High Output Management

by Andrew S. Grove

Some two thirds of Intel’s employees work in the functional units, indicating their enormous importance. What are some of the advantages of organizing so much of the company in such groups? The first is the economies of scale that can be achieved.

the advantage here is that the expertise of specialists—know-how managers, such as the research engineers who work in technology development—can be applied across the breadth of the entire corporation, giving their knowledge and work enormous leverage.

Having so much of Intel organized in functional units also has its disadvantages. The most important is the information overload hitting a functional group when it must respond to the demands made on it by diverse and numerous business units.

things often move beyond negotiation to intense and open competition among business units for the resources controlled by the functional groups. The bottom line here is that both the negotiation and competition waste time and energy because neither contributes to the output or the general good of the company.

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.

Grove’s Law: All large organizations with a common business purpose end up in a hybrid organizational form.

The Breakfast Factory, an army, Intel, and ABC Technologies provide examples.

Take an educational institution in which one finds individual mission-oriented departments such as mathematics, English, engineering, and so on, and also administration, composed of personnel, security, and library services, whose combined task is to supply the common resources that each of the individual departments needs to function.

The only exceptions that come to my mind are conglomerates, which are typically organized in a totally mission-oriented form. Why are they an exception to our rule? Because they do not have a common business purpose. The various divisions (or companies) in this case are all independent and bear no relationship to one another beyond the conglomerate profit and loss statement. But within each business unit of the conglomerate, the organization is likely to be structured along the hybrid line.

In fact, the most glaring example of inefficiency I’ve encountered went on some years ago in Hungary, where I once lived and where a central planning organization decided what goods were to be produced, when, and where. The rationale for such planning was very solid, but in practice it usually fell far, far short of meeting real consumer needs.

An unintended consequence of the moon shot was the development of a new organizational approach: matrix management.

it occurred to us that perhaps security personnel should report jointly to the corporate security manager and to the local plant manager.

The first step in his career is being an individual contributor—a salesman, for instance. If he proves himself a superior salesman, he is promoted to the position of sales manager, where he supervises people in his functional specialty, sales.

To make such a body work requires the voluntary surrender of individual decision-making to the group. Being a member means you no longer have complete freedom of individual action, because you must go along with the decisions of your peers in most instances.

At work, surrendering individual decision-making depends on trusting the soundness of actions taken by your group of peers.

Consider how the controller works at Intel. His professional methods, practices, and standards are set by the functional group to which he belongs, the finance organization. Consequently, the controller for a business unit should report to someone in both the functional and the mission-oriented organizations, with the type of supervision reflecting the varying needs of the two. The divisional general manager gives the controller mission-oriented priorities by asking him to work on specific business problems. The finance manager makes sure that the controller is trained to do his work in a technically proficient manner, supervises and monitors his technical performance, and looks after his career inside finance, promoting him, perhaps, to the position of controller of a bigger, more complex division if he performs well.

The divisional marketing managers should control most of their own advertising messages. But a coordinating body of peers consisting of the various divisional marketing managers and perhaps chaired by the corporate merchandising manager should provide the necessary functional supervision for all involved.

Dual reporting can certainly tax the patience of the marketing managers, as they are now also required to understand the needs and thought processes of their peers. But no real alternative exists when you need to communicate individual product and market messages and maintain a corporate identity at the same time.

the hybrid organizational form is the inevitable consequence of enjoying the benefits of being part of a large organization—a company or university or whatever.

Like it or not, the hybrid organization is a fundamental phenomenon of organizational life.

But Cindy has another job, too. She meets formally once a month with her counterparts from the other production plants to identify, discuss, and solve problems related to the process for which they are each responsible in their respective plants.

This coordinating group also works to standardize procedures used at all plants.

Cindy’s name appears on two organization charts that serve two separate purposes—one to operate the production plant, the other to coordinate the efforts of various plants.

Our ability to use Cindy’s skill and know-how in two different capacities makes it possible for her to exert a much larger leverage at Intel.

people who are in a subordinate/supervisory relationship in one plane might find the relationship reversed in another.

The free market can easily establish a price for something as simple as tires. But for much else that changes hands in a work or business environment, value is hard to establish.

The point is that how much an engineer is worth in a group cannot be pinned down by appealing to the free market.

Because I can’t specify in advance exactly what you will do from day to day, I must have a fair amount of generalized authority over your work.

So you must give to me as part of the contract the right to monitor and evaluate and, if necessary, correct your work.

for lawbreakers we need policemen, and with them, as with supervisors, we introduce overhead.

Take the tax system. We surrender the right to some of what we earn and expect certain services in return.

Giant overhead is necessary to monitor and audit our tax returns.

in exchange for a monopoly, the company is contractually obliged to accept the government’s decision on pricing and profit.

we need another mode of control, which is based on cultural values.

most important characteristic is that the interest of the larger group to which an individual belongs takes precedence over the interest of the individual himself.

emotionally loaded words come into play—words like trust—because you are surrendering to the group you...

must believe that you all share a common set of values, a common set of objectives, an...

for cultural values, management has to develop and nurture the common set of values, objectives, and methods essential for the existence of trust.

by articulation, by spelling out these values, objectives, and methods. The other, even more important, way is by example.

there is always a most appropriate mode of control, which we as managers should find and use.

two variables here: first, the nature of a person’s motivation; and second, the nature of the environment in which he works.

CUA factor.

The individual motivation can run from self-interest to group-interest,

CUA factor of a working environment can vary from low to high.

When self-interest is high and the CUA factor is low, the most appropriate is the market mode, whic...

When group-interest orientation and the CUA factor are both high, the cultural values mode becomes the best choice,

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.

new emp...

much based on self-...

give him a clearly structured job with a ...