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It is hard to overstate the importance of the concept of intelligence for applied psychology; intelligence testing may be the most important single contribution psychology has made to larger society. Advocates of intelligence testing provide data showing that IQ predicts virtually every significant life outcome from income and occupational status to life expectancy. Nonetheless, the concept continues to make some of us uncomfortable for three reasons. First, the concept of intelligence is still poorly defined; the default definition is, “intelligence is what intelligence tests test”. Second, all of us know people who have received very high scores on standard IQ measures who nonetheless have trouble functioning in the world. And third, in standardized cognitive assessment, problems are fully defined; in the real world, problems are almost always poorly defined. The term “intelligent” is a judgment that we use to evaluate performance; for example, in athletics, certain people are known as smart players and others are not. A moment’s reflection suggests that the term “intelligent” mostly applies to decisions—smart decisions precede smart actions and vice versa. Decision making is particularly important in business, politics, and warfare where money and lives are on the line and bad decisions affect the welfare of many people. Decision making is also typically difficult in business, politics, and warfare because there is almost never enough time or information to make a carefully reasoned decision. The term “good judgment” applies to the ability to make sound and defensible decisions with limited time and information. The book, “Why Smart Executives Fail” by Sydney Finkelstein (2003), contains a large number of richly detailed case studies of failed business enterprises and is a superb data base for thinking about good (and bad) judgment. At the surface level, businesses fail for a variety of reasons—technology shifts, new competitors, ill-advised acquisitions—but at a deeper level, bad judgment appears to be the cause of the problem in every case. And in every case, the bad judgment was exercised in two stages. In the first stage, the company’s CEO chose the wrong means to accomplish a desired end. In the second stage, the CEO stayed with his/her choice despite information that the choice was a bad one. For example, in the 1980s, General Motors (GM), the world’s largest automobile manufacturer, faced two looming problems. The first was competition from low cost, high quality Japanese cars. The second was labor unrest at home. The CEO of GM, Roger Smith, decided he could solve both problems by replacing his workers with robots. He invested more than $45 billion in robots—enough to buy both Toyota and Nissan—but the investment failed because the key to the Japanese success was the manner in which they integrated their technology with their workforce, rather than their robotic technology per se. As one industry insider noted, by using technology without the prepared workforce, all Roger Smith did was automate confusion. However, he persisted in his decision, and GM’s productivity continued to decline relative to Toyota. Again, bad judgment is a two stage process. In the first stage, a person chooses the wrong means to get to the desired end. In the second stage, a person persists with the choice despite evidence that it was wrong. For persons familiar with the structure of the Hogan Business Reasoning Inventory (HBRI), choosing the wrong means to get to a desired end is a failure in Strategic Reasoning, while persisting in a bad choice after data are available is a failure of Tactical Reasoning.
At Hogan, we believe that leadership is the most important problem in management science. When good leaders are in place, organizations and their members prosper, when bad leaders are in place, organizations and their members suffer. At the same time, the academic study of leadership has largely failed to deliver any real-world generalizations about leadership or recommendations regarding how to find it or develop it. The academic study of leadership has failed for three reasons: (1) Leadership is poorly defined; (2) Mainstream literature ignores personality; (3) Nobody pays attention to return on investment (ROI). Let’s consider these points in turn. The Definition of Leadership. Leadership is defined in academic literature primarily in terms of the people who are in charge. The assumption is, if a person is a manager, president or CEO, he/she is by definition a leader. This is a big mistake for at least two reasons. First, ask yourself how a person rises in a large, hierarchical, bureaucratic, male-dominated organization. The answer is, by playing politics, not by exercising leadership. It was said of Dwight Eisenhower, “He didn’t become a politician because he was a general, he became a general because he was a politician.” People typically rise in large organizations by pleasing their superiors with their loyalty and technical knowledge, not by displaying leadership skills. Second, the base rate of failure for managers in America is about 65%; thus, 65% of the people in “leadership” positions today will fail in one way or another. To the degree that leadership is defined in terms of who is in charge, the research won’t lead to replicable conclusions—because success in any organization is idiosyncratic. Who wins in such pursuits will largely depend on the circumstances—the nature of the competition, the team of judges, the climate of the times, etc. Situations versus Personality. Most major organizations in the United States, public or private, military or civilian, assume that almost anyone can be (or can learn to be) a leader, and will perform appropriately when put in charge of other people. People are promoted based on time in service and technical talent, with no consideration given to the possibility that some people have more talent for leadership than others. Sometimes this assumption is based on intellectual laziness, but among psychologists the assumption reflects the lingering effects of behaviorism and situationism—the view that what people do depends on where they are not who they are. However, the average person understands that some people perform better in leadership positions than others, and the reason has to do with the kinds of persons they are—i.e., their personalities. ROI-based Research. Most managers are evaluated by their bosses—the people who hired or promoted them and who have a vested interest in their doing well. But many bad managers are skilled at pleasing their bosses, which drives the bosses’ evaluations. It seems obvious to us that managers ought to be evaluated in terms of the performance of the group that they manage. Although this is rarely done, it is easy to do, and when done correctly, it turns out that effective managers have a distinctive personality style which varies systematically with the industry and their level in their organization. We discuss this in more detail below. The remainder of this discussion is organized in six parts. We define personality, we define leadership, then we show how personality impacts leadership, and how leadership (properly defined) impacts business unit performance. We then analyze the crucial role of followers for business unit performance, and how to enhance their engagement. 1. Defining Personality. We believe that personality is related to leadership—who you are determines how you lead. But we need to define personality, and it should be defined from two perspectives: how a person thinks about him/herself and how others think about that person. We refer to this as the actor’s and the observer’s perspectives on personality, and it is important to keep them distinct. The actor’s perspective is a person’s identity, the story that he/she tells others about him/herself—it is an idealized self view. Although identity has been the major focus of personality research from Freud to the present, it has been a non-productive focus. After 150 years of research, there are no reliable generalizations to report, there is no measurement base, there is no taxonomy to organize the subject matter. How people think about themselves is almost impossible to study in a rigorous way; hence that study has led to no conclusions. On the other hand, personality from the observer’s perspective—a person’s reputation—is easy to study and leads to some very useful generalizations. First, unlike identity, reputation is quite stable over time. Second, reputation has a well recognized taxonomy—it is called the Five-Factor Model (sometimes “the Big Five”). Everyone’s reputation can be described in terms of five dimensions: (1) Anxious vs. Confident; (2) Shy vs. Assertive; (3) Tough vs. Charming; (4) Careless vs. Conscientous; and (5) Narrow- minded vs. Open-minded. And third, these five dimensions predict a wide range of performance outcomes, including leadership, better than measures of cognitive ability. There is almost complete consensus in the research community that personality should be defined in terms of these five (large) dimensions, with finer distinctions within the five being possible and useful. 2. Defining Leadership. Conventional leadership literature focuses on charismatic or transformational leadership, and this focus has led to few reliable generalizations. We prefer a functional definition—because leadership has a job to do. The leader’s job is to persuade otherwise selfish people to work together for a period of time to accomplish a common objective. Thus we define leadership in terms of the ability to build and maintain a high performing team, and we think leadership should be evaluated in terms of the performance of the team, relative to the competition. Defining leadership this way has two useful consequences. On the one hand, the research literature becomes interpretable. On the other hand, this definition brings the issue of ROI into focus. 3. Personality and Leadership. We have now defined personality (as reputation) and leadership (as the ability to build a team). The next question concerns the links between personality and leadership. (We should note that, as recently as 1990, academic researchers maintained that this question was nonsense—because leadership was deemed to be a function of “the situation”—e.g., situational leadership.) In 2002, Tim Judge, a researcher at the University of Florida, published a landmark study. Using 20,000 managers from 5,000 organizations, representing every industry sector, he showed that personality, defined in terms of the Five-Factor Model, predicts rated leadership performance very substantially, and much better than measures of cognitive ability. For those of us who believe in data, this seals the case—personality and leadership are rather tightly connected. Good managers are Confident, Assertive, Conscientious, Open-minded, and not necessarily Charming. 4. Leadership and Business Unit Performance. In 2002, James Harter, Frank Schmidt, and Ted Hayes, three researchers funded by Gallup, published another landmark study that shows three things. First, the personality of the manager impacts the morale of the work group. Second, when morale is up, good business results follow; when morale is down, bad results follow. And third, the link between the manager’s personality and business unit performance is mediated by staff morale. This means that leadership is indirectly, and staff morale is directly, connected to ROI. 5. Understanding the Role of the Follower. Leadership involves getting results through other people—it is not about the charisma of individual leaders, it is about persuading followers to adopt the leader’s agenda. Work is a (sometimes painful) extension of everyday life. Personality psychology tells us that people have three overriding needs that govern their lives: (1) People need acceptance and respect, and they dread criticism and rejection; (2) People need status and the control of resources, and dread the loss of status and resources; (3) And people need structure and predictability in their lives, and find the lack of structure to be stressful. These needs are operating at work, during interaction with peers and management. Thus, good managers provide their staff with respect, allow them to control their own work, and make sense out of business activities. Bad managers do the opposite, and are unable to build a team. 6. The Lessons of Engagement. Engagement is the central factor underlying employee performance in modern business, and it is almost entirely a function of leadership. Senior leadership needs to establish a culture that recognizes, values, and facilitates engagement. First line supervisors and managers need to treat their employees in ways that minimally don’t actively alienate them, and ideally in ways that encourage engagement. But there is no cookie cutter approach to this. Rather, encouraging engagement puts specific demands on individual leaders, who must establish and maintain working relationships with their employees, one employee at a time. Some people are better able to do this than others, such people can be identified by their personality signature, and to the degree that organizations value ROI, they will pay attention to this research-based conclusion. -- Dr. Robert Hogan