Jeffrey Pfeffer is Professor of Organizational Behavior at the Stanford Graduate School of Business. This article was published in the May-June 1998 issue of the Harvard Business Review. Pfeffer is the author of several business/management bestsellers.

The author believes that there are six myths going around about pay: (1) Labor rates = labor costs; (2) You can cut labor costs by cutting labor rates; (3) Labor costs are a significant portion of total costs; (4) Low labor costs are a potent competitive strategy; (5) The best way to motivate people is through individual incentive compensation; and (6) People work primarily for money. According to Pfeffer, these myths are brought into the world by business journalism and everyday discussion. But he responds: "... labor rates and labor costs aren't the same thing. A labor rate is total salary divided by time worked. But labor costs take productivity into account." Pfeffer uses various companies to debunk the logic in the idea that any organization can solve its attraction, retention, and motivation problems solely by its compensation system. They should spend more time and effort on the work environment - "on defining its jobs, on creating a culture, and on making work fun and meaningful." Apart from criticizing, Pfeffer also provides advice. First, managers need to keep the difference between labor rates and labor costs straight. Second, managers should include a large dose of collective rewards in their employees' compensation package. Third, managers should de-emphasize pay and not portraying it as the main thing you can get from working at a particular company. Fourth, managers must recognize that pay has substantive and symbolic components. Fifth, managers should consider other methods than pay to signal company values and focus behavior. And six, and most importantly, "... leaders must come to see pay what it is: just one element in a set of management practices that can either build or reduce commitment, teamwork, and performance. Thus my final piece of advice about pay is to make sure that pay practices are congruent with other management practices and reinforce rather than oppose their effects."

Nice, clear article about the myths surrounding pay and compensation. Pfeffer systematically debunks these myths using clear examples and advice on how to solve these issues. I believe this article is based on his 1998-book 'The Human Equation: Building Profits by Putting People First'. This article is useful for leaders, managers, HR professionals and MBA-students. The article is written in simple US-English.

Although some of his fundamental theories are interesting, this author's means of proving his hypothesis are weak in my opinion. His facts lack substance. There is a lot of work that needs to be done before he is going to convince large companies of his theories. Basically, his magazine articles are much more interesting than this book. Save your money.

The Human Equation (1998) is an exceptional book. In the first chapter Pfeffer shows that conventional wisdom about the sources of organization success are not correct. In particular he disproves the ideas:

- that it is essential to work in the right sector,
- that the size of the organization is crucial,
- that it is necessary to have an international precense,
- that downsizing is indispensible, and
- that it is necessary to have a technological lead.

Then the author clearly and impressively presents the enormous amount of evidence of the last decade showing the strong association between how organization treat people and how they score on financial and operational performance indicators. Pfeffer describes the following seven HR practices that demonstrable correlate with organization success. He names these practices High Performance Work Practices. They are:

1. Employment security
2. Selective hiring of new personnel
3. Self-managed teams and decentralization of decision making as the basic principles of organization design
4. Comparatively high compensation contingent on organizational performance
5. Extensive training
6. Reduces status distinctions and barriers, including dress, languag, office arrangements, and wage differences across levels
7. Extensive sharing of financial and performance information throughout the organization

This list contains some elements that may seem counterintuitive to some. For instance: how can it be that high wages contribute to financial performance? Don't they just keep the profits low? And how can you afford to be selective in this hard labour market? And how can companies afford to invest much in training of personnel? Aren't employees so mobile and disloyal that you run the risk of training them for your competitor? Speaking about this, how can you in this time of employability of employment security? And it is wise to have an open information policy? If you'd do that, wouldn't you weaken your position by feeding your competitor with valuable information?

If you read this book you will find crystal-clear answers to these questions. The conclusion is that the seven practices do indeed work.

The premise of Pfeffer's book is that companies' success is directly correlated to the quality of people and their management. This seems like common sense. After all, many companies proclaim "people are our biggest asset." In practice, however, it's uncommon sense: companies often lack the deep conviction necessary to follow through. It's much easier to take a "tough love" approach to "management," cut training and lay off 10% of the workforce than it is to focus on the long-term people issue.

Based on his research, Pfeffer offers several HR practices that are common in effective organizations. Among them:

* Maintain a sense of employment security. Psychologically speaking, people will work more effectively when they can focus on doing their job rather than worrying about keeping it. Similarly, if employees are your company's hugest asset, then it behooves you to ensure they're not working for your competition. This is common sense. More companies practice uncommon sense and get sucked into the peformance death-spiral. For example, we frequently read where a new CEO is brought in and his first action is to initiate layoffs. (Apple Computer is an often-cited case study of this.) With their sense of security threatened, the remaining employees will become less motivated. Profits begin to sag, so the company reacts by cutting training. Employees may have more accidents, and customer service is affected. The spiral continues until it or the company broken.

* Hire selectively - a recurring theme is that to avoid layoffs, you need to be operating efficiently enough not to *have* extra employees.

In a perfect world, we would have a large number of applicants, screen them based on corporate fit and their attitude, then filter them out through several rounds of screening. Senior staff should become involved in the latter part of the process to emphasize the importance of hiring. After hiring, we need to evaluate the success of our hiring practices and adjust them as necessary. This follows the axiom "that which gets measured, gets done." This common sense approach is used by highly successful companies such as Southwest Airlines and Cisco. Companies exhibiting "uncommon sense" may get so desperate to fill the position that they go against their own guidelines. Having made this mistake before, I am very much aware that a bad hire is far worse than no hire.

* Facilitate ownership and responsibility through decentralized decision making.

Assuming you hire the "best and brightest," you should trust them to use their brains. This provides a sense of ownership, challenge, and supports the organization's organic development. We all hope to have the equivalent of the "Post-It" note developed internally by folks taking initiative.

Pfeffer had an interesting comment from Bill Gurley about the effectiveness of stock options. Specifically, they're not really as much a sense of ownership as we'd like to believe because if the market has a violent downswing (as it did in early 2000), employees are almost incented to leave their underwater options.

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Pfeffer's book is an evolution of his previous ideas. What's also interesting in his analysis was seeing that long-term company success was *not* correlated to technology or industry.

Pfeffer's suggestions seem like common sense, but Pfeffer realizes they're not AND is aware of the need to quantify the information. The case studies and quantitative research are very helpful in supporting these ideas. In a few of the cases -- Lincoln Electric springs to mind -- it would be especially helpful to have a more recent examination, perhaps a follow-up.

'The Knowing-Doing Gap' describes the barriers to turning knowledge or strategy into action based upon surveys, interviews, and case-study evidence spanning many sectors. The problem: US companies annually spend over US$100 billion on training and consulting often failing to improve operations.

The well-referenced and presented chapters span:

* knowing "what" is not enough- evidence, measuring & significance of the knowing-doing gap, and knowledge management projects.

* when talk substitutes for action- presentations, documents, mission statements, planning, smart-talk, smart negative people, business school 'bad' training, and complexity & jargon (remedies described include working leaders, simplicity, vocabulary).

* when memory is a substitute for thinking- convention & consistency, culture, history, and need for cognitive closures.

* when fear prevents acting on knowledge- fear as management and the remedies.

* when measurement obstructs good judgement- problematic measures, short-term financial focus, over-complexity, and in-process versus outcome measures (remedy- simplicity & focus on critical elements).

* when internal competition turns friends into enemies- undermining loyalty & teamwork & knowledge sharing, and significance of interdependence.

* firms that surmount the knowing-doing gap- British Petroleum, Barclays Global Investors, and New Zealand Post.

* turning knowledge into action- 8 guidelines including- company philosophy, knowing from doing and teaching others how, action counts more than elegant plans & concepts, forgiving mistakes from action, drive out fear, fight external competitors, measure what matters, and lead by example.

Weakness include the subjectively dry "unemotional/unengaging" style of writing; the verbatim repetition of some sections in different chapters (perhaps a re-edit could reduce page count by 25% without losing content); occasional errors in use of sector-specific jargon; and relatively shallow treatment of significant subject- perhaps a deeper follow-up text with case-study evidence of whether the recommendations actually work together is due? Also the book neglects attention to dot.com enterprises- which are through self-fulfilling prophecies- transforming the global business landscape.

Overall a timely text, addressing a real-problem, that is worth shelf-space. Despite that, to this reviewer there were no new 'aha' moments- as the findings/recommendations repeated many already existing in change management business texts spanning the last 3 decades.

This book is not so much about knowing-doing gap as about how things are done in big traditional hierarchical organization. I doubt that there are many small entrepreneurial companies that have similar problems.

When talk replaces action - when there are too many people in the company whose sole job is "analyzing", "monitoring" and "controlling". No wonder that their performance is measured by talking, presenting and writing. In a company of 10 people nobody would tolerate a "talker" for more than several days.

When memory replaces thinking - on the whole that's not a bad thing because we are talking about experience and intuition here. Big corporations have so much "memory" that they don't need to think much about anything. Actually in such cultures as Japanese intellect and formal knowledge are almost synonyms.

When measurements prevent good judgment - measurements are needed when real-life results and actual work are set too much apart. In small companies you simply deliver or not.

All other major key points of the book are also applicable mostly to big companies and don't explain why in small companies knowing - doing gap exists. Maybe because thinking replaces memory?

This book is not so much about knowing-doing gap as about how things are done in big traditional hierarchical organization. I doubt that there are many small entrepreneurial companies that have similar problems.

When talk replaces action - when there are too many people in the company whose sole job is "analyzing", "monitoring" and "controlling". No wonder that their performance is measured by talking, presenting and writing. In a company of 10 people nobody would tolerate a "talker" for more than several days.

When memory replaces thinking - on the whole that's not a bad thing because we are talking about experience and intuition here. Big corporations have so much "memory" that they don't need to think much about anything. Actually in such cultures as Japanese intellect and formal knowledge are almost synonyms.

When measurements prevent good judgment - measurements are needed when real-life results and actual work are set too much apart. In small companies you simply deliver or not.

All other major key points of the book are also applicable mostly to big companies and don't explain why in small companies knowing - doing gap exists. Maybe because thinking replaces memory?

This book is too academic with little practical advice, and thus the one star.

Using some very popular figures such as Presidents, CEOs, and the like. Dr. Pfeffer takes a detailed look at how power is gained, used, and lost in the world of humanity. This book is fairly easy to read and is packed with usable information for wading one's way through the often political nature of business. Even those who aren't aspiring CEOs can benefit from this book. If nothing else you should be able to recognize THE GAME as it takes place in your organization, and in the process keep out of the line of fire. Insightful yet practical.

GREAT BOOK!

I cherish this book and the thoughts that the prof. gives us in it. If you earn your livelihood by interacting with people, you need to read this book and read it every time you take a new job and every time you find yourself running into a brick wall at work. I recommend this book to everyone I meet, especially younger ambitious employees.

Jeffrey Pfeffer and Robert I. Sutton are Professors of Organizational Behavior at Stanford University, California. This article was published in the May-June 1999 issue of Harvard Business Review.

In the four years of research at more than 100 companies, the authors observed a phenomenon they term the 'knowing-doing gap', which is the inertia of knowing too much and doing too little. "It can often be traced to a basic human propensity: the willingness to let talk substitute for action." In particular, they identify an especially insidious inhibitor of organizational action, 'smart talk' which focuses on the negative and is unnecessarily complicated and/or abstract. Most importantly, 'smart talk' stops actions in its tracks. According to Pfeffer and Sutton, managers let talk substitute for action because that's what they've been trained to do: "Smart talk is the essence of management education at leading institutions in the US and throughout the world. ... Once in the workplace, business school graduates continue to be rewarded for talking" (consultants). The authors are not looking for silence, they are looking for the right kind of talk, which can inspire and guide intelligent action. Their research suggests five characteristics of organizations without this 'knowing-doing gap': i) They have leaders who know and do the work; ii) They have a bias for plain language and simple concepts; iii) They frame questions by asking "how", not just "why"; iv) They have strong mechanisms that close the loop; and v) They believe that experience is the best teacher. The authors conclude that closing the 'knowing-doing gap' can provide the great rewards of action.

I think that most of us do agree with the authors' statement about the talk-instead-of-action problem at organizations, but the authors do not convince me with their solution. Yes, they provide a list of five characteristics (all very much in line with Peters & Waterman's excellence and Porras & Collins' built-to-last models), but there is no advice on implementation of those characteristics. This advice might be included within their book 'The Knowing-Doing Gap'. The authors use simple business US-English.

This book is merely a compilation of case studies. There are few -- if any -- check lists, tables, charts, bullet points, or step-by-step methodologies to help you implement the concepts within your own company or organization. In fact, THERE ARE ONLY 21 PAGES not dedicated exclusively to either a case study and/or an analysis of the various case studies presented within the book. Save your money and purchase "The HR Scorecard", "The Talent Solution", or "Aligning Pay and Results" instead. Very disappointing...

This book tells the story of eight extremely successful companies that manage to bring out the best in their people. The stories are detailed descriptions of the company's backgrounds, strategies, systems and management practices. The stories are also larded with quotes from the company's CEO's, HR managers and employees. Following this approach the authors provide the readers the opportunity to form their own hypotheses about the companies' successes. But the authors also present their interpretations of the case studies.

What these studies show is how these high performing companies have achieved their success by aligning their values, strategies and people. This is something which is easy to understand but hard to do. It requires consistent articulation and implementation of the values and vision and a relentless attention to detail in ensuring that all policies and practices support the company's values. In order to be able to show this kind of consistency a real belief and commitment are needed and a willingness to persevere.

This book shows how high performing companies consciously turn a lot of the conventional management wisdom upside down. For instance:

1. Contrary to what many people now think, recruiting, selecting and retaining unique talent is NOT the prime source of competitive advantage. Although these activities are important, the examples of these extraordinary companies show that it is much more important to build a culture and work system that enables all people to use their talents and develop their talents. A byproduct of this will be that your company will also be better at attracting and retaining people.

2. Values first instead of strategies. The conventional view puts competitive strategy on top and derives from that what structure is needed, what competencies and behaviors are needed and so on. The companies described here work differently. Although they do have competitive strategies these are secondary to their set of guiding values and to the alignment of these values with their management practices. In other words: they have a values-based view of strategy.

3. Respectful and trusting way of dealing with people. Many companies monitor, check and try to control employee behavior. The hidden value companies work differently. In the spirit of Douglas McGregor's book The Human Side of Enterprise, they seem to understand that if you begin by designing systems to protect against the small unmotivated minority, you end up alienating the motivated majority. So they put their people first by treating them respectfully, involving them and trusting them.

Lessons like the ones presented in this book can be found in several other books by for instance Jeffrey Pfeffer himself, David Maister and Jim Collins. What makes this book different and interesting to me is the presentation in the form of detailed case descriptions.

One of the greatest challenges facing organizations today is attracting and then keeping "the best and the brightest" people they can. Then, there is another great challenge to develop their talents and skills. Here is one of the best books I have read thus far which addresses the second challenge directly...and indirectly, addresses the first challenge as well (pun intended). O'Reilly and Pfeffer organize their material within a series of chapters, each of which (presented as a case history) focuses on eight exemplary companies (e.g. Cisco Systems, The Men's Wearhouse, and Southwest Airlines). The authors utilize a basic format (introduction, background, values, philosophy and spirit, etc.) which enables their reader to draw relevant comparisons and contrasts. They also summarize key points at the end of each chapter.

After extensive involvement with several of the exemplary companies, I can personally attest that organizations such as they which effectively develop the "hidden value" in their employees achieve at least three highly desirable (indeed imperative) objectives: they create a workplace environment in which people at all levels are much happier as well as much more productive; as a result, they have less attrition of their "best and brightest"; and finally, they are much more successful when competing for the "human capital" they need. To their credit, O'Reilly and Pfeffer do not promise to offer all manner of "secrets" to simplify the process of attracting and developing talent. Everything they suggest is common sense and much of it is obvious. The "hidden value" of their book is revealed only as you correlate all the ideas and experiences it provides within the context of your past and current circumstances.

If you agree that an organization should be value-driven and that values are driven by people, almost everything O'Reilly and Pfeffer share can be of substantial assistance. But I presume to conclude with three caveats. First, what they recommend is relatively simple to explain but will be immensely difficult (if not impossible) to implement without a firm commitment, sufficient time, and (yes) patience. Second, given the wealth of information provided, beware of massive adoption of what may have been effective elsewhere. Rather, select only what is most appropriate to your organization's needs when formulating a model. Finally, keep in mind that all of the eight exemplary companies have changed, some quite significantly, since the period during which this book was written. So must yours in months and years to come.

I have often read and reread Prof. Pfeffer's books. I give this one 3-stars because I found less than half the book of value. I find the examples quite colorful, interesting, and thought provoking. It's just too bad that the book didn't have a lot of value for the money (unlike his other books). I read this book the last time about 2 years ago, each time I pick it up I read less and less. The first time I read it, I read 5 chapters and now I'm down to 2. I wish I could say that it's because I see many of the concepts being implemented within corporate America and as such I have less need for the information.

The Stanford professor's most recent book, Managing With Power, sold very well. Among the companies he documents here are Southwest Airlines, Wal-Mart, Tyson Foods, Circuit City, and Plenum Publishing.

Competive advantage through people is a great management book for the turn of the century. With a load of great ideas and innovative techniques, Pfeffer gets his message across. Although, one thing that I had notice when reading the book, is that Pfeffer repeats himself quite a lot. I feel that for a book aimed at the business world, management does not have time to read information twice. But, overall, it was a very interesting and enlighting book.