Book Review: Loonshots by Safi Bahcall
How big breakthroughs happen and why organizations stop innovating.
In Loonshots, Safi Bahcall provides an excellent overview of the environments that nurture innovation (loonshoots as he calls them) and why organizations tend to become less innovative as they get bigger. It’s an enjoyable read as it’s filled with the backstories behind discoveries like radar, Statins, digital animation, and many more. Safi also provides a variety of prescriptive measures that organizations can use to maintain innovation within their organizations.
Stake vs Rank
Within any organization, team members are caught between two conflicting forces which Safi refers to as stake and rank.
When people organize into a team, a company, or any kind of group with a mission they also create two competing forces — two forms of incentives. We can think of the two competing incentives, loosely, as stake and rank.
When groups are small, for example, everyone’s stake in the outcome of the group project is high. At a small biotech, if the drug works, everyone will be a hero and a millionaire. If it fails, everyone will be looking for a job. The perks of rank — job titles or the increase in salary from being promoted — are small compared to those high stakes. As teams and companies grow larger, the stakes in outcome decrease while the perks of rank increase. When the two cross, the system snaps. Incentives begin encouraging behavior no one wants. Those same groups — with the same people — begin rejecting loonshots.
In other words, at some point a company gets big enough where employees feel that the downside of taking a big risk begins to outweighs the upside of what they will receive if that gamble pays off. At that point, the group will no longer be innovative as they will be unwilling to take risks.
Artists vs Soldiers
The first suggestion Safi offers is to split out the soldiers, or those who work on maintaining the existing successful franchises, from the artists, or those who work on high-risk, early-stage ideas. Innovative ideas often start off looking highly flawed and soldiers who lack an artist’s vision will shoot them down before they have a chance to develop.
During Steve Jobs’s first stint at Apple, he called his loonshot group working on the Mac “pirates” or “artists” (he saw himself, of course, as the ultimate pirate-artist). Jobs dismissed the group working on the Apple II franchise as “regular Navy.” The hostility he created between the two groups, by lionizing the artists and belittling the soldiers, was so great that the street between their two buildings was known as the DMZ — the demilitarized zone. The hostility undermined both products. Steve Wozniak, Apple’s cofounder along with Jobs, who was working on the Apple II franchise, left, along with other critical employees; the Mac launch failed commercially; Apple faced severe financial pressure; Jobs was exiled; and John Sculley took over (eventually rescuing the Mac and restoring financial stability). When Jobs returned twelve years later, he had learned to love his artists (Jony Ive) and soldiers (Tim Cook) equally.
Bush-Vail Balance
Separating your groups is not enough. You also need to facilitate the exchange of ideas between them. Otherwise, you can end up with a Xerox Parc scenario where your artists generate many breakthrough technologies that never get adopted. To achieve a successful balance, you need to have a champion responsible for the transfer of ideas that has respect for and influence over both groups. Safi refers to this as the Bush-Vail Balance named after two of the most successful historical champions, Vannevar Bush and Theodore Vail.
The Magic Number 150
Safi contends that it’s typically when an organization reaches 150 people that the stake vs rank tradeoff flips and employees begin to care more about politics (title, salary, # of reports) than what would be best for the company. He suggests modifying the variables below to increase that number.
Equity
This is the most common tool for providing employees a stake in the success of the business. All things held equal, the more equity given, the more an employee will prioritize what’s best for the overall business (assuming they see potential to one day sell that equity.)
Management Span
This refers to the number of direct reports an average employee has which determines the number of management layers in an organization. The wider the span, the less politics an organization will have.
Let’s consider a company with roughly a thousand employees. If the span is very narrow, where each manager supervises three people (S = 3), there will be five layers between the CEO and the most junior level. If the span is much wider, ten direct reports on average (S = 10), then there will be only two intervening layers. Imagine an organization with an enormous span, more than one hundred direct reports. Promotions happen so rarely that it’s not worth spending any time politicking. With a span of two, however, you are constantly in competition with your peer. The career ladder may be always on your mind. There are so many layers that as soon as you get one promotion, you may immediately start thinking about the next one.
It is important to note that wide spans don’t typically work well for managing franchises where you want tight control over processes.
Return-on-politics
This refers to how much benefit an employee gets from spending time lobbying and networking with managers. You can decrease this by removing direct managers from the promotion process like they do at Mckinsey. An even more extreme technique is the DARPA project manager approach of limiting employment upfront to a fixed 2–4 year time period.
This was just a brief summary of some of the points brought up in this book and, if you found it compelling, I strongly suggest reading the whole thing.
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