High Output Management by Andy Grove key takeaways

The Egg Factory

Imagine you start a breakfast diner and call it the Egg Factory. You make one dish consisting of a 3-minute boiled egg, toast, and coffee. When a customers orders their food you want to get it to them as quickly as possible while maintaining quality at a reasonable cost. This means the egg, toast, and coffee have to be hot and you probably want to serve it no more than 10 minutes after a customer places an order. The egg takes the longest to cook so it’s the limiting step which you start first, then you cook the toast then pour the coffee at the last minute.

You can’t serve the breakfast in less time than it takes to boil the egg without having a continuous stream of eggs boiling. The problem then becomes wasted inventory as you will have to throw out all the eggs which get cold.

As your reputation for a good product grows you get more and more customers and you decide to hire someone to focus exclusively on boiling eggs, another employee in charge of toast and a third to pour the coffee. Specializing these roles enables you to serve more breakfasts in the same space of time without compromising quality. You have increased overhead from the additional staff but you are selling more product so the business is profitable.

Let’s assume these efficiencies make your restaurant so popular that you have a steady stream of customers all day so you install a continuous egg boiler machine that can produce a perfect 3-minute boiled egg every few seconds which is much faster than the person you were paying to do this job. You retrain the person to periodically check the quality of eggs as they come out of the machine to ensure none of them are rotten or under boiled.

Business is booming at this point so you open up 10 more Egg Factories around the country. You decide to handle all purchasing from your central headquarters but you let each individual branch organize their own marketing because the local managers understand the nuances of the local market. It also makes sense to centralize other functional groups like finance and legal. This is cheaper than each individual branch having their own legal and finance departments and it enables local branch managers to focus on the mission of their branch which is to serve a perfect breakfast to customers.

You now have Egg Factories all over the USA so there is a general manager who oversees all the regional managers who in turn oversees all the store managers.

The purpose of managers

In the egg factory example managers were introduced as the organization grew. The purpose of these managers is to create an environment where their subordinates can achieve the companies mission. This involves defining and living by the culture. Creating shared consciousness through information sharing. Empowering their team members to execute and communicate their reasoning to superiors. Creating feedback systems like annual reviews. Training their team members. Defining roles and mapping out the organizational structure.

Leverage

The effect of a manager’s actions are multiplied down through the work of everyone he manages. Andy Grove calls this managerial leverage. A manager could spend 10 hours prepping for and training 8 of his direct reports. Over the year that may increase their productivity by 2% which amounts to 300 hours. Managers should focus on work with high leverage like training.

Team of Teams

In the Egg Factory example as the organization grew it was more efficient to centralize functional groups like finance and legal. This is because each Egg Factory location needs a variable amount of support from these functional groups. Sometimes they need very little legal help but if a customer slips and injures themselves in the New York branch they will need additional help from the legal team who are based in HQ. The only group of employees you don’t house at HQ is the branch managers because they need to be close to the staff they are managing in order to be able to quickly respond to issues.

This hybrid organizational structure can fall prey to communication silos where teams ignore each other and even become hostile. General Stanley McChrystal says in his book Team of Teams it’s important to create connections between teams. This can be done by encouraging members of different teams to communicate. I think it would be a good idea to mandate that every staff member participates in an experience with members of another team at least once a quarter.

Grove also says dual reporting is important in a hybrid organization. A regional controller must report to the regional manager as well as the CFO.

Objectives and Key Results (Management by Objectives)

If you don’t know where you are going, how are you supposed to get there?

This basically means that you need to know what your objectives are and the key results which will tell you if you are making progress towards your objective. For example, the Queen of Spain told Columbus to find a new route to the orient which was his objective. Columbus then went on to formulate key results including obtaining several ships, training crews, setting sale etc, with each possessing a specific deadline.

The Queens objective to increase the wealth of Spain was nested above Columbus objective. When Columbus reached America he failed to achieve his objective but because he understood the queens objective he was able to reap riches from the USA ultimately achieving her objective.

Objectives and key results give you clarity on what to say yes to and what to say no to. If we try to focus on everything, we focus on nothing.

Task-relevant maturity TRM

Some researchers in this field argue that there is a fundamental variable that tells you what the best management style is in a particular situation. That variable is the task-relevant maturity (TRM) of the subordinates, which is a combination of the degree of their achievement orientation and readiness to take responsibility, as well as their education, training, and experience. Moreover, all this is very specific to the task at hand, and it is entirely possible for a person or a group of people to have a TRM that is high in one job but low in another.

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