Reed Hastings recounts Netflix’s origin story as well as some of the cultural aspects that have made them the dominant media company of the past decade
If you want to build a culture of freedom and responsibility, the first step is to increase your talent density (hire great people, pay them top dollar, cull the mediocre), increase candor, and then remove unnecessary policies and rules (vacation, expense reports, dress codes, treat people as if they were responsible adults with good judgment…)
Removing mediocre performers has a surprisingly large impact on the culture, output, and happiness of everyone who remains, boosting already high performers even higher
Give feedback often start with employees giving the leader ship feedback get rid of jerks understand that you’re trying to leave people feeling optimistic and positive not be down because of your brutal honesty
Netflix’s travel and expense policy can be summarized in five words: act in Netflix’s interest
You are replacing rules and policies with leadership great people and common sense. For example the unlimited vacation policy must be followed up by the manager talking about what makes sense for the team so that you don’t hurt the company or your colleagues don’t take vacation in certain times we can only have one person out from our team at any given time etc.
For freedom and responsibility to really work there has to be repercussions that are known. For example at Netflix if you’re caught abusing the travel and expense policy you’re immediately fired no one strike you’re just out
Speed in every facet of decision making has tremendous second order effects
Big salaries, not big bonuses, are beat for innovation since people’s minds aren’t preoccupied with their target KPI or whatever metric their bonus is reliant upon. Bonuses and incentives are great for more mechanical and routine work but not so great for the creative. Pay top of salary estimates
Shining sunlight on mistakes, especially made by leaders, builds trust, encouraged others to take risks, and enhances velocity. if you have proven you’re confident and effective admitting your mistakes builds trust and likability whereas ineffective people shining a light on their mistakes only further a Rhodes peoples trust him
Don’t seek to please your boss but seek to do what is best for the company
Only a CEO who is not busy can truly do their job. You need to decentralize decision making as much as possible which enhances peoples accountability and excitement at work and allows the CEO freedom to think and beat the company
Adequate performance receives a generous severance package
The keeper test is important to build talent density. If someone on your team just told you they were leaving for another company would you fight for them? If not probably best to give them a generous severance package
Only say things about people that you’d be comfortable saying to their face
Lead with context, not control
Netflix’s north star is to be a company that is adaptable and flexible. They almost always pay more if that means getting additional flexibility
Pyramid and the tree – most organizations are structured like a pyramid but if innovation and creativity are your competitive advantage the structure like a tree is more effective. The boss is like the roots that helps keep the organization grounded and he is at the bottom setting the context rather than at the time controlling everything
What I got out of it
Freedom + Responsibility + Talent Density; candor, trust, shining spotlight on mistakes, do what’s best for the company and not for your boss, adaptability/flexibility > plans
Writings taken from Bezos’ annual shareholders letters with a bit of organization and context
In fact, when we lower prices, we go against the math that we can do, which always says that the smart move is to raise prices. We have significant data related to price elasticity. With fair accuracy, we can predict that a price reduction of a certain % will result in an increase in units sold of a certain percentage…Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com. We’ve made similar judgments around Free Super Saver Shipping and Amazon Prime, both of which are expensive in the short term and – we believe – important and valuable in the long term
Our pricing objective is to earn customer trust, not to optimize short-term profit dollars. We take it as an article of faith that pricing in this manner is the best way to grow our aggregate profit dollars over the long term. We may make less per item, but by consistently earning trust we will sell many more items. therefore, we offer low prices across our entire product range. For the same reason, we continue to invest in our free shipping programs, including Amazon Prime. Customers are well informed and smart, and they evaluate the total cost, including delivery charges, when making their purchasing decisions. In the last 12 months, customers worldwide have saved more than $800m by taking advantage of our free shipping offers
Invention comes in many forms and at many scales. The most radical and transformative of inventions are often those that empowerothersto unleashtheircreativity – to pursuetheirdreams
Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odd with being a for-profit company. “Amazon, as far as I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers,” writes one outside observer. But I don’t think so. To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast-moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in the new business arenas. Take a long-term view, and the interest of customers and shareholders align.
A dreamy business offering has at least 4 characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time – with the potential to endure for decades. When you find one of these, don’t just swipe right, get married
I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long term, and the taking of professional pride in operational excellence. Through that lens, AWS and Amazon retail are very similar indeed
In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments
Many characterized as AWS as a bold – and unusual – bet when we started. “What does this have to do with selling books?” We could have stuck to the knitting. I’m glad we didn’t. Or did we? Maybe the knitting has as much to do with our approach as the arena. AWS is customer obsessed, inventive and experimental, long-term oriented, and cares deeply about operational excellence
Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being too slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.
Recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. no amount of discussion, no number of meetings will resolve that deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision. So, opt for “disagree and commit.”
…We show him this problem and he looks at it. He stares at it for a while and says, “Cosign.” I’m like, “What do you mean,” and Yosanta says, “That’s the answer.” And I’m like, “That’s the answer?” Yeah, let me show you.” He sits us down. He writes out 3 pages of detailed algebra. Everything crosses out, and the answer is cosign, and I say, “Listen, Yosanta, did you just do that in your head?” And he says, “No, that would be impossible. Three years ago I solved a very similar problem, and I was able to map this problem onto that problem, and then it was immediately obvious that the answer was cosign.” That was an important moment for me because it was the very moment when I realized I was never going to be a great theoretical physicist, and so I started doing some soul-searching. in most occupations, if you’re in the ninetieth percentile or above, you’re going to contribute. In theoretical physics, you’ve got to be like, one of the top fifty people in the world, or you’re really just not helping out much. It was very clear. I saw the writing on the wall and changed my major very quickly to electrical engineering and computer science.
The way you earn trust, the way you develop a reputation is by doing hard things well over and over. The reason, for example, that the US military, in all polls, has such high credibility and reputation is because, over and over again, decade after decade, it has done hard things well. It really is that simple. It’s also that complicated. It’s not easy to do hard things well, but that’s how you earn trust. And trust, of course, is an overloaded word. It means so many different things. It’s integrity, but it’s also competence. It’s doing what you said you were going to do – and delivering. And so we deliver billions of packages every year; we say we’re going to do that and then we actually do it. And it’s also taking controversial stances. People like it when you say, “NO, we’re not going to do it that way. I know you want us to do it that way, but we’re not going to.” And even if they disagree, they might say, “We kind of respect that, though. They know who they are.”
What I got out of it
Inspiring and motivating – a peek into an incredible thinker, his vision, his thought process
Frank Slootman talks about his time and leadership style
Being cash positive, we really didn’t need the money for operations, but a strong balance sheet reassures enterprise customers so they buy gear from a small supplier.
This fear-based behavior can scarcely be overstated. Large enterprises consistently prioritize their buying decisions to minimize the risk of embarrassment backlash. Huge premiums are paid in the misguided name of “playing it safe.” Dominant suppliers carefully cultivate and nurture this incumbent bias.
From the perspective of an operations guy, there is a lot of riff-raff in venture capital: posers, herd mentality, technology infatuation, too much education, not enough experience to appreciate what grit and focus it takes to grow a business out of nothing. To have a fighting chance, you want to be with the best firms, and the best partners in those firms. Odds are already exceedingly low for venture success.
In hindsight, it helped explain how some of our breakthroughs came about: they ended up betting on Moore’s law, the microprocessor subsystem, and avoiding the entrenched bottlenecks in the storage subsystem
The famed Austrian economist Joseph Schumpeter is usually associated with this term, but the basic idea goes back all the way to the works of Karl Marx. The notion (which has experienced a recent resurgence via Clayton Christensen’s writings on disruptive innovation) is that in order to create something, you have to destroy something else in the process. So, creative destruction is an axiom of business: you are not going to grow much without exacting a proportional decrease in business somewhere else. You better know whose livelihood you’re going to mess with.
A challenged product sector is obviously a much better starting point than attacking a category that is favorably regarded. When picking a fight, don’t seek out the most formidable opponent.
Many technologies are conceived without a clear, precise notion of the intended use. There is plenty of hoping and praying going on that some new technology will magically find a suitable problem to solve. Often, we think we know, vaguely, in the abstract—but the truth is we have no clarity on how our technology stacks up in that use-case, relative to alternatives. Start with the application or use case, not the technology. Don’t make it an after-thought. Ass-backwards, it is awfully hard to successfully recover from a technology-led venture that cannot locate its target.
It is remarkable how little our strategy changed from dollar zero to a billion in sales. The most important thing we did throughout the journey: resist the ever-present temptation to muck with the strategy.
Making yourself “scarce” is something to ponder.
You simply cannot invest intelligently in revenue generation if you do not understand how to ramp effectiveness and make the underlying economics work. It should be obvious that a sales force that loses money will only accelerate cash burn—in the absence of deep pockets, not a game to be played for very long.
If you have aspirations to go public, you cannot do so without a predictable model that you control. It is also a way to weaken competitors. At Data Domain we hired away the best of the best from our competitors—not only did we gather strength, we weakened them at the same time. Ulysses S. Grant once said that victory is breaking the enemy’s will to fight. Our version of victory was a great salesperson quitting the competition and joining our band of brothers. Breaking their will to fight (prompting “surrender”) was one thing, but getting them to defect outright and rally to our cause—this was crushing for incumbent morale.
Your power is in your own sales function and product—keep that in mind. The channel is a powerful, entrenched fixture in the industry, and one that demands respect. If you don’t bring the channel in, they will bring in your competition.
Yet, there comes a time when the venture must pivot from conserving resources to applying them rapidly, as fast as you know how to do effectively—when that cross-over time comes is not always obvious. The irony is that most ventures seem to spend too much early on, and not enough later on when they could grow faster and pay for it. The question becomes “can you grow faster?” And, if not, why not? That should be a good board meeting discussion. The turning point comes when your sales activity is solidly paying for itself, and is clearly becoming more profitable with increasing volume. Now you have a virtual money machine and you want to start opening the floodgates.
Accounting is the bastardization of economics. It can be puzzling to see early stage ventures focusing on P&L profitability, as that mentality can choke off growth in a hurry. You should not care much about profits early on. Instead, you care about maximizing growth while maintaining sufficient cash balances to sustain it.
I have seen startups managing for profitability prematurely—a huge mistake. They simply do not appreciate the dynamics of an early stage, high growth operation versus a large, steady-state company. Big company thinking: check it at the door.
Trust your team—nothing else scales.
After suffering through a few instances of this mismatch at Data Domain, we adjusted our search algorithm and began looking for candidates who did not have the resume yet but did have the potential and desire for a career break to get to the next level. We called them “athletes”: candidates with the right aptitude and behavior profile but without the prerequisite experience. Put differently, we started looking for people who we thought had their best work still in front of them, rather than behind them.
Speed is the essence of a startup: we have to be able to take mistakes in stride, and self-correct in the normal course of business.
Newly hired salespeople were stunned that they could pose a question online, and responses started piling up within minutes.
CEOs can’t manage from behind the desk—you need to be the first guy or gal over the barricades, gloves off. You need to know from experience what it’s like getting your nose bloodied; otherwise, your troops can’t relate to you and you can’t relate to them.
I staked out the Greater Boston Area and made more sales calls in the Northeast than anywhere else. Why? It was the home of our principal competitor at the time, EMC. We wanted to show our people we could beat them in their own backyard.
If you don’t naturally swarm to the action, you need to learn that attitude.
People can instantly finger a phony. Let them know who you really are, warts and all—show your humanity, your passions, your likes and dislikes. What do you feel strongly about? Can they still remember what you said a week later? Are you leaving a room with more energy than when you entered it? Not sure? Then you didn’t. For most of us, it is work to become an authentic leader. By authentic I mean being who you really are versus acting out some burnished version of you.
Software development actually suffers from diseconomies of scale: the more engineers, the slower it goes.
Don’t be a pleaser, and don’t be an appeaser. Do what you think is right. Do anything less, and you only have yourself to blame.
He had this style about him leaving no doubt that while he would share his point of view, he was not making recommendations or prescriptions: you, the CEO, were the judge. It actually made it easier to seek him out, as he didn’t demand you follow his point of view. He impressed on me that the role of the board was to hire and fire the CEO, and that he would not hesitate to pull either trigger!
I found this advice priceless. You might as well spend all your time on winning—nothing else matters. Of course, a good board wants you to do exactly that. It obviously doesn’t mean you should blindly bat away all opinions coming at you, but just try them on for size and merit, and go from there. Keeping good council is strength; caving in on perceived pressure is weakness.
Our drive for a set of values in the organization came about gradually, as more people came into the company. We started writing them down and describing them: Respect Excellence Customer Integrity Performance Execution The first letter of each of the six values spells the word R-E-C-I-P-E.
Becoming a value-led organization doesn’t happen automatically. We imported somebody else’s culture with every person we hired, and therefore had to undo a bunch of stuff. We called it “re-programming.” People learn culture based on what behavior they observe around them, good, bad, or somewhere in between. The magic begins when you start displaying what you mean by them in practice, when the consequences are real. One aspect of compliance was that we told new hires upfront that while we might be somewhat patient and forgiving on performance, we would not be on conduct. Conduct is a choice, not a skill set. If someone made the wrong choices in the face of all the guidance received, it could and would be a dismissible offense.
I’d go as far as to say that company culture is the only enduring, sustainable form of differentiation. These days, we don’t have a monopoly for very long on talent, technology, capital, or any other asset; the one thing that is unique to us is how we choose to come together as a group of people, day in and day out.
They don’t “work for you”—we all work for the company. As a manager, you are there to help them succeed.
Strong references (who voluntarily become your “promoters”) are priceless marketing collateral.
Early on, when employee candidates asked us what our culture was like, we invariably said “blue collar.” Not a lot of flash—if it doesn’t directly aid our cause, we don’t spend money on it. Extravagance was frowned upon, and becoming self-congratulatory was avoided; these things weaken the focus and muscle of the company. Setting the tone comes from the top. Humble and hungry is what we wanted to be.
Somebody once asked me how he or she would know whether they were a driver, and I answered, “you better find out before we do.” In other words, be more demanding of yourself. Are you increasing the company’s speed or not?
No strategy is better than its execution. When you get better at execution, the strategic issues will crystallize more as well. Like art being 99% perspiration (versus inspiration), business is 99% execution (versus strategy). A company can go a long way with an average strategy and superior execution, but they will not go far without great execution, no matter how brilliant the strategy.
Startup CEOs are more like plow horses than racehorses. A racehorse gets pampered all week, to be taken out of the barn for a few minutes to race on Saturday afternoon; startup CEOs live 12+ hours a day behind the plow. It doesn’t feel so glamorous when you get home at 11 at night and you need to get up at 5 am to catch a flight out of town.
What I got out of it
Love Slootman’s no non-sense mentality and learned a lot from his explanation of his time at Data Domain
This book is a belated answer to Tom Watson’s probing questions as to why programming is hard to manage…Briefly, I believe that large programming projects suffer management problems different in kind from small ones, due to division of labor. I believe the critical need to be the preservation of the conceptual integrity of the product itself. These chapters explore both the difficulties of achieving this unity and methods for doing so. The later chapters explore other aspects of software engineering management….The Mythical Man-Month is only incidentally about software but primarily about how people in teams make things. There is surely some truth in this
A rule of thumb, I estimate that a programming product costs at least three times as much as a debugged program with the same function…Programming system component costs at least three times as much as a stand-alone program of the same function.
First, one must perform perfectly. The computer resembles the magic of legend in this respect, too. If one character, one pause, of the incantation is not strictly in proper form, the magic doesn’t work. Human beings are not accustomed to being perfect, and few areas of human activity demand it. Adjusting to the requirement for perfection is, I think, the most difficult part of learning to program. Next, other people set one’s objectives, provide one’s resources, and furnish one’s information. One rarely controls the circumstances of his work, or even its goal. In management terms, one’s authority is not sufficient for his responsibility. It seems that in all fields, however, the jobs where things get done never have formal authority commensurate with responsibility. In practice, actual (as opposed to formal) authority is acquired from the very momentum of accomplishment. The dependence upon others has a particular case that is especially painful for the system programmer. He depends upon other people’s programs. These are often maldesigned, poorly implemented, incompletely delivered (no source code or test cases), and poorly documented. So he must spend hours studying and fixing things that in an ideal world would be complete, available, and usable. The next woe is that designing grand concepts is fun; finding nitty little bugs is just work. With any creative activity come dreary hours of tedious, painstaking labor, and programming is no exception.
The challenge and the mission are to find real solutions to real problems on actual schedules with available resources.
More software projects have gone awry for lack of calendar time than for all other causes combined. Why is this cause of disaster so common? First, our techniques of estimating are poorly developed. More seriously, they reflect an unvoiced assumption which is quite untrue, i.e., that all will go well. Second, our estimating techniques fallaciously confuse effort with progress, hiding the assumption that men and months are interchangeable.
Key point – men and months are not interchangeable, but we make assumptions that they are
Fifth, when schedule slippage is recognized, the natural (and traditional) response is to add manpower. Like dousing a fire with gasoline, this makes matters worse, much worse. More fire requires more gasoline, and thus begins a regenerative cycle which ends in disaster.
For the human makers of things, the incompletenesses and inconsistencies of our ideas become clear only during implementation. Thus it is that writing, experimentation, “working out” are essential disciplines for the theoretician.
The second fallacious thought mode is expressed in the very unit of effort used in estimating and scheduling: the man-month. Cost does indeed vary as the product of the number of men and the number of months. Progress does not. Hence the man-month as a unit for measuring the size of a job is a dangerous and deceptive myth. It implies that men and months are interchangeable.
The bearing of a child takes nine months, no matter how many women are assigned. Many software tasks have this characteristic because of the sequential nature of debugging.
Since software construction is inherently a systems effort—an exercise in complex interrelationships—communication effort is great, and it quickly dominates the decrease in individual task time brought about by partitioning. Adding more men then lengthens, not shortens, the schedule.
For some years I have been successfully using the following rule of thumb for scheduling a software task: 1/3 planning 1/6 coding 1/4 component test and early system test 1/4 system test, all components in hand.
Programming managers have long recognized wide productivity variations between good programmers and poor ones. But the actual measured magnitudes have astounded all of us. In one of their studies, Sackman, Erikson, and Grant were measuring performances of a group of experienced programmers. Within just this group the ratios between best and worst performances averaged about 10:1 on productivity measurements and an amazing 5:1 on program speed and space measurements! In short the $20,000/year programmer may well be 10 times as productive as the $10,000/year one. The converse may be true, too. The data showed no correlation whatsoever between experience and performance. (I doubt if that is universally true.)
I have earlier argued that the sheer number of minds to be coordinated affects the cost of the effort, for a major part of the cost is communication and correcting the ill effects of miscommunication (system debugging). This, too, suggests that one wants the system to be built by as few minds as possible.
The dilemma is a cruel one. For efficiency and conceptual integrity, one prefers a few good minds doing design and construction. Yet for large systems one wants a way to bring considerable manpower to bear, so that the product can make a timely appearance. How can these two needs be reconciled? Mills’s Proposal A proposal by Harlan Mills offers a fresh and creative solution. Mills proposes that each segment of a large job be tackled by a team, but that the team be organized like a surgical team rather than a hog-butchering team. That is, instead of each member cutting away on the problem, one does the cutting and the others give him every support that will enhance his effectiveness and productivity.
Even though they have not taken centuries to build, most programming systems reflect conceptual disunity far worse than that of cathedrals. Usually this arises not from a serial succession of master designers, but from the separation of design into many tasks done by many men. I will contend that conceptual integrity is the most important consideration in system design. It is better to have a system omit certain anomalous features and improvements, but to reflect one set of design ideas, than to have one that contains many good but independent and uncoordinated ideas.
The purpose of a programming system is to make a computer easy to use…Because ease of use is the purpose, this ratio of function to conceptual complexity is the ultimate test of system design. Neither function alone nor simplicity alone defines a good design. This point is widely misunderstood. As soon as ease of use is held up as the criterion, each of these is seen to be unbalanced, reaching for only half of the true goal. Ease of use, then, dictates unity of design, conceptual integrity. Conceptual integrity in turn dictates that the design must proceed from one mind, or from a very small number of agreeing resonant minds.
Architecture must be carefully distinguished from implementation. As Blaauw has said, “Where architecture tells what happens, implementation tells how it is made to happen.”
Not trivial, however, is the principle that such mini-decisions be made consistently throughout.
In most computer projects there comes a day when it is discovered that the machine and the manual don’t agree. When the confrontation follows, the manual usually loses, for it can be changed far more quickly and cheaply than the machine.
The project manager’s best friend is his daily adversary, the independent product-testing organization. This group checks machines and programs against specifications and serves as a devil’s advocate, pinpointing every conceivable defect and discrepancy. Every development organization needs such an independent technical auditing group to keep it honest.
The second reason for the project workbook is control of the distribution of information. The problem is not to restrict information, but to ensure that relevant information gets to all the people who need it.
The purpose of organization is to reduce the amount of communication and coordination necessary; hence organization is a radical attack on the communication problems treated above.
The means by which communication is obviated are division of labor and specialization of function.
On larger projects it is very rarely workable, for two reasons. First, the man with strong management talent and strong technical talent is rarely found. Thinkers are rare; doers are rarer; and thinker-doers are rarest.
Practice is the best of all instructors. —PUBLILIUS
Experience is a dear teacher, but fools will learn at no other. —POOR RICHARD’S ALMANAC
The linear extrapolation of such sprint figures is meaningless. Extrapolation of times for the hundred-yard dash shows that a man can run a mile in under three minutes.
Fostering a total-system, user-oriented attitude may well be the most important function of the programming manager.
First, writing the decisions down is essential. Only when one writes do the gaps appear and the inconsistencies protrude. The act of writing turns out to require hundreds of mini-decisions, and it is the existence of these that distinguishes clear, exact policies from fuzzy ones.
Chemical engineers learned long ago that a process that works in the laboratory cannot be implemented in a factory in only one step. An intermediate step called the pilot plant is necessary to give experience in scaling quantities up and in operating in nonprotective environments. For example, a laboratory process for desalting water will be tested in a pilot plant of 10,000 gallon/day capacity before being used for a 2,000,000 gallon/day community water system.
In most projects, the first system built is barely usable. It may be too slow, too big, awkward to use, or all three. There is no alternative but to start again, smarting but smarter, and build a redesigned version in which these problems are solved. The discard and redesign may be done in one lump, or it may be done piece-by-piece. But all large-system experience shows that it will be done. Where a new system concept or new technology is used, one has to build a system to throw away, for even the best planning is not so omniscient as to get it right the first time. The management question, therefore, is not whether to build a pilot system and throw it away. You will do that. The only question is whether to plan in advance to build a throwaway, or to promise to deliver the throwaway to customers. Seen this way, the answer is much clearer.
Structuring an organization for change is much harder than designing a system for change.
Things are always at their best in the beginning,” said Pascal. C. S. Lewis has stated it more perceptively: That is the key to history. Terrific energy is expended—civilizations are built up—excellent institutions devised; but each time something goes wrong. Some fatal flaw always brings the selfish and cruel people to the top, and then it all slides back into misery and ruin. In fact, the machine conks. It seems to start up all right and runs a few yards, and then it breaks down.
A good workman is known by his tools. —PROVERB
The most pernicious and subtle bugs are system bugs arising from mismatched assumptions made by the authors of various components.
Many poor systems come from an attempt to salvage a bad basic design and patch it with all kinds of cosmetic relief. Top-down design reduces the temptation. I am persuaded that top-down design is the most important new programming formalization of the decade.
Add one component at a time. This precept, too, is obvious, but optimism and laziness tempt us to violate
Lehman and Belady offer evidence that quanta should be very large and widely spaced or else very small and frequent. The latter strategy is more subject to instability, according to their model. My experience confirms it: I would never risk that strategy in practice.
How does one control a big project on a tight schedule? The first step is to have a schedule. Each of a list of events, called milestones, has a date. Picking the dates is an estimating problem, discussed already and crucially dependent on experience. For picking the milestones there is only one relevant rule. Milestones must be concrete, specific, measurable events, defined with knife-edge sharpness. It is more important that milestones be sharp-edged and unambiguous than that they be easily verifiable by the boss. Rarely will a man lie about milestone progress, if the milestone is so sharp that he can’t deceive himself. But if the milestone is fuzzy, the boss often understands a different report from that which the man gives. Sharp milestones are in fact a service to the team, and one they can properly expect from a manager. The fuzzy milestone is the harder burden to live with. It is in fact a millstone that grinds down morale, for it deceives one about lost time until it is irremediable. And chronic schedule slippage is a morale-killer.
The preparation of a PERT chart is the most valuable part of its use. Laying out the network, identifying the dependencies, and estimating the legs all force a great deal of very specific planning very early in a project. The first chart is always terrible, and one invents and invents in making the second one.
Most of the big last gains in software productivity have come from removing artificial barriers that have made the accidental tasks inordinately hard, such as severe hardware constraints, awkward programming languages, lack of machine time. How much of what software engineers now do is still devoted to the accidental, as opposed to the essential? Unless it is more than 9/10 of all effort, shrinking all the accidental activities to zero time will not give an order of magnitude improvement. Therefore it appears that the time has come to address the essential parts of the software task, those concerned with fashioning abstract conceptual structures of great complexity. I suggest:
Exploiting the mass market to avoid constructing what can be bought.
Using rapid prototyping as part of a planned iteration in establishing software requirements.
Growing software organically, adding more and more function to systems as they are run, used, and tested.
Identifying and developing the great conceptual designers of the rising generation.
The gap between the best software engineering practice and the average practice is very wide—perhaps wider than in any other engineering discipline. A tool that disseminates good practice would be important.
The development of the mass market is, I believe, the most profound long-run trend in software engineering. The cost of software has always been development cost, not replication cost. Sharing that cost among even a few users radically cuts the per-user cost. Another way of looking at it is that the use of n copies of a software system effectively multiplies the productivity of its developers by n. That is an enhancement of the productivity of the discipline and of the nation.
No other part of the conceptual work is so difficult as establishing the detailed technical requirements, including all the interfaces to people, to machines, and to other software systems. No other part of the work so cripples the resulting system if done wrong. No other part is more difficult to rectify later. Therefore the most important function that software builders do for their clients is the iterative extraction and refinement of the product requirements. For the truth is, the clients do not know what they want. They usually do not know what questions must be answered, and they almost never have thought of the problem in the detail that must be specified.
I would go a step further and assert that it is really impossible for clients, even those working with software engineers, to specify completely, precisely, and correctly the exact requirements of a modern software product before having built and tried some versions of the product they are specifying. Therefore one of the most promising of the current technological efforts, and one which attacks the essence, not the accidents, of the software problem, is the development of approaches and tools for rapid prototyping of systems as part of the iterative specification of requirements. A prototype software system is one that simulates the important interfaces and performs the main functions of the intended system, while not being necessarily bound by the same hardware speed, size, or cost constraints. Prototypes typically perform the mainline tasks of the application, but make no attempt to handle the exceptions, respond correctly to invalid inputs, abort cleanly, etc. The purpose of the prototype is to make real the conceptual structure specified, so that the client can test it for consistency and usability.
Incremental development—grow, not build, software. I still remember the jolt I felt in 1958 when I first heard a friend talk about building a program, as opposed to writing one. In a flash he broadened my whole view of the software process. The metaphor shift was powerful, and accurate. Today we understand how like other building processes the construction of software is, and we freely use other elements of the metaphor, such as specifications, assembly of components, and scaffolding. The building metaphor has outlived its usefulness. It is time to change again. If, as I believe, the conceptual structures we construct today are too complicated to be accurately specified in advance, and too complex to be built faultlessly, then we must take a radically different approach. Let us turn to nature and study complexity in living things, instead of just the dead works of man. Here we find constructs whose complexities thrill us with awe. The brain alone is intricate beyond mapping, powerful beyond imitation, rich in diversity, self-protecting, and self-renewing. The secret is that it is grown, not built. So it must be with our software systems. Some years ago Harlan Mills proposed that any software system should be grown by incremental development. That is, the system should first be made to run, even though it does nothing useful except call the proper set of dummy subprograms. Then, bit by bit it is fleshed out, with the subprograms in turn being developed into actions or calls to empty stubs in the level below. I have seen the most dramatic results since I began urging this technique on the project builders in my software engineering laboratory class. Nothing in the past decade has so radically changed my own practice, or its effectiveness. The approach necessitates top-down design, for it is a top-down growing of the software. It allows easy backtracking. It lends itself to early prototypes. Each added function and new provision for more complex data or circumstances grows organically out of what is already there. The morale effects are startling. Enthusiasm jumps when there is a running system, even a simple one. Efforts redouble when the first picture from a new graphics software system appears on the screen, even if it is only a rectangle. One always has, at every stage in the process, a working system. I find that teams can grow much more complex entities in four months than they can build. The same benefits can be realized on large projects as on my small ones.
The differences are not minor—it is rather like Salieri and Mozart. Study after study shows that the very best designers produce structures that are faster, smaller, simpler, cleaner, and produced with less effort. The differences between the great and the average approach an order of magnitude.
My first proposal is that each software organization must determine and proclaim that great designers are as important to its success as great managers are, and that they can be expected to be similarly nurtured and rewarded. Not only salary, but the perquisites of recognition—office size, furnishings, personal technical equipment, travel funds, staff support—must be fully equivalent. How to grow great designers? Space does not permit a lengthy discussion, but some steps are obvious:
Systematically identify top designers as early as possible. The best are often not the most experienced.
Assign a career mentor to be responsible for the development of the prospect, and keep a careful career file.
Devise and maintain a career development plan for each prospect, including carefully selected apprenticeships with top designers, episodes of advanced formal education, and short courses, all interspersed with solo design and technical leadership assignments.
Provide opportunities for growing designers to interact with and stimulate each other.
Turski and I both insist that pipe-dreaming inhibits forward progress and wastes effort.
Capers Jones, writing first in a series of memoranda and later in a book, offers a penetrating insight, which has been stated by several of my correspondents. “NSB,” like most writings at the time, was focused on productivity, the software output per unit of input. Jones says, “No. Focus on quality, and productivity will follow.” He argues that costly and late projects invest most of the extra work and time in finding and repairing errors in specification, in design, in implementation. He offers data that show a strong correlation between lack of systematic quality controls and schedule disasters. I believe it.
Representation is the essence of programming.
Fixing a defect has a substantial (20 to 50 percent) chance of introducing another.
Vyssotsky: “I have found it handy to carry both ‘scheduled’ (boss’s dates) and ‘estimated’ (lowest-level manager’s dates) dates in the milestone report. The project manager has to keep his fingers off the estimated dates.”
The subsystem boundaries must be at those places where interfaces between the subsystems are minimal and easiest to define rigorously.
Featuritis. The besetting temptation for the architect of a general purpose tool such as a spreadsheet or a word processor is to overload the product with features of marginal utility, at the expense of performance and even of ease of use. The appeal of proposed features is evident at the outset; the performance penalty is evident only as system testing proceeds. The loss of ease of use sneaks up insidiously, as features are added in little increments, and the manuals wax fatter and fatter.
If one believes, as I have argued at many places in this book, that creativity comes from individuals and not from structures or processes, then a central question facing the software manager is how to design structure and process so as to enhance, rather than inhibit, creativity and initiative. Fortunately, this problem is not peculiar to software organizations, and great thinkers have worked on it. E. F. Schumacher, in his classic, Small is Beautiful: Economics as if People Mattered, proposes a theory of organizing enterprises to maximize the creativity and joy of the workers. For his first principle he chooses the “Principle of Subsidiary Function” from the Encyclical Quadragesimo Anno of Pope Pius XI: It is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do. For every social activity ought of its very nature to furnish help to the members of the body social and never destroy and absorb them. . . . Those in command should be sure that the more perfectly a graduated order is preserved among the various associations, in observing the principle of subsidiary function, the stronger will be the social authority and effectiveness and the happier and more prosperous the condition of the State.
What I got out of it
The importance of thinking in parallel vs. series, adding margins of safety (things always go wrong, so do you bake that into your assumptions or do you pay for it dearly at a later point?), adding more software developers generally makes projects even later, as few minds as possible to make the system easy to use (top-down design one of the most important aspects to consider), the importance of testing and iteration at every step along the process (grow, don’t build software), sharp rather than fuzzy milestones
Ben Rich, CEO of the Skunk WOrks after legendary Kelly Johnson stepped down, describes what makes the Skunk Works so special and some behind the scenes looks at how they operate
Ben Rich took over Skunk Works from legendary Kelly Johnson. Rich’s first big test was his confidence in stealth when those around him were doubtful of its potential
Kelly deeply believed that an airplane that was beautiful would fly the same way
Engineers had to live with their design through production. They were expected on the floor and couldn’t abdicate responsibility just because a design had been approved. Engineers spoke to designers who spoke to manufacturing who spoke to quality and then to flight testing. Quality reported directly to the CEO
To save time, they built the plane vertically which allowed them to work in parallel rather than in series
14 Skunk Works mantras
The Skunk Works manager must be delegated practically complete control of his program in all aspects. He should report to a division president or higher.
Strong but small project offices must be provided both by the military and industry.
The number of people having any connection with the project must be restricted in an almost vicious manner. Use a small number of good people (10% to 25% compared to the so-called normal systems).
A very simple drawing and drawing release system with great flexibility for making changes must be provided.
There must be a minimum number of reports required, but important work must be recorded thoroughly.
There must be a monthly cost review covering not only what has been spent and committed but also projected costs to the conclusion of the program.
The contractor must be delegated and must assume more than normal responsibility to get good vendor bids for subcontract on the project. Commercial bid procedures are very often better than military ones.
The inspection system as currently used by the Skunk Works, which has been approved by both the Air Force and Navy, meets the intent of existing military requirements and should be used on new projects. Push more basic inspection responsibility back to subcontractors and vendors. Don’t duplicate so much inspection.
The contractor must be delegated the authority to test his final product in flight. He can and must test it in the initial stages. If he doesn’t, he rapidly loses his competency to design other vehicles.
The specifications applying to the hardware must be agreed to well in advance of contracting. The Skunk Works practice of having a specification section stating clearly which important military specification items will not knowingly be complied with and reasons therefore is highly recommended.
Funding a program must be timely so that the contractor doesn’t have to keep running to the bank to support government projects.
There must be mutual trust between the military project organization and the contractor, the very close cooperation and liaison on a day-to-day basis. This cuts down misunderstanding and correspondence to an absolute minimum.
Access by outsiders to the project and its personnel must be strictly controlled by appropriate security measures.
Because only a few people will be used in engineering and most other areas, ways must be provided to reward good performance by pay not based on the number of personnel supervised.
There was a secret 15th rule – don’t work with the navy
There was so much secrecy around many of the skunk Works projects that inefficiency and obscurity was a feature not a bug. They had to fail their assembly locations plans and blueprints so well that it added in Normas friction and costs to their overall process
There were of course technical and governmental problems but they succeeded and the stealth fighter became phenomenally profitable, making Lockheed billions of dollars
No other manufacturer came close to building the intimate relationship between designer and user like skunk works did. They had the pilots responsible for flying the F1-17A part of the production process
They developed homegrown talent that was able to get up the learning curve very quickly through proper training motivation and incentives
Stealth plus precision missiles was a quantum leap in warfare rendering nearly useless billions of dollars spent on defense systems by the Russians and other enemies
Kelly was of Swedish origin – “as stubborn as a Swede”
The greatest compliment Kelly ever got was from a British colonel that said, “this old Swede can see the damn air!” That’s how efficient his designs were and how intuitive he was with aerodynamics and airplane design
Hologram in the Head
Kelly believed that if he didn’t have the hell scared out of him as a test flight pilot at least once a year he wouldn’t have the proper perspective to design airplanes. He was one of the leading experts in nearly every aspect of the design and build of airplanes. Nothing ever got past him and he was frustrated by those who try to cover up their mistakes rather than own up to them
One of Kelly‘s key mantras was to have everybody as close to the production floor as possible – even a stones throw away was too far as he wanted structural changes and questions to be addressed immediately. Any delays were to be reported to Kelly immediately and stock items were to be used in place of special parts, even at the expense of added weight – the potential for delay was too great if too many special parts were used
Kelly was strong as an ox and challenged people to arm wrestling. He hardly ever lost
The U2 spy plane was another great success and allowed the US to get reconnaissance data on the Soviet union without fear of being shot down. This was the greatest success and greatest bargain, allowing policy makers to know what they were truly up against
The black bird may be the pinnacle of 20th century aviation and Kelly considered it his crowning achievement
The SR 71 blackbird was the most advanced plane of the 20th century. However, they stopped building them in the 1970s and it was officially retired in 1990. The incredible thing is that the titanium skin and the speed at which it flew cause such he got the metal was annealed on every flight, making it stronger overtime
A lot of the technology, planes, and ships that the Skunk Works built allowed for a much smaller team to have the same impact as a past larger team would have. However, in terms of an officer’s prestige, ego, and future prospects, more and bigger was better so they had a hard time attracting ambitious and capable officers to these smaller yet more effective teams. Their stealth ship, Sea Shadow, fell into this category.
An interesting paradox about stealth technology is that it is built to disappear, but it can’t be more quiet than the background noise or else they stand out just as much as if they were using no stealth at all
They were two people set to potentially take over for Kelly when he retired. Ben was Kelly’s favorite since he was technically great but more importantly a good leader straightforward and someone who had big ideas and big vision. There are many great engineers but a few good leaders
Don’t build anything you don’t believe in
Skunk Works would likely not be able to exist without a parent organization who they could push and pull talent from. This helps keep the team streamlined and focused without growing excessively large and bureaucratic
Another important skunk works mantra is to stick with suppliers who perform well. Switching suppliers just because of cost eats up expenses in different ways and is almost never worth it. Form long lasting relationships with good suppliers
What I got out of it
Exciting book to get behind the scenes of one of the most innovative and important aerospace groups of the past 50 years. A lot to learn from in terms of leadership, velocity, and management organization
Chaord comes from the combination of two words: chaos and order. This exemplifies the behavior of any self-governing organism, organization, or system which harmoniously blends characteristics of order and chaos; patterned in a way dominated by neither chaos or order; characteristic of the fundamental organizing principles and nature
Organizations moving from command and control to community with shared purpose calling to the higher aspirations of people. In a truly chaordic organization there is no destination. There is no ultimate being. There is only becoming
Community is not about profit, but benefit. We confuse them at our peril. When we attempt to monetize all value, we methodically disconnect people and destroy community. The nonmonetary exchange of value is the most effective, constructive system ever devised. Evolution and nature have been perfecting it for thousands of millennia. It requires no currency, contracts, government, laws, courts, police, economists, lawyers, accountants. It does not require anointed or certified experts at all. It requires only ordinary people, caring. True community requires proximity; continual, direct contact and interaction between the people, place, and things of which it is composed. Throughout history, the fundamental building block, the quintessential community, has always been the family. It is there that the greatest nonmonetary exchange of value takes place. It is there that the most powerful nonmaterial values are created and exchanged. It is from that community, for better or worse, that all others are formed. The nonmonetary exchange of value is the very heart and soul of community, and community is the inescapable, essential element of civil society…Nonmonetary exchange of value implies an essential difference between receiving and getting. We receive a gift. We take possession. It is a mistake to confuse buying and selling with giving and receiving. It is a mistake to confuse money with value. It is a mistake to believe that all value can be measured. And it is a colossal mistake to attempt to monetize all value
Through the 16 years of successful failure, the sheep had continued to read avariciously – poetry, philosophy, biography, history, biology, economics, mythology – anything that satisfied his curiosity about connectedness and relationship. He mastered nothing, nor did he wish to, but new ways of seeing old things began to emerge and new patterns to reveal themselves. The preoccupation with organizations and the people who hold power within them had slowly become an obsession
Leader presumes follower. Follower presumes choice. One who is coerced to the purposes, objectives, or preferences of another is not a follower in any true sense of the word, but an object of manipulation. Nor is the relationship materially altered if both parties accept dominance and coercion. True leading and following presume perpetual liberty of both leader and follower to sever the relationship and pursue another path. A true leader cannot be bound to lead. A true follower cannot be bound to follow. The moment they are bound, they are no longer leader or follower. The terms leader and follower imply the freedom and independent judgment of both. If the behavior of either is compelled, whether by force, economic necessity, or contractual arrangement, the relationship is altered to one of superior/subordinate, management/employee, master/servant, or owner/slave. All such relationships are materially different from leader/follower. Induced behavior is the essence of leader/follower. Compelled behavior is he essence of all the others. Where behavior is compelled, there lies tyranny, however benign. Where behavior is induced, there lies leadership, however powerful. Leadership does not imply constructive, ethical, open conduct. It is entirely possible to induce destructive, malign, devious behavior and to do so by corrupt means.
The first and paramount responsibility of anyone who purports to manage is to manage self; one’s own integrity, character, ethics, knowledge, wisdom, temperament, words, and acts…The second responsibility is to manage those who have authority over us; the third responsibility is to manage one’s peers – those over whom we have no authority and who have no authority over us – associates, competitors, suppliers, customers – the entire environment; the fourth responsibility is to manage those over whom we have authority (if we hire good people and induce them to practice our concepts, they will take care of themselves for the most part)
Management expertise has become the creation and control of constants, uniformity, and efficiency, while the need has become the understanding and coordination of variability, complexity, and effectiveness
Healthy organizations induce behavior. Unhealthy organizations compel it
Following Nature’s Lead
All things are a seamless blend of chaos and order
Particularity and separability are infirmities of the mind, not characteristics of the universe
Desire to command and control is a death wish. Absolute control is in the coffin
A principal thing they have in common is penalty for failure to evolve. Organisms resistant to a changing physical environment are biologicall obligerated; they physically die out. Organizations resistant to a changing social environment are economically destroyed; they socially die out. In truth, organisms and organizations are not separable. Nor can the physical world be separated from the social. In the deeper, larger sense, distinctions such as “physical, biological, and social” or “organism and organizations,” however useful for the insular, limited purposes, are deceptive in the extreme. All things are irrevocably interconnected in a cosmic dance drawn on by energy in the form of light from the sun
“The Cartesian/Newtonian world view has influenced thought far beyond the physical sciences, and accounting is no exception. Double entry bookkeeping and the systems of income and wealth measurement that evolved from it since the 16th century are eminently Cartesian and Newtonian. They are predicated on ideas such as the whole being equal to the sum of the parts and effects being the result of infinitely divisible, linear causes…Quantum physicists and evolutionary biologists, among others, now believe that it is best to describe reality as a web of interconnected relationships that give rise to an ever-changing and evolving universe of objects that we perceive only partially with our limited senses. In that “Systemic” view of the world, nothing is merely the sum of the parts; parts have meaning only in reference to a greater whole in which everything is related to everything else…Why should accountants continue to believe that human organizations behave like machines if the scientists from whom they borrowed that mechanistic world view now see the universe from a very different perspective? The language of financial accounting merely asserts answers, it does not invite inquiry. In particular it leaves unchallenged the world view that underlies [the way] organizations operate. Thus, management accounting has served as a barrier to genuine organizational learning…Never again should management accounting be seen as a tool to drive people with measures. Its purpose must be to promote inquiry into the relationships, patterns, and processes that give rise to accounting measures.” – H. Thomas Johnson
Neither the institutional nor the technical thinking made sense. It had always seemed to me that one of the principal tricks of evolution was to preserve the substance of the past by clothing it in the forms of the future. We would follow
Old Monkey Mind and I had spent countless hours trying to understand information and its relevant to organizations, asking our endless questions. What is the significant of the “inform” part of information? What is the nature of that which is received from external sources and “forms us” within? What is the nature of that which forms from within us which we then feel compelled to transmit, and how does it form others when it is received? What allows formation of information, permits it to endure unaltered, yet be available at any time for transformation in infinite ways? Why and from where came the universal, perpetual urge to receive and transmit information – the incessant desire to communicate? Is it an urge at all, or is it an unavoidable necessity – an integral component essential to life? Indeed, is it the essence of life itself? Or is ti a principle beyond life itself? Could it be the fundamental, formative essence that gives shape and distinction to all things – part of an inseparably whole universe? It helps to think what information is not. Certainly, it is not just another “thing”; one more finite, physical entity. Certainly, information is far more than digits and data. They may be components of it – the shape it sometimes takes. They may be of it, but they are not it. In a rare insight, Gregory Bateson proposed that “information is a difference that makes a difference.” If something is received that cannot be differentiated or, if once differentiated, makes no differences, he asserts it is just noise…Thinking about a society based on information and one based on physicality requires radically different perspective and consciousness. However, we prefer too often to ignore the fundamental differences and carry over into the Chaordic Age of managing information, ideas and values, concepts, and assumptions that proved useful in the mechanized, Industrial Age of machine crafting, the age of managing things; concepts such as ownership, finite supply, obsolescence, loss by conveyance, containment, scarcity, separability, quantifiable measurement, statistical economics, mathematical monetarism, hierarchal structuralism, and command-and-control management…As Sir Francis Bacon put it precisely centuries ago, in admonishing those who opposed the mechanistic concepts of Newton and Descartes: “They that reverence too much the old times are but a scorn to the new.”
It seems a principle of evolution, perhaps the fundamental principle, that the greater the capacity to receive, store, utilize, transform, and transmit information, the more diverse and complex the entity. It holds true from neutrino, to nucleus, to atom, to amino acids, to proteins, to molecules, to cells, to organs, to organisms. From bacteria, to bees, to bats, to birds, to buffalo, right on through to baseball players. CRUSTTI didn’t stop there. In time, information transcended the boundaries of organisms and led to communication between them, and eventually to complex communities of organisms
I = DC^2
The capacity to receive, store, utilize, transform, and transmit information equals societal diversity times societal complexity squared
We must begin with noise. Noise, in its broadest sense, is any undifferentiated thing which assaults the senses. It is pervasive and ubiquitous, whether auditory, visual, or textural. The supply of noise is infinite. Noise becomes data when it transcends the purely sensual and has cognitive pattern; when it can be discerned and differentiated by the mind. Data, in turn, becomes information when it is assembled into a coherent whole which can be related to other information in a way that adds meaning. (Bateson’s definition of information as “a difference that makes a difference.”) Information becomes knowledge when it is integrated with other information in a form that is useful for deciding, acting, or composing new knowledge. Knowledge becomes understanding when related to other knowledge in a manner that is useful in conceiving, anticipating, evaluating, and judging matters beyond the reach of information. Understanding becomes wisdom when informed by ethical, moral, and beneficent purpose and principle, along with memory of the past, and projection into the future. The fundamental characteristics of the opposite ends of this spectrum are very different. Data, on one end of the spectrum, is separable, objective, linear, mechanistic, and abundant. On the other end of the spectrum, wisdom is holistic, subjective, spiritual, conceptual, creative and scarce.
The labyrinthine Department of Justice, like all mechanistic, Newtonian, Industrial Age organizations, was fat on data and information and starved for understanding and wisdom
When there is an explosion in the capacity to receive, store, utilize, transform, and transmit information, the external world changes at a rate enormously greater than the rate at which our internal model evolves. Nothing behaves as we think it should. Nothing makes sense. At times the world appears to be staging a madhouse. It is never a madhouse. It is merely the great tide of evolution in temporary flood, moving this way and that, piling up against that which obstructs its flow, trying to break loose and sweep away that which opposes it. At such times, we experience extreme dissonance and stress. At the heart of that dissonance and stress is paradox. The more powerful and entrenched our internal model of reality, the more difficult it is to perceive and understand the fundamental nature of the changed world we experience. Yet without such perception, it is extremely difficult to understand and change our internal model.
Competition and cooperation are not contraries. They have no opposite meaning. They are complimentary. In every aspect of life, we do both. Schools are highly cooperative endeavors within which scholars vigorously compete. The Olympic Games combine immense cooperation in structure and rules with intense competition in events. As the runners leap from the blocks, competition and cooperation are occurring in a single, indistinguishable blur. Every cell in our bodies vigorously competes for every atom of nutrient swallowed and every atom of oxygen inhaled, yet every cell can sense when the good of the whole requires they cooperate by relinquishing their demands when the need of other cells is greater. Life simply cannot exist, let alone reach its highest potential, without harmonious existence of competition and cooperation.
Visa is not about credit at all, but of exchange of monetary value
Realization that money is now about data / information was instrumental in restructuring his thinking about money, banks, and credit cards
[Convincing Bank of America to join] – The bank should be the leader of a movement, not the commander of a structure
Can an organization be patterned on biological concepts and methods? The question seemed to contain its own answer. Such an organization would have to evolve, in effect, to organize and invent itself.
It should be equitably owned by all participants
Participants should have equitable rights and obligations
It should be open to all qualified participants
Power, function, and resources should be distributive to the maximum degree
Authority should be equitable and distributive within each governing entity
No existing participant should be left in a lesser position by any new concept of the organization
To the maximum degree possible, everything should be voluntary
It should be nonassessable
It should induce, not compel, change
It should be infinitely malleable yet extremely durable
For decades, Visa has been in the background, invisible to most people. The results of the best organizations is transparent, but the structure, leadership, and process are transparent.
The core of Visa was an enabling organization that existed for the sole purpose of assisting owner-members to do what they wished with greater capacity, more effectively, and at less cost
We reduced our thoughts to the simplest possible expression: the will to succeed, the grace to compromise
Although Visa arose from thinking about organizations as living, biological systems, I missed completely the need for an institutional immune system to thwart the viruses of old ways.
The concepts used did not belong to me. They belonged to evolution – to all people
The most abundant, least expensive, most underutilized and constantly abused resource in the world is human ingenuity
Mr. Carlson never promotes anyone. He “borrows” them for new assignments so that they can withdraw without feeling a failure if the new situation is unsuitable. If it proves productive, titles and rewards will follow
Understanding requires mastery of four ways of looking at things – as they were, as they are, as they might become, and as they ought to be. Mastering all four perspectives and synthesizing them into a compelling concept of a constructive, peaceful future is the true work of the genius that lies buried in everyone, struggling to get out. And the world is crying out for it. In our frantic attempt to know everything through use of the rational mind alone, we have fractured knowledge into hundreds of incestuous specialties and fragmented those specialties into thousands of isolated, insular trades and disciplines. The world is filling iwth people who know more and more about less and less. Within each specialty, we dismiss as largely irrelevant all things, events, and ways of understanding outside the ever narrower boundaries of our discipline. We can ignore all relationships not essential to our ever narrowing perspective. We can ignore all consequences not immediately affecting or affected by our ever more constricted pursuit. We can abdicate responsibility for even thinking about them. We can each decide and act with our ever smaller intellectual prisons and narrower mental cells, and defend our acts with logical, efficient, methodical rationality. Never mind that the sum of the whole is social, commercial, and biological madness.
Perspective is the Achilles heel of the mind, distorting everything we think, know, believe, or imagine…Our internal model of reality is how we make sense of the world. And it can be a badly built place indeed. Even if it is magnificently constructed, it may have become archaic. Everything that gave rise to it may have changed. Society and the natural world are never stagnant. They are constantly becoming. When it becomes necessary to develop a new perspective on things, a new internal model of reality, the problem is never to get new ideas in, the problem is tog et the old ideas out. Every mind is filled with old furniture. It’s familiar, it’s comfortable. We hate to throw it out. The old maxim is so often applied to the physical world, “nature abhors a vacuum,” is much more applicable to the mental world. Clear any room in your mind of old perspectives, and new perceptions will rush in. Yet, there is nothing we fear more. Weareour ideas, concepts, and perceptions. Giving up any part of our internal model of reality is worse than losing a finger or an eye. Part of us no longer exists. However, unlike most organs of the physical body, our internal model of reality can be regenerated but never as it was. And it’s a frightening, painful process. It is our individual perspective, the view from our internal temple of reality, that often so discolors and distorts perception that we can neither anticipate what might occur nor conceive what ought to be.
True power is never used. If you use power, you never really have it
The inevitable tendency of wealth is to acquire power. The inevitable tendency of power is to protect wealth. The tendency of wealth and power combined is to acquire ever more wealth and power. The use of commercial corporate form for the purpose of social good has become incidental.
A bit of carbon in iron makes powerful meta; a bit of truth in a lie makes powerful deceit
It is enough that error by corrected. It is excessive to insist it be admitted
Mistakes are toothless little things if you recognize and correct them. If you ignore or defend them, they grow fangs and bite
Businesses, as well as races, tribes, and nations, do not disappear when they are conquered or repressed, but when they become despondent and lose excitement about the future. When institutions reach that stage, people withdraw relevance from them and from those who purport to manage them. THey turn away. They stop listening.
What I got out of it
A simply superb book, one of the deepest most interconnected books I’ve read in some time
Why, he wondered, couldn’t a human organization work like a rain forest? Why couldn’t it be patterned on biological concepts and methods? What if we quit arguing about the structure of a new institution and tried to think of it as having some sort of genetic code? Visa’s genetic code eventually became its “purpose and principles” and its core governance processes, the details of which are spelled out in the following pages. But none of this would have come into being without the basic shift in thinking – to abandon the “old perspective and mechanistic model of reality” and embrace principles of living systems as a basis for organizing
The anthropologist Gregory Bateson said, “The source of all our problems today comes from the gap between how we think and now nature works.”
Educe – a marvelous word seldom used or practiced, meaning, “to bring or draw forth something already present in a latent, or undeveloped form.” It can be contrasted with induce, too often used and practiced, meaning, “to prevail upon; move by persuasion or influence – to impel, incite, or urge.”
Lead yourself, lead your superiors, lead your peers, employ good people, and free them to do the same. All else is trivia
Throughout the years, the Sheep continued to read avariciously, including much organizational theory, economics, science and philosophy. The preoccupation with organizations and the people who hold power within them became an obsession, which brings us to the heart of our subject this morning. Why, the Sheep asked time and time again, are organizations, whether governmental, commercial, educational or social, increasingly unable to manage their affairs? Why are individuals increasingly alienated from the organizations of which they are part? Why are commerce and society increasingly in disarray? Today, it doesn’t take much intelligence to realize we are in the midst of a global epidemic of institutional failure. Schools that can’t teach, welfare systems in which no one fares well, police that can’t enforce the law, judicial systems without justice, economies that can’t economize, corporations that can’t compete and governments that can’t govern. Even then, thirty years ago, the signs were everywhere if one cared to look. The answer to the Sheep’s questions has much to do with compression of time and events. Some of you may recall the days when a check took a couple of weeks to find its way through the banking system. It was called “float” and many used it to advantage. Today, we are all aware of the incredible speed and volatility with which money moves and the profound effect it has on commerce. However, we ignore vastly more important reductions of float, such as the disappearance of information float. As the futurist, James Burke, pointed out, it took centuries for information about the smelting of ore to cross a single continent and bring about the Iron Age. During the time of sailing ships, it took years for that which was known to become that which was shared. When man stepped onto the moon, it was known and seen in every corner of the globe 1.4 seconds later, and that is hopelessly slow by today’s standards. No less important is the disappearance of scientific float, the time between the invention of a new technology and its universal application. It took centuries for the wheel to gain universal acceptance–decades for the steam engine, electric light, and automobile–years for radio and television. Today, countless devices utilizing microchips sweep around the earth like the light of the sun into instant, universal use. This endless compression of float, whether of money, information, technology or anything else, can be combined and described as the disappearance of “change” float. The time between what was and what is to be; between past and future. Only a few generations ago, the present stretched unaltered, from a distant past into a dim future. Today, the past is ever less predictive, the future ever less predictable and the present scarcely exists at all. Everything is change, with one incredibly important exception. There has been no loss of institutional float. Although their size and power have vastly increased, there has been no new idea of organization since the concepts of corporation, nation-state and university emerged a few centuries ago.
Trust thyself; every heart vibrates to that iron string! – Ralph Waldo Emerson
Heaven is purpose, principle, and people. Purgatory is paper and procedure. Hell is rule and regulation
No part knew the whole, the whole did not know all the parts, and none had any need to. The entirety, like millions of other chaordic organizations, including those we call body, brain, forest, ocean, and biosphere, was self-regulating
If you have built castles in the air your work need not be lost; that is where they should be. Now put the foundation under them. – Henry David Thoreau
When our internal model of reality is in conflict with rapidly changing external realities, there are three ways to respond: First, we can cling to our old internal model and attempt to impose it on external conditions in a futile attempt to make them conform to our expectations. That is what our present mechanistic societal institutions compel us to attempt, and what we continually dissipate our ingenuity and ability trying to achieve. Attempting to impose an archaic internal model on a changed external world is futile. Second, we can engage in denial. We can refuse to accept the new external reality. We can pretend that external changes are not as profound as they really are. We can deny that we have an internal model, or that it bears examination. When the world about us appears to be irrational, erratic and irresponsible, it is all too easy to blame others for the unpleasant, destructive things we experience. It is equally easy to abandon meaning, engage in fantasy, and engage in erratic behavior. Such denial is also futile. Third, we can attempt to understand and change our internal model of reality. That is the least common alternative, and for good reason. Changing an internal model of reality is extremely difficult, terrifying, and complex. It requires a meticulous, painful examination of beliefs. It requires a fundamental understanding of consciousness and how it must change. It destroys our sense of time and place. It calls into question our very identity. We can never be sure of our place, or our value, in a new order of things. We may lose sight of who and what we are. Changing our internal model of reality requires an enormous act of faith, for it requires time to develop, and we require time to grow into it. Yet it is the only workable answer.
Members of the board brought to the table all the old assumptions about good management. The success of the organization created considerable tolerance of new and different management techniques.On the whole,however,each new approach was on sufferance. Each failure brought pressure to conform to the old ways. Since the board was deliberately structured so that management could not control its composition and to ensure 10 or 15 percent annual turnover, there were always new directors with a full load of old management baggage. They had little or no idea of the concepts that had led to the success the organization now enjoyed. No matter how much success we had, they were convinced it could be much greater if done in the manner to which they were accustomed. No matter what the failure,they were persuaded it could have been prevented, had it been handled in the traditional way. Occasionally, there was some truth in what they said. Always, there was no way to refute it. At the time, I did not understand the depth of the hold that mechanistic, dominator concepts had on the minds and hearts of people, including my own, nor how tenaciously and powerfully they would reassert themselves.It was not then apparent how difficult it was for people to understand and sustain the concepts; how long it would take for them to sink to the bone and become habitual conduct.The pressure to revert and conform, both from within and without the organization, was intense and unceasing. On the whole,we had poor methods and techniques and far too little of them to bring about the individual cultural change that a chaordic organization requires, nor did we have a leader who was fully alert to the need for it. Although Visa arose from thinking about organizations as living, biological systems, I missed completely the need for an institutional immune system to thwart the viruses of old ways.
If something was trying to happen and wanted to use me, I could say yes or no.That’s what free will is all about. If “no,” life would be pleasant, comfortable, at times, idyllic. If “yes,” it would mean day and night labor filled with stress, criticism, disappointment,and virtually no chance of success.But,if I held back would I be in denial of my becoming? A life worth living can’t be made of denial. It must be made of affirmation. In time, the essential question emerged. Is this what my life is all about? There it was,as simple and plain as that.There was no conceivable answer to the question. But, there was insatiable desire to find out. It was time to move on, wherever it led, whoever my companions, whatever the results, for as long as I could endure.
Millan walks us through what it takes to raise a well-behaved dog
Puppyhood lasts for the first months and after that whatever habits skills are ingrained and part of them
Life’s best teachers are dogs. They teach us to stay in the moment and enjoy the simple things in life and to respect nature and to work with it not against it. You can raise the perfect dog by listening to it respecting it trusting it and honoring its nature
A balanced adult dog can teach you more about raising dogs than any book, video, or tutorial
Temperament is very important. While these principals are always effective, why fight nature when you can select for a puppy with a relaxed and calm temperament built in?
I am a big believer that the stressors and circumstances of mothers are a big impact on personality and neurosis of her kids
Puppy mill puppies pee and poop wherever they are standing. This is something that never happens to those raised in a natural environment
When we fulfill every need of our dogs – taking into account their breed, temperament, and other needs – they will reciprocate by being honest loyal and loving of companions. However, if left unchecked, it can create issues that makes their life and ours miserable
I have some clients that are leaders of men but pushovers for their dogs
Being able to read the puppy’s energy yes is a vital skill to home as knowing what breed they are. There are some puppy personality tests but any pet breeder will tell you these are hit or miss whereas engaging with and reading the puppies energy is fullproof
When selecting a puppy make sure it matches or is lower than the lowest energy member of your household, including other dogs
Dogs speak in energy 24/7 and they can tell you more about another dog or person’s energy than any man-made contraption
I learned the fundamentals of raising dogs from the best teachers there are mother dogs. There is no better blueprint for leader ship and watching how a mother raises her later in the wild see how she guides that supports them teaches them and instills discipline
An expecting mother demands great respect and status from her pack
Almost immediately, you can tell which of the puppies are dominant, medium energy, or low energy. The dominant ones will take over and lead if they don’t get guidance and rules set by the mother. They need this early on or they won’t be able to lead balanced and healthy lives
Keep a puppy safe but never rescue them. If you pick them up and comfort them every time they’re scared, they’ll never develop self confidence and will forever be dependent on you
When you were a pack leader everything you do whether consciously or subconsciously is picked up on by the rest of the pack. It gets stored into their internal database and helps shape how they think and behave
When you are a pack leader, everything you do – whether consciously or subconsciously – is picked up on by the rest of the pack. Let’s get stored into their internal database and help shape how they think and behave. You have to pay attention to every interaction you have with them, especially in this earliest weeks
Silent, calm, and assertive energy is far more impactful and effective than cooing over them or anything else. The energy you share with your puppy will eventually become their energy
Never comfort a whining puppy. This is very difficult for humans to do but if we don’t let he puppy work it out by itself, we are hampering it’s long term growth
Puppies are very perceptive in knowing what triggers you and they will use this against you if they want attention. Dogs and kids will sometimes seek negative attention over no attention
You have to speak in the dogs language if you expect it to listen and learn from you. Calm energy, noises to represent displeasure and pleasure, immediately correcting bad behavior and then showing it good behavior. No amount of yelling and hand waving will change a dogs behavior since they don’t understand what you’re getting at
Before attempting any sort of training, first make the connection and then learn how to communicate. Only then will training be effective
As the pack leader, You often have to rise above you’re all emotional stuff in order to set expectations and train your puppy. It will be hard not to indulge their cuteness but it has to be done in order to train a balanced engaged member of the family
When you lose patience and emotionally react, your dog is training you rather than the other way around. Stay calm and assert what you want with your energy more than your words
When you lose patience and emotionally react your dog is training you rather than the other way around. Stay calm and assert what you want with your energy more than your words
Dogs learn in the order: nose, eyes, ears
Training your puppy requires 4 parts: leadership, persistence, consistency, and patience
What I got out of it
Really a human management book disguised as a dog training book
Russell describes the amazing relationship that him and coach Red Auerbach were able to cultivate over decades.
Russell was ingrained from a young age always stand up for himself to never let anyone impose their will on him – to be committed, loyal, and devoted, and these characteristics all came through when he became a Celtic
Russell’s father instilled in him a sense of pride in his work. Whatever you do, be the best at it. This is the road from journeyman to artist that we should all strive for
It is far more important to understand than to be understood
Russell said this several times in the book and seems to be a driving force for him
Russell had such an unorthodox game – blocking shots, being mostly vertical rather than horizontal – that people didn’t understand his game or really understand how good he was. Even after he won a national championship his junior year of college and averaged 20 points and 20 rebounds a game, people still didn’t think he was very good they gave the national player of the year award to another player
Fascinating to think back to that time and the blind spot people had because Russell didn’t fit the image of what people had for a center! One of the greatest players of all time was “misdiagnosed” because he was different
Red and I shared a superpower – always knowing what was important. We were willing to buck conventional wisdom in order to win. We over me and always looking at trying to find ways to help people better contribute to the team
Story of how Red made sure nobody selected Bill ahead of the Celtics in the draft is awesome. Red deeply understood human nature and was able to take various perspectives to understand what people wanted – creating a win/win for everyone involved
Another of Red’s superpowers was his ability to listen – he had “great ears”
Red treated everyone as equals and with respect, as men on a shared mission to win basketball games
The guiding light that drove every decision and action was how do we increase the odds of winning as a team? This was the driving force and aligned everyone to achieve this goal
Russell deliberately studied every one of his teammates and competitor’s strengths and weaknesses so he knew how to best help his teammates and be most effective against his competitors. He could visualize in his head how every player in the league moved and how he would defend against them
Red worked through collaboration rather than a dictatorship. He asked everyone questions and got their input making them co-owners of the team and integral to every decision, creating buy in and an aligned and cooperative team
One thing that stood out to me was that Red seem to have no preconceived notion‘s
Red never cared about other players. His focus was solely on the team he has and not the team he wished he had – these are the guys I’m going to war with. How do we win win with what we got?
Russell always aimed to play the perfect game. This included all the normal metrics like rebounds and shooting percentage but also conversation he had with his teammates because of the power of language and psychology
Russell and Red didn’t care what anybody else thought they simply did what they thought was right for them and their team
Red never imposed anything. He set up a system and got people to buy in so that they felt ownership and responsibility for it
Another great example of Red’s psychological mastery was with Frank Ramsey. It used to be that you were either part of the all-star first team or the lowly second team. Red helped Frank understand that he was their “sixth man” – the sixth starter, the first guy off the bench. The role that used to be looked down upon was now an honor and Red helped build the culture and the game around Frank’s incredible shooting skills so that he always brought a burst of energy and was sa potential game-changer when he did come in.
One of Red’s masterstrokes as a coach was knowing how to treat each player differently yet maintain the cohesiveness of the entire unit
Surprising to me that a team like this had “rules for Russell” and “rules for everyone else.” Red must have masterfully balanced this hierarchy/differentiation in order to keep the rest of the team calm and bought in
Play like a child, but not childish
What I got out of it
Beautiful to hear the relationship that Red and Russell built over the decades. Much of it was unsaid, and that’s the amazing part of it. They came from such different “tribes,” as Russell said, but they instinctively understood each other and came to respect and trust each other. They both were willing to do whatever it took for the team to win
David Packard walks through the evolution of Hewlett-Packard from tiny startup to behemoth
Finally, they hit upon the audio oscillator and sold eight units to Walt Disney, earning the company its first substantial revenues.
Culture and the HP Way
“But they had a great idea—the ultimate source of competitive advantage—if you can just see it,” I’d push back. “What might that be?” After ten or fifteen minutes, someone would likely voice the key point: Bill Hewlett and David Packard’s greatest product was not the audio oscillator, the pocket calculator, or the minicomputer. Their greatest product was the Hewlett-Packard Company and their greatest idea was The HP Way.
The point is not that every company should necessarily adopt the specifics of the HP Way, but that Hewlett and Packard exemplify the power of building a company based on a framework of principles. The core essence of the HP Way consists of five fundamental precepts.
The Hewlett-Packard company exists to make a technical contribution, and should only pursue opportunities consistent with this purpose;
The Hewlett-Packard company demands of itself and its people superior performance—profitable growth is both a means and a measure of enduring success;
The Hewlett-Packard company believes the best results come when you get the right people, trust them, give them freedom to find the best path to achieve objectives, and let them share in the rewards their work makes possible;
The Hewlett-Packard company has a responsibility to contribute directly to the well-being of the communities in which its operates;
Hewlett and Packard rejected the idea that a company exists merely to maximize profits. “I think many people assume, wrongly, that a company exists simply to make money,” Packard extolled to a group of HP managers on March 8, 1960. “While this is an important result of a company’s existence, we have to go deeper to find the real reasons for our being.” He then laid down the cornerstone concept of the HP Way: contribution. Do our products offer something unique—be it a technical contribution, a level of quality, a problem solved—to our customers? Are the communities in which we operate stronger and the lives of our employees better than they would be without us? Are people’s lives improved because of what we do? If the answer to any these questions is “no,” then Packard and Hewlett would deem HP a failure, no matter how much money the company returned to its shareholders.
Therein we find the hidden DNA of the HP Way: the genius of the And. Make a technical contribution and meet customer needs. Take care of your people and demand results. Set unwavering standards and allow immense operating flexibility. Achieve growth and achieve profitability. Limit growth to arenas of distinctive contribution and create new arenas of growth through innovation. Never compromise integrity and always win in your chosen fields. Contribute to the community and deliver exceptional shareholder returns. Behind these specifics lies the biggest “And” of all, the principle that underpins every truly great company: preserve the core and stimulate progress.
Any great social enterprise—whether it be a great company, a great university, a great religious institution, or a great nation—exemplifies a duality of continuity and change. On the one hand, it is guided by a set of core values and fundamental purpose that change little over time, while on the other hand, it stimulates progress—change, improvement, innovation, renewal—in all that is not part of the core guiding philosophy. In a great company, core values remain fixed while operating practices, cultural norms, strategies, tactics, processes, structures, and methods continually change in response to changing realities. Lose your core values, and you lose your soul; refuse to change your practices, and the world will pass you by.
Yet the ultimate test of a great company is not the absence of difficulty, but the ability to recover from setbacks—even self-inflicted wounds—stronger than before.
As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively which they could not accomplish separately. They are able to do something worthwhile—they make a contribution to society (a phrase which sounds trite but is fundamental).
We must realize that supervision is not a job of giving orders; it is a job of providing the opportunity for people to use their capabilities efficiently and effectively.
If our main thought is to make money, we won’t care about these details. If we don’t care about the details, we won’t make as much money. They go hand in hand.
Our first obligation, which is self-evident from my previous remarks, is to let people know they are doing something worthwhile. We must provide a means of letting our employees know they have done a good job. You as supervisors must convey this to your groups. Don’t just give orders. Provide the opportunity for your people to do something important. Encourage them.
Profit is the measure of our contribution to our customers—it is a measure of what our customers are willing to pay us over and above the actual cost of an instrument.
Get the best people, stress the importance of teamwork, and get them fired up to win the game.
I found, after much trial and error, that applying steady gentle pressure from the rear worked best. Eventually, one would decide to pass through the gate; the rest would soon follow. Press them too hard, and they’d panic, scattering in all directions. Slack off entirely, and they’d just head back to their old grazing spots. This insight was useful throughout my management career.
Another example of sharing, though in a much different way, occurred in 1970. Because of a downturn in the U.S. economy, our incoming orders were running at a rate quite a bit less than our production capability. We were faced with the prospect of a 10 percent layoff. Rather than a layoff, however, we tried a different tack. We went to a schedule of working nine days out of every two weeks—a 10 percent cut in work schedule with a corresponding 10 percent cut in pay. This applied to virtually all our U.S. factories, as well as to all executives and corporate staff. At the end of a six-month period, the order rate was up again and everyone returned to a full work schedule. Some said they enjoyed the long weekends even though they had to tighten their belts a little. The net result of this program was that effectively all shared the burden of the recession, good people were not released into a very tough job market, and we had our highly qualified workforce in place when business improved.
GE was especially zealous about guarding its tool and parts bins to make sure employees didn’t steal anything. Faced with this obvious display of distrust, many employees set out to prove it justified, walking off with tools or parts whenever they could. Eventually, GE tools and parts were scattered all around town, including the attic of the house in which a number of us were living. In fact, we had so much equipment up there that when we threw the switch, the lights on the entire street would dim. The irony in all of this is that many of the tools and parts were being used by their GE “owners” to work on either job-related projects or skill-enhancing hobbies—activities that would likely improve their performance on the job. When HP got under way, the GE memories were still strong and I determined that our parts bins and storerooms should always be open. Keeping storerooms and parts bins open was advantageous to HP in two important ways. From a practical standpoint, the easy access to parts and tools helped product designers and others who wanted to work out new ideas at home or on weekends. A second reason, less tangible but important, is that the open bins and storerooms were a symbol of trust, a trust that is central to the way HP does business.
Many companies have a policy stating that once employees leave the company, they are not eligible for reemployment. Over the years we have had a number of people leave because opportunities seemed greater elsewhere. We’ve always taken the view that as long as they have not worked for a direct competitor, and if they have a good work record, they are welcomed back. They know the company, need no retraining, and usually are happier and better motivated for having had the additional experience.
No operating policy has contributed more to Hewlett-Packard’s success than the policy of “management by objective.” Although the term is relatively new to the lexicon of business, management by objective has been a fundamental part of HP’s operating philosophy since the very early days of the company. MBO, as it is frequently called, is the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type, where people are assigned—and expected to do—specific jobs, precisely as they are told and without the need to know much about the overall objectives of the organization. Management by objective, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility. It is the philosophy of decentralization in management and the very essence of free enterprise.
I don’t argue that the job can’t be done that way, but I do argue strongly that the best job can be done when the manager has a genuine and thorough understanding of the work. I don’t see how managers can even understand what standards to observe, what performance to require, and how to measure results unless they understand in some detail the specific nature of the work they are trying to supervise.
I learned everything I could about the causes of failure and decided to spend most of my time on the factory floor, making sure every step in the manufacturing process was done correctly. I found several instances where the written instructions provided the manufacturing people were inadequate, and I worked with them on each step in the process to make sure there were no mistakes. This painstaking attention to detail paid off, and every tube in the next batch passed its final test.
That was the genesis of what has been called MBWA. I learned that quality requires minute attention to every detail, that everyone in an organization wants to do a good job, that written instructions are seldom adequate, and that personal involvement is essential.
It needs to be frequent, friendly, unfocused, and unscheduled—but far from pointless. And since its principal aim is to seek out people’s thoughts and opinions, it requires good listening.
Linked with MBWA is another important management practice at Hewlett-Packard, and a basic tenet of the HP Way. It’s called the “open door policy.” Like MBWA, this policy is aimed at building mutual trust and understanding, and creating an environment in which people feel free to express their ideas, opinions, problems, and concerns.
The open door policy is very important at HP because it characterizes the management style to which we are dedicated. It means managers are available, open, and receptive. Everyone at HP, including the CEO, works in open-plan, doorless offices. This ready availability has its drawbacks in that interruptions are always possible. But at HP we’ve found that the benefits of accessibility far outweigh the disadvantages. The open door policy is an integral part of the management-by-objective philosophy. Also, it is a procedure that encourages and, in fact, ensures that the communication flow be upward as well as downward.
Bill’s audio oscillator represented the first practical, low-cost method of generating high-quality audio frequencies needed in communications, geophysics, medicine, and defense work. The audio oscillator was to become the Hewlett-Packard Company’s first product.
We designated this first product the Model 200A because we thought the name would make us look like we’d been around for a while. We were afraid that if people knew we’d never actually developed, designed, and built a finished product, they’d be scared off. Our pricing was even more naive: We set it at $54.40 not because of any cost calculations but because, of all things, it reminded us of “54°4o’ or Fight!” (the 1844 slogan used in the campaign to establish the northern border of the United States in the Pacific Northwest). We soon discovered we couldn’t afford to build the machines for that price. Luckily, our nearest competition was a $400 oscillator from General Radio, which gave us considerable room to maneuver.
At the end of 1939, our first full year in business, our sales totaled $5,369 and we had made $1,563 in profits. We would show a profit every year thereafter.
In those early days Bill and I had to be versatile. We had to tackle almost everything ourselves—from inventing and building products to pricing, packaging, and shipping them; from dealing with customers and sales representatives to keeping the books; from writing the ads to sweeping up at the end of the day. Many of the things I learned in this process were invaluable, and not available in business schools.
He said that more businesses die from indigestion than starvation. I have observed the truth of that advice many times since then.
Although the pressure to meet production deadlines was enormous, there was also lots of excitement and a great sense of camaraderie.
Eventually, because of big gains in productivity, the bonus to our entire workforce rose to as much as 85 percent of base wages. At that point, which was some time after the war, we abandoned this particular bonus plan. But in no way did we discontinue the practice of sharing profits among all our people. To this day, Hewlett-Packard has a profit-sharing program that encourages teamwork and maintains that important link between employee effort and corporate success.
Bill and I had decided we were going to reinvest our profits and not resort to long-term borrowing. I felt very strongly about this issue, and we found we were clearly able to finance 100 percent growth per year by reinvesting our profits. After some discussion with the members of the board, they seemed to be impressed with what we were doing but said they had a limit of 12 percent of profit they could allow on equity. I pointed out that our business had been doubling every year and that it would continue to do so for several years. I also told them that I had kept my salary at a lower level than it should have been because I did not think it was fair for my salary to be higher than Bill’s army salary.
We developed additional instruments, and later on, again working with Dr. Haeff, we built a device his group developed that was capable of jamming an enemy’s ship-board radar. It was at the core of what was code-named the Leopard project. We were very conscientious about meeting our delivery schedule on this project, working around the clock. I recall moving a cot into the factory and sleeping there many nights.
I believe this decision to focus our efforts was extremely important, not only in the early days of the company but later on as well. During the war, for example, we could have taken on some big—at least for us—production contracts. But that would have built the company to a level that probably couldn’t be sustained later on. I felt that we should take on no more than we could reasonably handle, building a solid base by doing what we did best—designing and manufacturing high-quality instruments.
The counter was so useful when it did work that our customers tolerated its unreliability.
Our collaboration with Stanford and Fred Terman continued, and in 1954 we expanded on the fellowship program and established what became known as the Honors Cooperative Program, which allowed qualified HP engineers to pursue advanced degrees at Stanford. The program made it possible for us to hire top-level young graduates from around the country with the promise that if they came to work for us and we thought it appropriate, they could attend graduate school while on full HP salary. Originally, the company paid part of their tuition as well, and more recently has paid all of their tuition. More than four hundred HP engineers have obtained master’s or doctorate degrees through this program. It has enabled us to hire the top engineering graduates from universities all across the country for a number of years—an important factor in the ultimate success of our company.
As I have said many times, our success depends in large part on giving the responsibility to the level where it can be exercised effectively, usually on the lowest possible level of the organization, the level nearest the customer.
There were about 4,000 people at this facility, and we were the first Americans ever to visit. It was obvious to me that what they were building would be entirely useless in modern-day combat, but I didn’t say anything at the time, except to compliment them on their workmanship.
Bill Hewlett and I were raised during that depression. We had observed its devastating effects on people, including many families and friends who were close to us. My father had been appointed as a bankruptcy referee for the state of Colorado. When I returned to Pueblo during the summers of the 1930s, I often helped my father in looking up the records of those companies that had gone bankrupt. I noted that the banks simply foreclosed on firms that mortgaged their assets and these firms were left with nothing. Those firms that did not borrow money had a difficult time, but they ended up with their assets intact and survived during the depression years that followed. From this experience I decided our company should not incur any long-term debt. For this reason Bill and I determined we would operate the company on a pay-as-you-go basis, financing our growth primarily out of earnings rather than by borrowing money.
Our long-standing policy has been to reinvest most of our profits and to depend on this reinvestment, plus funds from employee stock purchases and other cash flow items, to finance our growth. The stock purchase plan allows employees to apply up to a certain percentage of their salaries to purchase shares of HP stock at a preferential price. The company picks up a portion of the price of the stock. The plan has been in existence since 1959 and has provided us with significant amounts of cash to help finance our growth.
I was convinced we could correct the problem through greater self-discipline. I quickly visited nearly every one of our major divisions, meeting with a host of managers and giving them a lecture that was later characterized by one manager as “Dave’s give-’em-hell talk.”
One of our most important management tasks is maintaining the proper balance between short-term profit performance and investment for future strength and growth.
The pricing of new products is an important and challenging exercise. Often a product will be introduced to the market at a price too low to make an adequate short-term profit. The thinking is that “we’ll get our costs down and that will enable us to make a good profit”— either next month, next quarter, or next year. But that time seldom, if ever, comes. Often pricing also falls prey to the goal of “market share.” Many managers in American industry are caught up with the idea of capturing a larger share of a market, often by undercutting the competition’s prices. In the short term, that often results in an impressive sales volume . . . but at the expense of little or no profit.
What we did decide, however, was that we wanted to direct our efforts toward making important technical contributions to the advancement of science, industry, and human welfare. It was a lofty, ambitious goal. But right from the beginning, Bill and I knew we didn’t want to be a “me-too” company merely copying products already on the market.
A constant flow of good new products is the lifeblood of Hewlett-Packard and essential to our growth. Early on we developed a system for measuring the flow and success of new products.
At HP, as in other technical companies, there is no shortage of ideas. The problem is to select those likely to fill a real need in the marketplace. To warrant serious pursuit an idea must be both practical (the device under consideration must work properly) and useful. Out of those ideas that are practical, a smaller number are useful. To be useful an invention must not only fill a need, it must be an economical and efficient solution to that need. we often used to select projects on the basis of a six-to-one engineering return. That is, the profit we expected to derive over the lifetime of a product should be at least six times greater than the cost of developing the product. Almost without exception, the products that beat the six-to-one ratio by the widest margin were the most innovative.
How do managers provide encouragement and help the inventor retain enthusiasm in the face of such disappointment? HP shows off its first computer in 1967 at the IEEE trade show in New York City. Many HP managers over the years have expressed admiration for the way Bill Hewlett handled these situations. One manager has called it Bill’s “hat-wearing process.” Upon first being approached by a creative inventor with unbridled enthusiasm for a new idea, Bill immediately put on a hat called “enthusiasm.” He would listen, express excitement where appropriate and appreciation in general, while asking a few rather gentle and not too pointed questions. A few days later, he would get back to the inventor wearing a hat called “inquisition.” This was the time for very pointed questions, a thorough probing of the idea, lots of give-and-take. Without a final decision, the session was adjourned. Shortly thereafter, Bill would put on his “decision” hat and meet once again with the inventor. With appropriate logic and sensitivity, judgment was rendered and a decision made about the idea. This process provided the inventor with a sense of satisfaction, even when the decision went against the project—a vitally important outcome for engendering continued enthusiasm and creativity.
In 1994, HP’s sales in computer products, service, and support were almost $20 billion, or about 78 percent of the company’s total business. In 1964, our sales totaled $125 million and were entirely in instruments. Not a penny was from computer sales. This represents a remarkable transformation of our company and its business. It would be nice to claim that we foresaw the profound effect of computers on our business and that we prepared ourselves to take early advantage of the computer age. Unfortunately, the record does not justify such pride. It would be more accurate to say that we were pushed into computers by the revolution that was changing electronics.
Several years later, at a gathering of HP engineers, I presented Chuck with a medal for “extraordinary contempt and defiance beyond the normal call of engineering duty.” So how does a company distinguish between insubordination and entrepreneurship? To this young engineer’s mind the difference lay in the intent. “I wasn’t trying to be defiant or obstreperous. I really just wanted a success for HP,” Chuck said. “It never occurred to me that it might cost me my job.” As a postscript to the story, this same engineer later became director of a department . . . with his reputation as a maverick intact.
The fundamental basis for success in the operation of Hewlett-Packard is the job we do in satisfying the needs of our customers. We encourage every person in our organization to think continually about how his or her activities relate to the central purpose of serving our customers.
Noel, a key member of our top-management team, was a strong advocate for helping the customer, so much so that he wanted our sales engineers to take the customer’s side in any disputes with the company. “We don’t want you blindly agreeing with us,” he’d tell them. “We want you to stick up for the customer. After all, we’re not selling hardware; we’re selling solutions to customer problems.” Noel stressed the importance of customer feedback in helping us design and develop products aimed at real customer needs. He also insisted that our salespeople never speak disparagingly of the competition. This reflected our feeling that competitors should be respected, the type of respect that existed between General Radio and HP when Bill and I were starting out.
“More for less” became the goal for each new LaserJet model. This objective reveals a lesson learned from our experience with calculators. For many years we continued to introduce increasingly sophisticated calculators with greater capabilities at greater cost to consumers. Meanwhile, our competitors were offering basic features at a lower price. For the mass market, basic features were sufficient, and the lower-priced models decreased HP’s calculator market share. The sophisticated HP calculators sold to customers who needed more advanced capabilities—but we lost a large portion of the marketplace. With LaserJet printers, we decided that each revision would offer our customers greater capability at a lower price than its predecessor.
Kenzo Sasaoka, our manager in Japan, and he said that I had shown him the way—that gains in quality come from meticulous attention to detail and every step in the manufacturing process must be done as carefully as possible, not as quickly as possible. This sounds simple, but it is achieved only if everyone in the organization is dedicated to quality.
Especially in a technical business where the rate of progress is rapid, a continuing program of education must be undertaken and maintained.
Another requirement is that a high degree of enthusiasm should be encouraged at all levels; in particular, the people in high management positions must not only be enthusiastic themselves, they must be able to engender enthusiasm among their associates. There can be no place for halfhearted interest or halfhearted effort.
Thus, we made an early and important decision: We did not want to be a “hire and fire”—a company that would seek large, short-term contracts, employ a great many people for the duration of the contract, and at its completion let those people go. This type of operation is often the quickest and most efficient way to get a big job accomplished. But Bill and I didn’t want to operate that way. We wanted to be in business for the long haul, to have a company built around a stable and dedicated workforce.
Growth also affected the size and nature of company picnics. Bill and I considered picnics an important part of the HP Way, and in the early days we had an annual picnic in the Palo Alto area for all our people and their families. It was a big event, one largely planned and carried out by our employees themselves. The menu consisted of New York steaks, hamburgers, Mexican beans or frijoles, green salad, garlic French bread, and beer. The company bought the food and beer. It became customary for the machine shop people to barbeque the steaks and burgers, with other departments responsible for other parts of the menu. Bill and I and other senior executives served the food, giving us the opportunity to meet all of the employees and their families. In the early 1950s the company bought a parcel of land, called Little Basin, in the redwood country about an hour’s drive from Palo Alto. We converted part of it into a recreation area, large enough to have a picnic with two thousand people or more. We also made it available year around for our employees and their families to go overnight camping. This was such a popular benefit that we decided, later on, to duplicate the idea in other parts of the world where we had concentrations of HP people.
The underlying principle of HP’s personnel policies became the concept of sharing—sharing the responsibilities for defining and meeting goals, sharing in company ownership through stock purchase plans, sharing in profits, sharing the opportunities for personal and professional development, and even sharing the burdens created by occasional downturns in business.
In the United States and many other countries, employees participate in stock purchase plans and in cash profit sharing. U.S. employees with more than six months of service are eligible for profit sharing, and each year receive amounts calculated on the company’s pretax earnings. Over the years this payout has been as high as 9.9 percent and as low as 4.1 percent of base salary. Since the company has always been profitable, the program has continued uninterrupted since we started it in the 1950s.
An important responsibility of managers is the selection and training of their potential successors. Management succession is especially critical at the upper levels of an organization, where a manager may be responsible for a wide scope of complex activities involving the expenditure of many millions of dollars and the efforts of many thousands of people.
I have always felt that the most successful companies have a practice of promoting from within.
Today Hewlett-Packard operates in many different communities throughout the world. We stress to our people that each of these communities must be better for our presence. This means being sensitive to the needs and interests of the community; it means applying the highest standards of honesty and integrity to all our relationships with individuals and groups; it means enhancing and protecting the physical environment and building attractive plants and offices of which the community can be proud; it means contributing talent, energy, time, and financial support to community projects.
It took forty years for the company Bill Hewlett and I started in 1939 to reach one billion dollars in annual sales and a major part of that was from inflation. In the 1994 fiscal year that ended last October, we began the year with twenty billion dollars in worldwide sales and added five billion to that by year’s end. This occurred with essentially no inflation. Other technology companies have shown similar growth. Just as it has in the past, our growth in the future will come from new products. In 1994, we spent two billion dollars in new product development. Beginning in 1939 we generated at least six dollars of profit, spread over five or six years, for every dollar spent on new product development. By new products, I mean products that make real contributions to technology, not products that copy what someone else has done. This must be our standard in the future just as it has been in the past.
I had to work very hard at Latin, but the math and science courses were easy because I already knew about as much as the teachers did. I was elected president of my class all four years.
Bill went to a private elementary school, going to and from on a cable car. He did well with numbers and arithmetic but had great difficulty reading. He was thought to be a slow learner when, in actuality, he was dyslexic. But in those days no one knew what dyslexia was. He continued to have trouble reading and writing, and later on, in lecture classes, he couldn’t write notes fast enough to keep up with the lecturer. So, as is the case with many dyslexics, he learned how to listen, to file thoughts and information in a logical form and have them readily available from memory. “This procedure worked particularly well in learning math and science,” he says.
I learned everything I could about possible causes of failure, and I decided to spend most of my time on the factory floor to make sure every step was done properly. It soon became apparent that the instructions the engineering department gave the factory people were not adequate to ensure that every step would be done properly. I found the factory people eager to do the job right. We worked together to conduct tests and identify every possible cause of failure, and as a result, every tube in that batch of twenty passed its final test without a single failure. That was a very important lesson for me—that personal communication was often necessary to back up written instructions. That was the genesis of what became “management by walking around” at the Hewlett-Packard Company.
These miscellaneous jobs made us more sure of ourselves and our skills. They also revealed something we hadn’t planned but that was of great benefit to our partnership—namely, that our abilities tended to be complementary. Bill was better trained in circuit technology, and I was better trained and more experienced in manufacturing processes. This combination of abilities was particularly useful in designing and manufacturing electronic products.
Another benefit from ranching was my friendship with Bill Hewlett. By running the ranches together—as well as the company—Bill and I developed a unique understanding of each other. This harmony has served us well every single day in running HP.
Shortly after my arrival at the Pentagon, I called on all four of the Joint Chiefs in their offices and told them I wanted to work with them and that I needed their help. Bill and I had a deer hunt every year at our San Felipe ranch southeast of San Jose. He and I brought all the food, and we cooked and served the meals and washed the dishes ourselves with the help of our guests. In the spirit of friendship and collaboration, I invited the Joint Chiefs to join us at the deer hunt in 1969. They came and each got a deer. When it was time to wash the dishes, they rolled up their sleeves and helped us. That hunt helped establish a good rapport with the Joint Chiefs.
Before I went to Washington, even the people who encouraged me to go warned me that a career in business would ill prepare me for the frustrations of government bureaucracy. And they were right.
When i think of the phenomenal growth of the electronics industry over the last fifty years, I realize how fortunate Bill Hewlett and I were to be in on the ground floor. But it reminds me of a story I like to tell on myself. In my sophomore year at Stanford I took a course in American history and had the opportunity to study the westward movement beginning with the early pioneers and continuing throughout the nineteenth century. I remember lamenting that I had been born one hundred years too late, that all the frontiers had been conquered, and that my generation would be deprived of the pioneering opportunities offered our forebears. But in fact, we went on to make breathtaking advances in the twentieth century.
What I got out of it
Some incredible business lessons from one of the original silicon valley companies that started it all