Business Book Series: High Output Management

Apple board member Bill Campbell once described High Output Management as “the bible that every entrepreneur and every manager in the country should look at, read and understand”. This book, by former CEO of Intel Andy Grove, is as relevant today as it was when it first came out. It will not only tell you what makes a great leader, but also teach you how to become one. So whether you currently lead a team or hope to one day, read on.

The stage is set by introducing management as an equation:

A manager’s output = the output of his organization + the output of the neighboring organizations under his influence.

This equation makes a clear distinction as to what sets a manager apart from an individual employee. Being a good manager isn't just about being smart, it's about being able to transfer that knowledge to the entire organization so that everyone can benefit from it.

Let's talk about some of Andy Grove's core management techniques and how you can apply them to your own teams.

The Breakfast Factory

Grove compares building and managing your production flow to that of a breakfast restaurant. Let's say a customer comes in wanting a fairly standard order — 3 eggs, buttered toast and a coffee. As the restaurant, you want to accomplish a few goals here:

  • Deliver the product within the scheduled delivery time, in this case, that means within five to ten minutes from when the order was placed
  • Make the product good quality, so, don't burn anything
  • Make sure the cost enables you to sell at a competitive price and make a profit, but is not so high that your customers will find your prices exorbitant
breakfast_factory-1

[Adapted from Beau Gordon]

Building your production flow begins with first identifying The Limiting Step. This is the step that will take the most time and could hold back your delivery if it isn't prioritized. At a restaurant, time and manpower is money, so the item that takes the longest to cook — the eggs — is our limiting step. You need to make sure this step doesn't lengthen the total throughput time, which is the total time it takes to make the whole breakfast. That means planning the flow around the limiting step.

Keep in mind that just because the eggs are your limiting step now, doesn't mean that it can't be changed. For example, if there's a wait time to use the toaster, the toaster availability may become the new limiting step.

breakfast_factory_v2-1

Now, if you're still stuck in line waiting for the toaster when it's time to start boiling the egg, things begin to get more complicated. As a manager you need to ask yourself questions like:

  • Should you hire more staff to put one person on eggs and one on toast? Or is that a waste of financial resources? You can probably find a better solution.
  • Do you buy a second toaster? Or will that offset your production ratios?
  • Can you ask a waiter to help out during rush hour? Or is that too unpredictable? Pulling a waiter away from the tables during rush hour also might not be the best idea.

Each of these choices will cost you money or time, so you need to find the most cost-effective option that keeps production optimized. As a manager, this idea extends to your entire operation. You should come up with a number of indicators to keep track of how well you're meeting the operational goals you've set for your business.

When choosing indicators at a restaurant, you want to make sure they're something you can check first thing every morning to make sure you're on the right track. That may mean monitoring things like raw material inventory or equipment conditions. This idea also applies to managing a software development team, though your indicators will likely be more long term, such as:

  • Development cycle time
  • Cost of completion vs. expected cost
  • Number of bugs after shipping
  • Adherence to delivery schedule
  • Customer satisfaction

The most important reason for keeping a close eye on your indicators is to stay keyed in on how your company is doing. That way, if anything starts falling through, you can immediately act upon it before things get out of hand.

On Leading...

The breakfast factory comparison gives us a look at an output-oriented approach to management that can be applied to almost any endeavor you take as a manager. While it may not seem like it applies to you, in the end, every business is striving towards the same goal: high-quality results in less time with less waste.

The rest of the book looks back at the original equation of managerial output. We know that the output of a manager is measured by the output of their team — so how do managers increase the output of those around them?

...Teams

Managers have an infinite number of tasks that they need to complete in a finite number of hours. They need a way to choose the tasks that will help them meet their operational and production goals. This is where managerial leverage comes into play.

Managerial leverage measures the impact of what managers do to increase the output of their teams.

  • High leverage tasks ensure that everyone is using their skills in the most appropriate situations. Examples are: delegating parts of the design process to other members of the team or making final decisions on processes so projects can move forward.
  • Low leverage tasks often delay progress and cause unnecessary interruptions in the flow of work. An example is meddling in a customer issue rather than letting the team member figure it out themselves.

The key in deciding which tasks are high leverage is to delegate all tasks that don't require your unique knowledge and skill set to others so that you can focus on meeting  long-term goals through short-term objectives. Keeping both of these in mind will ensure you're not thinking too far ahead without considering shorter checkpoints meant to keep you on the right track.

...Enterprises

As your company grows and expands to multiple products, the complexity of managing these products also increases. With multiple products comes a decrease in speed. Your company now has to deal with the redundacy of checking multiple products for quality and bugs. You will also experience an increase in managerial leverage because there are more higher-level decisions to be made on every product.

One of the biggest decisions is whether to move towards a functional team or a mission-oriented team.

  • Functional teams increase leverage because services are centralized and deliver to the entire company. This will make it easier for developers to connect with the rest of the company if needed.
  • Mission-oriented teams pursue independent objectives that allow for faster turnaround time. So your dev team can buckle down to focus on creating the product, but the rest of the company might not know what's going on.

A manager must take these into account and make sure that their company makes the right choice so that business goals aren't compromised.

...People

While it may seem like we're moving in the opposite direction by talking about people last, it's important that we put extra emphasis here. While a good team has to work well together, in reality, a team will only perform at its best if every individual is at peak performance.

The question becomes: how do you motivate your people to be at their best consistently? This can be boiled down to a few factors:

  • Setting clear expectations and cultural values. If these aren't clear from the beginning, employees will go in without clear guidelines on how they can contribute to the company. Building a culture of teamwork and collaboration will make sure that your team is motivated by group interests rather than just trying to climb the ladder themselves.
  • Understanding what drives your employees and “shaping the field” to help them grow. Every employee will have different needs that they are striving to fulfill, whether it's increasing a level of competence or meeting certain goals. Setting a clear path for them to reach these will make sure team members are being pushed to continue growing.
  • Using performance reviews to improve performance. Your assessment system should be effective in that it lays out clear guidelines for how your employees can improve by the next review. Whether it's participating more in group discussion or taking on more difficult projects, if team members don't know what concrete goals they should be hitting, they'll come to the next review just as confused as they were in the last one.

Assess Your Own Output

While it's the manager's job to assess how their team is doing, it's just as much their job to assess their own competence. If a manager isn't managing effectively, their employees can't be expected to perform at their highest ability either. As a manger, you should make sure you're setting clear expectations for everyone on the team so that you're meeting your operation and production goals and looking towards the future.