HomeCareer Management

Why small is beautiful

Like Tweet Pin it Share Share Email

Want a great place to work? Size does matter.


The Minneapolis/St. Paul Business Journal recently published its annual list of the best Twin Cities places to work, divided into three size categories: small (10 to 100 employees), medium (100 to 1,000) and large (more than 1,000).

Beyond the specifics was a correlation that’s fascinating for its near perfection: With only one exception, company scores have no overlap between size categories: The worst of the best small companies outscored the best of the medium-sized ones, which in turn outscored all but one of the large ones.

If you want to work in a truly great environment, your only chance lies with small companies.

This doesn’t necessarily mean the small companies that scored well are well-managed, of course. Workplace quality might not matter. After all, given what corporate giants pay their CEOs they should be much more sophisticated than small-company CEOs about what makes a company successful, shouldn’t they?

Should is the operative word. Based on what research we have, treating employees well sure seems to pay off. For example, The ROI of Human Capital: Measuring the Economic Value of Employee Performance (Jac Fitz-enz, 2009) reports on a massive study on the value of employee engagement by Information Systems Research that found a 52% difference in operating earnings between companies with high and low workforce engagement scores.

Even taking into account the flaws common to this sort of research (an implied linear response between level of engagement and operating earnings is the most obvious), there’s little doubt that a company with highly engaged employees will outperform a business with apathetic ones … unless, that is, engaging employees is prohibitively expensive.

Luckily enough for employers, it isn’t. Creating an environment that maximizes employee performance doesn’t cost a dime … beyond what you have to spend to educate company leaders in how they can maximize employee performance without spending a dime, that is.

Dan Pink does an excellent job of explaining the basics in a wonderful video (pointed out to me in a Comment posted by Dave Velzy in response to “How business leaders use the news,” (KJR, 7/26/2010), to give credit where it’s due).

In it, Pink presents economics research demonstrating that financial incentives improve performance only in mechanical tasks. When the job calls for creativity, analysis and other cognitive skills, money doesn’t just lose its impact. It actively impairs performance.

It appears Alfie Kohn was right all along: Bribing employees to perform better doesn’t work.

Here, according to Pink and the cross-cultural research he describes, is what does: autonomy, mastery, and purpose.

Autonomy means employees are free to set their own direction and figure things out for themselves. Mastery means the satisfaction associated with improving skills is intrinsically motivating. Purpose means being able to contribute something important to the world.

Among the otherwise mystifying phenomena explained by the motivating power of autonomy, mastery and purpose are open source software and Wikipedia.

The power of this combination also explains, easily, how much simpler it is for leaders of small businesses to create superior work environments: When you can get to know every employee as an individual human being, you can develop a level of trust that allows you to provide autonomy, appreciate mastery, and connect each employee’s efforts to important results, helping them gain a sense of purpose.

There’s another factor at work as well. Small organizations tend to focus on opportunity … what can go right … while larger ones are dominated by the fear of what might go wrong.

Fear of what might go wrong is why compliance plays such an out-sized role in huge enterprises. It’s a self-reinforcing feedback loop: Because employees have no sense of engagement, management doesn’t trust them. Because they can’t be trusted, management creates rules and enforces them through a system of well-defined punishments.

And because management doesn’t trust employees and punishes them for infractions, employees feel alienated rather than engaged.

The alternative is a lot tougher to institutionalize in a large organization, but pays off hugely: Build compliance into mastery rather than into management. Enforcement isn’t compatible with the autonomy fully engaged employees want. Mastery is.

Presumably, the rules you want employees to follow represent a better way of doing things than the alternatives. That being the case, mastering a discipline includes knowing the rules and why following them is a good idea.

And, when breaking them makes even more sense.

Comments (15)

  • Speaking for myself, money has played a large role in where I have chosen to look for work, with my comp and the likelihood that the company will continue to make good money playing an important role. Once there, it really isn’t that motivating to make more (though money can be demotivating if the environment is unfair, or if there is a disconnect like maybe the 100M CEO dressing the windows for a sale)

  • This seems to me to be in many ways a replay of Dr. Frederick Herzberg’s Motivation-Hygiene Theory. As I recall he said that the satisfiers were the Work itself, achievement, responsibility, recognition and growth (not necessarily in that order) and that typical job benefits (status, security, pay,) if too low, would make a person dis-satisfied. Somehow, I think the research got lost in the “job Enrichment” front end and the whole thing got lost. Too bad.

  • Didn’t watch the video; wonder whose research came first–Pink’s, or Dan Ariely’s? Dan covers similar ground in The Upside of Irrationality. More pay doesn’t make NBA players hit more free throws. But maybe our CEOs are different…

    (That book also has a discussion of how exquisitely demotivating it is to have a project cancelled, which perhaps happens more in big companies that can afford to cancel. Small companies (wouldn’t know; my salaried life was in the Fortune 500) might have to make it work regardless.)

  • I suspect that autonomy, mastery, and purpose play a big role in career satisfaction even for people who are intrinsically motivated by money (sales professionals, entrepreneurs, and investment bankers, for example). Successful people that I have known who love the “game” of business and keep score with money tend to choose fields or companies where they have as few constraints as possible and can innovate as needed to better serve their clients. These professionals tend to hate micro-managers and excessively rigid rules and punishments. Furthermore, “autonomy, mastery, and purpose” is consistent with the concept of “self actualization” in Maslow’s Hierarchy of Needs. So, I believe that your premise holds up.

    Trouble arises when someone who is money-motivated loses sight of the value-for-value relationship of ethical business, and begins to view the client as a sucker to be fleeced as efficiently as possible. One example would be people who operate out of naked greed, such as the operators of the many Ponzi schemes that have come to light over the last few years. Another example would be those who seek personal and corporate gain at their clients’ expense, such as the leaders of Enron, or certain Wall Street financiers who knowingly pushed highly risky investments on their clients and then bet against those clients. Those selfish louts cause public outrage and legislative backlashes that make business harder for all honest professionals.

  • The RSA Animate video is one of a series of videos (check it out on YouTube to see links to the others) that are all equally thought-provoking. In particular, check out “The Emphathic Civilisation” and “The Crisis of Capitalism” for some great, out-of-the-happy-meal-box food for thought.

  • What struck me most was “because management doesn’t trust employees and punishes them for infractions, employees feel alienated rather than engaged.”

    Just yesterday, my company rolled out a “We Care” program. The symbol for the program are male and female paper-doll like figures, holding hands. What’s amusing is, the paper dolls have little hearts – Valentine heart shapes cut out of each figure.

    My wife burst out laughing when she saw it. “OMG! They want to cut out the employees hearts!”

    A classic example of a corporate culture striving to send one message, but Freudian in the incompetent delivery of that message.

    Management seems to want some sort of employee approval with this program – “see, we’re a GOOD company, we care about our community, and we care about you!”

    Really? Salaries have been frozen for two years, benefits have been cut, and even in a bad economy, employee turn-over is rising.

    It’s almost impossible to be motivated in such an environment. Before autonomy, mastery and purpose has to be trust, honesty and integrity.

    If your employees cannot trust you, if you cannot be honest with them, if there’s a discrepancy between your message and your actions, no motivational program will succeed.

    It will be perceived as putting ketchup on a cow pie, and calling it a hamburger.

  • There seems to be a lot research from different angles validating the theory that money is not a motivator. As long as people feel they are paid ‘fairly’, the focus shifts to other matters, like trust, autonomy, purpose. (But ‘fair’ pay is key – even monkeys seem to have a strong sense of fairness – a treat that was once quite acceptable gets rejected if they perceive another monkey getting a ‘better’ treat for the same effort. ) Another place you see this in reward and recognition experts – you ask people what they want – cash or a gift – and they say cash. You give them cash, and a year later, most people can’t remember what they did with it (if they even remember they got it). Give them a gift (or an ‘experience’ – dinner out/cruise), and it creates memories that have much more lasting value. Symbolism/objects carry a lot of weight – people probably don’t remember how much money Tiger Woods wins at a given tournament, but they remember the green jacket; well paid players will change teams to have a better shot at their sport’s ultimate award.

  • I would assert that employees can be motivated by financial reward depending upon their disposition to the income-substitution effect.

    While we IT types are motivated problem solvers, then perhaps the ability to influence outcomes by choosing which problems we tackle has inherent value as a kind of currency.

    For my sales force, I want folks strongly motivated by a different type of currency : real income.

    I suspect the relative scale of social comfort provided by base compensation also has something meaningful to contribute to the analysis.

    A satisfying IT base wage to me coupled with an autonomous workplace will provide vastly different perceptions than the same environment to my colleague with three daughters in collage. Our relative level of social comfort from the same wage scale produces vastly different perceptions of economic satisfaction.

    All things being equal, I complete agree with the article’s assertion. Engineers like engineering for a reason.

  • I agree 100% with this KJR, HOWEVER I also believe it is incomplete. There are some prerequisites that must be met before autonomy/mastery/purpose (referred to as “a/m/p” from here on) will work.

    The Dan Pink video identified one prerequisite… monetary compensation must be sufficient (where money is not a big problem for the average employee). Sadly, that is not the case for an ever-increasing number of people and current trends suggest this gap will continue growing with no end in sight.

    Another requirement is for a management commitment to give a/m/p a chance to work. Regaining trust will take more time than today’s fast-paced (and high-turnover) manager is likely to possess. They would rather embrace the next “silver bullet” that delivers a quick (but short-lived) profit.

    I’ll share a first-hand experience about engagement and employee opinion surveys (EOS). For several years I was the EOS facilitator for our group. Four of us rank and file facilitators met regularly with several managers in our division about how to improve EOS results. After several meetings listening to the managers complain about how we aren’t getting the “right” EOS answers, I reached my breaking point. I told the division manager that none of the answers are “right” because they are opinions based on feelings. No progress would be possible until he convinced people he HEARD their opinions and understood their feelings. The manager was a tough ex-marine and a pretty good guy. It took more than one uncomfortable meeting (with almost everyone else ducking under the table, the discussion was… intense), but he eventually got it and things started to turn around.

    Real and lasting improvement will require a comprehensive and unified approach with an understanding that ALL participants must evolve in order to succeed. That said, there are bright spots out there and we can only hope they reach critical mass.

  • I also wanted to comment on Bob’s phrase, “build compliance into mastery” because I think this is a technique with great promise but sometimes it requires some explanation.

    Too many of our regulatory requirements are implemented by edict… “you WILL make sure we remember to dot all i’s and cross all t’s.” But many requirements (most?… all?…) can be satisfied by automatic means if we just think about it. Regulatory evidence rarely has to be CREATED (because the process itself usually creates it) it just has to be retained and retrievable. So rather than order everyone to remember to (mis)file evidence in a certain way, it’s more effective to modify the process so the evidence is automatically retained (as it is created) for the required time. It might be necessary to convert documents from hardcopy to digital format but this usually has additional cost benefit in addition to better compliance. We made some process improvements that saved more time and money than they cost when we rewrote them for Sarbanes-Oxley compliance. And no one has to remember to “do this extra little thing for compliance.”

    Of course, there are other regulatory requirements that might be more challenging to systematically automate, but one should always try to avoid “compliance by edict” if possible.

  • I really like these three criteria: autonomy, mastery, and purpose. But how do you achieve these when you work on a “team”, when the “team” is charged with getting things done, not individuals? In my experience, making everyone responsible for doing X means that no one is responsible. Or worse, one person cherry-picks the desirable assignments, and drops other assignments when they’re no longer interested. How do you get to autonomy and mastery and purpose when on a team?

  • We can build an explanation for the limitations of the $$–> performance theory of employee productivity from the “Bad Metrics is Worse than No Metrics” insight.

    Paying for performance assumes you can measure performance. In those jobs (c.f. Pink video) where the metrics are pretty good, i.e. strictly mechanical tasks, then paying by performance (which really means paying by metrics of performance) can work. Otherwise, the “bad metrics are worse than no metrics” scenario hits with vengeance.

    For any job that requires thought and creativity, no metric of performance is adequate, so managing based on bad metrics is likely to be counter-productive. A simple example: stock price is a bad metric for CEO performance.


  • In some ways, the opposite of these three criteria (autonomy, mastery, and purpose) can be found in Patrick Lencioni’s “Three Signs of a Miserable Job”. They are “Anonymity, Irrelevance, and Immeasurement”.

    With these three, employees have no purpose because of the irrelevance and the immeasurement. They have no reason to strive for mastery and autonomy does not matter.

    Thanks for the article!

  • My company is in business to make a profit. It employs me because management thinks that the company will make more profit by employing me than the alternative. I never took a vow of poverty and this is my job, not my hobby. You bet I am motivated by compensation. Anybody who argues otherwise and gets higher compensation than me will be asked to put their money behind their theory and swap paychecks.

    Which is not to dismiss autonomy, mastery, prupose, and most importantly treating all people with dignity and respect. Organizations that don’t do this are dysfunctional. And it is also true that to a point, people will be willing to trade off compensation for these things. I work for a fine company, and it’s going to take an rather large increase in compensation to lure me to company that does not have these qualities.

    But in the end, we work for compensation.

Comments are closed.