Steve Kaufman and Arrow Electronics – Is this how they teach someone to run a company at Harvard Business School?

The troubles discussed in Brian Hall’s study at Arrow Electronics, which arose from the evaluation system inaugurated by their CEO Steve Kaufman, was even frustrating for the reader, at least for this one! The CEO was fraught with misconception in the implementation of the system. The pervasive sales culture at Arrow would have been detrimental for any type of evaluation system that involved rating employees. And the way in Kaufman reacted to the initial results from the system he instituted displayed the lack of trust, and breached any already established trust, which upper management had for their employees. All the problems encountered by Arrow (lack of loyalty, lack of trust, rollercoaster sales numbers) may result from their industry, or from their business plan, and their competitors surely experience the same problems, however no company ever gained a “sustainable competitive advantage from something that is easily observed and readily imitated” (Pfeffer).
At Arrow the root of their issues stems from the ineptitude of their CEO. First his mentality that the job of the CEO is to motivate his people, instead of the approach that people are internally motivated, is his primary mistake. This leads him to believe that he can institute a system in which the achievement of high numbers is motivation enough for people to excel at their jobs. Then, foolishly Kaufman believes he can use these numbers to make decisions on promotions and raises. He puts a system in place without sincerely conveying to his managers that are completing the forms exactly what the purpose of them is, and what the company hopes to gain from them if managers complete them conscientiously. Then when they are returned to the executive offices and Kaufman doesn’t like the results, he makes the fundamental attribution error, and blames his people. Kaufman then tries to amend the results of the evaluations by further manipulating the system he introduced. This is where I became seriously flabbergasted by Kaufman’s behavior. He touted his system as a scientific approach to determining who deserved a promotion, or a raise, thinking he would just be able to look at those with high numbers and promote away. But he makes a crucial error in when he establishes benchmark requirements for certain percentages, this being a total corruption of the basic scientific process. You cannot start with the results and work backward to data collection! Elementary school children who perform projects for a science fair could tell you that. Kaufman even held a second training session, at who knows what cost, to further instruct his managers on how to properly manipulate the evaluations to result in the numbers he thought he should be seeing. Again missing an opportunity to sincerely convey to his people what he really wanted from them.
This poor communication from the upper levels of Arrow management down through the ranks is evidence of the cultural aspects at Arrow that are detrimental to the company’s long-term success, as well as sustained growth instead of the rollercoaster the company currently rides in the realm of sales and employee retention. It is clear from listening to the rhetoric spouted by its managers that Arrow employees are motivated solely by external forces, and lower hierarchy thinking, such as commission checks, short-term guarantees, and internal competition. This is illustrated in the comments made by the CEO believing that when an employee receives 4’s and 5’s on their evaluations they would say “’Oh, I got 5s and 4s – they love me!’ You don’t see the need to improve.” Logically though if that response is true, then wouldn’t Kaufman believe someone who received 2’s on their evaluation think, “Oh, I got all 2’s – they must hate me!”This is further evidence of Kaufman’s failure to find the proper attribution of systemic problems; he blames the employee for an improper reaction. Furthermore, neither situation leads to an employee that thinks, “Here is what I need to improve on, and this is how I do it.” This should be the purpose of performance evaluations. Then Arrow has an employee that scores well on the evaluation, thinking only “They love me!” which then fails to properly utilize that person’s skills for the benefit of the whole. The employees should instead feel “I am doing really well, how can I share my successful techniques to assist my colleagues in becoming more successful, therefore making the company more successful.” This is the kind of attitude that should be rewarded and encouraged, by promoting those that think for the good of the whole. However, one cannot determine these employees by filling in bubbles on an evaluation sheet. A change to this type of thinking may not be possible at a company like Arrow in the industry it resides in but it should be the goal of every organization to function on a level like this.
Arrow functions on such shallow measurements of success and failure, the difference between a two and four on a survey for example, that is a display of the lack of trust between upper management and employees. First the CEO does not trust the judgment of his managers in recommending people for promotion, or determining raises, to such a degree that he institutes a very expensive, complicated, system of evaluations so he can rely on the numbers (which as described above he falsely believes to be scientifically sound) to drive his decisions. Second the CEO doesn’t trust the managers enough to confide in them why he truly wants the surveys, sincerely informing them why it is important to him that the surveys are done accurately, why it is important to the company they are completed accurately, and most importantly why it is important to that manager that they do the evaluations accurately. To Kaufman’s credit he does attempt to do so, but after the fact, after he returned the evaluations to the company because they were too high! And when he does so even on paper he sounds insincere. Sharing information is a leader’s first step in building a successful partner-follower relationship with his people. Thirdly this lack of trusting employees on management’s part stems from the high turnover rate, though this is blamed on the industry. Personally I was not surprised that Arrow had turnover issues with their rollercoaster sales numbers. But jumping ship during times of low returns should be expected because I am sure that Arrow would not stand by its employees in tough times. Meaning that when sales are low Arrow employees could probably expect a pay cut, a lowering of commissions, or even a lay off. If the past behaviors of the company indicate this type of pattern why would an employee trust Arrow? Management, especially the CEO, blames the employee for being money-grubbing. But the employee sees it as cutting their losses, or breaking up with Arrow before they break up with me. Evidence of suspicious minds on both sides of the desk, and as Elvis says suspicious minds do not lead to successful long term relationships.
Overall the lack of trust in the organization’s system is truly the problem that needs to be addressed. An inept CEO can be replaced, but a system of poor communication rooted in a mistrustful organization, is something that cannot be easily remedied. To fix it Arrow might actually have to sacrifice some short term earnings goals for long term success, which few in today’s business world seem willing to do. And whatever happened to “If it ain’t broke, don’t fix it!” Meaning that the evaluation system Kaufman employed was definitely not crucial, possibly not even necessary. All he had to do was to trust and inform his managers by saying, “Our Company has gotten too big, hooray, for me to know everyone personally. I am having trouble figuring out who is performing well and who needs assistance. Can you help me to understand the best way to identify top performers to promote? Can you help me to understand the best way to identify those that need some assistance to improve their performance?” A really complicated and novel approach, huh?