High Output Management

by Andrew S. Grove

You need to try to do the impossible, to anticipate the unexpected. And when the unexpected happens, you should double your efforts to make order from the disorder it creates in your life. The motto I’m advocating is “Let chaos reign, then rein in chaos.”

Don’t wait for the principles and practices you find appealing to be imposed from the top. As a micro CEO, you can improve your own and your group’s performance and productivity, whether or not the rest of the company follows suit.

The output of a manager is the output of the organizational units under his or her supervision or influence. The question then becomes, what can managers do to increase the output of their teams? Put another way, what specifically should they be doing during the day when a virtually limitless number of possible tasks calls for their attention? To give you a way to answer the question, I introduce the concept of managerial leverage, which measures the impact of what managers do to increase the output of their teams. High managerial productivity, I argue, depends largely on choosing to perform tasks that possess high leverage.

The point is, the clichés of globalization and the information revolution have real meaning—potentially deadly meaning—for your career. The sad news is, nobody owes you a career. You own it as a sole proprietor. You must compete with millions of individuals every day, and every day you must enhance your value, hone your competitive advantage, learn, adapt, get out of the way, move from job to job, even from industry to industry if you must and retrench if you need to do so in order to start again. The key task is to manage your career so that you do not become a casualty.

In principle, every hour of your day should be spent increasing the output or the value of the output of the people whom you’re responsible for.

“When a person is not doing his job, there can only be two reasons for it. The person either can’t do it or won’t do it; he is either not capable or not motivated.” This insight enables a manager to dramatically focus her efforts. All you can do to improve the output of an employee is motivate and train. There is nothing else.

A common rule we should always try to heed is to detect and fix any problem in a production process at the lowest-value stage possible. Thus, we should find and reject the rotten egg as it’s being delivered from our supplier rather than permitting the customer to find it.

Indicators tend to direct your attention toward what they are monitoring. It is like riding a bicycle: you will probably steer it where you are looking. If, for example, you start measuring your inventory levels carefully, you are likely to take action to drive your inventory levels down, which is good up to a point. But your inventories could become so lean that you can’t react to changes in demand without creating shortages. So because indicators direct one’s activities, you should guard against overreacting. This you can do by pairing indicators, so that together both effect and counter-effect are measured. Thus, in the inventory example, you need to monitor both inventory levels and the incidence of shortages. A rise in the latter will obviously lead you to do things to keep inventories from becoming too low.

But a genuinely effective indicator will cover the output of the work unit and not simply the activity involved. Obviously, you measure a salesman by the orders he gets (output), not by the calls he makes (activity).

The second criterion for a good indicator is that what you measure should be a physical, countable thing. Examples of effective measures of administrative output are shown below. Because those listed here are all quantity or output indicators, their paired counterparts should stress the quality of work. Thus, in accounts payable, the number of vouchers processed should be paired with the number of errors found either by auditing or by our suppliers. For another example, the number of square feet cleaned by a custodial group should be paired with a partially objective/partially subjective rating of the quality of work as assessed by a senior manager with an office in that building.

Leading indicators give you one way to look inside the black box by showing you in advance what the future might look like. And because they give you time to take corrective action, they make it possible for you to avoid problems. Of course, for leading indicators to do you any good, you must believe in their validity. While this may seem obvious, in practice, confidence is not as easy to come by as it sounds. To take big, costly, or worrisome steps when you are not yet sure you have a problem is hard. But unless you are prepared to act on what your leading indicators are telling you, all you will get from monitoring them is anxiety. Thus, the indicators you choose should be credible, so that you will, in fact, act whenever they flash warning signals.

Leading indicators might include the daily monitors we use to run our breakfast factory, from machine downtime records to an index of customer satisfaction—both of which can tell us if problems lie down the road. A generally applicable example of a “window” cut into the black box is the linearity indicator. In the figure below, we provide one for the college recruiting process. Plotted here is the number of college graduates who have accepted our offers versus the month of the year. If all went ideally, we would move along the straight line that would yield our hiring target for the semester by the month of June. If by April the actual progress is as shown here, we will find ourselves far below the ideal straight line.

Also valuable are trend indicators. These show output (breakfasts delivered, software modules completed, vouchers processed) measured against time (performance this month versus performance over a series of previous months), and also against some standard or expected level. A display of trends forces you to look at the future as you are led to extrapolate almost automatically from the past. This extrapolation gives us another window in our black box. Also, measurement against a standard makes you think through why the results were what they were, and not what the standard said they would be.

In fact, the embassy’s expediting schemes only made the problem worse, because nothing was done to address the basic issue: to speed the processing of visas overall. Time and money were spent to classify various kinds of applications slated for different processing times, but this only created more logistical overhead with no effect on output.

For that, the bureaucratic minds at the embassy would need to accept that a 100 percent check of the visa applicants is unnecessary. Some 98 percent of those applying are approved without any question. So if the embassy were to institute a sampling test of visas (a quality assurance test), and a thorough one at that, the logjam of applications could be broken without materially increasing the chance that the undesirable will enter our country. Moreover, the embassy could select the sample to be checked according to predetermined criteria. The visa processing could then work rather like the Internal Revenue Service. Through the checks and audits that the IRS performs, that government agency induces compliance among most taxpayers without having an agent look at every single return.

Thus, a very important way to increase productivity is to arrange the work flow inside our black box so that it will be characterized by high output per activity, which is to say high-leverage activities. Automation is certainly one way to improve the leverage of all types of work. Having machines to help them, human beings can create more output. But in both widget manufacturing and administrative work, something else can also increase the productivity of the black box. This is called work simplification.

To get leverage this way, you first need to create a flow chart of the production process as it exists. Every single step must be shown on it; no step should be omitted in order to pretty things up on paper. Second, count the number of steps in the flow chart so that you know how many you started with. Third, set a rough target for reduction of the number of steps. In the first round of work simplification, our experience shows that you can reasonably expect a 30 to 50 percent reduction. To implement the actual simplification, you must question why each step is performed. Typically, you will find that many steps exist in your work flow for no good reason. Often they are there by tradition or because formal procedure ordains it, and nothing practical requires their inclusion. Remember, the “visa factory” at our embassy in Britain didn’t really have to process 100 percent of the applicants. So no matter what reason may be given for a step, you must critically question each and throw out those that common sense says you can do without. We found that in a wide range of administrative activities at Intel, substantial reduction—about 30 percent—could be achieved in the number of steps required to perform various tasks.

stressing output is the key to improving productivity, while looking to increase activity can result in just the opposite.

It is important to understand that a manager will find himself engaging in an array of activities in order to affect output. As the middle managers I queried said, a manager must form opinions and make judgments, he must provide direction, he must allocate resources, he must detect mistakes, and so on. All these are necessary to achieve output. But output and activity are by no means the same thing.

Finally, something more subtle pervades the day of all managers. While we move about, doing what we regard as our jobs, we are role models for people in our organization—our subordinates, our peers, and even our supervisors. Much has been said and written about a manager’s need to be a leader. The fact is, no single managerial activity can be said to constitute leadership, and nothing leads as well as example. By this I mean something straightforward. Values and behavioral norms are simply not transmitted easily by talk or memo, but are conveyed very effectively by doing and doing visibly.

Managerial productivity—that is, the output of a manager per unit of time worked—can be increased in three ways: 1. Increasing the rate with which a manager performs his activities, speeding up his work. 2. Increasing the leverage associated with the various managerial activities. 3. Shifting the mix of a manager’s activities from those with lower to those with higher leverage.

HIGH-LEVERAGE ACTIVITIES These can be achieved in three basic ways: • When many people are affected by one manager. • When a person’s activity or behavior over a long period of time is affected by a manager’s brief, well-focused set of words or actions. • When a large group’s work is affected by an individual supplying a unique, key piece of knowledge or information.

Work done in advance of the planning meeting obviously has great leverage. If Robin has to scramble later to help a manager define guidelines and milestones, her work will clearly have much less leverage.

Another example is waffling, when a manager puts off a decision that will affect the work of other people. In effect, the lack of a decision is the same as a negative decision; no green light is a red light, and work can stop for a whole organization.

For example, if a senior manager sees an indicator showing an undesirable trend and dictates to the person responsible a detailed set of actions to be taken, that is managerial meddling. In general, meddling stems from a supervisor exploiting too much superior work knowledge (real or imagined). The negative leverage produced comes from the fact that after being exposed to many such instances, the subordinate will begin to take a much more restricted view of what is expected of him, showing less initiative in solving his own problems and referring them instead to his supervisor. Because the output of the organization will consequently be reduced in the long run, meddling is clearly an activity having negative managerial leverage.

What is the medium of a manager’s forecast? It is something very simple: his calendar. Most people use their calendars as a repository of “orders” that come in. Someone throws an order to a manager for his time, and it automatically shows up on his calendar. This is mindless passivity. To gain better control of his time, the manager should use his calendar as a “production” planning tool, taking a firm initiative to schedule work that is not time-critical between those “limiting steps” in the day.

The next production principle you can apply is to allow slack—a bit of looseness in your scheduling. Highway planners, for example, know that a freeway can handle an optimum number of vehicles. Having fewer cars means that the road is not being used at capacity. But at that optimum point, if just a few more cars are allowed to enter the traffic flow, everything comes to a crunching halt. With the new metering devices that control access during the rush hour, planners can get a fix on the right number. The same thing can be done for managerial work. There is an optimum degree of loading, with enough slack built in so that one unanticipated phone call will not ruin your schedule for the rest of the day. You need some slack. Another production principle is very nearly the opposite. A manager should carry a raw material inventory in terms of projects. This is not to be confused with his work-in-process inventory, because that, like eggs in a continuous boiler, tends to spoil or become obsolete over time. Instead this inventory should consist of things you need to do but don’t need to finish right away—discretionary projects, the kind the manager can work on to increase his group’s productivity over the long term. Without such an inventory of projects, a manager will most probably use his free time meddling in his subordinates’ work.

There are better ways. Let’s apply a production concept. Manufacturers turn out standard products. By analogy, if you can pin down what kind of interruptions you’re getting, you can prepare standard responses for those that pop up most often. Customers don’t come up with totally new questions and problems day in and day out, and because the same ones tend to surface repeatedly, a manager can reduce time spent handling interruptions using standard responses. Having them available also means that a manager can delegate much of the job to less experienced personnel. Also, if you use the production principle of batching—that is, handling a group of similar chores at one time—many interruptions that come from your subordinates can be accumulated and handled not randomly, but at staff and at one-on-one meetings, the subject of the next chapter.

a meeting is nothing less than the medium through which managerial work is performed. That means we should not be fighting their very existence, but rather using the time spent in them as efficiently as possible.

In the first kind of meeting, called a process-oriented meeting, knowledge is shared and information is exchanged. Such meetings take place on a regularly scheduled basis. The purpose of the second kind of meeting is to solve a specific problem. Meetings of this sort, called mission-oriented, frequently produce a decision. They are ad hoc affairs, not scheduled long in advance, because they usually can’t be.

“The good time users among managers do not talk to their subordinates about their problems but they know how to make the subordinates talk about theirs.”

By applying Grove’s Principle of Didactic Management, “Ask one more question!” When the supervisor thinks the subordinate has said all he wants to about a subject, he should ask another question. He should try to keep the flow of thoughts coming by prompting the subordinate with queries until both feel satisfied that they have gotten to the bottom of a problem.

What should be discussed at a staff meeting? Anything that affects more than two of the people present. If the meeting degenerates into a conversation between two people working on a problem affecting only them, the supervisor should break it off and move on to something else that will include more of the staff, while suggesting that the two continue their exchange later.

A supervisor should never use staff meetings to pontificate, which is the surest way to undermine free discussion and hence the meeting’s basic purpose.

Keep in mind that a meeting called to make a specific decision is hard to keep moving if more than six or seven people attend. Eight people should be the absolute cutoff. Decision-making is not a spectator sport, because onlookers get in the way of what needs to be done.

In traditional industries, where the management chain of command was precisely defined, a person making a certain kind of decision was a person occupying a particular position in the organization chart. As the saying went, authority (to make decisions) went with responsibility (position in the management hierarchy). However, in businesses that mostly deal with information and know-how, a manager has to cope with a new phenomenon. Here a rapid divergence develops between power based on position and power based on knowledge, which occurs because the base of knowledge that constitutes the foundation of the business changes rapidly. What do I mean? When someone graduates from college with a technical education, at that time and for the next several years, that young person will be fully up-to-date in the technology of the time. Hence, he possesses a good deal of knowledge-based power in the organization that hired him. If he does well, he will be promoted to higher and higher positions, and as the years pass, his position power will grow but his intimate familiarity with current technology will fade. Put another way, even if today’s veteran manager was once an outstanding engineer, he is not now the technical expert he was when he joined the company. At Intel, anyway, we managers get a little more obsolete every day.

The first stage should be free discussion, in which all points of view and all aspects of an issue are openly welcomed and debated. The greater the disagreement and controversy, the more important becomes the word free. This sounds obvious, but it’s not often the practice. Usually when a meeting gets heated, participants hang back, trying to sense the direction of things, saying nothing until they see what view is likely to prevail. They then throw their support behind that view to avoid being associated with a losing position. Bizarre as it may seem, some organizations actually encourage such behavior.

The next stage is reaching a clear decision. Again, the greater the disagreement about the issue, the more important becomes the word clear. In fact, particular pains should be taken to frame the terms of the decision with utter clarity. Again, our tendency is to do just the opposite: when we know a decision is controversial we want to obscure matters to avoid an argument. But the argument is not avoided by our being mealy-mouthed, merely postponed. People who don’t like a decision will be a lot madder if they don’t get a prompt and straight story about it.

Finally, everyone involved must give the decision reached by the group full support. This does not necessarily mean agreement: so long as the participants commit to back the decision, that is a satisfactory outcome. Many people have trouble supporting a decision with which they do not agree, but that they need to do so is simply inevitable. Even when we all have the same facts and we all have the interests of an organization in mind, we tend to have honest, strongly felt, real differences of opinion. No matter how much time we may spend trying to forge agreement, we just won’t be able to get it on many issues. But an organization does not live by its members agreeing with one another at all times about everything. It lives instead by people committing to support the decisions and the moves of the business. All a manager can expect is that the commitment to support is honestly present, and this is something he can and must get from everyone.

Another desirable and important feature of the model is that any decision be worked out and reached at the lowest competent level. The reason is that this is where it will be made by people who are closest to the situation and know the most about it. And by “know” I don’t just mean “understand technically.” That kind of expertise must be tempered with judgment, which is developed through experience and learning from the many errors one has made in one’s career.

A journalist puzzled by our management style once asked me, “Mr. Grove, isn’t your company’s emphasis on visible signs of egalitarianism such as informal dress, partitions instead of offices, and the absence of other obvious perks like reserved parking spaces, just so much affectation?” My answer was that this is not affectation but a matter of survival. In our business we have to mix knowledge-power people with position-power people daily, and together they make decisions that could affect us for years to come. If we don’t link our engineers with our managers in such a way as to get good decisions, we can’t succeed in our industry. Now, status symbols most certainly do not promote the flow of ideas, facts, and points of view. What appears to be a matter of style really is a matter of necessity.

The most common problem is something we call the peer-group syndrome. A number of years ago, at Intel’s very first management training session, we tried some role-playing to show people what can occur when a group of peers meets to solve a problem or make a decision. We sat the people around a table to tackle what was then a live issue for them in their real jobs. Everyone was an organizational equal. The chairman of the meeting was one level higher, but was purposely sent out of the room so he couldn’t hear what was to happen. Observers in the audience couldn’t believe their eyes and ears as the mock meeting proceeded. The managers working on the problem did nothing but go around in circles for some fifteen minutes, and none of them noticed they weren’t getting anywhere. When the chairman was brought back in, he sat down and listened for a while and couldn’t believe things either. We watched him lean forward as if he were trying to glean more from the conversation. We then saw a black cloud form over his head; finally he slapped the table and exclaimed, “What’s going on here? You people are talking in circles and getting nowhere.” After the chairman intervened, the problem was resolved in very short order. We named this the peer-plus-one approach, and have used it since then to aid decision-making where we must. Peers tend to look for a more senior manager, even if he is not the most competent or knowledgeable person involved, to take over and shape a meeting. Why? Becaus...

One of the reasons why people are reluctant to come out with an opinion in the presence of their peers is the fear of going against the group by stating an opinion that is different from that of the group. Consequently, the group as a whole wanders around for a while, feeling each other out, waiting for a consensus to develop before anyone risks taking a position. If and when a group consensus emerges, one of the members will state it as a group opinion (“I think our position seems to be…”), not as a personal position. After a weak statement of the group position, if the rest of the mob buys in, the position becomes more solid and is restated more forcefully.

If you either enter the decision-making stage too early or wait too long, you won’t derive the full benefit of open discussion. The criterion to follow is this: don’t push for a decision prematurely. Make sure you have heard and considered the real issues rather than the superficial comments that often dominate the early part of a meeting. But if you feel that you have already heard everything, that all sides of the issue have been raised, it is time to push for a consensus—and failing that, to step in and make a decision. Sometimes free discussion goes on in an unending search for consensus. But, if that happens, people can drift away from the near consensus when they are close to being right, diminishing the chances of reaching the correct decision. So moving on to make the decision at the right time is crucial.

Employing consistent ways by which decisions are to be made has value beyond simply expediting the decision-making itself. People invest a great deal of energy and emotion in coming up with a decision. Then somebody who has an important say-so or the right to veto it may come across the decision later. If he does veto it, he can be regarded as a Johnny-come-lately who upsets the decision-making applecart. This, of course, will frustrate and demoralize the people who may have been working on it for a long time. If the veto comes as a surprise, however legitimate it may have been on its merits, an impression of political maneuvering is inevitably created. Politics and manipulation or even their appearance should be avoided at all costs. And I can think of no better way to make the decision-making process straightforward than to apply before the fact the structure imposed by our six questions.

What should you look for when you examine your environment? You should attempt to determine your customers’ expectations and their perception of your performance. You should keep abreast of technological developments like electronic mail and other alternative ways of doing your job. You should evaluate the performance of your vendors. You should also evaluate the performance of other groups in the organization to which you belong. Does some other group (like the traffic department) affect how well you can do your work? Can that group meet your needs?

Should you at this stage consider what practical steps you can actually take to handle matters? No, that will just confuse the issue. What would happen to a factory, for instance, if the marketing organization adjusted its demand forecast on the basis of its own assessment of the manufacturing unit’s ability to deliver? If marketing knew they could sell 100 widgets per month but thought that manufacturing could only deliver ten, and so submitted a demand forecast of ten units, manufacturing would never tool up to satisfy the real demand.

The second step of planning is to determine your present status. You do this by listing your present capabilities and the projects you have in the works. As you account for them, be sure to use the same terms, or “currency,” in which you stated demand. For instance, if your demand is listed in terms of completed product designs, your work-in-process should be listed as partially completed product designs. You also need to look at timing; namely, when will these projects come out of your “pipeline”? You must ask yourself, will every project now moving through be completed? Chances are, no, some will get scrapped or aborted, and you have to factor this into your forecasted output. Statistically, in semiconductor manufacturing, only some 80 percent of the material started actually gets finished. Similarly, while it is impossible to be precise in every case, it is prudent to factor in some percentage of loss for managerial projects as well.

The final step of planning consists of undertaking new tasks or modifying old ones to close the gap between your environmental demand and what your present activities will yield. The first question is, What do you need to do to close the gap? The second is, What can you do to close the gap? Consider each question separately, and then decide what you actually will do, evaluating what effect your actions will have on narrowing the gap, and when. The set of actions you decide upon is your strategy.

The key to both Bruce’s and Cindy’s efforts is that their planning produced tasks that had to be performed now in order to affect future events. I have seen far too many people who upon recognizing today’s gap try very hard to determine what decision has to be made to close it. But today’s gap represents a failure of planning sometime in the past. By analogy, forcing ourselves to concentrate on the decisions needed to fix today’s problem is like scurrying after our car has already run out of gas. Clearly we should have filled up earlier. To avoid such a fate, remember that as you plan you must answer the question: What do I have to do today to solve—or better, avoid—tomorrow’s problem?