High Output Management

Central Ideas: 

 

1 – Preparing a breakfast, recruiting new graduates, sales training are all very different tasks, but they all have in common a similar flow of activities to touch a specific output. 

2 – The most important definition is that a manager’s output is the result obtained by a group under his supervision. Although important, the manager’s work, by itself, does not generate the output. It is the manager’s organization that generates it. 

3 – All large organizations with a common objective end up with a hybrid organizational format, moving between a mission-oriented model and a functional model. 

4 – Appraisal can affect the performance of a subordinate (positively or negatively) for a long time, which makes this type of appraisal one of the most leveraging activities of a manager. 

5 – A manager has two ways to raise the individual performance level of his subordinates: by increasing motivation and by increasing people’s capabilities through training. 

 

About the author: 

Andrew S. Grove (1936-2016) was one of the founders of Intel, serving as chairman in 1979, CEO in 1987, president in 1987, and chairman of the board in 1997, at which time he was voted Man of the Year by Time magazine. 

 

Introduction 

 

This book was written in 1983 by Andrew Grove, co-founder, chairman, and CEO of Intel, the world’s largest semiconductor manufacturer. Grove updated it in 1995, in view of the new technological horizon. Among the factors of innovation would be realities such as globalization and e-mail, among others.  

High Output Management presents three basic ideas. The first is a management approach focused on results, what we call output. That is, we apply some of the principles and discipline of a typically output-oriented enterprise (the manufacturing process) to other organizational activities, including the work of managers.

Take the example of Intel, a true manufacturing and production company, dedicated to making highly complex silicon chips and computer products equipped with those chips. Today [in 1995], this company has more than 30,000 employees. Of these, only about 25% actually work in the manufacturing of the products. Another 25% are involved in supervising personnel, maintaining equipment, engineering, and improving the manufacturing process. Another 25% work in administration, scheduling, and production, keeping employee records, sending invoices to customers, and paying suppliers. Finally, the remaining 25% design new products, bring them to market, sell them, and provide maintenance and after-sales services. 

The second basic idea in the book is that the work of a company, a government, and most forms of human activity is a collective, not an individual activity. This idea is summarized in what we consider to be the most important idea in this book: The result (or output) of a manager is the result (or output) of the organizational units under his supervision and influence. With this in mind, the question becomes: what can managers do to increase the output of their team? To try to answer this question, the concept of managerial leverage is presented, which measures the impact of what managers do to increase the team’s output. 

A team will only perform well if all its members are encouraged to perform at their maximum. That is the third basic idea of this book. Here the analogy of team activity is made to the competitive world of sports to achieve the best. 

 

Part I The Breakfast Factory 

Chapter 1 Production Basics: Delivering a Breakfast 

To understand the principles of production, imagine you are a waiter, and your task is to serve a breakfast consisting of a soft-boiled egg for three minutes, buttered toast, and coffee. Your job is to prepare all three items simultaneously and deliver them hot at the same time. This task involves the basic requirements of production. These principles are: to produce and deliver products in response to customer demands within a scheduled delivery time, with an acceptable level of quality, and at the lowest possible cost. 

The first thing we have to do is to specify the flow step that will determine the overall shape of our operation, which we will call the limiting step. The question, in this case, is simple: Which of the breakfast components takes the longest to prepare? Since the coffee is already ready and heated in the kitchen and the toast only takes about a minute to prepare, the answer is obviously the hardboiled egg, so we must plan the entire production around the time it takes to cook the egg. 

Preparing a breakfast, recruiting new graduates, sales training, and developing a compiler are all very different tasks, but they all have a very similar flow of activities to produce a specific output.

Chapter 2 Managing the Breakfast Factory 

Let’s say that, as the manager of the breakfast factory, you work with five indicators to achieve your production goals on a daily basis. What would these five indicators be? In other words, what five indicators would you need to know every day when you arrive at work? 

Here are the indicators. First, it is interesting to know the sales projection for the day. How many breakfasts do you plan to deliver? To assess the reliability of that projection, you’ll want to know how many breakfasts you delivered the previous day compared to how many you planned to deliver – or, in other words, the variability between your plan and the actual number of breakfasts delivered the previous day. 

Your next key indicator is the stock of raw materials. Do you have enough eggs, bread, and coffee to keep your factory running? Another important piece of information is the condition of your equipment. If some equipment broke down yesterday, you need to make sure that it is repaired.

You must also analyze your labor force. If two waiters have missed work, you need to think of some solution to meet the expected demand. Should you hire temporary waiters? Finally, it is interesting to have some kind of quality indicator. It is not enough to monitor the number of breakfasts that each waiter delivers because the waiters may have been rude to the customers. It is also important to know what the customers think about the product and the service.  

As we have seen, the goal of the manufacturing process is to deliver the product at a level acceptable to the customer at the lowest possible cost. To ensure that the quality of our product is indeed acceptable, all production flows – be they breakfast, new hires, or computer program modules – must all include inspection points. To achieve acceptable quality at the lowest possible cost, it is critical to reject defective material at a stage in the process where its cumulative value is as low as possible. 

 

Part II Management is Teamwork 

 

Chapter 3 Managerial Leverage 

What, then, is the output of a manager? At Intel, if he is responsible for semiconductor manufacturing, his output will consist of finished, high-quality, fully processed silicon wafers. If he supervises a design team, his output will consist of finished designs that work properly and are ready to go into production. If he is a school principal, his output will be trained and educated students who have completed their studies or are ready to enter higher education. If he is a surgeon, his output will be a fully healed and recovered patient. 

However, the most important definition here is that a manager’s output is the result obtained by a group under his supervision or influence. While the manager’s work is undoubtedly very important, this work alone does not generate output. It is the manager’s organization that generates output. By analogy, the coach or captain of a soccer team alone does not score goals or win matches.

It is the whole team that scores goals and wins matches, with the participation, guidance and direction of the coach or team captain. League positions are earned by the team, not by individual players.

Work (and this includes not only corporations, but educational institutions, government agencies, and hospitals) is a team activity. And a team is always needed to win. 

The output of a manager, as we have seen, is the output of the various organizations under his control or influence. To answer this question, let’s take a look at the concept of leverage. Leverage is the measure of the output generated by any managerial activity. 

High leverage can be achieved in basically three ways: 

When many people are influenced by a manager. 

When a person’s activity or behavior is influenced by a manager’s instructions in the form of words or actions. 

When the work of a group is influenced by a person who imparts important knowledge or information that was previously unknown. 

The first case is the clearest. Let’s take the example of Robin, a manager at Intel who is responsible for the company’s annual financial planning process. When Robin defines in advance exactly what information needs to be collected and presented at each planning stage, and determines who will be responsible for each task, she directly affects the work of about 200 people who participate in this process. By allocating time in advance of planning activities, Robin helps eliminate confusion and misunderstandings for a long time for a large number of managers. As a result, his work contributes to the productivity of the entire organization and clearly has great leverage. 

 

Chapter 4 Meetings: a tool for the manager’s work 

Nowadays, “meeting” is almost a dirty word. One line of management thought considers it a real curse in a manager’s life. One study revealed that managers spend up to 50% of their time in meetings and suggested that it was a big waste of time. 

But meetings need not be the villain of the story. Much of the work of middle management involves providing information and know-how and giving insight into the best working methods to the groups under their control and influence. A manager also makes and helps make decisions. These two basic types of management tasks can only be performed in face-to-face conversations (or rather, meetings). 

The two basic functions of management produce two basic types of meetings. In the first type of meeting, called a process-oriented meeting, there is knowledge sharing and information exchange. These meetings are regular and scheduled. The purpose of the second type of meeting is to solve a specific problem. These meetings, called mission-oriented meetings, usually produce a decision. They are scheduled on an as-needed basis without being scheduled too far in advance. 

What topics should be covered in a one-to-one meeting? We can start with performance data, indicators used by the subordinate, such as incoming order rates, production output, or project status. Indicators that signal problems should be emphasized. The meeting should cover all the important events that have occurred since the last meeting: hiring problems, general personnel problems, organizational issues, plans for the future, and most importantly, potential problems. 

A team meeting is attended by a supervisor and all his subordinates, presenting him with an opportunity to interact with his colleagues. As we will see later, although peer interaction (especially decision making by a group of colleagues) is not easy, it is fundamental to good management. 

Remember that it is difficult to make a specific decision in a meeting with more than six or seven guests. The cut-off line should be a maximum of eight people. Decision-making is not an activity that involves mere spectators – those who merely observe get in the way more than they help. 

 

Part III A Team of Teams 

 

Chapter 8 Hybrid Organizations 

Although most organizations are mixed, they can have two basic formats: a fully mission-oriented one and a fully functional one. The Breakfast Factory could be organized in one of these formats. In the mission-oriented organization, which is completely decentralized, each individual business unit fulfills its mission with little interconnection with the other units. 

At the other extreme, we have a fully functional organization, which is completely centralized. In a Breakfast Factory set up in this way, the marketing department is responsible for promoting and advertising products at all locations, the HR staff hires, hires, and evaluates staff at all branches, and so on. 

At such times, it is proposed to establish Grove’s Law:

All large organizations with a common business goal end up with a hybrid organizational format. 

The Breakfast Factory, an army, Intel, and ABC Technologies are good examples of this. But virtually every large company or every enterprise we know is organized in a hybrid way. Take the example of an institution of higher education, in which we find individual mission-oriented departments, such as mathematics, letters, engineering, etc., and administrative departments, consisting of HR, security, and library services, whose task is to provide the shared resources that each department needs to function.  

 

Chapter 9 Dual Reporting 

To put a man on the moon, NASA asked several major suppliers and many smaller suppliers to work together, each on a different aspect of the project. An unintended consequence of the space launch was the development of a new organizational approach: matrix management. 

Matrix management is a very complex task. Many books have been written on the subject and entire courses are devoted to teaching it. But the idea was that a project manager, a person not belonging to any vendor’s company, could exert as much influence on the work of the units of a given company as the company’s own top management. It was with this in mind that Nasa created the principle of double reporting on a large scale. 

We could solve the [supervision] problem by appointing one person as senior production manager and making all production managers subordinate to him, and not to the CEO. Only the more we do this, the closer we get to a fully functional format of organization. A CEO could no longer coordinate the activities of the finance, marketing, engineering, and production groups to achieve a single business goal in response to market needs.  We want immediacy and operational priorities to be guaranteed by the CEO, but we also want technical oversight. The solution is dual reporting. 

Dual reporting can strain the patience of marketing managers, who now need to be aware of the needs and interests of their peers. But there is no alternative when you need to convey individual product and market messages while maintaining a corporate identity. 

 

Part IV The Players 

 

Chapter 13 Performance appraisal: the manager as judge and jury  

Although not a particularly pleasurable activity, appraisals are the most important form of task-applicable feedback that we supervisors can provide. It is with this tool that we assess the level of performance of our subordinates and present an analysis individually. Performance appraisals also help us to allocate rewards (promotions, salary increases, company stock options, among others). The appraisal can affect a subordinate’s performance (positively or negatively) for quite some time, which makes this type of appraisal one of the most leveraged activities of a manager. In short, an appraisal is a hugely effective mechanism, and it’s no wonder that opinions and feelings about it are so strong and diverse. 

But what is the purpose of performance appraisals? While all the answers that managers gave to our questions are correct, we consider that one answer carries more weight than all the others: to improve the subordinate’s performance. The appraisal usually focuses on two factors; first, the subordinate’s skill level, to identify what skills are lacking and find ways to fill that gap; second, to increase the subordinate’s motivation, to move them up the performance curve of a certain skill level.

Don’t think that performance appraisals should be limited to large organizations. They need to be part of management practice in organizations of any size and type, from the insurance broker with two administrative assistants to the administrators of educational, public, and non-profit institutions. In short, if good performance is important to your operation, performance appraisals are absolutely necessary. 

To make the evaluation a little easier, the supervisor must know clearly what he expects from a subordinate and try to judge whether he has met the expectations. The big problem with most appraisals is that we don’t usually define clearly what we want from our subordinates – and, as we have seen, if we don’t know what we want, it is impossible to get anything. 

 

Chapter 14 Two difficult tasks 

Managers are also responsible for two other highly emotionally charged tasks: interviewing candidates for a vacancy and trying to convince a good employee to stay with the company. 

The goals of an interview are: 

Select a good candidate; 

To inform him/her about you and the company; 

To determine the existence of compatibility; 

Convincing him/her to accept the job offer. 

What would be the topics you should cover in an interview? Here are some of the best questions: 

 

Describe some projects that have been highly regarded by your superiors, especially by management levels above your immediate superior. 

What are your weaknesses? 

What are you doing to eliminate them? 

Why do you think you are qualified for this new position? 

What have been your most important achievements? 

Why were they important to you? 

What was the most important course or project you took in undergraduate or graduate school? 

Why do you consider them important? 

 

Usually, the news that the employee is resigning takes you by surprise. When you are on your way to what you consider an important meeting, your subordinate, a good employee, timidly approaches you and whispers softly, “Do you have a minute?” Then he announces that he has decided to leave the company. You look at him slack-jawed. Your first reaction to the announcement is absolutely crucial. If you are a human being, you will probably want to run away to your meeting, asking to talk about it later. But in almost all cases, the employee is leaving the company because he thinks you don’t value him enough. If you don’t deal with the situation at the first mention, you will confirm this belief, and the result will be inevitable.

 

Chapter 15 Remuneration as task-applicable feedback 

Money plays a role at all levels of Maslow’s hierarchy of motivation. As we have already seen, a person needs money to pay for food, housing, and a health care plan, which are part of his physiological and safety needs. When a person moves up the hierarchy of needs, money takes on another meaning, becoming a measure of his value in a competitive environment. 

If the absolute value of a salary increase is important, this person is probably motivated by physiological or safety needs. But if the relative value of a salary increase (what a person earns compared to peers) has more relevance, this person is likely to be motivated by self-actualization, because in this case money is a measure, not a need. 

Since a mid-level manager cannot be paid per unit produced, his work can never be defined by a simple output calculation. And since this manager’s performance depends very much on the performance of his team, it is difficult to create a compensation scheme directly linked to his individual performance. 

But it is possible to find a compromise. A part of a mid-level manager’s remuneration can be based on his performance. We will call this remuneration a performance bonus. The percentage represented by the bonus should increase with his total remuneration. So for a senior manager who is paid a high salary and for whom absolute salary makes relatively little difference, the performance bonus should be as high as 50%, while the bonus of a mid-level manager should constitute somewhere between 10% and 25% of his total compensation. Even though your income may cause you difficulties depending on your personal circumstances, we can at least give you a “taste” of the feedback applied to the task.

Chapter 16 Why Training is the Boss’s Job 

In general, a manager has two ways of raising the individual performance level of his subordinates: by increasing motivation, that is, people’s desire to do a good job, and by increasing people’s capability, where training comes in. Commonly, everyone accepts that motivating subordinates is a basic task of managers, which cannot be delegated to someone else. Why can’t the same principle be applied to the other way that a manager has to increase the output of his subordinates? 

Training is one of the most leveraging activities that a manager can perform. Think for a moment about the possibility of giving four classes to the members of your department. Let’s count three hours of preparation for each hour of course, for a total of 12 hours of work. Let’s say you have ten students in your class. Next year they will work a total of more or less 20,000 hours for your organization. If your training results in a 1% improvement in the performance of your subordinates, your company will gain the equivalent of 200 hours of work from the 12 hours you spent on training. 

To avoid getting bogged down in the difficult task of preparing the course set a schedule and commit to deadlines. Create an outline for the course, develop only the first class, and teach the class. Prepare the second lesson after teaching the first. Consider the first time you teach the course as a test. Your initial class will not be excellent because, no matter how hard you try, there is no way it can be spectacular at the beginning. Instead of getting distressed, accept that the first time will inevitably be unsatisfactory, and view it as a way to improve next time. 

 

Reminder 

You will find that you will be on cloud nine if everything goes well in your first course. But you will be even happier when you see a subordinate practicing something you have taught. That satisfaction will help you prepare to face the second course.  

 

Review: Rogério H. Jönck

Images: Reproduction and Unsplash

 

FACTSHEET: 

 

Original Title: High Output Management 

Author: Andrew S. Grove