Leaders, face it. We’ve all been there.
“You’re not a perfect fit, but we need warm bodies in this role urgently…”
“I won’t fire you since you’ve been with us for 25 years…”
“I’ll close an eye to massive attrition in your team, since you’re bringing in the numbers…”
Ward Cunningham, the programmer who designed the first wiki, popularized the concept of “technical debt“. Ben Horowitz introduces the term “management debt” in his book The Hard Thing About Hard Things. This happens when we borrow time by making an expedient short term management decision, which we then have to pay back–with interest–later on.
Very often, this actually makes sense. You need to make a decision in the moment, and feel you can take corrective action later if needed.
However, ignore this concept at your own risk. In Mr. Horowitz’s words: “If you incur the management debt without accounting for it, then you will eventually go management bankrupt.”
There are many ways in which to build up management debt, but the most common that I have encountered in my work within Singapore and Southeast Asia fall into three categories.
Those who have made bad hires in the past would instantly recall the interest paid in the months after. Some estimates suggest that a bad hire can cost you more than $50,000, or up to 30% of potential first-year earnings.
This does not even account for the emotional toll that comes from the pain of working through consistent sub-par performance, the drag effect it has on your best performers, and cultural poison that it introduces to your team.
Yet, the temptation to jump into hiring a “warm body” to ease the pain of an understaffed team can be enormous. Candidates may appear suitable at first glance, and it seems like a bureaucratic waste of time to run him through the usual rounds of interviews and reference checks.
In Singapore where the economy is pretty much at full employment, companies may hire expecting staff to churn anyway. With turnover rates rising across Asia-Pacific in the last few years, these behaviours may have formed into habit.
So you take a chance. Six months in, you’re still telling yourself, “He’s new, I’ll give him just a bit more time…”
That brings us to the point at which we need to exit someone from our team. This is never easy. With 70% of companies in Asia family-owned, it’s easy to dismiss this as a quirk of doing business in this part of the world. Many of the family-run businesses I have spoken to or worked with in Asia, with head-counts from 100 to 20,000, face these two challenges.
While it is perfectly acceptable to take on this debt, it is not acceptable not to account for it. For new hires that should bounce, the longer they stay on the team the higher the future payment becomes. Customer relationships, internal workflows, training and mentoring resources, are all adapted in non-trivial ways to accommodate a weak new hire.
For loyal staff whose skills are no longer relevant, this is slightly trickier. They have stuck by the company in tough times, and have taken on career risk to contribute. Yet, by continuing in their role they potentially jeopardize the future of the company. Also, if they are squatting on senior roles, they inhibit the path of high potential juniors.
Besides acknowledging the debt, approaching these situations with the best interests of both the company and the employee at heart is important.
3. Performance Management
More than 30 large companies in 2015 representing more than 1.5 million employees have switched from traditional annual employee evaluations to more frequent performance feedback. While this trend has been largely led by Western businesses, increasingly this school of thought is permeating Asian leadership.
This is a positive trend. Having a culture of frequent and regular feedback helps. Unfortunately, effective performance management is very much a management skill, and not one that is commonly encouraged explicitly.
One source of this debt comes from the “hire and forget” phenomenon. Managers think they’ve done such a great job hiring, that they no longer need to help coach their staff. Or they are not used to giving feedback in a way that balances both constructive elements and positive reinforcement.
Another source comes from poorly distributing rewards. Not being bold enough to pay top performers outsized bonuses stifles incentives, especially as performance follows a power distribution not a bell curve. Today it is all too easy for individuals to benchmark their pay against others, making discrepancies a lot more obvious than in the past.
Manage Your Leadership Capital
“If you think you are leading and turn around to see no one following, then you are just taking a walk.” – Benjamin Hooks, former director of the NAACP
The concept of management debt is an important one in navigating the realities of leading. As long as we stay alert to this possibility and carefully manage our debt, we should be able to stay comfortably out of the metaphorical (and possibly literal) bankruptcy courts.
CheeTung Leong is the CEO and co-founder of EngageRocket.
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