High Output Management

High Output Management

Chapter 1

  • All production flows have a basic characteristic: the material becomes more valuable as it moves through the process
  • A common rule we should always try to heed is to detect and fix any problem in a production process at the lowest-value stage possible
  • The output of a manager is the output of the organizational units under his supervision or influence
  • “a manufacturer should accept the responsibility of delivering a product at the time committed” .. by looking at production flow
  • Total throughput time = Time from committed to delivery

    The key idea is that we construct our production flow by starting with the longest (or most difficult, or most sensitive, or most expensive) step and work our way back

    • Three components of production:

      1. process manufacturing
      2. assembly
      3. test
  • Delivering efficient output is a matter of balancing the solutions to increasing output:

    “equipment capacity, manpower, and inventory can be traded off against each other and then balanced against delivery time.”

    “Because each alternative costs money, your task is to find the most cost-effective way to deploy your resources the key to optimizing all types of productive work. Bear in mind that in this and in other such situations there is a right answer, the one that can give you the best delivery time and product quality at the lowest possible cost. To find that right answer, you must develop a clear understanding of the trade-offs between the various factors manpower, capacity, and inventory and you must reduce the understanding to a quantifiable set of relationships.” “What is important is the thinking you force yourself to go through to understand the relationship between the various aspects of your production process”

  • On types of tests:

    The point is that whenever possible, you should choose inprocess tests over those that destroy product.

  • On inventory to cover supplier shortfalls:

    The principle to be applied here is that you should have enough to cover your consumption rate for the length of time it takes to replace your raw material


book: The output of a manager is the output of the organizational units under his supervision or influence

Instead, a manufacturer should accept the responsibility of delivering a product at the time committed to in this case, by implication, about five to ten minutes after the customer arrives at our breakfast establishment.

How are we going to do this in the most intelligent way? We start by looking at our production flow.

Adding the required time to do this to the time needed to get and cook the egg defines the length of the entire process called, in production jargon, the total throughput time.

The key idea is that we construct our production flow by starting with the longest (or most difficult, or most sensitive, or most expensive) step and work our way back

we find present the three fundamental types of production operations: process manufacturing

assembly, in which components are put together to constitute a new entity just as the egg the toast, and the coffee together make a breakfast; and test, which subjects the components or the total to an examination of its characteristics. There are, for example, visual tests made at points in the breakfast production process: you can see that the coffee is steaming and that the toast is brown.

But at least you know that alternatives do exist: equipment capacity, manpower, and inventory can be traded off against each other and then balanced against delivery time.

Bear in mind that in this and in other such situations there is a right answer, the one that can give you the best delivery time and product quality at the lowest possible cost. To find that right answer, you must develop a clear understanding of the trade-offs between the various factors manpower, capacity, and inventory and you must reduce the understanding to a quantifiable set of relationships

inventory and the added toaster capacity in mathematical terms. What is important is the thinking you force yourself to go through to understand the relationship between the various aspects of your production process

The point is that whenever possible, you should choose inprocess tests over those that destroy product.

The principle to be applied here is that you should have enough to cover your consumption rate for the length of time it takes to replace your raw material

All production flows have a basic characteristic: the material becomes more valuable as it moves through the process

A common rule we should always try to heed is to detect and fix any problem in a production process at the lowest-value stage possible

Let’s say that as manager of the breakfast factory, you will work with five indicators to meet your production goals on a daily basis. Which five would they be? Put another way, which five pieces of information would you waut tu look at each day, immediately upon arriving at your office?

You also must get a fix on your manpower

Another important piece of information is the condition of your equipment

Finally, you want to have some kind of quality indicator. It is not enough to monitor the number of breakfasts each waiter delivers, because the waiters could have been rude to the customers even as they served a record number of breakfasts. Because

Your next key indicator is raw material inventory. Do

First, you’ll want to know your sales forecast for the day. How many breakfasts should you plan to deliver? To assess how much confidence you should place in your forecast, you would want to know how many you delivered yesterday compared to how many you planned on delivering in other words, the variance between your plan and the actual delivery of breakfasts for the preceding day

So 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. A rise in the latter will obviously lead you to do things to keep inventories from becoming too low.

But a genuinely effective indicator will cover the output of the work unit and not simply the activity involved. Obviously, you measure a salesman by the orders he gets (output), not by the calls he makes (activity).

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

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

Thus, the linearity indicator Hashes an early warning, allowing us time to take corrective action. Without it, we would discover that we Had missed our target in June, when nothing can be done about

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.

would go as far as to say that it’s too bad that all economists and investment advisers aren’t obliged to display their forecasts in a stagger chart form. Then we could really have a way to evaluate whateverany one of them chooses to say.

In short, you will have to build to forecast, which is a contemplation of future orders. To do this, the manufacturer sets up his activities around a reasoned speculation that orders will materialize for specific products within a certain time.

An obvious disadvantage here is that the manufacturer takes an inventory risk. Since

At Intel we try to match the two parallel flows with as much precision as possible. If there’s no match, we end up with a customer order that we can’t satisfy or with a finished product for which we have no customer. Either way we have problems. Obviously, if the match does come off, with a forecasted order becoming a real order,

But inventory costs money to build and keep, and therefore should be controlled carefully. Ideally, inventory should be kept at the lowest value stage, as we’ve learned before, like raw eggs kept at the breakfast factory

To get acceptable quality at the lowest cost, it is vitally importantto reject defective material at a stage where its accumulated value is at the lowest possible level

Accordingly, one should approach the need to inspect recognizing that a balance exists between the desired result of the inspection, improved quality, and minimum disturbance to the production process itself

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

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

The productivity of any function occurring within it is the output divided by the labor required to generate the output. Thus, one way to increase

productivity is to do whatever we are now doing, but faster. This could be done by reorganizing the work area or just by working harder. Here we’ve not changed what work we do, we’ve just instituted ways to do it faster getting more activities per employee hour to go on inside the black box. Because the output of the black box is proportional to the activity that occurs within it, we will get more output per hour. There is a second way to improve productivity. We can change the nature of the work performed: what we do, not how fast we do it. We want to increase the ratio of output to activity, thereby increasing output even if the activity per employee-hour remains the same

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 in both widget manufacturing and administrative work, something else can also increase the productivity of the black box. This is called work simplification

We found that in a wide range of administrative activities at Intel, substantial reduction about 30 percent could be achieved in the number of steps required to perform various tasks. Of course, the principle of work simplification is hardly new in the widget manufacturing arts. In fact, this is one of the things industrial engineers have been doing for a hundred years. But the application of the principle to improve the productivity of the “soft professions” the administrative, professional, and managerial workplace is new and slow to take hold

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

Part of the problem here stems from the distinction between our activities, which is what we actually do, and our output, winch is what we achieve

A manager must keep many balls in the air at the same time and shift his energy and attention to activities that will most increase the output of his organization. In other words, he should move to the point where his leverage will be the greatest.

Meanwhile, let’s say that decisions can be separated into two kinds. The forward-looking sort are made, for example, in the capital authorization process, Here we allocate the financial resources of the company among various future undertakings. The second type is made as we respond to a developing problem or a crisis, which can either be technical (a quality control problem, for example) or involve people (talking somebody out of quitting).

Managerial productivity that is, the outDut of a manager per unit of time worked can be increased in three ways: 1. Increasing the rate with which a manager performs his activities, speeding up his work. 2. Increasing the leverage associated with the various managerial activities. 3. Shifting the mix of a manager’s activities from those with lower to those with higher leverage.

Thus to maximize the leverage of his activities, a manager must keep timeliness, which is often critical, firmly in mind.

Because managerial time has a hierarchy of values, delegation is an essential aspect of management. The “delegator” and “delegatee” must share a common information base and a common set of operational ideas or notions on how to go about solving problems, a requirement that is frequendy not met

Before answering, consider the following principle: delegation without follow through is abdication. You can never wash your hands of a task. Even after you delegate it, you are still responsible for its accomplishment, and monitoring the delegated task is the only practical way for you to ensure a result

For example, review rough drafts of reports that you have delegated; don’t wait until your subordinates have spent time polishingthem into final form before you find out that you have a basic problem with the contents.

How often you monitor should not be based on what you believe your subordinate can do in general, but on his experience with a specific task and his prior performance with it his task-relevant maturity

First, we must identify our limiting step: what is the ”egg” in our work? In a manager’s life some things really have to happen on a schedule that is absolute

From my experience a large portion of managerial work can be forecasted. Accordingly, forecasting those things you can and setting yourself up to do them is only common sense and an important way to minimize the feeling and the reality of fragmentation experienced in managerial work. Forecasting and planning your time around key events are literally like running an efficient factory.

What is the medium of a manager’s forecast? It is something very simple: his calendar. Most people use their calendars as a repository of “orders” that come in.

Another production principle is very nearly the opposite. A manager should carry a raw material inventory in terms of projects. This

The most common problem cited was uncontrolled interruptions, which in remarkably uniform fashion affected uocn supervisory and know-how managers. Everyone

In the first kind of meeting, called a process-oriented meeting, knowledge is shared and information is exchanged. Such meetings take place on a regularly scheduled basis

the second kind of meeting is to solve a specific problem. Meetings of this sort, called mission-oriented, frequendy produce a decision.

You would not. I feel that a one-on-one should last an hour at a minimum. Anything less, in my experience, tends to make the subordinate confine himself to simple things that can be handled quickly.

The good time users among managers do not talk to their subordinates about their problems but they know how to make the subordinates talk about theirs."

“Ask one more Question!” When the supervisor thinks the subordinate has said all he wants to auout a subject, he should ask another question

First, both the supervisor and subordinate snould have a copy of the outline and both should take notes on it, which serves a number of purposes. I take notes in just about all circumstances, and most often end up never looking at them again. I

present. If the meeting degenerates into a conversation between two people working on a problem affecting only them, the supervisor should break it off and move on to something else that will include more of the staff, while suggesting that the two continue their exchange later

But it should also include an “open session” a designated period of time for the staff to bring up anything they want. This is when a varied set of housekeeping matters can be disposed of, as well as when important issues can be given a tentative first look

The basic purpose of an operation review at Intel is to keep the teaching and learning going on between employees several organizational levels apart people who don’t have oneon-ones or start meetings with each other

The junior person will benefit from the comments, criticisms, and suggestions of the senior manager, who in turn will get a dilterent feel for problems from people familiar with their details

the mission-oriented meeting is usually held ad hoc and is designed to produce a specific output, frequendy a decision

The absolute truth is that if you don’t know what you want, you won’t get it. So before calling a meeting, ask yourself: What am I trying to accomplish? Then ask, is a meeting necessary? Or desirable? Or justifiable?

Keep in mind that a meeting called to make a specific decision is hard to keep moving if more than six or seven people attend. Eight people should be the absolute cutoff.

making is not a spectator sport, because onlookers get in the way of what needs to be done


Once the meeting is over, the chairman must nail down exactly what happened by sending out minutes that summarize the discussion that occurred, the decision made, and the actions to be taken

I would put it another way: the real sign of malorganization is when people spend more than 25 percent of their time in ad hoc mission-oriented meetings.

Here a rapid divergence develops between power based on position and power based on knowledge, whichoccurs because the base of knowledge that constitutes the foundation of the business changes rapidly.

What do I mean? When someone graduates from college with a technical education, at that time and for the next several years, that young person will be fully up-todate in the technology of the time. Hence, he possesses a good deal of knowledge-based power in the organization that hired him. If he does well, he will be promoted to higher and higher positions, and as the years pass, his position power will grow but his intimate familiarity with current technology will fade. Put another way, even if today’s veteran manager was once an outstanding engineer, he is not now the technical expert he was when he joined the company. At Intel, anyway, we managers get a little more obsolete every day.

Finally, everyone involved must give the decision reached by the group full support

The next stage is reaching a clear decision. Again, the greater the disagreement about the issue, the more important becomes the word clear. In fact, particular pains should be taken to frame the terms of the decision with utter clarity

All it produces is bad decisions, because ifknowledgeable people withhold opinions, whatever is decided will be based on information and insight less complete than it could have been otherwise.

In our business we have to mix knowledge-power people with position power people daily, and together they make decisions that could affect us for years to come

We named this the peer-plus-one approach, and have used it since then to aid decision-making where we must. Peers tend to look for a more senior manager, even if he is not the most competent or knowledgeable person involved, to take over and shape a meeting.

Note the difference between the situation described earlier by the auto executive and the one John describes. In the former instance, the people were expected to wait for their supervisor to state his opinion first. In the latter, members of the group were waiting for a consensus todevelop. The dynamics are different, but the bottom line in both is that people didn’t really speak their minds freely. That certainly makes it harder for a manager to make the right decisions.

As a manager, you should remind yourself that each time an insight or fact is withheld and an appropriate question is suppressed, the decision-making process is less good than it might have been.

But if you feel that you have already heard everything, that all sides of the issue have been raised, it is time to push for a consensus— and failing that, to step in and make a decision

In other words, one of the manager’s key tasks is to setde six important questions in advance: • What decision needs to be made? • When does it have to be made? • Who will decide? • Who will need to be consulted prior to making the decision?

Who will ratify or veto the decision? • Who will need to be informed of the decision

Intel. He explained that if he could make decisions without consulting anybody, so could everybody else.

key method of controlling the future output of a factory is through the use of a system offorecasting demand and building to forecast. We operated our factory to fill existing and anticipated orders.

You should attempt to determine your customers* expectations and their perception of your performance. You should keep abreast of technological developments like electronic mail and other alternative ways of doing your job. You should evaluate the performance of your vendors. You should also evaluate the performance of other groups in the organization to which you belong. Does some other group (like the traffic department) affect how well you can do your work? Can that group meet your needs?

The questions then become: What do my customers want from me now? Am I satisfying them? What will they expect from me one year from now? You need to focus on the difference between what your environment demands from you now and what you expect it to demand from you a year from now. Such a difference analysis is crucial, because if your current activities satisfy the current demands placed on your business, anything more and new should be undertaken to match this difference. How you react to this difference is in fact the key outcome of the planning process.

The second step of planning is to determine your present status. You do this by listing your present capabilities and the projects you have in the works

The final step of planning consists of undertaking new tasks or modifying old ones to close the gap between your environmental demand and what your present activities will yield. The first question is, What do you need to do to close the gap? The second is, What can you do to close the gap

By analogy, forcing ourselves to concentrate on the decisions needed to fix today’s problem is like scurrying after our car has already run out of gas. Clearly we should have filled up earlier. To avoid such a fate, remember that as you plan you must answer the question: What do I have to do today to solve or better, avoid tomorrow ’s problem?

In other words, the output of the planning process is the decisions made and the actions taken as a result of the process

In other words, we need the feedback that will be indispensable to our planning the next time around.

The idea behind MBO is extremely simple: If you don’t know where you’re going, you will not get there. Or, as an old Indian saying puts it, “If you don’t know where you’re going, any road will get you there”.

A successful MBO system needs only to answer two questions: 1. Where do I want to go? (The answer provides the objective). 2. How will I pace myself to see if I am getting there? (The answer gives us milestones or key results).

So it is entirely possible for a subordinate to perform well and be rated well even though he missed his specified objective

doing. If the supervisor mechanically relies on the MBO system to evaluate his subordinate’s performance, or if the subordinate uses it rigidly and forgoes taking advantage of an emerging opportunity because it was not a specified objective or key result, then both are behaving in a petty and unprofessional fashion.

A manager’s objectives are supported by an appropriate set of key results. His objectives in turn are tied to his supervisor’s objectives so that if the manager meets his objectives, his supervisor will meet his

The breakfast factory goes national

Though most are mixed, organizations can come in two extreme forms: in totally mission-oriented form or in totally functional form. The

In the real world, of course, we look for a compromise between the two extremes. In fact, the search for the appropriate compromise has preoccupied managers for a long, long time. Alfred Sloan summed up decades of experience at General Motors by saying, “Good management rests on a reconciliation of centralization and decentralization.” Or, we might say, on a balancing act to get the best combination of responsiveness and leverage.

The functional groups can be viewed as if they were internal subcontractors. Let’s take a sales organization as an example. Though a lot of companies use outside sales representatives, an internal group presumably provides the service at less expense and with greater responsiveness

Having so much of Intel organized in functional units also has its disadvantages . The most important is the information overload hitting a functional group w T hen it must respond to the demands made on it by diverse and numerous business units. Even conveying needs and demands often becomes very difficult a business unit has to go through a number of management layers to influence decision-making in a functional group

Here I would like to propose Grove’s Law: All large organizations with a common business purpose end up in a hybrid organizational form.

form. Do any exceptions exist to the universality of hybrid organizations? 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

the shift back and forth between the two types of organizations can and should be initiated to match the operational styles and aptitudes of the managers ninning the individual units.

Within a company, they are, in the first place, numerous enough to cover the entire range of operation; and, in the second place, very close to the problem we’re talking about namely, generating internal resources and consuming those resources. For middle managers to succeed at this high-leverage task, two things are necessary. First, they must accept the inevitability of the hybrid organizational form if they are to serve its workings. Second, they must develop and master the practice through which a hybrid organization can be managed. This is dual reporting, the subject of our next chapter.

An unintended consequence of the moon shot was the development of a new organizational approach: matrix management This provided the means through which the work of various contractors could be coordinated and managed so that if problems developed in one place, they did not subvert the entire schedule. Resources could be diverted, for example, from a strong organization to one that was slipping in order to help the latter make up lost time.

the core idea was that a project manager, somebody outside any of the contractors involved, could wield as much influence on the work of units within a given company as could the company management itself

After we wrestled with the dilemma for a while, it occurred to us that perhaps security personnel should report jointly to the corporate security manager and to the local plant manager. The hrst would specify how the job ought to be done, and the second would monitor how it was being performed day by day.

We could handle the problem by designating one person the senior manufacturing manager and having all the manufacturing managers report to him instead of to the general manager. But the more we do this, the more we move toward a totally functional form of organization. A general manager could no longer coordinate the activities of the finance, marketing, engineering, and manufacturing groups toward a single business purpose

The point is that the two- (or multi-) plane organization is very useful. Without it I could only partiripate if I were in charge of everything I was part of. I don’t have that kind of time, and often I’m not the most qualified person around to lead

Similarly, our behavior in a work environment can be controlled by three invisible and pervasive means. These are: free-market forces contractual obligations cultural values

When the environment changes more rapidly than one can change rules, or when a set of circumstances is so ambiguous and unclear that a contract between the parties that attempted to cover all possibilities would be prohibitively complicated, we need another mode of control, which is based on cultural values

At any one time, one of the three modes of control may govern what we are doing. But from one day to the next, we find ourselves influenced by all three. Let’s track Bob’s mode of control for a bit.

In other w r ords, everything we’ve considered so far is useless unless the members of our team will continually try to offer the best they can do

captures what selfactualization means: the need to achieve one’s utter personal best in a chosen field of endeavor

consistently, they gained satisfaction and a sense of achievement. The point is that both competence- and achievement-oriented people spontaneously try to test the outer limits of their abilities.

longer a source of motivation but rather a measure of achievement. Money in the physiological- and security-driven modes only motivates until the need is satisfied, but money as a measure of achievement will motivate without limit

That variable is the task-relevant maturity (TRM) of the subordinates, which is a combination of the degree of their achievement orientation and readiness to take responsibility, as well as their education, training, and experience

Specifically, when the TRM is low, the most effective approach is one that offers very precise and detailed instructions, wherein the supervisor tells the subordinate what needs to be done, when, and how: in other words, a highly structured approach. As the TRM of the subordinate grows, the most effective style moves from the structured to one more given to communication, emotional support, and encouragement, in which the manager pays more attention to the subordinate as an individual than to thejask at hand

The pres^ce or absence of monitoring, as we’ve said before, is the difference between a supervisor’s delegating a task andabdicating it

Put another way, a manager’s ability to operate in a style based on communication and mutual understanding depends on there being enough time for it. Though monitoring is on paper a manager’s most productive approach, we have to work our way up to it in the real world. Even if we achieve it, if things suddenly change we have to revert quickly to the what-when-how mode.

Deciding the TRM of your subordinates is not easy. Moreover, even if a manager knows what the TRM is, his personal preferences tend to override the logical and proper choice of management style

The engineer obviously needs both activities evaluated and reviewed. Which is more significant? A way to help weigh questions like this is the idea of “present value” used in finance: how much will the future-oriented activity pay back over time? And how much is that worth today?

It is very important to assess actual performance, not appearances; real output, not good form

There are three L’s to keep in mind when delivering a review: Level, listen, and leave yourself out

Listen with all your might to make sure your subordinate is receiving your message, and don’t stop delivering it until you are satisfied that he is.