I saw Dr. Jeffrey Pfeffer speak on at a Churchill Club event this morning. Pfeffer is a professor of Organizational Behavior at Stanford University and a well-known and -regarded writer on management issues. He wrote a monthly column for Business 2.0 for five years, which was one of the most heavily-read parts of the magazine.
Pfeffer opened with a story illustrating the theme of his talk, which is that most management is done by an admixture of habit, experience, mimicry of what other companies do, and ideology. He sits on several Boards of Directors, and inevitably — given his vocation — gets involved in compensation efforts. At one of his companies, a big-name consultant was brought in to create an option program (the value of options being an ideology of Silicon Valley; Pfeffer noted that a colleague was about to release a study indicating that heavy use of options motivates risky management behavior, as well as noting that a number of studies have indicated little correlation between options and company success). When Pfeffer asked the consultant whether he was familiar with the studies indicating low option influence on success, the consultant replied that not only was he not familiar with the studies, he wasn’t even interested in them!
This anecdote teed up Pfeffer’s discussion of the importance of evidence-based management; put another way, management based on experiementation and reflection. He noted that the opposite of the ignorant-and-proud-of-it attitude displayed by the consultant is the move in medicine to evidence-based treatment, although he also noted that it’s been a 200-year journey for medicine to get there.
Pfeffer told a number of entertaining stories regarding the failure of companies to consider the real world in their business operations; he mentioned the latest poster child for this failure: Circuit City, which fired all of its experienced sales reps because it believed customers wouldn’t care. Of course, the outcome has been directly opposite: customers have avoided Circuit City because they have felt that they couldn’t get helpful information from the staff.
My favorite, however, concerned the fact that total employee cost is based on two factors: pay and output. Most companies focus purely on the former and fail to understand how they can influence the latter. He compared United Airlines and Southwest. Southwest, despite paying well above average, is the most profitable airline; United, which has cut pilot pay significantly, muddles along far behind Southwest. The reason, according to Pfeffer, is that Southwest pilots produce more work, while United pilots are in a de facto slowdown, using techniques like refusing to fly with minor mechanical failures or (I enjoyed this example) taxiing out to the runway with the brakes on, which uses more fuel.
One thing he didn’t address is how management should respond to strategic challenges to their business. His examples seemed best suited to stable situations in which experiments can be performed and analyzed. I’d love to get his take on how organizations should respond to technology sea changes, when formerly stable environments are being shaken up dramatically. An obvious example for me is the change imposed by open source — on both vendors and users. For users, I’d guess that he’d recommend running multiple projects, some using proprietary software and others powered by open source, and post-project assessing ROI, quality, satisfaction, and so on. I’ve talked to a number of companies interested in these aspects of open source, but most of them would view the effort required to run this kind of experiment as overly burdensome; they’d prefer to rely on opinion and anecdote, rather than make the investment necessary to get concrete evidence. That’ll have to wait for another day and (most likely) another organization.