Do your social networks influence your performance appraisals?

Here is a question: when it comes to the performance ratings you receive does it, or should it, matter who you are connected to at work? Intuitively we would expect that certain powerful friendships could influence how you are rated, but surprisingly, there has been very little actual research that tries to uncover the impact of social networks on performance evaluations. Oh, and by social networks I mean your personal connections in the workplace, and not whether you are an avid user of Facebook/Linked-in/Twitter etc!

This is a really important issue - folk theory would suggest that social connections can significantly influence a lot of things managers care about: fair pay and recognition, promotions and terminations, training and career opportunities. It is important to try and understand, are such connections at work always beneficial, or can they also be detrimental? My colleague Gianluca Carnabuci and I thought we would investigate this issue and see how mapping employee social networks might shine some new light on the problem of the accuracy of performance appraisals.

Although it is truly difficult to define job performance in a way which everyone can agree upon, the accuracy of subjective ratings of job performance may be captured by four key measures:

1. leniency - are the ratings given higher than they should be?
2. central tendency/range restriction - does a supervisor tend to give the same ratings to all of their direct reports?
3. halo effects - does a supervisor tend to rate each direct report similarly across objectively different dimensions of performance (e.g., timeliness, quality, quantity of output) regardless of real differences?
4. inter-rater disagreement - when different supervisors are asked to evaluate the same employees, do they agree?

There are several reasons to expect that social ties may influence the accuracy of performance evaluation, both positively and negatively. The most obvious social connection to consider when looking at accuracy of performance ratings would be whether there is a strong friendship between manager and direct-report. These kind of relationships might be expected to reduce the ability or willingness of the supervisor to provide an accurate evaluation, for fear of damaging the relationship. However, strong relationships also imply frequent and open interaction, and this can lead to a supervisor having a lot more accurate information about the true performance of the person they are rating. Which of these effects is stronger is not at all obvious.

In addition to such friendships, we were also curious about another aspect of social networks, which we refer to as 'social embeddedness'. This concept refers to the extent to which any individual is connected to many others through strong and mutual exchanges of trust, friendship, advice and support. The idea here is that being more deeply connected within a work community may exert some additional pressures on the performance rating process.

What happens when a manager or supervisor is 'networked' in the organization? Social embeddedness would increase their ability to access information about performance of a particular direct report, simply by being connected on the 'grapevine'. This should increase the ability of managers to perform accurate ratings.

What about the embeddedness of employees (direct reports) in social networks? Consider the popular employee, connected to many others in strong relationships. It is likely to be much easier to give that person a positive rating than a negative one. After all, if you upset 'popular Pat' with a negative evaluation, then he or she may complain about you to his/her friends. If you already perceive it to be costly to give a negative evaluation, because of the emotional upset and potential loss of cooperation, then the threat could be magnified in the case of a popular employee. Not only might you lose the cooperation of your direct report, but possibly their friends as well. At the extreme, perhaps you would be perceived more negatively even if you are being quite fair. Supervisors are rational human beings, and recognize when the cost of giving an accurate rating outweigh the benefits. The social embeddedness of direct reports could alter the balance of this judgment.

We were interested in seeing whether we could measure these effects, and which of them was strongest with respect to the four measures of accuracy. We studied a network of employees in a large manufacturing firm, by gathering data on their social connections in the workplace, and by separately obtaining performance ratings across five dimensions of performance. In summary, what we have found is that:

1. When there is mutual trust between supervisor and direct report we see greater, and not lower accuracy in ratings (although the average ratings increase, we also see lower levels of halo effect and higher inter-rater agreement).

2. The extent to which supervisors are embedded in workplace social networks does seem to moderately enhance accuracy - they are better at differentiating across performance dimensions (reduced halo effects).

3. The social embeddedness of direct reports has the opposite effect. Consistent with the idea that it is harder to accurately rate popular people, we see greater leniency, more halo effect and some evidence of greater disagreement across raters.

What do we learn from this? Relative to folk theory, the reality is quite complex: social connections definitely matter; but whose social connections we consider is also important. For supervisors, being connected may help improve accuracy, while for direct reports broad social connections can lead to less accurate feedback. Quite surprising, and contrary to popular opinion, strong relationships between supervisor and direct report can improve accuracy rather than diminish it.

So what does this mean for managing? Different organizations have their own patterns of social relationships. Bureaucratic organizations tend to stifle informal social relations while clan-like organizations are built upon them. In bureaucratic organizations the network embeddedness effects may be more limited. However, if you are trying to build an organic, clan-like organization, perhaps because you are interested in being innovative and entrepreneurial, then the effects of social networks on the performance management process are likely to pose a significant challenge. In these conditions, promoting the benefits of embeddedness for managers, while preparing managers for the biasing effects of subordinate networks should help with the effectiveness of performance management.

Managers should be social scientists

Browsing through the McKinsey Quarterly recently I came across this article exhorting businesses to consider the benefits of applying knowledge in the field of behavioral science to areas such as marketing, operations, and customer service. The advice can be simple, even while the research itself is rigorous and complex. For example, in the McK Q article the advice to companies seeking to manage customer interactions in ways that consider this research are the following five bullet points:

1. Get bad experiences over with early (rip-it-off like a band-aid)
2. Break up pleasure and combine pain (mix up the rewards and costs of interacting)
3. Finish the interaction strongly (leave them wanting more)
4. Give customers choice (give them control)
5. Let customers stick to their habits (don't keep changing things up)

Nothing wrong with this at all. What strikes me is that this is exactly the sort of knowledge that b-schools (and e-schools) need to be passing on to their graduates.

The recent popularity of books such as Dan Ariely's "Predictably Irrational" Malcolm Gladwell's Blink/Tipping Point/Outliers, Levitt & Dubner's Freakonomics/Super Freakonomics and numerous others, together indicate an appetite for behavioral research in its various guises. The scientific knowledge that forms the foundation for these books represents real Rosetta-stone material for unlocking how people think, decide, and act. Now those are tools that all managers should have in their tool boxes.

You can learn about teamwork anywhere. You can learn about leadership anywhere (perhaps anywhere BUT the classroom). Where better than the universities, those places that are conducting this kind of basic research, can you learn about behavioral science findings and how to apply them?

educational entrepreneurship

A very recent story in the Times Higher Educational Supplement reports that David Willetts, the UK's new Universities minister is proposing a form of deregulation of higher education that is extremely interesting. According to the THES article, Willetts is suggesting that the processes of teaching and grading be de-coupled. This would create a system much like that in the UK high-school sector, where exams are graded by exam boards. Only, in the case of Higher Education (HE) the grading services would be provided by degree granting institutions.

This is precisely the kind of external 'disruption' that can be a powerful driver of entrepreneurial opportunity. If a change such as this were to take place, there are a number of obvious sources for enterprising individuals, companies, and universities to contribute to a more dynamic, competitive, and ultimately welfare enhancing HE sector. For example:

• opportunities for industrious and well regarded universities to build an 'exam board' business
• opportunities for private sector entrepreneurs to credibly enter the HE market and provide higher quality (or lower cost) services
• opportunities for greater flexibility for consumers of HE

I would be surprised if this is the only such disruption forthcoming in the HE sector in the next five years. Watch out for enterprising educational institutions going forward. Given the need for flexibility and speed to exploit these opportunities, it would not be surprising to see some different institutional names in the frame, and not necessarily the 'ancient' universities or even the 'civic' universities.

Educated Entrepreneurs

A recent post at A VC makes the argument that entrepreneurs do not need degrees.

"Entrepreneurs don't need degrees like lawyers and doctors do. They are credentialed by virtue of their track record. The first startup is hard but if they make that one work, they end up with something much better than a college degree. They have a notch in their belt. They've got a track record of success. Even if the first one is a failure, I'd say that they've got something more than a degree. They've shown they can start something from nothing, build a team, a product, and maybe even a business."

While I agree with the idea that you don't need a degree, research clearly indicates that entrepreneurs are more successful when they have an education. But don't take my word for it. Here are some examples from the research on this topic:

Education of entrepreneurs has a positive influence on:
1. your ability to marshal the necessary resources (tangible and intangible, financial and psychological) to be able to start the business
2. your ability to identify new opportunities as well as learn about what is going on in your market and the technological domain that applies to your business
3. more educated entrepreneurs have more positive expectancies for the growth of their businesses, possibly leading to higher levels of effort and resilience
4. the firms of more highly educated entrepreneurs tend to have higher performance, and better survival rates.

There are some important caveats here. First, education is typically used as a proxy for intelligence. It is much more difficult to measure intelligence, but it is intelligence rather than education level that is expected to produce the benefits listed above.

Second, it is important to acknowledge that education is not the same as getting a degree. So many famous entrepreneurs (Richard Branson, Steve Jobs, Bill Gates) got the major part of their educations from their experience and the opportunities they created. Their formal educations, or lack thereof, are not what helped them succeed so much as their intellect coupled with their environments.

However, for all those bloggers and twitterers out there re-blogging and re-tweeting the meme in the form 'education doesn't matter for entrepreneurship' beware! The evidence is against you on this one.

Cosa Nostra

What is it about family firms? While they are ubiquitous in the economy of the US and internationally, only relatively recently have we seen an increase in research attention. In our own research we have examined family firms to try and see what makes them different, and in particular how family firms may be able to maintain an entrepreneurial orientation.

In the the first study, coauthored with Shaker Zahra (University of Minnesota) and Carlo Salvato (Bocconi University), we explored what it is about the cultures of family firms that is supportive of entrepreneurship. We found that a number of aspects of organizational culture were significantly associated with entrepreneurship in family firms and that these aspects of culture were generally more important for family than for non-family firms.
1. External orientation: an emphasis on learning from the external environment was positively associated with entrepreneurship in family firms.
2. Coordination & control - entrepreneurial family firms tend to have a decentralized approach to decision making.
3. Orientation to time - entrepreneurial firms tend to emphasize the long-run when allocating resources.
4. Regardless of family status, entrepreneurial firms are able to balance their emphasis on the individual versus the group. While individuals are an important source of ideas, the integration of the collective organization is essential to the exploitation of new opportunities.

In a second study, my colleagues (Gaylen Chandler, Utah State University and Dawn DeTienne, Colorado State University) and I examined how family firms differ from non family firms in the entrepreneurial processes that they use. We were particularly interested in the ways in which family firms identify opportunities and then the strategic decision making processes they use. We found two interesting differences for family firms.

1. Family firms tend to be less spontaneous and creative than non-family firms in their opportunity identification processes they prefer.
2. Perhaps as a result of the unique social networks surrounding family firms, the entrepreneurial opportunities they do identify tend to be less unique and innovative than those found by non-family firms.
3. When they are exploiting these new entrepreneurial opportunities, family firms tend to use a different decision making style. Non-family firms use a text-book approach to strategic decision making, starting from the goals they want to achieve, and working back towards the resources and capabilities needed to reach those goals. The family firms score less strongly on this approach to decision making. They may prefer the alternative model, where they start from the resources at hand and try to identify goals that may be achievable from this starting point.

Family firms tend to be characterized as more staid and less risk oriented - perhaps because a primary goal is the creation and preservation of family wealth. The decision styles and opportunity identification processes we have observed support this view. Interestingly, these preferences of family firms may inhibit them from being the next Google .

*Update: since this blog was first published last year, we have now begun investigating how family versus non family firms in China may differ, and in particular how this may influence their approach to HR and entrepreneurship. Please come back soon for the new results!

On the way up, or down?

A majority of adults don't know what social networking is, and a growing number of those who do are losing interest according to this survey reported on Mashable.com. So, is this a slowly bursting bubble? Is it a case of people not yet seeing the potential to leverage a technology in a way that has a low investment of time in exchange for positive returns?

There are clearly some folks who are leveraging these technologies to create value. Specialized social networks are springing up to support professional communities such as this one, and this one... Companies, consultants, and even academics are leveraging them.

So, is this 'fad' on the way up or on the way down?

Job Hunting 2.0?

OK This is a great story. Over at the blog 'One Day One Job' Willy Franzen is reporting on a cool experiment. They encouraged new graduates to advertise themselves to employers using Faceook. The results were pretty interesting.

This story reflects an updated version of what we learned in research by Mark Granovetter some 30 years ago: people find jobs from 'weak' ties rather than strong ties. Strong ties are close friends and family, people with whom you have frequent and repeated interactions. These kinds of ties are great for trust and friendship exchanges, however when it comes to finding out about unique opportunities, they are less useful. Why? Because these networks of strong ties are quite 'dense' - everyone has similar, and therefore redundant information. What you need for finding unique information (e.g. job opportunities) is connections to a diverse network. This means weaker connectioned to a broader range of unconnected people.

Facebook, linked-in and other similar social networks are exactly the sort of networks that can provide a broad range of 'weak' ties. What Willy Franzen has demonstrated with this experiment is how we can leverage these technologies to exploit a true fact about job hunting: the strength of weak ties!