March 29th, 2006

Brad @ Burning Man

What's the Business's Core Purpose?

Simon Caulkin of the Manchester Guardian has a book review in the Sunday "Observer" section, of a new book from Harvard Business School Press called Hard Facts, Dangerous Half-Truths and Total Nonsense by Jeffrey Pfeffer and Robert Sutton. The review is entitled "Bosses in Love with Claptrap and Blinded by Ideologies," and the whole review is absolutely worth reading. Here's the lede, for discussion:
Heroic leaders are a disaster. Seventy per cent of mergers fail. In most organisations, financial incentives cause more problems than they solve. There is no connection between high executive pay and company performance (well, there is - the wider the pay differentials, the lower the commitment of the less well paid). The main result of many consultancy assignments is another consultancy assignment. All 'silver bullet' or 'big ideas' on their own are wrong.

These are not theories, but facts. Yet companies trip over themselves to buy others, launch change initiatives, introduce pay for performance, flit from one big idea to the next - and pay their CEOs stratospherically. It's hardly surprising so many go belly up. If doctors were as cavalier with the evidence, a lot of their patients would be dead and many medics would be behind bars.
It's not a surprise that this came out of the Harvard Business School. The Harvard Business School has published contrarian study results in the past, too. It was from a long-ago article in their magazine The Harvard Business Review that I read about a study they'd done. They got several human resource departments at major corporations to volunteer to help them test the hypothesis, taken for granted by every business in America, that job interviews do a good job of picking employees. Half the corporations used their normal hiring practices. The other half agreed, for the brief duration of the study, to pile all of the applications from people whose resumés suggested that they were competent for each position into a pile, shuffle the pile, pull one at random, and hire that person. Each employee hired in the study, both by the normal process and at random, was tracked over three years. The randomly selected employees scored better on every measurement. They lasted longer in the jobs, got more raises and promotions, received higher annual performance ratings, and had higher productivity, across the board.

Many people who saw this survey result were shocked. I wasn't. As an Aspie, someone with Asperger's Syndrome, I can tell you right now that hiring people based on how well they interview only makes sense if their job is "to be interviewed." It seems intuitively obvious to me that the way to judge whether or not somebody will do good work for you is to examine the work they've done so far. But businesses don't do that. And here it is, I think, something like 5 or 10 years after that study was done, and yet every business in America still hires by interview except in the even worse cases where bribery, nepotism or cronyism decides who gets the job. I spent a lot of years startled by the fact that this finding wasn't more widely discussed and implemented. After all, this is the Harvard Business School, the school that graduates the most sought-after members of America's corporate ruling class, the most prestigious entry-level credential in American capitalism. I could understand why businesses don't listen to me; how many billion-dollar companies have I run, after all. But Harvard? Their graduates run half the planet, and I would have thought that counted for something with said graduates.

And maybe it does. I'm afraid that I think maybe I do understand why this finding was ignored, and if I'm right Pfeffer and Sutton are shouting down a well, too. My theory is that no matter what the business says its purpose is, the real purpose is to provide American wealthy men with a comfortable place to spend their day time hours. Manufacturing or shipping or selling product is an excuse. Returning the maximum investment to shareholders is, at best, a means. The real purpose is to help members of that privileged social class to help each other maintain their membership in that social class, with a minimum of discomfort. And that's the real purpose of the interview process; to answer not the question "are you going to do the job well," but instead the much more important question of, "will I like spending 8 or more hours a day with you?"

I'd be a lot more worried about what that meant for the US economy if I thought things were different anywhere else.