Increasing Profit: How Far Should an Executive Go?

February 22, 2010 / General /

By Robert E. Quinn

The current economy is most difficult.  Firms are struggling to survive and every dollar matters.  To save money executives are making brutal decisions that they would prefer not to make.  This includes downsizing valued people and outsourcing key processes.  For these executives almost every waking hour is focused on the question, “how can we increase profit and decrease costs?”  Given these facts, consider the following:

The patterns of social interaction on a management team matter.  We have scientific evidence that the members of a management team can behave in one of three ways.  In one pattern, the firm will lose money.  In the second, the firm will perform like similar firms.  In the third pattern, the firm will make much more money than similar firms.  All managers have to do to increase profit is to change how they relate to each other.

The Question

If the above claim were true, in the current economy, we might expect that an executive would be deeply interested in understanding the claim and hungry to implement the understanding so as to drive up profits.

But is this expectation well founded?  Would executives, in fact, be hungry to understand and apply such science?

Application

This week I was reading a chapter on the science of how to build a positive organization.  The authors made two interesting observations:

  1. Normally there is a wide gap between research and practice. Understanding and application come slowly at best.  But in the case of the positive sciences, managers have begun to adopt the principles surprisingly quickly.
  2. “However, when people talk to managers about academic concepts like Fredrickson’s ‘broaden and build’ theory, and a three-to-one ratio of positive and negative interactions, managers are often left unclear about what they should be doing.” [1]

These observations are consistent with our own experience.  We have executives spend a week with us learning positive leadership and positive organizational change.  They usually arrive with some deep suspicions.  It takes several days to get them to trust the findings from POS.  By the end of the week they often have an implementation plan that they intend to go back and apply what they learned.  They are going to “change their organizations.”  Yet in follow-up conversations, it is clear that not everyone has success, there is still something missing.

Before I discuss that missing key, I would like to turn to the claim that executives can create more profit by altering how members of the management team relate to each other.  After doing this we will consider why executives are unlikely to apply such important information.

The Research

Marcial  Losada brought 60 management teams into a simulated board room where they could hold actual meetings [2].  Behind mirrors, researchers observed and coded every statement made by each individual on three scales:

  1. Positive statements (support, optimism, appreciation) versus negative statements (disapproval, sarcasm, cynicism).
  2. Self-focused statements (refer to the person speaking, the group present, or the company) versus other-focused statements (references to a person or group not part of the company).
  3. Inquiry (questions aimed at exploring an idea) versus advocacy (arguments in favor of their own point of view).

Losada also measured something he called connectivity or how attuned or responsive the members were to each other.  Finally he gathered data on three dependent variables, profitability, customer satisfaction, and evaluations by superiors, peers and subordinates.

With every statement coded, he could exam how patterns unfolded over time.  By knowing one measure, at one point in time, he found he could forecast later changes in other measures.  He found that the unfolding process was non-linear.  Small inputs at one point could have large impacts or disproportionate outcomes at a later point.

He divided the teams into three groups, according to performance on the dependent variables.  Twenty-five percent of the teams were high on all the dependent variables.  Forty-five percent had mixed results.  Thirty percent had low scores on all the dependent variables.

The high performance teams were not only profitable, they lived in flourishing relationships.  They had a positivity ratio: 6-1, they were very aware and responsive to one another (higher connectivity), and they were balanced on inquiry and on outward focus.  These teams had a remarkable, additional characteristic.  In graphing the performance of high performance teams, the trajectory of their performance never retraced itself (butterfly effect).  The teams were always fresh and creative.  Even if there was a big jolt of negativity, the teams would quickly recover and return to the creative edge.  They had “infinite flexibility.”

The mixed groups had positivity ratios were around 2-1.  Their scores on the other variables fell between the highest and lowest performing groups.  The lowest teams had floundering relationships.  They had positivity ratio around 1-1.  They had far lower connectivity, asked almost no questions, and showed almost no outward focus.

In the middle teams, the performance trajectory started out the same as the high performance teams but it would then dip.  The positivity level was much lower and the range of inquiry and advocacy was narrow.  Most importantly the mixed teams were not resilient, they could not maintain the high state of creative performance that was seen in the high performing teams.  Whenever there was a jolt of strong negativity, the performance trajectory would collapse and the team would get stuck in a repetitive rut.  It was a very specific kind of rut.  The people would get caught in negative, self-absorbed advocacy.  The team would lose the ability to maintain positive emotions, to be flexible and to question and explore.  Participants tended to become critical of others while tightly maintaining their own position.

This means that listening died.  People only waited to speak, to express their position.  In fact there was no team.  There was a collection of individuals posing as a team.

Low performance teams started out where the middle teams ended up.  From the outset they were stuck in the rut of self-absorbed advocacy, criticism and defensiveness.  Their positivity ratios were low (1 to 1).  There was no inclination to question and explore.  They could only spiral downward to a completely static condition and lose all creative flexibility.

Fredrickson notes how Lasada’s work at the social level (the above research) reflects her own work at the psychological level [3].  Just as positivity opens individuals to learning, positivity opens groups to asking questions and focusing outward.  Just as positivity transforms a person and builds the person’s psychological resources, in a high performance teams, social resources also expand.  The connectivity goes up, the people become attuned and responsive to each other and group acquires the very capacity that justifies the formation of teams, in the first place.

Transformation

There is one point that should be emphasized.  At the heart of the heart of high performance is connectivity or the degree to which people are attuned with each other.  When the positivity ratio reaches 2.9 to 1, a transformation in connectivity occurs.  Above this ratio, teams begin to flourish.  Below this ratio, teams languish.  Above this ratio firms make high profits, below this ratio firms make ordinary profits or no profits at all.  The high performing teams were not just better that the other two types.   They had relationships of synergy.  The whole was greater than the sum of the parts.  The team became smarter and more creative than any one member of the team including the leader.

So we could argue that executives, who are truly interested in profits, should be hungry to understand positivity ratios and connectivity.  They should be hungry to learn how to move their teams across the tipping point and into the high performance state.  They should be hungry to avoid painful downsizing and outsourcing, and instead change themselves into more effective team leaders who bring increased profits to their company.

Unfortunately these expectations do not hold up.  One reason is that connectivity and synergy are nearly incomprehensible to the executive mind, and further, to minds of most of the rest of us.

Synergy is Incomprehensible

Remember, according to the above data, 75% of the time management teams do not become transformed.  This means that many executives have never been in a high performance team.  In addition, they have also been culturally programmed by a life time of experiences to believe that corporate life is a self-interested competition in which every actor fends for self.

If they have experienced a high performance team, they are likely to remember it as a very gratifying anomaly, not as something that can be produced over and over.  Even if they were to entertain the possibility that they could actually do things that would take their team across the tipping point into the alternative reality of connectivity and creative cooperation, they would have no idea what they would have to do to bring about the elevated state.  Here we return to the earlier quote:

“However, when people talk to managers about academic concepts like Fredrickson’s ‘broaden and build’ theory, and a three-to-one ratio of positive and negative interactions, managers are often left unclear about what they should be doing.”

In my next blog entry I hope to discuss what it is that they might do to bring a team across the boundary.    Here I will close with several points.

  • Fact: Leaders can lift their management teams to high connectivity and creative cooperation.
  • Fact: Such management teams will produce greater firm profits.
  • Fact: This claim is hard to comprehend, it violates the dominate paradigm of executive life.
  • Fact: Even if an executive understands the scientific claim, there is still a problem in terms of how to bring about the elevated, collective state.
  • Conclusion: We should not expect executives and people to adopt the complexities of positive research until we can do a better job helping them to both understand and apply the findings.

References

[1]  Garcea, N., S. Harrington and P. Linley (2010). “Building Positive Organizations,” (p. 329) in Oxford Handbook of Positive Psychology at Work, P Linley, S. Harrington, N Garcea (eds.), Oxford University Press, New York.

[2]  Losada, M., and E. Heaphy (2004), “The Role of positivity and connectivity in the performance of business teams: A nonlinear dynamics model,” American Behavioral Scientist, 47”740-65.  Fredricson, B. L., and M.F. Losada (2005), Positive affect and the complex dynamics of human flourishing,” American Psychologist, 60:678-86.

[3]  Fredrickson, B. (2009), Positivity: Groundbreaking research reveals how to embrace the hiden strength of positive emotions, overcome negativity and thrive.  Crown Publishers, New York.