Category: Organizations

I once heard Jack Welch, well-known former CEO of General Electric talk about employee performance clauses during his time at GE. He gave details on how he would reward/promote the top 10% of his employees based on certain metrics, and then fire the bottom 10% of his employees. There would consistently be new employees being hired, and then the next year the top 10% of the entire pool of employees would be rewarded/promoted, and then the bottom 10% again would be fired, etc.

Some, however, have questioned whether this is the best way to get the most out of one’s workers. After all, if you knew that out of 10 people on your team one of you would get fired you may be tempted to sabotage or just do the minimum so that you wouldn’t get fired. Prospect theory is a theory on loss aversion developed by Daniel Kahneman and Amos Tversky. The basic idea is that humans hate losses more than they love to win. If their research is correct, rather than striving to be the best or be in the top 10 % the focal point of most of the employees will be on not being in the bottom 10%. Of course if that’s the focal point, then the workers will be doing the minimum rather than the maximum for the company. And of course, nobody wants a company filled with minimum effort workers.

What is the ultimate scarce asset for any corporation? Money? Gold? Human Capital? Petroleum?

Some, like Tarun Khanna, believe that the ultimate scarce asset is “being clean in a sea of corruption.” The idea is that all other resources can be bought or if one is lucky, it can fall into one’s lap. However, being clean – especially in an era of corporate corruption and ethical mudslides – is an individual and organizational choice. It requires someone (or many people in the case of an organization) to make the choice to work and conduct business a particular way. It requires organizations not to pay bribes or go about doing business in an unfair manner. This is easier said than done, since one mistake or one bribe can derail an entire organization.

This is a significant challenge in emerging economies. However, there is a strong commercial value to doing the right thing since a clean organization often draws much more business from outside investors and even from the general public. The problem is that if one is clean only for commercial reasons, eventually the temptation will probably prove too great. Clean organizations in corrupt economies often have great profits. Of course if profits were the only goal, then the organization most likely wouldn’t be very clean since they would most likely cut corners to achieve greater profits. Once they achieve these greater profits in the short-term, it would lead to less profits in the long run since investors and others would know they’re not a clean organization and would not be able to trust them.

So it seems that being a clean organization ethically is important to an organization’s profits, but they must have other values that are equal to the goal of profits for them to maintain being a clean organization. Organizations and individuals who make up the organizations need something more the mere goal of profits to continue and maintain their cleanliness. Again, this is not an easy thing to do for a business. It requires a strong conviction and actions beyond the conviction for the long-term. This is probably the very reason why Tarun Khanna is convinced that “being clean in a sea of corruption” may be the ultimate scarce asset. I wholeheartedly agree. Going further, perhaps one can argue that “being clean in a sea of corruption” may be a very important strategy in addition to being a scarce asset.

If you had the choice to hire someone from a top-tier school or a lower-tier school, which would you choose? This is usually not even a serious question, since the answer seems obvious to most: hire the best possible candidate with the best possible training which typically includes the criteria of having attended the best possible schools.

The Taj Group, however, believes they’re better off recruiting from lower-tier schools for their top management positions.1 Here’s why:

“For the company’s topmost echelons, the Taj Group signs up 50 or so management trainees every year from India’s second- and third-tier B-schools… It doesn’t recruit from the premier institutions, as the Taj Group has found that MBA graduates from lower-tier B-schools want to build careers with a single company, tend to fit in better with a customer-centric culture, and aren’t driven solely by money.”

The Taj Group has decided to strategically recruit in this manner because they believe that a potential leader’s commitment is as important as their educational background. The fact that these recruits have graduated from lower-tier business schools is enough, they believe the minimal business/technical qualifications have been met. Yet, they’ve seen humility and commitment from this group that they have not seen/or have seen rarely in graduates from top-tier business schools.

This is a bold move, since most organizations are blinded by the more visible qualifications such as educational background when in fact there exist other valuable qualifications that are often found in those who are not from top-tier schools. Perhaps, some companies have overvalued the prestige factor or have simply overlooked the fact that there are other qualities of a recruit that are equally valuable.