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August 2019

2019-09-26 »

What do executives do, anyway?

An executive with 8,000 indirect reports and 2000 hours of work in a year can afford to spend, at most, 15 minutes per year per person in their reporting hierarchy... even if they work on nothing else. That job seems impossible. How can anyone make any important decision in a company that large? They will always be the least informed person in the room, no matter what the topic.

If you know me, you know I've been asking myself this question for a long time.

Luckily, someone sent me a link to a really great book, High Output Management, by Andy Grove (of Intel fame). Among many other things, it answers this key question! And insultingly, just to rub it in, it answered this question back in the 1980s.

To paraphrase the book, the job of an executive is: to define and enforce culture and values for their whole organization, and to ratify good decisions.

That's all.

Not to decide. Not to break ties. Not to set strategy. Not to be the expert on every, or any topic. Just to sit in the room while the right people make good decisions in alignment with their values. And if they do, to endorse it. And if they don't, to send them back to try again.

There's even an algorithm for this.

It seems too easy to be real. For any disagreement, identify the lead person on each side. Then, identify the lowest executive in the corporate hierarchy that both leads report into (in the extreme case, this is the CEO). Set up a meeting between the three of them. At the meeting, the two leads will present the one, correct decision that they have agreed upon. The executive will sit there, listen, and ratify it.

But... wait. If the decision is already made before the meeting, why do we need the meeting? Because the right decision might not happen without the existence of that meeting. The executive gives formal weight to a major decision. The executive holds the two disagreeing leads responsible: they must figure out not what's best for them, but what's best for the company. They can't pull rank. They can't cheat. They have to present their answer to a person who cares about both of their groups equally. And they want to look good, because that person is their boss! This puts a lot of pressure on people to do the right thing.

(Side note: this has parallels with the weirdly formal structures in eg. Canadian parliament, where theoretically all decisions must be ratified by the seemingly powerless Governor General, who represents The Queen by just always ratifying everything. The theory is that if the decisions were bad, they wouldn't be ratified, so there'd be no point proposing them, and therefore all the decisions proposed are worthy of ratification. Obviously the theory doesn't match the practice here, because bad decisions get ratified, but it's nice to think about.)

Failure modes

What happens when an executive doesn't follow this model? One of several things we've all seen before, depending what the executive does instead.

  • If the executive makes their own decisions and forces them downstream: the executive doesn't have enough information to make good decisions in detail, so the decision won't be optimal. And there won't be much buy-in from people downstream. This also encourages politics: people whisper in the executive's ear to bend it one way or the other. It encourages "brown-nosing."

  • If the executive chooses not to be involved in conflicts that are "not important enough; you figure it out": political power games ensue. Whoever can force their way will win, killing morale. Or half the people do one thing and half do the other, and the company loses focus.

  • If the executive accepts escalations, then tries to make a tie-breaker decision: non-optimal decisions get made, because again the executive is, out of the three people, the least qualified to decide. Offhand, you might think this is fine, if the decision isn't very important anyway. That part is true. But the indirect effects are disastrous: it allows the two leads to abdicate resonsibility. They don't have to remind themselves what's good for the company, because you did it for them. It lets them be selfish. It lets disagreement fester. It leaves at least one side not fully bought in.

    (I'm wary of "disagree and commit" for this reason. Real people don't commit when they strongly disagree; they only pretend to. In service of a value like "move fast and break things" it can work, because speed overrides wisdom or consistency. That's a legitimate value, like any other, if it serves your strategy.)

  • If the executive brings in more people to discuss the issue: this is something the two leads should have done already. If they didn't, they are failing at their job, and need to learn how to do it better. Step one is the executive sends them a message: "Go back. Include these additional people/groups in your decision. Come back when you've thought it through properly." If it continues, people have to get fired, because they are bad at making decisions.

Enforcement of culture and values

According to the book, which makes a pretty compelling case, the only other responsibility of an executive is to enforce company values.

What does that mean? It means if someone in the company isn't acting "right" - not acting ethically, not following the conflict resolution algorithm above, playing politics - then they need to be corrected or removed. Every executive is responsible for enforcing the policy all the way down the chain, recursively. And the CEO is responsible for everyone. You have to squash violators of company values, fast, because violators are dangerous. People who don't share your values will hire more people who don't share your values. It's all downhill from there.

Real values aren't what you talk about, they're what you do when times get tough. That means values are most visible during big, controversial decisions. The executive ratifying a decision needs to evaluate that decision against the set of organizational values. Do the two leads both understand our values? Is the decision in line with our values? If not, tell them so, explicitly, and send them back to try again.

What about strategy?

One of the book's claims, which I found shocking at first, was that in a large organization, executives don't set strategy. Not even the CEO sets strategy. Why? Because it's an illusion to believe you can enforce a strategy.

Employees, including executives that report to you, follow company values first and foremost. (This is by definition construction. If they don't, you fired them, see above.) Of course, they're human, so as part of that, they'll be looking out for themselves, their friends, and the people in their organization.

Maybe one of your organizational values is "do what your boss says." That's a thing you can do, and you can enforce. It works. The military works like that supposedly (although I have no experience with the military). But command-and-control is not very efficient for knowledge workers, because of the fundamental problem that for any given situation, the people who know the most about it are the people at the bottom, not the people at the top.

If the people at the bottom can't agree what to do, then great! That's why we have a hierarchy. Use the decision process above until the answer is obvious.

But if the person at the top is trying to "set a strategy" by making operational decisions, those decisions will be based on insufficient facts, because there are simply far too many facts for one person. That means, if your decisions should be based on facts, you will make worse decisions than your subordinates. That's scary.

So what, then? A company just drifts in the void, with no strategy?

Not exactly. It's harder than that. What executives need to do is come up with organizational values that indirectly result in the strategy they want.

That is, if your company makes widgets and one of your values is customer satisfaction, you will probably end up with better widgets of the right sort for your existing customers. If one of your values is to be environmentally friendly, your widget factories will probably pollute less but cost more. If one of your values is to make the tools that run faster and smoother, your employees will probably make less bloatware and you'll probably hire different employees than if your values are to scale fast and capture the most customers in the shortest time.

Why will employees embrace whatever weird organizational values you set? Because in every decision meeting, you enforce your values. And you fire the people who don't line up. Recursively, that means executives lower down the tree will do the same, because that itself is one of the values you enforce.

Unless it's somehow impossible to hire people who agree with your values, you can assemble an organization that aligns with them. It might be a terrible organization that ruins your business, but then... well, those values weren't a good choice.

I can't believe nobody told me this before. It's all so simple, and it's all been documented since the 1980s.

Epilogue: small companies

Almost none of this applies to small companies. They are so small that the founders and the CEO actually do have a chance of fully understanding problems, which means they don't yet need to delegate decisions. Also, in a small company, strategy and values are usually not well defined yet, so a primary goal is to discover them incrementally. You learn from mistakes and refine together until the strategy (and thus the values that will produce the strategy) become clear.

In a small company, it's important to understand how the big company process works, because your values begin to solidify pretty early on, even as you choose co-founders and investors and hire the first employees. It's hard to change your values later, because it usually involves firing people. So you need to be thinking about them from the beginning. Still, the details aren't set in stone on day 1.

Doubilogue: major strategic changes

All this is one reason why if you want a major strategic change, you often replace an executive - maybe even the CEO. Or, conversely, if you replace the CEO, you often get a major strategic change, whether you like it or not. The CEO sets the values, and the values set the strategy.

Company values flow downward. They are very hard to change, and very painful. When you change your company values, you might find that employees who liked the old values don't want to work there anymore, and rightly so. (This happens even if the new values are "better" in your favourite dimensions.)

If your old strategy is failing, you can't fix the company by just declaring a new strategy. You do it by declaring new values. Then you enforce those values. And that's going to make a lot of people very upset. (If you do this too often, you deserve what you get.)

One reason strategy changes are so risky in a big company is that, again, the people at the top really don't know much of what's going on. Although they have a sky-high view of the world, they have a very limited view of the details. Changes of strategy, and therefore changes of values, and therefore changes of executives, usually have wide-ranging unexpected consequences. You do it because you have to, because your old strategy isn't working, not because you want to. You're betting everything.

I wish more executives would be transparent about this. "Our old strategy wasn't working, because our old values weren't working. Here's the new strategy, and the new values. This is gonna hurt."

What you usually get instead is a polite "rewording" or "watering down" of the corporate values, and maybe some whispering about how the old values weren't so good after all, and maybe how the new values were our real values all along. Weak.

Or, worst of all, executives lose their way and stop enforcing any value system at all. Then the value system reverts to the default: politics and backstabbing. It wouldn't bother me so much if it weren't so hopelessly inefficient.

Tripilogue: governments

Governmental politics are bad exactly to the extent that we don't enforce our values by firing the people who don't encompass them.

In a democracy, this is hard because values in the first place are agreed by mass consensus rather than chosen at the top. That's why propaganda is so powerful: it changes our values, which changes who and what we tolerate.

Quadrilogue: Tradeoffs

By the way, useful organizational values come in the form of tradeoffs: giving up one nice thing in order to get some other nice thing. Wishy-washy values like "respect your co-workers" aren't really values, because nobody would ever pick a value like "don't respect your co-workers." Respecting your co-workers is just basic civility. By the time you have to write it down, you've already lost. Put it in your HR policy somewhere, not the top line.

A real value is something like "tell the truth, even when it hurts." Or "deliver the software on schedule, even if there are bugs." In both cases, one can legitimately imagine valuing the opposite.

August 2019

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