Great People Decisions by Claudio Fernández-Aráoz

The Big Idea: 1) IQ matters but the best predictor of success is relevant experience plus high emotional intelligence (EQ). 2) Interview 20 individuals before selecting finalists. 3) The preferred strategy for sourcing is to contact people who may know the best candidates.

INTRODUCTION

Organizations are all about people.
People are the problem, but they are also the solution.
Making great people decisions is vitally important to your organization.

CHAPTER ONE – Great People Decisions: A Resource for You

As an individual, people decisions are also the single most important contributor to your career success. Once you become a manager, you start working through others.
As a CEO or chairman, people decisions are both your highest challenge and your biggest opportunity.
Great management, according to Marcus Buckingham, is to first hire great people, then to assign the right person to the right job.
The first step in any hiring decision is to think very carefully about what you really need. Outside of work, you should also choose nannies and gardeners just as systematically.
According to some studies, the best interviewers had predictive validities 10 times better than the worst interviewers. So some people are better at evaluating talent.
Larry Bossidy and Ram Charan say “having the right people in the right place is the job no leader should delegate.”
When hiring, figure out what are the key indicators of a successful hire, assign appropriate weight to those different dimensions.
Managers can definitely improving their hiring success. A few basic concepts about people assessment allows managers to become much better at hiring. These are learnable skills .
Hiring is an area where very few business executives get any formal training at all. You don’t necessarily learn from your experiences, sometimes, because there is a lack of immediate and clear feedback on your people decisions.
In addition to career success, better hiring decisions will increase your personal happiness. Your work relationships and your professional satisfaction impacts your personal happiness.

CHAPTER TWO – Great People Decisions: A Resource for Your Organization

According to Built to Last, greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.
According to Jim Collins, outstanding leadership and the ability to build superior executive teams were the two essential and foundational prerequisites for remarkable, long-lasting corporate excellence.
First, get the right people on the bus.
The choice of CEO has an impact on profitability as big as the choice of industry.
In The War for Talent, people choices are a key driver of organizational performance.
According to McKinsey, poor performance was often caused by the wrong people at the top.
According to Jack Welch, “you can have all the greatest strategies in the world, but they aren’t worth much without the right people.”
GE has been an outstanding breeding ground for great leaders. GE’ most important product was not light bulbs or transformers, but managerial talent .

CHAPTER THREE – Why Great People Decisions Are So Hard

The best organizations in the world made all sorts of mistakes when it came to people decisions.
4 Hiring Traps
1. The odds are against you. There are only a small number of exceptional performers
2. Assessing people for complex positions is inherently difficult. Many knowledge worker jobs are truly unique. Requirements and priorities can rapidly shift. Intangible traits are much harder to evaluate. Many top candidates have no tolerance for any kind of thorough evaluation.
3. Powerful psychological biases impair the quality of the decision-making process. We tend to procrastinate about our people decisions. We tend to overrate a person’s capabilities. Individuals also tent to overrate our own capabilities and skills. Motivation does not equal skill. We tend to overweigh first impressions and make snap judgments based on criteria not related to abilities. We tend to overrate a candidate based on a company reputation from their resume. We tend to overweight an individual’s abilities and underweight the situation they worked in. We tend to seek out confirmatory information and avoid disconfirmatory information. We tend to hire someone based on familiarity. The most important step for avoiding these biases is awareness.
4. Misplaced incentives and conflicts of interest can easily sabotage these decisions. Keep an eye out for candidates who feel like a position is the perfect fit for them based they want (or need) the job. Such a candidate is likely to exaggerate their capabilities and resume. Also keep an eye out for nepotism and cronyism during the hiring process.

CHAPTER FOUR – Knowing When a Change Is Needed

Human nature inclines us to procrastinate in our people decisions, so few executives have a succession plan.
Five Discontinuity Scenarios That May Require Change in Leadership
1.Launching New Businesses
When the launch of a new venture calls for a people change, both types of candidates — internal and external — should be properly considered.
2.Doing Mergers and Acquisitions
3.Developing and Implementing New Strategies
When you change strategies, you very often have to change horses. Jim Collins’s Good to Great says “First Who . . . Then What. They first got the right people on the bus, the wrong people off the bus, and the right people in the right seats — and then they figured out where to drive it . ”
4.Dealing with Performance Problems
Fundamental attribution error: sometimes the situation is the cause, not the leader. Are you experiencing a bumpy ride? Is it your car? Or is it the road?
5.Coping with Growth and Success
Leaders mush manage the present and anticipate the future.
Powerful forces that tend to work against change. 1) The universal human impulse to prefer short-term comfort over uncertain, but possibly better, future. 2) Culture in which personal relationships trump the rules. 3) People underreact when things are tranquil and overreact when there is chaos.
Jack Welch says candor is very hard to achieve and even runs up against human nature.
Howard Stevenson says the most common mistake: you never fire people early enough.
If you as a boss are “ loyal ” to an incompetent employee, that makes you appear less honest and therefore costs you more than it gains.
We tend to escalate our commitments and try to hang on, despite clear signs that it is time to bail.
Jim Collins on how “good to great” companies decide who should get off the bus, and how: they apply exacting standards at all times and at all levels. They are rigorous, not ruthless.

CHAPTER FIVE – What to Look For

What is the best predictor of a person’s success in a job?
First of all, the ideal candidate doesn’t exist.
So you want to understand which strengths are critically important and which weaknesses aren’t fatal.
Does IQ matter? Yes, but it’s not usually the critical factor. It matters most when you hire someone with no previous experience in the job
Does experience matter? Yes, experience matters a lot .
Does personality matter? Personality is too subjective. Personality tests are not particularly valid and any conclusions should be taken with a grain of salt.
Emotional intelligence, in business where we depend on others, could be more important to personal success than IQ .
Actual job-related behaviors were the best indicators of potential success.
Richard Boyatzis published The Competent Manager to describe competencies and job performance.
First, a distinctive set of competencies is required for every job and for every company.
Second, the list of typical key competencies for managers and senior executives tends to be short.
Egon Zehnder identifies four key competencies for successful managers.
1. Successful managers need to have a strong “results orientation” (i.e., be focused on improving the results of the business).
2. Successful managers know how to focus, align, and build effective groups.
3. Successful managers how know to work with peers and partners they have no direct authority over.
4. Successful manager have a “strategic orientation” that enables them to think Big Picture.
The candidates who were most likely to be extremely successful combine relevant experience plus high emotional intelligence (EI).
Lack of EI is very highly correlated with failure.
What is Emotional Intelligence? a. self – awareness b. self – management c. social awareness d. social skills
How are emotional intelligence competencies measured ?
Observations, particularly 360° assessments.
The effects of conventional management training seem to vanish within a few months.
Emotional intelligence can be developed, but this will not happen in traditional developmental programs. First, managers must want to change. Then there must be a realistic learning agenda and the opportunity to practice the competencies. It requires a significant personal effort and time.
One of the things that you should be looking for when making people decisions is potential. What is potential? Ambition + ability to learn from experience.
What is ambition? Need for achievement + need for affiliation + need for power .
Should you be looking at values when evaluating someone? Yes. Should you aim to develop those values? No.
The right people share the core values of an organization. A company can teach skills, but not character. You’re better off finding someone who’s already on board with your values ,
What about the concept of teams? Performance depends on good team work. Effective teams easily outperform individual stars. Aim for competency diversity in your teams.
Summary a. Never compromise on values. b. IQ is indeed important. c. EQ – based competencies are absolutely essential. d. Hire individuals with high potential. e. For very senior positions, experience assumes more importance.
Avoid the trap of thinking that any single candidate will have every quality.

CHAPTER SIX – Where to Look: Inside and Out

When is it better to go for outsiders versus insiders?
Statistically, promoting an insider doesn’t have a significant impact on company performance.
Outsiders add great value when the predecessor was fired and change is needed. Outsiders destroy value when the succession is natural (retirement.)
When promoting an insider, always make sure that the person you are promoting has the necessary capabilities. Insiders tend to get scrutinized less carefully than outsiders.
Large companies skilled at developing internal people, such as GE, will quite likely have the best candidates within.
Always better to consider both internal and external candidates for a search .
Companies underinvest significantly in the generation of potential candidates.
How do you know when to stop looking ?
Statisticians have demonstrated that in such a situation , the best strategy is the “37 Percent Rule .” You would need to interview and pass on at least 37 people women (on a base of 100) and hire the next person who is more qualified than the best from the 37.
It’s more practical to reduce this rule from 37 to 12.
Because candidates are also evaluating you, statistics says to interview 20 individuals before setting your aspiration level.
Remember to look internally, scrutinize insiders just as carefully, and invest time building an internal talent pipeline.
How do people find jobs?
Personal contacts were the predominant method of finding out about jobs. Weak ties were the key, so develop a good personal network.
Job postings have serious limitations. It is hard to get the attention of the best candidates. The pool of respondents is typically very large, but of very limited quality.
The preferred strategy for sourcing is not to think about candidates, but to think about people who may know the best candidates. It makes much more sense to drum up people who are likely to know of several high-quality candidates right off the bat.

CHAPTER SEVEN – How to Appraise People

Investing time, effort, and money in better assessments is your largest opportunity for making great people decisions.
The best tradeoff for the candidate and the company is a combination of effective interviews and reference checks.
There is always some analysis of a resume, however, the vast majority of resumes are misleading.
Reference checks are typically used in practice to eliminate candidates.
Interviewing can be improved by the use of the situational interview and the behavioral interview.
Untrained interviewers make snap judgments and then look for evidence to support those judgments.
Most interviews are ineffective at best, highly unstructured, with the interviewer doing most of the talking.
The key to effective interviewing is first identifying the critical competencies, for this particular position, and describing them in behavioral terms.
Past behaviors are the best basis for predicting future behavior.
If you focus only on the critical competencies, you will achieve much better assessments and much more powerful people decisions , and do less work in the process.
In short, research confirms that identifying the relevant competencies for a job, and assessing them through effective interviews, is an extremely valid and powerful way to predict outstanding performance.
There are two distinct approaches to the structured interview: behavioral questions (past behavior) and situational questions (hypothetical behavior). I prefer behavioral questions.
Effective interviewing requires significant preparation. Your questions should be focused on behaviors, and should be followed up with significant probing to understand what was the candidate’s exact role, and what were the consequences of his or her actions.
Interviewing skills can be learned through role-playing, often videotaped, training sessions.
Proper reference checks are an essential condition for success in any assessment.
When I asked Jack Welch how he really found out about a person. He told me that he never trusted the references given by the candidate.
Weeding out the outright fakes is entry-level reference checking. Second level involves finding people who can confirm that your candidate’s self-reported achievements are real. A third type of reference helps you hone in on competence and potential.
A former boss would tend to be very good for assessing things like results orientation and strategic orientation. A peer would be well positioned to assess collaboration and influencing skills. Direct reports could comment on the candidate’s competence in the areas of team leadership.
Some interviewers are better than others. The best interviewers had predictive validities 10 times bette. R
Instead of a panel interview, have more than one highly effective interviewers independently in the finalist.
Team interviews can be more effective for higher-level positions, more complex jobs. They also reduce the duplication and exhaustion of back-to-back interviews.
When the final decision approaches, strict discipline becomes absolutely crucial. All too often, expediency intervenes, discipline breaks down , and terrible people mistakes are made. “Discipline” means reviewing, once again, the performance expectations, and reviewing the evidence
Once you become more experienced you can listen more to your own intuition. Until then, you should question your intuition frequently.
Developing your assessment skills will be key for your career success and for your company’s success.
Invest in good interview training.
Review the recruitment and interview process.
Remember to review people decisions again, one or two years down the road.
Be willing to undo a bad decision .

CHAPTER EIGHT – How to Attract and Motivate the Best People

The first critical step of selling a job is understanding the main motives and the primary concerns of the candidates.
Anyone can hire average people. Hiring the best people, especially those who aren’t looking for a job, demands your best.
Take time to understand the candidates and their motivations. Address your concerns. Share your passion about your company, your projects, and the job you are offering.
Make sure that your compensation packages are aligned with your retention priorities.
The evidence about the inherent power of “pay for performance” is surprisingly inconclusive.
A reasonably high level of total compensation is needed to attract the best .
Balance long-term with short-term incentives. Long-term incentive should be along the lines of restricted shares rather than stock options (which have strong upside but limited downside.) Short-term incentives might be a yearly bonus.
Most complex jobs require collaboration, and therefore individual incentives can be extremely negative.
Avoid the “golden parachute,” which creates a perverse incentive to promote conflict and get fired.
The signing bonus is nearly as bad , because it pays reluctant candidates to suspend their judgment about the job to earn the signing bonus.
What candidates look for, first and foremost, is not more money, but a job where they can do their best, with a challenge that perfectly matches their skill level, in a place where they will grow and develop, in an organization they like, with a good boss and a great group of peers.
You want the right candidate, one who really cares about the job and the organization.
If you have the right people, they will do everything in their power to make the company great. —Jim Collins
When working with an executive search firm, a fixed flat fee and a retainer arrangement can sidestep all of these fee-related structural problems . It can reinforce personal trust with structural integrity.

CHAPTER NINE – How to Integrate the Best People

Bringing a spacecraft safely back to Earth is similar to integrating a successful candidate into a new job.
External candidates are usually expected to hit the ground running and also often have a compensation package that creates jealousy and resentment.
The Dynamics of Taking Charge by John J . Gabarro is the best book ever written on the integration of new managers.
Integration is hard. Integration takes time. If managers act too quickly, they may do so based on the wrong diagnosis, and fail. If they take too long, they will frustrate the organization.
The manager most likely to fail at integration is the “Lone Ranger,” who can’t involve others in the learning and action stages. So, hire emotionally and socially intelligent managers who can get others to help them in the diagnostic phase.
To avoid integration failures: be aware of the common traps, prepare the manager, and follow up closely.
When it’s clear the integration isn’t working, pull the plug. This is never easy.
New managers should always have a sponsor, a champion. The power of “personal touch” can’t be overemphasized. There’s simply no substitute for one-on-one sessions .

CHAPTER TEN – The Bigger Picture

Just like hiring and promoting, delegating more often and more effectively improves your organization’s results, and helps ensure your own career success.