High Output Management and the Water Supply
I recently finished reading Andy Grove’s High Output Management (hereafter ‘HOM’). This post contains my brief thoughts, not so much on the content per se, but rather about the genre/intellectual category of the book more generally.
Growing up, I was pretty convinced that the genre of business books (much like self-help books or how-to-get-rich books) was simply a collection of platitudes and really not worth reading. A typical example of such a book is: a conventionally successful person writes a book on why/how he (almost invariably a ‘he’) succeeded. Most obviously, there is the issue of survivorship bias and hindsight bias. Even if we ignore the role of luck and the narrative fallacy, there is a question of incentive: why would the person reveal the secrets of his success and sell them to the lay reader at $30 per book?[1] I tend to think such books are vanity projects, i.e. the author coasts on the high status of the advice-giver relative to the advice-seeker.[2]
My youthful rejection of this entire body of knowledge, in retrospect, is almost certainly too extreme. There is no denying that there are many business books that simply are not insightful and failed to withstand the passage of time. Infamously, most of the businesses featured in book Built to Last were in dire financial straits.[3] There is truly a lot of noise burying the signal within the business literature.
However, I can trace my change of mind most concretely to reading Stratechery, a newsletter on tech strategy. It led me to realize that concepts from business strategy like disruption, modularity and integration etc. not only have rigorous definitions with genuine explanatory value, they can also give rise to falsifiable predictions. Of course, they will never have the robustness of physics and require much more value judgments than even, say, economics.
Part of the reason for my initial skepticism is attributable is due to the way second-hand popularizers of these concepts tend to oversimplify these ideas for an uncritical audience. For instance, Clay Christensen’s disruption theory has really referred to the specific phenomenon in which a low-end entrant eventually displaces a mature company whose products are over-optimized for its existing customers. In mainstream media, however, any ostensibly innovative business practice is now called ‘disruption’.
There is probably a tradeoff between prevalence and precision. As ideas ‘enter the water supply’ and become embedded in current mode of thinking, perhaps even to the extent that we forget how we used to think,[4] the ideas themselves are inevitably simplified.[5]
If Stratechery has changed my perception of business strategy, HOM has changed my perception of management. To be sure, the book is written by someone who is conventionally successful (founder and CEO of Intel) and draws from the author’s own experience (though with about the right level of abstraction, in my opinion). But reading it more than 30 years after its publication, it is interesting to see ideas that have since entered the mainstream.
For example, I am not sure whether modeling work as a (black-box) process with defined inputs and outputs is revolutionary back in 1983, when the book was published, but it has surely entered the water supply today.
Another example of an idea that has entered the water supply is Grove’s advocacy of Management by Objectives (MBO), which today is perhaps known more widely as OKR (Objectives & Key Results). The overall idea is that one’s objective is defined and instantiated by certain specific key results, which can in turn be one’s subordinates objectives that are in turn instantiated by certain specific key results, ad infinitum. This supposedly ensures better alignment throughout the organization and, if these OKRs are publicly disclosed, allows spontaneous and organic collaboration within the company.[6] Without going too much into the detailed mechanics, this is a management framework that is often contrasted with Key Performance Indicators (KPIs) that has found favor among tech companies.
There are parts of HOM that I wish has entered public consciousness the same way. For example, consider the Peter Principle, which says that when someone is good at his job, he is promoted; he keeps getting promoted until he reaches his level of incompetence and then stays there. In popular culture, this has been further caricatured as the Dilbert Principle.
HOM’s discussion of this point is at once straightforward and nuanced. Grove essentially argues that some variant of this phenomenon is inevitable:
If we take a person at point B and don’t offer him more work and greater challenges even though he “exceeds the requirements” of Job 1, we are not fully utilizing a human resource of the company. In time, he will atrophy, and his performance will return to a “meets requirements” level and stay there. Thus, you’ll find two basic types of “meets” performers. One has no motivation to do more or faces no challenge to do more. This is the noncompetitor, who has become settled and satisfied in his job. The other type of “meets” performer is the competitor. Each time he reaches a level of “exceeds requirements,” he becomes a candidate for promotion. Upon being promoted, he very likely becomes a “meets” performer again. This is the person Dr. Peter wrote about. But we really have no choice but to promote until a level of “incompetence” is reached. At least this way we drive our subordinates toward higher performance, and while they may perform at a “meets” level half the time, they will do that at an increasingly more challenging and difficult job level.
Insofar as someone is promoted into “a position so much over his head that he performs in a below-average fashion for too long a time”, the solution is to recycle him, i.e. put him back into the job he did well before he was promoted. HOM acknowledges the difficulty of doing so:
People tend to view it as a personal failure. In fact, management was at fault for misjudging the employee’s readiness for more responsibility. Usually the person who was promoted beyond his capability is forced to leave the company rather than encouraged to take a step back. This is often rationalized by the notion that “It is better that we let him go, for his own sake.” I think it is dead wrong to force someone in such circumstances out of the company. Instead, I think management ought to face up to its own error in judgment and take forthright and deliberate steps to place the person into a job he can do. Management should also support the employee in the face of the embarrassment that he is likely to feel. If recycling is done openly, all will be pleasantly surprised how short-lived that embarrassment will be. And the result will be a person doing work we know from past experience he can perform well. In my experience, such people, once they regain their confidence, will be excellent candidates for another promotion at a later time—and the second time they are likely to succeed.
Despite the eminent wisdom of doing so, I have hardly heard of an organization that openly practice this. More typically, you hear of the ‘up or out’ culture that is far more prevalent in professional services, which almost pride themselves on not giving second chances. The persistence of this practice suggests that these organizations (consulting firms, law firms, military, the academia) are not in truly competitive surroundings (i.e. they are rent-seekers) which would naturally weed out such a wasteful deployment of useful human capital.[7]
A personal parallel to the idea of organizational recycling: when was the last time you were so out of your depth that you had to slow down or perhaps even take a few steps backwards? I remember when I took weightlifting seriously and actively tried to push my boundaries, I was constantly trying to increase the number I was lifting. This meant I inevitably failed to complete a set and had to dial down the weight. That was when I made the most improvement and how I knew I was pushing myself hard enough.
Now, I pause to wonder: when was the last time I did that, not just in weightlifting, but in other areas of my life? Not that there is anything wrong with leading a comfortable life, but consider the possibility that you too might be coasting.
[1] I know people who would treat Warren Buffett’s writings as the gospel and I was always skeptical that somehow doing so would qualify them to become active investors that excel in fundamental analysis.
[2] This is not helped by my becoming aware of the obviously questionable industry that is consulting: MBB firms hire good-looking twenty-plus-year-olds from prestigious universities to school corporate executives on how they should ‘optimize’ their business to ‘increase efficiency’. See this.
[3] There is a lesson here about the inside view vs the outside view: the relevant base rate is the average lifespan of companies. According to Credit Suisse, an S&P 500 company’s average has been shortening from 60 years in the 1950s to under 20 years.
[4] I had newfound appreciation for ‘ideas entering the water supply’ when I read Bernstein’s Against the Gods. I realized concepts of probability that we take for granted today and teach in schools almost a-historically were, back in the day, truly groundbreaking. But this is not a tale of Whiggish progress: naively applying these concepts (e.g. calculating expected value without considering volatility/ergodicity) is, I suspect, a curse of modernity. I posit whether this might be related to the Flynn Effect: modern people score better on Raven's Progressive Matrices-type IQ tests because we are better able to abstract from concrete situations, but are less cautious about the problems and subtleties resulting from this process.
[5] I suspect something similar is happening with the ‘Black Swan’, which have in turn spawned a zoology of ‘White Elephant’, ‘Grey Rhino’ and who knows what other animals.
[6] Coincidentally, I did an internship at a company that not only applies OKR as a tool for management, it is trying to sell an enterprise software that facilitates other companies to apply OKR themselves. Talk about entering the water supply.
[7] An obvious parallel: university prides themselves on having low admission rates, which strongly suggest they are less about human capital than about maintaining prestige through exclusion.