Articles and Interviews

Former Harvard professor David Maister is much admired for his work on professional firms. He recently wrote a new book, Practice What You Preach (Free Press, 2001), which gives research-validated answers on what drives profitability.

DC: First, tell me a little bit about the research that you did. What did you want to accomplish?

DM: I’ve had over 20 years of experience, and I counsel an approach that involves focusing on how you treat your staff. Every single time I advise a client they will say something like “It all sounds very logical, but who’s doing it? What evidence do we have that it works?”

In the past I’ve always had to rely on anecdotes. I knew individual firms that were doing things particularly well, but anecdotes only take you so far when you are trying to be convincing.

I’ve always thought that it would be wonderful to get solid data to test some simple propositions that I have been advocating for many years. I had the good fortune to have a major global conglomerate as a client. This conglomerate owned a large number of different businesses, each of which had a large number of separate offices. It was a wonderful opportunity to collect some data on employee attitudes and financial performance. Then we can ask a very basic question: “Is it true that employee attitudes are correlated in a measurable way with financial performance?”

To my obvious pleasure the answer comes across very clearly: yes.

DC: Is this research really solid, solid at the level full-time academics would demand?

DM: Yes, I think it’s solid. I used to be an academic years ago, and have a degree in mathematical statistics, so I’m supposed to know how to do this properly. I think it is defensible as academic-level research, although the book is not presented as an academic study. It’s a book for your average line manager, but is based on scholarly, defensible data.

DC: The businesses you studied were professional service firms, right?

DM: Yes, although what also attracted me is that this particular conglomerate owns public relations agencies, advertising agencies, direct mail, yellow pages and other sorts of marketing communications businesses. There was a wide diversity of businesses; it’s not restricted to one form of professional service firm. Some of the businesses offer high-level consulting, but others are doing direct mail and are staffed almost entirely with minimum-wage people, and it’s mostly a “get the stuff out the door” production type of business.

Another element that made it interesting is that every one of the businesses is part of a publicly held corporation. There’s always been this rather interesting question, “Are professional firms different because they are private partnerships?” My book is called Practice What You Preach, because in my years of consulting I’ve learned that most people know what to do. The basic lessons of good management are not very sophisticated, but it takes a degree of courage to live up to them and not to succumb to short-term temptation.

For example, you may know that it is wise to keep your people briefed on what is going on, but on any given day it can be horribly tempting to ignore that in order to chase a new client.

When I point to examples of people who do have the courage to live up to these practices, people say, “My goodness, are they in public companies? Because when you are in a public company, I am told there’s a lot more short-term pressure.”

What made this study so delightful was that, within the 139 offices studied, I found quite a large number of managers who were able to manage with their eye on the long term, even though they were in a publicly held company subject to quarterly financial reporting.

DC: It’s interesting when you think about how a book impacts practice. It’s not so much that you are finding things that will surprise people as that you are creating a way of building people’s courage so that they will do what they may in their hearts know is right.

DM: That’s correct. I’ve used this metaphor throughout my career, and I hope I’m not now overusing it, but I talk about the fact that I am a fat smoker. It’s a humorous metaphor but it’s real, and the truth is that I don’t need one more speech on the benefits of getting thin or giving up smoking. Similarly, in business most people have heard the sermons about motivating your people and looking after your clients. We’ve all heard the sermons. We know what we should do. If I go to my doctor and ask how to lose weight, he’ll tell me to eat less and exercise more. Similarly, the advice I give is not necessarily very innovative. The basic advice I give is like eat less, exercise more; that is, do the basics. The reason that business people have such trouble is the same reason all of us, as human beings, have such trouble. It’s self-discipline.

The largest part of consulting, and this is very relevant to HR professionals helping within a business, is not getting people to be innovative; it’s giving people the courage to do what they should be doing anyway. That’s really where the change management added value lies.

To tie this back to where we started, it is very, very encouraging to have a live example of somebody who’s actually doing these sorts of things. In the book, I include nine case studies, not because the case studies are different one from another, but merely to show nine real human beings actually living up to their standards—and, even more, that it does produce higher financial returns.

DC: Charles O’Reilly said the same thing when I asked him why he wrote Hidden Value in a case-study format. His answer was that managers want to see a real-life case study in enough detail that they can draw some of their own lessons.

DM: I think that’s right. We like to look at someone and say that if he or she could do it, maybe I can too.

DC: Take us to some of your specific findings.

DM: One of the analyses shows that if your staff rate highly on nine aspects of employee attitude, then we can predict over one-half of the financial performance of the business, even if you don’t know what business the company is in, or what country it is in, or what size.

The nine items are as follows:

1. Client satisfaction is a top priority at our firm.
2. We have no room for those who put their personal agendas ahead of the interests of the clients or the office.
3. Those who contribute the most to the overall success of the office are the most highly rewarded.
4. Management gets the best work out of everybody in the office.
5. Around here you are required, not just encouraged, to learn and develop new skills.
6. We invest a significant amount of time in the things that will pay off in the future.
7. People within our office always treat others with respect.

1. The quality of supervision on client projects is uniformly high.

   The quality of the professionals in our office is as high as can be expected.

   Now if you pause for a moment on the question “Is client satisfaction is a top priority around here?” you realize it’s a very old sentence. That’s not a new thought. What is new is that we’re not asking, “Does management preach this?” The evidence says that where the employees believe it is true, then you make more money. If the employees do not believe this, then you will make less money. That’s a substantive finding because it turns out that among the 139 offices studied there was enough variation that in some of the offices the employees were saying, “Darn right this is us,” and other employees in other offices were going, “Yeah, yeah, yeah, heard that before.”

   A second result is that if the employees agree with the sentence “We have no room for those who put their personal agenda ahead of the clients or the office,” the business will make more money. Many, many people have advocated that for years, but this finding shows that it’s not good enough just to have a general “we are team players around here” feeling. In fact, I included that milder version of the question in the survey and it turned out not to predict financial performance at all. That’s a significant lesson—”sort of kind of” being something doesn’t make you money. What makes you money are people who can turn around and say, “Darn right! If you are individualistic, we have no room for you in our company.”

   DC: We’ve talked about this a bit before. What really matters is that the company has a very clear stand on something that people truly believe in.

   DM: Again, this should not be a surprise. It is nothing more than having a clear strategy, knowing exactly how you plan to compete and what virtues and strengths you plan to bring to the market.

   All of the logic is saying that if you actually live up to your belief, then you can make money at it. But if you are only living up to it some of the time, it’s unlikely that you will. For example, there’s a role for a high-class restaurant that uses the freshest ingredients and so forth. Now as long as it sticks to that view, there’s a market niche for that restaurant, just as there is a niche for McDonalds, which is fast and cheap. The question is, could either of those two businesses succeed if they only lived up to their goals some of the time? It takes a certain level of courage to stick to your theory of business and to resist the temptation to be expedient. To return to the personal matter again, here I can say, “Oh well, one cigarette wouldn’t hurt,” and the next thing you know, I’m not a nonsmoker at all. If you want to get the benefits of being a nonsmoker, you’ve got to stick to it.

   DC: In your book, when you talk about a theory of the business, you show a causal map of how enthusiasm is causally linked to coaching, which is linked to employee satisfaction and so on, all the way to financial performance. This looks very much like the strategy map that Bob Kaplan and Dave Norton are promoting.

   DM: Yes, although the diagram actually is closest to the work of Heskett, Schlesinger and Sasser in their book The Service Profit Chain. They did a good job in explaining that there is an order to things, and that first you must energize your employees to achieve high standards. If you do that well, they deliver high-quality services and products to your marketplace. If you deliver high-quality services and products to your marketplace, you make money. So you can see there is a logical flow of work.

   Now prior to my book, this was presented as a logical theory. I’ve been able to prove statistically that this causal sequence is true.

   DC: Those people who went to school at the same time that I did would have learned that statistics can give correlations, but you are talking about causation.

   DM: A lot has happened since you and I went to school. I got a master’s degree from the London School of Economics in statistics, but that was 30 years ago! Back then, they beat into our heads that correlation is not causality. However, and in the book I cite the precise references, in the last 20 years statisticians have developed techniques that do allow you to make statements about causality.

   DC: I’ve spoken a lot about the balanced scorecard, and I know that Mark Huselid would be very excited to see your data, because you’ve created a validated strategy map for professional service firms, and that map is the basis for a balanced scorecard.

   DM: Yes. And to me, the book is encouraging because, with one or two mild exceptions, the lessons that come out of both the statistical data and the case studies are indeed familiar lessons. This book is not revolutionary. It’s meant to be completely consistent with what the balanced scorecard and Jeff Pfeffer have done, as well as the lessons Collins and Porras deliver in Built to Last.

   This research has actually provided evidence that reaffirms the sorts of lessons advocated by the people we all admire.

   DC: There were other findings that I found interesting. One is that, when it comes to culture, the office outweighs the firm.

   DM: Yes, this is a major finding.

   Before we get to that, the first finding is that the difference between those who are succeeding superbly and those who are doing okay is not that they are doing innovative things, it’s not clever strategies and it’s not advanced human resource activities. They are enforcing certain basic standards.

   For example, one of the standards is “Management gets the best work out of everybody.” The real secret of success is good execution on familiar themes such as this.

   What comes out is that success is almost entirely dependent upon the character and behavior of the individual local manager. In other words, whether or not things get enforced is not a matter of corporate policies, it’s whether or not the local manager has this interpersonal ability to energize, enthuse and excite those who report to him or her.

   DC: For HR people, that’s an important finding to keep at the front of their minds.

   DM: I may be speaking with insufficient evidence here, but when I’ve talked to HR people, I have found that they are not very involved in selecting managers. My book is saying that rather than spending large amounts of time and money developing strategies, the real point of difference is that we need to get better at selecting managers.

   HR needs to be developing selection processes and methods of evaluating managers. My experience is that many people in HR spend 99 percent of their time on things for employees in general and less than 1 percent of their time selecting and keeping accountable the people who occupy managerial roles.

   DC: That’s a profound comment right there, and I see how it can reframe where you think HR can achieve leverage.

   DM: This book is unequivocal in its findings. If you really want to make a difference to employee satisfaction and financial performance, not to one or the other but to both, then you focus your attention on the managers.

   DC: These studies are on professional service firms. To what extent do lessons about professional service firms serve as a model for organizations like Kodak or Cisco?

   DM: All the trends in our economy point towards traditional companies facing the same issues that professional service firms have had to live with for a long while—for example, the increasing importance of the knowledge worker and the mobility of professional staff. It has always been true that professional staff move around from firm to firm.

   A third point is that professional firms have always lived with the idea that, even if you had positional power, e.g., you were a practice head or office head, you managed more by interpersonal influence than relying on formal authority.

   All of those things are increasingly relevant to managers in business generally.

   DC: It would probably make sense for any firm to take a close look at well-managed professional service firms to see what lessons they can pull out of that for their own environment.

   DM: I don’t want to grant to the professions any special status. We are all working stiffs. The central issue is how crucial the employee’s input is to your business success. If I’m running a paper mill, the honest truth is that the employee’s motivation helps a little, but what’s going to happen in a paper mill really is going to come from the machines and the technocratic decisions on scheduling, changeovers and things like that. The lessons are really important for any business where the real value add lies in the people and less in the machines.

   DC: Is there anything that you would like to add that we haven’t covered?

   DM: The biggest surprise for me in the book was that the sentence, “People treat each other with respect around here” turned out to be one of the nine profit predictors. I’m delighted with the results because it matches my values, but it didn’t get in there because of my values. I was actually surprised that it emerged because it’s not true that in many businesses people treat each other with respect. So for me, to say that it actually is measurably a profit contributor was one of the most fascinating findings.

   David Creelman is a knowledge manager at HR.com.

   He has ten years of experience working for major international consultancies both in North America and Asia. He is a regular speaker at HR conferences and has published many articles on management issues. Prior to working in HR, David worked in finance and IT. He has a MBA and a Hons B.Sc. in biochemistry and chemistry.