In particular, you may wonder how rewards are meted out, be it bonuses, salary increases, promotions. Sometimes it just seems that management has favorites, and that it’s always the favorites that get rewarded, while your contribution is ignored just because your manager doesn’t like you.
Well, I’ve got news for you: while there certainly are managers that are arbitrary and capricious, the vast majority of them has real logical reasons for doing as they do – you are just utterly unaware of them. Read on if you want to read one manager’s experience…
Winning by Failure
It is the year of the Lord 2002, and corporate executives are being accused of fraudolent behavior left and right. And if it is not outright greed that pushes men and women over the edge, it seems that there is a whole world of incompetence that has pushed to the top and has been wreaking havoc over the past years.
Every day, it seems, another multi-billion conglomerate implodes in a conflagration that will leave entire cities without jobs, causing pain and suffering to large populations, but seemingly not harming those who caused the problem.
How is it possible that, despite being the first stone to tumble, the CEO and the other executives can parachute themselves out of trouble, reaping benefits of what is their failure, while those who worked hard and did a good job have to suffer through misery?
Trusting the Unknown
The startup I worked for must have had its fifteen seconds of glory on fuckedcompany.com, I am sure. I never checked, but there was little that was more reliable in 2001 than the excellent reporting of catastrophic failures on that site.
We had the best money, the best pedigrees, the best ideas, the best space. And yet we miserably failed – and what is worse, we instinctively knew it while we were going.
The problem was clear: we had lost one of the founders, and the new CEO, though studded with the best of pedigrees, struggled to understand the space. A series of wrong decisions, and we were doomed. Our CEO, to be fair, did not leave with a gigantic parachute. But the downside for him was much less relevant than to us. He feared for his reputation, where some of us feared deportation to our native countries.
He failed early on. Very early on. He listened to the wrong people, he hired the wrong friends, he never quite understood the difference between his former company with its hundreds of thousands of people and the lean and mean startup he was handed over.
And yet, those were things that anyone could have seen. Why was he then chosen?
The Axiom of Cascaded Choice
My father, who worked in the Air Force in some unspecified country, complained about the selection of new pilots. They would have five thousand applicants for one hundred positions each year, and could choose from the best and the brightest and the most reckless in the country.
They would start a series of tests, and only those that got culled out through the rigorous selection process would make it to the end. Each examination, each test, would be final – meaning that who didn’t meet the minimum criteria would fail the whole exam.
The first test to pass was the health test. The candidates were sent through all medical checks to make sure they would be actually physically able to fly. Then there were personality tests, to see how they would behave under pressure. A set of intelligence test determined whether they had the intellectual make-up required to understand a complex piece of machinery. A knowledge test would grill them on trivia, to see whether they had the foundational cultural basis to succeed. A political background check would finally clear them from the doubt they might have terrorist or communist potential.
Sounds good? Well, there was a problem. The medical examination was strict enough that only three percent of the candidates succeeded it. This means that of the five thousand candidates, only one hundred fifty actually made it through the first step.
Try to select on intelligence, now. If you allow only the best ten percent, you end up with fifteen candidates. So you have to relax the selection and allow two thirds of the candidates to go through all tests. That can’t be called selection, any more, it’s avoiding the worst.
I am sure that selection methodology changed. But it illustrates a fundamental point very well: if you restrict selection artificially, you will end up with an unfit candidate pool. Let’s call this the Axiom of Cascaded Choice.
Choosing Your CEO
Imagine your CEO. Think about, well… Him. He is white, in his fifties, has a pe-degree from a fancy Ivy League college, worked for a similar company before, in a similar position (CEO, COO, GM), has a network of connections to potential customers, a network of potential hires to draw from.
Wonderful, isn’t it? He has to be a man, because many people (not you, of course!) have prejudice against women leaders. He has to be in His prime years, because too young makes Him too cocky and too old makes Him too out-of-touch. He has to have a fancy degree because anything less reads ugly on the web site bio. He has to have worked in a similar position for a similar company before, because that’s the only way we know He can do the job. He has to have a network of connections because that makes sales so much easier. He has to know people to hire, because that allows us to grow faster.
And yet, you look around, and fewer and fewer of these guys are successful. And more and more of those that did catastrophically ill are from a background like this.
What is it that makes a CEO successful? We know the talents required: charisma and leadership.
Of the two, charisma is probably the more important, the ability to convince and to drive. Charisma comes from confidence, and confidence is an elusive mix of knowledge and assertiveness. Knowledge comes from understanding and experience. Understanding comes from competence in the field, experience from, well, experience. Assertiveness comes from character.
After charisma comes leadership. Don’t confuse the two: where charisma is about appearance, leadership deals with action. A good leader is open, fair, flexible, critical and driving. Open means the leader is willing to listen and ponder; fair that she is capable of treating equals equally and unequals unequally; flexible that she can react swiftly to changes in the environment; critical that she constantly judges the work of herself and of those around her (the basis of fairness); driving, finally, that she is willing to push those around her to achieve more, want more, need more.
The critical nature of the good leader and her openness create an environment in which ideas can percolate up. A good leader is able to listen, and will find those that have better ideas in certain fields than her. Thus, the good leader doesn’t need to be perfect, or even well-rounded. All the good leader needs is a set of competent people that know they will be heard, they will be trusted.
Look at the Rich and the Powerful
Check them all out, the billionaires of 2002. They are a bunch that widely varies in style and personality. You have the humble ones and the arrogant ones; you have the reckless and the meek; you have the white male and the non-white female. The aristocracy of money is united only by charisma and leadership.
How did two persons as different as Jerry Yang and Larry Ellison gain prominence at the same time? Why did Bill Gates succeed and Jim Clark in the end succumb? And more importantly, what lessons can we derive from their successes and failures?
We saw before what some of the criteria are that end up being decision-makers for the choice of executives. Most people will deny that the choice favors white males in their mid-life years, with excellent academic records and a history of pursuits similar to the position to take on.
And yet… show me the company that doesn’t actually have an overhang of this type of person in executive roles, and I’ll be surprised to my core. Go check your own company, look who is at the top of the organizational charts, and report back to me.
And yet… Does a title from Harvard give you any charisma? Is a position of CEO of a company that spectacularly failed a good sign of leadership?
We choose executives based on a set of criteria that will make their success superficially easier. Sure, if you have potential customers in your pocket, you are more likely to succeed than if you didn’t. If you have people that are dying to work for you, you will solve staffing issues better.
By choosing according to this set of criteria, we fall prey to the Axiom of Cascaded Choice: we select too restrictively on certain items, and the pool of candidates shrinks to a puddle right before our eyes. And by the time we give people a chance, it’s too late, we lost the best to their shifting careers or uncertainty in the past.
Other than in the Academy, in the world of industry and commerce the Law of Supply and Demand is very much in effect. The natural reaction to diminished supply is higher prices. And that’s how we end up with people with dubious qualification and horrible business ethics being able to command and demand salaries and conditions that are beyond any reason.
I cannot tell you who to choose as your CEO. I cannot even tell you who not to choose. The only thing that comes out of this paper is that there is a good way to choose and a bad way.
Sit down with your peers and find out what skills are needed to succeed in the job. Find out where the team is strong, and where it needs bolstering. Choose a complement, not a supplement. And focus on the two traits that make and break an executive: charisma and leadership.
And if you listen to me just a little… Don’t even look at the academic track record, the languages spoken, the companies in the portfolio. Make your first choice based on the person, look at the minutia after the fact. If you have to choose between two leaders with equal charisma and leadership, choose the one with the better pedigree and job title.
But whatever you do, never end up choosing between two candidates with equivalent pedigree and job title. If it happens to you, you know you did something wrong. Fastow wrong.
The Factory vs. The Workshop
Who wasn’t smart enough to know that Internet startups had to disappear sooner or later? We all thought the situation had gotten completely out of control, and we somehow wished the pull of gravity would get those highly egomanic startup captains of venture crashing to the same place from which they had soared.
No doubt a lot of the rise and fall of the dot.com era was inherently due to fundamental economic factors that hindsight so easily knows about. There must be a generation of Americans that thinking back smugly affirms: “I told you so!” For you and me that unlike them didn’t know it was happening, their 401k is down just where yours and mine is.
Yet one question remains unanswered: if economics was so clearly predicting the end of the dot.coms, if it was so obvious that their business models were not worth the glossy paper on which they were printed – why did they exist?
The Factory and The Workshop
Let me start with a brief and boring theoretical digression. I want you to look at how we think of work. At how we have been thinking of work since the inception of time. Because there is a pattern there that smells of dot.coms and of stock options and of venture capital, even before there was money, or language, or even maybe consciousness.
Hunters and gatherers, let’s start there.
Gathering is boring: you walk around, you look around, you pick up stuff. Hunting is fun: you run around, you chase and get chased, you have to create tools and weapons. Gathering is menial, anyone can do that. Hunting is creative, and only a good hunter is going to be able to survive. Bad hunters starve.
There you have it: smell startup? Ok, me neither. Yet.
Let’s take the separation we had just above: menial and creative. In our minds, we associate a lot of things with work, and many of them can be placed on the polars that define menial and creative tasks:
- boring vs. exciting – menial tasks are boring, which is bad. People don’t want to perform them.
- dependable vs. risky – creative tasks are sought after and depend on talent, it is likely that the competition will force you out of the field.
- steady vs. divergent – if you succeed at a creative task, the reward will be factors higher than if you didn’t, or even if you performed the menial task.
Of course, things are not just as black-and-white as described above, and gathering can be very exciting and creative, while hunting can be very boring (just consider your pals that stand for days at a time with a fishing rod in their hand…).
But what we get from this is that there is a choice involved. A more or less conscious choice as to whether we want to perform a task that is reliable and predictable, or if we want to risk for the rewards.
Ok, I am going to make a lot of enemies now, since the next point I am trying to bring home is that the nelly artist is closer to the macho hunter than the worker in the steel mill. The former lives a (granted nelly) life of starvation for passion (exciting) and the infinite reward of stardom (divergent). The latter is happy to cash a pay-check once a week and feed his family.
If you are still with me, we’ll see the next big item in this list: if the economy is to be growing, it must change. This means the economy needs creativity, which in essence is the human power to change.
The stereotypical steel worker is not interested in change, since he is interested in steadiness. Someone else must be willing to go ahead, and if not strictly creative, that person needs to be a visionary.
The artist affects change by creating objects. That works well on a small scale, but soon reaches boundaries of growth. On the other hand, there is more and more manpower available for menial tasks that goes underutilized. We need a symbiosis.
Some not so long time ago, a smart, creative person (read: artsy) came up with the equally smart idea to create a machine. That is a thing that does things without or with little human intervention. The machine allows for the creation of a lot of things that are very similar, all but identical. It transforms the menial task of yesteryear into an even more menial task that can be performed much faster. Where it took a day to create a decent steak knife, now you can get two dozen a dime on television.
This machine thing had one big downside – it required investment. Someone had to pay for the expensive thing in the first place, and then the expensive thing had to be put somewhere, and it usually needed food and drink and stroking care like an ancient goddess of sorts.
So someone, presumably after the invention of the machine, came up with the idea of creating a temple to house it. We call these temples ‘factory’ and send hundreds of millions of people to them every day to perform (what else?) menial tasks.
The factory now combines the two aspects of creative and menial in a congenial way: the work itself is completely menial, while the inception of the factory is creative. Bringing up the factory is the risk (monetary, for sure), the reward is the sale (which is typically in the factors of the risk) and the menial tasks performed in the factory allow a huge population to create goods they could not otherwise had available.
Back from our digression, we are again in the land of stock options and fancy titles. How?
Well, you see: the factory is the creation of a group of people that take the risk (the capitalists) and reap the rewards (the capitalists). The workers are there to be exploited, because that’s what performing menial tasks is all about. No upside, just steady income.
The ugly side of the equation is that once you establish the factory system, the risk of the artist is not personal any more, but tied to the availability of money. To reap satisfactory reward, the creative person needs capital.
Oddly enough, there are people unlike you and me that actually have capital to spare and no real idea as to what to do with it. They want spectacular returns in exchange for something they don’t need, and that’s what we call venture capitalists. That’s people that put money where their mouth isn’t, to make it short. And they allow for the creation of factories without contributing any of the risk and creativeness involved in the process.
Back to the root. All of a sudden, towards the end of Nineties, there was a new, gigantic market that came open, with no barrier to entry. You didn’t need millions or billions to open a web site and make money, and even a modest investment could land you infinite rewards. But you had to be creative and quick. You had to have hunting instincts.
Venture capital soon flocked. Billions were poured into the Internet, with companies trying to outdo each other in expenses, thinking that the highest investment would return the highest yield (which is a menial way of thinking if there ever was one).
And yet, despite all efforts, the small guys often outsmarted the big ones. Yahoo!, founded by two graduate students who to this day hold a large stake in the company, survived dozens of runners-up, because it was smart and creative and innovative in its approach. Competitors that spent billions did so in vain.
And so we have a host of solutions that failed because they didn’t grasp the new medium, because they failed to innovate and differentiate, because they just weren’t up to the task.
Have you ever dealt with computer programmers? Then you know the reverence attached to the title ‘architect’ among them. The (computer programming) architect is the person that knows how to best translate a problem into a solution. That’s the person you need if you have a smart idea for a product, but don’t know how to make it real.
It is not by mere chance that the title coincides with the one odd man out in our culture. The (building) architect is the person that combines knowledge of art and science to create an object that is both pleasing and functional. And stable, of course, too.
The (computer) architect needs to perform similarly, combining knowledge of the trade (computers) and of the art (the functionality). Just like an architect takes the wishes and makes them a building, the computer architect takes the features desired and makes them a solution. In both cases the solution will comprise a variety of specialized choices, possibly made by others, to create an overall result.
The Factory and the Workshop
And here is where the cycle closes. The capitalist creates the factory because without capital, there is no factory. The architect creates the building for the capitalist, because without capital, there is no building. The computer architect needs no capital, and a well-designed architecture will be able to perform on small scales as well as on large scales, reducing the cost to the architect to a salary for the self and the minimal hardware required to run the software.
On the other hand, the menial element of the factory is missing, too. There are no machines that require constant supervision, there are no repetitive tasks to be performed – it is not the world of menial labor.
Computer programming, computer architecture, is a form of art. It may be very well the dullest form of art, but it is one, without any doubt. And you need an artist to create art.
To create computer architecture you need an artist’s workshop, you don’t need a factory.
The current infrastructure of the Internet and of computer engineering as a whole is built around the capital paradigm. A group of people delivers capital to other people who have ideas. The former group creates a factory, and seeks workers to create the product. Workers get paid a fixed income, the proceeds of the factory go to the capital and in part to the instigators.
The classical paradigm is amended only in the heavy participation of the ideators to the financial rewards, and in the lesser participation of the workers. The former is handled by generous grants to founders and early backers, the latter in the form of stock options.
It must be stressed that both forms of rewarding are highly ineffective, since they simply modify the existing and unfit paradigm instead of adopting the correct one. Choosing a menial rewarding scheme where a creative one would be needed skews the results where it is most important, in the case of success and of failure.
Is it fair that the famous secretary of a successful Internet startup walks away with millions? Is it fair that the successful solution of an engineering challenge, of a product challenge receives no reward because of a failure of the sales team? Is it fair that a stock option grant may be worth millions of dollars on one day, nothing on the next, because of market fluctuations that are unrelated to the performance of the company and the employee?
In a workshop, the secretary gets paid a salary, where the artist starves until she or he breaks through. The reward and the risk are proportional to the impact on the team.
In a workshop, the extraordinary work of art that is marred by the unsuccessful marketing can move to a different gallery. The individual’s contribution is clearly marked within the group and can move on its own.
In a workshop, finally, market conditions do not impact the success and rewards of the single person on a daily basis, but only as slow variables to which the individual can react.
Haven’t we all heard the story of the two brothers that sat down, programmed a Java applet, sold it to some big company and made millions on the sale?
That’s the workshop in its rawest form. Take an idea, make it come true, and then sell it to someone large that can scale it up. Reap the rewards of the creative work and move the menial task to someone else.
It can’t be stressed enough that the existence of factories in the computer world are a remnant of the old days when a computer cost millions of dollars and occupied a space that could house a factory or two. Back then, there was no choice, the capitalist model was the only one acceptable for computing.
Once the capital barrier fell, the world of computing quickly reorganized itself around workshops. We are just unable to see that yet. First, the open source movement brought a plethora of ready-made components out of which ideas could be assembled into reality at very low cost and in a very short time frame. Consider this the equivalent of artists learning from each other by just looking at each other’s paintings or listening to each other’s music.
Once this occurred, it was a matter of time for the first programming celebrities to come up. Linus Torvalds, Richard Stallman, even people like Marc Andreesen become stars because of their exceptional roles.
Currently, the balance of power is still shifted towards the factories. This is rapidly changing, with the largest factories realizing widely that they can survive only if they specialize in menial tasks. IBM and its success as a services company is the best illustration of this trend, the failure of all big UNIX companies demonstrates how the attempt to keep the creative world caught in the trap of stock options is doomed to fail.
But in the future, it will be the artist that steers the ship of development. It is hard to say whether the development will move: towards the pictorial scheme, where the industry is happy fabricating replicas of art works, but the artist has all of the scene; or towards the musical scheme, where the industry’s promotion is instrumental in the success of the artist.
But in the end, it’s the idea that counts, and it’s the idea that will have to make the money.
Cursing the Competent
As long as the Internet economy was happily bubbling ahead, the Peter Principle reigned supreme: Peter joined a startup and got promoted quickly. Invariably, he would land in a position where he not only started failing, but dragged the entire startup down with his incompetence. Which of course didn’t quite matter, since the Peter Principle was (and is) democratic and made everybody else look just as stupid as Peter himself.
The economy turned sour, Peter’s startup died as everybody else’s, and he scrambles to find a new job. Of course, he will want a stable company, with lots of cash reserves, good management and excellent products. Since he is good, he lands The Job, invariably at three hierarchy levels below where he was, with maybe half the salary. But who complains?
Around Peter all the people that have been there before him. They are a little afraid, since they know they kept their position because their company did well, not because they were better than poor Peter. Russian roulette of startups. The manager might not even have been able to get hired in Peter’s old company. But that really doesn’t matter.
Peter works hard, as he’s used. He solves any problem in half the time that anyone else takes. Which doesn’t make him a popular guy on the block. In particular, his manager knows how she will be followed in her every action with the critical eye of someone that used to supervise her likes. And that’s when Peter is hit by the Curse of the Competent.
Peter the Competent
To a certain extent, the Curse of the Competent is the mirror image of the Peter Principle. While the latter states that “Everybody gets promoted to their level of incompetence”, the former simply states that “The competent gets to do everything” You think that’s a good thing? Well, think again.
Where the Peter Principle holds (almost everywhere), there are loads of incompetent people. That’s wonderful, bright, industrious, diligent people that are perfect at everything, except what they are doing right now. That’s what the Peter Principle is all about, isn’t it?
There is a conspiracy around these incompetents: they can’t be blamed for their failure, and their superiors surely do not want to be blamed for it, either. Their reports either move on to another job or hope the incompetence will be filtered out at some point, which is when they get their chance (and will invariably be moved to their own Peter Equilibrium Point).
Someone has to do the Work! Which is where Peter the Competent comes in. Peter’s manager (who can’t really stand him) sees how her report can handle about anything that comes across him. And lo and behold, anything quickly morphs into everything. At every critical juncture, the manager has to assign tasks. Peter can handle it, so he gets to do it. The incompetents cannot handle it, so they don’t have to.
Still, What’s Bad About It?
High-technology is an interesting world: a skilled worker will have a productivity factors higher than a less skilled one – but the compensation for both does not differ by factors. In a separate essay, you’ll read how this is an anomaly in history, instead of the norm.
In an environment with built-in upside, as was the case during the end of the past millennium, competence was rewarded by growth. In that ancient world, the upside was distributed unequally, generating a differentiation engine for the competent.
In this new environment, there is no growth that compares with what we had. The Peter Principle finally holds us hostage, in that while some cannot move away from their Peter Equilibrium Point, others (the Competents) will not be able to even reach it.
Work has to be done. Good people do a lot of good work. Hence good people get to do all the work BUT… But they don’t get any upside, because there is no upside to distribute. The Competents are in the firm claws of their Curse, subject to envy, jealousy, distrust, and reverse favoritism. They will be left out of decision making (because they know better), left out of perk distribution (just because they are unwelcome hostages), left out of career opportunities (because someone else is less dangerous).
Avoiding the Curse
One harsh word first: you cannot avoid the Curse of the Competent and gain the upside. The only way you can beat your fate is by skillfully avoiding to be recognized as a Competent.
First, you have to completely avoid the perception you might be better at anything than your colleagues. Do not speak in meetings unless you are asked something, always look bored. Come in at irregular hours, don’t try to impress anyone. Once in a while, come up with a positive surprise, but keep your profile low.
Second, keep your mouth shut. I’ve seen examples where a poor decision maker forced a particular choice that ended up costing the company millions of dollars in revenue. The Competent in this case warned ahead of time: whisper, dialog, argument and shout didn’t do anything but firm up the resolve of the manager and mark the Competent as such. A dreadful fate.
Third, limit your competence to a supporting role for the Peter Principled. They will appreciate your help more than your Competence, and you will be allowed to avoid the Curse of the Competent by being a Nice Guy. Nice Guys are those people we pass up for a promotion but that we don’t punish for deserving one.
How Do You Change the Environment?
If you are caught in the Curse of the Competent, there is nothing you can do. People percieve you as threatening (their position, mostly) and will avoid a strengthening of your influence at all cost. So, try to never enter an environment in which you are doomed by the Curse.
If you are high up in the corporate food chain, you can apply modern means of management and start insinuating that the upside belongs to the Competent. You’ll need to have tangible criteria for competence, and you have to apply them consistently. Make it clear that you will not tolerate incompetence. Fire people for incompetence, without ever saying so, but with consistency.
Soon, the demographics around you will change. People will leave saying you are a tyrant and your demands impossible. But when you check back, you’ll see that those that left were not your Competents. Competents generally don’t mind harshness. They read Ayn Rand and think everyone should deserve what he or she earns.
The tenor in your team will be less jovial, most likely. People know they are there for a reason, and that that reason is not called ‘human warmth’, but making money. It is incredible how many people never really stop to think that the purpose of work for the corporation is solely money. Not recognition, not personal growth, not satisfaction. Just money.
At some point, the team will be mostly made of Competents. People that admit they are wrong, even though grudgingly. And then you’ll have to fight the Primadonna Paradox and the Food Chain Poisoning. But compared to the Curse of the Competent, that’s cheap.
The Short Version, Please!
In most companies you’ll find some people caught in their Peter Equilibrium Point; unable to move up or down and incapable of performing their function, they will hit everyone around them that even remotely looks like a potential threat.
In the high-tech field, we see the Peter Principle applied to entire companies. Initial sudden growth stops equally suddenly, and the whole enterprise is frozen in an odd Peter State, in which most people shouldn’t do what they are doing, but since the position that would suit their competence is neither available nor compensated enough, they prefer stayind put.
Once you join such an environment from the outside, you are typically going to be hired into a position in which you are competent. Which means you will be an anomaly, a threat. When the perception is born that you are good at what you are doing, people will start being jealous and frightful, and you are subjected to the Curse of the Competent. And that is when you are to do everything (especially what other people don’t want to do), but are not proportionately compensated with the upside that the company has to offer.
If you want to avoid this horrible fate, do not show Competence. Make Peter Equilibrium People feel at ease by allowing them to make stupid decisions. If you are in a position to influence the direction of the company, get rid of the Peter Equilibrium People. If you aren’t, run away as soon as you can.