Freakonomics Radio - 107. How Much Does a Good Boss Really Matter?

Episode Date: December 26, 2012

It's harder than you'd think to measure the value of a boss. But some enterprising economists have done just that -- and the news is good.

From APM, American Public Media, and WNYC, this is Freakonomics Radio on Marketplace. Here's the host of Marketplace, Jeremy Hobson. This is Marketplace. I'm Jeremy Hobson. It is Freakonomics time. Every two weeks, we talk with Stephen Dubner, the co-author of the books and blog about the hidden side of everything. Stephen, it's good to have you back. Hey, thank you, Jeremy. I would like to talk to you today, if I may, about bosses and how much they actually matter. All right, bosses, how much do they matter? Well, here's the thing. We know that a bad boss is a drag, but in terms of how good a

good boss can be and how that translates into productivity, it sounds like an easy question, but it's not. It takes an economist to dig into it. Here's Stanford economist Ed Lazier. Suppose you look at a firm and you see that the firm is highly productive. Well, it may be highly productive because it has productive workers, because it has productive technology, or because it has good supervisors that are enhancing the productivity of the workers. And it's not so easy to tease out one effect from another. So it's a bit of a cause and effect riddle that you want to solve. The challenge here is to find some data that allows you to isolate and then measure the effect of the boss.

All right. So I'm waiting for the big answer here, Stephen. What is the data? What did they find? Well, first of all, the data they got was from a huge service company, which Lazier and his colleagues aren't allowed to name because of the academic research agreement. But this company does a lot of different things, everything from running call centers to processing insurance claims. And the data that the researchers got was extremely granular. They could really see individual transactions for more than 23,000 employees and 2,000 bosses. Now, Jeremy, here's the best part. In this company, the typical employee switches bosses a few times a year, depending on which project they're working on.

So it makes it possible to chart the impact of a given boss, okay? Here is Catherine Shaw, who is Lazier's entrepreneurial co-author. She is also an economist at Stanford. This data, because it is computerized data and we're just looking at the effects of workers moving between bosses, it's very difficult to screw that up. Okay, so we've got good data here, Stephen. We've got a lot of data, thousands of people. What did they find? They found that a good boss matters quite a bit, more than they would have thought. The researchers argue that the better bosses at this company increased productivity for a given worker by about 10%. Here's Ed Lazier again.

I mean, a 10% effect is a pretty big deal, especially when the way that the boss is doing this is indirect, indirect in the sense that the boss in this context is not actually producing herself. What she's doing is she's actually helping the subordinate be more productive. And can you take this data, Stephen, outside of the workplace setting with your boss-employee relationship and apply it to leadership in general? Well, Jeremy, we've tried in the past to measure the effect and the influence of different top-level leaders, CEOs, baseball managers, even the president of the United States. And what you generally find, the data tell us that their influence is actually much smaller than people generally would imagine.

Now, why bosses have a bigger effect, it's hard to say. We don't know. It may be just because bosses have more influence on an employee's life than a CEO does or a president does, for instance. For what it's worth, Lazier and Shaw, both these economists, have worked for presidents as economic advisors, Shaw for Clinton and Lazier for the second George Bush. Lazier says that Bush was a pretty good boss. He wanted to hear directly from us and hear what we had to say. His view was that was both more effective in terms of communication, but also more effective in terms of motivation.

Well, so for those bosses that are listening out there and want to emulate that, what can they do? Is there any advice from all you've learned? Well, I wish there was a magic answer of some kind. We did ask readers on Freakonomics.com bosses to tell us what they have done that worked. We heard one that's worth sharing. This is from a fellow named Jim Helton who runs an employee benefits company. He argues that a little bit of humility and humor can go a long way. So what we had is a dumbass award. We put it on your desk and you owned it.

So, Jeremy, there you go. One way to be a better boss, just pass out the occasional dumbass award and apparently everybody's happy. We need to start doing that at Marketplace. Stephen Dovner, Freakonomics Radio. He also puts out a podcast, which you can get on iTunes and hear more at Freakonomics.com. Stephen, we'll talk to you in two weeks. Thanks so much, Jeremy. Hey, podcast listeners. We've got a little bonus interview for you here. In the marketplace segment you just heard, I mentioned that we've looked at the influence of other leaders like CEOs and baseball managers. So here's one interview we did on that topic with the intelligent and engaging Joe Madden, who's manager of the Tampa Bay Rays. We spoke after the 2010 baseball season when the Rays finished atop the American League

East with 96 victories, beating out, among other teams, the New York Yankees. Madden is known as a manager who likes to tweak the conventional wisdom, who likes to use data to try to see around the corner. And in the spirit of the bosses and employees we talked about in the Marketplace segment, let's now hear Madden talk about how he tries to influence his employees, also known as members of the Tampa Bay Rays. Tell me this, Joe, what does a manager actually do? Well, what doesn't a manager actually do? I mean, you know, let's put it this way. There are two groups of people, let's say,

people who follow baseball and people who don't. For the people who don't, they see a grown man in a Little League uniform sitting in the dugout, spitting out sunflowers. He'd say, what the heck is going on? Here's what I think. I think we intellectualize the day. That's what I try to do. As the day begins in the morning, I get up, my iPad down

in Tampa, and I'll get right to the computer. And I just start reviewing some things, some statistical stuff that I get online. So I start playing the game in the morning. And that's just part of it. The other part is obviously dealing with the personalities, the conversations I may have to have during the course of that day, whether it's players, whether it's front office, whether it's dealing with the press. There's so many different components to being a manager. But I think for the most part, I think I have to intellectualize the day from the moment I wake up and try to bring it all together because there's so many different hats that a major league manager does wear. If you were looking for a parallel job to describe it, what would one be?

I mean, we've actually talked about the parallels between the president of the United States and a baseball manager, right? Where you're in charge, but on the other hand, you can't affect the outcome as much as you might like. Right. I mean, there's a lot of other people involved in this, and it's kind of like you're the overseer of what's going on. I don't know. You look at what the president does, and obviously that's kind of a complex thing. At least it looks that way from a distance. And ours is too, but it's definitely more limited. I would think we're not dealing with the Middle East and Afghanistan, et cetera. We're just dealing with Tampa versus the Yankees possibly. But how does it compare to other jobs?

I just, like you're saying, probably an upper management job in a situation where you really have to deal with a lot of different folks, and a lot of it has to do with your mind and how you're thinking and the creativity and your ability to pretty much communicate your ideas. How much do you think the manager actually matters when it comes to a team's win-loss record? Well, you know what, I think when you're talking of a more veteran-laden team, I think possibly the manager may have less of an impact because you're really going to permit these guys to just go out there and play

and try to stay out of the way as much as possible. And they don't really need as much guidance in-game. They may need some prior to the game, and don't be deceived there either because there are a lot of veteran players that are always seeking advice or counsel with managers or coaches, etc. But in-game, veterans pretty much like to be left on their own. I think the team that doesn't have as much veteranship among it is going to require more of an impactful manager. So I think it depends on the style or the makeup of the team where a manager can have more or less of an impact. You are known for thinking differently, for relying on numbers to dictate behavior,

for thinking strategically in a way that a lot of people, I think, really just admire. So of all the kind of moves that you make, what are some of the things that you're particularly proud of? Well, I mean, a lot of this stuff that you're talking about is generated from my front office uh andrew friedman our gm has really uh opened my mind to a lot of different statistical thoughts or analysis that's uh that's really helped me as a major league manager so i think the difference with our group and a lot of other teams is uh the marriage between the the front office and and the and the group on the field the manager manager, the coaches, and the players. There's a real good connection there.

When I first began, it was very rare, if at all, that you got any kind of aid in that regard from a front office down to the field level, whether it's crunching numbers or suggestions in any way, shape, or form. I think the way the game is going today, you're going to see a lot more of that marriage between the front office and the manager's office, where you're going to get a lot of good information coming your way that you should be open to. It sounds like you were a little reluctant or a little bit of a skeptic early on. How did you become a believer? No, I wasn't really. It's just, you know, actually back in the mid-80s, in my very rudimentary way,

I was a hitting coach. I was really trying to understand numbers and how they would help an offensive player or how to evaluate an offensive player better. I was never into a batting average way back in the day. I was more into runs produced and walks versus strikeouts and things of that nature. Slugging percentage was coming on board. I mean, I started to try to understand that back then, but since there's a lot more data available and the metrics that are presented to me prior to a game

really kind of, like I said, takes a lot of complicated stuff and simplifies it. I've always been a fan. I just didn't understand all of it in the beginning. All right, so those are the inputs. Now what about the outputs? Do you see that I, Joe Madden, am taking in the statistical robustness of all that's here,

and I'm turning it into a couple more wins a year? Well, you know, you'd like to believe so. I mean, I don't really sit down and analyze that or make a mark after the game that, well, I really had an impact on that game. I'm sure that even our guys upstairs might have a better idea of maybe the impact we've had as a manager and a coaching staff during the course of a game. I know this, too, in regards to all this number crunching we're talking about. I really try to avoid feeding a lot of that or any of that to the players.

I think the players are really, you only give them information on a need-to-know basis. Some guys are able to handle more. Some guys really want to handle less or nothing at all in regards to the kind of information you give to them. That's just the way the baseball player is. So for me, it's about taking all this good stuff and really trying to inundate myself and try to handle as much of it as I possibly can. But when you like your stat guys upstairs, when you like to just go to them and say,

hey, hey guys, do your absolute best, feed into this computer everything you can to try to isolate how many games I won for us. Not I, not from a selfish standpoint, but to say, look, we've got this whole team of guys here who are trying to optimize our statistical approach to this game to make our players play better. Let's try to put a number on that. How about how many games I've lost? I would be concerned about that, too. See, I really, you know, at the end of the game,

I know when I've utilized information well, and I know in my heart of hearts how it played out, and I thought that maybe it did have a positive impact on the game. And for the most part, I'm able to think about that for a split second and move on. The times when I have most difficulties, when I've probably made what I perceive to be the wrong decision based on I did not utilize the information well enough. So that's the part that lingers with me more is when I feel like I didn't do as good of

a job because you are kind of expected to do well on a nightly basis. You expect that from your third baseman, your starting pitcher, your bullpen guy. You're looking for them to be almost perfect on a nightly basis. And you expect that from yourself, too. So I don't really glorify in the better moments. I'm really more concerned about when I mess up. Coming up on the next Freakonomics Radio, we answer your questions in another edition of Frequently Asked Questions, and we let you in on some of the titles that Freakonomics almost got instead of Freakonomics. Economics Gone Wild.

I guess like Girls Gone Wild. Not so good. Not so good. Not so good. Dude, Where's My Rational Expectation? Bend It Like Veblen. That's got some clever points. I mean, it's not really a title, but that's very clever.

Then there were a few late entries. You remember the late entries? I remember one of your gems. E-Ray Vision. E-Ray Vision. That was so bad. And a tribute to the person who named Freakonomics, Steve Levitt's sister, Linda Levitt-Gines. That's next time on Freakonomics Radio. I'm I'm