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High Output Management

Sometime in 2015 I realized how incomplete my understanding of management was. In my head management was a job to be done, but there was no such thing as good/bad management. The output of an organization was the sum of outputs of the workers, and changing the manager wouldn’t have any effect. This changed in my first year post college, when I worked with bad and good managers.

The difference was evident to me when keeping all other variables constant, my individual output increased under the good manager vs the bad one. This pushed me to understand how to be a good manager, and what could be quantified as managerial output. Read in that light, Andy Grove’s High Output Management ended up introducing me to managerial output, and I’m left with some takeaways to share.

New vocabulary

Management theory feels like stating the obvious, especially when you’ve worked professionally. But I think there is value to be created by stating the obvious, and converting experiences into words. Vocabulary makes it easier to pass concepts around, build complex concepts on top of existing ones. As complex entities become primitives and more usable, life progresses.

Even before I read HOM, I could describe each of the terms below through a vague combination of recollection and intuition. But by putting them into clear words, I can save the time I would have spent thinking about them, and apply them. (The list is by no means exhaustive; only those terms that left an impression on me.)

Questions of organization

Why do all tech companies have a sense of egalitarianism, with informal attire and open offices? Grove provides an interesting explanation. Since tech is a knowledge based industry, business decisions are based on the latest know-how, which is what workers are best at. For know-how insights to climb up the hierarchy and be a part of decision making, the environment needs to be non-hierarchical.

I can think of other such questions on organization that find answers in business fundamentals. For example, why is sales typically known for high ratio of variable pay? The answer probably lies in the ease of estimating impact of work. As firm theory suggests, the most rational wage for a worker is the marginal revenue product of labour. Hence, a business would like to compensate a worker only for the incremental value created, no more no less.

In sales, the impact of the salesperson’s work is easy to measure, as converted deals add up instantly to the company’s revenue. As a counter example, an R&D scientist has a lower ratio of variable pay because the impact of work is harder to measure. Even when measured, there is a long time gap between when the work was done and when it actually accrues as revenue.

  1. Important word of caution on this from Grove: there is no judgement of value or worthiness when it comes to TRM and relevant management style. We are after what is most effective.“

Posted on December 3, 2016   #books     #management  

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