leaders incorrectly believe that including that person will automatically better the team. A Great Team, however, understands that fit is more important than credentials. Someone who might be perfect for one environment—or might have been great while working for a competitor—will not be a guaranteed fit for another. That’s something hiring managers should keep in mind as they build their teams.
“Great teams realize that fit is more important than credentials.” -Don Yaeger
Successful huddles are all about open and consistent communication. Under head coach Bill Walsh, the San Francisco 49ers placed such importance on the art of the meeting that he had specific rules and procedures regarding how each one should run. Walsh analyzed and even recorded meetings to spot potential lulls and weaknesses in their process. He wanted to make sure his assistant coaches—who would sometimes change from year to year—were teaching his team in a consistent fashion.
Quarterback Joe Montana, who came on board right after Walsh did, shared Walsh’s high opinion of meetings. This legendary team leader—who won four Super Bowl championships and is tied for the most titles among all quarterbacks—was known in and around the NFL as “Joe Cool.” He had an uncanny knack for seeing all aspects of the game from his position on the field and was seemingly unflappable in the most pressurized situations. And there was a reason for Montana’s demeanor: like Walsh, he believed in a very diligent, orderly meeting process as a means of keeping players engaged. For Montana, the huddle was a sacred place and the ultimate comfort zone. There were rules to be followed when Montana was giving out information for the next play. If those rules weren’t adhered to, Montana told his teammates to take the issue somewhere else. The huddle was a place where everyone needed to be engaged and headed in the same direction.
Great Teams in businesses can take a page from Walsh’s and Montana’s playbook and conduct orderly, disciplined meetings. Such order makes a bigger difference than many leaders want to admit. A successful meeting revolves around clear communication. It can be pivotal to achieving greatness because it explains precise strategy and opens the door to new ideas. An efficient meeting allows an organization to remain one step ahead of the competition and forces it to remain consistent with any existing strategies. But these ideas must be streamlined by a process and guided by a leader who can filter out the good ideas from the bad.
16 Things High-Performing Organizations Do Differently
Great teams understand their why.
Great teams have and develop great leaders.
Great teams allow culture to shape recruiting.
Great teams create and maintain depth.
Great teams have a road map.
Great teams promote camaraderie and a sense of collective direction.
Great teams manage dysfunction, friction, and strong personalities.
Great teams build a mentoring culture.
Great teams adjust quickly to leadership transitions.
Great teams adapt and embrace change.
Great teams run successful huddles.
Great teams improve through scouting.
Great teams see value others miss.
Great teams win in critical situations.
Great teams speak a different language.
Great teams avoid the pitfalls of success.
Would you share an example of where one team missed “value” and another team spotted it and capitalized on it?
In 1982, Tom Peters and Bob Waterman profiled a number of successful companies in their book In Search of Excellence. One section profiled two companies that had done well by valuing employees: Hewlett Packard, founded in 1939, and Walmart, founded in 1962.
My company, J.D. Power and Associates, was more than a dozen years old by the time the book came out, but I remember thinking how similar my approach to managing people was to that of Sam Walton, Bill Hewlett, and Dave Packard. Like Walton, I called my employees “associates” — something I was so committed to that I included them in the company name alongside my own. And like Hewlett and Packard, I saw the empowerment of individuals as the best way for the whole organization to achieve success.
The empowerment of individuals is the best way for the organization to achieve success. –JD Power
Peters and Waterman tracked down the sources of HP and Walmart’s management philosophies: Sam Walton had learned about working with people at J.C. Penney and modeled many of his company’s core values on that culture. For Hewlett and Packard, it was lessons learned by working with government offices and for other electronics companies that taught them what not to do.
Treat Employees Like Associates
For me, the foundation of my philosophy for how to treat people — central to my management style — came from observations of what to do and not to do, and those observations started early.
I have always been a student of why people behave the way they do. This goes back to my family, my dad and his explanations to me, and to school. I think I learned a lot in grade school and college about why people do what they do and to have a respect for what they’re doing.
My father, a high school English teacher, was always giving me advice that proved invaluable in running a company. The path he took in his life was the furthest thing from business, but he had a keen sense of the way the world worked and very intelligent insights about people. While I was still in school he told me, “When you’re in charge of people, don’t ask them to do anything you wouldn’t do yourself.”
My first opportunity to put this advice to use was in the Coast Guard. As an officer stationed on an icebreaker, I was in a position to manage crewmembers from every state in the union and of different races and economic backgrounds. Many of these men, working as enginemen or boatswains or in the officer mess deck, were just out of high school or were crusty career enlisted men with little patience for young officers. I made it a point to treat them all with respect and, above all, to talk with and listen to them. I felt that some other officers, especially the ring-knockers who had come out of the academy, relied far too much on the number of stripes they had to bolster their authority — and I also saw the pitfalls of doing so. The officers who did not listen to the crew often found it difficult to achieve their goals. And examples of this behavior went all the way to the top, to the captain in place when I began my first deployment.
This captain created conditions for the crew to misbehave and then came down hard on these young men when they took advantage of the opportunity. But his gravest mistake, in my view, was an unwillingness to listen to the thoughts of the people who were subordinate to him.
This is a guest post by Eric Lowitt. Eric is the author of The Collaboration Economy and an advisor to entrepreneurial CEOs worldwide. You can also follow him on Twitter.
Want to Lead Your Company to High Performance? Change How You Lead.
Growing up in the 1980s, I viewed Jack Welch as a model of the ideal CEO. Tough minded, wildly successful, and more than a touch human, Welch provided inspiration for millions looking to go from rags to riches. While Jack Welch the man deserves to be revered, his most often cited management mantras require a second look. Here’s why and what your company should do instead.
Be number one or number two in your market, or exit the business.
Fire the employees in the bottom ten percent of performance every year.
The CEO mandate is to maximize shareholder value.
These three management principles were the core of GE’s management system two decades ago. A massive number of books were written on GE management practices; hundreds of thousands of business students studied to emulate Welch and his business actions.
The opportunity to connect around a shared purpose is needed more than ever.
Times have changed. For companies to access resources – environmental and human – they need to provide significant value to the local communities from where these resources come. As a result, companies are no longer able to control their corporate destinies. Now they must work with these local communities and other stakeholders to access the resources they need to prosper in perpetuity.
So what are the leadership traits these companies’ executives – and any entrepreneur interested in growing her company – need to embrace to outperform their competition today, tomorrow, and in the coming decades?
Seeing your leadership position as a privilege, not a right
Serving as activist-in-chief for your constituents
Operating in a time frame longer than tenure
Believing in and relying on partnerships
Feeding constructive discontent
Seeing your leadership position as a privilege, not a right
Twenty-first-century CEOs are keenly aware that their role comes with great responsibility. Rather than view their remit as “maximize shareholder value,” they realize that it is to serve their stakeholders’ best interests. As John Replogle, CEO of consumer goods company Seventh Generation explained,
The difference [between CEOs operating with twentieth- versus twenty-first-century mind-sets] starts with how we view our position. Understanding how you view your position as CEO informs where you put your emphasis. I approach my role as CEO as one of privilege, responsibility, and stewardship.
While some CEOs emphasize the creation of shareholder value, my view leads me to emphasize actions and investments that further Seventh Generation’s mission.
Serving as activist-in-chief for your constituents