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Book Summary - Poor Economics (Part II - Institutions)
Poor Economics
A Radical Rethinking of the Way to Fight Global Poverty
By: Abhijit V. Banerjee & Esther Duflo
[Note - This is part two of this book review, please also be sure to read Part I - Private Lives here]
Summary - Most of us have views on the causes and solutions to poverty. These views, on the cause side, often range from laziness and poor life choices to government oppression and lack of opportunities. As for solutions, many see progress lying in the hands of large government programs that break poverty traps or in setting up better capitalistic mechanisms to increase opportunities and demand for services and labor. Finally, many are apathetic and don't believe and real solutions are possible. In Poor Economics, the authors take a data informed perspective to see what the research says about these issues and how people actually respond to various programs and interventions offered to them.
PART 2 - INSTITUTIONS
Chapter 6 - Barefoot Hedge-Fund Managers
"Risk is a central fact of life for the poor." They face significant amounts of risk as a regular part of life. What strategies do they employ to mitigate their risk? What interventions can we employ to support their efforts?
There are many hazards of being poor and very little margin when bad breaks occur. A high fraction of the poor run small businesses or farms, what happens in years and seasons of drought? What happens for day laborers when they are not able to find permanent work? What happens when sickness or disease interrupts the ability to work? One bad break can have permanent consequences. Interestingly, there may be psychological forces at work as well. Facing risk makes us worry and stressed which leads to depression which decreased focus and production.
Many of the world's poor act like hedge-fund managers (though obviously not with financial instruments) trying to diversify risk in their lives. They often partake in multiple occupations; if one is not producing, they can shift to another (though, this is typically less efficient). If they own farm plots they will hold multiple plots in different parts of the village; if blight or infestation occur in one area, perhaps another will be spared. Another strategy employed is a very conservative approach to risk management in their business(es). Even if they believe another technology or approach to have more potential return, they may avoid it simply because of the initial cost or potential risk in the venture. Families will tend to marry their daughters other villages close to them to maintain relationships but also provide opportunity for different weather patterns.
Another strategy that has benefits is a concept of social insurance. It's the idea of villagers helping each other out. If one family is having a bad time, other villagers support them, being very mindful that the next time it could be them. The research shows that this approach does have some value, though typically limited. Communities often help when a bad harvest hits, or the loss of a job, but typically when a health-shock occurs, a family is left to deal with it themselves. A key limiter in this approach is trust. What if you slack off? What if you don't return the help?
What about formal insurance? Hundreds of millions have been invested in an attempt to develop insurance options for the poor, but there are significant challenges. Regulation is difficult (kickbacks, fraud, overuse, etc.) Another is adverse selection and the challenge of getting stuck with the high-risk types. But, perhaps there are certain types of insurance that could mitigate some of these issues: weather insurance, catastrophic health events (though selection would still be an issue), etc. Yet the reality is that a lot of those who are poor simply don't want insurance and the demand is low? Why?
There are numerous reasons why there is low demand for insurance. Sometimes governments step in (or there is a perception that they will), or that the poor don't understand insurance products (evidence suggests they do), perhaps credibility in and trust for the insurer. Certainly the challenge of time plays into it, the idea of giving you money today in case I need it in the future when I really need it now is a significant factor. The authors' conclusion is that governments should step in, paying part of the premium for the poor and there is evidence that this can and has worked.
Chapter 7 - The Men from Kabul and the Eunuchs of India: The (Not so) Simple Economics of Lending to the Poor
Like anyone, the poor need access to loans and capital. The questions are: how do many obtain loans today, what are the opportunities and what are the challenges? Because banks are typically unwilling to engage with the poor, moneylenders fill the demand. The challenge is that they typically charge very steep levels of interest that exploit the poor and create traps for them.
Banks typically are not interested because the margins and returns simply do not justify their investment. The amount of work required for loans of $5-$100 simply don't make sense for them. Loans are based on trust and the likelihood that a loan will be repaid. In mature markets, significant amounts of information is available on those seeking loans (credit scores, financial portfolios, etc.). For the poor, this is not the case. Part of the reason moneylenders charge such high interest is because they are collecting personal data based on relationships and knowledge of neighborhoods and individuals and taking the higher risk of default.
In the mid-1970's the Grameen Bank in Bangladesh developed the concept of micro-credit which today reaches roughly 150 to 200 million borrowers. Today, there are many MFIs (micro-finance institutions). Trust and information are still key components, but they take a unique approach. The typical MFI contract involves loans to a group of borrowers who are liable for each other's loans and hence have a reason to try to make sure that the others repay. Many often meet on a regular basis in small groups to collect payments, share ideas and encourage one another. In this, the power of community and shame plays a strong motivational role. So does it work? Yes, evidence suggests that it does help, though is not a "silver bullet" to radical transformation as some hope or suggest. It is helpful for entrepreneurs and in some other situations but not all, so it is "one of they key instruments in the fight against poverty." Yet, the demand isn't as high as one might envision, why? Several hypothesis are offered: perhaps some are reluctant to join groups with others they don't know well, this requires trust; perhaps the conservative nature of the groups is not appealing to those that want to take greater risks; perhaps the structure of weekly repayments starting immediately does not work for those who need more time to nurture their investments into returns. Their is also a void between very small ventures (MFI) and large ventures (banks or large investors). While micro-investing has served many well, there is still the opportunity for further development and growth of these instruments; from accepting greater levels of risk to supporting larger projects and businesses.
Chapter 8 - Saving Brick by Brick
The sight of unfinished homes is very common in developing communities around the world? Why is this? The answer is relatively simple, this is how many save. When they have small amounts of resources, they "save" them by buying bricks to build their future home.
An important, almost side note, is that many of the classical, Victorian perceptions of the poor simply are not valid. For example, they viewed the poor as impatient and unable to think far ahead, which an innate inclination towards shortsighted behavior, as carefree or simply incompetent. The reality is that these perceptions are false.
Although very few poor have access or make use of savings accounts (again banks are reluctant due to the administrative costs vs. returns), they find many ingenious was to save. An example is forming savings "clubs" with other savers where they meet regularly, each deposit a set amount and then on a rotating basis, one member gets the entire amount. Others are known to hide money for small emergencies. Others, as noted, "save" by slowly building homes.
So would the poor utilize banks if they had access? Initial studies showed low utilization rates because a) high costs to start the accounts b) high costs to withdraw funds c) the expense/inconvenience to go to banks and access funds. Kenya has mitigated some of these challenges through a program called M-Pesa where phones are used to store and transfer funds. You purchase credits at a local vendor and then store, collect, or send them via cell phones.
Yet, even with greater access and lower costs to banking would and do the poor utilize them? It is noted that human psychology is a real challenge. The human brain processes the present and the future very differently. We seem to have a vision of how we should act in the future that is often inconsistent with the way we act today and actually will act in the future. We hope that our future self will be more patient than our present self and don't account for future wants and needs. Those that realize this, often find inventive ways to protect their current selves from themselves. Yet for most, the viscous cycle remains, goals tend to be very far away, they know there will be lots of temptations along the way and therefore struggle to save. Saving is a discipline and a challenging muscle to develop. How can we give incentive to the poor to develop this muscle? No clear answers were provided.
Chapter 9 - Reluctant Entrepreneurs
Are we all entrepreneurs? The micro-finance and "social business" movement starts from the premise that the poor are natural-born entrepreneurs. We can eradicate poverty by giving them the right environment and a little bit of help to get started. Is this true? and to what extent?
BRAC, a large MFI in Bangladesh tested these ideas. They ran RCT (random control trials) with the "poorest of the poor", those that even traditional MFIs would exclude and had control groups with no interventions. "The difference is impressive," compared to the control groups, total monthly spending is up 10% and "outlook on life seems to have changed." Given the chance, it seems that even people who have been hit by extreme hardship were able to take chair of their lives and start their exit out of extreme poverty.
But there are challenges, namely that these businesses are tiny and, for the most part, making very little money. In their 18 country data set, the average monthly profit was $115 USD PPP. Marginal returns are high (% return on investment) while overall returns (total profit) are low. Such is the paradox, these people are energetic and resourceful and make a lot out of very little. The challenge is that their returns are very small, their businesses are undifferentiated from those around them and they have no chance to earn a reasonable living.
Why is this? Is it simply a lack of capital or are there other factors? It seems there are a number of other factors. One of them is the actual potential of the business, for many, growth potential tapers off very quickly due to saturated markets, limited opportunities for economies of scale and efficiencies, etc. As noted previously, MFIs are not structure to scale and incentivize low risk and management skills are necessary for scaling. Bottom line, scaling is simply too hard and that the average business owner is not a natural "entrepreneur" in our traditional sense. Certainly there are some, but there is not necessarily a disproportionate percentage simply due to situation and environment. Many are small business owners simply because they have limited options, whether they actually enjoy running the business or not.
So if there are not millions of natural entrepreneurs that we need to invest in, what are the hopes and dreams of the poor? It consistently turns out that it is stable jobs (ideally government jobs). There is a desire for stability and stability seems to have significant impacts. For example, one study in Mexico showed that children from mothers with stable jobs (even in factories with poor conditions and low wages, but stable) were significantly taller than those without such opportunities. Moreover, even though the income difference wasn't that great, it appears that the sense of stability had other very positive effects.
Not surprisingly, stable jobs are most prevalent in large cities but what may be surprising is that permanent migration is fairly rare? Why? Living conditions are poor in urban areas and therefore men (typically) will go and work for a few weeks at a time and return but this type of work is not stable enough to help families get over the hump. To solve these types of challenges raise the issues to a political and policy level, the focus of the next chapter.
Chapter 10 - Policies, Politics
Even the most well-intended and well-thought-out policies may not have an impact if they are not implemented properly. We are all well aware of the failings of governments; so what do you do? Some would argue that you focus not on the policies themselves but the political process, solve that then work on policies, otherwise you are wasting energy and effort. Others would argue a more indirect route of largely by-passing governments and providing more aide directly to the poor with targeted aims.
Corruption and dereliction of duty create massive inefficiencies. Often, these bad institutions have incentives for their leaders to keep them "bad" for personal gain. While not impossible to break, the challenges are real and large. Can you work from the outside in? Could you co-opt cities within a country (e.g. Hong Kong) and develop healthy policies and practices and multiply these efforts until you hit a tipping point? Doubtful, but interesting nonetheless.
Ultimately, the chapter runs long on ideas and hypothesis but very little evidence or data.
Book Summary - Poor Economics (Part I - Private Lives)
Poor Economics
A Radical Rethinking of the Way to Fight Global Poverty
By: Abhijit V. Banerjee & Esther Duflo
Chapter 1 - Think Again, Again.
The book starts with a jarring statement, "every year, 9 million children die before their fifth birthday." When confronted with this, how do we respond? The research says that when we make the problem personal, when we put a face and a name on it, people respond with greater generosity. The challenge is that when we face problems of poverty we often think at a macro-level, like Jeffrey Sachs who states, "Poor countries are poor because they are hot, infertile, malaria infested...[which] makes it hard for them to be productive without an initial large investment." On the other side of the spectrum, William Easterly in his book Dead Aid argues that aid does more bad than good: It prevents people from searching for their own solutions, while corrupting and undermining local institutions. When markets are free and the incentives are right, people can find ways to solve their own problems. Yet, as the authors of Poor Economics argue, these debates simply obscure what really matters, not so much where the money comes from, but where it goes. What evidence is there for what interventions are really working and why?
A key concept is that of a "poverty trap." Are the conditions such that individuals, communities and nations are "trapped" in poverty? To determine, the authors state that there will be a poverty trap when the scope for growing income or wealth at a very fast rate is limited for those who have too little to invest, but expands dramatically for those who can invest a bit more. On the other hand, if the potential for fast growth is high among the poor and then tapers off as one gets richer, there is no poverty trap.
PART 1 - PRIVATE LIVES
Chapter 2 - A Billion Hungry People?
For many in the West, poverty is almost synonymous with hunger. As a result, much of our aid and focus has been on ensuring that each person get enough calories each day. From a poverty trap perspective, the thinking is that if a person is not able to get enough calories, they can not work sufficiently and their income is diminished. Give them enough calories and you break the trap.
However, the evidence doesn't follow the logic. "Most people living with less that 99 cents a day do not seem to act as if they are starving." If they were, they would invest more of their income into buying more calories. The research shows that when these families receive extra money, food spending does not increase disproportionately; remarkably, it increases at similar levels with even the rich around the world. Moreover, the increase in spending isn't for more calories it is for better-tasting, more expensive, calories.
So, if we assume that people know what they are doing, and we should, it is fair to conclude that there is not a poverty trap resulting from lack of food. In fact, the authors state that in terms of food availability, "today we live in a world that is capable of feeding every person that lives on the planet" with at least 2,700 calories per day. Starvation exists not because of a lack of food but a distribution of food and how it is shared around the world.
The learning is that a) there are sufficient, cheap, calories for most all. b) more calories do not translate, generally, to higher earnings and c) that people place higher value on other things than food (e.g. things that make life less boring; festivals, t.v., sugar, etc.) Nutrition, is certainly an issue and getting "the right" calories, but not simply starvation in and of itself. This is where our focus should be, helping educate on healthy eating and providing more nutrient-rich, cheap, food options.
Chapter 3 - Low-Hanging Fruit for Better (Global) Health?
"Health is an area of great promise but also great frustration." Why do the poor not make more use of preventative technologies and options? Is it a lack of knowledge or a lack of access or lack of resources? Some of the answers are surprising.
Of those 9 million children each year who die before their fifth birthday many are due to preventable/treatable things, such as diarrhea. Breast-feeding is free, yet less than 40 percent of infants are breast fed exclusively for their first six months. Demand is low for malaria nets. Even though bleach and chlorine are cheap, few families use them. Yet, these tools are not used very much. Why?
The reality is that the poor actually spend a considerable amount on healthcare. The issue isn't how much is spent, but on what. Many countries offer free public health, yet these centers are often shunned or little used by the poor who choose more expensive options. What the research shows is that the attendants of free clinics are often sporadic (with high absentee rates) in their hours, making it hard to know if they will be available, make significant errors in diagnosis (also noted as being an issue for private clinics as well) and spend on average only a few minutes with patients. Perhaps people avoid public health simply because it doesn't work well.
But again, why not chose free/cheap preventative options? Could it be the psychology of "free" where things are judged to be of little value simply because they don't cost a lot? No, the evidence does not suggest this is the case.
Knowledge, beliefs and mindset do seem to play a strong factor, as well as, a concept of time. We are wired to trust what we see, believe and know. When you prescribe something and I feel better (whether I would have naturally or not), I believe your intervention was helpful. When you tell me to do something so that I won't get sick in the future, it is more difficult to believe because I don't have evidence that your truth "worked" - I may not have gotten sick anyway. The poor are not different from us in this regard, most of us have great intentions and think we'll make better choices in the future, the reality is when that future comes, we often aren't much different than we are today and other things seem more pressing or enjoyable.
The issue then becomes providing proper incentives to help people make healthy decisions (immunizations, etc.) that they might otherwise not make, while not being manipulative. What we know is that "nudges" towards health won't override our strongly held beliefs, but that can move us when our beliefs are soft or we need motivation. The key is finding and employing the right nudges in the right places to help move people towards health.
Chapter 4 - Top of the Class
Education. Why are children not attending school more and staying in school longer? Surely all parents understand that value of education? Are their simply not enough schools? Do poverty traps (sickness, need to work) prevent children from attending?
The data shows that schools are available. "In most countries, they are free, at least at the primary level. Most children are enrolled. And yet...child absentee rates vary between 14 and 50 percent." Much of this "probably" reflects children's unwillingness to be in school and parents inability/willingness to make them go.
The assumption is that if we could simply get children in schools learning would take place. Sadly, this is not quite the case. Teacher absentee rates are significant. When they are in school, they are not always in the classroom. One study found that "50 percent of teachers in Indian public schools are not in front of a class at the time they should be"
Similar to the issues with healthcare, we need to look at incentives. Mexico instituted a program called PROGRESA, a conditional cash transfer scheme for families if their children regularly attended school and the family sought preventative health care. The study concluded that it did "substantially" increase school enrollment, particularly at the secondary level. Another study found that the "conditions" weren't necessarily the driving force, it was the additional financial help these families needed.
Another program that had substantial impact is Pratham. Here, a set of volunteers from the community (often college students) hold evening classes in their neighborhoods with children. These volunteers are not compensated but do receive a weeks worth of training.
One fascinating characteristic is that many families see education as "a lottery ticket" vs. a safe investment. The thinking is to pick one child with the most "potential" and invest significantly in that child in the hopes that they will obtain a good job and support the parents as they age. This selection process also has a negative affect on the other children in the family not selected as they can believe they are not as smart and make less effort towards education.
Additionally, in many countries caste or socio-economic beliefs are a factor. Many cultures believe that poorer children have lower natural intellectual abilities and thus lower their expectations and investment in those children. Evidence is clear that this is not the case, yet many cultures persist in this and as a result we experience a huge waste of talent.
The solution? Believe each child is capable of learning basic skills and commit to helping each child master them. Leverage community volunteers to help children master those skills. Re-organize curriculum and classrooms to allow children to learn at their pace and stage (vs. age). Help educate parents on income gains from education and provide them more information on each child's progress. Leverage technology and use necessary incentives (nudges) to keep children in school and progressing.
Chapter 5 - Pak Sudarno's Big Family
Family size and planning. Debate has raged for decades on the issues of population growth and control; different countries have taken drastically different measures. In the mid 1970's India conducted over 8.6 million sterilizations. For much of human history "regions or countries that had more people" grew faster than the rest. Yet today, countries "with higher fertility rates are poorer" (though this doesn't tell us they are poorer because they are poor). The question for us is "are large families poorer because they are large? Are they less able to invest in the education and health of their children?
The data: no real evidence that children born in smaller families are really more educated. Yet this seems counter-intuitive. If families must spread their investment, why do we not see the impact? Perhaps the this is because the mother gives more of her "resources" (thinking, if it is a zero-sum game, mom becomes the bigger loser).
How do families in poverty make fertility decisions? How much control do women have in the decision-making process? Do they have access to modern contraception methods? What about teenage sex, education and abstinence?
Data: The poor do have access to contraceptives, but use them less than the rich. Studies in Kenya suggest that adolescents (there) are making calculated, if not fully informed, choices about whom to have sex with and under what conditions. ABC (Abstain, Be faithful, use a Condom) education did not show impact on pregnancy rates using RCT methods. One strategy that did have an impact was informing teenage girls that older men are more likely to be infected with HIV. In general, the findings suggest that if women get pregnant, it reflects someones active decision.
So what factors play into the decision? Culture? Idea of children as financial investments? For many parents, children are their economic future; an insurance policy. The idea is that children (or extended family) will take care of parents as they age (sadly this also impacts gender selection). Interestingly, when family sizes drop, savings rates tend to increase.
[The chapter then meanders a bit but concludes...] "The most effective population policy might therefore be to make it unncessary to have so many children (in particular, so many male children). Effective social safety nets...could lead to a substantial reduction in fertility and perhaps also less discrimination against girls."
Book Summary: Tough Choices by Carly Fiorina
I recently read that Carly Fiorina, the former CEO for Hewlett Packard is considering a run for President. Early this year I read her book, Tough Choices, and thoroughly loved it. I was moved by her passion for leadership and her determination to persevere through very difficult challenges.
This is not a typical book summary, rather a collection of some of my favorite quotes from the book. It is a book worth reading, particularly if she does make a run for the Oval Office.
There are some who would argue a manager’s job is to use fear to motivate
people, but I believe a leader’s job is to help people overcome their fear.
(pg. 26)
People don’t do business with a company; they do business with people who
represent that company and can commit its resources and support. (pg. 96)
For many people, even deep dissatisfaction with the known present can be
preferable to the fear of an unknown future.
I learned that when people are afraid, they turn inward and protect
themselves and those things most personal and important to them. (pg. 121)
It is the particular nature of American business that negotiations become
real when words go to paper. (pg. 126)
Sometimes leaders make decisions for others. Sometimes leaders let others decide. And sometimes leaders build processes that
help everyone make decisions and help people choose where they should lead and
where they should follow. (pg. 128)
HP’s culture – no one would set challenging goals. (pg. 153)
Whenever a leader hears a team say “We can’t” – for whatever reason –
much more conversation is required. And
teams are built through such conversations.
Team are built when people can work together to successfully solve
problems and achieve goals. Teams are
built through effective collaboration. (pg. 167)
Managers control resources, but people follow leaders. Managers produce desired results within known
boundaries and defined conditions.
Leaders take risks, take action, create some excitement and create
something new. (pg. 183)
Leaders are defined by three things: character, capability and
collaboration. Leaders are candid and courageous; they know their strengths and
use them; they bolster their weaknesses by relying on others with complementary
skills and by constantly learning and adapting; they know when they need help
and seek it; they know when help is required by others, and they provide it.
(pg. 185)
The best meetings occur when people share a common experience. The most progress is made when people
discover things together. (pg. 186)
Strategy and operations are two sides of the same coin. (pg. 195)
Incremental change is sometimes viewed as safer, but incrementalism often
lacks the necessary force to overcome inertia and resistance. (pg. 197)
[At HP] Consensus decision making was celebrated as the ideal. There are, of course, times when consensus is
important, and there are other times when an individual or small group decides
on behalf of the larger group. At HP,
however, a call for consensus was a very effective way of grinding the
decision-making process to a halt. (pg. 201)
Horizontal is not the same as centralized. Centralized decision making is traditional,
vertical, command-and-control behavior where decisions are made in a central
location. Horizontal decision making is
distributed across many organizations and locations. Each decision maker knows his or her role by
virtue of the process map. (pg. 220)
Values are signposts to guide people’s behavior when the rules aren’t
clear and the supervisor isn’t present.
Goals and metrics are what get done.
Values are how those things get done. (pg. 265)
Improving performance discipline was focused on using program management
processes throughout the company to drive consistent, reliable execution (pg.
273)
A [manager] must strike that right balance between letting people do
their jobs and constantly verifying that the details are being attended to
appropriately, and then making course corrections as required. (pg. 276)
Book Summary - The Advantage
Note: I can think of few books that have had more impact on how I lead and on my organization than The Advantage. It is a simple, yet power model for building organizational health through clarity of thought and disciplined action.
THE ADVANTAGE - Patrick Lencioni
The Case for Organizational Health
The greatest single advantage any company can achieve is organizational health. It provides the context for strategy, finance, technology, and everything else that happens within it. It is the single greatest factor for determining success.
Why don’t more embrace it?
✓ The sophistication bias – “it is beneath them” – too simple.
✓ The adrenaline bias – it takes time and isn’t about firefighting.
✓ The quantification bias – the benefits are difficult to quantify.
Smart vs. Healthy Organizations
- Smart organizations are good at the decision sciences – but smart does not mean they are healthy or successful. It is hard to maintain a competitive advantage based on smarts.
- Healthy organizations have minimal politics, minimal confusion, high morale, high productivity, and low turnover. An organization that is healthy inevitably gets better over time.
Discipline 1 – Build a Cohesive Leadership Team
If an organization is led by a team that is not behaviorally unified, there is no chance it will become healthy.
A leadership team is a small group of people who are collectively responsible for achieving a common objective for their organization.
A leadership team is a small group of people who are collectively responsible for achieving a common objective for their organization.
The only reason that a person should be on the leadership team is that they represent a key part of the organization or truly brings a critical talent or intangible to the table.
Behavior 1: Building Trust
It is important to learn each other's personal histories (where they are coming from) and to conduct personality profiling (Myers-Briggs, etc.) to learn how each other thinks.
Vulnerability is also a key component to building strong teams and trust; we have to be able to share who we are; both strengths and weaknesses.
Behavior 2: Mastering Conflict
Productive ideological conflict, the willingness to disagree, even passionately when necessary, around important issues and discussions is healthy and necessary. We must overcome the tendency to run from discomfort; do not try to avoid conflict. When leadership team members avoid discomfort among themselves, they only transfer it in far greater quantities to larger groups of people throughout the organization. Too often we create an “artificial harmony” that isn’t real and hurts the organization.
Conflict tools
✓Mining for conflict – when you suspect that there is unearthed conflict in the room, demand that people come clean. Don’t assume silence is agreement. Probe for agreement. Ask each member if they agree.
Conflict is also important because people can’t achieve commitment without it. You can’t buy in to an idea until you have weighed in on it.
When leadership teams wait for consensus before taking action, they usually end up with decisions that are made too late and are mildly disagreeable to everyone. This is a recipe for mediocrity and frustration.
Leadership teams must arrive at specific agreements – with clarity for all. They must also stick around long enough to review agreements and ensure clarity.
Behavior 4 – Embracing Accountability
Success and health require appropriate peer pressure to succeed. Leaders must be willing to step in, however, the most successful form of accountability is from peers.
To hold someone accountable is to care about them enough to risk having them blame you for pointing out their deficiencies. Failing to hold someone accountable is ultimately an act of selfishness. Because behavioral issues almost always precede performance issues, it is critical to call out those behaviors early.
Behavior 5 – Focusing on Results
No matter how good a leadership team feels about itself or how noble their mission might be, if the organization it leads rarely achieves its goals, then, by definition it’s simply not a good team.
Goals must be shared by entire team (one team, one score). Leadership teams must place a higher priority on the team goals than on their own departments. Leaders must be willing to volunteer to help others on the team succeed.
Discipline 2 – Create Clarity
Alignment is about creating so much clarity that there is as little room as possible for confusion, disorder, and in-fighting. Leaders underestimate the impact of even subtle misalignment at the top and the damage it causes. Just a little light between leadership team members is blinding to those one or two levels below.
Six Critical Questions
1.) Why do we exist?
- Employees in every organization, and at every level, need to know that at the heart of what they do lies something grand and aspirational.
- Must be idealistic. Is not about marketing, rather about clarity.
- Start by asking, “How do we contribute to a better world?” Then keep asking “why” until you reach the bottom.
2.) How do we behave?
- Core values: 2-3 behavioral traits that define you, are true, and that you are willing to be punished for living them and at times employees might take them too far. Must be intolerant when people do not follow them. To identify – think of employees who embody what is best about the organization and then figure out what makes them stand out. Do the same for the negative folks.
- Aspirational Values: Values an organization wishes it had and knows it must develop them.
- Permission to Play Values: Minimal behavioral standards.
3.) What do we do?
- Nothing more than a description of what the organization actually does. One sentence, non-marketing, keep it simple.
4.) How will we succeed?
- An organization’s strategy is nothing more than the collection of intentional decisions a company makes to give itself the best chance to thrive and differentiate from competitors.
- Identify Strategic Anchors: Reverse-engineer by taking everything you know about the organization. An Exhaustive list of all the decisions and realities that form the context of the current situation. Look for patterns that indicate strategic direction (anchors).
5.) What is Most Important, Right Now?
- Every organization, if it wants to create a sense of alignment and focus, must have a single top priority within a given period of time.
- Leaders on the team must be invested without their departmental hats, focused on the larger organization.
- A thematic goal: singular, qualitative, temporary, shared across the leadership team.
6.) Who Must Do What?
- Ensure there is clarity on who is responsible for what by when.
The Playbook - Once the leadership team has answered each of the 6 questions, it is absolutely critical for them to capture those answers in a concise, actionable way so they can use them for communication, decision making, and planning going forward.
Discipline 3 – Over-communicate Clarity
People are skeptical about what they’re being told unless they hear it consistently over time.
Leaders often confuse the mere transfer of information to the audience’s ability to understand, internalize, and embrace what is being communicated.
Messaging is not so much an intellectual process as an emotional one.
Cascading Communication
✓True Rumors – After leadership has agreed, those leaders need to meet with their direct team and have those teams meet with their direct team to cascade information/agreements quickly (24 hours).
Discipline 4 – Reinforce Clarity
Make sure that human systems – every process that involved people – from hiring and people management to training and compensation, is designed to reinforce the answers to the questions. Leadership must take responsibility for these human systems and set direction, not delegate responsibility. The fact is that the best human systems are often the simplest and least sophisticated ones. Must have appropriate balance of gut vs. structure: Put just enough structure in place to ensure a measure of consistency and adherence to core values – and no more.
Performance Management – Healthy organizations believe that performance management is almost exclusively about eliminating confusion. Keep the systems simple.
Recommendation: Whether a small not-for-profit or a large global organization, the simple model put forth in this book will positively impact the health of your organization. I recommend you read and re-read it. Here's the link to it from Amazon: The Advantage
