Companies as Living Beings

Companies should be seen essentially as biological organisms, thriving, like any other living entity, on growth with an organic pace – evolutionary and relatively stable growth with a lot of experimentation an offshoots at the margins. If you treated your company as a living thing, it could outlive most of its competitors. This meant giving up the “economic” model of corporate success.

The conventional way of regarding companies, as purely economic constructions with the purpose of returning the investment to shareholders, was not just inaccurate, but shortsighted. It led to a lot of short-lived companies. The death of a company is not gratuitous. People suffer. Companies are like people – they get wiser and better as they grow older. Then the death of a company is a tragic loss of knowledge and wisdom.

Therefore the most effective way to think of companies is as organic beings, evolving in natural ways and looking out for their own longevity. A company’s first loyalty is not to any individual stakeholder, but to itself.

Institutions have an urge. They have basic driving forces as institutions: They want to survive, and they want to develop their potential. These driving forces exist independently of what these commercial institutions are doing. This is contrary to the standard way in which people talk about commercial institutions.

People will say Hertz or Avis exist to rent cars. But in reality, Avis and Hertz rent car to exist. Profits, to an institution, are like oxygen to a human being. Oxygen is absolutely essential to live. But it is not the purpose of life.

As an institution tries to prolong its life expectancy, it will do whatever economic activity will allow it to continue to exist. There are many examples of institutions that have completely changed their economic activity in order to continue living. This desire to survive is a basic force in every living system. And companies are living systems. Therefore how organizations survive, how they manage for change, is of great importance.

The average life expectancy of commercial organizations is very low. Lots of organizations die, especially if there are fundamental changes in their world. Very few succeed in living through all the completely fundamental changes in their worlds. If you are three hundred years old like the Japanese Mitsui Company, or two hundred years old like DuPont in the U.S., you have seen changes in the world which are considerably deeper than anything that is happening presently. Yet these companies survived. They must have been good at managing for change. Human work community aimed at continuity from generation to generation. Goal is survival and self-development in a changing world.

This institutional urge to survive has interesting consequences in the world that is changing rapidly. If the world is changing around you, it may actually mean your profits are disappearing. You may be doing an economic activity that does not allow you to survive anymore. The institution’s urge to survive will cause it to look around for another activity.

A study of the long survivors in the business world (>100 years old) shows that these old companies share these traits:

1) A frugal financial approach. Financially conservative. This is a bad news for investment bankers. These companies want to keep their own money in their own pocket, and don’t want someone else’s money. Surviving for centuries means never having a banker pull the rug out from under you. Such conservatism gives you flexibility. You are a master of your own time and timing. You have many more options if you have money in the kitty.

2) Sensitivity to the environment. The leaders of these companies are sensitive to the world around them. Leaders are outward looking people, and are often highly active in the society around the company. Fundamental changes in any industry always take place in the context of the larger world. And that context is not necessarily observable inside your own world, your own institution or industry. It’s what is happening out there in the larger world that in the end will really make the fundamental changes in your industry. If your leaders are out there in the world, active, they will note changes in society and keep asking, “what will this mean for the company?”

3) A cohesive identity. Strong sense of cohesion and company identity. These companies were much more communities that machines to make money. They were communities that had a value system, which believed, that they had a pretty good idea of who they were. Leaders and staffs know what the company stands for, and are happy to identify with those values. That gives cohesion. Cohesion is important because cohesion creates trust.

If I have value system and I am fairly certain that you, my boss, have a similar value system, that leads to a much higher level of trust between the two of us. This trust increases institutional effectiveness, that is, it makes you better at what you are doing and increases your chances of survival considerably.

A lot of that sense of trust flows from knowing who you are. Together we know what our institution is about. If there is higher level of trust, you need considerably less controlling management. That further increases the effectiveness of the institution. Furthermore, your customers and your potential customers will know who you are, and will recognize it immediately because you are consistent in your actions.

4) Management style of tolerance. Tolerance of experimentation and eccentricity. There are lots of spaces on the margins for new or different activities. These companies just permit certain activities to take place in the margin of their main corporate activity, their core business. They let certain experiments go on. They don’t kill them straight away. They seem to be tolerant. These companies never insisted on a central control of starting a new activity somewhere in the margin of the business. They allowed things happen. They might not put tremendous resources into that activity. They just allow it to happen.

If you live in the world that changes, you may find in ten years time that your present core business no longer what it was, because you are catering to the wrong demands, to a world that doesn’t exist anymore. You may find that other activities that have been going in and around you; you may find these shoots are growing. The original shoot may get woodier and carry fewer roses. In the end you may even cut out the original shoot, but you have lots of new shoots. And as organization you continue. This is how these long-term survivors work.

The organizations that stick religiously to the one goal, who mix up their basic economic activity with the existence of the organization, are the organizations that die.

Low tolerance is efficient, but it requires a strong set of hierarchical controls in order to minimize the use of resources. And it needs a stable world.

Tolerance for change. Each of these companies had made at least one complete change in the activities that they were executing. The oldest ones had made several changes. Mitsui started as drapery business, and eventually went into banking, then mining, and finally manufacturing. Stora was first mentioned in the records in 1288 as a cooper mine. From mining it branched into forestry, hydroelectric, and paper. DuPont was gunpowder firm first. Overtime it became a major investor in General Motors, and it branched into chemicals.

For these companies, their current assets were only the means to survive. If a company puts the emphasis the other way around – the asset base is the essence of the company, then when they get in trouble, they scuttle the people.

If you start from the basis assumption that companies are not there to do a particular activity, rather they exist because they want to survive and to live up to their potential, it means that if you live long enough you may have to start doing totally different activities than you were doing at the time that you were born, in order to continue to exist. This was a very consistent pattern.

These characteristics of the long survivors led to a new definition of a corporation: A good firm is financially conservative, has staffs that identify with the company values, and has management that is tolerant and sensitive to the world in which they live.

A study done at Stanford in the early 1990s (Good to Great, Jim Collins) showed that long-living companies produced, on average, 15 times more profit over 60 years than the stocks market average. Human work community meets the goals of life expectancy, profits, and shareholders value.

In common with their peers, these companies occasionally go through difficult periods; but their cohesion allows them to steer themselves out of difficulty. The shared values and sense of community mean that employees all pull together.

In an economic company (money machine), when problems emerge, those at the center frequently tend to look out for themselves, discarding those at the periphery. It says that the relationship was only a matter of a contract, trading skills for money. There was no community. This lead automatically to lower trust levels. And lower trust levels have tremendous consequences. You need considerably higher hierarchical control, and you still do not achieve the highest institutional effectiveness.

Organizations that built on contracts that simply trade skills for money, as in - “I pay you for this service.”- have lower levels of trust and tolerance, require more controls, and lower learning abilities.

An organization that takes on people on the basis of making them a member of a community does that with a long-term relationship in mind. The underlying agreement says, “I take you in principle, not for the skills that you offer at this particular moment, but for the potential that is inside you. I will help you develop your own potential. There is a harmony between the long-term development of your potential and the long-term development of the organization. We have a contract in which we both have an interest in developing you to the maximum of your potential over your career” This is totally different contract.

There is a profound difference between managing to maximize profit and managing to survive and thrive for the long term.

Where there is a strong value system, recruiters tend to choose people who are happy to accept this value system as happens at Shell. Shell typically loses up to 15% of new recruits in their first five years. What happens is that within this period either the company decides that an individual does not ‘fit’ or that person decides that this is not the place he or she wants to work. The remaining 85% are people who are happy in their chosen workplace. This poses question. What happens to diversity in such cases?

The reality was that Shell recruited up to 50 different nationalities in the top echelons alone, and that Shell managed to find people from all these different nationalities, who, despite cultural diversity, were prepared and happy to share a particular value system. The same is true of many companies identified in Collins and Porras studies (Build to Last).

The example of British Medical Association. When new members apply, their professional qualifications are not discussed because they are essential – without them you cannot join. The second most important criterion for membership is signing of the BMA’s statement of ethical and moral principles.

In a living company outsourcing ensures that the people remaining in the company are the real members of the community and have ‘signed up’ to the company philosophy. Shell, for example, has a statement of business principles that all employees must sign and it is very clear that Shell recruits people who are most likely to ‘belong’ and adhere to the company’s value system.

On the other hand, many companies are likely to have on their payroll people who were employed to perform a particular task or project required at a particular point in time. Such people will not necessary ‘belong.’ They are in situ for a particular skill and could be outsourced. Benetton, for example, employs only a very limited number of people who are ‘members’ of the company while up to 90% of functions are performed by outside contractors.

The predominant corporate legislation is based on the premise that the shareholders own the company. This concept derives from the past, when capital was the critical success factor. It attributes to the capital supplier very strong privileges. And thus we find a tension emerging in those startup companies as well as in “converted” companies like Goldman Sachs – between their imperative to develop and retain people, and the pressure they feel from their legally empowered shareowners.

One particular example I would cite is that of St. Luke’s, a remarkably successful media company in London. This company has deliberately set itself up as an entirely employee-owned ‘community of work’ with a unique organizational structure characterized by the absence of bosses and emphasis on the connection between co-ownership, creativity, collaboration and competitive advantage.

Where you choose to purse the concept of a work community, a living company, there are also need to be very clear rules within the company as to how to thwart any possible attempt to centralize power and control into the hands of a few people at the top. If you look at companies such as McKinsey, Booz Allen or St. Luke’s you will see that each company has built counterbalancing forces into its organizational structure.

I consider one of the most interesting companies currently to be Visa International which has a very different legal structure from that of most organizations. The best description would be to say that it consists of an agglomeration of ‘clubs’ united by common institution. As such, it rather resembles the modern nation state. Power flows from the members, from below, upwards. And therefore concentration of power is not possible. Banks can become members of one or several of these ‘clubs’ and ‘clubs’ can be both set up, and liquidated. But they are all integrated into Visa International and each has to sign a statement of purpose and principle – the ‘Constitution’.

Visa International is undoubtedly one of the most successful commercial organizations of the past 20 years and it is another good example of a very modern, and very successful, work community that does not follow the traditional capitalist shareholding model.

The companies should be looked at the same way we look at the nation states. In a nation state we do not allow outsiders, be they other countries to whom we export our goods (customers), or countries/institutions who invest money in our country, to tell our ‘national CEO’ what to do. In a nation state, power comes from inside. In a democratic society, power is distributed in a way that keeps checks and balances and avoids autocratic concentration of power. Admittedly, decision-taking is slow and frustrating, yet these countries are more enduring and flourishing than any dictatorship. I suspect this is the direction we should be going for company governance.

In Spain one of the most successful, if not the most successful, companies is a co-operative called Mondragon, which has a very democratic-like management structure. By being a co-op, power is internalized and it completely avoids the short-term pressure that comes from shareholders and financial analysts.

Also, a limited liability company is a license for the concentration of power and for the exercise of absolute power from the top down. That’s not the case in a partnership or co-op. Limited liability company is the typical product of the 19th century capital based economy.

The most critical resource that companies need to cultivate has shifted, since 1980s, from capital to people. Capital is becoming a commodity in the same way that wheat or iron ore are commodities. The capital market is now a buyer’s market, not a seller market. In fact, capital is a commodity; it is no longer a scarce production input. Capital is no longer dominant. Our world is simply awash with capital. So if you are choosing what business to create, why on earth would you structure it to maximize the return to the supplier of capital, the shareholders? That is very shortsighted.

The end of New Economy ebullience makes it clearer than ever that capital is becoming a commodity. Today, human talent is the scarce production factor. And if you would succeed you must have a management style that makes the most of that human talent. The primary corporate struggle is no longer to raise money, but to recruit, keep, and deploy good people. A company’s success no longer depends primarily on its ability to raise investment capital. Success depends on the ability of its people to learn together and produce new ideas.

The ability to continually rethink one’s purpose and methods was not just a valuable add on to corporate practice, but the single factor most responsible for competitive advantage. Company could have their assets devalued or their ideas stolen, but as long as they possessed the ability to innovate and to develop people, they would always remain one jump ahead of their competitors.

If we want to be successful in our lives, whether in our economic, social life or family life, we must learn constantly. We are all aware of the many theories in the cognitive sciences and in psychology about the role of learning in developing oneself and one’s life. And it’s the same with companies as they too move through a life.

How should a company train its management and other staffs? A good analogy here would be that of a football club. You get young players in and let them play but you also train them all the time. You do that because you want to increase their potential. The same goes for new company recruits. They are people in a particular phase of their development and with potential for development. It is essential that the company develops this potential because developing the potential of individual members creates the potential of the company.

In today’s companies the competitive success of the company is totally dependent on the developing the potential of its people, not simply its products, its office buildings or office equipment. And by training it’s not simply skills training but the development of each individual’s human potential.

I believe the most powerful means of achieving this is through on-the-job training. It is an experiential process by which you participate fully, with all your intellect and heart, not knowing what the final result will be, but knowing that you will be different when you come out the other end. This interrelationship with the environment actually makes you grow, survive, and develop your potential. Someone who undergoes a course of military training, for example, will no longer think or act the same way as before; the same is true for someone who goes through the rigors of in-depth professional school or corporations.

On-the-job training can be organized in a variety of ways including action learning, ad hoc working or project groups, communities of learning, etc. At St. Luke’s, for example personal development also comes through such means as role changing and development of multiple skills, experimentation, and performance evaluation.

People develop when they are under pressure, doing things, sharing things, but they need to do this together, in groups, in teams. In addition, people learn in a social context, through dialogue. Research by Xerox revealed the huge amount that was learned over a drink at the end of the day when maintenance workers shared their knowledge, their experiences, their stories about customers, … etc.

How important are the people within an organization and their relationships with one another? Relationships between people are absolutely crucial in a successful company. While the acronym HR is ‘shorthand’ for human resources, to me it will always denote human relations. Human relations are the essence and certainly one of the essential characteristics of the management of people, which is all about relationship.

The use of the word ‘resources’ dismisses the human element. You cannot run a business on a resource base or according to a mathematical formula. That is just not possible. Companies are by their nature communities of humans. More women at the top would help in many companies because women have particular skills in creating communities and establishing a unity of purpose. This is beginning to happen and I don’t think this is a coincidence.

All of the countries that do not invest in the potential of their human population will lose in this new world. They can get all the capital they want to set up a car assembly plant. But they will never have the talent to compete with Japan, or Europe, or United States on the design of the cars, on the design of the manufacturing methods, or on the ability to market them.

It’s difficult to see how countries in, say, the Middle East could catch up with Japan, United States, or Europe. Especially not if they leave, as so many Middle East countries do, all their women out of the system. Half the intelligence of the country is not available to them.

In conversations with some people in high tech companies, they say: “We’re finding out, that if somebody works for us for four or five years and begins to achieve a certain seniority in our organization, and then if we lose that person, it costs us an awful lot of money.”

What does those costs consist of? They include recruitment costs, the cost of training – of getting a new recruit up to the same speed – and of replacing the business contracts and professionalism of the person who left. The problem with people in company is retention. Continuity is thus, once again, becoming recognized as an essential business principle.

In the Fortune 500, the companies, which consistently rise, have relatively few assets. The difference between their high-capitalized share values and the low values of capital assets on their balance sheet represents a valuation of the intellectual capability of their human components. In the most successful companies, this valuation is comparatively high.

What actually produce good results? Is it the star performer or team performance? I’m inclined to look at the sport world. It is a fact that sport clubs which try to create a success by building their teams, tactics, and reputations around a few star performers are not necessarily the long-term, high success clubs. The clubs with more equality among the players produce consistently better results. In business that is almost certainly also the case.

I am basically a team player. I worked with a company with a very strong team ethic. I think that the power of a well-led team is superior to any organizational structure that arranges itself around one or two stars with a support staff. The continuous improvement of people’s capabilities for working together is clearly going to be the critical area of concern in companies that try to produce a superior intellectual output through teamwork.

But if you have been brainwashed at business school about efficiency and bottom-line return of investment capital, then you will struggle with this language about work communities. You will revert to your old business language, and since language creates reality, you will keep re-creating the reality, in your mind, of capital as the most valued commodity in business. You will have a hard time making the transition to a world where capital only has a secondary role to play in the success of the enterprise.

The cause of the lack of commitment was the excessively efficiency-oriented personnel policies. I believe deep in my soul that it was that efficiency orientation that ended the era of trust.

Now we live in a situation in which human talent has become the critical element of commercial success. It’s clear that it’s not the quality of the printing press or the computers that make a publication a success but rather the quality of human talent. Even in capital-asset-based industries like the oil industry or automobile industry, success is largely dependent on the human talent.

A beautiful example is that of the company to beat in the automobile industry is Toyota. Why is it Toyota? It’s because consistently over the decades Toyota has been at the forefront in the design of the cars, the design of the manufacturing processes and the design of the marketing. Basically, Toyota gets more out of the talent working for it than other automobile companies. Human talent works better in teams and these teams get better if they stay together over time. Organizations just like humans learn over time. There is an accumulation of experience and company knows more when they get older.

In this world where companies treat people just as a bundle of skills to be hired for a limited period of time we don’t create loyalty and we don’t create enduring teams. If human talent is a commodity you buy off the shelf then you run it as efficiently as possible until it wears out. Behind this sort of thinking is the use of the word ‘efficiency’ as if the essence of business is simply being efficient. This may have been the case when businesses relied mainly on capital. However, when business relies mainly on human talent the key word is not efficiency, but effectiveness. You have to run business in a way that gets the most out of the human talent that you have been able to attract into your business by creating infrastructure for learning
- that is, tolerance for mistakes, patience with the opinions of others, and room for innovation.

The new business reality is a human-centered one. The managers see that their critical competitive success factor is producing more talented output than their competitors; and they recognize that they can only accomplish this by getting people to learn and to work together better, rather than to simply work more efficiently as with machines.

Many of the problems we read about today stem from the fact that we still have present generation of managers who are trained in managing machines and the emphasis of the present management generation and the financial world is clearly all on the maximization of shareholder value and profit. Such priorities mean companies are just machines to make money and their managers are machinists. I find it more than coincident that so many of them ‘die’ and I find it remarkable that there is little debate about these issues.

To becoming successful in the long-term companies have to shift their managerial methods. They have to learn to optimize people, rather than capital. That means that they have to learn to make the maximum use of the talent they already have available. And they have to ensure access to the supply of talent, and retention of the talent they already have. This requires a completely different set of skills, in many ways far more difficult skills, than maintaining the machines and the access to the supply of capital.

Most corporations fails because managers are too narrowly focused on the economic activity of producing good and services, forgetting that their organization true nature is that of a living work community.

It is certainly easier to manage machines than it is to manage people. But if you look at the Financial Times Top 100 or the Fortune 500, the new winners are nearly always companies that have no or few capital assets but are completely dependent on people.

We must not make the mistake of thinking that the people who populate the management ranks in companies are stupid people, that is not at all the case. They are, either consciously or subconsciously, very aware of the shift from maximizing the use of capital assets to maximizing human capital.

I see HR as being the critical activity of top management in companies. That was in the past, and nowadays, when human talent is the critical success factor; it is clearly even more so. Remember that Jack Welch often mentioned that he spent 40 to 50 percent of his time on people matters. That’s a reflection of how good managers are at recognizing that the world is changing, and that success relies on people.

Business people recognize that human talent is a critical success factor and duty number one is to get access to that talent. We have seen more and more companies increasing their recruitment qualifications. They are not necessarily looking for higher educational levels, but they are much more critical towards, shall we say, the potential of the people they are hiring. Once you have the talent, the issue is how to develop it.

The only approach that seems to work well - developing human resources internally – takes a lot of thoughts and attention, from senior managers on down. It takes a recognition that attending to people’s growth and aspiration is the primary task that an executive has.

The companies that Collins and Porras investigated for Build to Last stand a much, much better change of being successful in this new world. They carry along from the past a value system that is harmonious with the new economic reality. They believe that success is dependent on community human talent and the continuous improvement of people’s capabilities for working together. The old winners stand a very good chance of being the new winners as well.

Life is path that you beat while you walk. This line embodies the most profound lessons on planning and strategy. When you look back, you see a clear path that brought you here. But you created the path yourself. Ahead, there is only uncharted wilderness. You do not navigate a company to a predefined destination. You take steps, one at a time, into an unknownable future. There are no paths, no road ahead of us. In the final analysis, it is the walking that beats the path.

This cycle of seeing, concluding, deciding, and acting is, of course the cycle of continuous learning. In this sense, strategy is simply the development of the organization’s ability to learn. Without an effective learning, a company cannot hope to evolve effectively in an unpredictable world. The organization’s ability to learn faster (and possibly better) than the competitors becomes its most sustainable competitive advantage.

But if you do your learning mostly based on past experiences, you are probably always ‘fighting the last war’. Companies must base their learning on the new signals coming in from the outside world. As a result, the company priority in learning is to develop a way to increase powers of perception; company must ‘hear’ more; and in order to do so they must be receptive to the outside world and be a part of it. The leaders have to be sensitive to the world around them and are outward looking people, so they will note changes in society and keep asking “what will this mean for the company?”

Managers of machines, meanwhile, are much more inclined to be navel-gazers and, if you constantly stare at your navel, you see very little of the outside world and can be rudely surprised. Learning depends on deliberately being part of, and open to, the outside world.

Scenario exercise is the best tool to increase power of perception of what is happening ‘out there’. The power of scenario development is that the management team then discusses what should be done if the scenarios identified were to come about. This enables companies to build up an important ‘memory’ of the future.

The scenarios identified are not predictions. They do not pretend to tell what will happen. They are time paths into an anticipated future. Your powers of perception increase dramatically. You get the information for which your mind is constantly scanning. We will not perceive a signal from the outside world unless it is relevant to an option for the future that we have already worked out in our imaginations. The more ‘memories of the future’ we develop, the more open and receptive we will be to signals from the outside world. The process acts as a filter while your mind scans the environment, selecting only what is pertinent or relevant. When this happens in a series of crucial events, it is called synchronicity. You meet the right person at a critical time and coincidence seems commonplace.

On a larger scale, preferred scenarios can become personal visions of your life and work. New Age proponents call this the ‘Theory of Abundance,’ and claim that the Universe gives you what you ask. Scientists, on the other hand, say that you create your own perception and reality. You create what you think about most of the time. Finding a sense of purpose or meaning in your life and work - your personal vision - programs your mind to scan for opportunities that otherwise you would have missed. Follow your bliss. Find work that you love, and you will never have to work another day in your life.

Hybrid Organizations

By Andy Grove

The game of management is a team game: a manager’s output is the output of the organizations under his supervision or influence.

We now discover that management is not just a team game, it is a game in which we have to fashion a team of teams, where the various individual teams exit in some suitable and mutually supportive relationship with each other.

Alfred Sloan summed up decades of experience at General Motors by saying, “Good management rests on a reconciliation of centralization and decentralization.” Or, we might say, on a balancing act to get the best combination of responsiveness and leverage.

We are hybrid organization. Our hybrid nature comes from the fact that the form of the overall corporate organization results from a mix of the business divisions, which are mission oriented, and the functional groups.

This is much like the way I imagine any army is organized. The business organizations are analogous to individual fighting units, which are provided with blankets, aerial surveillance, intelligence/information, and so forth by the functional organizations, which supply such services to all fighting units. Because each such unit does not have to maintain its own support groups, it can concentrate on a specific mission.

The functional groups can be viewed as if they were internal subcontractors. Sales, manufacturing, finance, or data processing can all be regarded as functional groups, which, as internal subcontractors, provide services to all the business units.

Some two thirds of Intel’s employees work in the functional units, indicating their enormous importance. What are some of the advantages of organizing so much of the company in such groups?
Important advantage is that resources can be shifted and reallocated to respond to the changes in corporate-wide priorities. For instance, because manufacturing is organized functionally, we can change the mix of product being made to match need as perceived by the entire corporation. And the advantage here is that the expertise of specialists – know-how managers, such as the research engineers who work in technology development – can be applied across the breadth of the entire corporation, giving their knowledge and work enormous leverage. Finally, Intel’s functional groups allow the business units to concentrate on mastering their specific trades rather than having to worry about computers, production, technology, and so forth.
If each business unit did its own manufacturing, shifting capacity away from one unit to another would be a cumbersome and sticky exercise.

What are some of the advantages of organizing much of the company in a mission oriented from?
There is only one. It is that the individual units can stay in touch with the needs of their business or product areas and initiate changes rapidly when those needs change. That is it! The business of any business is to respond to the demands and needs of its environment, and the need to be responsive is so important that it always leads to much of any organization being grouped in mission-oriented units. All other considerations favor the functional-type of organization.

No matter how many times we have examined possible organizational forms, we have always concluded that there is simply no alternative to the hybrid organizational structure. So that is how Intel is organized today.

All large organizations with a common business purpose end up in a hybrid organizational form. Every large company or enterprise that I know is organized in a hybrid form.

The use of the hybrid organizational form doesn’t even necessarily depend on how large a business or activity is.

One medium size law firm ended up forming an executive committee that would not interfere with the legal (mission-oriented) works of the individual attorneys but would address the acquisition and allocation of common shared resources.

This is much like the way any traditional family is organized. The business unit is analogous to the husband, who is provided with breakfast and dinner, clean cloth, and so forth by the functional organization, the woman at home, who supplies such services to his husband. Because the husband does not have to maintain his own household chores, he can concentrate on a specific mission - namely earning a living for his family.

Do any exception to the universality of hybrid organization? The only exceptions are conglomerates, which are typically organized in a totally mission-oriented form. They are an exception to this hybrid rule because they do not have a common business purpose. The various divisions (or companies) in this case are all independent and bear no relationship to one another beyond the conglomerate profit and loss statement. But within each business unit of the conglomerate, the organization is likely structured along the hybrid line.

Of course, each hybrid organization is unique because a single organization may very well shift back and forth between the two poles, movement that should be brought on by pragmatic considerations. 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.

Sooner or later all reasonably large companies must cope with the problems inherent in the workings of a hybrid organization. The most important task before such an organization is the optimum and timely allocation of its resources and the efficient resolution of conflicts arising over that allocation. Though this problem may be very complex, “allocators” working out of some central office are certainly not the answer. If we at Intel tried to resolve all conflict and allocate all resources at the top, we would begin to resemble the group that ran the Communism economy.

Instead the answer lies with the middle managers. Within a company, they are, in first place, numerous enough to cover the entire range of operation; and, in the second place, very close to the problem we’re talking about – namely, generating internal resources and consuming those resources.

For the middle managers to succeed at this high-leverage task, two things are necessary:
First, they must accept the inevitably of the hybrid organizational form if they are to serve its working.
Second, they must develop and master the practice through which a hybrid organization can be managed. This is dual reporting.

Dual Reporting
When our company was young and small, we stumbled onto dual reporting almost by accident. At a stuff meeting we were trying to decide to whom the security personnel at our new outlying plants should report. We have two choices.
One would have the employees report to the plant manager. But a plant manager, by background, is typically an engineer or a manufacturing person who knows very little about security issues and cares even less.
The other choice would have them report to the security manager at the main plant. He hired them in the first place, and he is expert who sets the standards that the security officers are supposed to adhere to throughout the company. And it was clear that security procedures and practices at the outlying plants had to conform to some kind of corporate standard. But the security manager works at corporate headquarters and not at the outlying plant, so how would he know if the security personnel outside the main plant even showed up, or came in late, or otherwise performed badly? He wouldn’t.
The solution would be that the security personnel should report jointly to the corporate security manager and the local plant manager. The corporate security manager would specify how the job ought to be done, and the local plant manager would monitor how it was being performed day by day.
Could an employee in fact have two bosses? The answer is a tentative “yes.”

The need for dual reporting is actually quite fundamental.

Among other things our new general manager has no experience with the manufacturing. So while he is perfectly capable of supervising his manufacturing manager in the more general aspects of his job, the new boss has no choice but to leave the technical aspects to his subordinate because as a graduate of sales, he has absolutely no background in manufacturing.
In other divisions of the corporation, manufacturing managers may similarly be reporting to people who rose through the ranks of engineering and finance.

We want the immediacy and the operating priorities coming from the general manager as well as a technical supervisory relationship. The solution is dual reporting.

We could handle the problem by designating one person the senior manufacturing manager and having all the manufacturing managers report to him instead of to the general manager. But the more we do this, the more we move toward a totally functional form of organization. A general manager could no longer coordinate the activities of the finance, marketing, engineering, and manufacturing groups toward a single business purpose responsive to the marketplace needs.

Does the technical supervisor’s role have to be filled by a single individual? No.
All the manufacturing managers can build a committee or a council made up of a group of peers to tackle the issue common to all. In short, there is a way to deal with those technical issues that their bosses, the general managers, can’t help them with. In effect, they now have supervision that a general manager competent in manufacturing could have given them, but the supervision is being exercised by a peer group. The manufacturing managers report to two supervisors: to this group and to their respective general managers.

To make such a body work requires the voluntary surrender of individual decision-making to the group. Being a member means you no longer have complete freedom of individual action, because you must go along with the decisions of your peers in most instances. Surrendering individual decision-making depends on trusting the soundness of actions taken by your group of peers. The point is that a strong and positive corporate culture is absolutely essential if dual reporting and decision-making by peers are to work.

By analogy, think of yourself as one of a couple who decide to take a vacation with another couple. You know that if you go together you will not be free to do exactly what you want to do when you want to do it, but you go together anyway because you’ll have more fun, even while you’ll have less freedom.

This system makes a manager’s life ambiguous, and most people don’t like ambiguity. Nevertheless, the system is needed to make hybrid organizations work. Hybrid organizations and the accompanying dual reporting principle, like a democracy, are not great in and of themselves. They just happen to be the best way for any business to be organized.

To make hybrid organization work, you need a way to coordinate the mission-oriented units and functional groups so that resources of the functional groups are allocated to meet the needs of the mission oriented units.

Consider how the controller works at Intel. His professional methods, practices, and standards are set by the functional group to which he belongs, the financial organization.
The divisional manager gives the controller mission-oriented priorities by asking him to work on specific business problems.
The finance manager makes sure that the controller is trained to do his work in a technically proficient manner, supervises and monitors his technical performance, and looks after his career inside finance, promoting him, perhaps, to the position of controller of a bigger, more complex division if he perform well.
Again this is dual reporting, the management principle that enables the hybrid organization form to work. This example has parallels throughout a corporation.

Consider advertising, the division-marketing managers should control most of their own advertising messages. Because each division clearly understands its own strategy best, and therefore presumably best understands what its advertising message should be and to whom it should be aimed.

But a coordinating body of peers consisting of the various divisional marketing managers and perhaps chaired by the corporate merchandising manager should provide the necessary functional supervision for all involved. This body would choose the advertising agency, for instance, and determine the graphic image to which all divisional ads should confirm. In this way the ads ought to project a consistent image that is right for everybody. Taken together represent a much more complete solution to the customers’ needs than what can be provided by an individual division. Yet the specific selling message communicated by an individual ad would be mainly left to the divisional people. Here the customer and hence the manufacturer clearly benefit if all it advertising stories are told in a coherent, coordinated fashion. Also, the advertising sells not just a specific product but the entire corporation as well. Dual reporting enables us to communicate individual product and market messages and maintain a corporate identity at the same time.

Dual reporting can certainly tax the patience of the marketing managers, as they are now also required to understand the needs and thoughts processes of their peers.

We should merciless slash away unnecessary bureaucratic hindrance; apply work simplification to all we do. But we should not expect to escape from complexity by plying with reporting arrangements. Like it or not, the hybrid organization is the fundamental phenomenon of organizational life.


The Two-Plane Organization

In her daily work, Cindy - a process engineer, keeps things going by manipulating the manufacturing equipment, watching the process monitors, and making adjustments when necessary. Cindy reports to a supervising engineer, who in turn reports to the engineering manager of the plant.

But Cindy has another job, too. She meets formally once a month with her counterparts from the other production plants to identify, discuss, and solve problems related to the process for which they are each responsible in their respective plants. This coordinating group also works to standardize procedures used at all plants. The work of Cindy’s group, and others like it is supervised by another more senior group, which is made up of the engineering managers from all plants.

Cindy’s two responsibilities won’t fit on a single organization chart. Instead, we have to think of the coordinating group as existing on a different chart, or on a different plane. No one would confuse these two roles: clearly operating on different planes. Our ability to use Cindy’s skill and know-how in two different capacities makes it possible for her to exert a much larger leverage at Intel.

In her main job, her knowledge affects the work that takes place in one plant; in her second, through what she does in the process-coordinating group, she can influence the work of all plants. So we see that the existence of such groups is a way for managers, especially know-how managers, to increase their leverage.

If a person can operate in two planes, he can operate in three. Cindy could also be part of a task force to achieve a specific result in which her expertise is needed.

It could also turn out that people who are in a subordinate/supervisory relationship in one plane might find the relationship reverse in another. For example I am president of Intel, but in another plane I am a member of a strategic planning group, where I report to its chairman, who is one of our division controllers.

The point is that two- or multiple-plane organization is very useful. Without it I could only participate if I were in charge of everything I was part of. I don’t have that kind of time, and often I’m not the most qualified person around to lead. The multiple-plane organization enables me to serve as a foot soldier rather than as a general when appropriate and useful. This gives an organization important flexibility.

Many of the groups we are talking about are temporary. Some, like task forces, are specifically formed for a purpose, while others are merely an informal collection of people who work together to solve a particular problem. Both cease to work as a group once the problem has been handled. The more varied the nature of the problems we face and the more rapidly things change around us, the more we have to rely on such specially composed transitory teams to cope with matters.

The techniques that we have to master to make hybrid organizations work are dual or multiple reporting and also decision making by peer groups. The key factor common to all is the use of cultural values as a mode of control.


Modes of Control

Our behavior in a work environment can be controlled by three invisible and pervasive means. These are:
1. Free-market forces
2. Contractual obligations
3. Cultural values

1. Free-market forces

In the free market, you’ll make a decision based on one thing: your own self-interest. For an example you want to buy the tires you think will meet your needs at the lowest cost to you. It is quite unlikely that any personal feelings toward the tire dealer will come to mind. You are not concerned about his welfare – there is no much chance that you would say to him that he isn’t charging you enough for the tires.

The free market can easily establish a price for something as simple as tires. But for much else that changes hands in a work or business environment, value is hard to establish. The point is that how much an engineer is worth in a group cannot be pinned down by appealing to the free market. In fact, if we bought engineering work by the “bit,” I think we would end up spending more time trying to decide the value of each bit of contribution than the contribution itself is worth. Here trying to use free-market concepts becomes quite inefficient.


2. Contractual obligations

For an example, it’s a law establish by society at large that everybody stops at a red light and you unquestioningly accept and live by it. Vehicular chaos would reign if all drivers had not entered into a contract to stop. The traffic cop monitors adherence and penalizes those who break the law.

You say to the engineers, “Okay, I’ll retain your services for a year for a set amount of money, and you will agree to do a certain type of work in return. We’ve now entered into contract. I’ll give you an office and a terminal, and you promise me to do the best you can to perform your task.

The nature of control is now based of contractual obligations, which define the kind of work you will do and the standards that will govern it. So you must give to me as part of the contract the right to monitor and evaluate and, if necessary, correct your work. We agree on other guidelines and work out rules that we will both obey.

In a contractual obligation, management has a role in setting and modifying the rules, monitoring adherence to them, and evaluating and improving performance.


3. Cultural values

You come upon the scene of a major accident. Quite likely, you’ll forget about laws like not stopping on a freeway and also forget about your own self-interest: you’ll probably do everything you can to help the accident victims and, in the meantime, expose yourself to all kinds of dangers and risks. What motivates you now is not at all that when you were shopping for tires or stopping at the red light: not self-interest or obeying the law, but concern about someone else’s life.

The most important characteristic of control, which is based on cultural value, is that the interest of the larger group to which an individual belongs takes precedence over the interest of individual himself. When such values are at work, some emotionally loaded words come into play – words like trust – because you are surrendering to the group your ability to protect yourself. And for this to happen, you must believe that you all share a common set of values, a common set of objectives, and common set of methods. These, in turn, can only be developed by a great deal of common, shared experience.

For cultural values, management has to develop and nurture the common set of values, objectives, and methods essential for the existence of trust. How do we do that?
One way is by articulation, by spelling out these values, objectives, and methods.
The other, the more important way, is by example. If our behavior at work will be regarded as in line with the values we profess, that fosters the development of a group culture.


The Most Appropriate Mode of Control

Given a certain set of conditions, there is always a most appropriate mode of control, which we as managers should find and use. How do we do that? There are two variables here: first, the nature of a person’s motivation; and second, the nature of environment in which he works. An imaginary composite index can be applied to measure an environment’s complexity, uncertainty, and ambiguity, which we’ll call the CUA factor.

Cindy, the process engineer, is surrounded by tricky technologies, new and not fully operational equipment, and development engineers and production engineers pulling her in opposite directions. Her working environment, in short, is complex.

Bruce, the marketing manager, has asked for permission to hire more people for his grossly understuffed group; his supervisor waffles, and Bruce is left with no idea if he’ll get the go-ahead or what to do if he doesn’t. Bruce’s working environment is uncertain.

Mike, whom we will now introduce as an Intel transportation supervisor, had to deal with so many committees, councils, and divisional manufacturing managers that he didn’t know which, if any, end was up. He eventually quit, unable to tolerate the ambiguity of his working environment.

It is our task as managers to identify which mode of control is most appropriate. When group-interest orientation and the CUA factor are both high, the cultural values mode becomes the best choice. When the CUA factor is high and individual motivation is based on self-interest, no mode of control will work well. This situation, like every man for himself on a sinking ship, can only produce chaos.

Let’s apply our model to the work of a new employee. What is happening? It is very much best on self-interest. So you should give him a clearly structured job with a low CUA factor. If he does well, he will begin to feel more at home, worry less about himself, and start to care more about his team. He learns that if he is on a boat and wants to get ahead, it is better for him to help row than to run the bow. The employee can then be promoted into a more complex, uncertain, ambiguous job. (These tend to pay more).

As time passes, he will continue to gain an increasing amount of shared experience with other members of the organization and will be ready to tackle more and more complex, ambiguous, and uncertain tasks. This is why promotion from within tends to be the approach favored by corporations with strong corporate cultures.

Bring young people in at relatively low-level, well defined jobs with low CUA factors, and over time they will share experiences with peers, supervisors, and subordinates and will learn the values, objectives, and methods of the organization. They will gradually accept, even flourish in, the complex world of multiple bosses and peer-decision-making.

But what do we do when for some reason we have to hire a senior person from outside the company? Like any other new hire, he too will come in having high self-interest, but inevitably we will give him an organization to manage that is in trouble; after all, that was our reason for going outside. So not only does our new manager have a tough job facing him, but his working environment will have a very high CUA. Meanwhile he has no base of common experience with the rest of the organization and no knowledge of the methods used to help him work. All we can do is to cross our fingers and hope he quickly forgets self-interest and just as quickly gets on top of his job to reduce his CUA factor.


Modes of Control at Work

Bob’s coming to work in the first place represents a transaction governed by contractual obligations. He is paid a set of salary for doing his best, which implies that he has to show up. And his willingness to participate in strategic planning activities shows cultural values at work. This is work outside of his regular job as defined contractually, and so represents extra effort for him. But he does it because he feels the company needs what he has to contribute.

At one time, one of our divisions had serious problems, leaving the sales engineers with no product to sell for nearly a year. They could have left Intel and immediately gotten other jobs and quick commission elsewhere, but by and large they stayed with us. They stayed because they believed in the company and had faith that eventually things would get better. Belief and faith are not aspects of the market mode, but stem from adherence to cultural values.

Managerial Leverage

By Andy Grove

Activities are what managers do as they try to create a final result, or output.
All these are necessary to achieve output. But output and activity are by no means the same thing.

What is a manager’s output?

At Intel, if a manager is in charge of a wafer fabrication plant, his output consists of completed, high quality, fully processed silicon wafers.

If he supervises a design group, his output consists of completed designs that work correctly and are ready to go into manufacturing.

If a manager is the principle of a high school, his output will be trained and educated students who have either completed their schooling or are ready to move on to the next year of their studies.

If a manager is a surgeon, his output is a fully recovered, healed patient.

We can sum matters up with the proposition that:

A manager output = The output of his organization
+
The output of his neighboring organization under his influence

The output of a manager is a result achieved by a group either under his supervision or under his influence.

Cindy, an engineer at Intel, supervises an engineering group in a wafer fabrication plant. As a supervising engineer, she performs activities that increase the output of the plant in which she works.
She also spends some of her time as a member of an advisory body that establishes standard procedures by which all the plants throughout the company perform a certain technical process. As a member of the advisory body, she provides specialized knowledge that will influence and increase the output of neighboring organizations – all the other Intel wafer fabrication plants.
In both roles, Cindy contributes to the output of the wafer fabrication plants.

Business and education and even surgery represent work done by teams. Business is a team activity. And, always, it takes a team to win.

If a manager has a group of people reporting to him or a circle of people influenced by him, the manager’s output must be measured by the output created by his subordinates and associates.

A manager can do his own job, his individual work, and do it well, but that does not constitute his output. While the manager’s own work is clearly very important, that in itself does not create output. His organization does.

By analogy, a coach or a quarterback alone does not score touchdowns and win games. Entire teams with their participation and guidance and direction do.

If a manager is a knowledge specialist, a know-how manager, his potential for influencing neighboring organization is enormous. The internal consultant who supplies needed insight to a group struggling with a problem will affect the work and the output of the entire group.

Individuals who gather and disseminate know-how and information should also be seen as middle managers, because they exert great power within the organization.

Consider my own managerial role. As president of a company, I can affect output through my direct subordinates – group general managers and others like them – by performing supervisory activities.

I can also influence groups not under my direct supervision by making observations and suggestions to those who manage them

Both type of activity will, I hope, contribute to the output of the company as a whole.

I was once asked by a middle manager at Intel how I could teach in-plant courses, visit manufacturing plants, concern myself with the problems of people several levels removed from me in the organization, and still have time to do my job. I asked him what he thought my job was. He thought for a moment, and then answered his own question, “I guess those things are your job too, aren’t they? They are absolutely my job – not my entire job, but part of it, because they help add to the output of Intel.

What we actually do is difficult to pin down and sum up. Much of it often seems so inconsequential that our position in the business hardly seems justified. Part of the problem here stems from the distinction between our activities, which is what we actually do, and our output, which is what we achieve.

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.

Much of my day is spent acquiring information. I use many ways to get it. I read standard reports and memos but also get information ad hoc. I talk to people inside and outside the company, managers at the other firms or financial analysts or members of the press. Customer complaints, both external and internal, are also a very important source of information. I dealt with things in seemingly random fashion.

For example, the Intel training organization, which I serve as an instructor, is an internal customer of mine. To cut myself off from the casual complaints of people in that group would be a mistake because I would miss getting an evaluation of my performance as an internal supplier.

People also tell us things because they want us to do something for them; to advance their case, they will sometimes shower us with useful information. This is something we should remember, apart from whether we do as they ask.

I have to confess that the information most useful to me, and I suspect most useful to all managers, comes from quick, often, casual verbal exchanges. This usually reaches a manager much faster than anything written down. And usually, the more timely the information, the more valuable it is.

So why are written reports necessary at all? They obviously can’t provide timely information.

What they do is constitute an archive of data, help to validate ad hoc inputs, and catch, in safety-net fashion, anything you may have missed.

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 medium of self-discipline than a way to communicate information. Writing the report is important; reading it often is not.

There are many parallels to this:
· Our capital authorization process itself is important, not the authorization itself. To prepare and justify a capital spending request, people go through a lot of soul-searching analysis and juggling, and it is this mental exercise that is valuable. The formal authorization is useful only because it enforces the discipline of the process.
· The preparation of an annual plan is in itself the end, not the resulting bound volume.

To improve and maintain your capacity to get information, you have to understand the way it comes to you. There is an especially efficient way to get information, much neglected by most managers. That is to visit a particular place in the company and observe what’s going on there. If a manager walks through an area and sees a person with whom he has a two-minute concern, he can simply stop, cover it, and be on his way. Ditto for the subordinate when he initiates conversation. Accordingly, such visits are an extremely effective and efficient way to transact managerial business.

A manager not only gathers information but is also a source of it. He must convey his knowledge to members of his own organization and to other groups he influences.

Beyond relaying facts, a manager must also communicate his objectives, priorities, and preferences as they bear on the way certain tasks are approached. This is extremely important, because only if the manager imparts these will his subordinates know how to make decisions themselves that will be acceptable to the manager, their supervisor. Thus, transmitting objectives and preferred approaches constitutes a key to successful delegation.

It’s obvious that your decision-making depends finally on how well you comprehend the facts and issues facing your business. This is why information gathering is so important in a manager’s life.

Other activities – conveying information, making decisions, and being a role model for your subordinates – are all governed by the based of information that you, the manager have about the tasks, the issues, and the problems facing your organization. In short, information gathering is the basis of all other managerial work, which is why I choose to spend so much time of my day doing it.

Through your suggestion you nudge an individual or a meeting in the direction you would like. This is immensely important managerial activity in which we engage all the time, and it should be carefully distinguished from decision making that results in firm, clear directives. In reality, for every unambiguous decision we make, we probably nudge things a dozen times.

While we move about, doing what we regards as our jobs, we are role models for people in our organization – our subordinates, our peers, and even our supervisors. Nothing leads as well as example. Values and behavioral norms are simply not transmitted easily by talk or memo, but are conveyed very effectively by doing and doing it visibly.

A supervisor in a company, large or small, who takes his work seriously, exemplifies to his associates the most important managerial value of all.

The single most important resource that we allocate from one day to the next is our own time. Our own time is the one absolutely finite resource we each have. Its allocation and use therefore deserve considerable attention. How you handle your time is, in my view, the single most important aspect of being a role model and leader.

In a typical day of mine one can count some twenty-five separate activities in which I participated, mostly information-gathering and –giving, but also decision-making and nudging.

You can also see that some two thirds of my time was spent in a meeting of one kind or another. Before you are horrified by how much time I spend in meetings, answer a question:
Which of the activities – information gathering, information giving, decision-making, nudging, and being a role model – could I have performed outside a meeting? The answer is practically none.

Meeting provides an occasion for managerial activities. Getting together with others is not of course, an activity – it is a medium. You must choose the most effective medium you want to accomplish, that is one that gives you the greatest leverage.


Leverage of managerial activity

The output of a manager is the output of the various organizations under his control and his influence.

What can a manager do to increase his output? Let’s look at the concept of leverage.
Leverage is the measure of the output generated by any given managerial activity.

Managerial output = Output of organization = L1xA1 + L2xA2 + L3xA3 + . . ..
This equation says that for every activity a manager performs – A1, A2, and so on – the output of the organization should increase by some degree. The extent to which that output is thereby increased is determined by the leverage of that activity – L1, L2, and so on.

A manager’s output is thus the sum of the result of individual activities having varying degrees of leverage. Clearly the key to high output means being sensitive to the leverage of what you do during the day.

Managerial activities can be increased in three ways:
1. Speeding up his work (increasing the rate with which a manager performs his work).
2. Increasing the leverage associated with the various managerial activities.
3. Shifting the mix of a manager’s activities from those with lower to those with higher leverage.


High leverage activities:

· When many people are affected by one manager.

Each time a manager imparts his knowledge, skills, or values to a group, his leverage is high, as members of the group will carry what they learn to many others. An example of leverage that I hope can be positive is my talk in the orientation course. During the two hours I have, I try to impart a great deal of information about Intel – its history, its objectives, its values, its style – to a group of two hundred new employees. Beside what I say specifically, my approach toward answering questions and my conduct in general communicate our way of doing things to these employees when they are most impressionable.

Cindy, as you recall, is a member of a technical coordinating body in which she tries to disseminate her understanding of a specific technology to all of the company manufacturing groups. In effect, she uses the coordinating body as an informal training vehicle to effect high leverage on her counterparts in neighboring Intel organizations.

· When a person’s activity or behavior over a long period of time is affected by a manager’s brief, well-focused set of words or actions.

A manager can also exert a high leverage by engaging in an activity that takes him only a short time, but those effects another person’s performance over a long time. A performance review represents a good example of this. With the few hours’ work that a manager spends preparing and delivering the review, he can affect the work of its recipient enormously. Here too a manager can exert either positive or negative leverage. A subordinate can be motivated and even redirected in his efforts, or the review can discourage and demoralize him for who knows how long.

Example of high negative leverage abound.
The manager becomes depressed. Though he didn’t realize it, he almost immediately began to effect people around him and soon depression spread throughout his organization.
Another example is waffling, when a manager puts off a decision that will affect the work of other people. In effect, the lack of decision is the same as a negative decision; no green light is a red light, and work can stop for a whole organization.

Both depressed and the waffling manager can have virtually unlimited negative leverage. If people are badly affected by a poor sales training effort, the situation can be handled by retraining the group. But the negative leverage produced by depression and waffling is very hard to counter because their impact on an organization is both so PERVASIVE and so ELUSIVE.

Managerial meddling is also an example of negative leverage. This occurs when a supervisor uses his superior knowledge and experience of a subordinate’s responsibilities to assume command of a situation rather than letting the subordinate work things through himself. Because the output of the organization will consequently be reduced in the long run, meddling is clearly an activity having negative managerial leverage.

· When a large group’s work is affected by an individual supplying a unique, key piece of knowledge or information.

This kind of leverage is exercised by a person with unique skills and knowledge. Designers, test engineers, etc. All are specialists whose work is important for the work of their organization at large. The person who comprehends the critical facts or has critical insights – the knowledge specialist or the know-how manager – has tremendous authority and influence on the work of others, and therefore very high leverage.

The art of management lies in the capacity to select from the many activities of seemingly comparable significance the one or two or three that provides leverage well beyond the others and concentrates on them.

For me, paying close attention to customer complaints constitutes high-leverage activity. Aside from making the customer happy, the pursuit tends to produce important insights into the workings of my own operation. Such complaints may be numerous, and though all of them need to be followed up by someone, they don’t all require or wouldn’t all benefit from my personal attention.

Which one out of ten or twenty complaints to dig into, analyze, and follow up is where art comes into the work of a manager. The basis of that art is an intuition that behind this complaint and not the other, lurk many deeper problems.


Delegation as leverage

The delegator and delegegatee must share a common information base and a common set of operational ideas or notions on how to go about solving problems, a requirement that is frequently not met. Unless both parties share the relevant common base, the delegatee can become an effective proxy only with specific instruction. As in meddling, where specific activities are prescribed in detail, this produces low managerial leverage.

Picture this. I am your supervisor, and I walk over to you with pencil in hand and tell you to take it. You reach for the pencil, but I won’t let go. So I say, “What is wrong with you? Why can’t I delegate the pencil to you?”

We all have some things that we don’t really want to delegate simply because we like doing them and would rather not let go.

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 is not meddling, but means checking to make sure an activity is proceeding in line with expectations. Because it is easier to monitor something with which you are familiar, if you have a choice you should delegate those activities you know best.

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.

How often you monitor should not be based on what you believe your subordinate can do in general, but on his experience with a specific task and his prior performance with it – his task-relevant maturity. As the subordinate’s work improves over time, you should respond with a corresponding reduction in the intensity of the monitoring.

To use quality insurance principles effectively, the manager should only go into details randomly, just enough to try to ensure that the subordinate is moving ahead satisfactorily. To check into all the details of a delegated task would be like quality assurance testing 100 percent of what production test turned out.

Making a certain types of decisions is something managers frequently delegate to subordinates. This is the best done by monitoring their decision-making process. How do you do that? Let’s examine what Intel goes through to approve a capital equipment purchase.

We ask a subordinate to think through the entire matter carefully before presenting a request for approval. And to monitor how good his thinking is, we ask him quite specific questions about his request during a review meeting. If he answers them convincingly, we’ll approve that he wants. This technique allows us to find out how good the thinking is without having to go through it ourselves.

Increasing Managerial Activity Rate: Speeding Up the Line.

Managerial output / time = L x Activity performed / time

L is the leverage of the activity.


Identify limiting step

In manager’s life some things really have to happen on a schedule that is absolute. For me, an example is the class I teach. (This is the time critical event). I know when it is going to meet, and I know I must prepare for it because over two hundred students will be expecting me. Accordingly, I have to create offsets and schedule my other work around this limiting step. In short, if we determine what is immovable and manipulate the more yielding activities around it, we can work efficiently.


Batching similar tasks

For our work to proceed efficiently, we should use the same set-up effort to apply across a group of similar activities. Set-up time has many parallels in managerial work.
For example, once we have prepared a set of illustrations for a training class, we will obviously increase our productivity if we can use the same set over and over again with other classes or groups.

Similarly, if a manager has a number of reports to read or a number of performance reviews to approve, he should set aside a block of time and do a batch of them together, one after the other, to maximize the use of the mental set-up needed for the task.

From my experience a large portion of managerial work can be forecasted. Accordingly, forecasting those things you can and setting yourself up to do them is only common sense and an important way to minimize the feeling and reality of fragmentation experienced in managerial work.

A factory is usually run by forecast and not by individual order. Forecasting and planning your time around key events are literally like running an efficient factory.

To gain better control of his time, the manager should use his calendar as a “production“-planning tool, taking a firm initiative to schedule work that is not time-critical between those “limiting steps” in the day.

Another production principle can be applied here: The manufacturing people won’t allow material to begin its journey through the factory if they think it is already operating at capacity. If they did, material may go halfway through and back up behind a bottleneck Instead, factory managers say “no” at the outset and keep the start level from overloading the system.

How much time do you need to read your email, to write your reports, to meet with colleagues? You may not know precisely, but you surely have a feel for the time required.

Your calendar as production planning tool:
1. You move toward the active use of your time calendar, taking the initiative to fill the holes between the time-critical events (limiting step) with non-time-critical events.
2. You should say “No” at the outset to work beyond your capacity to handle.

It is important to say “No” earlier rather than later because we’ve learned that to wait until something reaches a higher value stage and then abort due to lack of capacity means losing more money and time.

Remember too that your time is your one finite resource, and when you say “Yes” to one thing you are inevitably saying “No” to another.

Allow slack – a bit of looseness in your scheduling. There is optimum degree of loading, with enough slack built in so that one unanticipated event will not ruin your schedule for the rest of the day.

A manager should carry inventory in terms of projects. This inventory should consists of things you need to do but don’t need to finish right away – discretionary projects, the kind the manager can work on to increase his group’s productivity over the long term. Without such an inventory of projects, a manager will most probably use his free time meddling in his subordinate’s work.

Most production practices follow well-established procedures and, rather than reinventing the wheel repeatedly, we use a specific method that has been shown to work before. But managers tend to be inconsistent and bring a welter of approaches to the same task. We should work to change that.

As we become more consistent, we should also remember that the value of an administrative procedure is contained not in formal statements but in the real thinking that led to its establishment. This means that even as we try to standardize what we do, we should continue to think critically about what we do and the approaches we use.


Built-In Leverage: How Many Subordinates Should You Have . . .

As a role of thumb, a manager whose work is largely supervisory should have six to eight subordinates; three or four are too few and ten are too many. This range comes from a guideline that a manager should allocate about a half day per week to each of his subordinates. The six to eight rule is for the classically hierarchical manager whose work is the supervision of others.

What about a know-how manager, the middle manager who mainly supplies expertise and information?
Even if he works without a single subordinate, servicing a number of varied “customers” as an internal consultant can in itself be a full-time job.

We should do everything we can to prevent little stops and starts in our day. The most common problem was uncontrolled interruptions, which in remarkably uniform fashion affected both supervisory and know-how managers.

Interruptions had a common source; most frequently coming from subordinates and from people outside the manager’s immediate organization but whose work the managers influenced.

If you can pin down what kind of interruptions you are getting, you can prepare those that pop up most often. Customer don’t come up with totally new questions and problems day in and day out, and because the same one tend to surface repeatedly, a manager can reduce time spent handling interruptions using standard responses. Having them available also means that a manager can delegate much of the job to less experienced personnel.

If you handle a group of similar chores at one time (batching), many interruptions that come from your subordinates can be accumulated and handled at staff and at one-on-one meetings. 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 use of indicators, especially the bank of indicators kept over time. How fast you can answer a question depends on how fast you can put your finger on the information you need for a response. By maintaining an archive of information, a manager doesn’t have to do ad hoc research every time the request comes.

Understand that interrupters have legitimate problems that need to be handled. That’s why they are bringing them to you. But you can channel the time needed to deal with them into organized, scheduled form by providing an alternative to interruption – a scheduled meeting or an office hour. 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.

The Sports Analogy

By Andy Grove

A manager’s output is the output of the organization under his supervision or influence. This means that management is a team activity. But no matter how well a team is put together, no matter how well it is directed, the team will perform only as well as the individuals on it. The members of the team need continually try to offer the best they can do.

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. If the person’s life is 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 –“personal best”- from his subordinates. So if there are two things that limit high output, a manager has two ways to tackle the issue: through training and motivation.

How a manager motivates his subordinates? Motivation has to come from within somebody. Accordingly, all a manager can do is to create an environment in which motivated people can flourish. My own observation of working life confirm Abraham Maslow’s concept of 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 high degree of motivation, we must keep some needs unsatisfied at all times.

Maslow defined a set of needs as below:
· Self actualization
· Esteem/Recognition
· Social/Affiliation
· Safety/Security
· Physiological

Physiological needs
Physiological needs consist of things money can buy, like food, clothing, and other basic necessities of life.

Safety/security needs
These come from a desire to protect oneself from slipping back to a state of being deprived of the basic necessities.

Social/affiliation needs
Social needs are quite powerful. One friend of mine said that going to work means being around of people she likes.

The physiological, safety/security, and social/affiliation needs all can motivate us to show up for work, but other needs - esteem/recognition and self actualization – make us perform once we are there.

Esteem/Recognition
A friend of mine was named a vice president of a corporation. Such a position is a life-long goal. When he had suddenly attained it, he found himself looking for some other way to motivate himself.

All the sources of motivation we’ve talked about so far are self-limiting. That is, when a need is gratified, it can no longer motivate a person. Once a predetermined goal or level of achievement is reached, the need to go further loses urgency.

Self-actualization needs
Self-actualization stems from a personal realization that “what I can be, I must be.” Once someone’s source of motivation is self-actualization, his drive to perform has no limit. Self-actualization continues to motivate people to ever-higher levels of performance. Thus, its most important characteristic is that unlike other source of motivation, which extinguishes themselves after the needs are fulfilled. A need to get better has no limit. Competence- and achievement-oriented people continuously try to test the outer limits of their abilities.

When the need to stretch is not spontaneous, management needs to create an environment to foster it. In an MBO system (management-by-objectives), 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 tend to be greater when everybody strives for a level of achievement beyond his immediate grasp, even though trying means failure half of the time. Such goal setting is extremely important if what you want is peak performance.

Moreover, if we want to cultivate achievement-driven motivation, we need to create an environment that values and emphasizes output. My first regular job in a research and integration technology, where a lot of people were very highly motivated but tended to be knowledge-centered. They were driven to know more, but not necessarily to know more in order to produce concrete results. Consequently, relatively little or almost nothing was actually achieved. The value system at Intel is completely reverse. The Ph.D. who knows an answer in the abstract, yet does not apply it to create some tangible output, gets little recognition, but a junior engineer who produces results is highly valued and esteemed. And that is how it should be.

When one is self-actualized, money in itself is no longer a source of motivation but rather a measure of achievement. Now consider a venture capitalist who after making ten million dollars is still very hard at work trying to make another ten. Money in the physiological- and security-driven modes only motivates until the need is satisfied, but money, as measure of achievement will motivate without limit. Thus the second ten millions can be just as important to the venture capitalist as the first, since it is not the utilitarian need for the money that drives him but the achievement that it implies, and the need for achievement is boundless.

If the absolute sum of a raise in salary an individual receives is important to him, he is working mostly within the physiological or safety modes. If, however, what matters to him is how his raise stacks up against what other people got, he is motivated by esteem/recognition or self-actualization, because in this case money is clearly a measure.

Once in self-actualization, a person needs measures to gauge his progress and achievement. The most important type of measure is the feedback on his performance. For the self-actualized person driven to improve his competence, the feedback mechanism lies within the individual himself. Our virtuoso violist knows how the music should sound, knows when it is not right, and will strive tirelessly to get it right.

What are some of the feedback mechanisms or measures in the workplace? The most appropriate measures tie an employee’s performance to the workings of the organization. If performance indicators and milestones in a management-by-objectives system are linked to the performance of the individual, they will gauge his degree of success and will enhance his progress. The most important form of such task relevant feedback is the performance review every subordinate should receive from his superior.

The performance of the organization as a whole depends on how skilled and motivated the people within it. Thus, the rule as managers is, first, to train the individuals and second, to bring them to the point where self-actualization motivates them, because once there, their motivation will be self-sustaining and limitless.

Let’s ask a question. Why does a person who is not terribly interested in work at the office stretch himself to the limit running a marathon? He is trying to beat other people or stopwatch. This is a simple model of self-actualization, wherein people exert themselves to previously undreamed heights, forcing themselves to run faster. What they did get was a racetrack, an arena of competition.

Comparing our work to sports may also teach us how to cope with failure. As noted, one of the big impediments to a fully committed, highly motivated state of mind is preoccupation of failure. Yet we know that in any competitive sport, at least 50 percent of all matches are lost.

The rule of manager here is also clear: it is that of the coach:
First, an ideal coach takes no personal credit for the success of his team, and because of that his players trust him.
Second, he is tough on his team. By being critical, he tries to get the best performance his team members can provide.
Third, a good coach was likely a good player himself at once. And having played the game well, he understands it well.

Turning the workplace into a playing field can turn subordinates into “athletes” dedicated to performing at the limit of their capabilities – the key to making our team consistent winners.

Decisions, Decisions

By Andy Grove

Making decisions – or more properly, participating in the process by which they are made – is an important and essential part of every manager’s work from one day to the next.

Decisions range from the profound to the trivial, from the complex to the very simple:
Should we buy a building or should we lease it?
Should we hire this person or that one?
Should we give someone a 7 percent or a 12 percent raise?
Can we deposit a phosphosilicate glass with 9 percent phosphorus content without jeopardizing its stability in a plastic package?
etc.

When someone graduates from college with a technical education, at that time and for the next several years, that young person will grow in knowledge and experience and up-to-date in the technology of time. Hence, he possesses a good deal of knowledge-based power in the organization that hired him. If he does well, he will be promoted to higher and higher positions, and as the years pass, his position power will grow but his intimate familiarity with current technology will fade.

Put another way, even if today’s veteran manager was once an outstanding engineer, he is not now the technical expert he was before he got promoted. At Intel, anyway, we managers get a little more obsolete every day.

If Intel used people holding old-fashioned position power to make all its decisions, decisions would be made by people unfamiliar with the technology of the day.

And in general, the faster the change in the know-how on which the business depends or the faster the change in customer preferences, the greater the divergence between knowledge and position power is likely to be.

If your business is depends on what it knows to survive and prosper, what decision-making mechanism should you use?
The key to success is again the middle manager, who not only is a link in the chain of command but also can see to it that the holders of the two types of power mesh smoothly.

An ideal model of decision making in know-how-business:

Free discussion => clear decision => full support

The first stage should be free discussion, in which all points of view and all aspect of an issue are openly welcomed and debated. The greater the disagreement and controversy, the more important becomes the word free. This sounds obvious, but it’s not often the practice.

I was told in a certain company, “In general, people who do well in this company wait until they hear their superiors express their view and then contribute something in support of that view.” This is a terrible way to manage. All it produces is bad decisions, because if knowledgeable people withhold opinions, whatever is decided will be based on information and insight less complete because people didn’t really speak their minds freely.

The next stage is reaching a clear decision. Again, the greater the disagreement about the issue, the more important becomes the word clear. In fact, particular pains should be taken to frame the terms of the decision with utter clarity.

Finally, everyone involved must give the decision reached by the group full support. This does not necessary mean agreement: so long as the participants commit to back the decision, that is a satisfactory outcome. Even when we all have the same facts and we all have interests of an organization in mind, we tend to have honest, strongly felt, real differences of opinion. But an organization does not live by its members agreeing with one another about everything. It lives instead by people committing to support the decisions and the moves of the business. All a manager can expect is that the commitment to support is honestly present, and this is something he can and must get from everyone.

Another desirable and important feature of the model is that any decision be worked out and reached at the lowest competent level. The reason is that this is where it will be made by people who are closest to the situation and know the most about it.

And by “know” I don’t just mean “understand technically.” That kind of expertise must be tempered with judgment, which is developed through experience and learning from the many errors one has made is one’s career.

Thus, ideally, decision-making should occur in the middle ground, between reliance on technical knowledge on the one hand, and on the bruises one has received from having tried to implement and apply such knowledge on the other. To make a decision, if you can’t find people with both qualities, you should aim to get the best possible mix of participants available.

For example, we at Intel are likely to ask a person in management senior to the other members of the group to come to the meeting. But it is very important that everybody there voice opinions and beliefs as equals throughout the free discussion stage, forgetting or ignoring the status differentials.

In our business we have to mix knowledge-power people with position power people daily, and together they make decisions that could affect us for years to come. If we don’t link our engineers with our managers in such a way as to get good-decisions, we can’t succeed in our industry.

Peers tend to look for the a more senior manager, even if he is not the most competent or knowledgeable person involved, to take over and shape a meeting. Why? Because most people are afraid to stick their necks out.

The peers –group syndrome:
One of the reasons why people are reluctant to come out with an opinion in the presence of their peers is the fear of going against the group by stating an opinion that is different from that of the group. Members of the group were waiting for a consensus to develop and didn’t speak their minds freely. That certainly makes it harder for a manager to make the right decisions.

You can overcome the peer-group syndrome if each of the members has self-confidence, which stems in part from being familiar with the issue under consideration and from experience. Nobody has ever died from making a wrong business decision, or taking inappropriate action, or being overruled. And everyone in your operation should be made to understand this.

If the peer-group syndrome manifest itself, and the meeting has no formal chairman, the person who has the most at stake should take charge. If that doesn’t work, one can always ask the senior person present to assume control and give the group the confidence needed to make a decision.

Sounding dumb
One thing that paralyzes both knowledge and position power possessors is the fear of simply sounding dumb. For senior person, this is likely to keep him from asking the questions he should ask.

The same fear will make other participants merely think their thoughts privately rather than articulate them for all to hear; at best they will whisper what they want to say to a neighbor.

As a manager you should remind yourself that each time an insight or fact is withheld and an appropriate question is suppressed, the decision-making process is less good than it might have been.

Lower-level people have also to overcome the fear of being overruled, which might mean embarrassment.

We need to overcome our fear of sounding dumb or of feeling being overruled, and lead us to initiate discussion and come out front with a stand.


Striving for the output
It is legitimate – in fact, sometimes unavoidable – for the senior person to wield position power authority if the clear stage is reached and no consensus has developed. We should not prolong the decision making if the clear stage is reached.

But it is not legitimate – in fact, it is destructive – for him to wield that authority any earlier.

If you enter the decision-making stage too early or wait too long, you won’t derive the full benefit of open discussion. The criterion to follow is this: Don’t push for a decision prematurely. Make sure you have heard and considered the real issues rather than the superficial comments that often dominate the early part of a meeting.

But if you feel that you have already heard everything, that all sides of the issue have been raised, it is time to push for a consensus – to step in and make a decision.

Sometimes, people can drift away from the near consensus when they are close being right, and then free discussion goes on in an unending search for consensus, diminishes the chances of reaching the correct decision. So moving on to make the decision at the right time is crucial.

One of the manager’s key tasks is to settle six important questions in advance:

What decision needs to be made?
When does it have to be made?
Who will decide?
Who will need to be consulted prior to making the decision?
Who ratify or veto the decision?
Who will need to be informed of the decision?

People invest a great deal of energy and emotion in coming up with a decision. Politics and manipulation or even their appearance should be avoided at all costs.

Group decisions do not always come easily. There is a strong temptation for the leading officers to make decisions themselves without the sometimes onerous process of discussion because the process is indeed onerous, people sometimes try to run away from it. If you could make decisions without consulting anybody, so could everybody else.