High Output Management

by Andrew S. Grove

All production flows have a basic characteristic: the material becomes more valuable as it moves through the process.

detect and fix any problem in a production process at the lowest-value stage possible.

And we should also try to find any performance problem at the time of the unit test of the pieces that make up a compiler rather than in the course of the test of the final product itself.

to run your operation well, you will need a set of good indicators, or measurements.

Your output, of course, is no longer the breakfasts you deliver personally but rather all the breakfasts your factory delivers, profits generated, and the satisfaction of your customers.

Just to get a fix on your output, you need a number of indicators; to get efficiency and high output...

The number of possible indicators you can choose is virtually limitless, but for any set of them to be useful, you have to focus each ind...

you will work with five indicators to meet your production goals on a daily basis. Which five would they be? Put another way, which five pieces of information would you want to look at ...

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.

Nowhere can indicators—and paired indicators—be of more help than in administrative work.

measurement—any measurement—is better than none. But a genuinely effective indicator will cover the output of the work unit and not simply the activity involved.

second criterion for a good indicator is that what you measure should be a physical, countable thing.

“black box”: input (the raw materials) and the labor of waiters, helpers, and you, the manager, flowing into the box, and the output (the breakfast) flowing out of it as illustrated below.

In general, we can represent any activity that resembles a production process in a simple fashion as a black box.

we can represent most, if not all, administrative work by our magical black box.

The black box sorts out what the inputs, the output, and the labor are in the production process.

Leading indicators give you one way to look inside the black box by showing you in advance what the future might look like.

unless you are prepared to act on what your leading indicators are telling you, all you will get from monitoring them is anxiety.

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.

The chart is updated monthly, so that each month you will have an updated version of the then-current forecast information as compared to several prior forecasts. You can readily see the variation of one forecast from the next, which can help you anticipate future trends better than if you used a simple trend chart.

nowhere has the stagger chart been more productive than in forecasting economic trends.

This way of looking at incoming business, of course, makes whoever does the forecasting take his task very seriously, because he knows that his forecast for any given month will be routinely compared with future

forecasts and eventually with the actual result.

But even more important, the improvement or deterioration of the forecasted outlook from one month to the next provides the most valuable indicator ...

have a bank of information that readily shows all the parameters of your operation, allowing you to scan them for unhealthy departures from the norm.

If you do not systematically collect and maintain an archive of indicators, you will have to do an awful lot of quick research to get the information you need, and by the time you have it, the problem is likely to have gotten worse.

Some industries build to order. For example, when you go shopping for a sofa, you are going to have to wait a long time to get what you bought, unless you buy it right off the floor. A

if your competition in the sofa business makes the same product but has it ready in four weeks while you need four months, you are not going to have many customers.

even though you would much rather build to order, you will have to use another way to control the output of your factory.

build to forecast, which is a contemplation o...

To build to forecast, you risk capital to respond to anticipated future demand in good order.

Delivering a product that was built to forecast to a customer consists of two simultaneous processes, each with a separate time cycle. A manufacturing flow must occur in which the raw material moves through various production steps and finally enters the finished goods warehouse, as illustrated below. Simultaneously, a salesman finds a prospect and sells to that prospect, who eventually places an order with the manufacturer.

Ideally,

the order for the product and the product itself should arrive on the shippin...

What works better is to ask both the manufacturing and the sales departments to prepare a forecast, so that people are responsible for performing against their own predictions.

try to match the two parallel flows with as much precision as possible.

If there’s no match, we end up with a customer order that we can’t satisfy or wit...

which we have no customer. Either way we ...

Because neither the sales flow nor the manufacturing flow is completely predictable, we should deliberately build a reasonable amount of “slack” into the system.

And inventory is the most obvious place for it. Clearly, the more inventory we have, the more change we can cope with and still satisfy orders. But inventory costs money to build and keep, and therefore should be controlled carefully. Ideally, inventory should be kept at the lowest-value stage, as we’ve learned before, like raw eggs kept at the breakfast factory. Also, the lower the value, the more production flexibility we obtain for a given inventory cost.

if we have carefully chosen indicators that characterize an administrative unit and watch them closely, we are ready to apply the methods of factory control to administrative work.

We can use de facto standards, inferred from the trend data, to forecast the number of people needed to accomplish various anticipated tasks.

Without rigor, the staffing of administrative units would always be left at its highest level and, given Parkinson’s famous law, people would find ways to let whatever they’re doing fill

the time available for its completion.

A manager can do his “own” job, his individual work, and do it well, but that does not constitute his output. If the manager has a group of people reporting to him or a circle of people influenced by him, the manager’s output must be measured by the output created by his subordinates and associates.

If the manager is a knowledge specialist, a know-how manager, his potential for influencing “neighboring” organizations is enormous.

The internal consultant who supplies needed insight to a group struggling with a problem will affect the work and...

the output of a manager is a result achieved by a group either under her supervision or under her influence.

As president of a company, I can affect output through my direct subordinates—group general managers and others like them—by performing supervisory activities. I can also influence groups not under my direct supervision by making observations and suggestions to those who manage them. Both types of activity will, I hope, contribute to my output as a manager by contributing

to the output of the company as a whole.