Making Great People Decisions in Today’s Turbulent Environment
By: Claudio Fernández-Aráoz
 
Over the last 12 months I traveled the equivalent to 10 times around the world, about the distance to the moon, giving more than 100 speeches on the topic of making great people decisions.  I was interviewed by hundreds of journalists, and discussed the topic with thousands of senior executives from all sorts of organizations, from the world’s most successful global corporations, family businesses, new ventures, and some of the most progressive governments on Earth.  From China to the US, from India to Europe, in dozens of countries, I found the same pattern:  On the one hand, there is an overwhelming consensus about the crucial importance of making the right appointments.  At the same time, everyone realizes how difficult it is to make great people decisions, and most of us are clueless about the way to make them.

Why people decisions matter so much

Making great people decisions is critically important for our career success, because once we become managers everything we do will depend on the people we’ve chosen:  Our results, our performance, our risks, our chances of being promoted.  As Jeff Bezos put it recently, the crucial questions along our career are of different sorts:  Initially, they are about how to do our work; as we advance, they are about what business to be in; and once we are advanced in our career, as managers and executives, they are all about who.  Who are going to be the people who will help me identify what businesses to be in, and successfully manage them?

As demonstrated by Jim Collins, making great people decisions is a foundational condition for building lasting greatness.  And as the best research shows, it is also the most significant controllable factor which has a measurable impact on organizational value. 

In some markets, just the choice of the CEO can explain up to 40% of the variance in organizational value.  Why is this the case? One answer is because the jobs at those upper reaches are so complicated. This may sound obvious, but consider the following. The more complex the job, the greater the spread between average and outstanding performance. On average, a "star" assembly line worker is 40% more productive than his or her peers. But when it comes to a high-complexity job such as a computer programmer or an account manager in a professional services firm, a star performer may be as much as 1,000% more effective than an average performer.

If this has always been the case, making the right people choices has become even more crucial lately, for two reasons:  First, 70% of the value of today’s organizations are intangible assets.  And these are all about people.  Second, in an increasingly turbulent environment, the skills needed may change dramatically while the frequency and urgency of critical decisions sharply increases.

But here is the good news:  Turbulent environments represent a unique opportunity for investing in the right talent.  In a troubled environment, some exceptional talents may become available.  However, compensation levels tend to decline.  When the impact of talent is larger than ever, and costs are lower, wise managers and organizations can achieve the highest possible return on talent.

Why they are so hard

While investing in the right talent is an urgent (and highly profitable) priority in today’s environment, unfortunately we are ill-prepared to make great people decisions. 
First, our hardware is obsolete:  The main problem is that we are asking an old brain to do a new job. Our hardwired brains—designed to help us survive as nomadic hunter-gatherers—don't mesh well with our current challenges. In particular, a series of emotional biases, hidden deep in our unconscious minds, work against us, and unfortunately, they bear strongly on our people decisions. For example, because of our hard wiring, we procrastinate about people decisions. We exaggerate the risks of change and disregard the opportunity cost of the status quo. And when we do act, we are inclined toward snap judgments. Research from the neurosciences has revealed that we form an initial unconscious impression of the person in front of us at lightning speed—on the order of one-twentieth of a second—but unfortunately, such impressions are long on snap and short on judgment. On a more conscious level, we are inclined to place far too much value on brands and labels (such as educational background or political affiliation) and far too little on substance.
Second, our software is also obsolete.  Just consider today’s educational curriculum, even for MBAs.  We spend years studying finance, accounting, marketing, operations, and even strategy.  How much time do we spend building practical skills in order to make great people decisions?  Typically, we spend no time at all.  Our educational system has an amazing blind spot despite the fact that, as Jack Welch put it, “Hiring great people is brutally hard”.
What to do

In order to make great people decisions in today’s turbulent environment, I’d like to offer ten specific recommendations:

1 Realize the need to act: Remember that, in turbulent times, there are usually few bullets to kill the hungry tiger.

2 Consider the value at stake: When Timothy Geithner was announced as the new Treasury Secretary, the value of US stocks increased by a trillion dollars.  Great senior appointments are the largest controllable source of value, for organizations of all sorts and sizes.

3 Overcome the emotional barriers: It’s hard to hire when firing.  But staying alive and rebouncing from the crisis may make it imperative.

4 Be proactive: 90% of organizations are slow at removing poor performers at the top.  Can you imagine a soccer team not removing 90% of its poor players?

5 Watch for the soft: While relevant experience is key when you don’t have much time to learn, turbulent environments also require high levels of emotional-intelligence based competencies.

6 Cast a wide net: Despite the urgency, make sure to consider a wide pool of candidates, both insiders and outsiders.  That will set a higher limit for your great people decisions.

7 Assess with discipline: Make sure to involve a limited number of high-caliber assessors, conducting well-structured interviews and proper reference checks.  The process and the participants are both key.

8 Have courage to close: It’s not easy to selectively pay well when cutting costs.  But if you have done the homework, few investments will have a larger payoff.

9 Support the integration: Most companies leave their new managers to sink or swim.  As a result, most sink.  A well planned integration drastically increases the chances of success.

10 Sharpen your skills: Despite the critical importance of people decisions for career success and company value, most of us did not study how to master them.  The good news is that making great people decisions is not a mistery, an art, or the result of exceptional intuition.  It is a craft and a discipline that can be learned and should be learned for your success.

Claudio Fernández-Aráoz leads the HSM Online Seminar "Making Great People Decisions". For details on how to participate in this online event, please visit:  http://www.HSMOnlineSeminars.com