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2017-09-28 13:28:09
Lotte Glaser, Eva de Mol
September 26, 2017
Companies need proactive employees. Proactive employees do more than they are
supposed to, are good at realizing ideas, and work to overcome resistance to
change. They are essential for suggesting, developing, and sustaining
innovative new projects and for helping companies stay competitive.
But being proactive at work involves risk. Entrepreneurial employees often are
not rewarded for being proactive. In fact, many face obstacles when trying to
innovate in their organizations. For example, pushing for change without being
told to can ignite resistance from supervising managers and fellow colleagues.
And there is a chance that an initiative might be poorly timed or carried out
inappropriately.
Not surprisingly, studies show that people who are more likely to show
initiative also like to take risks. But what remains unclear is how this
preference for risk-taking influences proactive employees actual performance.
This led us to wonder how organizations can exercise control over proactive
employees without overly constraining them. On the one hand, top managers need
to provide autonomy so that middle managers feel comfortable taking initiative.
On the other hand, top managers must prevent middle managers from taking on too
much risk, which can lead to negative performance outcomes.
How can top managers guide proactive behavior so that good ideas make it to the
finish line? One of us (Lotte) conducted a study, published in the Academy of
Management Journal, to explore this question. It tracked 383 middle managers
operating in 34 business units of a multinational in the logistics service
industry. The company has 160,000 employees worldwide and continues to grow. At
the time, the company reported annual revenue of $17 billion, and the board had
just announced an effort to promote entrepreneurial behavior among middle
managers to stay ahead of the competition.
We contacted middle managers, who directly reported to the top managers of each
business unit, asking them to complete a survey capturing their tendency to
take initiative, their propensity for risk-taking, and the amount of autonomy
they have in their jobs. Glaser also surveyed their top managers about the
extent to which they encouraged employees to set challenging goals and to
support each other.
Alongside the survey, we interviewed 30 of the managers, asking middle managers
about specific initiatives they had undertaken and how these were managed, and
asking top managers about their approach for guiding and challenging their
middle managers initiatives. A few months later, we collected year-end
performance appraisals for the middle managers; the appraisals determined their
compensation for next year.
Our results showed that although the majority of the middle managers (93%)
reported being proactive, the middle managers who also reported being more
likely to take risks (54%) had worse performance appraisals. Moreover, we found
that a middle managers appetite for risk reduced the performance of their
proactive initiatives.
The Critical Role of Top Managers
What s interesting is that the top managers approach also affected middle
managers appraisals. Top managers who failed to guide, challenge, and stretch
their more proactive middle managers were more likely to give negative
performance reviews. But top managers who more effectively managed proactive
employees goals gave better performance reviews. Let s take a closer look at
these two types of top managers.
The first group of top managers reported rigidly sticking to existing
performance appraisal systems. In these existing systems, the middle managers
performance review took place on a strict quarterly basis, and it included only
the key performance indicators (KPIs) for the ongoing traditional projects
middle managers worked on, and excluded KPIs for the proactive projects. Due to
spending time on proactive projects, middle managers did not achieve their KPIs
for the traditional projects for that year, resulting in negative performance
reviews.
The other group of top managers reported managing performance appraisals in a
more entrepreneurial manner. First, they included the objectives of proactive
projects in the performance review and rewarded middle managers if these KPIs
were met. On top of that, this group of top managers carefully guided their
middle managers as they worked on those proactive projects. They said they
helped them set challenging goals and encouraged a trial-and-error strategy of
continual testing and adapting ideas. They scheduled monthly meetings to
discuss progress and ensured the projects were kept in line with the overall
company s strategy.
This continuous dialogue seems to have helped, as these middle managers saw
better performance outcomes. Our findings suggest that these middle managers
took on the right kinds of risks and avoided the wrong ones. Two examples from
our data illustrate how different approaches by the top manager approach can
influence performance outcomes.
Max, for example, received great support by his supervising top manager, Bob,
while working on a proactive project. When Max started the project, he sat down
with Bob to discuss the full project outline and set clear milestones. Bob was
aware of Max s appetite for risks, so he knew that he had to devote extra time
to keeping Max in line. Max suggested implementing a piece of new technology to
improve the efficiency of his product line. However, for product line personnel
to use the technology, an extensive training program would be required, making
the initiative a risky endeavor. So during a 15-minute coffee chat that Max and
Bob had early on about the project, Bob signaled the problem: The idea involved
too much company cost. Bob advised Max to look for less drastic innovations,
and connected him to a friend working in the same industry to get inspiration
for an alternative solution. In the end, this timely intervention led Max to
implement an innovative but less expensive piece of technology, which yielded a
very strong performance review for Max.
Compare this with Max s colleague George, who had a similar appetite for risk
as Max. When George told his supervising manager that his product line could be
more efficient, he was told to figure out to prepare a plan to change the
product line. After working on this plan for months, George, just like Max,
proposed a new technology that would save labor costs and increase revenues in
the long run but that would require training all product line personnel. Not
only had George worked out the full proposal, but he had also already incurred
significant costs for his own retraining. George s manager told him to put the
project on hold, pointing out how this initiative didn t align with the company
s values and was way too costly. Since George had spent most of his time
working on this project, he ended up missing his actual unit targets for his
ongoing projects, and his manager was forced to give him a negative performance
review.
Managers play a significant role in helping employees manage the risks of being
proactive. They need to provide autonomy so that people feel comfortable taking
initiative, but they must also prevent people from taking on too much risk.
Some proactive ideas may fail to get off the ground, let alone create value for
your company; some may even cause more problems than they solve. But creating
an open dialogue about their goals, offering guidance, and keeping the
trial-and-error process in line with your company s strategy can go a long way.
Let employees rock the boat, but gently.
Lotte Glaser is an assistant professor at the Strategic Management &
Entrepreneurship department of the Rotterdam School of Management, Erasmus
University. Inspired to build a bridge between the academic and business world
she combines this role with a unique corporate position where she advises the
next generation of family business leaders at Cofra Holding. Her research
focuses on multi-level antecedents and consequences of intra- and
interorganizational networks, corporate entrepreneurship, and organizational
paradoxes.
Eva de Mol worked on her PhD at the VU University Amsterdam and Berkeley Haas
Business School. In her research she examined the effects of entrepreneurial
team composition on venture performance. Eva works as an investment
professional in Dutch private equity where she implements her research findings
in a practical context. Her research interests include scale ups, teams and
investing.