Marina Gorbis's Blog, page 1316

5 Ways to Become More Self-Aware

You can’t be a good leader without self-awareness.

It lies at the root of strong character, giving us the ability to lead with a sense of purpose, authenticity, openness, and trust. It explains our successes and our failures. And by giving us a better understanding of who we are, self-awareness lets us better understand what we need most from other people, to complement our own deficiencies in leadership.

The question, then, is how can we cultivate and develop it further. There are many ways to do so. Below are five that I have found to work best:

Meditate. Yes, meditate. As most people know by now, meditation is the practice of improving your moment-by-moment awareness. Most forms of meditation begin with focusing on, and appreciating the simplicity of, inhaling and exhaling. But these don’t need to be formal or ritualistic — greater clarity can also come from regular moments of pause and reflection. Speaking personally, I try to gain greater awareness by simply finding a few seconds to focus on my breathing, often before sleep, and sometimes with one of the many apps available to help. During these meditations, I also ask myself a set of questions, among them:

What am I trying to achieve?
What am I doing that is working?
What am I doing that is slowing me down?
What can I do to change?

But the most frequent form of “meditation” I practice derives from carrying out seemingly mundane tasks that inspire a degree of therapeutic serenity, including washing dishes, working in my garden, and spending early Saturday mornings writing in Boston’s Museum of Fine Arts as I wait for my son to be dismissed from his drawing class.

Write down your key plans and priorities. One of the best ways to increase self-awareness is to write down what you want to do and track your progress. Warren Buffet, for one, is known for carefully articulating the reasons he’s making an investment at the time he makes it. His journal entries serve as a historical record that helps him assess whether or not future outcomes can be attributable to sound judgment or just plain luck.

Li Lu, a co-leader of the Tiananmen Square student demonstration and today a highly respected investor, told me once about a practice he followed for years, inspired by Benjamin Franklin. Franklin kept a “balance sheet” of both the assets and liabilities of his personal traits. By diarizing any new strength he believed he could learn from someone else, and marking down any self-perceived weaknesses, he could better assess whether the “net worth” of his character was growing over time.

Take psychometric tests. In Heart, Smarts, Guts and Luck, my co-authors and I developed a simple “entrepreneurial aptitude test” in order to understand which traits readers were most likely to be biased in business-building and in life. Among the best known of these tests are Myers-Briggs and Predictive Index, but all are aimed as serving as a data point towards greater self-awareness. A common design point with all of them is that there are no particular right or wrong answers. Instead, they are designed to compel respondents to consider a set of traits or characteristics that most accurately describe them relative to other people. In our own version, (which can be taken at www.hsgl.com, and is free) we ask people to consider forced choices in paired question sets – e.g. Is your success best described by analytics or instincts? Are you more driven by passion or by action? Reflecting on forced trade-off questions such as these help test-takers better understand their own true characters.

Ask trusted friends. None of us is altogether aware of how we come across to others. We have to rely on the feedback of our peers, friends, and mentors. To have your friends play the role of honest mirror, let them know when you are seeking candid, critical, objective perspectives. Make your friend or colleague feel safe to give you an informal, but direct and honest view. This can mean saying something like, “Look, I am actually asking you as a friend, please just be straight with me on this matter. Okay?“

Another strategy is to ask friends to call you out when you are doing a behavior you already know you want to change. For instance, “Look, I know I am a ‘story-topper’ who needs to one-up every conversation, but do me a favor and each time I do that, let me know – preferably discreetly – so I can learn to stop.”

Get regular feedback at work. In addition to informally and periodically asking friends and family, use the formal processes and mechanisms at your workplace. If none are in place, see if you can implement more formal feedback loops. Provided it is done well, constructive, formalized feedback allows us to better see our own strengths and weaknesses. At my own venture capital firm, Cue Ball, we have begun encouraging entrepreneurial founders to institute a formal, annual 360-feedback process that provides feedback across multiple areas of competencies and work styles.

The keys to effective formal feedback is to a) have a process, and b) have an effective manager of it. The latter either requires really good internal HR people, or bringing in outside facilitators and consultants. We’ve found the approach with external folks to be more effective at both small and large companies, because they come without the baggage of pre-conceived biases or reporting lines. Once the feedback process is completed, it is important all involved to reflect on it by writing down their top takeaways. Note both any surprising strengths and any weaknesses or blind spots.

In the end, we all want self-awareness. Without it, one can never fully lead effectively. It’s only with self-awareness that one can journey closer to a state of “self-congruence” — in which what we say, think, and feel are consistent. Building self-awareness is a life-long effort. You’re never “done.” But these five pragmatic practices will help you move faster and further along the way.

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Understanding Trust, In China and the West

China is the second-largest economy in the world and expected to surpass the US in the next decade. This shift in economic power makes it even more important for Western executives to build successful, high-quality relationships with their Chinese counterparts. But such relationships don’t always come easily. Consider the following examples:

Western representatives of a multinational thought their negotiations with an important Chinese supplier were almost finalized when the Chinese negotiators started asking questions the Western side believed had already been agreed on. It made the Western negotiators feel as if the Chinese side had made no attempt to understand their concerns.
An international company created a platform its R&D centers could use to share their latest developments and discuss any challenges. The idea was to encourage each R&D center to be more pro-active in responding to changing market conditions. However, it became apparent that the Chinese R&D center was hardly participating.
An international head of department based in Wenzhou faced difficulties on a regular basis for his Chinese managers to accept overseas assignments. This international manager was unclear about why some of his Chinese managers were so hesitant to develop strategic relationships with non-Chinese staff elsewhere in the world.

What is the common problem underlying all of these three examples? It all has to do with trust, and how it’s built.

Depending on one’s cultural background, trust may be developed and defined in different ways. I have spent years studying the function trust in business, and have taught business leaders in both the West and in China. It is important to stress that no difference exists between both parties regarding the importance of trust to the development of the business process. All human beings, regardless of their cultural background, have a strong desire to develop relationships, and trust is crucial in this process.

The main differences lie in how people from the West and China work towards building a trusting relationship, which is reflected in what their (dis)trust default is, and how this influences the function of trust is in the relationship being developed. (Of course, people in both cultures are individuals – the patterns I’ve observed in each culture are sweeping, and won’t apply to everyone.)

What is your trust default?

Trust is usually defined as a positive expectation that the other party will act in honest and benevolent ways, reducing fear that one may be exploited. Considering both parts of this can help us distinguish the trust defaults in the West versus China.

Generally speaking, in the West the default is “trust.” I’ll give you the benefit of the doubt, and consider you basically trustworthy until you do something that breaks our trust. In China, the default tilts more toward “distrust” – I only award you my trust after you’ve proven yourself worthy of it. This attitude is illustrated in an eloquent way by the popular Chinese saying that “early birds get shot” (qiang da chu tou niao) – which reflects the strong desire to avoid any social risks. Clearly such an attitude does not invite people easily to engage in a more Western-like trust giving process.

As one Chinese business executive told me: In China you build trust first, once that is achieved, only then you do business. In the West, on the other hand, people are used to doing business almost immediately when they work in the same industry. Westerners feel more comfortable conducting business and building trust at the same time, if the opportunity arises.

As the research of Roy Chua, an associate professor at Singapore Management University, has found, American executives make a strong distinction between trust from the head (i.e. trusting someone because of his or her professional competence) and trust from the heart (i.e. trusting someone because of your relationship with him or her); whereas for Chinese executives both types of trust are needed. These findings emphasize again the need for interpersonal trust to be established and exist before conducting business in China.

What is the initial function of trust?

Where do these defaults come from? To answer this question, we have to examine how people in each culture define the initial function of trust. Put simply, in China the primary function of trust is to protect and establish feelings of safety initially. In the West, it’s more to explore and establish where possible fertile ground for future opportunities.

The West is considered an individualistic culture, in which people need to acquire the skill to build alliances and networks to survive. As a result, within individualistic cultures people have learned to take a more active approach to building relationships, and defaulting to trust becomes the norm. China is not an individualistic culture, but neither is it – as claimed incorrectly by many people – a collectivistic culture. It is a relational culture. Guanxi is a Chinese concept referring to the tight social networks that shape Chinese society. Almost automatic trust exists between people in the same guanxi, but trust is never assumed outside of it. So distrust becomes a default — only if one is certain that a new relationship will not threaten, but rather preserve, the interest of one’s closest relationships, will trust then be given.

In light of building international business, it is clear that from a Chinese perspective you will need to earn trust first before things get moving.

How can Western businesspeople establish trust with their Chinese counterparts?

So, from a Western point of view, how should one approach business situations in China when they involve building interpersonal trust?

Taking time to develop the relationship is a must. Chinese businesspeople will invest considerable time in getting to know you. While you, from a Western point of view, may think you are already discussing business deals, your Chinese counterpart may not even be thinking about the deals that could be made – he or she may still be evaluating you. Although this may be frustrating at times because it seems like business is going nowhere, keep in mind that once you are perceived as trustworthy things will move very quickly.

Because in the initial stages, no personal relationship exists yet, be aware that trying to build trust through mainly social means might backfire. Organizing parties or giving gifts can work against you. Early on, it is more important that you show what your value will be to their business. At this stage it is also necessary to remember that it is most important to demonstrate your competence and expertise rather than just simply talk about it.

Once a business relationship takes off and you are working with Chinese managers and employees, keep building on this foundation. It is important that the Chinese counterpart feels that throughout the business process a sense of benevolence exists, which will make for good business on the long term. Keep in mind that although building trust in China is a highly participative and time consuming activity, the level of trust that can be achieved can be forever. As a popular Chinese saying mentions: Once a promise is made, it cannot be withdrawn, not even with the forces of four horse powers (yi yan ji chu, si ma nan zhui).

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How to Manage Remote Direct Reports

Geographically dispersed teams are increasingly common in the modern workplace — perhaps you’re based in your company’s New York headquarters and your team works out of offices in Denver and Charlotte or maybe you’re in San Francisco and manage telecommuters in LA and a group of developers in Minsk. How do you overcome the challenges of supervising employees in different locations and time zones? What steps should you take to build trust and open lines of communication? How should you establish routines? And how do you help remote workers feel part of a team?

What the Experts Say

One of the biggest misconceptions about managing remote workers is that it requires an entirely different skillset. “We have a tendency to overcompensate and approach remote workers and virtual teams as these mythical beasts,” says Mark Mortensen, an associate professor of Organizational Behavior at INSEAD. “But you shouldn’t think about them in a fundamentally different way. They are still people working in an organization to get stuff done. Treat them as such.” That said, managers must put in extra effort to cultivate a positive team dynamic and ensure remote workers feel connected to other colleagues. It requires a “proactive approach,” says Keith Ferrazzi, the founder and CEO of Ferrazzi Greenlight. So, whether your team is comprised of people in far-flung locations in faraway time zones or employees who work from home (or a combination of both), here are some pointers to keep things running smoothly.

Set expectations

“As the manager, you need to set clear, deliberate expectations in advance and establish ground rules for how interactions will take place,” says Ferrazzi. If you fail to do this, “things will break down immediately.” He recommends “establishing clear lines of accountability” from the outset of the working relationship by setting monthly, quarterly, and yearly performance goals as well as “targets for what ‘hitting it out of the park’ would mean.” Then, just as you would with employees working down the hall, “you should check in regularly on progress” through an agreed-upon schedule. Mortensen adds: be sure to make it clear that you’re “applying the same metrics to the rest of the team.” Remote workers “need to know that they’re not being treated differently and there’s no inequity.”

Visit on a predictable schedule

There are no rules governing precisely how often you need to see your remote workers in person, but Mortensen recommends visiting them regularly especially in the early stages. “If you can get yourself to their location when you first start working together, that’s invaluable,” he says. “Seeing people one-on-one, face-to-face sets the tone and gives people a sense of comfort.” As the arrangement stabilizes, “predictability is more important than a particular frequency,” he says. “If your direct report knows you’re there every six months, it helps build trust.” When you’re at their location, make an effort to “understand their environment and get a sense of what it’s like” to work from afar. “Join in on a conference call to the home office so you can get a glimpse of [the situation] from their perspective,” Mortensen says.

Encourage communication

The key to managing relationships with remote employees, says Ferrazzi, is to “set an appropriate cadence” of communications—including how quickly employees need to respond to email; what follow-up steps should be taken; and on which days check-in calls should occur. “If you, the manager, don’t create good, open communication channels, the remote worker will feel, well, ‘remote’ and forgotten,” he says. It’s also important to establish frequent, recurring team meetings that at least attempt to accommodate everyone’s schedule, he adds. In light of time-zone constraints, it’s considerate to set up the meetings on a rotating schedule so that no one team member or region is unduly burdened or disrupted. Encourage the use of instant messaging, blogs, wikis, and other online collaboration tools and apps. Your team must “understand that they have an obligation” to stay in regular contact, says Mortensen.

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Spark impromptu interactions

Unplanned conversations between coworkers are “important for flows of knowledge throughout an organization,” says Mortensen, which is why you — the manager — have a responsibility to “literally create water cooler moments.” Video links between offices “create a shared space and provide more opportunities for these spontaneous — but often very productive” workplace conversations, he says. “It might feel weird the first day it’s on, but by the tenth day, people are more comfortable.” When it’s not possible (or preferable) to have a camera that’s always on, Ferrazzi recommends regular use of technologies like Skype and WebEx. Video technology, he says, “brings us together and connects us, increasing the intimacy of our relationships with one another.”

Nurture familiarity

Building trust and familiarity with your direct reports requires you get to know them on a personal level. With remote workers “this takes additional effort,” says Mortensen. He suggests reserving the first few minutes of calls and videoconferences to simply “chew the fat.” You should talk about “the things you usually talk about at work”— weekend plans, kids, pets, or last night’s big game. Encourage your direct reports to do the same with their remote colleagues. This social bonding “builds essential empathy, trust, and camaraderie,” Ferrazzi says. “What binds together virtual teams are the personal details.”

Make them feel part of the team

Physical distance can sometimes create an “us versus them” feeling. Mortensen says it’s critical that you “watch the language you use when talking about remote workers and make sure you’re not creating fractures within your team.” Concentrate on what you and your direct reports have in common ­— organizational goals and objectives, for example. Remember, too, that remote team members often feel somewhat invisible and “that their actions and efforts aren’t noticed.” Being generous with public praise and acknowledgement of remote employees helps “make sure their work is recognized” and is a signal to “coworkers that they’re pulling their weight,” says Mortensen.

Principles to Remember

Do

Get to know your remote reports on a personal level by reserving a few minutes during meetings and calls for casual workplace conversations
Establish a schedule of communication both between you and your remote employee and between the remote employee and the rest of the team
Use video technology to spark spontaneous interactions among your team members

Don’t

Evaluate the job performance of remote workers differently from the way you assess co-located colleagues — apply the same metrics across your team
Worry too much about setting up constant in-person meetings with your remote workers — predictable visits are more important than frequent ones
Forget to acknowledge the work of remote workers so their efforts don’t go unnoticed

Case Study #1: Unite employees around a common goal

Arvind Sarin, the co-founder and CEO of Copper Mobile, a mobile app development firm, manages over 100 employees split between the company’s headquarters in Dallas, Texas, and its office in Noida, India. The majority of the company’s clients are in North America. Because of the difference in time zones, there was some resentment between team members. “There was still a feeling of: ‘Oh, that team over there rolls out at 6pm while we’re here working late into the night,’” he explains.

To mitigate the building resentment and bring the team together, Arvind decided to be more open about the company’s overarching goals and financial targets. He took a new approach with a big project Copper Mobile was working on for an LA-based dating company. “In order to get everyone on the same page, I painted a picture of our strategy so that everyone — from developers in India to the leadership team here — would know what we’re doing,” he says.

His aim was to “lay it all out” for employees in both offices “so that everyone knew what to expect” and felt bonded by a common goal — to successfully execute the project. In a series of meetings, “we explained how much revenue this client would bring in, what the billing rates would be, how long we expected the engagement to last, what the workflow would be like, and how we viewed this customer as a strategic client.”

Arvind’s transparency about the project united the team and motivated employees to work together. The project was a big success. “When you don’t give people information, they assume the worst,” he says. “Restating our vision and reminding people of what we were trying to achieve helped a lot.”

Case Study #2: Seize opportunities for in-person team bonding

Manon DeFelice, the founder and CEO of Inkwell, a specialized professional staffing company, manages an entirely virtual team.

At the moment, she has eleven employees — all of whom work from home — spread across the US. Recruiting and business development are run out of New York; legal is in Washington, DC; she also has colleagues in Austin, Miami, and Minneapolis. Manon herself is based in Connecticut. “Because we’re a virtual team, we don’t have that daily office chitchat,” she says, adding she has to work hard to make sure she is close to her colleagues and that everyone on her team “feels connected to, and trusts, each other.”

To encourage bonding, Manon tries to seize every opportunity to gather the group together face-to-face. She recently had a big pitch meeting in New York City. Instead of enlisting the help of only local employees, she invited everyone on the team to the City and then took them all out for celebratory dinner. “We are not renting expensive office space so I like to spend money taking my team out to nice restaurants. I want people to get to know each other — to talk to each other about their kids and their spouses—just as they would if they worked in an office together.”

Another way Manon lifts team morale is by being generous with praise. She regularly sends company-wide emails praising the team and singling out colleagues for a job well done. The emails, she says, provide public validation. “In an office, your boss might call to you from down the hall and say: ‘Awesome job on that project!’ and your colleagues would hear that and know you’re working hard.” Remote workers, though, don’t have that happen. “So I do public thank-you emails, and CC others as a way for them to ‘eavesdrop’ on the conversation.”

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Project Manage Your Life

More and more companies are adopting software and product development frameworks like Agile, Scrum, and Kanban — which promote quick, iterative, lean production — to deliver higher quality products, faster. These methods help teams produce rapid, continuous improvements, via daily face-to-face communication and visual workflows.

If these methods can help teams get on the same page, streamline tasks, and reach collective goals more quickly, can they also help people be more productive in their personal lives? I recently spoke with Frank Saucier, executive and Agile coach at FreeStanding Agility, about how he applies these methods in his home life. (Disclosure: He’s taught and coached many teams at HBR on how to use these same practices.) An edited excerpt of our conversation follows:

What made you decide to try some of these work solutions at home?

Much of my work involves coaching teams to be more high-performing and self-organizing. My wife and I had a discussion about how our family of five is a team, and that we might benefit from similar approaches.

What specific productivity practices have you brought home to your own family?

Quite a few:

Visual Boards

I use a Personal Kanban approach to manage the flow of my work and household agendas. As a trainer, coach, and consultant, there’s a good mix of work, client, home, family, and personal items that are constantly in competition for my attention. The board helps me keep tabs on everything and keeps things flowing — it’s all about being effective and focusing on the right thing at the right time. It looks like this:

When we’re teaching teams the invisible work of software development, the Kanban board on the wall makes it all visible. The wall becomes the work, and helps us learn habits like what to do when something gets visibly stuck in a to-do column. That translates well to home, too. We use columns like “To Do,” “Doing,” and “Done” — or sometimes days of the week. We ideally would want to see a sticky note move in the course of a day, so we have what’s called “flow.” This allows you to actually see progress, and conversely, to see when something is “stuck.”

My kids love the tactile approach of grabbing a sticky, and adding it to the board. For instance, they might put “go bowling” in our weekend column. It helps the whole family learn to incorporate new ideas, negotiate, compromise, and communicate.

Family Meetings

When we use Scrum with teams at work, we are often in a 2-3 week cycle, holding “retrospectives” to keep us all on track. Our family meetings are a lot like a retrospective, where we cover the things that are most important for us to be working on. My wife and I hold a family meeting every other weekend, and we use an agenda template that includes:

A check in on emotional states (mad, sad, glad, afraid). It’s important to do this at the start of the meeting — the point is to simply have people be present, and to have the space to say if they feel off, and why.
A section for each person to give compliments to others they appreciate. This helps reinforce positive behaviors.
A chores section, so we can all sign up for things that need to be done around the house, and be held accountable for them each week.
A list of issues that we need to discuss as a family (for instance, the chores from the last family meeting weren’t done, school projects the kids are working on, priorities for the upcoming week, etc.)

Our 7-year-old has taken to using the agenda sheet to facilitate the meeting, which is teaching him good communication skills.

Daily Check-ins

We try to have at least a couple of regular check-ins during the day. First, we try to eat dinner as a family. We ask each other about what we did that day, what we liked, any mistakes we made, etc. The second check-in is between my wife and me. After the kids are in bed, we step into the kitchen and talk about our day and what’s in store for the next one.

Weekly Planning

Every Thursday, after the kids are in bed, my wife and I meet in the kitchen and talk about two things: plans for the weekend, and the following week’s schedule, and what we need to do to coordinate it all.

Desktop Background

I recently started an experiment using a background graphic on my computer that has the following boxed areas on it: To Read; Reading; Use; Reference; Keep. I have an area in the center that contains my trash icon. I move icons to the respective areas as I work to see if organizing my files and bookmarks according to how I need to interact with them helps me get through more things. It’s an experiment, but it’s already paying off in terms of helping me be more efficient.

Plus/Delta

I also use a quick feedback approach called Plus/Delta at the end of a busy day, after a key event, after teaching classes, after facilitating events, etc. I basically pull out a piece of paper and draw a line down the middle. At the top of the left column, I put a plus sign. At the top of the right column, I put a delta symbol to represent change. In the plus column, I write down all the things that I did well and that went well. In the delta column, I write down all the things I would do differently in hindsight. It’s basically a reflection technique for learning and quickly getting closure.

Expense Boxes

Roughly once a quarter, my wife and I play a game where we list out all the potential expenses that we know are coming. That could be anything from the car needing new tires, to vacation plans, to new shoes for the kids. We then place the items on a sheet of paper with four quadrants: High Importance, Low Importance, High Cost, and Low Cost. This helps us get on the same page about which expenses we need to make to meet our goals.

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That sounds like a lot. How much time does all of this take?

It’s actually really fast. The biggest piece is setting up these systems, but you don’t have to get it all right out of the gate because it’s a process that’s meant to evolve. Every day, I look at what I have on the Kanban board for the day, and make last-minute decisions about what really needs to be done — that literally takes five minutes. It kind of equates to daily standups for teams, where at the end of an iteration or sprint, you have a block of time to go deal with things. What takes more time is stopping to look to all the things that you can’t get to. Knowing that if it’s not on the board, it’s not going to get done that week forces you to prioritize.

Was it hard to get your family on board with these techniques?

There was, and still is, some moaning and groaning, but that’s OK. We’re trying to teach our kids that the family thrives when we all contribute and collaborate. It definitely empowers the kids to know that decisions are not just being handed down from on high, and it lays a foundation for good organizational habits.

Some of this sounds kind of low-tech. What happens when you’re not in front of the wall? Are there digital tools that work just as well?

I like to use low-tech tools, because it’s more important to learn good habits than it is to learn to use a tool. That said, there are plenty of digital ways to do the same thing — a good, free tool is Trello, which is essentially an online Kanban board. But, I find that with digital tools, a lot of great ideas get buried, and the simple act of moving a post-it across a visual board is very kinesthetic. I’ve also noticed that teams have better discussions when they’re around a physical board.

How has using these tools changed your family life?

There was an immediate benefit to seeing all that stuff laid out in one place. It’s made visible a much larger list of everything that we need to do — of all the pressures that we have on us as a family, and as parents. It’s helped us realize why we feel overwhelmed. When we saw exactly how much was on our plates, it forced us to make decisions on what we value.

It’s also helped us get on the same page with schedules, coordinating the family, and upcoming priorities. Very little falls through the cracks now.

Are there places where it falls apart?

It can be tough for young kids to stay focused for a family meeting. We keep it to 15 minutes or less, offer treats, cover the table with white paper and put out markers, and try to do a family activity at the end of the meeting.  We also allow our 5-year-old to be done first and walk away when he needs to.

Has the increased organization at home affected your productivity at work?

It’s absolutely helped me focus on the most important things to spend time on while I’m at work. We all have limited bandwidth, and we’re bombarded with distractions that each scream that they’re the most important thing — but they’re not always. So, we have to be very good at discerning when to accept the interruption, which means knowing what’s most important — at home, and at work.

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Why Sprint and Radio Shack Are Shacking Up

RadioShack’s post-bankruptcy life in a retail partnership with wireless carrier Sprint seems like an unlikely marriage. But it could be the best way forward for the two brands, which have each faced their own challenges. RadioShack has long suffered from unfocused positioning, while Sprint has wrestled with customer retention issues and acquisition pressure in a market dominated by cellular giants AT&T and Verizon. Joining forces could breathe new life into both brands.

The plan is for hedge fund Standard General, RadioShack’s lender and largest shareholder, to buy up to 2,400 of RadioShack’s roughly 4,000 stores and team up with Sprint to transform 1,750 of the acquired stores into cobranded Sprint-RadioShack locations.

The Sprint-branded store-within-store centers would carry Sprint brands, including Boost and Virgin Mobile, and occupy about a third of the space, leaving the remainder to RadioShack. Sprint would be the primary brand on the stores and marketing materials.

This deal allows Sprint to expand its distribution fast. Sprint must have had a good sales record in RadioShack stores to consider this partnership, and the brands’ prior wholesale partnership should ease the transition. The deal will let RadioShack live on in a portion of its current locations. To be sure, there are challenges for both brands. For Sprint, it’s the scale of the expansion, its low-price and thus lower-margin strategy, and the saturated and fiercely competitive wireless market. For RadioShack, it’s figuring out its new positioning. While its entertaining and clever 2014 Super Bowl commercial tried to shake off the impression the retailer was stuck in the 80s, it couldn’t capitalize on the positive reception.

Sprint holds third place among U.S. wireless companies, far behind AT&T and Verizon and just ahead of T-Mobile. An expanded store network could help accelerate its customer acquisition efforts and catch up with its competitors on the size of their distribution networks. The deal would more than double Sprint’s current network of about 1,100 company-run stores. It is in line with Sprint CEO Marcelo Claure’s recent announcement to “grow [Sprint’s] distribution dramatically.” It may also support his determined pursuit of the Hispanic market. (A Bolivian native, Claure starred in a recent Sprint ad in Spanish). Claure has pointed out RadioShack’s “incredible store locations” so Sprint must have done its due diligence in gauging the fit with Sprint’s target market.

Given Sprint’s low-price positioning, volume is its main lever for generating profits. Since his arrival in August, CEO Claure has been trying to increase Sprint’s market share with aggressive pitches such as the “Cut Your Bill in Half” promotion (which provides data at half the price of AT&T and Verizon) to lure away AT&T and Verizon customers, fee cuts on select plans, increased data, and an “iPhone for Life” annual update plan.

Customers responded to the promotions—Sprint acquired almost one million new customers in the latest quarter—and store traffic increased, so much that wait times to get a phone can be an “unacceptable” one to two hours, according to Claure. The new stores could mitigate the lines.

The new locations could also help with customer acquisition and retention, which are top goals for Sprint. In the cell phone business, a solid off-line presence makes good sense, allowing customers to explore products and get in-person help and repair services. Unlike the dominant market leaders AT&T and Verizon, Sprint (and T-Mobile) have more prepaid customers—and fewer postpaid customers in long-term contracts—which intensifies the constant worry about attracting and keeping customers. In 2014, Sprint lost 2.3 million postpaid customers while each of its three main competitors gained between one to four million. Sprint (and T-Mobile) customers are generally less loyal than AT&T’s and Verizon’s, according to a recent survey.

With the cobranded stores, RadioShack and Sprint want to leverage cross-marketing benefits. For the two brands to maximize their partnership’s value, serving similar customers would be ideal. This presents an interesting challenge, given that Sprint’s positioning is low price and value while RadioShack’s positioning has been unclear for some time—and was a contributing factor in its bankruptcy or “slow motion collapse,” as Bloomberg called it.

A key question is what the iconic RadioShack brand means to people now and what segments there are with distinct brand associations. RadioShack was founded almost a century ago as a one-store and catalog specialty retailer of the latest electronics and parts with expert service for a niche segment of hobbyists, tech nerds, and early adopters. It has recently lost its clear differentiation and focus while trying to respond to the changing electronics landscape (commoditized and dynamic), consumer make-up (fewer hobbyists, builders, less fixing and more replacing), and competitive climate (including online and price competition).

In an effort to follow the market, RadioShack turned its focus to cell phones but lost business to competitors, including Amazon, Best Buy, and Walmart. With the new Sprint-RadioShack stores’ cell phone business run by Sprint, RadioShack will need to shift its focus to other categories and figure out its future positioning. Obviously, RadioShack had little choice but to make major changes. The new arrangement with Sprint should help it regroup and reposition in a downsized form.

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When Investors Want to Know How You Treat People

How much time do you spend enhancing your organizational culture, leadership pipeline, and employer brand? How well are those efforts reported to your investors? If you’re typical, then your culture, leadership, and employment brand are described vaguely or not at all. That may be changing as “enhanced” or “integrated” reporting gains momentum across the globe. It augers great benefits to leaders that have a strong human capital story to tell with numbers, and poses dilemmas for those not prepared to measure their human capital and organizational capability more precisely.

The idea of revealing human capital data in annual reports is not new and the reports won’t change overnight; however there is now an unmistakeable trend towards enhanced reporting. This is no fringe movement. The big player in the U.S. is the Sustainability Accounting Standards Board (SASB) led by Michael Bloomberg and former SEC chair Mary Shapiro; with the notable presence of ex-FASB chair Robert Herz on their board. Outside the U.S., the movement to enhanced reporting is led by the International Integrated Reporting Council (IIRC), which is endorsed by regulatory heavy weight Mark Carney, Governor of the Bank of England. Other important groups like GRI are also playing a role.

Largely unnoticed in the U.S., the IIRC has had substantial impact internationally. Japan’s Ministry of Economy Trade and Industry published The Ito Review in 2014 which points to integrated reporting as a way to combat “short-termism.” Singapore’s Accountancy Commission, a statutory body which promotes accounting excellence has produced an integrated report. Australia’s main CFO forum, the G100, has shown interest in the topic and even published a paper offering broad support for integrated reporting, arguing that “corporate reporting reform is underway and CFOs should seize the opportunity to drive the reporting agenda.” A Brazilian Stock Exchange BM&FBOVESPA has encouraged listed companies to produce integrated reports. In South Africa, integrated reporting is a requirement for listed companies on an apply or explain basis and the European Commission passed legislation that will require around 6,000 European entities to disclose on non-financial and diversity information.

Why the interest? Both SASB and the IIRC are promoting improved reporting of non-financial information so as to give a better, more holistic, picture of how the organization creates value. In a world where value increasingly pivots on elements that are not traditional financial measures, investors and regulators realize they need better insights.

Some of the most important insights will come from human capital reporting. The CFO of Halogen Software, Pete Low, said “Given the strategic relevance of HR information, it’s timely that companies are working on enhanced reporting. This is one of the reasons we’ve supported research on how human capital is being discussed in integrated reports.”

What will “enhanced reporting” actually entail? While the IIRC sticks to providing general principles, SASB is carefully providing specific standards. Harvard professor Robert Eccles sits on the board of SASB. In an interview he told us: “SASB has now issued standards for 45 industries in six sectors The specific issues we examine for human capital include labor relations; fair labor practices; employee health, safety and wellbeing; diversity and inclusion; compensation and benefits; and recruitment, development and retention. We have found human capital issues are likely to be material in every sector. Not surprisingly, the particular aspects of managing human capital that are most important vary by sector. For example, recruitment, development, and retention is particularly important in the knowledge intensive health care sector. Compensation and benefits is especially important in Financials, as is diversity and inclusion since financial institutions are under increasing pressure to align compensation with long-term value creation and penalize excessive risk-taking.” Your investor reporting systems may soon be required to answer a call to meet these reporting standards.

New reporting is interesting, but where’s the real payoff? The hope is that deeper reporting on human capital will motivate leaders to make more rigorous decisions about talent (including individual and organizational capability). For example, in the standalone human capital report from Deutsche Bank (2013), the bank showed trends in its investment in training — and in 2013 investment went down. That could be a bad thing, a step away from investing in talent. Deutsche Bank felt compelled to explain there was a good reason (in this case increased efficiency through e-learning). As talent decisions become more transparent and more quantified, the logic behind them will also become more apparent, and they are likely to be made with better rigor, as investors and others learn what decisions drive value.

For CEOs and leadership teams that spend substantial time and resources on talent, capability, leadership, and culture, the requirement that organizations share more information offers an opportunity to better tell their story to investors. Those with a sound and logical connection between their human capital decisions and their strategic mission will benefit as investors better understand the whole picture of value creation.

For CFOs, it is an invitation and a potential obligation to get a better handle on human capital measurement and collaborate with the CHRO and the human capital data and analytics team, to get more analytical and quantitative about human capital, beyond simply measuring its financial cost. For example, CFOs and CHROs should seek to move beyond the typically vague risk assessments of today, such as “inability to attract and retain talent may impact our performance” to offer specific data on the risks of losing talent in pivotal roles and the potential financial impact.

For CHROs, these requirements may provide a platform for HR analytics and measurement to gain more prominence at the Board and C-suite level, much as having a Compensation Committee on most Boards has elevated discussions about executive pay and total rewards. This is good news for HR’s influence and stature, but it also obligates HR leaders and the HR profession to have a rigorous and evidence-based framework that guides decisions about what measures matter and why.

For the average manager, it is a reminder of the argument we made in Beyond HR, that human capital deserves to be treated with the same rigor as financial capital and other tangible resources, and to bring that rigor by applying frameworks developed in more quantitative disciplines like finance, supply chain and marketing. Managers may soon be held much more accountable for demonstrating that they make rigorous decisions about human capital and organizational capability.

The writing is on the wall and it’s in the handwriting of heavyweights like Michael Bloomberg’s. Whether it’s called “integrated,” “enhanced,” or “holistic” reporting, there is a slow and steady movement toward giving investors more precise information about things that have traditionally been reported only vaguely or not at all. The prudent course may be to increase your organization’s rigor and analytics toward human capital first for the C-suite, then for the board, and one day, perhaps sooner than you think, for investors.

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If Data Is Money, Why Don’t Businesses Keep It Secure?

Personal data is the new currency of the digital economy. Like money, it can flow easily across borders and it commands an intrinsic value — the insight generated from personal data helps deliver benefits to individuals, businesses, and governments alike. Yet, unlike money, the market for personal data is relatively embryonic. Important questions, such as who “owns” personal data and what responsibilities companies have as custodians of it, are hot topics of debate. If businesses are to continue using personal data to create value for themselves and for their customers, they will need to manage it as carefully as they would money, in four key ways.

1. Maintain trust to avoid data runs

People deposit money with the expectation that they will be able to safely and readily withdraw funds and earn some form of return. When there is no longer trust in the institution, capital flight can be rapid. Today, we are seeing similar responses to concerns over the secure and responsible use of personal data. A 2014 global survey by SafeNet found that nearly two-thirds of consumers said they would stop or avoid using a company that had experienced a data breach. Similarly, trust erosion triggered by Edward Snowden’s revelations of government surveillance in mid-2013 are estimated to have cost U.S. technology companies as much as $35 billion in potential business. At the same time, several technology platforms that do not collect or share personal data have emerged since mid-2013. DuckDuckGo — a search engine that allows users to access it anonymously — saw the number of daily queries double in the second half of 2013, and reach more than 7 million in early 2015.

To help retain trust, many businesses combine enhanced security measures with efforts to become more transparent about their data practices, giving customers greater levels of control. Telecommunications company Telefonica is currently developing a “Data Locker” scheme that allows users to see their own data, including the social networks of those they talk to and text with. This initiative would offer customers opt-in choices to share personal data in exchange for new services and give rewards to top data-sharers.

2. Understand how regulation alters the data cost-benefit analysis

In any investment decision, understanding the potential costs and likely returns requires an intimate understanding of many factors — not least the local regulatory environment. Today, new policy approaches to data privacy are requiring businesses to update their understanding of the costs and benefits associated with collecting and analyzing data across different economies.

For example, proposals in Brazil (since dropped) and, most recently, Russia would require companies to store data of domestic citizens physically within the country, a potentially significant cost for businesses collecting data about citizens in those countries. Large technology companies might have to pay as much as $200 million to build a data center in Russia, compared with $43 million in the United States.

However, many companies are recognizing that it is worth investing in a long-term reputation for security and privacy. This may involve taking extra steps to protect customer data that is not deemed “sensitive” in nature, such as viewing habits or style preferences; or extending the coverage of data protection to customers’ other activities online (e.g. for a bank to provide data security protections to its customers’ social media accounts). And in turn, many governments are realizing the extent to which a reputation for regulatory excellence in this area can attract business investment. Singapore passed its Personal Data Protection Act in 2014 as a strategic move “to strengthen Singapore’s position as a trusted global data hub” of the future.

3. Manage brand reputation by engaging with data rating agencies

Reporting standards, codes of conduct and rating agencies — such as Moody’s, Standard and Poor’s, and Fitch — all help to ensure the transparency of the financial system. By providing a range of independent views on the risk profile of different economies, investors can have greater confidence in the system as a whole.

However, in the personal data market, customers currently feel that they have little idea or control about how their data is being used or by whom. According to a survey by telecommunications company Orange, seven out of 10 consumers feel that there are few or no ways to find out how their personal data is being managed and protected online. And a higher share (82%) find it hard to control the use of personal data by organizations.

As a response, independent sources of oversight are springing up. For example, Fair Data, launched in 2013, is an accreditation system that recognizes companies who adhere to its ten Fair Data principles. In a similar vein, the Electronic Frontier Foundation, a non-profit digital rights group based in the U.S., has recently started publishing scorecards on the major Internet companies, based on an assessment of their commitment to protect customer interests when third parties seek to access their user data. As programs like these gain wider recognition, businesses may consider engaging with “data rating agencies” to give credence to their assessment, and harness them as a more visible source of differentiation and brand enhancement.

4. Strengthen customer sovereignty by learning from data intermediaries

In financial markets, customers generally know how much money they have and can control how it is invested. However, in the personal data market, customer sovereignty is more limited. Individuals are largely in the dark about how much their personal data may be worth and who might be monetizing it. If the personal data market is to be sustainable, closing this gap and providing more incentives for individuals to share their data would appear to be prerequisites.

Startups in particular are emerging to tackle this problem. Datacoup, based in New York, offers people $8 a month in return for access to a combination of their social media accounts. Placed — a “location analytics” company — offers customers $5 or $10 gift cards in exchange for data collected from an app that tracks their location. And in the United Kingdom, Handshake is a personal data platform currently in development that will give users the opportunity to earn money in exchange for their data and time spent filling out pulse surveys. A tech-savvy British person who is willing to use the platform frequently can expect to earn £5,000 a year.

Taking their cue from startups, incumbent companies are also realizing the potential value of enhancing the rewards accruing to their customers. A number of American retailers such as Target, Macy’s, and JC Penney have partnered with Shopkick, a mobile app that monitors the location of participating shoppers and gives out monetary rewards and discounts. In 2013 alone, this app drove $500 million in revenue for its partners.

In any market — and particularly those in the early stages of development — uncertainty is commonplace. In the personal data market, many key questions remain to be answered. How will the attitudes of younger generations change market dynamics? Will global regulation harmonize or fragment the market? How will technology evolve to address customer concerns? To navigate these uncertain waters, businesses need to prepare for multiple potential futures and draw lessons from the development of other relevant markets. As with their money, the key with personal data is for businesses to manage it wisely.

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Smart Leaders Are OK with Seeming Uncertain

The expression of confidence is intimately tied up with leadership.  Would-be leaders are careful to present a confident face because it helps gain them credibility and convince others that they know what they are doing.

When George W. Bush faced John Kerry in their first Presidential debate in 2004, Bush criticized Kerry for having vacillated on the war in Iraq.  “I just know how this world works,” Bush declared.  “And in the councils of government, there must be certainty from the U.S. President.”  Even those who may have disagreed with Bush’s policies may nevertheless support this view.  In his profile of President Barack Obama, Michael Lewis put it this way: “After you have made your decision, you need to feign total certainty about it. People being led do not want to think probabilistically.”

New York Mayor Bill de Blasio got in trouble two weeks ago for something similar when he predicted that a blizzard “could be the biggest snowstorm in the history of this city.” He was doing what leaders routinely do: acting as if they know what will happen when, in reality, there is substantial uncertainty.  Different meteorological models offered different potential paths for the storm to take.  Some of them did indeed predict 30 inches of snow, but others predicted something more like what actually happened. de Blasio could not have known which of these models would ultimately prove accurate, but he chose not to represent that uncertainty in his advice to city residents.

By choosing to focus on the worst possible outcome, New York’s leaders sought to encourage people to take precautions. In this, they succeeded. But they also undermined the credibility of warnings of future disasters. When another storm comes, New Yorkers are likely to be more skeptical of the Mayor’s warnings. The leader’s dilemma in this situation: Is it better to err on the side of caution or action? False negatives fail to warn of impending storms, attacks, or disasters. False positives cry “wolf” by exaggerating future risks.

Fortunately, there is a path between these twin risks. That middle way empowers leaders to express well-calibrated uncertainty when they devise policy or recommend actions to the public or shareholders. In other words, leaders shouldn’t just focus on the best, worst, or even the most likely possibility; instead they should provide a range of possible outcomes. Companies are already used to doing this in one setting: corporate earnings. When public companies issue earnings guidance, they provide a range within which profits are likely to fall. Leaders should use this technique more often and in more areas to avoid the trap of false certainty.

The problem is that leaders may be especially resistant to communicating uncertainty. In my research with colleagues at Carnegie Mellon and UC Berkeley, we found that those who express confidence gain credibility that helps them attain positions of status and influence in the groups of which they are a part. By the time leaders reach the top job, they’ve often learned to err on the side of certainty in order to instill confidence and gain status in their organization. Furthermore, leaders are disproportionately likely to be surrounded by people who praise their wisdom rather than question it.

Though it may be particularly hard for leaders to embrace uncertainty after years of being taught to display confidence, there is a clear business benefit in doing so. Research has shown that over-confident CEOs make overly risky decisions, often at the expense of their shareholders. Leaders who are able to come to terms with uncertainty and communicate it to employees may avoid such bad decisions.

In the long term, honesty is the only sustainable strategy. Rather than fooling themselves, or us, we should want our leaders to represent the truth, even when it makes their jobs harder. That is, after all, one of the great missions to which we entrust them: to take the complex information and broad vantage point to which they have access and convey it to the rest of us in a useful way. Doing so represents authentic and courageous leadership, even if it means being less certain.

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How America’s Wealthiest Black Families Invest Money

The gaps in wealth and income between white and black Americans are stark – and haven’t narrowed significantly in 50 years. There are even big gaps among black and white business owners.

According to data from the Federal Reserve Board’s Survey of Consumer Finances (SCF), white Americans’ median incomes were 70% higher than black Americans’ in 2010. Overall net worth was 7.9 times larger for white Americans.

Credit Suisse and Brandeis University’s Institute on Assets and Social Policy took a closer look at that dataset to figure out whether there were similar disparities be found among the wealthiest households. The short answer is yes.

Among the richest 5% – according to Census data – black Americans have earned roughly 60% what white Americans earned over the last thirty years:

Here’s another way of looking at it. If you’re white and have a net worth of about $356,000, that’s good enough to put you in the 72nd percentile of white families. If you’re black, it’s good enough to catapult you into the 95th percentile.

(The researchers decided to focus on the 95th percentile, rather than the 99th, because the 99th percentile in the SCF data was only 12 black families – not a large enough sample size to support significant conclusions.)

The researchers then took a closer look at how the top 5% of black households allocate their wealth, and compared it with the wealth strategies of comparatively wealthy white households. (So, not the top 5% of whites – but the whites with about the same amount of money as the top 5% of blacks – in other words, about $356k.)

Before diving into those differences, it’s worth pointing out that there are a lot of similarities between these two groups – relative to the general black and white populations, both are more likely to be older, college educated, married, and either retired or running their own business. The biggest single category of wealth for both groups is their retirement accounts. And among the top 5% of black households and comparatively wealthy white households, both groups have a median income of about $100,000 per year.

But there are some notable differences in how each group approaches their money. Here are a few:

The wealthiest 5% of black Americans are slightly less likely to hold financial assets (stocks, bonds, and so on) in their asset mix. Of the financial assets they do invest in, wealthy blacks are more likely than wealthy whites to invest in safer assets, preferring CDs, savings bonds, and life insurance to higher risk (and higher reward) assets.
Wealthy black Americans have more money in real estate holdings than equally wealthy white Americans. The former hold 41% of their non-financial assets in (non-primary residence) real estate, while the figure for the latter is just about 22%. Adding in primary residences brings those numbers to 57% and 34%, respectively. Even after the housing bust, real estate is considered a lower-risk investment.
 Wealthy black Americans are less likely to hold equity in business assets. Looking at this group’s non-financial assets, 9% are equity in business assets. That figure is 37% for comparably wealthy whites. The numbers are similarly stark if you look at this as a percentage of total assets: 21% of the wealthy whites’ total assets are invested in their own businesses, versus just 6% for wealthy blacks. Because both groups are equally likely to run their own companies – 23% in both cases – the researchers calculate that this means white business owners are investing in their businesses at a rate 7 times higher than black business owners. In raw dollar terms, it means that black business owners have about $68k in their businesses, while white business owners have roughly $468k.

This all adds up to a more conservative investment strategy for wealthy black Americans. But as the study points out, that actually makes a lot of sense – given that even at the top of the economic ladder, black Americans still find themselves in a precarious position.

Consider some other findings from Brandeis University’s Institute on Assets and Social Policy. In 2009, 57% of the top-third of black Americans had been in that economic bracket since 1984. But 8% had fallen into the bottom third. Those numbers for the richest white families? 73% and 1%, respectively.

A 2003 study out of NYU, by Dalton Conley and Rebecca Glauber, showed similar findings: that 60% of white families who were in the top quartile of wealth in 1984 were still there in 2003 – but that figure for black families was only 24%.

Another possible explanation for black families taking fewer financial risks: they have less financial support from the previous generation to rely on. Only 7% benefit from an inheritance; but 36% of white families do, according to the Panel Study of Income Dynamics. And white families’ inheritances are about 10 times as big. For these reasons and more, it makes sense for a wealthy black person to be conservative with his or her investments.

What is less easily explained away is the much lower rates of business equity among black business owners. Since both the wealthiest black people and similarly wealthy white people are equally likely to be running their own business, why does the white group have so much more equity?

One possible explanation floated by the Credit Suisse/Brandeis researchers is that whites have more access to start-up capital when they found their businesses, which translates into greater business success down the line. (This hypothesis is based on findings by economists Robert W. Fairlie and Alicia M. Robb.)

The upshot is that black and white families’ wealth tracks about the same to the 50th percentile, and then whites’ wealth takes off exponentially. In America, in other words, the super-rich are also super-white.

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Most HR Data Is Bad Data

How good a rater do you think you are? If you were my manager and you watched my performance for an entire year, how accurate do you think your ratings of me would be on attributes such as my “promotability” or “potential?”

How about more specific attributes such as my customer focus or my learning agility? Do you think that you’re one of those people who, with enough time spent observing me, could reliably rate these aspects of my performance on a 1-to-5 scale? And how about the people around you – your peers, direct reports, or your boss? Do you think that with enough training they could become reliable raters of you?

These are critically important questions, because in the grand majority of organizations we operate as though the answer to all of them is yes, with enough training and time, people can become reliable raters of other people. And on this answer we have constructed our entire edifice of HR systems and processes. When we ask your boss to rate you on “potential” and to put this rating into a nine-box performance-potential grid, we do it because we assume that your boss’s rating is a valid measure of your “potential”— something we can then compare to his (and other managers’) ratings of your peers’ “potential” and decide which of you should be promoted.

Likewise, when, as part of your performance appraisal, we ask your boss to rate you on the organization’s required competencies, we do it because of our belief that these ratings reliably reveal how well you are actually doing on these competencies. The competency gaps your boss identifies then become the basis for your Individual Development Plan for next year. The same applies to the widespread use of 360 degree surveys. We use these surveys because we believe that other people’s ratings of you will reveal something real about you, something that can be reliably identified, and then improved.

Unfortunately, we are mistaken. The research record reveals that neither you nor any of your peers are reliable raters of anyone. And as a result, virtually all of our people data is fatally flawed.

Over the last fifteen years a significant body of research has demonstrated that each of us is a disturbingly unreliable rater of other people’s performance. The effect that ruins our ability to rate others has a name: the Idiosyncratic Rater Effect, which tells us that my rating of you on a quality such as “potential” is driven not by who you are, but instead by my own idiosyncrasies—how I define “potential,” how much of it I think I have, how tough a rater I usually am. This effect is resilient — no amount of training seems able to lessen it. And it is large — on average, 61% of my rating of you is a reflection of me.

In other words, when I rate you, on anything, my rating reveals to the world far more about me than it does about you.  In the world of psychometrics this effect has been well documented. The first large study was published in 1998 in Personnel Psychology; there was a second study published in the Journal of Applied Psychology in 2000; and a third confirmatory analysis appeared in 2010, again in Personnel Psychology. In each of the separate studies, the approach was the same: first ask peers, direct reports, and bosses to rate managers on a number of different performance competencies; and then examine the ratings (more than half a million of them across the three studies) to see what explained why the managers received the ratings they did. They found that more than half of the variation in a manager’s ratings could be explained by the unique rating patterns of the individual doing the rating— in the first study it was 71%, the second 58%, the third 55%.

No other factor in these studies — not the manager’s overall performance, not the source of the rating — explained more than 20% of the variance. Bottom line: when we look at a rating we think it reveals something about the ratee, but it doesn’t, not really. Instead it reveals a lot about the rater.

Despite the repeated documentation of the Idiosyncratic Rater Effect in academic journals, in the world of business we appear unaware of it. Certainly we have yet to grapple with what this effect does to our people practices. Look closely and you realize that it will cause us to dismantle and rebuild virtually all of them.

Fueled by our belief in people as reliable raters, we take their ratings — of performance, of potential, of competencies — and we use them to decide who gets trained on which skill, who gets promoted to which role, who gets paid which level of bonus, and even how our people strategy aligns to our business strategy. All of these decisions are based on the belief these ratings actually reflect the people being rated. After all, if we didn’t believe that, if we thought for one minute that these ratings might be invalid, then we would have to question everything we do to and for our people. How we train, deploy, promote, pay, and reward our people, all of it would be suspect.

And yet, is this really a surprise? You’re sitting in a year‐end meeting discussing a person and you look at their overall performance rating, and their ratings on various competencies, and you think to yourself “Really? Is this person really a ‘5’ on strategic thinking? Says who – and what did they mean by ‘strategic thinking’ anyway?” You look at the behavioral definitions of strategic thinking and you see that a “5” means that the person displayed strategic thinking “constantly” whereas a “4” is only “frequently” but still, you ask yourself, “How much weight should I really put on one manager’s ability to parse the difference between ‘constantly’ and ‘frequently’? Maybe this ‘5’ isn’t really a ‘5’. Maybe this rating isn’t real.”

And so perhaps you begin to suspect that your people data can’t be trusted. If so, these last fifteen years have proven you right. Your suspicions are well founded. And this finding must give us all pause. It means that all of the data we use to decide who should get promoted is bad data; that all of the performance appraisal data we use to determine people’s bonus pay is imprecise; and that the links we try to show between our people strategy and our business strategy — expressed in various competency models — are spurious. It means that, when it comes to our people within our organizations, we are all functionally blind. And it’s the most dangerous sort of blindness, because we are unaware of it. We think we can see.

There are solutions, I’m sure. But I think, before we can even consider those, we must first stop, take stock, and admit to ourselves that the systems we currently use to reveal our people only obscure them. This admission will challenge us. We will have to redesign almost our entire suite of talent management practices. Many of our comfortable rituals — the year-end performance review, the nine-box grid, the consensus meeting, our use of 360’s — will be forever changed. For those of us who want HR to be known as a purveyor of good data — data on which you can actually run a business — these changes cannot come soon enough.

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