Why Small is Beautiful

Engaging your workforce is cheaper and easier than you think. And much, much harder.

ManagementSpeak: A key element in the Company’s future is the continued dedication of our 58,000 employees to providing quality care and services…

Translation: The continued dedication of our 58,000 employees is a key element in restoring the value of my currently-under-water stock options.

Two contributors named Harris … Wes and Kent … join the KJR Club with this non-optional translation.

Want a great place to work? Size does matter.

Inversely.

The Minneapolis/St. Paul Business Journal recently published its annual list of the best Twin Cities places to work, divided into three size categories: small (10 to 100 employees), medium (100 to 1,000) and large (more than 1,000).

Beyond the specifics was a correlation that’s fascinating for its near perfection: With only one exception, company scores have no overlap between size categories: The worst of the best small companies outscored the best of the medium-sized ones, which in turn outscored all but one of the large ones.

If you want to work in a truly great environment, your only chance lies with small companies.

This doesn’t necessarily mean the small companies that scored well are well-managed, of course. Workplace quality might not matter. After all, given what corporate giants pay their CEOs they should be much more sophisticated than small-company CEOs about what makes a company successful, shouldn’t they?

Should is the operative word. Based on what research we have, treating employees well sure seems to pay off. For example, The ROI of Human Capital: Measuring the Economic Value of Employee Performance (Jac Fitz-enz, 2009) reports on a massive study on the value of employee engagement by Information Systems Research that found a 52% difference in operating earnings between companies with high and low workforce engagement scores.

Even taking into account the flaws common to this sort of research (an implied linear response between level of engagement and operating earnings is the most obvious), there’s little doubt that a company with highly engaged employees will outperform one with apathetic ones … unless, that is, engaging employees is prohibitively expensive.

Luckily enough for employers, it isn’t. Creating an environment that maximizes employee performance doesn’t cost a dime … beyond what you have to spend to educate company leaders in how they can maximize employee performance without spending a dime, that is.

Dan Pink does an excellent job of explaining the basics in a wonderful video (pointed out to me in a Comment posted by Dave Velzy in response to “How business leaders use the news,” (KJR, 7/26/2010), to give credit where it’s due).

In it, Pink presents economics research demonstrating that financial incentives improve performance only in mechanical tasks. When the job calls for creativity, analysis and other cognitive skills, money doesn’t just lose its impact. It actively impairs performance.

It appears Alfie Kohn was right all along: Bribing employees to perform better doesn’t work.

Here, according to Pink and the cross-cultural research he describes, is what does: autonomy, mastery, and purpose.

Autonomy means employees are free to set their own direction and figure things out for themselves. Mastery means the satisfaction associated with improving skills is intrinsically motivating. Purpose means being able to contribute something important to the world.

Among the otherwise mystifying phenomena explained by the motivating power of autonomy, mastery and purpose are open source software and Wikipedia.

The power of this combination also explains, easily, how much simpler it is for leaders of small businesses to create superior work environments: When you can get to know every employee as an individual human being, you can develop a level of trust that allows you to provide autonomy, appreciate mastery, and connect each employee’s efforts to important results, helping them gain a sense of purpose.

There’s another factor at work as well. Small organizations tend to focus on opportunity … what can go right … while larger ones are dominated by the fear of what might go wrong.

Fear of what might go wrong is why compliance plays such an out-sized role in huge enterprises. It’s a self-reinforcing feedback loop: Because employees have no sense of engagement, management doesn’t trust them. Because they can’t be trusted, management creates rules and enforces them through a system of well-defined punishments.

And because management doesn’t trust employees and punishes them for infractions, employees feel alienated rather than engaged.

The alternative is a lot tougher to institutionalize in a large organization, but pays off hugely: Build compliance into mastery rather than into management. Enforcement isn’t compatible with the autonomy fully engaged employees want. Mastery is.

Presumably, the rules you want employees to follow represent a better way of doing things than the alternatives. That being the case, mastering a discipline includes knowing the rules and why following them is a good idea.

And, when breaking them makes even more sense.

Bob Lewis is president of IT Catalysts, a consultancy focused on IT organizational effectiveness, business/IT integration, and helping organizations become more adept at designed, planned change.