The Tension Created By Stretch Goals

Charlie Munger

It’s one thing to set big stretch goals and it’s another to acknowledge the tension and incentives that creates within an organization.

Charlie Munger, speaking at the 2000 annual meeting for Wesco Financial, explains:

There are two lines of thought …. A whole bunch of management gurus say you need B-HAGs — bold, hairy, audacious goals. That’s a technique of management — to give the troops a goal that looks unattainable and flog them heavily. And according to that line of thought, you will do better chasing a B-HAG than you will a reasonable objective.

And there’s some logic in that — because if you tell your kid A-minuses are fine and he likes partying around the beer keg and can easily get A-minuses, you may well get a lower result than you would if you gave him a different goal.

Then there’s another group that says that if you make the goals unreasonable enough, human nature being what it is, people will cheat. And you see that in the public schools — where they say you’ve got to have the reading scores better so we’re going to pay the teachers based on the reading scores getting better. So the teachers start helping students cheat to pass the reading tests. So human nature being what it is, if the goals are unreasonable enough, you will cause some cheating in your corporation — or even within your top management.

Each organization has to find its own way.

I can’t solve that problem. There are two factors that are at war. You don’t want the cheating — which is bad long term and bad for the people who are doing the cheating. However, you do want to maximize the real performance. And the two techniques are at war.

What people generally do is give people the unreasonable goal and tell ‘em, “You can’t cheat.” That’s basically the goal at General Electric. They say, “We don’t want any excuses. … But don’t cheat. … If you can’t handle those two messages, why, perhaps you’d be happier flourishing somewhere else.” That is the American system in many places.

I’ve got no answer to that tension. Low goals do cause lower performance and high goals increase the percentage of cheating. Each organization has to find its own way.

The Decision-Maker: A Tool For a Lifetime

Seymour Schulich

The first chapter in Seymour Schulich’s book, Get Smarter: Life and Business Lessons, offers a decision tool that adds to the simple pro-and-con list that many of us have used to make decisions. Schulich, a self-made billionaire, is one of Canada’s richest and best-known businessmen.

I learned this tool in a practical mathematics course more than fifty years ago and have used it for virtually every major decision of my adult life. It has never let me down and it will serve you well, too.

You all know the simple pro-and-con list? The one where you divide the page in two and simply list out all the pros and cons. Well, the Decision-Maker adds a twist to that. Here’s how it works.

On one sheet of paper, list all the positive things you can about the issue in question, then give each one a score from zero to ten—the higher the score, the more important it is to you.

On another sheet, list the negative points, and score them from zero to ten—only this time, ten means it’s a major drawback. Suppose you are thinking of buying a house, and you tour one that’s in your price range, except the owners have painted every room to look like a giant banana. If you really hate yellow and can’t stand the thought of lifting a paint brush, you might give “ugly yellow house” a ten, and if it’s not that big a deal, maybe a two or a three.

Now add up the scores. But here’s the rule.

If the positive score is at least double the negative score, you should do it—whatever “it” is. But if the positives don’t outweigh the negatives by that two-to-one ratio, don’t do it, or at least think twice about it.

Yes that sounds simple. I agree. But I also don’t think that things need to be complicated in order to be effective.

The Decision-Maker is designed not to allow one or two factors to sway a major life decision in a disproportionate way. It forces you to strip away the emotion and really examine the relative importance of each point—which, of course, is why it works so well.

This tool works for groups too.

When we were considering whether to sell our royalty company, Franco-Nevada, to Newmont Mining, Franco’s executive team produced a collective Decision-Maker. We listed all the pros and cons, then the top four executives assigned their own point scores to each. We averaged them, the positives far outweighed the negatives, and we sold the company.

The Difference Between Good And Bad Organizations

bureaucracy

Which organization do you work for?

This excerpt is from one of the best business leadership books I’ve ever read: The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers

At Opsware I used to teach a management expectations course because I deeply believed in training. I made it clear that I expected every manager to meet with her people on a regular basis.

Then one day, while I happily went about my job, it came to my attention that one of my managers hadn’t had a one-on-one meeting with any of his employees in more than six months. While I knew to “expect what I inspect,” I did not expect this. No one-on-one in more than six months? How was it possible for me to invest so much time thinking about management, preparing materials, and personally training my managers and then get no one-on-ones for six months? Wow, so much for CEO authority. If that’s how the managers listen to me, then why do I even bother coming to work?

I thought that leading by example would be the sure way to get the company to do what I wanted. Lord knows the company picked up all of my bad habits, so why didn’t they pick up my good habits? Had I lost the team? I recalled a conversation I’d had with my father many years ago regarding Tommy Heinsohn, the Boston Celtics basketball coach at the time. Heinsohn had been one of the most successful coaches in the world, including being named coach of the year and winning two NBA championships.

However, he had gone downhill fast and now had the worst record in the league. I asked my father what happened. He said, “The players stopped paying attention to his temper tantrums. Heinsohn used to yell at the team and they’d respond. Now they just ignore him.” Was the team now ignoring me? Had I yelled at them one time too many?

The more I thought about it, the more I realized that while I had told the team “what” to do, I had not been clear about “why” I wanted them to do it. Clearly, my authority alone was not enough to get them to do what I wanted. Given the large number of things that we were trying to accomplish, managers couldn’t get to everything and came up with their own priorities. Apparently, this manager didn’t think that meeting with his people was all that important and I hadn’t explained to him why it was so important.

So why did I force every manager through management training? Why did I demand that managers have one-on-ones with employees? After much deliberation with myself, I settled on an articulation of the core reason and I called up the offending manager’s boss— I’ll call him Steve— and told him that I needed to see him right away.

When Steve came into my office I asked him a question: “Steve, do you know why I came to work today?”

Steve: “What do you mean, Ben?”

Me: “Why did I bother waking up? Why did I bother coming in? If it was about the money, couldn’t I sell the company tomorrow and have more money than I ever wanted? I don’t want to be famous, in fact just the opposite.”

Steve: “I guess.”

Me: “Well, then why did I come to work?”

Steve: “I don’t know.”

Me: “Well, let me explain. I came to work because it’s personally very important to me that Opsware be a good company. It’s important to me that the people who spend twelve to sixteen hours a day here, which is most of their waking life, have a good life. It’s why I come to work.”

Steve: “Okay.”

Me: “Do you know the difference between a good place to work and a bad place to work?”

Steve: “Umm, I think so.”

Me: “What is the difference?”

Steve: “Umm, well . . .”

Me: “Let me break it down for you. In good organizations, people can focus on their work and have confidence that if they get their work done, good things will happen for both the company and them personally. It is a true pleasure to work in an organization such as this. Every person can wake up knowing that the work they do will be efficient, effective, and make a difference for the organization and themselves. These things make their jobs both motivating and fulfilling.

In a poor organization, on the other hand, people spend much of their time fighting organizational boundaries, infighting, and broken processes. They are not even clear on what their jobs are, so there is no way to know if they are getting the job done or not. In the miracle case that they work ridiculous hours and get the job done, they have no idea what it means for the company or their careers. To make it all much worse and rub salt in the wound, when they finally work up the courage to tell management how fucked-up their situation is, management denies there is a problem, then defends the status quo, then ignores the problem.”

Steve: “Okay.”

Me: “Are you aware that your manager Tim has not met with any of his employees in the past six months?”

Steve: “No.”

Me: “Now that you are aware, do you realize that there is no possible way for him to even be informed as to whether or not his organization is good or bad?”

Steve: “Yes.”

Me: “In summary, you and Tim are preventing me from achieving my one and only goal. You have become a barrier blocking me from achieving my most important goal. As a result, if Tim doesn’t meet with each one of his employees in the next twenty-four hours, I will have no choice but to fire him and to fire you. Are we clear?”

Steve: “Crystal.”

If you liked that you’ll love the book — The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers. You’ll also love this insight from Charlie Munger on bureaucracies.

The Relationship Between Design and Planning

QR_design_spagetti

While I’m not all that interested in military doctrine and tactics in and of themselves, I am interested in complex systems, how the weak win wars, and the lessons military leaders offer (for example, see the lessons of William McRaven and Stanley McChrystal).

This is how I found myself flipping through The U.S. Army / Marine Corps Counterinsurgency Field Manual, which was written to facilitate a common understanding of the problems inherent in counterinsurgency campaigns.

There was a fascinating section on the difference between designing and planning that caused me to pause and reflect.

While both activities seek to formulate ways to bring about preferable futures, they are cognitively different. Planning applies established procedures to solve a largely understood problem within an accepted framework. Design inquires into the nature of a problem to conceive a framework for solving that problem. In general, planning is problem solving, while design is problem setting. Where planning focuses on generating a plan—a series of executable actions—design focuses on learning about the nature of an unfamiliar problem.

When situations do not conform to established frames of reference — when the hardest part of the problem is figuring out what the problem is—planning alone is inadequate and design becomes essential. In these situations, absent a design process to engage the problem’s essential nature, planners default to doctrinal norms; they develop plans based on the familiar rather than an understanding of the real situation. Design provides a means to conceptualize and hypothesize about the underlying causes and dynamics that explain an unfamiliar problem. Design provides a means to gain understanding of a complex problem and insights towards achieving a workable solution.

To better understand the multifaceted problems many of us face today it helps to talk with people who have different perspectives. This helps achieve better situational understanding. At best this can point the way to solutions and at worst this should help with learning what to avoid.

Often we skip the information gathering phase because it’s a lot of work. A lot of conversations. However this process helps us become informed, rather than just opinionated.

The underlying premise is this: when participants achieve a level of understanding such that the situation no longer appears complex, they can exercise logic and intuition effectively. As a result, design focuses on framing the problem rather than developing courses of action.

Just as you can never step in the same river twice, design is not something you do once and walk away. It’s an ongoing inquiry into the nature of problems and the various factors and relationships to help improve understanding. Constantly assessing the situation from a design perspective, helps gauge the effectiveness of the planning and subsequent actions. If you don’t periodically reassess the situation, you might be solving a problem that no longer exists.

The U.S. Army / Marine Corps Counterinsurgency Field Manual is full of other thought-provoking content.

(image source)

Ideas are not singular

“If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it, or throw it away and come up with something better.”

In January 2006, Disney announced it would spend $7.4 billion to buy its “cousin” Pixar Animation Studios. Many wondered about the fate of Disney Animation Studios itself – would Disney shut down the division that forged its identity, but had stagnated since its success in the early 1990s with films like The Lion King and Beauty and the Beast? Would it leave hand-drawn animation behind in favor of computer animation?

Within months, the question was settled. Disney CEO Bob Iger named Pixar’s John Lasseter and Ed Catmull to head Disney Animation, and the duo decided to leave the divisions separate and autonomous.

The decision played out brilliantly. Not only has Pixar continued to release hits like Ratatouille, Wall-E, Up, and Toy Story 3, Disney Animation recently released the best-selling animated movie of all time – Frozen – on the heels of its other well-received animated films, Wreck-it Ralph and Tangled.

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This kind of success seemed far from reality in 1986, when Steve Jobs decided to purchase a small, struggling division of Lucasfilm with one product: the Pixar Image Computer. As Catmull explains in his book Creativity Inc.:

From the outside, Pixar probably looked like your typical Silicon Valley startup. On the inside, however, we were anything but. Steve Jobs had never manufactured or marketed a high-end machine before, so he had neither the experience nor the intuition about how to do so. We had no sales people and no marketing people and no idea where to find them. Steve, Alvy Ray Smith, John Lasseter, me—none of us knew the first thing about how to run the kind of business we had just started. We were drowning.

By 1990, the team had realized Pixar’s future was not in selling machines, but selling art. Still, it was a tough time. Even as Pixar produced computer animated TV ads and shorts, the company was losing too much money. Jobs tried to sell it more than once – luckily, without success.

Pixar caught its first break in 1991, when Disney’s Jeff Katzenberg asked the company to produce three computer-animated features, which Disney would distribute and own. (These would go on to become Toy Story, A Bug’s Life, and Toy Story 2.)

By the end of 1995, Pixar was a public company and Toy Story a legitimate hit. Amid the success, Catmull had his first existential crisis as President of Pixar Animation:

For twenty years, my life had been defined by the goal of making the first computer graphics movie. Now that goal had been reached, I had what I can only describe as a hollow, lost feeling. As a manager, I felt a troubling lack of purpose. Now what? The thing that had replaced it seemed to be the act of running a company, which was more than enough to keep me busy, but it wasn’t special. Pixar was now public and successful, yet there was something unsatisfying about the prospect of merely keeping it running. It took a serious and unexpected problem to give me a new sense of mission.

Catmull realized that although it had put out a great film, Pixar had a large group of employees who were reluctant to sign on for a second project. With the creative team behind Toy Story being given tremendous resources and status, the production team – responsible for executing thousands of movie-making details – felt marginalized.

In the process of solving his organizational problem, Catmull realized a new purpose: Fostering a sustainable organizational culture.

As I saw it, our mandate was to foster a culture that would seek to keep our sightlines clear, even as we accepted that we were often trying to engage with and fix what we could not see. My hope was to make this culture so vigorous that it would survive when Pixar’s founding members were long gone, enabling the company to continue producing original films that made money, yes, but also contributed positively to the world. This sounds like a lofty goal, but it was there for all of us from the beginning. We were blessed with a remarkable group of employees who valued change, risk, and the unknown and who wanted to rethink how we create. How could we enable the talents of these people, keep them happy, and not let the inevitable complexities that come with any collaborative endeavor undo us along the way? That was the job I assigned myself—and the one that still animates me to this day.

From there, Creativity, Inc. explores the process of developing the culture envisioned in his post-Toy Story hangover. Given his success at Pixar, and then Disney, some of the key points are worth examining.

In the end, it’s about people, not ideas.

If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it, or throw it away and come up with something better.

[…]

Why are we confused about this? Because too many of us think of ideas as being singular, as if they float in the ether, fully formed and independent of the people who wrestle with them. Ideas, though, are not singular. They are forged through tens of thousands of decisions, often made by dozens of people.

Solicit criticism from a trusted group:

I want to stress that you don’t have to work at Pixar to create a Braintrust. Every creative person, no matter their field, can draft into service those around them who exhibit the right mixture of intelligence, insight, and grace.

Here are the qualifications required: The people you choose must (a) make you think smarter and (b) put lots of solutions on the table in a short amount of time. I don’t care who it is, the janitor or the intern or one of your most trusted lieutenants: If they can help you do that, they should be at the table.

Failure is necessary for creative work:

Says [Director] Andrew [Stanton]: “You wouldn’t say to somebody who is first learning to play the guitar, ‘You better think really hard about where you put your fingers on the guitar neck before you strum, because you only get to strum once, and that’s it. And if you get that wrong, we’re going to move on.’ That’s no way to learn, is it?”

Even though people in our offices have heard Andrew say this repeatedly, many still miss the point. They think it means accept failure with dignity and move on. The better, more subtle interpretation is that failure if a manifestation of learning and exploration. If you’re not experiencing failure, then you are making a far worse mistake: You are being driven by a desire to avoid it.

Protect the New:

When I advocate for protecting the new, then, I am using the word somewhat differently. I am saying that when someone hatches an original idea, it may be ungainly and poorly defined, but it is also the opposite of established and entrenched—and that is precisely what is most exciting about it. If, while in this vulnerable state, it is exposed to naysayers who fail to see its potential or lack the patience to see it evolve, it could be destroyed. Part of our job is to protect the new from people who don’t understand that in order for greatness to emerge, there must be phases of not-so-greatness.

Conflict is Essential to Creative Progress

As director Brad Bird sees it, every creative organization—be it an animation studio or a record label—is an ecosystem. “You need all the seasons,” he says. “You need storms. It’s like an ecology. To view lack of conflict as optimum is like saying a sunny day is optimum. A sunny day is when the sun wins out over the rain. There’s no conflict. You have a clear winner. But if every day is sunny and it does’t rain, things don’t grow. And if it’s sunny all the time—if, in fact, we don’t ever have night—all kinds of things don’t happen and the planet dries up. The key is to view conflict as essential, because that’s how we know the best ideas will be tested and survive. You know, it can’t only be sunlight.”

Creativity Inc. is an engaging look inside the creativity engine at Pixar.

Work in Pulses

We’re not designed to multitask and we’re certainly not designed to work continuously without a break.

We’re designed to pulse, that is alternate between expending energy and recovering.

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Pulses

(via Overwhelmed: Work, Love, and Play When No One Has the Time)

The heart beats. The lungs breathe in and out. The brain makes waves. We wake and sleep. Even digestion is rhythmic.

We’re built the same way according to Tony Schwartz, author of The Way We’re Working Isn’t Working. Schwartz told Brigid Schulte, author of Overwhelmed: Work, Love, and Play When No One Has the Time that we’re not built for the modern environment.

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Ignoring the Obvious

(via Overwhelmed: Work, Love, and Play When No One Has the Time)

(Because the ideal worker is measured in hours) we tend to put in long ones, (Schwartz) said. We ignore the signs of fatigue, boredom, and distraction and just power through. But we’re hardly doing our best work.

“We’ve lost touch,” Schwartz says, “with the value of rest, renewal, recovery, quiet time, and downtime.” The pressure of long hours, in a face time world, combined with the constant bombardment of modern interruptions (think email, phone calls, texts, meetings, etc.) means that increasingly we’re not doing our best thinking at work. Maybe we should heed the advice of some famous philosophers and take a walk.

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Sleep

We sleep in 90 minute cycles, with our brain waves slowing and speeding, only to begin again.

Schwartz’s thinking was influenced by Anders Ericsson. Ericsson is the guy behind the 10,000 hour rule.

Here is Schulte explaining in Overwhelmed: Work, Love, and Play When No One Has the Time

Ericsson studied young violinists at the prestigious Academy of Music in Berlin to see what it takes to be the best. Ericsson is widely credited for coming up with the theory that it takes ten thousand hours of deliberate practice in anything to become an expert.

“That led to the assumption that the best way to get things done is to just work more hours ,” Schwartz said. But that’s only part of it.

Ericsson’s study found that not only did the best violinists practice more, they also practiced more deliberately: They practiced first thing in the morning, when they were freshest, they practiced intensely without interruption in typically no more than ninety-minute increments for no more than four hours a day.

Most important, the top violinists rested more — napping more during the day and sleeping longer at night. Sleep is actually more important than food. “Great performers,” Schwartz wrote in Be Excellent at Anything, “work more intensely than most of us do but also recover more deeply.”

Three hour meetings? That’s a recipe for disaster leading to subpar work and poor decisions, not to mention meeting marathons drive people to hate work.

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Attention Deficit Disorder

A lot of adults I know think they suffer from ADD. These are the people who, when they get out of a 3 hour meeting, talk on the phone, send an email, and write the grocery list to “make up time.” Well you can’t really make up time, and working like this is incredibly ineffective. But before we get to that, is all of this multitasking driving us to disorder? Could Attention Deficit Disorder be driven by our always-on environment?

Ed Hallowell believes so.

He’s a psychiatrist with ADD, and he spent years working on practical solutions to help people being overloaded by too many demands on their time and energy.

I read his book, CrazyBusy: Overstretched, Overbooked, and About to Snap! Strategies for Handling Your Fast-Paced Life, a few years back.
He claims we have “culturally generated ADD.”

Having treated ADD since 1981, I began to see an upsurge in the mid-1990s in the number of people who complained of being chronically inattentive, disorganized, and overbooked. Many came to me wondering if they had ADD. While some did, most did not. Instead, they had what I called a severe case of modern life.

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Breaks Inspire Creativity

Scientists have found that people who take time to daydream score higher on tests of creativity. And there’s a very good biochemical reason why your best ideas and those flashes of insight tend to come not when you’ve got your nose to the grindstone, oh ideal worker, but in the shower.

In a series of tests using brain imaging and electroencephalography, psychologists John Kounios and Mark Beeman have actually mapped what happens in the brain during the aha! moment, when the brain suddenly makes new connections and imagines, Kounios has said, “new and different ways to transform reality creatively into something better.” When the brain is solving a problem in a deliberate and methodical way, Kounios and Beeman found that the visual cortex, the part of the brain controlling sight, is most active. So the brain is outwardly focused. But just before a moment of insight, the brain suddenly turns inward, what the researchers called a “brain blink.” Alpha waves in the right visual cortex slow, just as when we often close our eyes in thought. Milliseconds before the insight, Kounios and Beeman recorded a burst of gamma activity in the right hemisphere in the area of the brain just above the ear, believed to be linked to our ability to process metaphors.

A positive mood heightens the chances for creative insight, as does taking time to relax, as Archimedes did in his bathtub before his eureka! moment about water displacement and as Einstein did when working out his Theory of Relatively while reportedly tootling around on his bicycle.

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Working in Pulses

Terry Monaghan, a self-described productivity expert, whom we met in Work, Play, Love encouraged Brigid Schulte to work in pulses. The idea is to chunk your time. This is why one of the single most effective changes you can make to your work day is to move your creative work to the start of the day — you give yourself a chunk of time.

Discussing this in Overwhelmed: Work, Love, and Play When No One Has the Time, Schulte writes:

The idea was to chunk my time to minimize the constant multitasking , “role switching,” and toggling back and forth between work and home stuff like a brainless flea on a hot stove. The goal was to create periods of uninterrupted time to concentrate on work— the kind of time I usually found in the middle of the night—during the day. And to be more focused and less distracted with my family.

When it was time to work, I began to shut off e-mail and turn off the phone. When it was time to be with family, I tried to do the same. I began to gather home tasks in a pile and block off one period of time every day to do them. It was easier to stay focused on work knowing I’d given myself a grace period to get to the pressing home stuff later.

The Thirty Minute Pulse
When you find yourself procrastinating, avoiding something or otherwise stuck in a state of ambivalence, try a timer. Monaghan, recommends 30 minutes then taking a break. “Your brain,” she says, “can stay focused on anything, even an unpleasant task, if it knows it will last only thirty minutes.”

I find this useful. I have a 15 minute hour-glass sitting on my desk.

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Putting It All Together

Work in pulses. Chunk your time. Do a daily brain dump to get things off your mind. Keep a notebook with you. If you feel worried or stressed, write it out in your worry journal. Add more of a routine to your day to help avoid decision fatigue. When things are automatic, they don’t consume as much energy.

Don’t wake up and check your email, get to the office and check your email, and then check your email hourly throughout the day. Check your email in batches: late morning and late afternoon.

Most importantly, make time to pause and think about what is most important to you. Narrow your focus and make 80% of your time on the three big things that are important to you. Let everything else fit in the 20% of time left. Let the truly sucky stuff fit in 5% of the time. If leisure is important to you and you can’t find time for it, schedule it in. When you wake up, do one thing that’s important to you right away.