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Wednesday, May 7, 2014

How Do You Scale Excellence? 05-07

 How Do You Scale Excellence?

Two Stanford professors discuss their new book, Scaling Up Excellence, which reveals how the best leaders and teams develop, spread, and instill the right growth mindset in their organization.
Eight years ago, over dinner and a bottle of wine,Hayagreeva (Huggy) Rao and Robert Sutton realized they needed better answers for the students of a Stanford management education program, Customer-Focused Innovation, they were running. The business executives appreciated what the pair had to say about reducing bureaucracy in an organization and enabling creativity, but invariably asked, “How do we scale this?”
So, the longtime collaborators set out to find the answer. For more than seven years, they interviewed business leaders, reviewed research, and studied and conducted case studies about the mindset and strategies companies can use to spread excellence within an organization. The result is their book, Scaling Up Excellence: Getting to More Without Settling for Less, which will be published in February.
We recently sat down with the pair to discuss key ideas from the book. Excerpts:

You begin your book by saying that companies that want to spread excellence have the “problem of more.” What exactly do you mean by that?

Rao: To put it simply, the problem of “more” is that organizations have pockets of goodness, and what you want is more of the goodness. At the same time that you’re adding good — by adding pockets or expanding them — you want to make sure you get rid of the bad. So, the problem of “more” is the problem — the challenge — of proliferating goodness.

Sutton: And the word “problem” is important because when things get bigger or you spread them farther, not everything that happens is good. There's this notion of growth and progress in America, that everything gets better as it gets bigger. But it’s a messy process. There will be things that annoy you. And the more you want to scale, probably, the more you have to suffer personally, which is not something I think leaders want to hear.

So how do leaders actually get through that?

Rao: You can have the illusion of drawing up nice little organizational charts and figuring out what growth looks like, but they’re all things on paper. In reality you need both story and structure. What I mean by story is lofty, inspirational messaging about excellence. But you also need the structure — the plumbing, if you will — the unglamorous parts of scaling. If you don’t have both of those, you’re never going to get anywhere.

Sutton: There’s always this challenge, as you get bigger, about structure. If people are telling the same story, you can have less bureaucracy, less micromanagement. But you do need some authority. And people like Twitter’s Chris Fry and Steve Greene, who grew Salesforce from 40 to 600 people, and venture capitalist Ben Horowitz — all of them make this argument that you should have a little less structure than you think you need.

 Then, wait for things to break a little bit as a sign that you should add just a little bit more. Greene called this light structure “running a little bit hot.” If you’re a little bit too heavy, it feels like you’re walking in muck. And, if you’re way too light, things fall apart. So, the ideal condition for scaling is that little things should be breaking all the time, but not the big things.

You make the point that if you’re adding new processes or people, naturally you will need to find ways to subtract — or stop doing — other things. How do you do that?

Rao: That’s what we refer to as “cognitive load.” If the load is too great, there’s a coordination circus. If I’ve got to run an idea by a bunch of people in order to do some single thing, I’m going to give up because it’s too much effort. When Bob and I teach executives, sometimes we say, “Hey, how about having a rule that says ‘If you want to have a meeting, kill an existing meeting.’” Now, that sounds quite obvious, but they say, “Really?” They haven’t even questioned the idea that meetings are to be added, that calendars are to be monopolized. It’s no wonder in a large company you feel like a victim.

Sutton: Now, that’s not true of all companies. Take Apple and Wal-Mart — those are two companies where they have a culture of small teams, so they have fewer meetings and people actually are doing the work most of the time. A lot of this depends on leadership and focus. The question is: “Where is your focus?”

Is there any common thread among organizations that are successful at spreading excellence?

Rao: They tend to “connect and cascade,” as we call it. You connect people so that you cascade the right behaviors throughout the organization. The real problem of scaling excellence is ignorance. What is an excellent organization? One that doesn't repeat the same mistakes. And when do you repeat mistakes? When the connections inside organizations are weak or atrophied. If people aren't connecting, your ignorance multiplies.

Sutton: And I think the important part for senior leaders is to find a way that people can share information in reasonably efficient ways. We talk about many ways in the book, but I really like the example of Salesforce under Steve Greene and Chris Fry — they had a policy where engineers were free to change jobs within the company. So, every four months they’d have an internal job fair, like a bazaar with booths, where people would walk around and learn about what other teams were working on. The policy had many advantages, but one was a higher collective understanding of how the piece of code they’re working on fit into the overall whole.

What’s are the implications of the size of your organization on a scaling effort — going from, say, two to 20 people versus 2,000 to 10,000?

Rao: Going from two to 20, you're probably all still sitting in the same room. It’s just a bigger room.

Sutton: Then there’s a next level, 150 to 200, where you can no longer recognize all the names and faces, and up from there. The thing that companies that were successful at scaling all have in common — regardless of size — is that they were thinking of scaling as spreading a mindset, not a footprint. One person who demonstrates this well is John Lilly, the former CEO of Mozilla, who grew the company from 12 to about 500 people. 

John told us, “When we were 40 or 50 people, I was always changing my mind, but as the company got bigger I had to stifle myself.” He had to be sure he said the same thing over and over so that people wouldn’t get conflicting messages. This is true all the way up to truly huge companies. As Huggy says, if you've all got the same poetry in your head — these mantras like “The Customer is Boss” — they actually drive a bunch of decisions. It lets everybody be on the same page and know where they’re heading.

Rao: The other thing I want to add is when you become larger, what’s unsaid also increases in an organization. The phrase we like to use is: “Smart people inside large organizations become dumb.” They become mute. And so the real problem for a large company is to figure out what’s not being said. Because if you only make decisions on the basis of what's being said, you can go off track pretty quickly.

So how do you build the right mix of people for positive growth?

Rao: This is a big, big thing. Scaling doesn’t just require stars. It requires Sherpas as well — the people who get you to the summit each day. Now, in order to make sure that the Sherpas are taken care of, you should hire managers who are prone to feeling guilty. This idea is based on actual research done by a PhD student and Frank Flynn, a colleague here at Stanford.

I think about the U.S. army general in the Korean War that we talk about in the book, Matthew Ridgway. He says, “The hard decisions are not the ones you make in the heat of battle.” A lot of people can do that. 

The hard part is actually sitting in a meeting and speaking your mind about a bad idea that’s going to put thousands of lives in jeopardy — and convincing the decision makers that it’s a stupid idea. The kinds of people who are going to do that are people who put the interests of others above their own.

Sutton: It’s interesting, the people who are really good at getting things done, they’re not just optimists. In fact, research shows they have high positive and high negative affect, which means they’re really optimistic and confident things will turn out in the end, but they’re really, really worried about every little detail and how it’s going to screw things up.

The two things I would add are that you should make sure to have as many women as possible, because the more men you have in a group, the dumber it gets, controlling for their IQ. There’s actually very good evidence of that. And, that you want people with a sense of accountability, who feel like “I own the place, and the place owns me.” They will push themselves and each other, feel obligated to teach and to learn.

You mention that some mistakes are part of any scaling effort. But what are the kinds of mistakes that can cause failure?

Sutton: When we looked at cases where scaling failed, they seemed to have the trifecta of illusion, incompetence, and impatience; this idea of “We’re going to do it all at once, we don’t have time to slow down and do it right. But we’re so great, we can do it.” 

You can see it, for example, in what the Obama administration did with their healthcare rollout. Apparently, the guy in charge was some career bureaucrat who didn’t really understand how to do it but was a good politician, so he was competent at the wrong thing. But that creates a scenario where you’re turning other people incompetent.

So, how do you start a successful scaling effort?

Rao: One thing to keep in mind is that scaling doesn't mean “Waiting for Godot” — you know, wait for the new boss, wait for a new opportunity, wait for new technology. In reality, you better do something. One good way to develop a plan is to do a pre-mortem: Take a team of people, and get half of them to imagine the plan has been put in motion and failed terribly. 

Then write a story of why that happened. And get the other half to imagine that it succeeded, and write a story of how that happened. The advantage of this is you get more of the unsaid said. You can actually make sure those small details that bite you don’t get in the way. Often, scaling doesn't work because the mistakes you make early on aren’t caught until it's too late.

Sutton: We talked to a top executive who turned around the largest company in Australia, who had the top 100 or so folks write him a 2-page memo about what they should do to turn around the organization. And he said, “I just talked to each person for an hour, and took the best ideas.” 

That said, we also found a single person who wanted to spread an idea, and so began by redecorating her cubicle and starting small, informal training sessions for colleagues. The bottom line is: In every case of successful scaling, you start where you are with what you have.

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