Some Random Thoughts on False Dichotomies, Common Coffeepots, and the Portability of Knowledge
Steve Kerr
Goldman Sachs
Editor’s Note: This article is based on the closing keynote address delivered at the Society of Industrial and Organizational Psychology 24th Annual Conference in New Orleans, LA, April 4, 2009. David Reese and William Oberman assisted in the transcription and editorial process.
Thank you, I appreciate the opportunity to be here. Despite the introduction, I am not sure I understand the qualifications that have led me to be here and perhaps in 45 minutes you will share my curiosity! Actually, this is the second time this has happened to me in less than a year. Last August, the Academy of Management recognized me with something called the Distinguished Scholar Practitioner Award. The Academy didn’t tell me what I had done to earn that either.
This is part of what I want to talk about today—the fact that there is something odd about my career. There shouldn’t be anything odd about a business school professor who has decided to spend some time in business. I doubt that you would take your child to a medical doctor who had never done an internship or residency.
I am told that I blazed new trails. I never did that on purpose. Did you ever make the only decision that made sense and look around and see that you’re all by yourself? (I have been praised for my willingness to take significant risks with my career. I assume they are talking about my publications or at least a number of blind reviewers have made similar comments).
While I don’t want this session to be all about me, I would like to use my career as a reference point. The central question is why more people don’t avail themselves of similar opportunities. I think I can provide a partial answer to this question. I want to say with no false modesty that that award should not have been given to me. There is nothing I did, no practitioner position I have held that the collective experience and training that SIOP members receive in school or later on the job has not prepared you to do. There is nothing that you couldn’t excel at; many of you do. I browsed through the session on “Off to Work We Go.” It is amazing to see what people can do with this degree that is not related to our traditional profession. So I am not saying that you haven’t thought about it. I am saying that my career shouldn’t be unusual, yet it appears to be.
I believe there are norms and values in our discipline that conspire against our being successful. I want to start with those and work my way to the things that I do. I’ll frame them under the notion of false dichotomies. One of these is the notion of breadth versus depth. A close cousin to that is the idea of rigor versus relevance.
I first ran into these dichotomies while teaching at Ohio State. We had an open faculty slot, and the department chair wanted to know who was micro and who was macro. It was apparently easy for everybody else to classify themselves, but I was studying reward systems then and had joined the flourishing Ohio State leadership program, and I didn’t see how you could get very far in either rewards or leadership if you only read the micro or only read the macro literature. It just seemed kind of odd. If I had been better read I would have used Russ Ackoff’s response. When confronted with a similar question, Russ observed that “nature is not organized in the same manner as universities.”
Another wise saying is that “there is nothing more dangerous than an idea —particularly when it’s the only one you have.” I worked for Jack Welch for 10 years and learned a great deal from him, but Jack believed mainly in micro. He believed in holding managers responsible for their department’s performance. Context was irrelevant. You overcome your obstacles, and make no concession to cultural or economic forces. I was friendly with a business leader who was asked by Welch to take over a very difficult business that had overcapacity, antiquated equipment in a bad market. Everything was bad about this job. There were all kinds of international complications—the Euro was up, the dollar was down. The man took the job and 2 months later we had our quarterly meeting in which every business leader reports in. This poor guy had only 6 weeks or so in the business and had had a pretty awful quarter. He gently began to remind Welch of the significant long-term problems that he had inherited, and Welch blew him off. “Don’t bring me your problems. We’re here to talk numbers. Your numbers are bad. Now fix them.”
That’s just one anecdote. For 6 of the 8 years I was with GE, we won the “most admired company” award. Believe me it never went to our heads. We used to say: “My god! If we’re number one, I’d hate to be working at #6.”
In those days, companies imitated many of the things that GE did. One thing that Welch came up with (because he believed so strongly in individual performance) was to require that managers fire the bottom performing 10%. This became one of the best known and certainly one of the most disliked of all of Welch’s initiatives. I noticed George Graen’s name on the program. He did a lot of work with vertical dyads, understanding that if someone is performing poorly, it may be reflective of a bad boss or any number of other things. But to Welch, the solution was to fire the low performers. Your role as a manager was to make the bad person go away (as if you had nothing to do with it). This is an example of the danger of having only one idea.
By the way, it’s just as dangerous to see only the macro side. For example, Malcolm Gladwell’s book, Outliers, worries me with its suggestion that nothing is anybody’s fault, everyone is blameless, everyone is praiseless; everything can be attributed to circumstance. Yet considerable research suggests that raw ability dwarfs any sociometric pairing in terms of relative contribution to performance. Ability matters a lot. (Anyone who says that there’s good in everybody hasn’t met everybody.)
So, I would like to present a few pairings of things that I have seen throughout my career that illustrate the tension we face when we set up artificial choices, such as those between micro and macro, breadth and depth, and rigor and relevance. I directed USC’s doctoral program in business and was an outside examiner many times, including psychology; I also served on many promotion and tenure committees. It’s interesting how often people are faulted, whether in dissertation proposals, tenure reviews, or doctoral exam results on grounds that their work is too applied. Look up “applied” in the dictionary. It means “having application, being useful.” I can’t think of many other occupations where being accused of doing work that is actually useful is a stigma to overcome!
Here’s example number two. This actually happened at Michigan to a very productive, very popular professor. We were floating trial balloons on his tenure application, though we thought his promotion would be a slam dunk. However, we learned that some on the promotion committee intended to vote no because his work was too applied. The professor had many Harvard Business Review and Organizational Dynamics publications, had won several awards for influencing management practice, and had written several best-selling books (which in itself was offensive) that were being read by managers, not just students. To force the committee members to confront their bias, we informally circulated a sanitized version of the vita in which the professor had not been in Harvard Business Review, hadn’t won any awards, and nobody was buying his books. The revised vita made clear that the professor had done a lot of good, scholarly work. In this example, at a very good school, applied work was worse than neutral because not only did it not count in your favor, it actually subtracted from the scholarly work done.
Here’s another example. Just for fun I asked a few questions of a convenience sample. Try this: How many consecutive bad meals would you have to eat at your previously favorite restaurant before you wouldn’t go back there again? Question 2: How many horrible stock advice tips would you take from a broker before you wouldn’t listen anymore? Question 3: How many consecutive bad Fords or bad Hondas would you have to buy before you wouldn’t buy that same brand car again? Do you want to guess what the median, mode, average responses are? Usually 1 or 2, between 2 or 3 at most. But it’s never more than 3. Now go look at your statistical tables and see what sample size we need to make reputable judgments. And imagine what you would think of somebody who actually did that.
“What happened?”
“Well, we ate at Fernando’s again and Susan almost died from food poisoning.”
“Didn’t you get sick the last time you ate there?”
“Yeah. I sure hope they’ll be more careful next Saturday; we’re going back for our anniversary.”
Real life managers make decisions working with small samples. They work with the data they have.
Which brings me to a third example: Picture me with Dave Ulrich (University of Michigan) and a very reputable, very competent Harvard professor. We are all sitting in the back of the room at our executive development program. The executives are working through a group discussion, and as they work they go astray. They really need some information about an aspect of resistance to change that we hadn’t covered in the training—we didn’t think they would go this route. This is a teachable moment, right? So Dave and I turn to the Harvard prof who, of the three of us, is best equipped to do the briefing. He refuses. He’s a good guy, and he refuses for the right reasons. He’s not lazy. He says, I am just not prepared, I don’t have the right materials, it’s not professional, it’s irresponsible, I’m not going to go up there and give them a lesson that’s not my best.
So I said to him: You’re raising the wrong comparison. The comparison is not between you now and you at your best, the comparison is between you now and poor Dave now because he’s going up there if you’re not. (Dave and I are always willing to make presentations irrespective of preparation.) Using professional norms, the prof wasn’t wrong. But that is what can happen when we get hung up on notions of academic values.
My mentor, Bob House, would squabble in public and in print with people like Fred Fiedler because Fred never found conceptual underpinnings to explain the magical LPC, and yet he could predict certain behavioral consequences. Fred would say why don’t we help some people out, and Bob would say it’s irresponsible to put out instruments that you don’t understand. These are the kind of things that make us less able to be helpful. I don’t mean that I prefer sloppy work to good or unreliable to reliable. But if you can find a sensible balance between being rigorous and being useful, you can be immensely helpful.
I was fortunate to be able to find interesting work for most of my career. It turned out that the same things that were considered risky in academe, such as breadth and relevance, were pluses, not minuses, in the role of chief learning officer. Let me tell you how the whole thing came about. This is a trail that I legitimately blazed but I didn’t mean to. I had worked for Welch as a consultant for years when he offered me the head job at Crotonville, leading the development of a third of a million people. You don’t turn that down. I called 45 of my GE colleagues and invited them to Crotonville, a 53-acre campus with lots of sleeping rooms. I asked them: What should Crotonville start doing, stop doing, and keep doing under my care? We came up with new ideas and among them was a new title—I should be the chief education officer of GE. So I go back to Jack and I say, I am going to be a CEO just like you! And Jack said no; one is the right number. And Jack said you don’t really want that title anyway, and he gave me a couple of reasons—information is a noun, education is a noun. If you call yourself a chief education officer or a chief information officer, you’re going to begin to think of your client as the information itself. And indeed that is what CIOs do with information—their business is to protect it, store it, guard it against hacking, and expand its compatibility. It’s all necessary work and I am not putting it down. But “learn” is a verb, and if you call yourself a learning officer you will remember that your clients are the people who do the learning and not the learning itself.
Welch referenced the formula: ability x motivation = performance. Chief information officers increase people’s ability to share information—the compatibility of hardware and software. But Welch said the most important reason people don’t share information is because they don’t want to. You can get the fanciest hardware in the world but it’s not going to help. So Welch said let the CIO do his job, and you do what’s left over. This became the earliest job description for a CLO: to look at the design of the place, the buckets or cylinders, the norms, the reward systems, the politics—what’s in the air that causes people to not share information?
There were some things that we already knew. We knew why thugs don’t share information: Thugs are always looking for private advantage. We also knew why idiots don’t share information: Idiots don’t do anything well, including sharing information. But we didn’t have many thugs or idiots. The interesting question is why do bright, hardworking, confident people who care about the organization hurt the organization in this way? At GE we put a penalty on hoarding information—it will get you fired. If somebody does an audit and finds company money in your personal bank account, you get fired. If you have company ideas, metaphorically speaking, in your own account, if you have the best way to collect receivables in the company, the best way to train salespeople, the best way to hire and excite new employees and you don’t share it, you’re stealing.
So that was the basis of creating the chief learning officer job and it became the job description. Don’t turn down rigor when you find it, but often it’s not there. With that attitude I was able to get into a lot of interesting areas. So what I am trying to say is not that you can just turn off our profession’s norms and values; they’re there for a reason and they’re valuable. But as they say, culture is a great guide but a poor jailer, and you shouldn’t be imprisoned by it. If you can get past that, you can think about what the organization really needs. As a result of your intervention, are people better off than without you? Perhaps it wouldn’t have been as good a job as if the Harvard professor had been fully prepared, but we just didn’t know they were going to need it at the time.
What I want to do now is show you some things you can do if you get past those biases and norms, three ways that you can be immensely useful. One is our ability to add structure and framework to what people do.
Figure 1, “What Organizations Share,” is my chart but Welch’s idea. This model gave structure to and became the most powerful tool I had as chief learning officer. One thing about being around Welch, you get to be in a room with him and lots of people came in. It really was a second education for me. So here is the background (which became part of the book that Ron Ashkenas, Dave Ulrich, Todd Jick, and I wrote, called The Boundaryless Organization). Bernie Marcus from Home Depot complained about how hard it was to be boundaryless in his industry. Sample dialogue: It gets hot in San Antonio, but it’s still cold in Buffalo. So you need different products in the stores, which means different vendors and you have to have different supply chains. So Welch puts up for this for about 6–7 minutes, which is his limit anyway, and then starts screaming at the best customer we have. Welch says, Bernie stop it; you’re making it complicated. That’s the worst insult you could hear from Welch: You’re making it complicated. He went on to say, what are you talking about? There are only two kinds of outputs in this world: products and services. Is there a third kind I don’t know about? And whichever of the two you are pedaling, don’t you have to collect your cash, market your product, appraise your people’s performance, and do quality control? And there are only a handful of inputs. You work with people, money, physical space, and supplies, and all you do is convert inputs to outputs. That’s all anybody does.
We taught the input–output model to a third of a million people at Crotonville. The centerpiece is a fundamental belief in the portability of knowledge; the rest is detail. This belief is often absent. For example, think of the university. Biology may have a fabulous way to recruit students, but the English department is never going to hear about it. If you expect things to be portable you are a lot more likely to find portability than if you think they won’t be. You don’t always find it. Power Systems in Schenectady, New York, one of the GE businesses, won a Training Magazine Classroom of the Year Award. But every time I visited Schenectady as GE’s chief learning officer, all I could see was Turbine University—a place to teach customers how to fix and build turbines—so I failed. But the point is that I consider it my failure because I’m convinced that all knowledge is portable.
GE has taken this model to many schools and universities, from major ones to smaller schools in GE’s neighborhood. It’s also been offered to three governor’s offices. Even Gingrich used it in Congress to teach the same point. If you believe knowledge is portable, it doesn’t matter what it is. Everybody takes inputs and converts them to outputs. Let’s take suppliers, for example. If you have superior purchasing algorithms to get supplier discounts, or a nice process to do online bidding, it’s all portable. This is an example of bringing structure; the framework uses Welch’s words, and I helped to systematize and disseminate it.
Here’s another example that has been in our literature so long I don’t even know who to credit (Figure 2). We call it the bull’s-eye technique because of its shape. If you go back to the 70s, Warren Bennis talked about visualization, later Blanchard talked about backward imaging, and Stephen Covey talks about starting with the end in mind. Whatever you call it, it’s a way of providing structure. In the top circle you put any goal, priority, mission, vision, or objective that you have, and you play the backward imaging game, as in, you are at a party one year from today, you are celebrating the success of your mission, and you are asking what are people doing differently? That’s the bull’s-eye. What are people doing that they weren’t doing a year ago? How are they acting differently? What are they doing more of, and what are they doing less of? It’s a way of taking anything, no matter how amorphous, and converting it into things that people do. Again, the model provides structure and framework. I never fill it in; I don’t know what people should do differently, but they know. It is just a matter of having someone like me, who can add value because of the way we are trained. My contribution is not rigorous, but if you can get past that, managers get a better framework for decision making than they had already.
The first time I used this I had just taken the job at Crotonville. I had done work for Welch for a while but hadn’t run the place. Welch said to me: “Here’s what I want from you: I want Crotonville to be the common coffee pot of the company,” and he’s out the door. Two things occurred to me. One I have no idea what this man just said. And two, I don’t think I’m supposed to ask! You must have had a boss like that in your career; there are enough of them to go around. These people are like Zen masters; they tell you what they want, and nobody knows what the hell they just said, and you’re not supposed to ask. I didn’t know what he said, but I did know what to do. I called my staff and said, “Staff: bull’s-eye exercise.” Top circle, common coffee pot of the company, it’s a year from today. What are we doing more of? What are we doing less of? The point is, it creates structure. It created tangibility and created safety for me. Instead of going to my boss and saying, “Sorry sir but I have no idea what you were talking about,” which isn’t such a good opening, I can say “Sir, before I implement a plan to make Crotonville GE’s common coffee pot, I thought you might want to see what we are working on.”
We had people inside GE who thought they were great team players, but viewed from the outside they were in fact cold warriors. We wanted to create a definition of teamwork that was so extreme that no one could delude themselves into thinking they were satisfying it. In other words, we wanted a test that everyone would fail. So we came up with five words that comprised the most radical definition of teamwork I’ve ever seen: “not permitting others to fail” (Figure 3). Then, using the bull’s-eye drill, we asked ourselves: What would it look like? From the literature we knew that the most effective change agents are moderately different from the people we are trying to change. If you are too similar, people love you but you won’t change anybody. If you are too extreme and different, people dismiss you as a credible source. So our definition was too hard; it was meant to be extreme, but we added structure and a framework. We just played a game: If we believe 
this, what would we do that we are not doing now. What do we start doing? What do we stop doing? We got a list of 15 things. Then we said to the managers, what do you think about this list? That one is stupid! Cross it off. That one’s illegal! Cross it off. Maybe you have six left. So I said, look you are all good managers, you have good departments. Why don’t each of you take one of the six and try an experiment to make it happen in your own unit. Don’t even tell us about it. If it stops working, kill it. Nothing needs to go to HR, nothing to your boss. You’ve got the freedom to just make it go away. But you should know that we intend to set up a forum 4 months from now. We will make heroes of those of you who make it work, and you can tell us what you are doing and help us out. So at no point is there ever a reason to say no. They’ve never been hit by a big change process, and yet, it’s the camel’s nose under the tent. We are working from an extremely different definition than they have ever worked on before. The bull’s eye is used to create specific behaviors, which can then be tested. This is all stuff that I got from the literature that some of you wrote and all of you read.
Bureaucracy—it’s in the GE code. You are supposed to loathe bureaucracy and everything it stands for. So we do. Nobody likes being called a bureaucrat; that’s not a compliment, right? But you talk to the accountants and auditors; anytime they put in a new expense report or require you to show receipts from your trip, people scream “bureaucracy!” No, it’s not all bureaucracy. So, using the bull’s-eye technique, we put bureaucracy in the top circle and asked: What does it mean? And we came up with RAMMPP, which stands for reports, approvals, meetings, measures, policies, and practices (Figures 4 and 5). With respect to each of them, you ask the questions on the right. Can it be done less often? Can it be done with less people? Can it be done remotely instead of in person? Can it be stopped altogether?
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Another example: one group took a look at their reports. The division created a stamp that said “return to sender.” They said, from now on if you get a report that you don’t read, instead of tossing it, return it with the stamp. Another business unit had the same idea but they had a different stamp. Their stamp said “Why am I receiving this?” Stamp it and return it. They told people producing the reports and distributing them, “Take a look and see if you can find a pattern in the reports being returned.” Here’s a pattern in the most admired company: We had reports coming back where every copy produced came back with the stamp, why am I receiving this? Every copy. Everyone thought they were getting a courtesy copy. Everyone thought someone must be using this. It turns out that nobody was. These are not stupid people. The reports used to be useful, but when you formed an alliance with a new vendor as part of the deal you got better data. The result is you are now getting useless reports. The key is making it actionable. Again, not my own ideas but I am giving them structure and a framework.
Here’s another example of how an organization sought to improve the quality of their reports. In this case an offsite was held including teams from HR, legal, and finance. The CEO of the company, along with division heads, was there to respond to the teams’ recommendations, so the participants—most of whom were fairly low level—were nervous. I was the facilitator, so I can report to you the actual dialogue (to the president): “Sir, when you buy something outside of the building, you always look at the price tag.” Yeah, yeah, right. “But sir, when you buy something inside the building, you never get the price.” For example, take a report. You say you need to know how many widgets were produced in the midwest territory; you have to know by Tuesday. Sir, you come in Tuesday, and there’s a report on your desk. You’ve got no idea what you paid for it. They said, “Look Sir, we are not saying we are not going to do it but from now on when we give you a report to the exec office, we will put at the bottom right of page one, the approximate number of hours that went into its preparation. We’ll give you a price tag.” What was the CEO going to do, say no? So a few Tuesdays later he got a report about how many widgets were produced in each branch. At the bottom of the report it says 1,015. Hours?! A thousand hours?! “Sir, you said you needed it by Tuesday. We do the semi-monthly roll-ups on Thursday. No one is going to tell you that you are going to have to wait until Thursday, sir. Or you said you wanted it by branch. But did you know that all of our computers run it by district? Do you know what an overtime party is, sir? Do you know what seven people did all weekend? Hand rotating this stuff to create it by branch.” The CEO was not insensitive. Once he learned the misery he was inflicting on his people, he began to make more reasonable requests. He didn’t always need it by Tuesday and he didn’t always need it by branch. These are the things you can do when you can provide a framework, where you can provide structure.
Two final things I want to mention. You can do real research if you can get past the notion that your research has to be of publishable quality. For example, Goldman Sachs uses co-heads to lead divisions and departments. Many co-heads fail, but some are quite good. So my colleagues, staff, and I interviewed the good ones and created a list of best practices. We gave the new co-heads one-on-one briefings.
As another example, you hire senior people from the outside that you hear are good. But we had a high flame-out rate with people not doing well. However, some succeed. We do useful (though not publishable) research such as asking: What did the candidate do before joining our firm? What did the firm do in preparation? What socialization processes were in place?
A final example: repatriation. Everybody talks about the great learning you get when you are stationed overseas. I’m sure that it is true, but most firms don’t know how to use you when you get back. It’s one of the great puzzles in corporate America, but some people beat the odds, so you do research on those who are successful. Decisions based on your unscientific, unpublishable research are still going to be better than decisions made without it.
One guiding hint for research, we call this the “back of the manual” framework. Here’s what it means: When you buy a new car or a boat, the information in the front of the manual is for the aficionado. It’s got the specs, torque, ratios, rev-ups, carbs—I don’t know what they are talking about. But the back of the manual is written for people like me. The back of the manual says things like this: car won’t start, engine smoking, tire’s flat. This is what we do when we do useful research. Useful research concerns things people care about. For example, no manager in the history of the world has ever asked for a diversity audit or a competency analysis—this is HR playing with its food again. It’s not to knock HR—they know that it is useful because competency analysis will affect the quality of selection and diversity will affect legal compliance. It’s not that they have the wrong intention, it’s just that they don’t identify the back of the manual. The difference between good and bad staff support, whether it’s HR or a chief learning officer, is that bad support always appears to add to people’s workload. If I am a practicing executive, whether a university provost or a division VP, who told you I am looking for things to do? I am rich in things to do. The good supporter goes in and says two things: One, I know what your problem is, and two, I know how to help you. Using the back of the manual is how the members of my team keep each other honest. When we fall in love with our own concepts and technology, we say, wait a minute, we’re doing it again, what’s the back of the manual? What opportunity are we creating for our clients, or what problem are we solving? If we do that, our research can truly be useful.
Last point, a chief learning officer has to be a catalyst, be provocative. Let me close with a few examples. Again, you have to be moderately different, if you challenge all of people’s beliefs they just dismiss you. In GE, the culture was significantly influenced by a benevolent despot at the top, a wonderful guy who got great results. But the result was a culture of respect bordering on fear, or at least anxiety. Some of the effects were terrible. Limo drivers will tell you about people throwing up on their way to a meeting with Welch. Half the people that worked for Welch would say he welcomed pushback, the other half would say it could get you fired. In my opinion he welcomed pushback, but it doesn’t matter whether I’m right or wrong. Many people thought it was punished, and so information was withheld from him that he could have used.
Here’s an illustration. I had authority to hire for Crotonville, but Welch loved and supported the place, so I invited him to interview some of my prospective senior employees. He interviews a guy I really want to hire. His secretary Rosanne calls me to come pick up my guy. Well, my guy is leaning outside the door of Welch’s office, and he is hyperventilating, physically ill. I think, oh man, Welch hates him, this is terrible, I never should have let Jack see him. So I called Jack nervously and say, what do you think? And Jack said, “I like him, we had a nice chat.” That’s an example of people feeling as though they are getting beat up. They get so excited when he pummels you with questions.
So you have to provoke, you have to be able to fight. Here’s another illustration. I got a request at Crotonville that Jack wanted everyone to have a certain book. So I say, “Okay, I’ll read it.” “He doesn’t want you to read it, he wants everyone to have it” said one of his minions from Fairfield. So I said, “Jack doesn’t select books for Crotonville; he likes me to do that.”
I hope these examples strike you as unimpressive because my point is: Who among you could not have done these things, set up frameworks, constructed models, and served as a provocateur?
Such activities can be very valuable. The problem is we have all been exposed to norms that make us think that we are betraying our field, that we are selling out. I’m not saying that the path that I have taken is better than remaining in an academic career. I just think that the first unit of something you haven’t done is better than the nth unit of doing the same thing over and over again. I feel that I gained when I went from the corporate world to academia. I gained again when I went back.
I wish you the best, and thank you for listening.
Q&A
Q. Thanks for a great speech. What kind of new challenges do you face at Goldman having moved over from GE? Thank you.
A. The most important difference between the two is that GE believes fundamentally in the portability of knowledge. I have already mentioned moving ideas around, so let me say GE also moves people around. At Goldman, it is a different model. At Goldman and on Wall Street in general, you are promoted and rewarded for your client skills and product knowledge, your deep knowledge of content. You don’t need to be a good manager. We’ll get you a coach if you’re not. Promotion is unrelated. At GE, you don’t need to know much about the product initially, so I had more flexibility developing people because I could move them around. In fact, I like to torture my colleagues at Goldman by giving them Bob Wright’s story. Bob Wright ran small appliances; GE sold the business but kept Bob. So Bob became the head of Capital Financial Services, and he built it into one of the most successful businesses at GE. He kept that job until GE bought NBC (part of RCA). GE decided to put Bob Wright in charge. The local magazine Variety laughed and said, so now the pots and pans guy is going to run a TV network; this is going to be fun. Only Bob turned out to be what many consider to be the most effective executive in the history of the industry. So at Goldman Sachs I created surrogates for natural movement. We move managing directors onto boards, and we created a joint venture with Harvard to give people board training. We set up action experiments and also shadowing; that came out of Hewlett-Packard.
Q. Can you expand on the use of stretch goals at GE?
A. At GE there was the expected level of performance and then another level above it. One of the rules straight out of the textbook is you should not hold people accountable for things beyond their control. Remember Welch’s rule: Everything is under your control. If the Euro went crazy, too bad, why didn’t you see it coming and hedge against it? So stretch goals by definition are goals that you have no idea how you are going to make. If you have a plan, that isn’t a stretch goal. The problem is that GE had such a culture of punishing nonperformance. When people were gone, it was like, guys, what happened? He came off his numbers. Nothing could be said; the guy was dead. So on top of this culture, you put these stretch goals that we are not expected to make? It was a very difficult thing to sell. We had to learn; what you measure is progress toward the stretch goal. Measure how you are doing compared to your competitors, how you are doing compared to how you would be doing if you never set the stretch goal based on trends. We learned to play off of different things, but we did learn this: Stretch goals by definition are not goals that you make. To do them right, go read the achievement and motivation literature, the Atkinson and McClelland research. If the goals appear ridiculously hard, people throw them out. But people really do work hard on them. Sometimes we make an analogy to bullet trains. If you have a train that goes from Osaka to Tokyo in 5 hours and you say I want you to do it in 4 hours and 45 minutes, they will think of small changes. But if you say do it in 3 hours, you have got to throw out all of your assumptions on how to do go between the two cities, and it really does create out-of-the-box thinking. So that was the notion and it really did pay off, and the challenge again was how to meld it into a culture that was not used to saying you missed a goal but that’s okay. But I think we eventually worked it through.
Thank you again.