Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries

by Safi Bahcall

The greater your skill on the projects to which you have been assigned, which we can call project–skill fit, the more likely you are to choose project work. The lower your project–skill fit, the more likely you are to choose politics.

A final fitness control parameter is difficult to measure, but every employee feels it. Let’s call it return-on-politics: how much politics matters in promotion decisions. Are promotions decided purely (or almost entirely) on merit? Or do lobbying, networking, and self-promoting make a big difference?

E Equity fraction S Management span F Organizational fitness G Salary growth rate up the hierarchy

formula picture: https://www.dropbox.com/s/p5h1u4ja568hk7s/magic-number-M.png?dl=0 the magic number M, above which the organisation flips from project outcome to politics.

Since the equity fraction E is in the numerator, as E increases the magic number M gets larger. That means an increasingly larger group of people can work together, free of politics, in the loonshot phase.

Below the critical threshold, the magic number in the equation above, incentives encourage individuals to unite around loonshots. When group size crosses that magic number, incentives shift toward favoring a focus on careers: the politics of promotion (#1 → #2 in the diagram below). For typical group structures, that number may be roughly 150. But by adjusting the parameters of structure—equity fraction, fitness, management span, compensation growth rate—we can raise that magic number (which is why the dashed line is angled; if we couldn’t adjust the number then the dashed line would be purely vertical). Another way to say the same thing: groups much larger than 150 people, which are stuck in the career politics phase (#2 in the diagram), can restore the focus on loonshots by adjusting their structure (#2 → #3).

Partnerships reduce the return-on-politics in still another way.

Did a program fail because the underlying technology just didn’t work (hypothesis failure), or because the person running the project botched it up (operational failure)?

DARPA’s principles—elevated autonomy and visibility; a focus on the best external rather than internal ideas

At McKinsey, for important promotion decisions, a senior partner, chosen for his or her limited overlap with a candidate’s office and practice, is brought in to conduct an independent evaluation.

McKinsey, however, dedicates a full-time team to managing project–skill fit. The person in charge scans for bad fits and steps in to rescue a bad situation, as he did in my case. He pulled me off that project and away from that manager and placed me where my skills were better suited.

Large companies, for example, often use a steep equity grant curve: they award large stock options or cash bonuses at the highest levels (as much as 100 percent of base salary), and tiny amounts at junior and mid-levels (below 10 percent). That creates exactly the wrong incentive for the most vulnerable part of the organization—the dangerous middle.

A wants B’s budget; B wants C out of the way; D wants A’s headcount; and so on. Steep equity grant curves—big bonuses at the highest levels, tiny ones at the lowest levels—just raise the stakes of those battles. The big bonuses are just one or two steps up the ladder for middle managers like A, B, C, and D—so close they can taste them. The steep curve creates a middle-manager version of Survivor: a giant jackpot for those who succeed in crushing their colleagues and staying alive. If

Tilting the rewards more toward projects and away from promotion means celebrating results, not rank.

One group noted that “increased [wage] dispersion is associated with lower productivity, less cooperation, and increased turnover.” Translation: a big G is a bad thing.

Pay contractors by the hour, and problems may multiply. Reward sales, and profits may disappear (customers can be bought). Reward the number of products launched, or the number of drugs that enter clinical trials, and recalls and failed trials may balloon. It sounds like a good idea to put big bonuses at the top levels and tiny ones at the lower levels. But it turns the vulnerable middle into a scene from Lord of the Flies. Examining

Even more common is a useless system, in which rewards are handed out that do nothing. I’m still amazed by how often large companies compensate junior or mid-level employees on company earnings. If your project can move earnings by no more than a tiny fraction of a percent, how does a company-earnings bonus motivate you? You might as well put your energy into twiddling your thumbs and fooling your boss into thinking you are indispensable while enjoying the free ride if earnings go up. (Economists call a similar issue in the use of public goods the “free-rider problem.”)

I’d rather be worth 100 million euros, have fun now, and enjoy people’s respect when I am the senile chairman of my firm than be worth a billion and get paid fat dividends by a little **** with a Harvard MBA, who runs my firm and lectures me at board meetings.

Reduce the return on politics: Make

Fix the middle: Identify and fix perverse incentives, the unintended consequences of well-intentioned rewards. Pay special attention to the dangerous middle-manager levels, the weakest point in the battle between loonshots and politics. Shift away from incentives that encourage battles for promotion and toward incentives centered on outcomes. Celebrate results, not rank. • Bring a gun to a knife fight: Competitors in the battle for talent and loonshots may be using outmoded incentive systems. Bring in a specialist in the subtleties of the art—a chief incentives officer.

One final note. All of the above can be considered elements of structure in designing how individuals in teams or groups work together, in contrast to the previously mentioned mountains of print written about culture.

This book is about the former, not the latter, because, as experienced entrepreneurs know, so many ideas and technologies now recognized as transformative began with practically no resemblance to the final product they grew into, nurtured by champions who never imagined their ultimate market. Early-stage projects in rapidly evolving markets behave like a leaf in a tornado. You wouldn’t put a lot of faith in guessing where that leaf might end up.

They were given the vague goal of improving the performance of existing amplifiers and relay switches used in the phone system. By the definitions above, their goals were sustaining.

Did the scientists or business managers working on the transistor begin with the idea of disrupting the hearing-aid market? No. They were building better switches. Did the transistor come from a new entrant, start off low-priced, for the low end of a market? No. It began as a sustaining innovation from the largest company in the country. It was initially much more expensive than a vacuum tube ($20 vs. $1). It first sold to high-end customers like the military.

none of the successful ideas started with the final end and use they ended up with. So do start with "an" impact pathway and "an" end in mind but don't take them too seriously and adapt.

the transistor, Google, the iPhone, Uber, Walmart, IKEA, and American Airlines’ Big Data and other industry-transforming ideas were all initially sustaining innovations, and hundreds of “disruptive innovators” fail, perhaps the distinction between sustaining vs. disruptive, while interesting academically or in hindsight, is less critical for steering businesses in real time than other notions.