The Lost Art of Leadership

Knowledge@Wharton recently featured an article explaining why ranking employees relative to their peers can backfire.

The astonishing thing is how rapidly people have forgotten two millennia of leadership.

The “astonishing” finding in the article – that  is, astonishing to people who have managed to avoid 40 years of work in employee motivation by psychologists – is that (i) giving employees feedback comparing them to their peers can cause resentment, and (ii) financial rewards do not always correlate with higher attainment.

To look at the the issue another way: why was this astonishing? What’s necessary to believe such that people believed that doing those two things would actually improve employee productivity?

Simple: that people (employees) are highly rational actors knowingly engaged in competition with their peers for a finite amount of resources (compensation) who attempt to optimize their personal income with no regard to others.

That doesn’t sound terribly human – or terribly friendly, for that matter – so why did people act as if it were true?

Such is the influence of economics, the magical discipline which is two parts mathematical rigor and one part magical thinking (which directs the other two parts).

For purely practical reasons, early economists constructed models explanations of the economy that assumed that actors were perfectly rational. It was sort of a mind game: What would the perfect economy look like? To what extent is our current economy perfect?

It was a practical attempt because data simply wasn’t available to run empirical studies on something like the macroeconomy, or even large markets. The computational power simply wasn’t available to create sophisticated models using that could account for non-rational behavior.

Why? Because economists needed – that is, they weren’t capable of developing anything else – a model that was deterministic. An individual, placed in the same situation, would make the same decisions (assuming their situation has not changed). A non-deterministic model is both far more difficult to create, requires far more computation, and is also considerably less useful.

The second reasons is simpler – economists weren’t trying to predict what an individual would do, they were trying to predict what all individuals would do. That is, they assumed that the average of all actions in a market would be rational. And they found a reasonable amount of evidence supporting that, where they expected to (in markets that had other assumptions of competition).

This explanation is vastly oversimplified and ignores both some thinkers and some developments.

In any event, like all academia, a popular idea remains a popular idea – until the tides of reality can o’ercome it. The rationalism of individuals was repeatedly challenged (frequently by economists), but economists could successfully point out that they were talking to the average of all actions, so as long as the average turned out to be roughly rational, they were OK. Since economists never drifted down to individuals, everything worked out dandy.

The problem came when people – and I’m looking at business – who did deal with individuals attempted to apply the lessons of economics to running their business. After all, economics began as a normative science to figure out what to do – so applying those normative guidelines should lead to greater efficiency.

Except that the average of all actions is not the same as the average action. It’s the same as the myth of the perfectly normal man – he doesn’t exist. It’s a statistical accident, really, that arises when you take a distribution and reduce it to a single number.

Rationalism for individuals had all the advantages for business (HR and all) that it had for economists: it allows for a (mostly) deterministic system. Given a scenario, the rational person will make the rational choice. No more fuzzy-duddy special exceptions for snowflake-special individuals: just cold, hard, unfeeling, highly efficient rules.

And thus died the two-millennia history of leadership rooted in the idea of inspiration; or making people fight for a cause greater than themselves, producing something that stretched beyond their own narrow lives.

The death of the dream to change the world – replaced, as it were, by a mission statement to align interests. Oh, and a vision statement so you know where you’re going, allowing you to plan how best to get there.

On a completely unrelated note, the study the Knowledge@Wharton article references is completely inapplicable to the real world. It is, however, backed by a mountain of empirical and theoretical psychology.