Promoting from within can cause companies to lose their best employees, cautions Lucien Parsons, operations manager of 4mm Games (Def Jam Rapstar
) as part of a wide-ranging new lecture on becoming a successful game creator.
In his IGDA Leadership Forum talk on Friday, Parsons, a veteran of studios like BreakAway and Zenimax Online, discussed the four major traps that successful businesses fall into, using data from a variety of business schools and publications. We'll discuss his points trap-by-trap.
Getting Trapped By Your Own Success
This is essentially being too big for your britches -- getting complacent because you're at the top of your market, and don't think you can be replaced. This can encourage you to stop innovating.
Using an example from our industry, "Sony showed a lot of premium position captivity from PS2 to PS3," said Parsons. "And there were good reasons for them to be confident!"
They had over 100 million PS2s out there when the PS3 launched, which meant they had no real incentive to release a new console.
On the other hand, "Microsoft had every reason to bring out the Xbox 360 -- and Sony let them," a year before the PS3, he reminds us.
"They also ignored the importance of online play, and a year later they came out with a clearly inferior solution in that regard. They also believed that if they built it, developers would come," but didn't hand out the incentives Microsoft was giving.
What do you watch out for here?
1. Narrowly defined competitive sets: ie. a boardroom that doesn't look around and worry.
2. Market share falling among specific segments where you previously felt strong.
3. Consumer resistance to product enhancements - an eroding price premium.
Failing To Manage R&D
In this trap, the company mismanages the processes for creating new or different offerings, often by overestimating product demand.
He first discussed the Pippin, Apple's failed games console. "They'd drifted through 10 years of increasingly random product launches," he said, licensing Mac clones, and so forth.
"They'd underestimated the market value of the Mac OS as a whole." They had come out with the Apple II and the Mac, and then stopped innovating for years (of course the company came roaring back with the return of Steve Jobs, effectively reversing their brand fragmentation).
3D Realms, on the other hand, had the opposite problem. They announced Duke Nukem Forever
in 1997. "They'd blown away the competition with Duke Nukem
, and they wanted to do it again!" he said. But they kept trying to leapfrog the competition, any time something new came out. "By focusing on always trying to get the best possible experience, the best possible graphics," they ignored the immediate for the long term, he says.
Companies that invest more in R&D have better margins than those who spend less, he says, which makes sense. But there's no actual correlation between that spend and the overall success, based on actual data. "We've seen games that come out and are based on some new tech feature, and it's really cool…for about 10 minutes," says Parsons. "Because if they let the technology drive the game, and not the gameplay drive the game," then nobody cares.
What to watch out for:
1. Disconnects between the processes and the teams responsible for bringing it to market, specifically R&D and marketing.
2. Leading with tech - unless consumers will pay for it, investments in new products and services may break the bank.
3. Lack of strategic market plans. Don't just react.
Abandoning Your Core Products Too Early
This represents a failure to fully explore growth opportunities in the existing core business. Parsons couldn't find a direct game correlation, but in other businesses, Kmart decided not to follow the core business of discount retail at a certain point. They diversified, and just let their main business roll as it was. Meanwhile Wal-Mart focused on their supply chain, and wound up with a sustained competitive advantage.
To pose a potential game industry issue, let's say you're a major publisher -- you decide retail is dead, and you're going to focus all your sights on digital download. "Can anyone argue that the best move for a company that's doing well in retail right now is to abandon it?" Parsons posed. "Some people say so."
What to watch out for:
1. Management teams that refer to parts of the business as "mature."
2. Private equity takeovers. Other companies often see growth opportunities we believe have passed. "If someone wants to buy you, it's a good bet they see more growth opportunities" that you could be exploiting.
3. Similar companies investing in growth opportunities that are distant from current market. "There can be good reasons for diversification," he says "but if the idea is 'this business doesn't work anymore,' that's a problem."
Poor Talent Management
This is the most relevant problem to game studios - it's a lack of leaders with skills. Internal skill gaps are most often the unintended consequence of promote-from-within policies and strong organizational cultures, he says.
There aren't a lot of trained managers in the industry, notes Parsons, which "…doesn't just hurt the would-be manager, it hurts the team. It hurts the hiring process. It hurts, eventually, the project."
In the game industry, we often promote from within rather than specifically going out and getting the people with the right skills. "This brings people not from their level of competence, but to their level of incompetence," he says. "People are really good at their job until they get promoted. Great! Until they're no longer good at their job."
How does this happen? "A lot of people get promoted because they won't be missed in the job they were doing," he says. "Some people get promoted because their incompetence." There are some seemingly good reasons, of course -- they may know the process, the team, and they've been around forever, and the company may feel it owes them something.
There's also the issue of glass ceilings. "If you're a good programmer, you don't necessarily have anywhere to go, unless you become a lead," he says. "So we make good programmers into bad leads."
Citing some data gathered from business reviews, it had been found that nearly half the workforce has a less than five percent chance of being a top performer at the next level of promotion. About eight percent of total employees have even a 75 percent chance of being a top performer at the top level.
"Also you wind up having the new management look exactly like the old management," he cautions. "The problem is if the new people think like the old people, you don't get any new viewpoints."
Hiring from within isn't bad, he notes, you just shouldn't do it without looking at outside options as well. At a previous company he told new hires, "If you want to be a really good server programmer, you can do that. And I will keep giving you raises, and keep letting you grow without becoming management."
What to watch out for:
1. You should have a willingness to hire, but be picky enough to not just fill a slot.
2. Over-reliance on industry-specific recruiting sources and promote from within. 30% external hires is ideal, he says.
3. Replicating the skillsets of current leadership.