Money Matters

Managing the Perks and Pitfalls of Proactive People

(Source: hbr.org)

Companies need proactive employees. They are essential for suggesting, developing, and sustaining innovative new projects and for helping companies stay competitive. But organizations must make sure that proactive employees know the types of risks to take and those to avoid. 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. A study shows that managers can guide proactive behavior so that good ideas make it to the finish line. Creating an open dialogue about goals, offering guidance, and keeping the trial-and-error process in line with the company’s strategy can go a long way.

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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.

More Info: hbr.org

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