November 2003
Vol. 1, No. 5
TeamResearch News summarizes the latest information from studies or articles on business teams, along with guidance on how to apply that research in your workplace. It is published the first full weekend of each month as a free service from TeamTrainersTM Consulting (www.suddenteams.com), with announcements sent by e-mail to subscribers.
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From the Editor: I find it fascinating when articles that happen to come out in the same month form a theme. This is one of those months. The happenstance theme is that rewarding individual performance is less effective than rewarding team performance for improving company results, and at the executive level can even hurt your bottom line. If you're working on your bonus system, read this issue carefully before taking another step.
Study: "Do executive bonuses, or any other aspect of compensation, predict organizational performance?" That's what a Harvard University team wanted to know when it surveyed 205 senior executives—30% U.S., the rest from 38 countries around the globe. The answer was "no." Performance as reported by the executives was compared variables such as "Extent of team culture"; various measures related to incentives; and to incentives based on company-wide performance (profit- or gain-sharing) versus incentives based on the performance of an executive's unit. ("Gain-sharing" rewards improvements regardless of profit changes.) "The only variable that significantly predicts company performance is the extent to which the culture is one of teamwork," the study said.
The surveyed executives also thought company performance incentives had positive effects such as higher organizational effectiveness and executive morale. Unit-based incentives were seen as causing short-term thinking and attempts to manipulate numbers, and as wasting corporate time and energy.
Application: The strength and unique power of teamwork found in this study took even me by surprise, and I'm not sure how to advise application of the findings without sounding self-serving. So I will let the authors do it for me:
Source: Beer, M., and N. Katz (03), ?Do Incentives Work? The Perceptions of a Worldwide Sample of Senior Executives,? Human Resource Planning 26(3):30.
Study: In a study of 27 teams at a large apparel and sporting goods company, teams performed better if team members were aware of each others' expertise. Two years earlier, the firm had switched to cross-functional teams focused on product lines. The scientist believed that teams would perform better if they were very aware of who knew what—and who knew whom, in case they didn't have expertise they needed within the team. Using several surveys per team over five months, he compared each team's awareness of member expertise to its attainment of measurable annual goals and to ratings from both upper managers and team members on how well the teams contributed to achieving corporate objectives.
In general, awareness of specialties improved both objective performance and ratings from upper managers, though not team member self-ratings.
Application: This study was small and investigated a topic that is little-researched, so I wouldn't make big changes based on it.
We recommend that every team have a rule such as one we use when facilitating meetings, "Everyone is equal." This ensures that nonexpert perspectives are valued even as expertise is tapped during team discussions. With such a rule in place, it wouldn't hurt to create an "experts list." During a team meeting, start with one member and have everyone else identify out loud the expertise they think that person has on topics relevant to the team. Combine ideas to create a list of three items the group agrees on for that person, then repeat with each person in the room. Then post that list with the team documents as a reminder.
Source: Austin, J. (03), "Transactive Memory in Organizational Groups: The Effects of Content, Consensus, Specialization, and Accuracy on Group Performance," Journal of Applied Psychology 88(5): 866.
Article: Bonuses paid to executives based on their or their functional units' performance have not proven effective, and in fact can have negative effects on corporate performance. So say the directors of a not-for-profit management research organization called Beyond Budgeting Round Table. In one example they cite, "a survey of 771 U.S. companies…found that only one-third could see any connection between (individual) incentives and financial results."
The authors say incentives based on group performance are more likely to bring performance into alignment with group goals, whether the "group" is a team or a company. Also, they say, group incentives are more realistic in today's companies, whose interrelated functions make it "difficult, if not impossible, to compute the incremental contribution made by a designer, an engineer, an accountant, or a salesperson to the final result."
Furthermore, basing incentives on any kind of performance targets often have negative effects, the authors say, such as:
Instead, the authors recommend using targets only to provide direction. To reduce games-playing, set financial rewards based on team performance "relative to peers, benchmarks, and prior periods."
Application: Case studies and common sense both indicate that people perform based in part on what is rewarded. If you desire teamwork but continue to reward people based on their individual accomplishments, teamwork will fail.
The authors suggest a scheme in which people are rewarded for company, group, and individual performance—not just the latter. TeamTrainers recommends something similar in the early stages of team development, also adding rewards for team-supporting behaviors such as volunteering for group tasks. But we believe group-only rewards should be the long-term goal.
Source: Hope, J., and R. Fraser (03), "New Ways of Setting Rewards: The Beyond Budgeting Model," California Management Review 45(4):104.
Article: When five law firms across Canada merged in March 2000 to form Borden Ladner Gervais (BLG), they decided not to have a single top manager. An article in Canadian Business magazine explains that the "corporate constitution…called for strategic and national business decisions to be handled by a national council in which all five firms would have a roughly equal voice—despite their different sizes…" Day-to-day operations remained in the control of the regional partners. The council meets by phone weekly, in person several times a year, and with the entire firm annually. Regional partners are expected to sell national decisions to their employees rather than just issuing orders.
The profits of the firm are divided from a common national pool, rather than the regional pools some partners wanted. "This encourages BLG lawyers in the regional offices to work together to increase the firm's overall business rather than hoard clients' billings for themselves," the chairman of the council said.
BLG believes its "collaborative approach has translated into better efficiency and profitability," with profits improving the last three years. The firm attributes several large contracts it won to the breadth of expertise across and level of cooperation among offices.
Application: In contrast to the "common wisdom" that a company must have a strong CEO to succeed, this example shows that collaborative decision-making can be very successful even at the top levels of the company. However, as noted in our August issue, success stories should be viewed in the context of other research. Whether you are advising a company whose top leadership is in flux or just trying to create more empowered teams at other levels of the company, this article points out several critical considerations consistent with the research literature:
Source: Gray, J. (03), ?The Brothers in Law: Borden Ladner Gervais Combines Five Law Firms under a Unique Management Structure,? Canadian Business 76(18):75.
Article: Michael Maccoby, a well-known author on management and president of a large consulting firm in D.C., notes that building employee trust is much harder now that companies can no longer promise and provide lifetime employment. But he says acting ethically toward employees is not enough by itself to build trust either. To build trust he suggests you ensure:
Application: As mentioned in the law firm article above, you should make sure every group in your company has a charter that outlines the team's mission, measurable goals, code of conduct, and procedures for attaining their goals.
Source: Maccoby, M. (03), "To Build Trust, Ethics are Not Enough," Research Technology Management 46(5):59.
The research makes clear that teamwork is a more powerful tool for improving company performance than bonus plans that reward individual performance. So you'll do more for your employees and your bottom line by contacting TeamTrainers about instilling true teamwork across your enterprise than by designing new incentive plans. Contact us today.
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Jim Morgan
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