The 2% Difference

I have consistently contended that executives who tolerate “B” and “C” players on their teams give up a lot. Let me now quantify it:

Let’s say you are a CEO with 5 key management team reports, running a $50 million (revenue) company. Let’s say that you project 10% revenue growth next year, but you have a “B” player on your team that might hold you back a bit. If you achieve only 8% growth, you just gave up $1 million in revenue. Would hitting 8% instead of 10% be regarded as a failure by your board or parent company? Probably not. You probably still get your bonus.

If you run this company for 5 years, and you tolerate 2 “B” players rotating in and out of your management team, it might cut your annual average growth to 7%. Over 5 years time, you give up $7.5 million in revenue. If you have a $200 million company, you gave up $30 million in growth. This could erode equity by an equivalent amount when the company is sold.

In January I wrote about the 18-Month Factor – that it takes 18 months from discovering a sub-par performer before most companies have a fully effective person in that role. What if you established a zero tolerance policy for anything other than “A” players in every management position? Each time that you quickly replace a “B” or “C” person with an “A”, you could gain 2% in growth. Would the 2% difference be worth it to you?

Comment by Kelly Blokdijk on April 9, 2010 at 2:06pm: I completely agree with your assessment here. As someone who has spent a tremendous amount of time on the employee relations and performance management side of things, I can attest to the fact that mediocre performers do negatively impact overall organization performance. The scenario and timeline you expressed is very accurate indeed.

Aside from the tangible revenue figures you highlighted, there is also the intangible effect that sub-par performance had on an organization and its leaders. Dealing with performance issues is incredibly time consuming and tedious. Most leaders that I’ve worked with on various improvement plans took that exact approach of giving it some time or giving them a chance to improve. Next thing you know, months go by and nothing has changed except the frustration levels of all involved.

Comment by Steve Dill on April 9, 2010 at 4:03pm: Mark, your post hit a nerve with me. In my former life as a medical sales recruiter, I was constantly amazed at how many sales managers would hire "C" sales reps, who were always average in previous jobs, merely because they had experience in the particular product area that the manager was hiring for. It was often futile attempting to convince these managers to hire the BEST ATHLETE. Most managers are unable to think out-of-the-box, and consistantly do what is warm-and-fuzzy. A "C-player" will always be a "C-player"!

On my web site, http://www.gorillamedicalsales.com , a popular niche job board for medical sales jobs, hiring manager continue to post strict hiring guidelines for sales positions which many times preclude hiring the best athetletes available.

Comment by Mark Bregman on April 9, 2010 at 4:08pm: Kelly and Steve,
Thanks for your thoughtful comments. Whenever I talk about this, people universally agree, yet we all see hiring managers do the same old thing!

Comment by Martin H.Snyder on April 10, 2010 at 10:17pm: Well I'll be the usual stick in the mud and disagree.

First off, even A players have streaks and valleys- we all do. Secondly, a strong leader can turn a bunch of "B" players into an A team. Likewise a poor leader can turn a group of A's into C's in no time flat. Thirdly, so much depends on external, and sometimes random, elements such as the markets, the individuals on a team, and the lifecycle of the organization in question, that it's not possible to win every time.

Finally, some roles (esp. creative and leadership roles) are characterized by "punctuated equilibrium" whereby performances can be all over the map. One only has to look at the worlds of sports and entertainment to notice that many so called "A" players often fail and so called "C" players often rise, confounding everyone's expectations and costing (or making) a ton of money.

I suggest these pro-forma (fantasy football) calculations of the cost of A, B, and C players are not likely to play out in reality and a better way to approach it would be using more of a winning vegas gambler's (or Wall Street) approach: understand that there will be winning, losing, and push bets, so that by making careful bets each time, not swinging for the fences but not dribbling around either, and not getting overly focused on the outcome of any individual bet, over time, you will outperform the house (or the S&P), or the competition.

Shooting for the moon every time is a sure way to crap out, if you ask me. Sounds great in theory, but it puts you on on the curb in real life. So maybe the thing is to do your best, don't take too many flyers, and don't sweat the A's B's and C's because they are mostly out of anyone's control.

Comment by John Hill on April 12, 2010 at 7:05am: I disagree Mark. In fact not only do I strongly disagree, the data backs me up - sort of.
Working from a data sample of 500,000 OMG a leading sales assessment company have shown that only 16% of A performers stay more than 2 years in a job (this has lots of other issues that I discuss in my blog http://www.selltosuccess.co.uk/.
What these data tell me is that Companies need to have a very clear, strategic view of how they recruit, deploy and retain their sales force according to where they are in the product life cycle and the economic cycle and be be more in tune with what they need to take their product to market and how the structure of their sales force needs to be.
Taking that one simple fact if you need a sales impetus to win new markets or capture markets for a new product, then take the A performer and accept that within 2 years you will either lose them or have to have a clear pathway for them to move into another role internally.
Add to this that B performers will tend to stay 5 years or more and that the 5 years experience will turn them into A performers or almost A performers (at least that is my interpretation of the data)then you need to have a track in place with the B performers following on the A performers coat tails.
Which just leaves how to seperate the A,B and C performers, pre hire, and I can do that with 95% accuracy - http://snipurl.com/vfcyu

Comment by Mark Bregman on April 12, 2010 at 4:50pm: John, I agree that losing "A" players is a pain, and companies do that all the time, by not providing what motivates an "A" player to stay. I'll post a separate blog on that topic too. I disagree that most B's can be turned into A's with experience. I like the idea of a system to predict performance, and with sales people that can be turned into a science like what you provide. Sometimes it is harder to do that in a black/white way with other functional leaders.

Comment by John Hill on April 13, 2010 at 9:00am: Mark, it isn't just experience, other factors such as training and close, competent management factor into the equation, but, 5 years experience - particularly 5 years experience in domain are the biggest factors, at least that's what comes out of nearly half a million data points. And whatever we may believe, whatever intuition, gut feel, personal experience may indicate "look at the numbers" trumps belief every time.

Comment by Joseph P. Murphy on April 14, 2010 at 10:11am: Maybe it is really the leader who is incapable of identifying and keeping A players.
Maybe it is just a fun game of hypothesis for the sake of discussion.