High Output Management

by Andrew S. Grove

How far ahead should the planners look? At Intel, we put ourselves through an annual strategic long-range planning effort in which we examine our future five years off. But what is really being influenced here? It is the next year—and only the next year. We will have another chance to replan the second of the five years in the next year’s long-range planning meeting, when that year will become the first year of the five. So, keep in mind that you implement only that portion of a plan that lies within the time window between now and the next time you go through the exercise. Everything else you can look at again. We should also be careful not to plan too frequently, allowing ourselves time to judge the impact of the decisions we made and to determine whether our decisions were on the right track or not. In other words, we need the feedback that will be indispensable to our planning the next time around.

Finally, remember that by saying “yes”—to projects, a course of action, or whatever—you are implicitly saying “no” to something else. Each time you make a commitment, you forfeit your chance to commit to something else. This, of course, is an inevitable, inescapable consequence of allocating any finite resource. People who plan have to have the guts, honesty, and discipline to drop projects as well as to initiate them, to shake their heads “no” as well as to smile “yes.”

A successful MBO system needs only to answer two questions: 1. Where do I want to go? (The answer provides the objective.) 2. How will I pace myself to see if I am getting there? (The answer gives us milestones, or key results.)

In fact, the centralization-decentralization dichotomy is so pervasive that it has become one of the most important themes in the management of our network. Do we, for instance, want to advertise locally or nationally? Do we want to give the local manager the control over advertising in his community? We don’t know who reads the Daily Blatt, and he probably does. Do we want to give him the right to hire and fire personnel? Should we let him set his wage scale, or do we want to impose one nationally? The latter hardly makes sense, since labor market conditions vary considerably from region to region. But we do want to buy our sophisticated automatic machinery centrally. After all, it has taken us a long time to develop suitable vendors and the capacity to test the incoming machines given our demanding requirements. We now have a sizable group of people doing only that in Chicago, and we hardly want each branch or even each region to duplicate the effort. But I don’t think we should buy all our eggs in Chicago. We want them to be fresh, and we don’t want to truck this delicate commodity all over the country. Neither do we want to have each branch set up its own incoming egg inspection operation. Here some kind of compromise makes sense, such as regional egg purchasing centers, with each only a few hours by truck from all the franchise locations in the region. We do want uniform, high-quality standards everywhere and we will monitor each of the franchises to make sure that th...

The desire to give the individual branch manager the power to respond to local conditions moves us toward a mission-oriented organization. But a similarly legitimate desire to take advantage of the obvious economies of scale and to increase the leverage of the expertise we have in each operational area across the entire corporation would push us toward a functional organization. In the real world, of course, we look for a compromise between the two extremes. In fact, the search for the appropriate compromise has preoccupied managers for a long, long time. Alfred Sloan summed up decades of experience at General Motors by saying, “Good management rests on a reconciliation of centralization and decentralization.” Or, we might say, on a balancing act to get the best combination of responsiveness and leverage.

What are some of the advantages of organizing much of a company in a mission-oriented form? There is only one. It is that the individual units can stay in touch with the needs of their business or product areas and initiate changes rapidly when those needs change. That is it. All other considerations favor the functional-type of organization.

The two-plane concept is a part of everyday organizational life. For instance, while people mostly work at an operating task, they also plan. The hierarchy of the corporation’s planning bodies lies on a plane separate from the one on which you’ll find the operating groups.

The point is that the two- (or multi-) plane organization is very useful. Without it I could only participate if I were in charge of everything I was part of. I don’t have that kind of time, and often I’m not the most qualified person around to lead. The multi-plane organization enables me to serve as a foot soldier rather than as a general when appropriate and useful. This gives the organization important flexibility.

There is a temptation to idealize what I’ve called cultural values as a mode of control because it is so “nice,” even utopian, because everybody presumably cares about the common good and subjugates self-interest to that common good. But this is not the most efficient mode of control under all conditions. It is no guide to buying tires, nor could the tax system work this way. Accordingly, given a certain set of conditions, there is always a most appropriate mode of control, which we as managers should find and use. How do we do that? There are two variables here: first, the nature of a person’s motivation; and second, the nature of the environment in which he works.

When self-interest is high and the CUA factor is low, the most appropriate is the market mode, which governed our tire purchase. As individual motivation moves toward group interest, the contractual mode becomes appropriate, which governed our stopping for a red light. When group-interest orientation and the CUA factor are both high, the cultural values mode becomes the best choice, which explains to us why we tried to help at the scene of the accident. And finally, when the CUA factor is high and individual motivation is based on self-interest, no mode of control will work well. This situation, like every man for himself on a sinking ship, can only produce chaos. Let’s apply our model to the work of a new employee. What is his motivation? It is very much based on self-interest. So you should give him a clearly structured job with a low CUA factor. If he does well, he will begin to feel more at home, worry less about himself, and start to care more about his team. He learns that if he is on a boat and wants to get ahead, it is better for him to help row than to run to the bow. The employee can then be promoted into a more complex, uncertain, ambiguous job. (These tend to pay more.) As time passes, he will continue to gain an increasing amount of shared experience with other members of the organization and will be ready to tackle more and more complex, ambiguous, and uncertain tasks. This is why promotion from within tends to be the approach favored by corporations with str...

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. To determine which, we can employ a simple mental test: if the person’s life depended on doing the work, could he do it? If the answer is yes, that person is not motivated; if the answer is no, he is not capable. If my life depended on playing the violin on command, I could not do it. But if I had to run a mile in six minutes, I probably could. Not that I would want to, but if my life depended on it, I probably could.

a manager has two ways to tackle the issue: through training and motivation.

How does a manager motivate his subordinates? For most of us, the word implies doing something to another person. But I don’t think that can happen, because motivation has to come from within somebody. Accordingly, all a manager can do is create an environment in which motivated people can flourish. Because better motivation means better performance, not a change of attitude or feeling, a subordinate’s saying “I feel motivated” means nothing. What matters is if he performs better or worse because his environment changed. An attitude may constitute an indicator, a “window into the black box” of human motivation, but it is not the desired result or output. Better performance at a given skill level is.

For Maslow, 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.

When the need to stretch is not spontaneous, management needs to create an environment to foster it. In an MBO system, for example, objectives should be set at a point high enough so that even if the individual (or organization) pushes himself hard, he will still only have a fifty-fifty chance of making them. Output will tend to be greater when everybody strives for a level of achievement beyond his immediate grasp, even though trying means failure half the time. Such goal-setting is extremely important if what you want is peak performance from yourself and your subordinates.

Moreover, if we want to cultivate achievement-driven motivation, we need to create an environment that values and emphasizes output. My first job was with a research and development laboratory, where a lot of people were very highly motivated but tended to be knowledge-centered. They were driven to know more, but not necessarily to know more in order to produce concrete results. Consequently, relatively little was actually achieved. The value system at Intel is completely the reverse. The Ph.D. in computer science who knows an answer in the abstract, yet does not apply it to create some tangible output, gets little recognition, but a junior engineer who produces results is highly valued and esteemed. And that is how it should be.

So it appears that at the upper level of the need hierarchy, when one is self-actualized, money in itself is no longer a source of motivation but rather a measure of achievement. Money in the physiological- and security-driven modes only motivates until the need is satisfied, but money as a measure of achievement will motivate without limit. Thus the second ten million can be just as important to the venture capitalist as the first, since it is not the utilitarian need for the money that drives him but the achievement that it implies, and the need for achievement is boundless.

A simple test can be used to determine where someone is in the motivational hierarchy. If the absolute sum of a raise in salary an individual receives is important to him, he is working mostly within the physiological or safety modes. If, however, what matters to him is how his raise stacks up against what other people got, he is motivated by esteem/recognition or self-actualization, because in this case money is clearly a measure.

An obvious and very important responsibility of a manager is to steer his people away from irrelevant and meaningless rewards, such as office size or decor, and toward relevant and significant ones. The most important form of such task-relevant feedback is the performance review every subordinate should receive from his supervisor. More about this later.

At Intel we frequently rotate middle managers from one group to another in order to broaden their experience. These groups tend to be similar in background and in the type of work that they do, although their output tends to vary greatly. Some managers and their groups demonstrate themselves to be higher producers; others do not. The result of moving the managers about is often surprising. Neither the managers nor the groups maintain the characteristic of being either high-producing or low-producing as the managers are switched around. The inevitable conclusion is that high output is associated with particular combinations of certain managers and certain groups of workers. This also suggests that a given managerial approach is not equally effective under all conditions.

The conclusion is that varying management styles are needed as task-relevant maturity varies. Specifically, when the TRM is low, the most effective approach is one that offers very precise and detailed instructions, wherein the supervisor tells the subordinate what needs to be done, when, and how: in other words, a highly structured approach. As the TRM of the subordinate grows, the most effective style moves from the structured to one more given to communication, emotional support, and encouragement, in which the manager pays more attention to the subordinate as an individual than to the task at hand. As the TRM becomes even greater, the effective management style changes again. Here the manager’s involvement should be kept to a minimum, and should primarily consist of making sure that the objectives toward which the subordinate is working are mutually agreed upon. But regardless of what the TRM may be, the manager should always monitor a subordinate’s work closely enough to avoid surprises. The presence or absence of monitoring, as we’ve said before, is the difference between a supervisor’s delegating a task and abdicating it. The characteristics of the effective management style for the supervisor given the varying degrees of TRM are summarized in the table below.

Another problem here is a manager’s perception of himself. We tend to see ourselves more as communicators and delegators than we really are, certainly much more than do our subordinates. I tested this conclusion by asking a group of managers to assess the management style of their supervisors, and then by asking those supervisors what they thought their style was. Some 90 percent of the supervisors saw their style as more communicating or delegating than their subordinates’ view. What accounts for the large discrepancy? It is partly because managers think of themselves as perfect delegators. But also, sometimes a manager throws out suggestions to a subordinate who receives them as marching orders—furthering the difference in perceptions.

It’s unpleasant to give orders to a friend. I’ve seen several instances where a supervisor had to make a subordinate-friend toe a disciplinary line. In one case, a friendship was destroyed; in another, the supervisor’s action worked out because the subordinate felt, thanks to the strength of the social relationship, that the supervisor was looking out for his (the subordinate’s) professional interests.

Everyone must decide for himself what is professional and appropriate here. A test might be to imagine yourself delivering a tough performance review to your friend. Do you cringe at the thought? If so, don’t make friends at work. If your stomach remains unaffected, you are likely to be someone whose personal relationships will strengthen work relationships.

But what is its fundamental purpose? Though all of the responses given to my questions are correct, there is one that is more important than any of the others: it is to improve the subordinate’s performance. The review is usually dedicated to two things: first, the skill level of the subordinate, to determine what skills are missing and to find ways to remedy that lack; and second, to intensify the subordinate’s motivation in order to get him on a higher performance curve for the same skill level

The aim of communication is to transmit thoughts from the brain of person A to the brain of person B. Thoughts in the head of A are first converted into words, which are enunciated and via sound waves reach the ear of B; as nerve impulses they travel to his brain, where they are transformed back into thoughts and presumably kept. Should person A use a tape recorder to confirm the words used in the review? The answer is an emphatic no. Words themselves are nothing but a means; getting the right thought communicated is the end. Perhaps B has become so emotional that he can’t understand something that would be perfectly clear to anyone else. Perhaps B has become so preoccupied trying to formulate answers that he can’t really listen and get A’s message. Perhaps B has tuned out and as a defense is thinking of going fishing. All of these possibilities can and do occur, and all the more so when A’s message is laden with conflict. How then can you be sure you are being truly heard? What techniques can you employ? Is it enough to have your subordinate paraphrase your words? I don’t think so. What you must do is employ all of your sensory capabilities. To make sure you’re being heard, you should watch the person you are talking to. Remember, the more complex the issue, the more prone communication is to being lost. Does your subordinate give appropriate responses to what you are saying? Does he allow himself to receive your message?

The applicant should do 80 percent of the talking during the interview, and what he talks about should be your main concern. But you have a great deal of control here by being an active listener. Keep in mind you only have an hour or so to listen. When you ask a question, a garrulous or nervous person might go on and on with his answer long after you’ve lost interest. Most of us will sit and listen until the end out of courtesy. Instead, you should interrupt and stop him, because if you don’t, you are wasting your only asset—the interview time, in which you have to get as much information and insight as possible. So when things go off the track, get them back on quickly. Apologize if you like, and say, “I would like to change the subject to X, Y, or Z.” The interview is yours to control, and if you don’t, you have only yourself to blame.

Money has significance at all levels of Maslow’s motivation hierarchy. As noted earlier, a person needs money to buy food, housing, and insurance policies, which are part of his physiological and safety/security needs. As one moves up the need hierarchy, money begins to mean something else—a measure of one’s worth in a competitive environment. Earlier I described a simple test that can be applied to determine the role money plays for someone. If the absolute amount of a raise in salary is important, that person is probably motivated by physiological or safety/security needs. If the relative amount of a raise—what he got compared to others—is the important issue, that person is likely to be motivated by self-actualization, because money here is a measure, not a necessity.

If we are going to consider promotions, we have to consider the Peter Principle, which says that when someone is good at his job, he is promoted; he keeps getting promoted until he reaches his level of incompetence and then stays there. Like all good caricatures, this one captures at least some of what really happens in a merit-based promotion system. Take a look at the illustration opposite, where we track someone’s promotions. At point A the demands of Job 1 so tax him that he can only perform in an average fashion. In the jargon of performance assessment, he “meets the requirements” of the job. As time passes, he receives more training and becomes more motivated, and improves his performance to an above-average level, or, again in the jargon, to a point where he “exceeds the requirements” of the position. At this time we consider the person promotable, and in fact do promote him to Job 2, where he will at first perform only at a “meets requirements” level. With more experience, he again will “exceed the requirements” of the job. Eventually, he probably gets promoted again and the cycle repeats itself. Thus, an achiever will alternate between the “meets requirements” and the “exceeds requirements” ratings throughout his career, until he eventually settles at a “meets requirements” level, at which time he will no longer be promoted. This, perhaps, is a better description of how the Peter Principle works.

A manager generally has two ways to raise the level of individual performance of his subordinates: by increasing motivation, the desire of each person to do his job well, and by increasing individual capability, which is where training comes in. It is generally accepted that motivating employees is a key task of all managers, one that can’t be delegated to someone else. Why shouldn’t the same be true for the other principal means at a manager’s disposal for increasing output? Training is, quite simply, one of the highest-leverage activities a manager can perform. Consider for a moment the possibility of your putting on a series of four lectures for members of your department. Let’s count on three hours of preparation for each hour of course time—twelve hours of work in total. Say that you have ten students in your class. Next year they will work a total of about twenty thousand hours for your organization. If your training efforts result in a 1 percent improvement in your subordinates’ performance, your company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours. This assumes, of course, that the training will accurately address what students need to know to do their jobs better. This isn’t always so—particularly with respect to “canned courses” taught by someone from outside. For training to be effective, it has to be closely tied to how things are actually done in your organization.

For training to be effective, it also has to maintain a reliable, consistent presence. Employees should be able to count on something systematic and scheduled, not a rescue effort summoned to solve the problem of the moment. In other words, training should be a process, not an event.

If you accept that training, along with motivation, is the way to improve the performance of your subordinates, and that what you teach must be closely tied to what you practice, and that training needs to be a continuing process rather than a one-time event, it is clear that the who of the training is you, the manager. You yourself should instruct your direct subordinates and perhaps the next few ranks below them. Your subordinates should do the same thing, and the supervisors at every level below them as well.