The Big Decisions – by David Brooks

Let’s say you had the chance to become a vampire. With one magical bite you would gain immortality, superhuman strength and a life of glamorous intensity. Your friends who have undergone the transformation say the experience is incredible. They drink animal blood, not human blood, and say everything about their new existence provides them with fun, companionship and meaning.

Would you do it? Would you consent to receive the life-altering bite, even knowing that once changed you could never go back?

The difficulty of the choice is that you’d have to use your human self and preferences to try to guess whether you’d enjoy having a vampire self and preferences. Becoming a vampire is transformational. You would literally become a different self. How can you possibly know what it would feel like to be this different version of you or whether you would like it?

In each of these cases the current you is trying to make an important decision, without having the chance to know what it will feel like to be the future you.

Paul’s point is that we’re fundamentally ignorant about many of the biggest choices of our lives and that it’s not possible to make purely rational decisions. “You shouldn’t fool yourself,” she writes. “You have no idea what you are getting into.”

The decision to have a child is the purest version of this choice. On average, people who have a child suffer a loss of reported well-being. They’re more exhausted and report lower life satisfaction. And yet few parents can imagine going back and being their old pre-parental selves. Parents are like self-fulfilled vampires. Their rich new lives would have seemed incomprehensible to their old childless selves.

So how do you make transformational decisions? You have to ask the right questions, Paul argues. Don’t ask, Will I like parenting? You can’t know. Instead, acknowledge that you, like all people, are born with an intense desire to know. Ask, Do I have a profound desire to discover what it would be like to be this new me, to experience this new mode of living?

As she puts it, “The best response to this situation is to choose based on whether we want to discover who we’ll become.”

Live life as a series of revelations.

Personally, I think Paul’s description of the problem is ingenious but her solution is incomplete. Would you really trust yourself to raise and nurture a child simply on the basis of self-revelation? Curiosity is too thin, relativistic and ephemeral.

I’d say to really make these decisions well you need to step outside the modern conception of ourselves as cognitive creatures who are most sophisticated when we rely on rationality.

The most reliable decision-making guides are more “primitive.” We’re historical creatures. We have inherited certain life scripts from evolution and culture, and there’s often a lot of wisdom in following those life scripts. We’re social creatures. Often we undertake big transformational challenges not because it fulfills our desires, but because it is good for our kind.

We’re mystical creatures. Often when people make a transformational choice they feel it less as a choice and more as a calling. They feel there was something that destined them to be with this spouse or in that vocation.

Most important, we’re moral creatures. When faced with a transformational choice the weakest question may be, What do I desire? Our desires change all the time. The strongest questions may be: Which path will make me a better person? Will joining the military give me more courage? Will becoming a parent make me more capable of selfless love?

Our moral intuitions are more durable than our desires, based on a universal standard of right and wrong. The person who shoots for virtue will more reliably be happy with her new self, and will at least have a nice quality to help her cope with whatever comes.

Which brings us to the core social point. These days we think of a lot of decisions as if they were shopping choices. When we’re shopping for something, we act as autonomous creatures who are looking for the product that will produce the most pleasure or utility. But choosing to have a child or selecting a spouse, faith or life course is not like that. It’s probably safer to ask “What do I admire?” than “What do I want?”

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In Praise of Small Miracles – by David Brooks

Too many people die in auto accidents. When governments try to reduce highway deaths, they generally increase safety regulations. But, also in Kenya, stickers were placed inside buses and vans urging passengers to scream at automobile drivers they saw driving dangerously.

The heckling discouraged dangerous driving by an awesome amount. Insurance claims involving injury or death fell to half of their previous levels.

These are examples of a new kind of policy-making that is sweeping the world. The old style was based on the notion that human beings are rational actors who respond in straightforward ways to incentives. The new style, which supplements but does not replace the old style, is based on the obvious point that human beings are not always rational actors. Sometimes we’re mentally lazy, or stressed, or we’re influenced by social pressure and unconscious biases. It’s possible to take advantage of these features to enact change.

For example, people hate losing things more than they like getting things, a phenomenon known as loss aversion. In some schools, teachers were offered a bonus at the end of their year if they could improve student performance. This kind of merit pay didn’t improve test scores. But, in other schools, teachers were given a bonus at the beginning of the year, which would effectively be taken away if their students didn’t improve. This loss-framed bonus had a big effect.

People are also guided by decision-making formats. The people who administer the ACT college admissions test used to allow students to send free score reports to three colleges. Many people thus applied to three colleges. But then the ACT folks changed the form so there were four lines where you could write down prospective colleges. That tiny change meant that many people applied to four colleges instead of three. Some got into more prestigious schools they wouldn’t have otherwise. This improved the expected earnings of low-income students by about $10,000.

The World Bank has just issued an amazingly good report called “Mind, Society and Behavior” on how the insights of behavioral economics can be applied to global development and global health. The report, written by a team led by Karla Hoff and Varun Gauri, lists many policies that have already been tried and points the way to many more.

Sugar cane farmers in India receive most of their income once a year, at harvest time. In the weeks before harvest, when they are poor and stressed, they score 10 points lower on I.Q. tests than in the weeks after. If you schedule fertilizer purchase decisions and their children’s school enrollment decisions during the weeks after harvest, they will make more farsighted choices than at other times of the year. This simple policy change is based on an understanding of how poverty depletes mental resources.

In Zambia, hairdressers were asked to sell female condoms to their clients. Some were offered financial incentives to do so, but these produced no results. In other salons, top condom sellers had a gold star placed next to their names on a poster that all could see. More than twice as many condoms were sold. This simple change was based on an understanding of the human desire for status and admiration.

The policies informed by behavioral economics are delicious because they show how cheap changes can produce big effects. Policy makers in this mode focus on discrete opportunities to exploit, not vast problems to solve.

This corrects for a bias in the way governments often work. They tend to gravitate toward the grand and the abstract. For example the United Nations is now replacing the Millennium Development Goals, which expire in 2015, with the Sustainable Development Goals.

“The Millennium Development Goals are concrete, measurable and have an end-date, so they could serve as a rallying point,” says Suprotik Basu, the chief executive of the MDG Health Alliance. “One good thing about the Sustainable Development Goals is that they’re being written through a bottom-up consensus process. But sometimes the search for consensus leads you higher and higher into the clouds. The jury is out on whether we will wind up with goals concrete enough to help ministers make decisions and decide priorities.”

Behavioral economics policies are beautiful because they are small and concrete but powerful. They remind us that when policies are rooted in actual human behavior and specific day-to-day circumstances, even governments can produce small miracles.

One Company’s New Minimum Wage: $70,000 a Year – by Patricia Cohen

The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.

His idea bubbled into reality on Monday afternoon, when Mr. Pricesurprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

“Is anyone else freaking out right now?” Mr. Price asked after the clapping and whooping died down into a few moments of stunned silence. “I’m kind of freaking out.”

Employees reacting to the news. The average salary at Gravity Payments had been $48,000 a year. CreditMatthew Ryan Williams for The New York Times

The paychecks of about 70 employees will grow, with 30 ultimately doubling their salaries, according to Ryan Pirkle, a company spokesman. The average salary at Gravity is $48,000 a year.

Mr. Price’s small, privately owned company is by no means a bellwether, but his unusual proposal does speak to an economic issue that has captured national attention: The disparity between the soaring pay of chief executives and that of their employees.

The United States has one of the world’s largest pay gaps, with chief executives earning nearly 300 times what the average worker makes, according to some economists’ estimates. That is much higher than the 20-to-1 ratio recommended by Gilded Age magnates like J. Pierpont Morgan and the 20th century management visionary Peter Drucker.

“The market rate for me as a C.E.O. compared to a regular person is ridiculous, it’s absurd,” said Mr. Price, who said his main extravagances were snowboarding and picking up the bar bill. He drives a 12-year-old Audi, which he received in a barter for service from the local dealer.

“As much as I’m a capitalist, there is nothing in the market that is making me do it,” he said, referring to paying wages that make it possible for his employees to go after the American dream, buy a house and pay for their children’s education.

Under a financial overhaul passed by Congress in 2010, the Securities and Exchange Commission was supposed to require all publicly held companies to disclose the ratio of C.E.O. pay to the median pay of all other employees, but it has so far failed to put it in effect. Corporate executives have vigorously opposed the idea, complaining it would be cumbersome and costly to implement.

Mr. Price started the company, which processed $6.5 billion in transactions for more than 12,000 businesses last year, in his dorm room at Seattle Pacific University with seed money from his older brother. The idea struck him a few years earlier when he was playing in a rock band at a local coffee shop. The owner started having trouble with the company that was processing credit card payments and felt ground down by the large fees charged.

The entrepreneurial spirit was omnipresent where he grew up in rural southwestern Idaho, where his family lived 30 miles from the closest grocery store and he was home-schooled until the age of 12. When one of Mr. Price’s four brothers started a make-your-own baseball card business, 9-year-old Dan went on a local radio station to make a pitch: “Hi. I’m Dan Price. I’d like to tell you about my brother’s business, Personality Plus.”

His father, Ron Price, is a consultant and motivational speaker who has written his own book on business leadership.

Dan Price came close to closing up shop himself in 2008 when the recession sent two of his biggest clients into bankruptcy, eliminating 20 percent of his revenue in the space of two weeks. He said the firm managed to struggle through without layoffs or raising prices. His staff, most of them young, stuck with him.

Aryn Higgins at work at Gravity Payments in Seattle. She and her co-workers are going to receive significant pay raises.CreditMatthew Ryan Williams for The New York Times

Mr. Price said he wasn’t seeking to score political points with his plan. From his friends, he heard stories of how tough it was to make ends meet even on salaries that were still well-above the federal minimum of $7.25 an hour.

“They were walking me through the math of making 40 grand a year,” he said, then describing a surprise rent increase or nagging credit card debt.

“I hear that every single week,” he added. “That just eats at me inside.”

Mr. Price said he wanted to do something to address the issue of inequality, although his proposal “made me really nervous” because he wanted to do it without raising prices for his customers or cutting back on service.

Of all the social issues that he felt he was in a position to do something about as a business leader, “that one seemed like a more worthy issue to go after.”

He said he planned to keep his own salary low until the company earned back the profit it had before the new wage scale went into effect.

Hayley Vogt, a 24-year-old communications coordinator at Gravity who earns $45,000, said, “I’m completely blown away right now.” She said she has worried about covering rent increases and a recent emergency room bill.

“Everyone is talking about this $15 minimum wage in Seattle and it’s nice to work someplace where someone is actually doing something about it and not just talking about it,” she said.

The happiness research behind Mr. Price’s announcement on Monday came from Angus Deaton and Daniel Kahneman, a Nobel Prize-winning psychologist. They found that what they called emotional well-being — defined as “the emotional quality of an individual’s everyday experience, the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one’s life pleasant or unpleasant” — rises with income, but only to a point. And that point turns out to be about $75,000 a year.

Of course, money above that level brings pleasures — there’s no denying the delights of a Caribbean cruise or a pair of diamond earrings — but no further gains on the emotional well-being scale.

As Mr. Kahneman has explained it, income above the threshold doesn’t buy happiness, but a lack of money can deprive you of it.

Phillip Akhavan, 29, earns $43,000 working on the company’s merchant relations team. “My jaw just dropped,” he said. “This is going to make a difference to everyone around me.”

At that moment, no Princeton researchers were needed to figure out he was feeling very happy.

The Numbers in Jeff Bezos’s Head – by Daniel McGinn

On a Friday afternoon in 2004, Amazon manager Vijay Ravindran received an unusual invitation—to a Saturday morning meeting with Jeff Bezos at the boathouse adjoining the CEO’s lakefront home. When the attendees arrived, Bezos told them he’d received an employee suggestion that Amazon supplement its existing shipping policy—free shipping on orders over $25—with a new offer. Customers would pay an annual fee for free shipping on most products, regardless of order size. “Jeff was extremely energetic—he felt this was an opportunity to build something that was going to be very important,” Ravindran recalls. Hence the urgent weekend meeting at the lake.

The proposal sparked hushed concerns and consternation. Amazon’s finance team worried that waiving shipping charges would gut margins. “There were people who thought it was an extremely bad idea—the spreadsheets uniformly painted pictures of losses,” Ravindran says. Bezos ignored the objections, convinced that the offer would spur more orders. That intuition proved correct just weeks later, when the program, Prime, launched. Customers who’d previously made a few purchases a year were suddenly ordering multiple times a month. “Instead of looking to protect the current business, Jeff saw the upside,” says Ravindran, now chief digital officer at Graham Holdings. “It was the most impressive display of business leadership I’ve seen in my career.” Today tens of millions of customers pay $99 a year for Prime, which generates more than $1 billion in membership fees and incalculable incremental sales.

He’s invented a new philosophy for running a business. Even as Amazon grows, he’s reinvesting to make it even bigger.

Disregard for orthodox approaches is not unusual for Bezos. Amazon’s culture famously forbids the use of PowerPoint, for instance. But the frequency with which he rejects spreadsheet-driven decision making has probably played a larger role in Amazon’s growth. With 132,000 employees and $75 billion in annual revenue, Amazon is a 20-year-old corporation that routinely posts losses. (Its operating loss may top $800 million in the third quarter.) Unlike Apple, which boasts precisely how many iPhones it’s selling, Amazon steadfastly refuses to give Wall Street basic data, such as how many Kindles it has sold—an opaqueness that even Bezos fans say hurts the stock price. Like every CEO, Bezos talks about managing for the long term—but he walks the talk, shrugging off investor concerns even as Amazon’s stock dropped from a high of $407 in January 2014 to $307 in August. Over the long haul, however, there’s no disputing his ability to generate shareholder returns: The company’s stock performance since its 1997 initial public offering has been so strong that its share price could have dropped to $250, and Bezos would still rank as HBR’s best-performing CEO.

He and his team have achieved that feat by sticking steadfastly—even boringly—to a few key principles (outlined in his 1997 shareholder letter, which he still sends to investors every year). Instead of focusing on competitors or technology shifts, they continually invest in getting a little bit better. In their core retail business, they grind out incremental improvements in delivery speed and product offerings while chipping away at prices. As Amazon continues to move into completely new industries—it’s now a serious player in cloud computing, online video, e-readers, and other devices—some see a company that’s pioneering a new model. “In some ways he’s invented a new philosophy for running a business,” says Brad Stone, author of The Everything Store, a best-selling Bezos biography. “Even as Amazon grows, he’s focused on reinvesting to make it even bigger—and because that means it shows no profits, he avoids paying dividends or corporate taxes.”

While Amazon is younger than Walmart or Apple, its creation story is becoming equally familiar. After graduating from Princeton with a computer science degree in 1986, Bezos spent eight years on Wall Street. In 1994 he and his wife, MacKenzie—a Princeton grad and his former coworker—left New York for Seattle, setting up shop in their garage. Jeff and a few employees began building a website that would sell books. Amazon went live in July 1995 and, in its first month, sold books to customers in 50 states and in 45 countries. It quickly expanded into CDs and other goods.

His willingness to go through the valley of death and come out the other side makes Wall Street give him the benefit of the doubt.

While consumers gravitated to Amazon, some investors remained skeptical. Henry Blodget, then a Merrill Lynch analyst, recalls an investor conference in the late 1990s at which Bezos patiently explained why Amazon allowed customers to return huge flat-screen TVs for a full refund with no questions asked—a costly policy meant to drive customer satisfaction. “Almost no one understood the potential for the company, its business model, and its stock,” says Blodget, who rose to fame for his seemingly outlandish 1998 prediction that Amazon shares, which were trading around $200, would hit $400—which they did, three weeks later. (Blodget now runs Business Insider, a website in which Bezos is an investor.)

Today Amazon is so successful that people often assume it has enjoyed a linear rise—like a dominant sports team cruising, as expected, to the championship. But for several years, Wall Street questioned Amazon’s viability. “At analyst conferences during the early 2000s, I saw fund managers openly laughing at him,” recalls Marc Andreessen, the entrepreneur-turned-venture-capitalist. “They’d say, ‘That guy is nuts, and that company is going to go bankrupt.’ That’s one of the things I really admire about him, and it’s what I talk to our founders about. It’s very easy to say you want to be Jeff Bezos today. It’s a lot harder to be Jeff Bezos during that ‘valley of death’ period. It was his willingness to go through that valley and to come out the other side that makes Wall Street give him the benefit of the doubt. A lot of people would have given up, but he didn’t. That’s what I admire most about his story.”

The other big misconception: that Bezos doesn’t care about profitability. By all accounts Amazon’s mature businesses (such as online retail) are profitable; it’s his deep investments in new businesses that create accounting losses, which he regards as a false measure of performance. “He’s really focused on cash flow and what kind of return on invested capital is being created,” says Warren Jenson, Amazon’s chief financial officer from 1999 to 2002. Bill Miller, a fund manager at Legg Mason who has held shares in Amazon since it went public, says Bezos shows deep understanding of the point Clay Christensen made in his recent HBR article “The Capitalist’s Dilemma,” which argued that most managers focus on the wrong financial metrics. “Jeff really takes theory seriously—he started out wanting to be a theoretical physicist,” Miller says. “In terms of financial theory, he’s trying to get away from the behavioral problems that afflict other companies” that try to maximize the wrong numbers. Other Bezos watchers go even further: At a time when many large companies (most notably Apple) are hoarding idle cash, shouldn’t we be lauding Amazon’s ability to continually find entirely new industries to reinvest and innovate in, rather than criticizing the losses driven by those outlays?

Bezos is unperturbed by criticisms of his financial management. He says he’s always been transparent about Amazon’s focus on long-term cash flow (instead of net profit). “As far as investors go, our job is to be superclear about our approach, and then investors get to self-select,” he says. He insists Amazon discloses far more data about its business than is legally required and is silent only about numbers that could help competitors.

Some criticism goes beyond his financial theories, however. Like Walmart, Amazon has been condemned for upending the economics of industries in ways that destroy competitors and vaporize jobs. Since 2007, when its Kindle ignited the e-book business, Amazon has been at war with publishers for using its leverage to price e-books at discount levels. Over the past two years the company has drawn fire for its treatment of distribution-center workers and the hyperaggressive steps taken to weaken rival e-commerce players such as Zappos and Diapers.com. (It eventually acquired both.) Bezos’s personal management style, which by some reports can be abusive and demeaning, has also been reproached. But Stone believes Bezos has mellowed with age. “In fairness, a lot of the examples in the book of him behaving that way are older ones, and I think he’s gotten better over time,” Stone says.

Even critics admit that Bezos has an unusually ambitious imagination—one likely to have an impact far beyond online retailing. He founded Blue Origin, a company experimenting with space travel, and last year purchased the Washington Post, where he spends one day a month in hopes of finding a viable financial model for journalism. And at Amazon, his strategy of making bold moves into adjacent industries could become a model for other managers. Scott Cook, the Intuit founder and former Amazon director, compares Amazon to companies such as P&G (which invented brand management) and Toyota (which invented lean manufacturing). “I think Amazon is one of those—what they’re doing is inventing better ways for companies to operate,” Cook says.

That spirit could continue for some time. Bezos is 50—about the same age Bill Gates was when he retired from Microsoft to pursue philanthropy at the Gates Foundation, whose offices are visible from the roof deck at Amazon’s headquarters. But Bezos seems unlikely to make that kind of transition. “I’ve never gotten any vibe off of him that he wants to do anything else,” says Andreessen. “He’s monomaniacally focused on Amazon. My sense is he’s going to be running it another 30 years—and shareholders will be lucky if he does.”

Jeff Bezos in His Own Words

In early August Amazon’s founder and CEO spoke with HBR’s Adi Ignatius and Daniel McGinn at the company’s Seattle headquarters. Here are edited excerpts from that conversation:

HBR: How do you balance the long term versus the short term when thinking about innovation?

Bezos: I bet 70% of the invention we do focuses on slightly improving a process. That incremental invention is a huge part of what makes Amazon tick. There’s a second kind of invention, which is more clean-sheet and larger scale—things like the Kindle or Amazon Web Services. We have a culture that supports the risk taking and time frames required for that.

Your stock has taken some hits this year. Does that affect the way you manage?

Amazon’s stock has always been somewhat volatile. Even though we have significant revenues, we invest in so many new initiatives that in some ways we’re still a start-up. Volatility is part and parcel of being a start-up.

You say you focus on customers, not competitors. But how do you react to Google’s teaming up with Barnes & Noble to offer same-day delivery?

You can’t insulate yourself from competition by being customer-obsessed. But if that obsession leads to invention on behalf of customers, it helps you stay ahead.

You’re now making your own big investments in same-day delivery. How do you know customers want it?

In our retail business, there are three big ideas: Low prices, vast selection, and fast, reliable delivery. We continually work on all three. We don’t know what technologies might be invented or who our competitors will be, so it’s hard to build strategies around those uncertainties. But I do know that 10 years from now, nobody is going to say, “I love Amazon, but I wish the prices were a little higher.” It’s the same thing with fast delivery.

Has the backlash over your dispute with Hachette about e-book pricing surprised you?

The publishing industry changes very slowly. The paperback, which was developed before World War II, was the last radical invention before the e-book. All the arguments that the literary establishment made against paperbacks—they’re devaluing books, publishers are not going to be able to invest in literature—are being made about e-books, too. Today we know the arguments about paperbacks were wrong, and they’re equally wrong about e-books. It will take a while for the incumbents to come to terms with e-books, but we’re determined to get e-books to be less expensive.

What other CEOs do you admire?

I’m a huge fan of Jamie Dimon, Jeff Immelt, and Bob Iger. They all have deep keels. They have conviction around certain business ideas. Warren Buffett is another one. They can’t be blown around, and I think that’s pretty rare.

 

Why Recruiting Isn’t Over When an Employee Accepts Your Offer – by Mark Suster

Recruiting. It is the bane of every startups existence because it takes up so much time, it is so competitive to sign people and it feels like unproductive time because it’s not moving the ball forward on product, engineering, sales, marketing, biz dev, fund raising. It consumes time and energy and the payoff doesn’t come for a long time.

But of course great teams build great companies and great startup leaders know that they must always be recruiting.

Yet most startup companies I’ve ever worked with or observed make one crucial mistake: They assume that their recruitment process for a candidate is over when that person accepts his or her offer. The truth is the process isn’t over until after the employee starts with the company, updates her LinkedIn profile and emails all her friends.

In fact, it’s worse than that. The moment your future head of sales, marketing, product or even junior developer says “yes” is the moment you’re most vulnerable of losing them. I’ve written about this before relating to any sales process – You’re Most Vulnerable After You’ve Won a Deal – and the same is true in recruiting.

Recruitment is war and the enemy (people competing for talent) won’t accept defeat easily. Don’t fight 90% of the war. You must win.

Here’s specifically what happens:

  • The employee gives you a verbal commitment, an email accept or in some cases even a signed offer letter
  • You high-five your team for all the hard work, the hard fought persuasion and the new superstar that will soon come help solve your problems
  • If they are as good as you think it is highly likely her existing employer will work hard to keep her. So the moment she notifies her boss is the moment that the other side is pursuing a full-court press while you are celebrating and getting back to work.
  • If the person knew she was going to leave her employer and was talking to multiple companies to be sure the next company was the right fit, the moment she notifies the other companies that she’s not accepting their offer they, too, will begin an assault of persuasion
  • So ironically at the moment it seems everything is all sunshine for you is the moment you’re completely vulnerable

So what to do?

1. Acknowledge that recruiting doesn’t stop until the employee has joined your company

2. The moment you get an “accept” you should have all of your key employees email, call or even grab lunch/drinks/coffee with the new recruit to welcome her to the team. Your goal is to create emotional bonds with the company and also to think twice about the perception that will be formed of her for accepting and then backing out (which in case you didn’t know is more common than it should be)

3. I like to create an even stronger emotional tie by making public announcements where possible. I’d want to secure permission from the employee to issue a press release. It’s a combination of the pride you take in this new recruit and it’s a way to lower the odds that they bail on you. Yes, you could get egg on your face if she still backs out afterwards but you’ve now massively lowered the risk she backs out. The candidate will look worse for backing out than you will. Obviously press releases only work if the employee isn’t junior. But it doesn’t really matter if the press wasn’t big enough for TechCrunch – it just matters that it’s in the public sphere and gets amplified through social channels.

4. I also like to give some evening homework to the new employees. To the extent she starts problem solving on your behalf and working as part of your team she will feel more commitment to you, more excitement about the new role and, again, a stronger emotional bond to not backing out.

5. Finally, if possible get your investors involved if it’s a reasonably senior position. Set up calls for VCs to welcome her to the team. The more people she has spoken with about joining the more emotional bond and the less likely of her backing out.

Summary

Recruiting is brutal. If you put in a Herculean effort to get employees and then lose them after you’ve crossed the finish line you will waste enormous energy. It’s a shame that you have to launch a welcoming committee to bear hug your incoming hire and to run an external communication plan because an acceptance should be final but reality is reality. Trust me – I’ve seen it happen time again.

You’re never done til you’re done.

And follow on reading. You’re really not even done then. If you don’t look out for your top people they, too, stay in jeopardy. It’s why I remind people – never roll out the red carpet when your best employees are on their way out the door.

What tactics do you use to make sure employees don’t bail after the offer?

How Google Sold Its Engineers on Management – by David A. Garvin

A few years into the company’s life, founders Larry Page and Sergey Brin actually wondered whether Google needed any managers at all. In 2002 they experimented with a completely flat organization, eliminating engineering managers in an effort to break down barriers to rapid idea development and to replicate the collegial environment they’d enjoyed in graduate school. That experiment lasted only a few months: They relented when too many people went directly to Page with questions about expense reports, interpersonal conflicts, and other nitty-gritty issues. And as the company grew, the founders soon realized that managers contributed in many other, important ways—for instance, by communicating strategy, helping employees prioritize projects, facilitating collaboration, supporting career development, and ensuring that processes and systems aligned with company goals.

Google now has some layers but not as many as you might expect in an organization with more than 37,000 employees: just 5,000 managers, 1,000 directors, and 100 vice presidents. It’s not uncommon to find engineering managers with 30 direct reports. Flatt says that’s by design, to prevent micromanaging. “There is only so much you can meddle when you have 30 people on your team, so you have to focus on creating the best environment for engineers to make things happen,” he notes. Google gives its rank and file room to make decisions and innovate. Along with that freedom comes a greater respect for technical expertise, skillful problem solving, and good ideas than for titles and formal authority. Given the overall indifference to pecking order, anyone making a case for change at the company needs to provide compelling logic and rich supporting data. Seldom do employees accept top-down directives without question.

Google downplays hierarchy and emphasizes the power of the individual in its recruitment efforts, as well, to achieve the right cultural fit. Using a rigorous, data-driven hiring process, the company goes to great lengths to attract young, ambitious self-starters and original thinkers. It screens candidates’ résumés for markers that indicate potential to excel there—especially general cognitive ability. People who make that first cut are then carefully assessed for initiative, flexibility, collaborative spirit, evidence of being well-rounded, and other factors that make a candidate “Googley.”

So here’s the challenge Google faced: If your highly skilled, handpicked hires don’t value management, how can you run the place effectively? How do you turn doubters into believers, persuading them to spend time managing others? As it turns out, by applying the same analytical rigor and tools that you used to hire them in the first place—and that they set such store by in their own work. You use data to test your assumptions about management’s merits and then make your case.

To understand how Google set out to prove managers’ worth, let’s go back to 2006, when Page and Brin brought in Laszlo Bock to head up the human resources function—appropriately called people operations, or people ops. From the start, people ops managed performance reviews, which included annual 360-degree assessments. It also helped conduct and interpret the Googlegeist employee survey on career development goals, perks, benefits, and company culture. A year later, with that foundation in place, Bock hired Prasad Setty from Capital One to lead a people analytics group. He challenged Setty to approach HR with the same empirical discipline Google applied to its business operations.

Setty took him at his word, recruiting several PhDs with serious research chops. This new team was committed to leading organizational change. “I didn’t want our group to be simply a reporting house,” Setty recalls. “Organizations can get bogged down in all that data. Instead, I wanted us to be hypothesis-driven and help solve company problems and questions with data.”

People analytics then pulled together a small team to tackle issues relating to employee well-being and productivity. In early 2009 it presented its initial set of research questions to Setty. One question stood out, because it had come up again and again since the company’s founding: Do managers matter?

To find the answer, Google launched Project Oxygen, a multiyear research initiative. It has since grown into a comprehensive program that measures key management behaviors and cultivates them through communication and training. By November 2012, employees had widely adopted the program—and the company had shown statistically significant improvements in multiple areas of managerial effectiveness and performance.

Google is one of several companies that are applying analytics in new ways. Until recently, organizations used data-driven decision making mainly in product development, marketing, and pricing. But these days, Google, Procter & Gamble, Harrah’s, and others take that same approach in addressing human resources needs. (See “Competing on Talent Analytics,” by Thomas H. Davenport, Jeanne Harris, and Jeremy Shapiro, HBR October 2010.)

Unfortunately, scholars haven’t done enough to help these organizations understand and improve day-to-day management practice. Compared with leadership, managing remains understudied and undertaught—largely because it’s so difficult to describe, precisely and concretely, what managers actually do. We often say that they get things done through other people, yet we don’t usually spell out how in any detail. Project Oxygen, in contrast, was designed to offer granular, hands-on guidance. It didn’t just identify desirable management traits in the abstract; it pinpointed specific, measurable behaviors that brought those traits to life.

That’s why Google employees let go of their skepticism and got with the program. Project Oxygen mirrored their decision-making criteria, respected their need for rigorous analysis, and made it a priority to measure impact. Data-driven cultures, Google discovered, respond well to data-driven change.

Making the CaseProject Oxygen colead Neal Patel recalls, “We knew the team had to be careful. Google has high standards of proof, even for what, at other places, might be considered obvious truths. Simple correlations weren’t going to be enough. So we actually ended up trying to prove the opposite case—that managers don’t matter. Luckily, we failed.”

To begin, Patel and his team reviewed exit-interview data to see if employees cited management issues as a reason for leaving Google. Though they found some connections between turnover rates and low satisfaction with managers, those didn’t apply to the company more broadly, given the low turnover rates overall. Nor did the findings prove that managers caused attrition.

As a next step, Patel examined Googlegeist ratings and semiannual reviews, comparing managers on both satisfaction and performance. For both dimensions, he looked at the highest and lowest scorers (the top and bottom quartiles).

“At first,” he says, “the numbers were not encouraging. Even the low-scoring managers were doing pretty well. How could we find evidence that better management mattered when all managers seemed so similar?” The solution came from applying sophisticated multivariate statistical techniques, which showed that even “the smallest incremental increases in manager quality were quite powerful.”

For example, in 2008, the high-scoring managers saw less turnover on their teams than the others did—and retention was related more strongly to manager quality than to seniority, performance, tenure, or promotions. The data also showed a tight connection between managers’ quality and workers’ happiness: Employees with high-scoring bosses consistently reported greater satisfaction in multiple areas, including innovation, work-life balance, and career development.

In light of this research, the Project Oxygen team concluded that managers indeed mattered. But to act on that finding, Google first had to figure out what its best managers did. So the researchers followed up with double-blind qualitative interviews, asking the high- and low-scoring managers questions such as “How often do you have career development discussions with your direct reports?” and “What do you do to develop a vision for your team?” Managers from Google’s three major functions (engineering, global business, and general and administrative) participated; they came from all levels and geographies. The team also studied thousands of qualitative comments from Googlegeist surveys, performance reviews, and submissions for the company’s Great Manager Award. (Each year, Google selects about 20 managers for this distinction, on the basis of employees’ nominations.) It took several months to code and process all this information.

After much review, Oxygen identified eight behaviors shared by high-scoring managers. (See the sidebar “What Google’s Best Managers Do” for the complete list.) Even though the behaviors weren’t terribly surprising, Patel’s colead, Michelle Donovan, says, “we hoped that the list would resonate because it was based on Google data. The attributes were about us, by us, and for us.”

The key behaviors primarily describe leaders of small and medium-sized groups and teams and are especially relevant to first- and second-level managers. They involve developing and motivating direct reports, as well as communicating strategy and eliminating roadblocks—all vital activities that people tend to overlook in the press of their day-to-day responsibilities.

Putting the Findings into PracticeThe list of behaviors has served three important functions at Google: giving employees a shared vocabulary for discussing management, offering them straightforward guidelines for improving it, and encapsulating the full range of management responsibilities. Though the list is simple and straightforward, it’s enriched by examples and descriptions of best practices—in survey participants’ own words. These details make the overarching principles, such as “empowers the team and does not micromanage,” more concrete and show managers different ways of enacting them. (See the exhibit “How Google Defines One Key Behavior.”)

The descriptions of the eight behaviors also allow considerable tailoring. They’re inclusive guidelines, not rigid formulas. That said, it was clear early on that managers would need help adopting the new standards, so people ops built assessments and a training program around the Oxygen findings.

To improve the odds of acceptance, the group customized the survey instrument, creating an upward feedback survey (UFS) for employees in administrative and global business functions and a tech managers survey (TMS) for the engineers. Both assessments asked employees to evaluate their managers (using a five-point scale) on a core set of activities—such as giving actionable feedback regularly and communicating team goals clearly—all of which related directly to the key management behaviors.

The first surveys went out in June 2010—deliberately out of sync with performance reviews, which took place in April and September. (Google had initially considered linking the scores with performance reviews but decided that would increase resistance to the Oxygen program because employees would view it as a top-down imposition of standards.) People ops emphasized confidentiality and issued frequent reminders that the surveys were strictly for self-improvement. “Project Oxygen was always meant to be a developmental tool, not a performance metric,” says Mary Kate Stimmler, an analyst in the department. “We realized that anonymous surveys are not always fair, and there is often a context behind low scores.”

Though the surveys weren’t mandatory, the vast majority of employees completed them. Soon afterward, managers received reports with numerical scores and individual comments—feedback they were urged to share with their teams. (See the exhibit “One Manager’s Feedback” for a representative sample.) The reports explicitly tied individuals’ scores to the eight behaviors, included links to more information about best practices, and suggested actions each manager could take to improve. Someone with, say, unfavorable scores in coaching might get a recommendation to take a class on how to deliver personalized, balanced feedback.

People ops designed the training to be hands-on and immediately useful. In “vision” classes, for example, participants practiced writing vision statements for their departments or teams and bringing the ideas to life with compelling stories. In 2011, Google added Start Right, a two-hour workshop for new managers, and Manager Flagship courses on popular topics such as managing change, which were offered in three two-day modules over six months. “We have a team of instructors,” says people-development manager Kathrin O’Sullivan, “and we are piloting online Google Hangout classes so managers from around the world can participate.”

Managers have expressed few concerns about signing up for the courses and going public with the changes they need to make. Eric Clayberg, for one, has found his training invaluable. A seasoned software-engineering manager and serial entrepreneur, Clayberg had led teams for 18 years before Google bought his latest start-up. But he feels he learned more about management in six months of Oxygen surveys and people ops courses than in the previous two decades. “For instance,” he says, “I was worried about the flat organizational structure at Google; I knew it would be hard to help people on my team get promoted. I learned in the classes about how to provide career development beyond promotions. I now spend a third to half my time looking for ways to help my team members grow.” And to his surprise, his reports have welcomed his advice. “Engineers hate being micromanaged on the technical side,” he observes, “but they love being closely managed on the career side.”

To complement the training, the development team sets up panel discussions featuring high-scoring managers from each function. That way, employees get advice from colleagues they respect, not just from HR. People ops also sends new managers automated e-mail reminders with tips on how to succeed at Google, links to relevant Oxygen findings, and information about courses they haven’t taken.

And Google rewards the behaviors it’s working so hard to promote. The company has revamped its selection criteria for the Great Manager Award to reflect the eight Oxygen behaviors. Employees refer to the behaviors and cite specific examples when submitting nominations. Clayberg has received the award, and he believes it was largely because of the skills he acquired through his Oxygen training. The prize includes a weeklong trip to a destination such as Hawaii, where winners get to spend time with senior executives. Recipients go places in the company, too. “In the last round of promotions to vice president,” Laszlo Bock says, “10% of the directors promoted were winners of the Great Manager Award.”

Measuring ResultsThe people ops team has analyzed Oxygen’s impact by examining aggregate survey data and qualitative input from individuals. From 2010 through 2012, UFS and TMS median favorability scores rose from 83% to 88%. The lowest-scoring managers improved the most, particularly in the areas of coaching and career development. The improvements were consistent across functions, survey categories, management levels, spans of control, and geographic regions.

In an environment of top achievers, people take low scores seriously. Consider vice president Sebastien Marotte, who came to Google in 2011 from a senior sales role at Oracle. During his first six months at Google, Marotte focused on meeting his sales numbers (and did so successfully) while managing a global team of 150 people. Then he received his first UFS scores, which came as a shock. “I asked myself, ‘Am I right for this company? Should I go back to Oracle?’ There seemed to be a disconnect,” he says, “because my manager had rated me favorably in my first performance review, yet my UFS scores were terrible.” Then, with help from a people ops colleague, Marotte took a step back and thought about what changes he could make. He recalls, “We went through all the comments and came up with a plan. I fixed how I communicated with my team and provided more visibility on our long-term strategy. Within two survey cycles, I raised my favorability ratings from 46% to 86%. It’s been tough but very rewarding. I came here as a senior sales guy, but now I feel like a general manager.”

Overall, other managers took the feedback as constructively as Marotte did—and were especially grateful for its specificity. Here’s what Stephanie Davis, director of large-company sales and another winner of the Great Manager Award, says she learned from her first feedback report: “I was surprised that one person on my team didn’t think I had regularly scheduled one-on-one meetings. I saw this person every day, but the survey helped me realize that just seeing this person was different from having regularly scheduled individual meetings. My team also wanted me to spend more time sharing my vision. Personally, I have always been inspired by Eric [Schmidt], Larry, and Sergey; I thought my team was also getting a sense of the company’s vision from them. But this survey gave my team the opportunity to explain that they wanted me to interpret the higher-level vision for them. So I started listening to the company’s earnings call with a different ear. I didn’t just come back to my team with what was said; I also shared what it meant for them.”

Chris Loux, head of global enterprise renewals, remembers feeling frustrated with his low UFS scores. “I had received a performance review indicating that I was exceeding expectations,” he says, “yet one of my direct reports said on the UFS that he would not recommend me as a manager. That struck me, because people don’t quit companies—they quit managers.” At the same time, Loux struggled with the question of just how much to push the lower performers on his team. “It’s hard to give negative feedback to a type-A person who has never received bad feedback in his or her life,” he explains. “If someone gets 95% favorable on the UFS, I wonder if that manager is avoiding problems by not having tough conversations with reports on how they can get better.”

Loux isn’t the only Google executive to speculate about the connection between employees’ performance reviews and their managers’ feedback scores. That question came up multiple times during Oxygen’s rollout. To address it, the people analytics group fell back on a time-tested technique—going back to the data and conducting a formal analysis to determine whether a manager who gave someone a negative performance review would then receive a low feedback rating from that employee. After looking at two quarters’ worth of survey data from 2011, the group found that changes in employee performance ratings (both upward and downward) accounted for less than 1% of variability in corresponding manager ratings across all functions at Google.

“Managing to the test” doesn’t appear to be a big risk, either. Because the eight behaviors are rooted in action, it’s difficult for managers to fake them in pursuit of higher ratings. In the surveys, employees don’t assess their managers’ motivations, values, or beliefs; rather, they evaluate the extent to which their managers demonstrate each behavior. Either the manager has acted in the ways recommended—consistently and credibly—or she has not. There is very little room for grandstanding or dissembling.

“We are not trying to change the nature of people who work at Google,” says Bock. “That would be presumptuous and dangerous. Instead, we are saying, ‘Here are a few things that will lead you to be perceived as a better manager.’ Our managers may not completely believe in the suggestions, but after they act on them and get better UFS and TMS scores, they may eventually internalize the behavior.”

Project Oxygen does have its limits. A commitment to managerial excellence can be hard to maintain over the long haul. One threat to sustainability is “evaluation overload.” The UFS and the TMS depend on employees’ goodwill. Googlers voluntarily respond on a semiannual basis, but they’re asked to complete many other surveys as well. What if they decide that they’re tired of filling out surveys? Will response rates bottom out? Sustainability also depends on the continued effectiveness of managers who excel at the eight behaviors, as well as those behaviors’ relevance to senior executive positions. A disproportionate number of recently promoted vice presidents had won the Great Manager Award, a reflection of how well they’d followed Oxygen’s guidelines. But what if other behaviors—those associated with leadership skills—matter more in senior positions?

Further, while survey scores gauge employees’ satisfaction and perceptions of the work environment, it’s unclear exactly what impact those intangibles have on such bottom-line measures as sales, productivity, and profitability. (Even for Google’s high-powered statisticians, those causal relationships are difficult to establish.) And if the eight behaviors do actually benefit organizational performance, they still might not give Google a lasting edge. Companies with similar competitive profiles—high-tech firms, for example, that are equally data-driven—can mimic Google’s approach, since the eight behaviors aren’t proprietary.

Still, Project Oxygen has accomplished what it set out to do: It not only convinced its skeptical audience of Googlers that managers mattered but also identified, described, and institutionalized their most essential behaviors. Oxygen applied the concept of data-driven continuous improvement directly—and successfully—to the soft skills of management. Widespread adoption has had a significant impact on how employees perceive life at Google—particularly on how they rate the degree of collaboration, the transparency of performance evaluations, and their groups’ commitment to innovation and risk taking.

At a company like Google, where the staff consists almost entirely of “A” players, managers have a complex, demanding role to play. They must go beyond overseeing the day-to-day work and support their employees’ personal needs, development, and career planning. That means providing smart, steady feedback to guide people to greater levels of achievement—but intervening judiciously and with a light touch, since high-performing knowledge workers place a premium on autonomy. It’s a delicate balancing act to keep employees happy and motivated through enthusiastic cheerleading while helping them grow through stretch assignments and carefully modulated feedback. When the process works well, it can yield extraordinary results.That’s why Prasad Setty wants to keep building on Oxygen’s findings about effective management practice. “We will have to start thinking about what else drives people to go from good to great,” he says. His team has begun analyzing managers’ assessment scores by personality type, looking for patterns. “With Project Oxygen, we didn’t have these endogenous variables available to us,” he adds. “Now we can start to tease them out, using more of an ethnographic approach. It’s really about observations—staying with people and studying their interactions. We’re not going to have the capacity to follow tons of people, but what we’ll lose in terms of numbers, we’ll gain in a deeper understanding of what managers and their teams experience.”

That, in a nutshell, is the principle at the heart of Google’s approach: deploying disciplined data collection and rigorous analysis—the tools of science—to uncover deeper insights into the art and craft of management.

David A. Garvin is the C. Roland Christensen Professor of Business Administration at Harvard Business School. This article draws on material in the HBS case study “Google’s Project Oxygen: Do Managers Matter?” (case number 9-313-110, published April 2013).