Management

The Worst Management Idea of the 20th Century

April 12, 2017 By Otis White

I started paying attention to business management in the late 1970s, and my timing could not have been better. I saw all the business fads of the late 20th century paraded before me, from “management by objectives,” “Theory Z,” and “in search of excellence,” through “reengineering the corporation,” “good to great,” and “Six Sigma.” At one point, I wondered, are all these management theories actually the same ideas with new titles?

The fads seemed harmless enough—and may have been useful if they encouraged executives to think about their businesses in new ways. But one struck me, then and now, as dangerous. And that was “pay for performance.” Even more frightening, it has made its way into government, with terrible consequences.

In one sense, there’s nothing new about paying people for performance. Factories have long paid for “piece work”—that is, for each unit a worker turns out. Sales people often receive commissions, which are a share of each sale. And if you tip a waiter, a hair stylist, or a parking attendant, you’re paying for performance.

But extending this idea to employees who work not as individuals but as team members and are involved in complex tasks and not simple, easy-to-measure transactions is a new idea. Like a lot of bad new ideas, it came out of Wall Street.

It began with CEO pay, which Wall Street wanted tied to stock appreciation. If you want to know how executive pay became so grotesque with so little to show for it, that’s the reason.

But why stop with CEOs? In the 1980s and 1990s, the idea trickled down in corporations, aided by an army of consultants. It was easy to see the appeal. Employers wanted their staffs to work harder with better results. They wanted to hold on to the best workers and didn’t mind if the others left. And if pay—in the form of incentives for performance—could do all that, why not use it?

There’s just one problem: It doesn’t work in the way you’d think. Oh, it produces results all right; but some can be downright destructive.

Consider the Wells Fargo scandal that became public last year. The bank set goals for its customer-service representatives that most people considered unrealistic. One was to “close” (that is, sell) 20 new bank accounts a day. And one way was by convincing existing customers to set up at least eight separate accounts with the bank—checking, savings, credit cards, mortgage, and so on. (The CEO had a phrase for it: “Eight is great!”)

You can probably guess how this turned out. To keep their jobs and earn bonuses, employees began opening accounts for customers without their knowledge. And not a few rogue employees; thousands were involved in the fraud.

That’s a problem in a high-pressure environment like a bank. But it couldn’t happen in a government, could it? Well, it has happened. The Atlanta public schools’ test-cheating scandal of 2009 began when the superintendent announced that she would measure principals’ performance by their schools’ progress in standardized tests. For years this strict-accountability approach brought extraordinary gains in test scores—until it became known that some principals and teachers were changing their students’ answers in what were called “erasure parties.”

It happens once in a while in police departments, too, when a zealous chief decides there ought to be a quota for traffic tickets. (“Eight is great!” or something like that.) And predictably, cops start writing tickets just to meet the quota. Not exactly a formula for great police-community relations.

If setting quotas and paying for performance can turn into a disaster, then how should we think about compensation and motivation? Here’s the sensible alternative:

Pay employees a fair wage that compensates them for their skills, experience, and education.
Encourage teams to set their own measures of performance, ones that they will commit to meeting or exceeding.
If you feel compelled to offer bonuses for superior performance, award them to the teams and not individuals.
Understand that there are other motivations that drive people to work smarter and harder. You’ll find that, once employees have reached a livable wage, personal pride and the esteem of colleagues and superiors work as well as bonuses with none of the disastrous side effects.

In other words, if you want people to perform complex tasks and do so at a high level, don’t cheapen their work with simple measurements and simple-minded rewards. Try coaching, praise, promotions–and maybe a simple “thank you.”

A version of this posting appeared on the Governing website.

Photo byÂ Anil Mohabir licensed under Creative Commons.

Return to Sender

September 14, 2016 By Otis White

In February 1945, John Gunther sat at Fiorello La Guardia’s elbow for eight hours and 20 minutes and watched him work. Gunther was a famous journalist. La Guardia was New York’s mayor and was even more famous—a short, profane whirling dervish of energy and ideas.

La Guardia did not disappoint. As Gunther watched, the mayor made decisions in machine-gun fashion, riffling through letters and reports on his desk, barking at his three secretaries, interrogating subordinates. He even found time to hold a press conference while seated at his desk.

No item, it seemed, was too small for La Guardia’s attention. When the president of the New York Board of Education dropped by, he grilled her about lunchroom decorum, personnel transfers (he told her he would handle one of them personally), and pay raises. They argued a while about whether an administrator should get a $500-a-year raise . . . or a $1,000 raise. At La Guardia’s insistence, he got $500.

Gunther was stunned. As he wrote later, “Mr. La Guardia really runs the entire machinery of New York City, in all its dazzling complexity, singlehandedly.”

Some regard Fiorello La Guardia as America’s greatest mayor ever. Maybe, but he was a terrible manager. If you are a mayor, agency director, or someone managing a complex civic project, think carefully about La Guardia’s management style—and then run from it as fast and far as possible.

That’s because La Guardia was what we would call today a “micromanager,” and by inserting himself into so many decisions he undermined those who worked for him. In short, we don’t need mayors or top administrators to be involved in minutia. We need them to make strategic decisions that bring major results.

So consider this two-part test next time you’re handed an issue: Can this decision be made at a lower level by those who will be directly involved in its implementation? And if the decision is made at that level, is it likely to affect other interests? If the answer to the first question is yes and the answer to the second is no, then your response should be, “That’s for you to decide.” If the answer to the second question is yes, your response should be: “Pull together a group to make this decision and make sure these people are involved.” Have a nagging sense that something might go wrong? Then add: “And when you reach a decision, run it past me.”

Pushing decision making to the appropriate level is one of the most important things a manager can do for three reasons. First, all things being equal, it will result in better decisions. Believe it or not, teachers and cafeteria workers know more about lunchroom decorum than mayors. It makes sense, then, to have those closest to decisions—especially those who’ll implement them—involved in the solutions.

Second, it forces you to think about decision making as a process and not just an act. And the more you think about the process, the better you can teach it to others. As you push decisions down, remind your managers of how good decisions are reached: with the right information, the right people, the right decision-making processes. Show them how to keep discussions open and frank, to consult widely about possible solutions, and to consider testing solutions before fully implementing them.

Finally, pushing decisions down puts the emphasis where it should be, on hiring and training the right people. You cannot run a driver’s license bureau, a downtown redevelopment project, or the entire government of New York City by yourself. But you can, over time, staff it with good managers who’ll make good decisions because they learned how to do so . . . from you.

A version of this posting appeared on the Governing website.

Photo by Bill Smith licensed under Creative Commons.

How to Manage a Crisis Before It Happens

October 22, 2014 By Otis White

I like crises. Mind you, I don’t like being in them; I just like reading about them and thinking about how I might manage them. I don’t read Stephen King novels, but I suppose the effect is the same.

You, too, should think about crises because, knock on wood, you are likely to find yourself in one at some point in your public-leadership career if you haven’t already. And these things go better with a little forethought.

So, what is a crisis? You may have your own definition, but mine is that they are unexpected events that seem to defy the standard solutions and must be dealt with immediately. It’s the middle part that makes them so scary: For a time at least, the normal processes don’t work. You can imagine what fits this description: natural disasters, riots, system breakdowns (think back to this summer’s Toledo water crisis), economic disruptions (say, a major local employer shutting down), and scandals.

So what do you do when business as usual breaks down? You work hard to restore order, promise a full inquiry into what went wrong, and speak directly, clearly, and fully to three audiences: those dealing with the crisis, those most affected by it, and everyone else in your community.

This sounds simple but isn’t. That’s because, first, there’s no assurance what you do will work. You may have to try, fail, and try again. Second, you must speak to citizens and those working on the crisis without promising the unknowable (how and when the crisis will end). Finally, people around you will be demanding that you not say anything at all. After all, it’s a crisis. Why are you standing in front of TV microphones? Oh, and by the way, they’ll tell you, there are bound to be legal consequences, so it really is better to keep your mouth shut.

Ignore them. The difference between private management and public management is the public part. As a result, what you say to citizens about the crisis and your efforts to resolve it is every bit as important as what you do. In fact, I would argue that having someone in charge who is thinking about what he or she will say in public an hour later makes for better decision making.

So the first thing you can do to prepare for your first crisis is to think about how order might be restored in a range of calamities. The second thing is to think about how you would communicate these things to a frightened or angry public.

The third thing is to get to know those you’ll depend on in these situations—police, fire, public works, civil defense, key city hall staff (including communications staffers), disaster-relief organizations, and so on. If you’re in a position to do so, suggest mock disaster exercises. (One reason then-New York Mayor Rudolph Giuliani was so cool headed on Sept. 11 was that he, his staff, and the police had practiced for disasters.)

Finally, you can build relationships in areas where, if worse comes to worst, you may need help: minority communities, charitable organizations, faith communities, and so on. In almost any major crisis, you’ll need these groups’ support and assistance, but in a particular type of crisis their support will be critical. That’s when government itself is seen as the cause of the crisis (think Ferguson, Missouri or a city hall scandal). In these cases, you’ll need friends in a hurry. Do you have a list of community leaders who’ll stand behind you on a podium as you explain your actions? If not, it’s time to get busy.

A version of this posting appeared on the Governing website.

Photo by Lieven Van Melckebeke licensed under Creative Commons.

The Mayor as Manager

February 23, 2011 By Otis White

Mayors have three jobs, but most enjoy only one or two of them. The ones they like are creating public policy or building political support for those policies. Almost universally, the one they don’t is managing the city government.

This should come as no surprise. Most people who run for elected office are drawn to public policy (How do we reduce homelessness? How do we keep our young people? How do we connect land use and transportation?) or politics (How do we create a coalition of interests? How do we persuade the city council? How do we get our friends elected?). They don’t run because they want to manage employees. If they wanted to do that, they’d probably be a city manager.

And yet, local governments are complex and challenging organizations and, as we were reminded in the 2008-09 recession, sometimes poorly managed ones. And despite how a mayor feels about the grind of organizational management, it’s a job that cannot be ignored. To do so is to risk every smart policy initiative a good mayor can create and every shrewd political move she can make.

So what does a mayor—or, for that matter, any civic leader—need to know about managing a local government? Here are four of the basics:

During good times, prepare for the worst. The problem with a good economy is that it creates a false sense of security. If a city depends on development-related fees (such as impact fees) or sales taxes (which tend to spike in good times), beware: They can make leaders complacent. The best things to do with boom-time revenues are pay down debt and make capital investments. The worst things to do are hire more employees and hand out generous pay raises and pension increases.

When you make capital investments, ask how they’ll increase productivity. Productivity, of course, is doing more work with the same or fewer people, and corporations have made great gains in productivity in recent decades. Governments? Not so much. This has to change, and the place to do that is with capital investments.

Think back to the Econ 101 class you took in college. Remember the three “factors of production,” the resources that create goods and services? As Adam Smith explained two centuries ago, the factors are land, labor and equipment (which Smith called “capital”). Labor and equipment have a special relationship in that you can substitute one for the other; that is, you can buy labor-saving equipment to . . . well, save labor. And that’s exactly what governments should do. Every time a local government wants to build a building, buy a new computer system or purchase a sanitation truck, elected officials should ask how many hours of labor it will save. If the answer is zero, don’t buy it. If the answer is that it’ll require more employees, run away as fast as possible.

Don’t just ask about productivity—measure it, set goals for it and hold managers responsible for achieving the goals. Let’s not beat around the bush here: The objective is to reduce the city’s workforce while delivering better services to the citizens. It’s simple math really: 70 to 90 percent of local governments’ operating budgets are salaries and benefits. If you can improve the productivity of workers through labor-saving equipment, good training, better work flow and smarter management, you can reduce your headcount, please the citizens, pay higher salaries and hold taxes in check. It is, as economists like to say, “the only free lunch in town.” It’s also the surest route to re-election.

But change never comes easily even when it promises great benefits. Employees don’t like being told to work differently—say, moving from paper forms to electronic—and neither do their managers. So offering better ways of doing things is just the start; you have to ensure the better ways are implemented. And here is where it is critical to have reliable measurements of productivity (number of potholes filled per worker, number of business licenses processed per hour, etc.). It’s the only way to be sure you’re actually doing more work with fewer people.

The good news is that there has been a revolution in measuring productivity in city governments in the last 15 years. For a glimpse of what’s possible, visit New York’s elaborate NYCStat performance-reporting system. You’ll be amazed at the detail with which New York’s services are tracked. They should be tracked just as diligently in your city too.

Stop feeding long-term liabilities. You know what I’m talking about here: pensions and other benefits. We didn’t create our country’s $1 trillion public pension problems overnight. Oakland, California’s city government hasn’t made a full payment on its pension obligations in a decade and a half, which explains why Oakland owes more in unfunded pension liabilities than its entire $400 million annual city budget.

Neither Oakland nor any other local government is going to solve its pension problems overnight, but we can make a start. This means, at a minimum, moving new public employees to defined-contribution retirement plans (like the 401(k) accounts private workers have), ending health insurance benefits for employees retiring early—and never, ever adding to these crippling liabilities again.

You’ve probably figured out by now that these are related. Productivity gains will help governments dig out of their financial holes. Budget discipline, particularly in good times, will keep us from digging future holes. Capital investments are a key strategy for boosting productivity—especially when married to measurements, goals and accountability. And all of it depends on mayors facing up to their least-favorite job: managing the city government as if it were a serious organization. Which, come to think of it, it is.

Photo by Indiana Public Media licensed under Creative Commons.

The Worst Management Idea of the 20th Century

Return to Sender

How to Manage a Crisis Before It Happens

The Mayor as Manager

About Otis White

The Great Project

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