There has been a lot written about loss aversion, particularly Nobel Laureate Daniel Kahnemann has been at the forefront of this idea that

The research has focused on single transactions, however what happens when we look at how loss aversion can affect decision making on an ongoing basis. What is the cumulative impact of high status and high pay on executive decision making?

When we look at decision making inevitably we

Lower pay (e.g. Zappos)

When do we get to the point in the minds of executives where the fear of losing what they have built up outweighs the potential for future gains? Take for example the role of incentivisation in start-ups.

Should senior executives be crowdsourcing key decisions?

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Let’s start with the obvious; both senior level recruitment and acquisitions are notoriously hard to get right, failure rates for recruitment are estimated to run at around 40%, whilst anything between 50% and 90% of M&A transactions fail to deliver on planned outcomes. Interestingly, these high failure rates seem to be consistent over time and despite new understanding and advances in knowledge of organisational behaviour there has been little change or innovation in the way businesses approach these activities.

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Let’s start with the obvious; both senior level recruitment and acquisitions are notoriously hard to get right, failure rates for recruitment are estimated to run at around 40%, whilst anything between 50% and 90% of M&A transactions fail to deliver on planned outcomes. Interestingly, these high failure rates seem to be consistent over time and despite new understanding and advances in the knowledge of organisational behaviour there has been little change or innovation in the way businesses approach these activities.

Given the historical track record of things going wrong; where there is an expectation of failure, there also appears to be a corresponding lack of desire for new approaches. Where there are low-expectations; a certain proportion of acquisitions and senior level appointments are expected to fail and this is viewed by many organisations as simply a cost of doing business. This inertia is due to a number of factors ranging from the established support services that provide transactional advice to businesses, an overly simplistic approach to search, challenges of integrating new senior executives and newly acquired businesses and a failure to fully appreciate the real costs of getting things wrong.

Both M&A and recruitment are supported by well-established industries in the form of investment banks, corporate finance advisory businesses and headhunters. This has inevitably led to an overemphasis on the transactional part of the process. From a headline perspective this is where all the brainpower and intellectual capital is deployed; where all the sexy stuff happens, the secret sauce that gets used to unearth a particular candidate or target business. The transaction is invariably seen as the most high value part of the process, where the complex and difficult stuff takes place. Unfortunately, this emphasis appears to be misplaced.

Clearly, the role of outside experts is one factor that helps perpetuate the disconnection between transaction and integration. By placing much of the perceived effort or value on the transactional stage, the inevitable belief is that if you identify the “right” target or candidate, the integration will take care of itself emerges. This is fundamentally misguided and although businesses in the past few years have woken up to the importance of integrating new managers and businesses effectively, this is still a poorly understood process that fails to receive the emphasis that it deserves.

I would also argue that there is a further problem with the current paradigms of the role of external advisors and that is the way that it forces businesses into viewing these processes as criteria based activities. In other words you articulate a strategy or set of requirements and then build a picture of what that vision looks like, judging various targets against these markers. By making the search dependent on a few specific, tangible criteria there is a danger of missing out on target businesses or candidates that are contextually much better fits, even if the strategic element at first glance may not appear as compelling. For example a new senior executive may be deemed to need to have had a specific level of industry expertise or number of years in a specific role. Yet it is relatively easy to acquire industry specific skills but much harder to for a senior executive to adapt to an environment that is fundamentally different to that which has enabled her to be successful in the first place. Likewise an acquisition strategy may be based on a strictly defined set of criteria such as geographic location, product, industry sector etc. This has the result of screening out potential targets that may represent a much more positive long-term opportunity.

By reducing these activities to a box ticking exercise, there is the risk that businesses oversimplify the process and completely ignore the actual variables that will govern whether a deal or new appointment is successful or not. This approach will lead to a situation where a candidate or business may seem like the perfect addition, yet in actual fact, from a cultural perspective represent a very poor fit with very little chance of success.

Furthermore, a criteria driven approach places huge emphasis on historical performance data in order to spin a narrative about future outcomes. From an M&A perspective, historical data is used as a base to project future performance and justify the rationale behind the transaction, identify synergies etc. For recruitment; track record and star quality are the underlying justifications for many senior level appointments. Yet the reality is that historical performance is a poor predictor of future outcomes, particularly when we look at the inevitable contextual change brought about by a change in owner or employer.

The problem here lies in our natural desire to simplify or easily explain a particular scenario, in this case the belief that a track record of success is a good predictor of future outcomes. Furthermore, this perspective encourages us to view performance and success in isolation, rather than considering the wider context within which performance is taking place.

What businesses need to understand is that performance is non-linear, this holds true f0r both people and organisations. In other words, it is unrealistic to hire an executive who has achieved great things in one organisation and expect her to carry this performance directly into a new role. This is not because that person is less smart or capable when transferring roles but the context has changed, the relationships and networks that enabled high performance have been broken.

We are all guilty of looking to explain things in as simple and narratively convenient manner as possible. For example, in the organisation a successful manager is seen as the instigator and touch point for her high performing team, in other words a symbol. When we see success or high performance, we perceive a Midas touch, what we don’t see are the less visible factors that shape performance. In a world of complexity and uncertainty, we are often guilty of over-estimating the role played by the high profile or most visible individuals

For a senior executive, the key driver to performance is always going to be the effectiveness of relationships and networks that she has within her organisation. No matter how smart or talented you are, without strong collaborative relationships you are unlikely to succeed. What is important to understand is the impact of moving from one system to another.

Likewise, the notion that you can predict the performance of combined businesses by plugging the numbers into a spreadsheet and combining them is equally flawed (the whole notion of synergy is something that takes far too many variables for granted and should be outlawed as justification for an acquisition). When you make an acquisition, you may acquire the business but without an appreciation of the networks, relationships and culture that drive that business, the historical data lacks predictive accuracy.

You also often hear of acquiring companies pledging to retain the star performers post-acquisition. This seems like a sensible strategy, however it again fails to take into account the reality behind the performance of such stars. Again, it is important to be aware that people don’t perform in isolation and whilst identifying and making efforts to retain top performers is sensible, you have to go beyond this to understand the relationships and networks that enable this success and ensure that these are maintained and supported, rather than just the individuals themselves. By only focusing on the identifiable stars, you run the risk of damaging the relationships and networks that enable these people to perform.

The reason why performance both for individuals and organisations is non-linear is because performance is subject to changing context and you can't make an acquisition or a senior appointment without a radical change in context. Whilst we are very good at simplifying things to create a positive picture of future events, looking at the most easy or obvious explanations for performance; what we are not so good at is in understanding the contextual factors that are the real drivers of performance. All this means that it is necessary to stop looking at potential targets or new executive hires in isolation. An appreciation of the wider, less tangible factors that govern performance must be adopted. This means that the criteria driven approach needs to be dropped.

The problem with current approaches to hiring and acquiring isn’t necessarily that advisors are nefarious types who are only focused on the next fee (although I’m sure that others may argue this) and poorly aligned with their client’s long-term interests. The issue is that despite all the modeling, forecasting and interviewing, your investment bank or headhunter lacks the relevant information and insight to reliably forecast whether a particular candidate or acquiring a business will prove successful. Furthermore, this situation is exacerbated by the high fees that are charged for advice which are as much about providing reassurance about the quality of analysis. In other words clients are led to equate the size of the fee with quality of predictive insight and this is quite clearly not the case.

Another way of looking at this issue is that whenever a hiring or recruitment decision is made, many of the factors supporting or underpin this decision get damaged or broken, losing their effectiveness. In other words M&A and recruitment processes are destructive by nature. This is at variance with the common perceptions of optimism and positivity that go along with these processes. No wonder that so many fail to deliver on initial expectations. Instead of looking at these activities as additive it is necessary to understand the effect of removing people or organisations from their existing environment and networks and start planning from there.

With this in mind, I would argue that success in recruitment and M&A comes down to a couple of key issues. When we look at changes in changing context, the questions that need to be asked are; given the change in context or environment, can an executive or business unit quickly form new relationships, identity, and adapt and strengthen its existing networks? For senior level appointments, the speed with which the new hire can form and develop effective new relationships and networks within the business is always going to be the key indicator of long-term performance. We know that at that level, any candidate is likely to be intelligent, resourceful and determined, the question becomes, who is going to engage and develop productive relationships within the organisation?

Likewise for acquisitions, if the plan is for integration, the speed with which effective new networks can be formed between the two businesses is the key variable in being able to meet the expectations of the transaction. This requires both businesses to understand what is being lost at the time of the transaction and also have the ongoing commitment and ability to build and cultivate new networks.

Above all, it is necessary to try and understand in as much detail as possible, how the change in context will impact on performance. To do this, there is a need to gather deep information and insight into culture and relationships internally within the business. This requires organisations to have a far greater understanding of their own internal cultures and networks than they currently have. Developing a new approach means going beyond the obvious. For example, when looking at the issue of organisational culture, the tendency is to think that there is a single overarching set of values and characteristics that underpin an organisation’s culture. This may be the view from the c-suite but what is not understood is the fact that within any organisation there are numerous sub-cultures and networks that although there may be an implicit acknowledgement of, organisations really don’t understand their influence.

As well as the inadequacy of transactional norms; current onboarding and integration processes are insufficcient for providing sufficient insight into how best to integrate a new manager or business. There is too much emphasis on the process side and not enough on the more intangible aspects. For example during an acquisition integration, much of the time and effort goes into ensuring that structures, systems and processes are neatly combined, this emphasis on the tangible and what is controllable comes at the expense of the more complex and thorny people issues that ultimately are going to determine whether a transaction is successful. It is important to ensure that payroll and other processes are integrated but at the end of the day, if the people involved cannot work together all this time and expense will come to nought. Where effort is put into communicating about group culture, the results are often formulaic or ritualistic. Instead, it is necessary for businesses to have far greater levels of self-awareness and understanding of those who they are looking to bring into the fold.

For things to change, businesses and their advisors need to approach these activities from a different mindset, instead of viewing recruitment and M&A as a process that adds to existing capabilities, they need to understand the initial negative implications of making these decisions in far greater detail than they do at present. This calls for far greater effort to be put into recreating or rebuilding the networks, relationships and culture that have been broken by the acquisition or hiring process. It is in this area that the investment needs to be made.

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Despite tangible benefits in other areas, the value of HR and Big Data is unclear.

Much has been written in recent months about the potential for HR and Big Data (here) to transform the way HR can influence a business. Meghan M. Biro wrote a piece at Forbes (here) about how some forward thinking, predominantly tech focused businesses are investing in sophisticated data mining technologies in order to uncover the hidden behaviours and characteristics that lead to successful performance.

Big Data’s greatest HR value may well be as a predictive tool. By analyzing the skills and attributes of high performers, Big Data allows organizations to build a template for future hires. HR and leaders can learn what to look for with incredible precision.

Big Data is undoubtedly a buzz word in the wider economy. The use of new database analytics capable of crunching huge amounts of data, offers up the tantalising prospect of being able to uncover hidden patterns, trends and relationships that have until now remained unknown. Given the escalating amount of #hr247 information we generate every day of our lives, it seems to make sense to try and use this information to gain genuine insight.

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Despite advances in technology, selection methods and years of cumulative experience; organisations continue to struggle squaring the recruitment and talent puzzle. Arguably, with all the tools currently available to them, businesses are no better at recruiting than they were 20 years ago. Whilst new technologies and social media have widened the net, there is little evidence to suggest that decision making is improving or that organisations are better at understanding what makes a successful hire. Maybe it is time that we re-frame the talent question and look at recruitment decisions through a different set of filters?

Recruitment and talent management has traditionally focused on the individual; most notably track record and aptitude or ability, in other words the tangibles that can be relatively easily measured and compared. Undoubtedly, organisations are adept at assessing the aptitude or capabilities of potential recruits. However, individual characteristics and capabilities are only a relatively small part of the overall performance of a new recruit at any level in the organisation.

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Are there also analytics than can let teams know, in advance, that a project is likely to fall behind or fail?

This question gets to the heart of the recent ideas around predictive team analytics and the notion of a 'Physics of People'. It also follows on from another piece from Steven where he wrote:

Emotions matter and teams need to have some form of empathy. Not something software is generally good at, so we need to find ways to compensate for this.

In addition to the points raised by Steven is research from Harvard, MIT and others, pointing to the fact that 10 - 40% of team performance is determined by psychological factors such as empathy, relational cohesion and the nature of interpersonal communication.

Predicting Team Performance

Predicting team performance is important and psychological factors are one approach that show promise. Using 4G and the Visual Team Builder (VTB), it's possible to predict how specific Social Relationships between two people will unfold and in turn, aggregate this data to look at team relationships, complex group dynamics and to see their impact on team performance.

Background and Context

Before examining the diagrams below, it's worth adding some context and background. The data collection process in order to create the diagrams is quick, taking around an hour per person and is explained in more depth here.

In addition, the diagrams from the VTB can be used to both predict the nature of specific Social Relationships amongst team members who have never met before and also used to analyse team dynamics amongst existing groups who are already working together.

In essence, the VTB lends itself as a tool to predict team performance, aid team creation, and enhance decision making and organisational design issues, along with providing coaching and developmental tips to enhance performance amongst existing team members.

Team Performance Challenges

In the first diagram, it is possible to see how the VTB highlights the nature of the different Social Relationships within teams 1, 2 and 3.

Based on a quick assessment of the diagram¹, team 1 presents the greatest challenges given the red relationship lines between Fraser and Trevor and Kate and Trevor. Likewise, team 2 has 1 red and 3 yellow lines, meaning that 4 relationships from 6 are going to require high levels of time and energy in order for these particular relationships to function productively. Of the 3 teams, team 3 has the most productive relationships and all things being equal, this would be the team that would be expected to display the highest level of performance.

Team Performance Successes

By way of comparison, teams 4, 5 and 6 tell a different story. Firstly, team 4 is likely to be the best performing team amongst all 6 teams. This is due to the fact that this team comprises of 6 green relationships between all 4 team members.

Secondly, the three teams below all comprise the same people as the three teams above. In other words, by using the predictions available from 4G, it is possible to optimise the team creation process such that the best possible relationships are experienced by all team members. In turn, this illustrates how 4G can be used to predict team dynamics, even before team members have actually met one another.

In Conclusion

By using 4G as a guide to group dynamics, along with incorporating it's relationship predictions into team creation, organisational design and related processes, 4G offers a unique approach to both understanding and enhancing engagement levels, business outcomes and team performance.

Footnotes

1. The visual information from the Visual Team Builder diagrams presents a very high level summary of the team dynamics in question. In order to gain a richer picture, an analysis of the Social Profiles, Social Relationships and Social Groups in each team would need to be undertaken. This information is also available from the VTB and associated reports but is not captured in the diagram. It is also important to state that the diagrams above don't take skills or context into account e.g. tasks, experience, responsibilities or the organisational hierarchy into account.  This information is available from other sources and is easily combined with the data from the VTB in order to create a full and comprehensive understanding of the scenario in question.

Image credit: evobrained

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The notion of the superstar is a beguiling one but unfortunately for corporate HR departments, it is an overly simplistic view. Surely, success has far much more to do with more complex variables such as; working environment, culture, relationships and other contextual factors than with the brilliance of a few key employees. As Boris Groysberg wrote (here) we really are fooling ourselves if we think that success can attributed to the abilities of talented individuals. In short, to transform any poorly performing group or organisation, requires far more than the parachuting in of someone with a great track record in a completely different environment.

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From her piece:

Analytics — what types of actionable, embedded, and/or predictive analytics with what types of visualizations, e.g. network analyses is becoming quite prominent when organizations try to figure out what roles and individuals have the greatest business impact? And I should emphasize here that this is about getting real insight to decision-makers in a form they can use when they’re in the middle of making that decision rather than just having a wonderful report-writer or business intelligence solution with which they can figure out the questions and search for the answers. Please note that I haven’t treated so-called “big data” as a separate topic (although everyone’s calling anything big data at the moment) because the real goal is actionable, ideally predictive, analytics, for which the management of big data is a necessary but not sufficient capabilities.

The significance of actionable and predictive team analytics cannot be understated. Tools that offer decision makers simple, actionable, valuable and consistent advice is key. Additionally, these capabilities have arguably been missing from the practice of anyone wanting to improve the engagement, well-being and performance of their staff or team members.

Predictive Team Analytics and Decision Makers

Whilst predictive team analytics offer decision makers new capabilities and ways to improve performance, it's also worth pausing to think about the decision makers themselves.

Often, the term decision maker is (understandably) associated with members of the executive team, heads of department or budget holders. In many businesses, these three roles often overlap and decisions are taken by a relatively small number of people.

While this makes sense for some decisions, when it comes to managing and working with teams, every manager and arguably every person in a team is a decision maker.

There are many examples that illustrate the role of decision making in teams. While team objectives and job roles are context specific, from a manager's perspective, answering the following questions requires performance-impacting decisions to be made:

• If Person A joins my team, how can I integrate them and get them up to speed as quickly as possible?
• If Person B joins my team, how can I ensure they will work well with Person C and Person D?
• Which team member will work best with Person E and Person F on the new innovation project?
• Of the five people working on the innovation project, who is best suited to update me on progress?
• Person G and H are often in conflict, how can I minimise, resolve or prevent this from happening?
• Is there a reliable method I can use to raise the level of engagement and performance for all members of my team?

The above questions are probably asked hundreds of times each day by different managers in many different businesses. The fact that gut feeling and experience are probably used as much as any tools or techniques in terms of reaching decisions illustrates the widespread impact that any tool with predictive team analytics capabilities might have.

Similar conclusions might be drawn when considering the likely questions that individual team members might ask:

• How can I improve my relationship with my manager?
• How can I raise my performance when working with Person 1 and Person 2?
• How can I make communication more productive and avoid serious conflict when working with Person 3?
• Person 4 has just joined the team and I've never met them before, what is the best way to work with them?
• Should I tell Person 5, Person 6 or both of them about my idea?
• What is the best way to gain the support of Person 7 for my new proposal?

As before, these individual team member questions are also likely asked numerous times each day. Given the importance of each team member to team performance and productivity, access to a tool providing predictive team analytics may well enhance people's own individual decision making when it comes to their chosen approach, attitude, engagement and performance.

The use of a predictive team analytics tool as a way of answering, or contributing towards the answers to the above questions opens up a realm of new possibilities for both managers and team members. Likewise, such a tool or approach is likely to be of interest to anyone interested in raising engagement and performance levels across all areas of an organisation.

Image credit: duchesssa

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A Starting Assumption

Although there is no shortage of models, assessments, psychometrics and techniques that help raise self awareness and provide insights, none offer predictions about people that are either regular or reliable enough to be used on a widespread basis.

The large number of tests, models and approaches is evidence of this. If a particular tool did provide useful and reliable predictions that improved understanding and decision making, then it's usage and popularity would increase over time. Given that the vast majority of techniques and approaches have been on the market for 20 or 30 years plus, this is ample time for a consensus or market leader to have emerged with these qualities.

The other example that illustrates this assumption is the perception that HR doesn't add value to the business. There is no shortage of commentary around this and in many cases, this line of reasoning has persisted since the Personnel Department was renamed Human Resources. The fact that HR can't call on any widely used method or approach that offers reliable and actionable predictions and insights about people is probably one of the reason's for this current perception of HR.

In summary, if one looks at the market structure for tools, tests and techniques, or the perceptions of the HR department, there doesn't seem to be anything that might come close to offering a 'Physics of People'.

The 5 Criteria for Transformation

When thinking about business transformation and what qualifies as an example of genuine transformation, as opposed to rhetoric, there are five criteria that provide a good test.

1. Simple to Explain - Can the benefits be communicated and understood quickly and easily?
2. Scalable and Predictable - Can the approach and it's recommended actions be repeated with reliable results?
3. Changes to People’s Jobs - Do people learn new processes or new methods of working?
4. A Return on Investment - Does the approach help make or save money?
5. External Validation - Are there endorsements from researchers, professional bodies or other companies?

Hopefully, the list above is simple and straightforward. Further information and detailed examples applied to 6 innovations can be found here. To summarise, of the 6 innovations, 3 met all 5 criteria and could be considered transformative, namely Containerisation, ERP and Six Sigma. Of the other 3, Knowledge Management and Competency Frameworks, despite having 20 or more years to do so, don't meet all of the criteria and are not considered transformative. Finally, the jury is out on Social Business, partly because it is a new technology or series of technologies and partly because case studies and client side applications are still new, as illustrated in this review of Gartner's Hype Cycle.

The 5 Criteria as Applied to a Physics of People

With the above examples in mind, it is proposed that the 5 criteria outlined are a useful way to analyse new technologies and innovations and their potential for transformation. The following sets out the attributes that a Physics of People would need to have in order to have the best chance at transforming business.

1. Simple to Explain

A 'Physics of People' should provide reliable predictions about people's behaviour, relationships and group values that are simple and actionable.

2. Scalable & Predictable

Consistent predictions should be accurate and reliable in multiple scenarios and contexts. In other words, the predictions should be generalisable.

3. Changes to People's Jobs

New processes, particularly around team creation, organisational design, paths of communication and hiring introduce new ways of working and changes to people's jobs.

4. Return on Investment

The predictions and decisions taken as a result of a 'Physics of People' approach help raise people's own levels of engagement and satisfaction, along with improving business and group performance and productivity.

5. External Validation

Any 'Physics of People' model or approach should have appropriate recognition from professional bodies, other companies or academic researchers.

What a Physics of People is Not

While the criteria arguably do a good job of defining what a 'Physics of People' is, it's also worth noting what it isn't. Firstly, a Physics of People doesn't disregard the essential nature of people's free will, neither does it limit people in any way. In addition, the idea doesn't incorporate moral judgements about people, for example, that one person is better or worse than the other or that certain groups of people are favoured over other groups.

In Conclusion

As technology, research and innovation progress, it will be interesting to  see how the analysis above shapes up, both in terms of other examples of business transformation but also as a way to assess any likely approaches for a Physics of People.

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