High Output Management

by Andrew S. Grove

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.

Measuring the completion date of each software unit against its capability is one example. Watching this pair of indicators should help us to avoid working on the perfect compiler that will never be ready, and also to avoid rushing to finish one that is inadequate. In sum, joint monitoring is likely to keep things in the optimum middle ground.

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

The first rule is that a measurement—any measurement—is better than none.

genuinely effective indicator will cover the output of the work unit and not simply the activity involved.

what you measure should be a physical, countable thing.

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.

Such indicators have many uses. First, they spell out very clearly what the objectives of an individual or group are. Second, they provide a degree of objectivity when measuring an administrative function. Third, and as important as any, they give us a measure by which various administrative groups performing the same function in different organizations can be compared with each other. The performance of a custodial group in one major building can now be compared with that of another group in a second building. In fact, if indicators are put in place, the competitive spirit engendered frequently has an electrifying effect on the motivation each group brings to its work, along with a parallel improvement in performance. More about this later when we examine the “sports analogy.”

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.

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.

linearity indicator.

The linearity indicator can give us an early warning that we are likely to miss our target.

we may assume that because it makes monthly goals regularly, all is well. But we can cut a window into the black box here, measure production output against time as the month proceeds, and compare that with the ideal linear output. We may learn that output performance is spread evenly throughout the course of the month or that it is concentrated in the last week of the month. If the latter is the case, the manager of the unit is probably not using manpower and equipment efficiently. And if the situation is not remedied, one minor breakdown toward month’s end could cause the unit to miss its monthly output goal entirely. The linearity indicator will help you anticipate such a problem and is therefore quite valuable.

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.

stagger chart, which forecasts an output over the next several months. 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. In my experience, nowhere has the stagger chart been more productive than in forecasting economic trends. The way it works is shown in the figure below, which gives us forecasted rates of incoming orders for an Intel division. The stagger chart then provides the same forecast prepared in the following month, in the month after that, and so on. Such a chart shows not only your outlook for business month by month but also how your outlook varied from one month to the next. 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 of business trends that I have ever seen.

Finally, indicators can be a big help in solving all types of problems. If something goes wrong, you will 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.

Because the art and science of forecasting is so complex, you might be tempted to give all forecasting responsibility to a single manager who can be made accountable for it. But this usually does not work very well. 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.

The order for the product and the product itself should arrive at the shipping dock at the same time.

It is a good idea to use stagger charts in both the manufacturing and sales forecasts. As noted, they will show the trend of change from one forecast to another, as well as the actual results. By repeatedly observing the variance of one forecast from another, you will continually pin down the causes of inaccuracy and improve your ability to forecast both orders and the availability of product. Forecasting future work demands and then adjusting the output of an “administrative factory” represents a very important way in which its productivity can be increased. Though an old and honored way of operating “widget factories,” the application of forecasting techniques is hardly common as a way to control administrative work.

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. By rigorous application of the principles of forecasting, manpower can be reassigned from one area to another, and the headcount made to match the forecasted growth or decline in administrative activity. 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. There is no question that having standards and believing in them and staffing an administrative unit objectively using forecasted workloads will help you to maintain and enhance productivity.

Assuring Quality As we have said, manufacturing’s charter is to deliver product at a quality level acceptable to the customer at minimum cost. To assure that the quality of our product will in fact be acceptable, all production flows, whether they “make” breakfasts, college graduates, or software modules, must possess inspection points. To get acceptable quality at the lowest cost, it is vitally important to reject defective material at a stage where its accumulated value is at the lowest possible level.

Another way to lower the cost of quality assurance is to use variable inspections. Because quality levels vary over time, it is only common sense to vary how often we inspect. For instance, if for weeks we don’t find problems, it would seem logical to check less often. But if problems begin to develop, we can test ever more frequently until quality again returns to the previous high levels. The advantage here is still lower costs and even less interference with the production flow. Yet this approach is not used very often, even in widget manufacturing. Why not? Probably because we are creatures of habit and keep doing things the way we always have, whether it be from week to week or year to year.

when a manager digs deeply into a specific activity under his jurisdiction, he’s applying the principle of variable inspection. If the manager examined everything his various subordinates did, he would be meddling, which for the most part would be a waste of his time. Even worse, his subordinates would become accustomed to not being responsible for their own work, knowing full well that their supervisor will check everything out closely. The principle of variable inspection applied to managerial work nicely skirts both problems, and, as we shall see, gives us an important tool for improving managerial productivity.

productivity of any function occurring within it is the output divided by the labor required to generate the output.

one way to increase productivity is to do whatever we are now doing, but faster.

second way to improve productivity. We can change the nature of the work performed: what we do, not how fast we do it.

“work smarter, not harder.”

…or by increasing the leverage of the activities.

concept of leverage, which is the output generated by a specific type of work activity. An activity with high leverage will generate a high level of output; an activity with low leverage, a low level of output.

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

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. I...

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 procedu...

The major problem to be overcome is defining what the output of such work is or should be. As we will see, in the work of the soft professions, it becomes very difficult to distinguish between output and activity. And as noted, stressing output is the key to improving productivity, while looking to increase activity can result in just the opposite.

Do these things really constitute the output of a manager? I don’t think so. They are instead activities, or descriptions of what managers do as they try to create a final result, or output.

What, then, is a manager’s output? At Intel, if she is in charge of a wafer fabrication plant, her output consists of completed, high-quality, fully processed silicon wafers. If he supervises a design group, his output consists of completed designs that work correctly and are ready to go into manufacturing. If a manager is the principal of a high school, her output will be trained and educated students who have either completed their schooling or are ready to move on to the next year of their studies. If a manager is a surgeon, his output is a fully recovered, healed patient.

A manager’s output = The output of his organization + The output of the neighboring organizations under his influence Why? Because business and education and even surgery represent work done by teams.

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.

a marketing analyst who reviews mountains of product, market, and competitive information, analyzes market research, and makes fact-finding visits can directly affect the output of many “neighboring” organizations. His interpretations of the data and his recommendations will perhaps guide the activities for the whole company.

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

a coach or a quarterback alone does not score touchdowns and win games. Entire teams with their participation and guidance and direction do.

League standings are kept by team, not by individual. Business—and this means not just the business of commerce but the business of education, the business of government, the business of medicine—is a team activity. And, always, it takes a team to win.

It is important to understand that a manager will find himself engaging in an array of activitie...

he must provide d...

he must allocate r...

he must detect m...

All these are necessary to achieve output. But output and activity are by n...

company, I can affect output through my direct subordinates—group general managers and others like them—by pe...

also influence groups not under my direct supervision by making observations and suggestion...

Both types of activity will, I hope, contribute to my output as a manager by contributing to the outp...