Notes on: High Output Management

fernandoorta
Jan 26, 2018 · 26 min read
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This post features my notes and scribbles on the biggest lessons from the book High Output Management by Andy Grove. These notes are not an essay but rather highlights of important points. Eloquence is sacrificed for the sake of conciseness.

Purpose of the book and central thesis

This book is written for middle managers who are the muscle and bone of every organization. For an organization to be successful it needs a solid and well trained middle manager structure.

The book proposes three central ideas:

  1. Output-Oriented Approach to Management: We measure the success of the manager by the output of the people under him.

Every hour of your day should be spent thinking how you can increase the output or the value of the output of the people whom you are responsible for.

A manager’s output= the output of his organization + the output of the neighboring organizations under his influence.

Section I: The Breakfast Factory

Chapter 1: The Basics of Production

A manager’s job is to find the most cost-effective way to deploy the resources that he has at his disposal to produce the best delivery time and product quality at the lowest possible cost. To add value a manager must detect and fix problems at the lowest value adding stage possible.

Chapter 2: Managing the Breakfast Factory

Indicators are key to maintaining a good operation. Good indicators focus you in a specific direction. Good indicators must always be paired to measure both the effect and the counter effect. (Inventory and shortages, one balances the other to make sure you are not only minimizing inventory) A good indicator measures output and not only the activity. (Measure a salesman by the number of orders he gets not by the number of calls he makes) A good rule of thumb is to pair an output indicator with a quality indicator.

All production activities can be represented as a black box. Leading indicators should allow you to see inside the black box to predict what the output will look like. To guarantee the quality of an output we can perform an:

  • Incoming Inspection: We check the quality of the raw materials of our production.

Managers Productivity

Productivity is a measure of the amount of work performed divided the labor required to generate that output. A good manager will always look for ways to work smarter and increase his output. The most effective way to do this is by increasing his leverage in the activities that he is performing.

Part II: Management Is a Team Game

Chapter 3: Managerial Leverage

A manager’s output = The output of his organization + The output of the neighboring organizations under his influence

The managers’ output cannot be measured by the amount of work he does. It must be measured by the output that his subordinates have as a direct result of his work. If the manager also has the ability to influence other teams in the organization his work must also be measured by the impact or influence he has on this team. The work of the manager does not create output. The work of his organization creates output. Business is a team activity. It takes a team to win. The manager must always think how his actions can create the most positive impact on the organization.

Activities do not equal output. The objective of a manager is to maximize the output through his activities. The objective is to maximize leverage.

Getting information is an important task for a manager. Reports are a tool to create self-discipline in the person writing them. A report forces the person who writes them to reflect about the opportunities in his operation and thus find solutions to these problems. Casual conversations are very good sources of information but they are also prone to have biases by the people giving the information. A very efficient way to get information is to visit a particular place of the company and observe what’s going on there.

A second major activity of a manager is transmitting information. Facts, objectives, priorities, and preferences about the way an activity is approached. The manager must focus on sharing a corporate culture. Sharing the culture is the most important task as it allows the successful delegation of responsibilities.

A third major activity of a manager is making decisions. Making decisions will be discussed in the following chapters. To make a correct decision we must have the best information available. That is why a manager must spend a lot of his time gathering information. As managers we also nudge decisions by our comments and the way we influence other people.

As managers we are role models for the people in our organization. A manager leads by example. Values and behavioral norms are simply not transmitted easily by a talk or a memo, but are conveyed very effectively by doing and doing visibly.

How a manager handles his time is the most important aspect of being a role model.

Leverage

To increase his output a manager must increase his leverage. Leverage is the measure of the output generated by a given managerial activity.

Managerial Output= Activity x Leverage

To increase leverage we can:

  1. Increase the rate at which an activity is done

High-Leverage Activity:

  • When many people are affected by one activity

Examples of high-leverage activities: training sessions, performance reviews, planning processes, stopping someone from quitting.

Examples of negative leverage activities: depressed attitude by a manager, not making a decision by a manager, managerial meddling.

Art of management is the capacity to select the activities with the highest leverage and perform these activities well.

Delegation is a form of leverage, but we cannot abdicate our responsibility to have the task done correctly. We must increase or decrease our monitoring of the task depending on the maturity of the subordinate in relation to the task that he is handling.

Built-In Leverage: How Many Subordinates Should you Have

A manager whose work is largely supervisory should have six to eight subordinates. Three to four are too few and ten are too many. (About half a day to each)

To deal with interruptions a manager must create scheduled times for his subordinates as well as prepare solutions to the most common interruptions either as a way to prevent these interruptions or as a way to make sure they get handled appropriately.

Chapter 4: Meetings — The Medium of Managerial Work

Meeting is a medium through which managerial work is performed. Not an end-goal but rather a way to supply information and know-how, to explain the preferred method of doing things, and to help make decisions. We need to make meetings as efficient as possible. Not fight their existence.

Process-Oriented Meetings

The objective of these meetings is to share knowledge and to exchange information. These meetings should be scheduled and take place at regular intervals.

  • One-on-Ones: Meeting between a supervisor and a subordinate. Purpose is mutual teaching and exchange of information. The frequency of these meetings depends on the maturity of the subordinate and the nature of the job. As an employee matures and if his responsibilities are more stable there is less need for them (every few weeks). It should last about an hour, giving ample time to solve the necessary issues. The meeting should be prepared by the subordinate. Topics to cover include: performance figures, indicators used by the subordinate, emphasis on the indicators that show trouble, problems that have risen since the last meeting.

Mission-Oriented Meetings

The objective of these meetings is to solve a specific problem, produce a decision. The key to the success of this meeting depends on what the chairman of the meeting does because he is the one that “calls” the meeting. It is key that the chairman asks himself the following before calling the meeting: What am I trying to accomplish? Is a meeting necessary? Is it desirable? Is it justifiable? The meeting should have no more than eight people. After this it is hard to reach a consensus. It’s the responsibility of the chairman to have an agenda for the meeting as well as stating any specific responsibilities that the members of the meeting should have. Once the meeting is over it is the responsibility of the chairman to send minutes that summarize the discussion that occurred, the decision made and the actions to be taken. This is critical to make the meeting effective. You should be vigilant of the time spent on mission-oriented meetings. If it is more than 25 percent of your time, you need to organize yourself better to have more process-oriented meetings.

Chapter 5: Decisions, Decisions

Making decisions and participating in the process by which they are made is an essential part of every manager’s work.

Ideal Model

In the ideal model of decision making we have three stages. The first is a free discussion where the issue is discussed freely by everyone involved. The objective in this stage is to gather as many viewpoints and information as possible. Next we reach a clear decision, we must be able to articulate why we are choosing a specific decision. This implies that we can explain the tradeoffs of the decision clearly to all the people involved with the decision. Finally everyone needs to give full-support to the decision, this does not mean agreement but it does mean that everyone will back the decision.

For many managers making decisions is a hard process. They are not comfortable expressing their views forcefully, making unpleasant or difficult decisions and backing something they do not agree with 100%. It is important to establish the rules of decision making beforehand so that it can be maintained. The best decisions should be made by people who have a stake in the outcome of the decision and have the technical knowledge of the implications of the decision. All decisions in a meeting must be lead by a chairman who is responsible for getting the honest opinion of all the participants of the meeting.

Striving for Output

To make a decision a leader must at least be able to answer the following questions:

  • What decision needs to be made?

As a final warning, be sensitive about the implications of a decision. If a decision will negatively affect others you need to take the time to explain it to all those affected and give them an opportunity to ask questions. Otherwise it will not be well received.

Chapter 6: Planning: Today’s Actions for Tomorrow’s Output

Step 1: establish the projected need or demand. What is the environment demanding of you, the organization or the business? Step 2: Establish the present status. What are you producing now? What will you produce in the future if nothing changes? Step 3: Design a plan to go from 1 to 2. What more (or less) do you need to do to produce what your environment will demand? What can you do to close the gap?

As you formulate in words what you plan to do to close this gap, the abstract steps and general summary become the strategy. Tactics are what will be done to implement the strategy.

The Output of the Planning Process

The key output of the planning process are the tasks that have to be done today in order to affect events in the future. As we plan we must always answer the question: What do I have to do today to solve — or better, avoid — tomorrow’s problem? The output of the planning process is the decisions made and the actions taken as a result of the process.

Management by Objectives: The Planning Process Applied to Daily Work

A successful Management by Objectives (MBO) system needs only to answer two questions:

  1. Where do I want to go? (The answer provides the objective)

The objective of the MBO system is to provide focus. We must keep the number of objectives small to achieve this.

Section III: Team of Teams

Chapter 7: The Breakfast Factory Goes National

As our Breakfast Factory goes national we come to the realization that management is not just a team game, but a game of teams of teams where various individual teams exist in a mutually supportive relationship with each other.

Chapter 8: Hybrid Organizations

Most managers run departments that are part of a larger organization. At the extremes the organization can be arranged in two forms: totally mission-oriented or totally functional organization. The mission-oriented organization is completely decentralized, each individual business unit pursus what it does — its mission — with little tie-in to other units. The advantage of a mission-oriented organization is that the individual units can stay in touch with the needs of their business more closely and can thus initiate changes more rapidly when those changes are needed. At the other extreme is the totally functional organization. A functional organization is completely centralized, every department is responsible for a function within the entire organization.

Most organizations are not in either extreme as there are arguments favoring each style. Most organizations opt for a hybrid model where there are business divisions which are mission oriented and there are also functional groups. The desire to give the individual branch manager the power to respond to local conditions moves us toward a mission-oriented organization. But a similar legitimate desire to take advantage of the economies of scale and to increase the leverage of expertise we have in each operational area across the entire corporation would push us toward a functional organization. The change between one type of organization and another should match the operational styles and aptitudes of the managers running the individual units. The most important task for an organization is the optimum and timely allocation of its resources and the efficient resolution of conflicts arising over that allocation. The form of the organization should follow this purpose.

Chapter 9: Dual Reporting

As the organization grows there is a need for some positions to have a dual reporting structure where in the day to day the person reports to one boss but for technical implementations about how the job ought to be done the person reports to another boss. (We have the example of the security personnel of a plant who reports on a day to day basis to the corporate security manager and to the local plan manager as well) Although this is not ideal, as the company grows we cannot escape this compromise. If we had the person only report to one boss we would be moving to a totally funcional or a totally mission oriented organization. None of which comply with what we want to accomplish.

The key to making hybrid organizations work is a way to coordinate the mission-oriented units and the functional groups so that the resources of the functional groups are allocated and delivered to meet the needs of the mission-oriented units.

In an organization it is also useful to allocate specific responsibilities to people for specific purposes. For example a CEO can also be a Chairman or be a member of the planning committee. All of these functions require a different level of commitment and involvement for the person but allow the organization to be flexible and solve problems more effectively. An effective organization can also create a task force that is both temporary and has a specific purpose. These would get dissolved once the problem they were set out to solve gets solved.

Chapter 10: Modes of Control

There are three basic types of control that we can exert over our employees:

  1. Free-Market Forces: are interactions that are governed by the self interest of both parties that are interacting. There are no “rules” as you expect the self -interest of the people involved to make the best decision for everyone involved.

Management does not need to supervise the workings of the free-market. In contractual obligations management has an obligation to set the rules, monitor its adherence to them and evaluate and improve performance. As for cultural values, management has to develop and nurture the common set of values, objectives, and methods essential for the existence of trust. We do this by articulation and by example.

As the nature of a job gets more complicated and the employee needs to think in terms of the group interest the best mode of control is cultural values. Free market forces work well when the interaction is simple and self interest governs it. When the interaction is simple and group interest is involved, contractual obligations work best. As managers we must understand the nature of the work to decide what mode of control works best.

Section IV: The Players

Chapter 11: The Sports Analogy

A manager’s output is the output of the organization under his supervision or influence. Meaning that management is a team activity. The output of the team is dependent on the output of the individuals on the team. When a person is not doing his job correctly there are only two reasons for this: he is not capable or he is not motivated. The most important task of a manager is to elicit peak performance from his subordinates. The only ways that we can improve performance is through training and motivation. In this chapter we will talk about motivation.

Motivation comes from within somebody. Accordingly, all a manager can do is create an environment in which motivated people can flourish. We use Abraham Maslow’s theory of motivation where motivation is closely tied to the idea of needs, which cause people to have drives, which in turn result in motivation. A need once satisfied stops being a need and therefore stops being a source of motivation. We must keep needs unsatisfied at all times. For Maslow people’s’ needs follow a hierarchy. After a need is satisfied a new higher hierarchy need is established:

  • Physiological Needs: Things that money can buy. Food, clothing and other necessities of life. Fear is hitched to such needs. The fear to lose access to these articles.

To bring the best out of people a manager needs to create an environment where people are tested beyond their limits. Goals need to be ambitious. We need to cultivate achievement-driven motivation, we need to create an environment that values and emphasizes output.

Money can be a motivator for people, but we need to be careful not to focus people on meaningless rewards such as office size or decor and toward relevant and significant rewards. The most important task-relevant feedback is the performance review every subordinate should receive from his supervisor.

Our role as managers is first to train the individuals and second to bring them to a point where self-actualization motivates them, because once there, their motivation will be self-sustaining and limitless. A good way to elicit the best performance from people is by creating a competition around performance. The role of the manager is that of a coach. A good coach is tough on his team. He tries to get the best performance his team members can provide. We have our team perform at the limit of their capabilities, which is the key to making our team consistent winners.

Chapter 12: Task-Relevant Maturity

The most important responsibility of a manager is to elicit top performance from all of his subordinates. To do this, there is no optimal management style. To determine which management style is most effective we must look at the task relevant maturity (TRM) of the subordinates. This is a combination of the degree of their achievement orientation and readiness to take responsibility as well as education, training and experience. All of this for a particular task.

  • Low TRM: Most effective management style is one that offers very precise and detailed instructions. The supervisor tells the subordinate what needs to be done, when and how.

Regardless of the management style a supervisor must monitor the work of a subordinate closely to avoid surprises. This is the difference between delegating a task and abdicating it.

Our most important task is raising the task-relevant maturity of our subordinates as rapidly as possible. This allows us to have managerial leverage.

If a person changes responsibilities his TRM will also change. We must adjust our management style to this.

Chapter 13: Performance Appraisal

A performance review is the best way we have to give task-relevant feedback to our subordinates. It is one of our highest leverage activities as it can change, positively or negatively the performance of a subordinate for a long time. The objective of the performance appraisal is to improve the performance of the subordinate. To achieve this objective we must: determine the skill level that the subordinate has, giving us an opportunity to find ways to improve his performance and motivate the subordinate to push him to a higher performance curve.

Assessing performance

To assess performance we must first clarify what it is we expect from our subordinate and then attempt to judge if he has met our expectations. The biggest mistake we can make is not defining what we want from our subordinate. Once we have clearly defined what we want it is important to be careful about the output and internal measures of performance. The output measures are metrics that measure the result while the internal metrics are metrics that create the conditions necessary for the results. We must be very careful to judge not only the output of a person but also the internal metrics that will lead to positive outputs in the future. Understanding the time difference between the activities we perform today and the results that these activities give us in the future.

When judging a manager we must judge the performance of the group he manages but also the value that he has added to the group during this time. You must ask: What is he doing with the group? Is he hiring new people? Is he training the people that he has? What is he doing that will improve performance in the future?

Asses performance not potential. You can never judge a manager higher than you would judge his team.

We must always look to improve the performance of our subordinates. We can always find ways to suggest improvements.

Delivering the Assessment

Three L’s to think about when delivering an assessment: Level, listen, and leave yourself out.

  • Level with the subordinate. You must be frank. About the good and about the bad.

We can group reviews in three categories:

  • On the one hand and on the other: Here we have a mixture of positive and negative messages. The key with this review is to focus on only the points that the subordinate will be able to understand. If you try to give to many points he won’t remember any of them and will not be effective.

The best way to give the review is to first send a copy of the written review to the subordinate and then have a meeting face-to-face to discuss it in person.

Chapter 14: Two Difficult Tasks

There are two hard tasks that a manager must do: interviewing and trying to prevent a great employee from leaving the company.

Interviewing

The purpose of an interview is to:

  • Select a good performer

An important tool for assessing potential performance is to research past performance by checking references. But you have to be careful to understand the context in which the person was working (how much was his influence) as well as receiving honest feedback from the person who you got the references from.

During the interview be very clear about what you want to gather from the interview. Don’t be afraid of interrupting the candidate. Some recommendations of questions are:

  • Describe some projects that were highly regarded by your management, especially by the levels above your immediate supervisor.

During the interview we want to gather information in four general areas. First, we want an understanding of the candidate’s technical knowledge. What he knows about performing the job he wants. His skill level. Second, we are trying to assess how the candidate performed in an earlier job using his skills and technical knowledge. Not just what the candidate knows, but what he did with what he knows. Third we want to detect if there are any discrepancies between what he knew and what he did. Discrepancies between his capabilities and his performance. Finally we want to get a feel for his set of operational values, those that will guide him in the job. The ultimate purpose of the interview is to predict how the candidate will perform his responsibilities in the new environment in which you are hiring him.

In a reference you are trying to get the same information that you got from the candidate, except that the information comes from an outside perspective. Try to develop a bond with the reference to try to get more honest answers from him or her. A good interviewing process does not guarantee success. You just want to increase your odds of getting lucky

“I Quit!”

What is most dreaded as a manager is that a highly valued subordinate decides to quit. As a manager when you are presented with such a situation your initial reaction is very important. Drop what you are doing. Sit down with him and ask him why he is quitting. Let him talk and don’t argue about anything he says. After he is finished explaining why he is quitting ask him more questions. Make him talk, since after he has delivered the points he prepared the real reason why he is quitting may come out. Don’t try to lecture him, do not argue with him and do not panic. You have to convey to him through your actions that he is important to you and you have to find what is really troubling him. Don’t try to change his mind at this time but buy time. After he is finished ask for the necessary time so that you can prepare for your next encounter.

Your job as a manager is to pursue all options in order to keep the employee in the firm. Go back to the subordinate with a solution. One that addresses his real reasons for wanting to quit and one that in turn will benefit the company. Make him feel comfortable with the new arrangement. In order to prevent the subordinate from leaving make him realize that he has made two commitments: first to a potential employer he vaguely knows, and second to you, his present employer. Stress that the commitments he has made with the people he has worked with daily are far stronger that one made to a casual new acquaintance. As a manager we must always try our best to keep great employees in the company.

Chapter 15: Compensation as Task-Relevant Feedback

As we move up Maslow’s hierarchy of needs, money starts becoming a measure of one’s’ worth in a competitive environment. We defined earlier that if the absolute amount of a raise was important the motivation of the person was physiological or safety/security. If the relative amount of a raise was important then the person was probably motivated by self actualization as money became a measure, not a necessity. As a supervisor we must be very sensitive to the needs of our subordinates and show empathy toward them. We must be careful not to project our own circumstances onto them.

As managers our concern is to get a high level of performance from our subordinates. So we want to use money as a way to deliver task-relevant feedback. To do this, we need to tie compensation to performance. To design a good performance bonus scheme we must understand what causes output, if team or individual contribution. We need to also understand what period of time to cover with the bonus. We must remember that the bonus must be paid close enough to the time of the performance so that the subordinate can remember why he is getting awarded the bonus that he is getting awarded.

To determine the base salary of a person, we can have two extremes. The first is where the base salary is based simply on experience. The second where the base salary is based completely on merit. Purely experience based salaries give problems as they do not reward the differences in performance. Merit-only salaries are also impractical since the salary of the person cannot be easily adjusted to reflect month to month changes in performance. To create a merit based scheme we must understand that it requires a competitive, comparative evaluation of individuals. As we give raises to subordinates we want to prevent falling into the Peter Principle (promoting someone until he is not good at his job) . Administering someone that is not performing well after a promotion is hard since he will not take lightly the issue of being demoted. Demoting someone is the only alternative to firing the individual.

As managers we are responsible to provide our subordinates with honest performance ratings and honest merit-based compensation.

Chapter 16: Why training is the boss’s job

As a manager we are responsible for the mistakes that our subordinates do. A manager has two ways to improve the performance of a subordinate. By increasing motivation and by increasing his capability. Training improves the capability of the subordinate. For training to be effective it has to be closely tied to how things are actually performed in the organization. An effective training needs to be constant and scheduled. Training needs to be a process not an event. Managers are best suited to train their subordinates effectively. We recommend that between 2 to 4 percent of an employee’s time be spent in learning.

We should begin by making a list of the things we believe our subordinates should be trained in. This list should include the simple tasks as well as general things, even values. We can ask our subordinates what they want to be trained in to complement our answers. After you create a training course make sure you gather feedback from the course. Ask questions to see how well you are doing in teaching the desired material.

One more thing…

Great things to do after reading this book:

Production:

  • Identify the operations in your work most like process, assembly, and test production.

Leverage

  • Conduct work simplification on your most tedious, time-consuming task. Eliminate at least 30 percent of the total number of steps involved.

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