Work Matters

Category: Scaling

  • The Dark Side of Scaling Up: Will You Want to Live in What You Build?

     

    Mitch

    My Stanford colleague Huggy Rao and I devoted seven years to learning about what it takes to scale up excellence in organizations. We studied how leaders and teams build and identify pockets of goodness in organizations and spread such goodness to more people and places — about the moves needed to grow organizations and to spread superior practices and programs throughout organizations.

    We found many splendid consequences of successful scaling: The wealth and jobs created by companies such as IKEA, Google, Procter & Gamble, Facebook, and Starbucks. The needless deaths in U.S. hospitals that were prevented by the 100,000 Lives Campaign between 2004 and 2006 – a successful effort to spread evidence-based practices that was led by a small non-profit called the Institute for Health Improvement. And the thousands of poor children in Africa who are now receiving a superior education (for about five dollars per month) from Bridge International Academies, a fast growing, for profit, chain of nursery and primary schools.

    Yet, despite our society's penchant for worshipping such successes, bigger isn't always better. Success is rarely all it is cracked up to be. And our dreams often lose much of their grandeur when they come true.

    If you are in throes of a scaling challenge, or plan to tackle one soon, you might try a form of imaginary time travel. Pretend that a few years have passed, that you and your colleagues have achieved your scaling dreams, and that you are looking back from the future. We've found that this "looking back from the future" approach helps leaders and teams with all sorts of scaling decisions. One good question to ask is "Are we happy in the world that we worked so hard to build?"

    As we show in Scaling Up Excellence, and this piece on LinkedIn, as an organization grows, whether you like it or not, it will require more hierarchical layers, managers, rules, and (often) annoying administrative processes. It will also become increasingly difficult to maintain personal relationships with all your colleagues (let alone learn their names). The pressures created by a large and successful company or change program often push founding leaders and teams to their limits, require them to do chores that they despise, and to work with people that they find to be bad company. Alas, even if scaling up brings you acclaim and riches, you may be uncomfortable within the walls of your own creation.

    Consider this story. About fifteen years ago, I had striking conversations with Mitch Kapor and his wife Freada Klein about their experiences at the Lotus Development Corporation. Lotus began as a small firm that Kapor started with a few friends in 1982. Lotus 1-2-3, the company’s spreadsheet, quickly became the hottest-selling program for the (then new) IBM personal computer: sales hit 50 million dollars in 1983 and jumped to over 150 million by 1984. Kapor didn’t have the desire or temperament to run a big company, so he remained chairman and promoted ex-McKinsey consultant Jim Manzi to CEO. Manzi grew Lotus to over one thousand people by 1985 and stocked it with many “sales types” and “process types” from traditional corporations such as Procter & Gamble, Coca-Cola, and IBM. Kapor and other early Lotus employees enjoyed their new wealth, but many were counterculture types who chafed at the corporate attitudes and trappings that prevailed: “The thrill of the start-up had turned into the drill of a major corporation,” as author Robert Cringely put it.

    In 1985, Freada Klein (then head of organizational development) did an experiment that confirmed that Lotus had become a place where its founders were misfits. With Kapor’s permission, Klein pulled together the résumés of the first forty Lotus employees. On most resumes, Klein only altered the employees’ names, but she changed Kapor’s more extensively because his past as a transcendental meditation teacher and disk jockey was known throughout Lotus. Klein explained that most of these early employees had skills the growing company needed, but many had done “risky and wacko things” such as being community organizers, being clinical psychologists, living at an ashram, or like Kapor, teaching transcendental meditation. Then Klein did something sneaky. She submitted all forty resumes to the Lotus human resources department. Not one of the forty applicants, including Kapor, was invited for a job interview. The founders had built a world that rejected people like them.

    Kapor stepped down as Lotus’s chairman in 1986 because “it wasn’t my ambition to run a big company. I wanted to do this great product and make a big business out of it. But I didn’t find the positive parts of running this big show to be very gratifying. . . . I like to be left alone to do my own thing. But instead, I was a prisoner of the spreadsheet.” Lotus was eventually bought by IBM for $3.5 billion. Since leaving Lotus, Kapor has spent his time working with small companies and nonprofits, where he feels more at home.

    I love Kapor’s story because it has so many lessons. It shows that the people who develop great ideas are often ill-suited to run, or even build, the big companies or programs required to spread and sell them. And, as one wise venture capitalist often reminds me, some of the best entrepreneurs and innovators dedicate their days to starting and building social worlds that they will abhor living in – and, as Kapor discovered, that will never hire people like them!

     

     

    This is an edited excerpt from Scaling Up Excellence, which Huggy Rao and I wrote. It was first published at LinkedIn last month. I  heard this story from Mitch Kapor and Freada Klein about 15 years ago, and with their permission, published it in my book Weird Ideas That Work. You can learn more about my ideas from my LinkedIn Influencer posts, Work Matters blog, and Tweets. If you want to learn more about our work on scaling, watch this interview or check out this INC story.

  • Why Big Teams Suck: Seven (Plus or Minus Two) Is the Magical Number Once Again

    RM_BOF Meeting_1_0

    I also posted this piece over at LinkedIn this morning.  It offers a simple lesson, but one that is often disregarded, and in turn undermines the team and organizational performance, creates dysfunctional conflict. and weakens social bonds. 

    In 1957, British naval historian and management satirist Northcote Parkinson painted a cynical picture of a typical committee: It starts with four or five members, quickly grows to nine or ten, and, once it balloons to 20 and beyond, meetings become an utter waste of time – and all the important work is done before and after meetings by four or five most influential members.

    As Parkinson would have it, numerous studies now confirm that, when it comes to teams, many hands do not make light work. After devoting nearly 50 years to studying team performance, the late Harvard researcher J. Richard Hackman concluded that four to six members is the team best size for most tasks, that no work team should have more than 10 members, and that performance problems and interpersonal friction increase “exponentially as team size increases.”

    These troubles arise because larger teams place often overwhelming “cognitive load” on individual members. Most of us are able to mesh your efforts with and maintain good personal relationships with, say, three or four teammates. But as a group expands further, each member devotes more time to coordination chores (and less time to actually doing the work), more hand-offs between the growing cast of members are required (creating opportunities for miscommunication and mistakes), and because each member must divide his or her attention among a longer list of colleagues, the team’s social glue weakens (and destructive conflict soars). Following this LinkedIn piece, findings about group size are reminiscent of psychologist George Miller’s famous conclusion that seven was a “magical number” because people could only hold “seven, plus or minus two” numbers in short-term memory. Both Hackman and Miller found that, once people start trying to deal with double digits, the cognitive overload takes a toll.

    These findings help explain why the average restaurant reservation in the United States is for a party of four. Think of the last time you were at a dinner with a group of 10 or 15 people. It is difficult, perhaps downright impossible, to have a coherent and emotionally satisfying conversation that engages each member of the party all at once. Typically, the group breaks into a series of smaller conversations or a few people do all the talking and the others say little or nothing.

    Some organizations learn about the drawbacks of oversized groups the hard way. Retired Marine Captain and former U.S. Senator James H. Webb explained why the “fire team” – the basic combat fighting unit – shrunk from 12 to 4 during War II. Webb wrote in the Marine Corp Gazette that this “12 man mob” was “immensely difficult” for Marine squad leaders to control under the stress and confusion of battle. Coordination problems were rampant and close relationships – where soldiers fight for their buddies – were tougher to maintain in 12-man teams. The U.S, Navy Seals have learned that four is the optimal size for a combat team as well. And, the basic work unit at McKinsey, the consulting firm, is one “engagement manager” and three other members. As Intuit’s CEO Brad Smith puts it, when it comes to teams, “less is often best.” Just like on­line retailing giant Amazon, Intuit insists: “Our development teams can be no larger than the number of people who can be fed by two pizzas,” which helps them “stay nimble and make decisions quickly.”

    This lesson applies to small organizations too. Pulse News, makers of a “news aggrega­tor” app, was started in mid-2010. Communication breakdowns and misunderstandings flared-up after it grew slightly, from three to eight people. Founders Akshay Kothari and Ankit Gupta told us that, after they divided those eight among three teams, people produced better software, did it faster, and argued less. When Pulse expanded to about 12 people (working in four teams, all in the same room), each team maintained a bulletin board that captured their current work to help everyone at Pulse follow what they were doing. Every afternoon at about 3:30, each team also gave a short talk to the company about what they working on and where they needed help. Pulse relied on small teams as it grew to 25 employees and 30 million users; it is now part of LinkedIn, which bought Pulse for 90 million dollars in April, 2013.

    The lesson is that, if you are on a big team that keeps screwing up, where members don’t care much about each other, and are fighting like crazy, try some subtraction or division. A Harvard Business School study by Melissa Valentine and Amy Edmondson of a large hospital’s emergency department demonstrates how powerful such moves can be. The crowd of 30 or so doctors and nurses who staffed the department at any given time were divided into multiple six person “pods,” each led by a senior doctor or “attending physician.” After the change, information about patients flowed more quickly and accurately and personal relationships improved markedly. Smaller teams reduced confusion and discomfort about who to ask for help and updates.

    One nurse said, before the pods, “You had to walk across the ED all timid” and get up bit of courage and say to the doctor “Uh, excuse me?” With the pods, “Now they are in the trenches with us.” It was also easier to discern which “podmates” were responsible for particular chores and deserved credit or blame when things went well or badly.

    Another nurse added:

    “Now there is much more of a sense of ownership of each other. I’ll say, “My pod isn’t running well. Where is my doctor?” And he’ll be accountable to me. And the doctors will say, “Where are my nurses, who do I have today?’” People rarely, if ever, claimed each other in this way before the pods were implemented even if they were working together on many shared cases. A resident would have used more detached language like, “Who is this patient’s nurse?” – ignoring that the nurse had any relationship to him – rather than, “Where are my nurses?”

    The pods also created big efficiency gains. Valentine and Edmondson analyzed data on 160,000 patients served by the Department during the six months before the pods were created and the year after. After the pods, patient throughput time plummeted by about 40%, from about eight hours (8.34) to five hours (5.29) per patient –without increased staffing levels. This drop not only reflects more efficient use of staff; think of the patients’ experience: Five hours at the hospital sucks a lot less than eight.

    The upshot? As my co-author Huggy Rao and I found in our research, scaling is a problem of both more and less. Many hands do not always make for light work, especially when it comes to team size. The first question I ask when a team reports they are locked in dysfunctional conflict, suffering from indifference, making bad decisions, or missing deadlines — or all of the above — is “how big is it?” If the answer is more than then five or six members, especially more than than ten, some savvy subtraction or division can create striking improvements. As Valentine and Edmondson's research shows: Leaders become more effective. Efficiency improves. Interpersonal friction wanes. And strangers become friends.

  • Essentialism; It Will Make You Think and Might Even Make You Less Crazy

    Greg's Cover
    Greg McKeown's publisher sent me an advanced copy of his book Essentialism: The Disciplined Pursuit of Less.  I said I would look at for a possible blurb (I don't do advanced praise for a lot of books, in part, because I now insist on reading the whole thing before I do — and it takes time).  I was ready to NOT be impressed, as there are frankly lots of books out there about the power of simplicity.  But Greg goes beyond what I have seen from any other book with a similar message (although I am a big fan of Matt May's The Laws of Subtraction as well, but that is a different book as it has many short essays, but still has a unified writing and great writing and editing — in fact Matt's book and Greg's would be a good pair to read together).  

    Through Greg's great message, his lovely spare writing style, and by gently leading the reader through his philosophy he shows you what it "disciplined" approach means, looks like, and how to "be it" not just know how to define it  (I loved "the perks of being unavailable," "win big by cutting your losses," and " "select: the power of extreme criteria" in particular).

     

    I was especially interested once I got into the book because one of the major themes of Scaling Up Excellence is that, as although much research shows that we we human beings get dumber, loss will powers, and do each task less well as cognitive load increases, the necessary practices, structures, and rituals that organizations use often make it difficult or impossible for people to perform well (especially as organizations and programs expand).  We do touch on some simlar themes to Greg (we are both big advocates of sleep and taking  breaks!), but we focus more on approaches for redesigning jobs, teams, and organizations, and our focus zeros in on scaling.  

    Essentialism is a quick and efficient read, as you would expect given the title, but you learn a lot, and there is something about the book that led me to believe that, despite my general inability to use the word "no" more often than I should for my own good, that this book will help.  Although I couldn't quite resist reading the book, doing the blurb, and writing this little post! 

    My blurb:

    “Essentialism is a powerful antidote to the current craziness that plagues our organizations and our lives.  Read Greg McKeown’s words slowly, stop and think about how to apply them to your life – you will do less, do it better, and begin to feel the insanity start to slip away.” 

  • Huggy Rao, Scaling, and Me: An Excellent, Exacting, and Eccentric Adventure

    CG_RS_4416W1_lowres

    During the seven years that Huggy Rao and I worked on Scaling Up Excellence, we got involved in some pretty unusual situations – at least for two rather staid old professors. We did everything from working with a company that was trying to improve the (terrible) customer experience in their chain of budget gas stations (I guess things were supposed to get better through magic, as they rejected any suggestion that took time or money) to the incredibly time-consuming but strangely satisfying process we went through to get a book cover design that we liked (that is fodder for another post – we went through many, many prototypes).

    The sequence produced in the above picture was among the most amusing and (I confess) mot diagnostic of how difficult and picky I can be to work with AND how gracious, patient, and curious Huggy was and remains. My compulsiveness is, I think, often helpful when writing a book, as the process requires numerous iterations and constant editing. One of my favorite lines about writing comes from Aldous Huxley: "All my thoughts are second thoughts." That is me.  Or, more precisely, all my thoughts are third, fourth, and fifth thoughts. I revise text so much that this compulsion led to some admittedly absurd situations. I don’t think that Huggy fully understood why he had to call me from Iceland to spend 30 minutes talking about two sentences in the draft that I didn't like, but he did so with good humor and as usual made inspired suggestions.

    To return to the pictures, we already had plenty of photos of the two of us, but given how I am about pretty much everything, I insisted that we not settle for something easy or second rate or boring, that we do something interesting for the jacket photo. I immediately thought ofClaudia Goetzelmann, who, some seven years earlier, when I first started my blog Work Matters, took that weird and wonderful picture of me next to that “thinker” statue at The New Guinea Sculpture Garden at Stanford that has been at the top of this blog since the I first started (thanks to Diego Rodriguez of Metacool fame.) That crazy first above was all Claudia’s idea. Once she saw that statue, something went off in her brain and she took picture after picture of me in various odd poses with that statue.

    This time, Claudia asked if, before she took the pictures, if she could scout out nearby locations. We wrongly assumed the location would actually be on the Stanford campus and would be be something rather traditional and academic – standing in front of books, teaching a room full of students, or perhaps a shot of us in serious scholarly conversation. That is not quite how Claudia’s mind works. She decided, after driving around for several hours, that the best light in the afternoon was next to the Dumbarton Bridge that connects the lower San Francisco Peninsula to the East Bay – a pretty weird location, we thought, as it was a good 20 minutes from Stanford – there were no academic trappings, just a grassy sandy marsh, the bay, and a big bridge packed with noisy smelly traffic. (Indeed, see Diego's latest post. Claudia is a spoon bender of the best kind). 

    Claudia also wrote and asked if she could spend 30 bucks on two picture frames as she thought that they would make for an interesting picture. I thought she was nuts, The idea of jamming our heads together in a frame did not seem becoming of two serious scholars like us, but I did not want to interfere with the creative process. When we saw them, we started laughing. Then we really started giggling when we saw that Claudia had hired a make-up artist to “touch you up.” It didn’t seem to us as if make-up would help us look any younger or prettier. But we remembered Richard Nixon shiny head and sweaty lip fiasco after he refused make-up when he debated John Kennedy on TV in the 1960s, so we both agreed to accept a bit of powder and lip goo of some kind.

    Claudia was so energetic and encouraging that the experience was really fun. I think we had been laughing nonstop for an hour by the time she took the above picture – her favorite after taking perhaps 1000 pictures of us in various poses (at least 100 with us actually standing up against the bridge wall). When we arrived, we were in coats and ties – Claudia humored us and took some pictures, but soon had us remove them because they made us look too boring.

    As a result of Claudia’s imagination, skill, and infectious enthusiasm, the book jacket will have a picture we love. I doubt it will help sell any books. It might even drive people away who decide that two guys in a crooked picture frame (and who look like they are about to dissolve into laughter) couldn't possibly write a rigorous and relevant book on scaling or any other business topic. But, for us, the picture feels right because it symbolizes so much about the seven year “adventure” that led to Scaling Up Excellence. We both were willing to try something weird that made us a bit uncomfortable, I pushed for a compulsive, time consuming, and arguably unnecessary solution that required trying a lot of ideas and throwing most away, Huggy was patient and bemused throughout (even when most sane people would tell me to bug off), and we had good fun.

    So that is how we ended up with that crazy picture. We hope you like it.

    Note: This first appeared on LinkedIN in one of my "Influencer" columns.  I edited it slightly. 

  • Scaling Up Excellence: The Problem of More

    This is reprinted from the Harvard Business Review site. A big thanks to Julia Kirby for the wonderful editing.

    Start talking about the challenge of “scaling” with people, and you’ll find the term gets used to mean a lot of different things. For example, when entrepreneurs talk about it, they are usually struggling with matters of organization. Take Citrus Lane CEO Mauria Finley, whose company was experiencing some growing pains, appropriately enough; the startup sends monthly packages of great baby products to moms. After raising $5.1 million in capital in 2012, it grew from 6 to 20 employees.

    Back in 2011, in Citrus Lane’s first six months, its small founding team worked in a house and ate lunch together every day around a big table. Any problem or opportunity that arose was dealt with right then and there, lest misunderstandings fester or business prospects slip away. Growing to 20 people working in a more traditional office setting did not strike anyone as extreme change, yet the team found it had to work a lot harder to unearth problems and opportunities. Even more tricky, they had to learn to articulate something that had been tacit: a shared understanding of goals, culture, and what it takes to succeed at Citrus Lane. Today, they constantly remind each other to spend time with newcomers and, as Finley emphasized, not just tell them these things when they are hired or remind them a few times. The scaled-up organization needs to hear about what matters most at Citrus Lane over and over, to live these beliefs every day, and to observe her and other leaders living them, as well. Deliberate effort is required because “it isn’t something that just happens naturally at lunch every day any longer. We are too big now.”

    A growing employee base represents one type of scaling challenge. Since my Stanford colleague Huggy Rao and I decided several years ago to study scaling (it’s the topic of our forthcoming book Scaling Up Excellence), we have heard about many others – so many that we thought, early on, that we might need to put a finer point on which form we hoped to shed light on.

    For example, when leaders of much larger organizations talk about scaling, they’re often talking about something more akin to replication. In a 2001 interview with HBR, UPS’s then CEO Jim Kelly described the growth of the company: “For decades, we’ve been able to grow tremendously simply by expanding our core business geographically. Really, UPS’s first 75 years was spent expanding across the United States: first to 13 states, then to nine additional states, and so forth. We just took our core delivery business and applied for rights in different states.” Today that kind of marketplace scaling often means a more complicated process of global expansion– such as IKEA’s opening stores in China, or Home Depot’s failed efforts to do so.

    And then there are the organizational leaders who use the term scaling to describe their desire to find pockets of excellence in behaviors and beliefs in the organization and spread them further – a different challenge than adding new people and locations. We studied how Wyeth, the large Pharmaceutical firm (now part of Pfizer) made dramatic improvements in cost and quality across its manufacturing operation. It first created pockets of excellence in a few small teams in each of eight plants (calling them “mini-transformations”) and then relied on mentoring and coaching to spread the superior practices throughout each plant, from one team to the next.

    Still another variation on scaling is when better practices are transferred across networks of organizations. Between 2004 and 2006, for example, a Boston-based nonprofit called the Institute for Health Improvement led an effort called the “100,000 Lives Campaign” to raise awareness in U.S. hospitals of the importance of some simple practices (e.g., more frequent and thorough hand-washing) in reducing infection rates. Ultimately, some 3200 hospitals comprising over 70% of U.S. beds participated in the Campaign. There is compelling evidence (including analysis done by members of a Stanford doctoral seminar that Huggy Rao ran about five years ago) that the number of preventable deaths in U.S dropped by about 120,000 during this period. (Other factors probably contributed to that decrease, but the Campaign clearly played a large role.)

    In each of these situations, “scaling” refers to something different. But as we dug deeper into these and other cases, academic studies, and stories, we realized what they shared. Scaling challenges nearly always come down to the same problem: the difficulty of spreading something good from those who have it to those that don’t – or at least don’t yet. It is always, in other words, the problem of more.

    Finley and her team face the problem of more – and the success of her growing organization depends on solving it. The need for more of what was working well also challenged Wyeth, IKEA, and the Institute for Health Improvement. Have their successful efforts come from the same mold in terms of what they are spreading and by what method? No – and yet, we are finding a great deal of commonality in the obstacles that arise and the decisions that must be made. We’ve discovered guiding principles that turn out to apply as other leaders and teams go about building and uncovering pockets of exemplary performance, and spreading those splendid deeds.

    Sometimes the way to learn more about a subject is to focus in more tightly and become more precise in one’s use of language. But sometimes the challenge itself is big enough – like the basic problem of spreading something good to more people and places without screwing up – that it doesn’t help to narrow its definition. Sometimes, even with the use of a word, it’s better to scale it up

  • James G. March: Organizations aren’t Rigid, They are Impressively Imaginative

    Stanford's James G. March is arguably the most prestigious living organizational theorist.  We are reading his 1981 classic paper "Footnotes to Organizational Change" for my scaling up excellence doctoral class. There is one paragraph in this paper that is especially inspired, in the beautiful style of his, March is explaining (among other things) that what many people (including senior management) see as resistance and rigidity is actually proof of great flexibility and innovation — but the resulting changes are often what any one group actors don't want or expect: 

    What most reports on implementation indicate, however, is not that organizations are rigid and inflexible, but that they are impressively imaginative (Pressman and Wildavsky, 1973; Bardach, 1977). Organizations change in response to their
    environments, but they rarely change in a way that fulfills the intentions of a
    particular group of actors (Attewell and Gerstein,1979; Crozier, 1979). Sometimes
    organizations ignore clear instructions; sometimes they pursue them more
    forcefully than was intended; sometimes they protect policymakers from folly;
    sometimes they do not. The ability to frustrate arbitrary intention, however,
    should not be confused with rigidity; nor should flexibility be confused with
    organizational effectiveness…There is considerable stability in organizations,
    but the changes we observe are substantial enough to suggest that organizations
    are remarkably adaptive, enduring institutions, responding to volatile
    environments routinely and easily, though not always optimally.

    There is so much wisdom — and also so much underlying evidence packed into this statement — that I am going to devote a long time to discussing it with my students later today!  My favorite line is "sometimes they pursue them more forcefully then intended." I once studied a large convenience store chain that spent millions of dollars trying to increase courtesy after the CEO had a temper tantrum about bad service her received in a store — he was pretty shocked when he learned how strongly the company responded, as they rolled out a far larger a program than he expected, wanted, or believed would be useful!

    I've always been interested in situations like this where small signals from powerful people result in much stronger reactions than they intend — the opposite of resistance to change, if you will.   And in this case it led them to scale up a program that was much bigger, expensive, and time-consuming than he ever intended. 

  • Back at HBR, the Joys of Writing, and Continuing the Scaling Conversation

    Earlier in the week, I did my first post at HBR.org in over 2.5 years — my last was in January 2011. I was pretty shocked that it had been so long — my last post was about a story I heard at Pixar on how Ed Catmull and Alvy Ray Smith (Pixar's founders) served as "human shields." In the 1980s, they were under pressure from their (then superiors) at Lucasfilm to do a large layoff in the division that eventually was sold to Steve Jobs and became Pixar. Ed and Alvy did somthing remarkable to protect their people –something that people at Pixar still talk about to this day.

    As the song goes, ain't it funny how time slips away.  But the last few years have required intense focus from Huggy Rao and me to finish Scaling Up Excellence, as we both gave everything we had to the book — it isn't up to us to judge the quality, but I can tell you that I worked longer and harder on this effort than any work project in my life. The last year or so, when people asked me what I was doing, I half-joked "I am trying to type my way out of solitary confinement in my garage."

    To be clear, although I am delighted to have the book finally done, and both Huggy and I sometimes felt pressure to make progress and were troubled when we hit dead ends, part of me is sorry the writing is over. Huggy is a delight to work with (his speed of idea generation is astounding) and, well, the fact is that I am probably happiest when I am alone in a quiet room writing.  So the book gave me a glorious excuse to indulge in something I love. Now, I will turn that love to writing short pieces about scaling and other management and realted behavioral science topics — here and elsewhere. And Huggy is getting cranked up to do so as well — he is a remarkably creative guy, one of the most productive, thoughtful, and prestigious organizational researchers on the planet.

    I will reprint the HBR post here in a week or so — they let me do that after it has been the site for awhile.  The new is called "Scaling:The Problem of More." Julia Kirby, a senior editor at HBR (and a skilled management theorist — see Standing on the Sun) helped me craft a compact summary of how and why we ended-up with such a broad take on the concept of scaling and what it takes to do it well. Here is the key sentence:

    "Scaling challenges nearly always come down to the same problem: the
    difficulty of spreading something good from those who have it to those
    that don’t – or at least don’t yet. It is always, in other words, the problem of more."

    It sounds so simple when I re-read those words. But Huggy and I spent seven years wrestling with this challenge — and we aren't done yet!  It would be arrogant — and also not very useful — to claim that we've got all the answers just because the book is done.  As I will discuss in future posts, the book evolved from a process where Huggy and I believed that we would spend a few years gathering evidence, stories, and scaling techniques and then one day unveil the fully formed "truth"  in the book to a more social process.  Our writing was punctuated by interactions where we described parts of what we had learned to people who were knee-deep in scaling, had been in the past, or had other kinds of expertise related to scaling (especially our academic colleagues). Then we would listen to their reactions, stories, evidence, and advice — and update our perspective little by little. 

    Finishing the book is a milestone in this process, but as Huggy likes to say, "the adventure continues."  So please give us your reactions, tell us your scaling stories, and ask us hard questions. As you will see here and elsewhere, we are continuing to collect new studies, stories, and lessons about what it takes to scale up without screwing up.

  • Rare Wisdom from Citrix CEO Mark Templeton about Hiearchy and Respect

    I confess that as an avid reader of The New York Times, I have been disappointed in recent years because they devote too much space to interviews with CEOs and other bosses. Notably, it seems to me that they run the same column twice every Sunday: Adam Bryant's "The Corner Office" and another interview column called "The Boss."  I do love many of these interviews anyway, as The Times gets interesting people and their editing makes things better.  And I am a big fan of Adam Bryant's book, The Corner Office, as it did a great job of transcending the column.   What bugs me, however, is that The Times devotes so much of the paper to interviews now, I suspect, because it is simply cheaper than producing hard-hitting investigative journalism.  They do an occasional amazing in-depth story, but there is too much fluff and not enough tough for my tastes.  

    That said, some of the interviews are still striking.  One of the best I have ever read appeared a couple years back, with Citrix CEO Mark Templeton. The whole interview is unusually thoughtful and reminds me that people who don't see themselves as CEOs and don't lust after the position often turn out to be the best candidate for the job (related point: see this study that shows groups tend to pick people with big mouths to lead but that less pushy and extroverted leaders tend to lead more effective teams — at least when the teams were composed of proactive members).   In particular, however, I was taken with this quote from Templeton:

    You have to make sure you never confuse the hierarchy that you need for managing complexity with the respect that people deserve. Because that’s where a lot of organizations go off track, confusing respect and hierarchy, and thinking that low on hierarchy means low respect; high on the hierarchy means high respect. So hierarchy is a necessary evil of managing complexity, but it in no way has anything to do with respect that is owed an individual.

    If you say that to everyone over and over and over, it allows people in the company to send me an e-mail no matter what their title might be or to come up to me at any time and point out something — a great idea or a great problem or to seek advice or whatever.

    There is so much wisdom here, including:

    1. While there are researchers and other idealists running around and urging companies to rip down their hierarchies and to give everyone equal power and decision rights, and this notion that we are all equal in every way may sound like a lovely thought, the fact is that people prefer and need pecking orders and other trappings of constraint such as rules and procedures. As Templeton points out so wisely, organizations need hierarchies to deal with complexity.  Yes, some hierarchies are better than others — some are too flat, some have to many layers, some have bad communication flows, and organizational designers should err on making them as "light" and "simple" as possible — but as he says, they are a necessary evil.

    2.  His second point really hits home and is something that all too many leaders — infected with power poisoning — seem to forget as they sit at the top of the local pecking order "thinking that low on hierarchy means low respect; high on the hierarchy means high respect."  When leaders believe and especially act on this belief, all sorts of good things happen, including your best people stay (even if you can't pay them as much as competitors), they feel obligated to return the respect by giving their all to the organization (and feel obligated to press their colleagues to do as well), and a norm of treating people with dignity and respect emerges and is sustained.  Plus, as Templeton points out, because fear is low and respect is high, people at the top tend to get more truth — and less CYA and ass-kissing behavior.

    No organization is perfect.  But a note for all the bosses out there.  If you read Templeton's quote a few times and think about what it means for running your organization, it can help you take a big step toward excellence in terms of both the performance and well-being among the people you lead.

  • Too Big to Fail, Economies of Scale, Cities, and Companies

    I've been reading research on organizational size and performance as it is pertinent to the book that Huggy Rao and I are writing on scaling-up excellence.  In doing so, I also have been following the debate about banks and whether the assertion that both a cause of the meltdown and a risk for future fiascoes is that banks are "too big to fail."   Of course, the debate is hard to sift through because there is so much ideology and so many perverse incentives (example: the bigger the bank, the more the CEO, top team, and board will — in general — be compensated). 

    Although bankers have been generally silent on this, some have started speaking-up since former Citigroup CEO Sandy Weil — the creator of that huge bank (which lives on courtesy of the U.S. taxpayers) — joined the chorus and argued that big banks ought to be broken-up.   Simon Johnson — an MIT professor — had an interesting editorial in the New York Times yesterday where he reviews some of the recent arguments by bankers and lobbying groups that very big banks are still a good idea — and refutes their arguments (and points out that both Democrats and more recently Republicans are starting to challenge the wisdom of mega-banks). 

    I especially want to focus on the "economies of scale argument," that there are more efficiencies and other advantages enjoyed by larger systems in comparison to smaller ones. This appears to be the crux of an editorial in defense of large banks published in the NYT on August 22nd by former banking executive William B. Harrison Jr.   I was struck by one of Johnson's retorts:

    As I made clear in a point-by-point rebuttal
    of Mr. Harrison’s Op-Ed commentary, his defense of the big banks is not
    based on any evidence. He primarily makes assertions about economies of
    scale in banking, but no one can find such efficiency enhancements for
    banks with more than $100 billion in total assets – and our largest
    banks have balance sheets, properly measured, that approach $4 trillion.

    Although I am interested in — and an advocate — of the power of growing bigger and better organizations at times, doing so is only justifiable in my view if excellence can at least be sustained and preferably enhanced, and the side-effects and risks to do not overwhelm the benefits.  Unfortunately, the optimism among the bigger is better crowd often outruns the facts.  For starters, I would love to see sound evidence that really really big organizations enjoy economies of scale and other performance advantages — Wal-Mart might be such a case, they certainly have market power, the ability to bring down prices, and brand recognition  — but I can't find much systematic evidence for economies of scale across really big organizations.  If Mr. Harrison is correct, for example, there isn't any evidence of increased efficiencies for banks over 100 billion in assets.

    This debate reminds me of some fascinating research on the differences between cities and companies. Luis Bettencourt and Geoffery West of the Santa Fe Institute present fascinating evidence that larger cities are more efficient and effective than smaller ones.  As they conclude in this article in Nature:

    Three main characteristics vary systematically with population. One, the space required per capita shrinks, thanks to denser settlement and a more intense use of infrastructure. Two, the pace of all socioeconomic activity accelerates, leading to higher productivity. And three, economic and social activities diversify and become more interdependent, resulting in new forms of economic specialization and cultural expression. We have recently shown that these general trends can be expressed as simple mathematical ‘laws’. For example, doubling the population of any city requires only about an 85% increase in infrastructure, whether that be total road surface, length of electrical cables, water pipes or number of petrol stations.

    OK, so it seems that economies of scale do exist for at least one kind of social system, cities.  Does this provide hope for those bankers?  Apparently not. Check out West's Ted Talk on "The Surprising Math Cities and Corporations."  He concludes several interesting things about scaling. First, the bigger the biological system, the more efficient it becomes. Second, following the above quote and the logic that follows from organisms, cities become more efficient (and creative and financially successful too) as they become larger.  Third, that cities rarely die, but organizations almost always do (he claims always).  Fourth, he shows that companies do scale — in fact he talks about Wal-Mart, shows their economies of scale,  and describes his dataset of 23,000 companies. But the twist is that as companies become larger and older they become weighted down with bureaucracy and — unlike cities — the resulting internal friction both outweighs the benefits of economies of scale and renders them unable to to pull-off the radical innovations required to stay alive. 

    Here is this conclusion in more detail, from an article in The New York Times:

    This raises the obvious question: Why are corporations so fleeting?
    After buying data on more than 23,000 publicly traded companies,
    Bettencourt and West discovered that corporate productivity, unlike
    urban productivity, was entirely sublinear. As the number of employees
    grows, the amount of profit per employee shrinks. West gets giddy when
    he shows me the linear regression charts. “Look at this bloody plot,” he
    says. “It’s ridiculous how well the points line up.” The graph reflects
    the bleak reality of corporate growth, in which efficiencies of scale
    are almost always outweighed by the burdens of bureaucracy. “When a
    company starts out, it’s all about the new idea,” West says. “And then,
    if the company gets lucky, the idea takes off. Everybody is happy and
    rich. But then management starts worrying about the bottom line, and so
    all these people are hired to keep track of the paper clips. This is the
    beginning of the end.”

    The danger, West says, is that the inevitable decline in profit per
    employee makes large companies increasingly vulnerable to market
    volatility. Since the company now has to support an expensive staff —
    overhead costs increase with size — even a minor disturbance can lead to
    significant losses. As West puts it, “Companies are killed by their
    need to keep on getting bigger.”

    There are still advantages to size despite these rather discouraging data: market power, legitimacy, the ability to do complex things that require multiple disciplines, and brand recognition come to mind.   And there are studies by economists that show economies of scale help under some conditions.  Some organizations are also better than others at limiting the burdens of bureaucracy as they grow– Wal-Mart is one of them. 

    As a practical matter, when I think of Bettencourt and West's data and combine it with Ben Horowitz's amazing post on scaling, it appears his advice to "give ground grudgingly," to add as little structure and process as you can get away with given your organization's size and complexity, is even more sound than I originally thought.

    As with many researchers, West has a healthy ego and states his findings with more certainty than is probably warranted.  But these are — unlike the bankers — evidence-based statements, and when I combine them with what Huggy and I are learning about how hard scaling is to do well (there are big differences between companies that do it well versus badly), the lack of evidence for economies of scale in really big banks, and a system where the primary defenders of really big banks have strong incentives and weak evidence to support their positions, I am hoping that in a political season where my country seems hopelessly split on so many issues, perhaps this is one where both sides can come together and hold an evidence-based position.

  • Malicious Compliance

    I appreciate the interesting comments and suggestions in response to my last post on different levels of felt accountability.  Readers may recall that I proposed — from best to worst – that a team or organization can be characterized as having people who feel everything from authorship. mutual obligation, indifference, and mutual contempt.  I have especially been thinking about this comment from Justdriven, which builds on a prior comments by AnnieL:

    "Regarding
    your first question, I think AnneL may have identified a fifth category
    between mutual obligation and indifference which would be fear driven
    box checking. This would be the case where individuals follow procedures
    out of a fear of retribution rather than an endorsement of said
    procedures. This would seem to be what the pilot experienced. This stage
    would be a slippery slope that takes you from mutual obligation to
    indifference and then contempt."

    I am taken with "fear driven box-checking" as it seems to be both a symptom and a cause, where people who feel powerless have no ability — and thus no obligation — to help make things go well because the system makes it impossible regardless of how good their intentions might be.  This comment also got me thinking about how, in some systems, people can zoom past indifference and move to mutual contempt by following the rules exactly as a way to fight back against a bad system or boss — especially when there are bad standing rules or orders for a given challenge.   "Working to rule" is a classic labor slow down tactic, and there is some sweet revenge and irony when you get back at company or person  that you don't like by following their instructions to the letter. 

    More broadly, I have been interested in the notion of "malicious compliance" for a long time.  In Chapter 6 of Good Boss, Bad Boss I wrote about how it is sometimes used to get back at a bad or incompetent boss, or in the example below, by bosses to shield their people from a lousy boss up the chain of command:

    I know bosses who employ the opposite strategy to undermine and drive out incompetent superiors. One called it “malicious compliance,” following idiotic orders from on high exactly to the letter, thereby assuring the work would suck. This is a risky strategy, of course, but I once had a detailed conversation with a manager at an electronics firm whose team built an ugly and cumbersome product prototype. After it was savaged by the CEO, the manager carefully explained (and documented) that his team had done exactly as the VP of Engineering ordered, and although he voiced early and adamant objections to the VP, he gave up because “it was like talking to a brick wall.”
    So this manager and his team decided ‘Let’s give him exactly what he wants, so we just said “yes sir” and followed his lousy orders precisely.’ The VP of engineering lost his job as a result. Again, this is a dangerous and destructive strategy, and I would advise any boss to only use it as a last resort.

    I would be curious to hear of other examples of malicious compliance — and if you have any ideas of how to create conditions so it won't happen. Its is one of this sick but fascinating elements of organizational life.