High Output Management

by Andrew S. Grove

What are the rules of the new environment? First, everything happens faster. Second, anything that can be done will be done, if not by you, then by someone else. Let there be no misunderstanding: These changes lead to a less kind, less gentle, and less predictable workplace.

as a manager in such a workplace, you need to develop a higher tolerance for disorder.

Are you plugged into what’s happening around you? And that includes what’s happening inside your company as well as inside your industry as a whole.

Are you a node connected to a network of plugged-in people or are you floating by yourself?

The key to survival is to learn to add more value—

“Mr. Grove, isn’t your company’s emphasis on visible signs of egalitarianism such as informal dress, partitions instead of offices…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.

Andy replied with an answer that I did not expect: “CEOs always act on leading indicators of good news, but only act on lagging indicators of bad news.”

“In order to build anything great, you have to be an optimist, because by definition you are trying to do something that most people would consider impossible. Optimists most certainly do not listen to leading indicators of bad news.”

The task here encompasses the basic requirements of production.

to build and deliver products

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scheduled delive...

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The first thing we must do is to pin down the step in the flow that will determine the overall shape of our operation, which we’ll call the limiting step.

defines the length of the entire process—called, in production jargon, the total throughput time.

The key idea is that we construct our production flow by starting with the longest (or most difficult, or most sensitive, or most expensive) step and work our way back.

The idea of a limiting step has very broad applicability.

To apply the basic principle of production, you need to build the sequence here around its most expensive feature,

The principle of time offsets is also present here.

Working back from the time the students will graduate, the recruiter staggers the various steps involved to allow time for everything—on-campus interviews, phone screening, plant visits—to take place at the appropriate times during the months preceding graduation.

Process, assembly, and test operations can be readily applied to other very different kinds of productive work.

So limited toaster capacity means you have to redo your flow around the new limiting step. The egg still determines the overall quality of the breakfast, but your time offsets must be altered.

Toaster capacity has become the limiting step, and what you do has to be reworked around it.

What happens if you are stuck in line waiting for a toaster when it’s time to start boiling your egg? Your conflict is seemingly irreconcilable, but it really isn’t. If you were managing the restaurant, you could turn your personnel into specialists by hiring one egg-cooker, one toast-maker, one coffee-pourer, and one person to supervise the operation. But that, of course, creates an immense amount of overhead, probably making it too expensive to consider.

If you were a waiter, you could ask the waiter in line next to you to help out—to put your toast in while you ran off to start your egg. But when you have to depend on someone else, the results are likely to be less predictable. As the manager, you could add another toaster, but this becomes an expensive addition of capital equipment. You could run the toaster continuously and build up an inventory of hot toast, throwing away what you can’t use but always having immediate access to product.

alternatives do exist: equipment capacity, manpower, and inventory can be traded off against each other and then balanced against delivery time.

Because each alternative costs money, your task is to find the most cost-effective way to deploy your resources—the key to optimizing all types of productive work.

You probably won’t use a stopwatch to conduct a time-and-motion study of the person behind a toaster; nor will you calculate the precise trade-off between the cost of toast inventory and the added toaster capacity in mathematical terms. What is important is the thinking you force yourself to go through to understand the relationship between the various aspects of your production process.

continuous operation at the expense of flexibility, and we can no longer prepare each customer’s order exactly when and how he requests it. So our customers have to adjust their expectations if they want to enjoy the benefits of our new mode: lower cost and more predictable product quality.

continuous operation does not automatically mean lower cost and better quality.

How do you minimize the risk of a breakdown of this sort? Performing a functional test is one way.

A second way involves in-process inspection,

whenever possible, you should choose in-process tests over those that destroy product.

incoming or receiving inspection. If the eggs are unacceptable in some way, you are going to have to send them back, leaving you with none. Now you have to shut down. To avoid that, you need a raw material inventory.

Besides the cost of the raw material and the cost of money, you should also try to gauge the opportunity at risk: what would it cost if you had to shut your egg machine down for a day? How many customers would you lose? How much would it cost to lure them back? Such questions define the opportunity at risk.

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

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.

supply. So a terribly expensive trade-off results, violating the most important production principles.

clearly misuses society’s total investment in the criminal justice system. And this happens because we permit the wrong step (the availability of jail cells) to limit the overall process.

substantial staff

But 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, you need even more of them.

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

First, you’ll want to know your sales forecast for the day. How many breakfasts should you plan to deliver?

variance between your plan and the actual delivery of breakfasts for the preceding day.

raw material inventory.

condition of your equipment. If anything broke down yesterday, you will want to get it repaired or rearrange your production line to meet your forecast for the day.

manpower. If two waiters are out sick, you will have to come up with something if you are still going to meet the demand forecasted. Should you call in temporary help? Should you take someone off the toaster line and make him a waiter?

quality ind...

Perhaps you should set up a “customer complaint log” maintained by the cashier. If one of your waiters elicited more than the usual number of complaints yesterday, you will want to speak to him first thing today.