High Output Management

There is no book ever that I have highlighted as much as this one! It’s so full of great advice in all sorts of different situations that I’m having a very difficult time summarizing it. The book came to my attention after its author, Andrew Grove, passed away. Many people cited his books as guides in tough times — including Ben Horowitz of a16z.

Notable notes

“Let chaos reign, then rein in chaos.

In principle, every hour of your day should be spent increasing the output or the value of the output of the people whom you’re responsible for.

Are you plugged into what’s happening around you? And that includes what’s happening inside your company as well as inside your industry as a whole.

But today’s gap represents a failure of planning sometime in the past.

“CEOs always act on leading indicators of good news, but only act on lagging indicators of bad news.

base, you can determine when you need to pour the coffee. The key idea is that we construct our production flow by starting with the longest (or most difficult, or most sensitive, or most expensive) step and work our way back.

equipment capacity, manpower, and inventory can be traded off against each other and then balanced against delivery time.

Bear in mind that in this and in other such situations there is a right answer, the one that can give you the best delivery time and product quality at the lowest possible cost.

But how large should it be? The principle to be applied here is that you should have enough to cover your consumption rate for the length of time it takes to replace your raw material.

A common rule we should always try to heed is to detect and fix any problem in a production process at the lowest-value stage possible. Thus, we should find and reject the rotten egg as it’s being delivered from our supplier rather than permitting the customer to find it.

First, you’ll want to know your sales forecast for the day. How many breakfasts should you plan to deliver? To assess how much confidence you should place in your forecast, you would want to know how many you delivered yesterday compared to how many you planned on delivering—in other words, the variance between your plan and the actual delivery of breakfasts for the preceding day.

Your next key indicator is raw material inventory. Do you have enough eggs, bread, and coffee on hand to keep your factory running today? If you find you have too little inventory, you can still order more. If you find you have too much, you may want to cancel today’s egg delivery.

quality indicator.

If, for example, you start measuring your inventory levels carefully, you are likely to take action to drive your inventory levels down, which is good up to a point. But your inventories could become so lean that you can’t react to changes in demand without creating shortages. So because indicators direct one’s activities, you should guard against overreacting. This you can do by pairing indicators, so that together both effect and counter-effect are measured. Thus, in the inventory example, you need to monitor both inventory levels and the incidence of shortages.

But a genuinely effective indicator will cover the output of the work unit and not simply the activity involved.

Such indicators have many uses. First, they spell out very clearly what the objectives of an individual or group are. Second, they provide a degree of objectivity when measuring an administrative function. Third, and as important as any, they give us a measure by which various administrative groups performing the same function in different organizations can be compared with each other.

Leading indicators give you one way to look inside the black box by showing you in advance what the future might look like. And because they give you time to take corrective action, they make it possible for you to avoid problems.

unless you are prepared to act on what your leading indicators are telling you, all you will get from monitoring them is anxiety.

the improvement or deterioration of the forecasted outlook from one month to the next provides the most valuable indicator of business trends that I have ever seen.

Because the art and science of forecasting is so complex, you might be tempted to give all forecasting responsibility to a single manager who can be made accountable for it. But this usually does not work very well. What works better is to ask both the manufacturing and the sales departments to prepare a forecast, so that people are responsible for performing against their own predictions.

Ideally, inventory should be kept at the lowest-value stage, as we’ve learned before, like raw eggs kept at the breakfast factory.

The key principle is to reject the defective “material” at its lowest-value stage.

one should approach the need to inspect recognizing that a balance exists between the desired result of the inspection, improved quality, and minimum disturbance to the production process itself.

Let’s consider a few techniques commonly used to balance the two needs. There is a gate-like inspection and a monitoring step.

If the manager examined everything his various subordinates did, he would be meddling, which for the most part would be a waste of his time. Even worse, his subordinates would become accustomed to not being responsible for their own work, knowing full well that their supervisor will check everything out closely. The principle of variable inspection applied to managerial work nicely skirts both problems, and, as we shall see, gives us an important tool for improving managerial productivity.

There is a second way to improve productivity. We can change the nature of the work performed: what we do, not how fast we do it. We want to increase the ratio of output to activity, thereby increasing output even if the activity per employee-hour remains the same. As the slogan has it, we want to “work smarter, not harder.”

leverage, which is the output generated by a specific type of work activity. An activity with high leverage will generate a high level of output; an activity with low leverage, a low level of output.

a very important way to increase productivity is to arrange the work flow inside our black box so that it will be characterized by high output per activity, which is to say high-leverage activities.

In the first round of work simplification, our experience shows that you can reasonably expect a 30 to 50 percent reduction.

the definition of “manager” should be broadened: individual contributors who gather and disseminate know-how and information should also be seen as middle managers, because they exert great power within the organization.

the output of a manager is a result achieved by a group either under her supervision or under her influence.

output and activity are by no means the same thing.

A manager must keep many balls in the air at the same time and shift his energy and attention to activities that will most increase the output of his organization. In other words, he should move to the point where his leverage will be the greatest.

But reports also have another totally different function. As they are formulated and written, the author is forced to be more precise than he might be verbally. Hence their value stems from the discipline and the thinking the writer is forced to impose upon himself as he identifies and deals with trouble spots in his presentation. Reports are more a medium of self-discipline than a way to communicate information. Writing the report is important; reading it often is not.

the preparation of an annual plan is in itself the end,

decisions can be separated into two kinds. The forward-looking sort are made, for example, in the capital authorization process. Here we allocate the financial resources of the company among various future undertakings. The second type is made as we respond to a developing problem or a crisis, which can either be technical (a quality control problem, for example) or involve people (talking somebody out of quitting).

to maximize the leverage of his activities, a manager must keep timeliness, which is often critical, firmly in mind.

delegation without follow-through is abdication. You can never wash your hands of a task. Even after you delegate it, you are still responsible for its accomplishment, and monitoring the delegated task is the only practical way for you to ensure a result.

Monitoring the results of delegation resembles the monitoring used in quality assurance. We should apply quality assurance principles and monitor at the lowest-added-value stage of the process. For example, review rough drafts of reports that you have delegated; don’t wait until your subordinates have spent time polishing them into final form before you find out that you have a basic problem with the contents.

To use your calendar as a production-planning tool, you must accept responsibility for two things: 1. You should move toward the active use of your calendar, taking the initiative to fill the holes between the time-critical events with non-time-critical though necessary activities. 2. You should say “no” at the outset to work beyond your capacity to handle.

remember that the value of an administrative procedure is contained not in formal statements but in the real thinking that led to its establishment.

a manager should allocate about a half day per week to each of his subordinates.

Manufacturers turn out standard products. By analogy, if you can pin down what kind of interruptions you’re getting, you can prepare standard responses for those that pop up most often.

Also, if you use the production principle of batching—that is, handling a group of similar chores at one time—many interruptions that come from your subordinates can be accumulated and handled not randomly, but at staff and at one-on-one meetings, the subject of the next chapter. If such meetings are held regularly, people can’t protest too much if they’re asked to batch questions and problems for scheduled times, instead of interrupting you whenever they want.

The point is to impose a pattern on the way a manager copes with problems. To make something regular that was once irregular is a fundamental production principle, and that’s how you should try to handle the interruptions that plague you.

Earlier we said that a big part of a middle manager’s work is to supply information and know-how, and to impart a sense of the preferred method of handling things to the groups under his control and influence.

At Intel we use three kinds of process-oriented meetings: the one-on-one, the staff meeting, and the operation review.

A key point about a one-on-one: It should be regarded as the subordinate’s meeting,

Exchanging notes after the meeting is a way to make sure each knows what the other committed himself to do. One-on-ones should be scheduled on a rolling basis—setting up the next one as the meeting taking place ends. Other commitments can thereby be taken into account and cancellations avoided.

I was supposed to be the supervisor, but I found that others in the group were often more familiar with the work of another researcher than I was. Thus, a group discussion on any subject tended to get more detailed and more heated, but always more rewarding, than an exchange between me and one other specialist.

A staff meeting is like the dinner-table conversation of a family, while other forums of interaction at work, involving people who don’t know each other very well, are like a group of strangers having to make a decision together.

he should encourage free expression. He should never preview the material, since that will keep him from reacting spontaneously.

When a mission-oriented meeting fails to accomplish the purpose for which it was called, the blame belongs to the chairman.

Do not worry about confronting the late arriver. Just as you would not permit a fellow employee to steal a piece of office equipment worth $2,000, you shouldn’t let anyone walk away with the time of his fellow managers.

Finally, everyone involved must give the decision reached by the group full support. This does not necessarily mean agreement: so long as the participants commit to back the decision, that is a satisfactory outcome.

Sometimes no amount of discussion will produce a consensus, yet the time for a decision has clearly arrived. When this happens, the senior person (or “peer-plus-one”) who until now has guided, coached, and prodded the group along has no choice but to make a decision himself.

Your general planning process should consist of analogous thinking. Step 1 is to establish projected need or demand: What will the environment demand from you, your business, or your organization? Step 2 is to establish your present status: What are you producing now? What will you be producing as your projects in the pipeline are completed? Put another way, where will your business be if you do nothing different from what you are now doing? Step 3 is to compare and reconcile steps 1 and 2. Namely, what more (or less) do you need to do to produce what your environment will demand?

The key to both Bruce’s and Cindy’s efforts is that their planning produced tasks that had to be performed now in order to affect future events. I have seen far too many people who upon recognizing today’s gap try very hard to determine what decision has to be made to close it. But today’s gap represents a failure of planning sometime in the past.

the idea that planners can be people apart from those implementing the plan simply does not work.

remember that by saying “yes”—to projects, a course of action, or whatever—you are implicitly saying “no” to something else. Each time you make a commitment, you forfeit your chance to commit to something else.

We must realize—and act on the realization—that if we try to focus on everything, we focus on nothing.

“Good management rests on a reconciliation of centralization and decentralization.

the shift back and forth between the two types of organizations can and should be initiated to match the operational styles and aptitudes of the managers running the individual units.

You don’t need management to supervise the workings of free-market forces; no one supervises sales made at a flea market. In a contractual obligation, management has a role in setting and modifying the rules, monitoring adherence to them, and evaluating and improving performance. As for cultural values, management has to develop and nurture the common set of values, objectives, and methods essential for the existence of trust.

When a person is not doing his job, there can only be two reasons for it. The person either can’t do it or won’t do it; he is either not capable or not motivated. To determine which, we can employ a simple mental test: if the person’s life depended on doing the work, could he do it? If the answer is yes, that person is not motivated; if the answer is no, he is not capable.

The single most important task of a manager is to elicit peak performance from his subordinates. So if two things limit high output, a manager has two ways to tackle the issue: through training and motivation.

An attitude may constitute an indicator, a “window into the black box” of human motivation, but it is not the desired result or output. Better performance at a given skill level is.

Abraham Maslow’s theory of motivation,

motivation is closely tied to the idea of needs, which cause people to have drives, which in turn result in motivation. A need once satisfied stops being a need and therefore stops being a source of motivation. Simply put, if we are to create and maintain a high degree of motivation, we must keep some needs unsatisfied at all times.

self-actualization stems from a personal realization that “what I can be, I must be.

In an MBO system, for example, objectives should be set at a point high enough so that even if the individual (or organization) pushes himself hard, he will still only have a fifty-fifty chance of making them. Output will tend to be greater when everybody strives for a level of achievement beyond his immediate grasp, even though trying means failure half the time. Such goal-setting is extremely important if what you want is peak performance from yourself and your subordinates.

Moreover, if we want to cultivate achievement-driven motivation, we need to create an environment that values and emphasizes output.

So it appears that at the upper level of the need hierarchy, when one is self-actualized, money in itself is no longer a source of motivation but rather a measure of achievement.

In general, in the upper levels of motivation, fear is not something coming from the outside. It is instead fear of not satisfying yourself that causes you to back off. You cannot stay in the self-actualized mode if you’re always worried about failure.

This is key to the manager’s approach and involvement: he has to see the work as it is seen by the people who do that work every day and then create indicators so that his subordinates can watch their “racetrack” take shape.

high output is associated with particular combinations of certain managers and certain groups of workers. This also suggests that a given managerial approach is not equally effective under all conditions.

The conclusion is that varying management styles are needed as task-relevant maturity varies. Specifically, when the TRM is low, the most effective approach is one that offers very precise and detailed instructions, wherein the supervisor tells the subordinate what needs to be done, when, and how: in other words, a highly structured approach. As the TRM of the subordinate grows, the most effective style moves from the structured to one more given to communication, emotional support, and encouragement, in which the manager pays more attention to the subordinate as an individual than to the task at hand. As the TRM becomes even greater, the effective management style changes again. Here the manager’s involvement should be kept to a minimum, and should primarily consist of making sure that the objectives toward which the subordinate is working are mutually agreed upon. But regardless of what the TRM may be, the manager should always monitor a subordinate’s work closely enough to avoid surprises. The presence or absence of monitoring, as we’ve said before, is the difference between a supervisor’s delegating a task and abdicating it. The

As parental (or managerial) supervision moves from structured to communicating to monitoring, the degree of structure governing the behavior of the child (or the subordinate) does not really change.

An associate of mine who had always done an outstanding job hired a junior person to handle some old tasks, while he himself took on some new ones. The subordinate did poor work. My associate’s reaction: “He has to make his own mistakes. That’s how he learns!” The problem with this is that the subordinate’s tuition is paid by his customers. And that is absolutely wrong.

a manager’s ability to operate in a style based on communication and mutual understanding depends on there being enough time for it. Though monitoring is on paper a manager’s most productive approach, we have to work our way up to it in the real world. Even if we achieve it, if things suddenly change we have to revert quickly to the what-when-how mode.

A test might be to imagine yourself delivering a tough performance review to your friend. Do you cringe at the thought? If so, don’t make friends at work.

As we saw earlier, the review will influence a subordinate’s performance—positively or negatively—for a long time, which makes the appraisal one of the manager’s highest-leverage activities.

if performance matters in your operation, performance reviews are absolutely necessary.

The biggest problem with most reviews is that we don’t usually define what it is we want from our subordinates, and, as noted earlier, if we don’t know what we want, we are surely not going to get it.

we can characterize performance by output measures and internal measures. The first represent the output of the black box,

The internal measures take into account activities that go on inside the black box: whatever is being done to create output for the period under review and also that which sets the stage for the output of future periods.

The time offset between activity and output can also work the other way around.

Finally, as you review a manager, should you be judging his performance or the performance of the group under his supervision? You should be doing both. Ultimately what you are after is the performance of the group, but the manager is there to add value in some way. You need to determine what that is. You must ask: Is he doing anything with his group?

At all times you should force yourself to assess performance, not potential.

By elevating someone, we are, in effect, creating role models for others in our organization.

There are three L’s to keep in mind when delivering a review: Level, listen, and leave yourself out.

The third L is “leave yourself out.” It is very important for you to understand that the performance review is about and for your subordinate. So your own insecurities, anxieties, guilt, or whatever should be kept out of it.

The stages of problem-solving: The transition from blaming others to assuming responsibility is an emotional step. It is the reviewer’s job to get the subordinate to move through all of the stages to that of assuming responsibility, though finding the solution should be a shared task.

I feel very strongly that any outcome that includes a commitment to action is acceptable. Complex issues do not lend themselves easily to universal agreement. If your subordinate says he’s committed to change things, you have to assume he’s sincere. The key word here is acceptable.

Don’t confuse emotional comfort with operational need. To make things work, people do not need to side with you; you only need them to commit themselves to pursue a course of action that has been decided upon. There seems to be something not quite nice about expecting a person to walk down a path he’d rather not be on.

If it becomes clear that you are not going to get your subordinate past the blame-others stage, you will have to assume the formal role of the supervisor, endowed with position power, and say, “This is what I, as your boss, am instructing you to do. I understand that you do not see it my way. You may be right or I may be right. But I am not only empowered, I am required by the organization for which we both work to give you instructions, and this is what I want you to do…” And proceed to secure your subordinate’s commitment to the course of action you want and thereafter monitor his performance against that commitment.

Shouldn’t we spend more time trying to improve the performance of our stars? After all, these people account for a disproportionately large share of the work in any organization. Put another way, concentrating on the stars is a high-leverage activity: if they get better, the impact on group output is very great indeed.

you should make it clear to your subordinate that it’s your job to assess his performance, while his assessment of you has only advisory status. The point is, he is not your leader; you are his. And under no circumstances should you pretend that you and your subordinates are equal during performance reviews.

In my experience, the best thing to do is to give your subordinate the written review sometime before the face-to-face discussion.

When you ask a question, a garrulous or nervous person might go on and on with his answer long after you’ve lost interest. Most of us will sit and listen until the end out of courtesy. Instead, you should interrupt and stop him, because if you don’t, you are wasting your only asset—the interview time,

ask, “How good are you technically?” the interviewee might be taken back momentarily but then clear his throat and say timidly, “Well, I think I’m pretty good…” As you listen, you’ll probably get a decent fix on how capable he really is. Don’t worry about being blunt; direct questions tend to bring direct answers, and when they don’t, they produce other forms of insight into the candidate.

when you are talking to them, you’re really after the same information that you tried to get directly from the candidate. If you know the reference personally, you have a much better chance of getting “real” information. If you don’t, try to keep him on the phone long enough to let some sort of personal bond develop. If you can uncover some common experience or association, the reference will probably become more open with you. In my experience, the last ten minutes of a half-hour conversation are much more valuable than the first ten minutes, thanks to that bond.

Drop what you are doing. Sit him down and ask him why he is quitting. Let him talk—don’t argue about anything with him.

You now have to make him feel comfortable with the new arrangement. You might say something like, “You did not blackmail us into doing anything we shouldn’t have done anyway. When you almost quit, you shook us up and made us aware of the error of our ways. We are just doing what we should have done without any of this happening.

You say he’s really made two commitments: first to a potential employer he only vaguely knows, and second to you, his present employer. And commitments he has made to the people he has been working with daily are far stronger than one made to a casual new acquaintance.

Likewise, unions and most government jobs lean toward pure experience-only salary scales. Apart from whether this is fair or not, the message from management is that performance doesn’t matter much.

Merit-based compensation simply cannot work unless we understand that if someone is going to be first, somebody else has to be last.

In my view a manager’s output is the output of his organization—no more, no less.

Training is, quite simply, one of the highest-leverage activities a manager can perform.

In other words, training should be a process, not an event.

Training must be done by a person who represents a suitable role model. Proxies, no matter how well versed they might be in the subject matter, cannot assume that role.