Privately Held Little Ponds

It was that not so typical December morning, the overnight mist had glazed the bricks on Saginaw Street and coffee at The Good Beans Cafe was as smooth and shiny as it’s antique bar. The conversation centered on a paradox and a study recently published in the Journal of Cross-Cultural Psychology. The study looks at Science Students, 15 year olds. It compares the students’ performance and students’ impression of their performance. The paper proposes an explanation for it: The reference group effect.

The study argues that countries have very different standards when it comes to science education. One way to consider this is the reference group effect. One of the authors offered this analogy. If you asked a five foot ten inch tall student in China if they were tall; you’d get one answer. Yes! If you asked the same question to a five foot ten inch student in Scandinavia, you’d get a different response, no actually under average. This is the group effect; the same thing happens with science education,

“Students in countries with elite science standards are much more likely to think of themselves as mediocre, whereas students in countries with mediocre standards are much more likely to think of themselves as elite.”

This recent report made our group consider privately held or family businesses and the link is between belief and performance. In the study the paradox is generated because we compare ourselves to our own reference groups.

The most successful businesses avoid comparisons to their own reference groups. This little pond effect can cause you to rest and think you are great, when in fact you may be borderline good.

Interestingly Big-fish–little-pond effect (BFLPE) is a term introduced by Herbert W. Marsh, and popularized by Matthew Gardner, which hypothesizes that the self-concept of students is critical.

Business owners need to understand these concepts. Underestimating yourself may be a positive causing you and the team to work harder. Over estimating your success, or performance will hurt you business. In his book, Good to Great, Jim Collins wrote “The vast majority of companies never become great, precisely because the vast majority become quite good-and that is their main problem.”

Privately held firms may want to consider these educational theories.

Measuring yourself against your own reference groups may show you are good, and as Collins says that maybe the problem. An additional metric to consider is not a comparison study; how does our firm do compared to our reference group in terms of revenue, costs and EBITDA, but a contrast study.

“What makes us different?” This study will require some objective eyes. Long term employees with no exposure to other firms may provide data and insights similar to your own reference group, slapdash at best.

The Journal of Cross-Cultural Psychology article evokes the echoes of Eliza Doolittle, the fictional character who appears in the play Pygmalion (George Bernard Shaw, 1912) and the musical version of that play My Fair Lady.

Privately held firms may want to consider Pygmalion and the Golem effect when working to move evaluate and improve their firms.