Tag: Management

Ken Iverson: The Cure for the Common MBA

We’ve written before about the legendary businessman Ken Iverson, the former CEO of Nucor Steel, who took it from a tiny steel operation to a true steel powerhouse in his own lifetime.

To recap, in Iverson’s tenure, Nucor:

  • Compounded its per-share profits at 17% per annum for over 30 years, in a dying industry (steel production) even while foreign steelmakers competed hard and with lower per-hour labor costs, severely harming most U.S. steel producers.
  • Engineered the lowest per ton of steel labor cost despite paying the highest wages.
  • Did not lay off any employees or close any facilities in his long tenure. (In the steel business!)

And so on. He was incredible.

His short business memoir, Plain Talk, describes a much different kind of company than most; one where a culture of teamwork and group winning trumped personal fiefdom. He also got the incentives right. Boy did it ever work.

Turns out Iverson had some thoughts on business education as well.

What are we really missing?

In his recommended curriculum, Iverson highlights just how different his thoughts are: No classes on grand strategy (Henry Singleton would agree), or sales, or marketing, or financial structuring. (Not that those can’t be useful. Just not enough.)

His idea? Teach aspiring managers how to truly interact with, understand, and lead the people who work for them by forcing young MBAs to take on an “internship” as a leader similar to the way doctors take up residence before being given the full leash. 

In the epilogue to Plain Talk, Iverson calls this the Cure for the Common MBA.

Here are some of the subjects that might form the core of first-year MBA curricula:

Earning Employees’ Trust and Loyalty

Far too many managers have no clue how their employees feel or even what their people’s work lives are like, day to day. Employees pick up on this lack of insight in a heartbeat, and that realization taints everything their managers say to them from that point forward. Conversely, employees clearly give the benefit of the doubt to managers whom they see as understanding “what’s really going on” and “what we’re really up against.” That’s only natural.

I’d suggest, then, that every MBA candidate be required to spend at least a few weeks engaged in manual, clerical, and/or other forms of non-management labor.

Further, they should be required to keep a journal of their experiences—the kinds of problems they encounter, their frustrations, their successes, and so forth. They will find that what seems a small thing to them as managers often takes on great significance to them as employees.

Developing managers should also contemplate the implicit and explicit commitments they will make to the people who work for them. They should understand their obligations under those commitments as well as the limitations of those obligations. And they should grasp the consequences of failing to be consistently trustworthy.

Active Listening

Listening is among the scarcest of all human skills, in and out of management. Listening requires concentration, skill, patience, and a lot of practice. But such practice is a very sound investment of the developing manager’s time.

Real listening enables managers not only to hear what people say to them, but to sense what may be behind what is said (i.e., employees’ emotions, assumptions, biases).

Better still, their reputation for competent listening will encourage others to bring them information. Listening proficiency is an immense advantage to any manager. No MBA should be sent forth into the business world without it.

The Hazards of Hierarchical Power

Inexperienced managers tend to lean heavily on formal, hierarchical sources of authority. This is understandable. They have not yet had the opportunity to develop other forms of authority such as experience, expertise, and seniority.

The problem is, young managers don’t often comprehend the hazards of hierarchical power. They do not understand that, by setting themselves above and apart from their employees, they may actually be digging themselves into a hole. I think it is only fair, then, that we warn inexperienced managers of the hazards of hierarchical power.

Principles of Equitable Treatment

Few managers receive much in the way of explicit instruction in the principles of equitable treatment of employees, either in business school or in the course of management development. All too often, managers fill that vacuum with their own self serving precepts of what is equitable. A few common- sense principles, clearly stated and strongly advocated in the business schools, could make the business world a better, more equitable place for employees and managers alike.

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The notion of an internship for managers has a precedent in medical education, of course. Doctors intern for a number of years before they are turned loose on the world. There ought to be a comparable transitional step in completing the requirements for an MBA. Further, that transition should focus on providing the management candidate hands-on experience. Any MBA who ventures into business with the intent of managing people should first develop his or her skills under the watchful guidance of an experienced manager.

The fact is, few business school professors have ever managed anything, and their lack of hands-on experience shows in their students. Medical school faculties, in contrast, are comprised of the best and most respected practicing physicians.

MBA candidates should preferably complete their internships within relatively small, self-contained operations, so they can perceive the operation in its entirety and grasp the overall dynamics of a business.

People throughout the corporate world lament that other parts of their company don’t understand them or what they do. They’re usually right. It takes an extraordinary individual to understand aspects of a business to which he or she has never been exposed. We are expecting far too many managers to be extraordinary.

Still Interested? Check out Plain Talk, and our post on some of its main themes.

Ben Horowitz: The Struggle

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“Life is a struggle.” — Karl Marx

In The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers, Ben Horowitz describes the struggle.

Every entrepreneur starts her company with a clear vision for success. You will create an amazing environment and hire the smartest people to join you. Together you will build a beautiful product that delights customers and makes the world just a little bit better. It’s going to be absolutely awesome.

Then, after working night and day to make your vision reality, you wake up to find that things did not go as planned. Your company did not unfold like the Jack Dorsey keynote that you listened to when you started. Your product has issues that will be very hard to fix. The market isn’t quite where it was supposed to be. Your employees are losing confidence and some of them have quit. Some of the ones that quit were quite smart and have the remaining ones wondering if staying makes sense. You are running low on cash and your venture capitalist tells you that it will be difficult to raise money given the impending European catastrophe. You lose a competitive battle. You lose a loyal customer. You lose a great employee. The walls start closing in. Where did you go wrong? Why didn’t your company perform as envisioned? Are you good enough to do this? As your dreams turn into nightmares, you find yourself in The Struggle.

It’s at this point that you start to question things. This is when things get dark. Depression sets in. Options look narrow. You just want to hit snooze over and over again and hide under the covers. The Struggle, however, is also where greatness is born.

The Struggle is when you wonder why you started the company in the first place.

The Struggle is when people ask you why you don’t quit and you don’t know the answer.

The Struggle is when your employees think you are lying and you think they may be right.

The Struggle is when food loses its taste.

The Struggle is when you don’t believe you should be CEO of your company. The Struggle is when you know that you are in over your head and you know that you cannot be replaced. The Struggle is when everybody thinks you are an idiot, but nobody will fire you. The Struggle is where self-doubt becomes self-hatred.

The Struggle is when you are having a conversation with someone and you can’t hear a word that they are saying because all you can hear is The Struggle.

The Struggle is when you want the pain to stop. The Struggle is unhappiness.

The Struggle is when you go on vacation to feel better and you feel worse.

The Struggle is when you are surrounded by people and you are all alone. The Struggle has no mercy.

The Struggle is the land of broken promises and crushed dreams. The Struggle is a cold sweat. The Struggle is where your guts boil so much that you feel like you are going to spit blood.

The Struggle is not failure, but it causes failure. Especially if you are weak. Always if you are weak.

Most people are not strong enough.

Every great entrepreneur from Steve Jobs to Mark Zuckerberg went through The Struggle and struggle they did, so you are not alone. But that does not mean that you will make it. You may not make it. That is why it is The Struggle.

The Struggle is where greatness comes from.

The Struggle is where we turn adversity into opportunity.

Ben offers some things that may help you through the struggle.

There is no answer to The Struggle, but here are some things that helped me:

1. Don’t put it all on your shoulders

It is easy to think that the things that bother you will upset your people more. That’s not true. The opposite is true. Nobody takes the losses harder than the person most responsible. Nobody feels it more than you. You won’t be able to share every burden, but share every burden that you can. Get the maximum number of brains on the problems even if the problems represent existential threats. When I ran Opsware and we were losing too many competitive deals, I called an all-hands and told the whole company that we were getting our asses kicked, and if we didn’t stop the bleeding, we were going to die. Nobody blinked. The team rallied, built a winning product and saved my sorry ass.

2. This is not checkers; this is mutherfuckin’ chess

Technology businesses tend to be extremely complex. The underlying technology moves, the competition moves, the market moves, the people move. As a result, like playing three-dimensional chess on Star Trek, there is always a move. You think you have no moves? How about taking your company public with $2M in trailing revenue and 340 employees, with a plan to do $75M in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.

3. Focus on the road

When they teach you how to drive a racecar, they tell you to focus on the road when you go around a turn. They tell you that because if you focus on the wall, then you will drive straight into the wall. If you focus on how you might fail, then you will fail. Even if you only have one bullet left in the gun and you have to hit the target, focus on the target. You might not hit it, but you definitely won’t hit if you focus on other things.

4. Play long enough and you might get lucky

In the technology game, tomorrow looks nothing like today. If you survive long enough to see tomorrow, it may bring you the answer that seems so impossible today.

5. Don’t take it personally

The predicament that you are in is probably all your fault. You hired the people. You made the decisions. But you knew the job was dangerous when you took it. Everybody makes mistakes. Every CEO makes thousands of mistakes. Evaluating yourself and giving yourself an “F” doesn’t help.

6. Remember that this is what separates the women from the girls

If you want to be great, this is the challenge. If you don’t want to be great, then you never should have started a company.

The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers offers a piercing look into the hard choices that leaders must make.

The Peter Principle and the Law of Crappy People

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If you’ve ever worked in an organization, you’ve no doubt come across someone in senior management and asked yourself how they ever got promoted.

The Peter Principle, coined by Dr. Laurence J. Peter and Raymond Hull in their 1969 book The Peter Principle, contends that, in a hierarchy, people are sooner or later promoted to positions which they are no longer skilled to handle. This is their “level of incompetence.” This is where they stay.

James March offers some compelling insight into why this happens.

In his book High Output Management, Andy Grove points out that this is largely unavoidable because there is no way to know a priori at what point the person will be incapable of handling further promotions.

In The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers Ben Horowitz discusses the Law of Crappy People.

The Law of Crappy People states: For any title level in a large organization, the talent on that level will eventually converge to the crappiest person with the title. The rationale behind the law is that the other employees in the company with lower titles will naturally benchmark themselves against the crappiest person at the next level. For example, if Jasper is the worst vice president in the company, then all of the directors will benchmark themselves against Jasper and demand promotions as soon as they reach his low level of competency.

Horowitz suggests the best way to overcome this is with a properly constructed and disciplined hiring process.

Ideally, the promotion process should yield a result similar to the very best karate dojos. In top dojos, in order to achieve the next level (for example, being promoted from a brown belt to a black belt), you must defeat an opponent in combat at that level. This guarantees that a new black belt is never a worse fighter than the worst current black belt.

Frustratingly, there is no exact analogue to a fistfight in business, so how can we preserve quality without actual combat?

To begin, start with an extremely crisp definition not only of the responsibilities at each level but also of the skill required to perform the duties. When describing the skills, avoid the generic characterizations such as “must be competent at managing a P&L” or “must have excellent management skills.” In fact, the best leveling tools get extremely specific and even name names: “should be a superstar recruiter— as good as Jenny Rogers.”

Next, define a formal process for all promotions. One key requirement of the process should be that promotions will be leveled across groups. If you let a manager or a single chain of command determine promotions unilaterally, then it’s possible that, for example, HR will have five vice presidents and Engineering only one. One way to level across groups is to hold a regular promotions council that reviews every significant promotion in the company. When a manager wishes to promote an employee, she will submit that employee for review with an explanation of why she believes her employee satisfies the skill criteria required for the level. The committee should then compare the employee with both the level’s skill description and the skills of the other employees at that level to determine whether to approve the promotion. In addition to ensuring fairness and level quality, this process will serve to educate your entire management team on the skills and accomplishments of the employees being submitted for promotion.

Most management teams I’ve worked with spend too little time on promotions, which encourages politics. Employees see gaps in the process and focus on exploiting them. Another big mistake is hiring by consensus, which leads to hiring for a lack of weakness rather than a strength. This kills organizations.

Herbert Simon on Why the Principles Of Good Management are not Widely Practiced

Herbert Simon, a Nobel Prize laureate and polymath, offered many contributions to the world in fields such as computer science/artificial intelligence, cognitive psychology, economics, and management.

This brief excerpt, taken from the his remarkable autobiography offers some timeless wisdom.

The principles of good management are simple, even trivial. They are not widely practiced for the same reason that Christianity is not widely practiced. It is not enough to know what the principles are; you must acquire deeply ingrained habits of carrying them out, in the face of all sorts of strong urges to stray onto more comfortable and pleasant paths, to respond without inhibition to provocations, and just to goof off. “

The principles of good management are simple but not easy. They require discipline and focus to maintain at the best of times. When things get tough we are further tested.

One thing that comes to mind for me is focus and the ability to say no. In a corporate setting the hardest thing in the world can sometimes be to say no to a good idea. Steve Jobs focused on saying no. And Warren Buffett commented on it when talking about the difference between successful people and very successful people. It’s easy to say yes. And yet we must stay away from the urges to say yes to everything. You need self discipline.

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Still Curious? Simon literally wrote the book on Administrative Behavior.