Work Matters

Tag: Scaling

  • 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.

  • Charter Schools, California and New York City: $6000 vs. $13,500 Per Pupil

    Huggy Rao and I have been reading and talking about charter schools for our scaling-up excellence project.  Charter schools come in many forms, but the basic idea is that these often smaller and more focused schools are freed from many of the usual rules and constraints that other public schools face, and in exchange,  are held more accountable for student achievement – on measures like standardized test scores, graduation rates, and the percentage of students who go onto college.  

    There is much controversy and debate about these public schools:  Are they generally superior or inferior to other forms of public education?  Are they cheaper or more expensive?  Can the best ones be scaled-up without screwing-up the original excellence?  Which charter school models are best and worst? 

    There is so much ideology and self-interest running through such debates that, despite some decent research, it is hard to answer such questions objectively.  But one lesson is unfortunately becoming clear enough that there is growing agreement — that my home state of California is so poor that it is a lousy place to start a Charter school of any kind.  I first heard this a few weeks about from Anthony Bryk, a renowned educational researcher and the current President of the Carnegie Foundation for the Advancement of Teaching.  He was also directly involved in starting and running one (or perhaps more — I don't recall for sure) charter schools when he lived in Chicago. 

    Tony told me that California was providing such meager funding that — although much of the charter school movement started here, there are many charter schools here, and many of the organizations that start and run these schools (called "charter management organizations") are  here — the funding that California schools receive is so meager that they are increasingly hesitant to start schools in California because the schools are condemned to mediocrity or worse.

    I started digging into it, and what I am finding is distressing as both a Californian and an American.  I knew that our schools were suffering, but I did not realize how much.  For a glimpse, here is an interesting and detailed article on scaling-up charter schools in Education Week from last year.  As Tony warned me, the charter operators described in this article are struggling to sustain quality in California and are looking elsewhere. Here is an interesting excerpt:

    Aspire, in Oakland, has also focused so far only on California. It opened its first charter school in Stockton, Calif., in the 1999-2000 school year and has grown by several schools each year. The CMO operates 30 schools and has nearly doubled its enrollment, to 12,000, over the past three school years. James Willcox, the chief executive officer of Aspire, said the difficult budget climate in California is causing him and other Aspire leaders to think about opening schools outside the state. “It’s getting harder and harder to do quality schools in California,” he said, “because the funding is so painfully low, and charter schools get less per student than traditional public schools.”

    He isn't exaggerating. I was shocked to see, for example, that (according to the article) the State of California is currently providing less than $6000 per pupil each year; in contrast, New York City provides $13,500.  Ouch.   I know that government wastes lots of money, and certainly there are inefficiencies in education.  But can we afford to do this our kids and our future?  As Tony suggested, California has degenerated to the point where all they can do is support a teacher for every 30 kids or so, a tired old classroom and school, and little else.

    I knew it was bad, but I didn't know it was this bad.  There is plenty of blame to go around — we all have our own pet targets — but perhaps it is time to put our differences aside and do the right things.

  • Greetings and Bathrooms: One CEO’s Metrics for Retail Stores

    Yesterday, we had the CEO of a large retail chain as a visitor in the Stanford class we Huggy Rao and I are teaching on scaling-up excellence.  I will refrain from using his name as this a class, not a speech to the public.  But he said something  interesting in response to a question about the challenge of "descaling bad behavior."  When I asked what the "warning signs" he looked for during store visits, signs that management was slipping, he offered two metrics (which he said could be applied to many others retail settings too):

    1.   Am I — and other customers — warmly greeted by employees when they enter the store?  He said this was a general sign that employees were focusing on customers.  He added that the small social connection and associated feeling of obligation makes it a bit harder for people to walk out of the store without buying anything. 

    2. Are the bathrooms clean?  He joked that people in his company must think he has a small bladder because he is always asking to go the bathroom.  He argued that dirty bathroom are a sign that the managers and employees are failing to execute in other ways, and because customers react so negatively to dirty bathrooms, it was especially bad for motivating sales and return visits.

    He said that, when he spots these signs, he immediately has a huddle with the store manager and employees to explain why they are of such concern to him and to persuade them to start changing their behavior right away.  He also emphasized that his firm uses all kinds of quantitative measures to run the stores, but as he pointed out, these simple measures add something that can't be seen just from looking at the numbers.

    Ireally liked the elegance of his two measures and how he tied them to his immediate actions.

    I wonder, what other simple measures do you use — as a customer or manager — to assess if a store is being ran well or badly?

    P.S. I was sitting next to a marketing professor from another university during the talk. He argued that if you look at Wal-Mart's recent financial challenges (which the press seems to attribute to such deep cuts in the merchandise prices), part of the problem may be that they are failing along the lines suggested by this veteran CEO.  As he noted, Wal-Mart is eliminating some greeters and moving others away from the entrance; an article in RetailWire comments on reduced and altered use of greeters: "A lot of changes have taken place at Walmart over the years since Sam Walton's passing, but the latest may have him flipping over in his grave. "  That marketing professor also asserted the cleanliness of Wal-Mart bathrooms have slipped in recent years (This is hearsay as I am not a regular Wal-Mart customer; I did try to look online for evidence to support the claim, and while there were individual complaints, I didn't see any systematic evidence one way or another).

  • Standing on the Sun: Chris Meyer’s and Julia’s Kirby’s Imaginative Masterpiece

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    About a decade ago, I was talking with Jeff Pfeffer as he raved about Competing for the Future, the 1996 strategy classic written by Gary Hamel and the late C.K. Prahalad.  Jeff drives me crazy sometimes — he  is never wishy-washy anything. But I always listen closely to him because, after all, he is one of the most productive organizational researchers on the planet and one of the three or four most influential organizational theorists of all time.  Jeff argued that the book was so important because it not only contained new and emotionally compelling ideas — some backed by strong data, others that were important to test with good data in the future — it contained more intriguing ideas per page than any popular and well-written business book he had ever read.

    Well, there is a new book that qualifies for the same praise: Standing on the Sun: How the Explosion of Capitalism Will Change Business Everywhere.  The ideas here come rapidly but it is so well-written that you don't realize how thoroughly and intensely you are learning new things and the rate at which your assumptions are being challenged.  I am biased, but I credit Julia Kirby for this rare magic. Chris is a smart guy, but he has never edited me so perhaps I am not giving him enough credit. Julia — an "Editor at Large" at HBR –  is the best and smartest business writer I have ever worked with.  There are a lot of good editors out there who make your prose and flow better, but Julia is the only one I know who not only makes your ideas better, she relentlessly adds new ones and challenges you with logic and data when she thinks you are wrong or your logic is sloppy. 

    Chapter 5 on "Pseudocompetition," for example, unmasks and brings down much of the current hype about size, scale, and competition.  At one point, we hear about a Harvard Business Review author who claimed that "industries were in flux, with many becoming more disaggregated and competitive as many others become more concentrated."  Well, Julia checked the facts, and as the book says "No dice." This guy was largely wrong, something called the Hirschmann-Herfindahl indexes (the gold standard for measuring market power) showed that — except for a couple "small potatoes" industries — every other industry is becoming more concentrated.

    To get out of the weeds, this is the most complete and creative book I know on how the world economy is changing and what it means for the strategies and tactics that leaders all over the world need to implement.   Reading the book is a compelling journey, as Meyer and Kirby first explain the key features of the new capitalism that is emerging around the world and then provide advice for businesses and leaders in this new world.

    I found the "operating principles" developed in Chapter 9 to be especially especially interesting . These include:

    Rule One: Learn to See Results in Color

    Old formulation: Measure financial returns to shareholders.

    New formulation: Measure the real value sought by stakeholders.

    Rule Two: Internalize Externalities

    Old formulation: Externalize every cost you can.

    New formulation: Own your impact, negative and positive.

    Rule Four: Give it Away Until You Charge for It

    Old formulation: Focus on your particular value-adding capability and outsource all the rest (except where transaction costs are prohibitive).

    New formulation: Pursue collaborative gains through invisible handshakes.

    The surrounding discussion around these and the other operating rules are wonderful, and each helped me think of the capitalist world we now live in through a new perspective.  Indeed, Rule Four challenges some of the ideas — or at least translations –  about "core competence" that emerged from Competing for the Future.  And I find Rule Two quite interesting in light of what Apple is learning about the responsibility it needs to take for the alleged mistreatment of employees at supplier Foxconn where wages just went up 25% as well as the environmental impact of suppliers who build their products — in fact, they just announced environmental audits.   These recent moves by Apple suggest they are stepping up to "own" both their positive and negative impact — and as Chris and Julia suggest, they aren't doing this out of the goodness of their hearts, they are doing it because it is necessary for protecting Apple's reputation and legitimacy.

    Standing on the Sun is not a quick and mindless read.  But if you want an unusually well-written book that is chock-full of new insights about the capitalist world we now live in and about what leaders and businesses can do to survive and thrive in these deeply weird and disconcerting times, this is the book for you.

  • Eliminating the Negative at the Atlanta Schools

    Today's New York Times has a compelling story about the steps new superintendent Erroll B. Davis Jr is taking to clean-up the Atlanta schools, which were tainted by test score scandals — with teachers and principals cheating in almost half the schools-– that was apparently fueled by pressure and fear created by the previous (and now disgraced) superintendent Beverly L. Hall.  As the Times explains:

    "For years, Beverly L. Hall, the former school superintendent here, ruled by fear. Principals were told that if state test scores did not go up enough, they would be fired — and 90 percent of them were removed in the decade of Dr. Hall’s reign.Underlings were humiliated during rallies at the Georgia Dome. Dr. Hall permitted principals with the highest test scores to sit up front near her, while sticking those with the lowest scores off to the side, in the bleachers."

    The interesting thing about the story to me is that Davis is behaving in ways that follow directly from one of my favorite academic articles, Bad is Stronger than Good.  He is working to eliminate the negative at every turn, immediately firing a teacher who allegedly supplied test scores students (he says he might get sued, but doesn't care), removing tainted senior administrators at a high rate, and during one of his many visits to schools he observed a toilet was clogged and made sure it was fixed before he left. He has also eliminated practices that Hall used that conveyed her superiority, isolation, and mistrust — she did things like insisting that all questions be submitted in writing when she spoke in public so they could be screened.

    Rather than her "Queen of the Ivory Tower" management style, Davis is out and about in the schools and the community eliminating the negative when he sees it, and as the psychologists who wrote "Bad is Stronger Than Good" advised,spreading around positive words and deeds at such a rapid pace that the negative is overwhelmed.

    Most notably, rather than hiding in his ivory tower, he is visiting school after school and thanking everyone he sees for their good work.  And rather than treating teachers as objects of scorn, blame, and mistrust, he says things to principals like “Education is the only industry in this country where failure is blamed on the workers, not the leadership.”

    Finally, Davis has made an interesting symbolic change to send the signal that helping kids, not jacking-up tests scores through any means possible, is what matters most.  The Times reports:

    "When Dr. Hall was the superintendent, she covered one wall in her office with bar graphs showing the test results for all 100 city schools. After Mr. Davis became superintendent, he took the test scores down and replaced them with large color photographs of Atlanta schoolchildren."

    As I noted here recently, my colleague Huggy Rao and I are working on book scaling-up excellence , and teach a related class at Stanford. One of the hallmarks of leaders who scale excellence is that they "make way" for it by removing bad behaviors and emotions that interfere with and turn attention and effort away from doing good things.  The methods that Erroll B. Davis Jr is using to turn around the Atlanta school system don't just provide lessons for other educational leaders, they demonstrate a mindset and actions that leaders of almost any group or organization can use to eliminate the negative — especially to drive-out fear. 

  • My Main Focus for 2012: Still Scaling-Up Excellence

    I thought I would provide an update about what I am working on these days, and use it to get some ideas and advice from folks who read this blog.

    2011 was a year of learning and thinking for me, which was necessary because 2010 was simply wild.  I had open heart surgery in April, Good Boss, Bad Boss was published in September, as was the paperback version of The No Asshole Rule — both of which became New York Times bestsellers.   I spent 2011 doing a lot of talking, reading, and thinking about two future projects — they are moving along, but it is always a slow process.  I am lucky to have a job where I don't have to rush to get things out before I am proud of them.

    The first project remains in the early stages.  It follows from my focus on the intersection of humanity and performance in the workplace.  I would tell you more, but it is so ill-formed that I changed my mind about the exact focus several times last year and will likely do so several more times. The one thing I can say at this point is that, when I go back to all the stories people have told me about being a boss, working for bosses, and dealing with assholes, two themes come up over and over: 1. How crucial it is for people to feel as if they are treated with dignity and respect and  2. How important it is for people to be able to stand-up for themselves and others, to create conditions that enable dignity and respect, but to do so without being an asshole.   This first project may take years to reach fruition as my main focus now is on the second project — which fits with my other work on innovation and organizational change.

    My Stanford colleague Huggy Rao and I have been reading about, talking about and studying "scaling" for several years now — the challenge of spreading and sustaining actions and mindsets across organizations and networks of people — of spreading excellence or goodness from the few to the many.  This was my primary focus last year and will continue to be in 2012.  Huggy and I are now making serious progress on a book that digs into the topic.

    Every book has a life of its own. This one took awhile to get moving, but it is now dominating our lives.  We seem to be in constant conversation with managers and executives from all kinds of industries about the topic (e.g., in recent weeks we've talked to executives from high tech firms, banks, and the hotel industry; administrators who run prisons; leaders of a big beer company; and school administrators — this week we are swimming in founders of start-ups), we are teaching a fun and somewhat crazy class with 60 MBA and engineers on scaling-up excellence this term (I will blog more about this in the coming weeks), and the text for the book is now pouring out of our computers slowly but steadily.

    Last year, HBR provided summaries of projects that a host of of business and management leaders would be taking on in 2011 — including me.  The perspective Huggy and I are developing has become more refined and our ideas are now much sharper.  But the  "agenda" piece I wrote about a year ago still captures what we are trying to do pretty well. 

    I said our goal was to finish the book in 2011. That didn't happen, but I am optimistic it will this year as we are moving along at a healthy clip. I repeat that description of our project completely (along with comments from the earlier version of this post, published here last year).  We would love any additional comments, suggestions, examples, or other ideas you have:

    My Stanford Business School colleague Hayagreeva Rao and I are absorbed by why behavior spreads—within and between organizations, across networks of people, and in the marketplace. We've been reviewing academic research and theory on everything from the psychology of influence to social movements to how and why insects and fish swarm.

    We are also doing case studies. We're documenting Mozilla's methods for spreading Firefox (its open-source web browser); the Institute for Healthcare Improvement's "100,000 Lives" campaign (an apparently successful effort to eliminate 100,000 preventable deaths in U.S. hospitals); the spread of microbrewing in the United States; an organizational change and efficiency movement within Wyeth Pharmaceuticals (now part of Pfizer); and the scaling of employee engagement at JetBlue Airways. And we're examining case studies by others, including the failure of the Segway to scale and the challenges faced by Starbucks as a result of scaling too fast and too far.

    Our goal is to write a book in 2011 that provides useful principles for managers, entrepreneurs, and anyone else who wants to scale constructive behavior. Because we are in the messy middle, I can't tell how the story will end. But we believe we're making progress, and we're excited about a few lines of thought.

    The first is the link between beliefs and behavior. A truism of organizational change is that if you change people's minds, their behavior will follow. Psychological research on attitude change shows this is a half-truth (albeit a useful one); there is a lot of evidence that if you get people to change their actions, their hearts and minds will follow.

    The second theme is "hot emotions and cool solutions." As Rao shows in his research on social movements, a hallmark of ideas that scale is that leaders first create "hot" emotions to fire up attention, motivation, and often righteous anger. Then they provide "cool," rational solutions for people to implement. In the 100,000 Lives campaign, for example, hot emotions were stirred up by a heart-wrenching speech at the kickoff conference. The patient-safety activist Sorrel King described how her 18-month-old daughter, Josie, had died at Johns Hopkins Hospital as the result of a series of preventable medical errors. Her speech set the stage for IHI staffers to press hospitals to implement six sets of simple, evidence-based practices that would prevent deaths.

    The third is what we call the ergonomics of scaling—the notion that when behaviors scale, it is partly because they've been made easy, with the bother of engaging in them removed. In developing Firefox in the early days, Mozilla's 15 or so employees were able to compete against monstrous Microsoft (and produce a browser with fewer bugs than Internet Explorer) by dividing up the chores and using a technology that made it easy for more than 10,000 emotionally committed volunteers to do "bug catching" in the code. Mozilla now has more than 500 employees, but it is still minuscule compared with Microsoft, and those bug catchers are still hard at work every night.

    Again, we would love to hear your ideas:  Cases we should dig into, research on scaling and organizational change we should know about, and methods you've used in your organization to scale good behavior and descale bad. We would love to hear it all.

  • On Saving the American Health System: Dr. Donald Berwick’s Farewell Speech

    Don Berwick is an American hero and also a victim of the obscene stalemate in Washington; the one being heaped on us by our Congress that has a 9% approval rating.  Most people that I know with a score that low would have the self-respect to quit rather than to point fingers at others.  Well, as part of this mess, Congress wouldn't approve the appointment of Dr. Don Berwick, who is a true American hero because he is among one of the real leaders of the movement to save American health care.  Before coming to Washington, the organization he led, a small non-profit called the Institute for Health Improvement, organized and guided an effort in American hospitals that — by doing simple, evidence things like hand washing, raising the bed when people are on a respirator, and other small but effective things — saved more than 100,000 lives by some estimates.  This little non-profit recruited over 3000 hospitals that had over 70% of the beds in the U.S. to participate in this effort to reduce preventable deaths.

    Obama, recognizing his greatness, appointed him as head of the Centers for Medicare and Medicaid Services. Or he tried to. Our do nothing — or actually do nothing but screw the other side — Congress opposed his appointment, so Obama did one of those sneaky interim appointments that Berwick to keep the position for 17 months before being forced out.  The New York Times Joe Nocera did a great piece on him, check it out. 

    The thing I would especially emphasize is that Berwick is not and has never been about ideology, he is about effectiveness and cost-cutting is central to everything he does and advocates.  Perhaps he wasn't mean and tough and selfish enough for our broken system; it is a shame that a guy who does everything possible to put patients first would be fired by people who do everything they can to put themselves first.

     I urge you to read his amazing farewell address. Get it here: Download Ihi forum don berwick 12-15.dat.Consider a few key parts. Here are his five principles — and unlike people in Congress who TALK about doing things — Berwick's organization has already led efforts to DO such things and continues to do so every day. He gets fired and they keep their jobs?  I quote:

    This is our task… our unwelcome task – if we are to help save health care from the cliff. To reduce costs, by reducing waste, at scale, everywhere, now.

    I recommend five principles to guide that investment:

    1. Put the patient first. Every single deed – every single change – should protect, preserve, and enhance the well being
    of the people who need us. That way – and only that way – we will know waste when we see it.

    2. Among patients, put the poor and disadvantaged first –those in the beginning, the end, and the shadows of life. Let us meet the moral test.

    3. Start at scale. There is no more time left for timidity. Pilots will not suffice. The time has come, to use Göran Henrik’s
    scary phase, to do everything. In basketball, they call it “flooding the zone.” It’s time to flood the Triple Aim zone.

    4. Return the money. This is the hardest principle of them all. Success will not be in our hands unless and until the parties
    burdened by health care costs feel that burden to be lighter. It is crucial that the employers and wage-earners and unions and states and taxpayers – those who actually pay the health care bill – see that bill fall.

    5. Act locally. The moment has arrived for every state,community, organization, and profession to act. We need mobilization – nothing less.

    To show these aren't just theories or pipe dreams, look at these examples from Dr. Berwick's speech:

    It is not possible to claim that we do not know what to do. We have the templates.

    If you doubt it, visit the brilliant Nuka care system at Southcentral Foundation in Anchorage, which just won the Baldrige Award. I visited in October. Thoroughly integrated teams of caregivers –physicians, advanced practice nurses, behavioral health specialists, nutritionists, and more – occupying open physical pods in line-of-sight contact with each other all day long, weaving a net of help and partnership with Alaska Native patients and families. The results: 60% fewer Emergency and Urgent CareVisits, 50% fewer hospitalizations, and 40% less use of specialists, along with staff turnover 1/5th as frequent as before the new care.

    If you doubt that we know what to do, visit Denver Health or ThedaCare or Virginia Mason, and see the Toyota principles of lean production learned, mastered, adapted, and deployed through entire systems and into the skills and psyches of entire workforces. The result, over $100 million in savings at Denver Health while vastly improving the experience and outcomes of patients.

    If you doubt that we know what to do, contact George Halvorson at Kaiser Permanente and ask him how they have reduced sepsismortality – sepsis is the cause of death in 24% of seniors who die in California hospitals. Kaiser-Permanente has driven down sepsis mortality by nearly half – to 11% in less than three years.

    Then, Berwick said to the colleagues he was leaving at the Centers for Medicare and Medicaid Services:

    Let me put it simply: in this room, with the successes already in hand among you here, you collectively have enough knowledge to rescue American health care – hands down. Better care, better health, and lower cost through improvement right here. In this room.

    The only question left is: Will you do it?

    Shame on us as a country for allowing this man to be fired and for bickering and backstabbing while the solutions appear to be at hand.  Can't we join together to do the right things?

  • How Many Pilots Does a 737 Need? Evidence-Based Management in Action

    I have been reading a lot about group and organizational size lately because it is a key issue for understanding the "scaling problem" that Huggy Rao and I are currently tackling.  After all, if you want to grow a large organization or network, it is crucial to understand how large "the building blocks" should be, how many people a leader can lead, and the the upper limits of organization and network size.   You will likely see other posts on this issue here as I am fretting over this question a lot.  But I couldn't resist a quick post drawn from J. Richard Hackman's fantastic book Leading Teams. 

    Richard reports an astounding solution to a disagreement between United Airlines and the pilots union when United was making its first big purchase of the 737 aircraft.  Boeing designed the cockpit so that it could be flown by either a two or three person crew.  Of course, United wanted two pilots because of the enormous savings in labor expenses; the union wanted three pilots because they argued that, since the planes would be flown in busy air spaces, it would be better to have a third person on board to help with demanding work and to keep an eye out for problems.   Well, this kind of disagreement didn't surprise me and I am sure it doesn't surprise me.  But what shocked me as that United and the union jointly sponsored an independent group to study the differences between two and three person crews during actual flight operations.  The study found no consistent differences between two and three-pilot crews.  As Hackman reports on page 119 of Leading Teams:

    "Members of the three-person crews did leave the cockpit more frequently to visit the cabin, which may have helped strengthen the work relationship between pilots and flight attendants. But they caught no more potentially conflicting traffic called to their attention by air traffic control than did the two-person crews."

    Chalk-up one for management on this one; as Richard points out, 737s are now exclusively flown by pairs of pilots, not trios.  I love this story because it appears to be an actual evidence-based decision. Unfortunately, this happens far less than it should.  As a process, it fascinates me because asking an objective third party to study problem when two parties have conflicting ideologies, goals, or incentives –and agreeing in advance to a decision that fits the evidence — seems like the right way to go about things.  I am not even sure if that is what happened in this case, but I fancy the notion.  I know that it usually won't be feasible in real life because we human-beings aren't that cooperative and rational, but it would lead to more effective and safer organizations.

    P.S. Check out Hackman's awesome recent post at HBR on group effectiveness. He has been studying this problem for over 40 years and I believe knows more about both the academic and practical challenges than anyone on the planet.

     

  • Indira Gandhi on Doing Work Versus Taking Credit For It

    I had a meeting today with my colleague Huggy Rao where we were batting around various ideas about systems that are effective versus ineffective at scaling good ideas. Huggy brought up this cool quite from Indira Gandhi:

    My grandfather once told me that there were two kinds of people: those who do the work and those who take the credit. He told me to try to be in the first group; there was much less competition.

    He then went on to argue that systems that bring-in, develop, and reward people in the first group  — and that expel, reform, and punish people in the second group — are likely to be more effective at spreading and implementing constructive action. Sounds right to me.

  • Taking The Path of Most Resistance: The Virtues

    I am blogging only intermittently as I am pretty focused on reading, talking to people, and generally fretting, worrying, and trying to structure the book on scaling constructive action that Huggy Rao and I are trying to write. I have been reading everything from psychological experiments on how different metaphors affect our perceptions and action, to studies of the mathematical and administrative challenges of scaling computer systems, to research on cities of different sizes (especially some interesting stuff that suggests bigger is better). But the area where scaling has been studied perhaps most directly is in  education, including studies of how to replicate great charter schools and how to substitute effective practices for ineffective practices in large school systems.  

    This weekend, I read an old (1993) but excellent study commissioned by the Casey foundation on what it takes comprehensive school reform in large school systems.  I was taken with its counter-intuitive title "The Path of Most Resistance"  (see the PDF here), in part, because it ran counter to some of the (evidence-based) assumptions that we have developed about scaling, including the notion that scaling depends on finding ways to simplify things and reduce cognitive load on people, and the notion that changes that are consistent with local cultures and traditions are easier to implement than those that run counter to embedded beliefs. 

    As I read the report, however, I realized that the authors agreed with some of these points, as they weren't arguing that leaders should TRY to make things harder on themselves, but rather, to do large scale change right, there argument was that a lot of very hard things need to get done.  They argued that taking the easy way out — expecting instant results; not taking the time to engage with parents, students, administrators, local politicians and other key crucial actors; doing it on the cheap; expecting everything to go smoothly–  and a host other "easy solutions  — simply weren't realistic or wise for would-be change agents. The examples of successful large scale change they examined all took pretty much the opposite approach — there was a lot of patience and a long term perspective, time was taken to involve major constituencies, lots of resources were devoted to the effort, and a host of other tactics that entailed doing things the hard way rather than the easy way. 

    More broadly, I think it is intriguing to use their title to flip assumptions about change.  Sometimes the tougher road is the better road, as people go in with a more realistic mindset, they are ready for setbacks,  and expect to spend the time and money necessary.  And, as an added bonus, any social psychologist will tell you that the more effort and sacrifice people make toward something, the more committed they will be to it.   Indeed, as I watch successful innovators — ranging from the teams we teach at Stanford's design school to Pixar's amazing journey — the most successful tend to have this "it is going to be tough, but I can and will do it" mindset.

    On the other hand, I think there is an important caveat, one the Jeff Pfeffer and I have written about in Hard Facts. One of the impediments to successful change is that people use the belief that "it is difficult and takes a long time" to avoid trying to make necessary changes at all.  Or, worse yet, they  propose a long-term change process, but only start working on it just before the "due date" — perhaps proposing a two-year project, but doing all the work in the final months (much like my students who, even though I assign a paper months in advance, don't start it until the night before).  In addition, there are many constructive changes that are not difficult and do not take a long time — such as changing small rules or procedures, experimenting with a new and delimited program, and so on.   Unfortunately, all too often, large scale change is slowed or stopped because people delay or fail to complete the array of small and easy steps required to accomplish any large change (In other words, they fail to focus on the daily small wins).

    Finally, there is an old but interesting lesson in creative thinking here, one consistent with the notion of "having strong opinions, weakly held."  The challenges of doing successful change look a lot different when you assume that "taking the path of least resistance" is best versus assuming that "taking the path of most resistance" is best.  Indeed, although they are pretty much exact opposites, you can learn a lot about change when you look for conditions under which each statement is true and false.  More generally, a good way to spark creativity is to take your most dearly held assumptions and ask "suppose the opposite were true?"