Episode #586 Robert Sutton: Scaling Up Excellence

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Overview

Moe and Bob discuss a challenge that determines every organization's success: scaling up farther, faster, and more effectively as a program or an organization creates a larger footprint. 

Transcript

Welcome back everyone. It's a real privilege today to welcome somebody who undoubtedly will give you tremendous opportunity to learn about business from his perspective. If you are an entrepreneur or a senior executive, certainly the topic of scale has been a point of emphasis but up until now there hasn't been a whole bunch of concrete answers. Joining us today is hall of fame Stanford professor, Bob Sutton to discuss the forthcoming book Scaling for Excellence which not only helps give you a blueprint but more importantly tells you the how components. Professor, great to be with you.

The rest I guess is history right?

Thank you for your time.

It's great to be here as well. I'm excited to talk about it.

The rest is history yeah. But we _ the selling together two all-beef patties or something. That’s what happened. Organizations are funny places.

Yes we do

Thanks Moe. It’s great to talk to you

Do you see that trend happening especially where you’re at with a lot of these really big emerging companies? Do they have these subsets?

How do the really smart scalers define and measure their success?

The precise metrics are going to vary from place to place. If it’s our buddy Bonny Simi at JetBlue, it’s when Kennedy _ for a storm, how quickly do they get the thing up again. If we’re talking about some of the healthcare situations it might just be straight mortality and morbidity rates. When I look at the successful scalers – I think said this at the beginning – I would go back to the Brad Bird line which is this notion of this relentless restlessness that we’re doing okay now or actually sometimes things may actually suck but most of the time we’re doing okay now but it could be even better and what are we doing to make things even better. This notion of not being satisfied with the way things are and always being restless and thinking about ways to make it a little bit better. I mentioned it briefly but actually I was just at a meeting with him with our dean, my hero and buddy David Kelley who is the founder of both IDEO and the Stanford D School or Institute of Design, I realized I’ve been hanging out with David for about 20 years now. He manages by I call it next big thing management which is like things are going really well – what’s the next big thing we could do. As long as I’ve known him he’s pushed all of us to go to the next level and it goes way back. He had a mechanical engineering firm – David Kelley Design. They designed the first Apple mouse. He looks at the first Apple mouse which sold quite well. Him and Steve Jobs became great friends. He said that thing is actually pretty ugly maybe we should add some industrial designers who can make our products prettier. That’s how IDEO was formed, he joined mechanical engineers and industrial designers which at that time was viewed as like unheard of. They’re supposed to be working separately. I sort of move on some 15 or 20 years later and what we have is Design Thinking which David is one of the main proponents now being used for just about everything. That notion of we always could get more and a little bit of restlessness really seems to be the hallmark of people like him or we mentioned Brad Bird is another example.

Hence the little nest thermostat. They’re completely redefining your fire extinguisher everything.

It’s never finished. The notion that you have to start – I also have another thing that you’re supposed to start up with something that sucks not something that’s necessarily good because if it’s good that means it probably already exists and it isn’t very creative. The things that tend to be really creative are things that are really screwed up when you first start about them and really sounds wrong but then it turns into something that’s more creative. This is kind of funny they have a different sort of point of view that you have to start with really, really bad stuff to get to stuff that’s really great because there is something that says mediocre. It’s hard to move to greatness.

You are one of a kind. I appreciate not only sharing this with us but enlightening us not only with the information in the book but continually with your wisdom. How can people learn more about the book? Where do you want them to go to learn more about the work that you’re doing?

First up on Twitter. It’s @work_matters. Also at BobSutton.net which is my website. We also have ScalingUpExcellence.com. You can buy Scaling Up Excellence just about anywhere they sell books online or offline. At least that’s what my publisher tells me. I hope they’re telling us the truth.

First of all, as you have always done, just from somebody who appreciates what you do, thank you for helping us kind of expand our thinking. You certainly have figured out how to hit just the right button. I thought it might be fun for you to start us off to just reflect on this whole notion of scaling. How has technology especially where you sit today shifting our perspective on this whole notion of scalability?

It is interesting because it's different than it ever was before yet it's exactly the same. It's kind of ironic because on one hand - the way that we define scaling is the challenge of studying something good from the few to the many. That obviously can happen with incredible speed. If you look at how quickly Facebook could bring aboard users or Twitter, it never could have happened that fast in the future. Nonetheless, if you look at the challenge of growing the human organization to support let's just say Twitter or Facebook, two organizations we've known the head of engineering of each one quite well, the challenge of maintaining an organization where people are committed to excellence, where there is good interpersonal relationships, or good ideas get from people who have them to people who need them. That actually is weirdly unchanged. I bet if you went back to the Romans and Egypt since and even before. On one hand it’s faster. On the other hand, there is an element of humanity that just hasn’t changed. For example, no matter how much technology we get, we’ve sort of figured out that the most effective groups whether it’s a company the size of Apple or it’s an online group, it’s a four-five person group that works in particular face-to-face fairly often. It’s still pretty hard to beat that. Humanity is humanity. What are they working on face-to-face in those four to five person group? They’re working on Twitter and Facebook for us. It’s weird, it’s all the same and it’s completely different.

Reflect on excellence for me. As you mentioned since the Romans, as consumers, we kind of perceive what excellence is – when I go from 200 people to 20,000 people, that’s a little bit tougher to keep up. How internally within these organizations has excellence shifted?

Again, I think there is changes in pace. If you go back to the similarities a lot of it to me what excellence means is that you’re doing stuff that’s pretty good so people are willing to buy it, the people who produce it are proud of it but there is a restlessness among the people producing it that it still isn’t as good as it can be. To me that’s both the outcome and the process of excellence. One of the Scaling stars of our book and one person I really admire, I knew him some years ago, is Brad Bird who is a famous Academy-winning director (Ratatouille, The Incredibles). He did the Ghost Protocol. _ human beings. He’s doing _ now, an amazing Pixar director. When Brad was in high school he hung out with what is called I think the Eight Old Men (Nine Old Men). These are the guys who did the original Disney animation films like Dumbo, Snow White, those famous films. He said, in his words, they had a relentless restlessness – they were making the classic films but nothing was ever quite good enough for them. On one hand while the form shifts I think that combination of delivering stuff that’s great perhaps a little faster, perhaps assisted by more technology in the past. When we talk about spread the excellence people are always spreading something they think is good but they’re never a hundred percent satisfied. They always have that nagging feeling just like Brad Bird or David Kelley at IDEO, to shift industries completely. If you look at the restaurant business, you look at the great restaurateurs out here at _ it’s the notion that – the Ikea folks are amazing, that whatever worth delivering is great but it could be even better and if we don’t stop thinking that way we will get screwed.

Obviously, it has to start from the top

Yeah I think it usually does. It starts from the top. I mean it’s easier when it’s from the top. I think this is important, sure it helps if it’s from the top. If you’ve got Ed Catmull or Steve Jobs or Larry Ellison, if you’ve got somebody like that who is running your organization it does because they do insist on excellence. I know some of the guys who are at Larry Ellison’s America’s Cup team, believe me that’s how Larry – Larry always thinks about not that they’re going to win but how much are we going to win by. You do have that from the top. One thing that I would say when it comes to the scaling stuff it’s kind of amazing we’ve got quite pages in the books of excellence that was started and then spread in organizations in some ways despite rather than because of senior management. You have people in one case, a woman named Bonny Simi who is now head of talent at JetBlue. She’s also a pilot. Another case, a guy named Doug Dietz who was just sort of a lower down kind of engineer guy who decided that the experience of taking a CAT scan was terrible for little kids and needed to be changed. You sort of fast forward both of those 10 years later by sort of pushing and having small winds and creating spots of goodness then what they had done in both cases were spread widely throughout the organization. Yes, top down support helps. One of things that happens with a really effective organization – I think Doug Dietz and Bonny Simi are good examples – is there does become a point where senior management looks at what you do and says either I can squish or I can say I’ve been behind it all along and look how great we’ve all done. The smart CEO does the second thing right. I think a lot of times tap-down support means that they have the sense to take credit for great things that they didn’t know about or even might have been trying to stop initially. If you look at the spread of the Big Mac it’s actually a great example of that – to switch gears completely. There is a guy named Fred Turner. Fred Turner was like the operations guy who made it sort of possible for McDonalds to spread all over the world; a famous guy who just died recently actually. When he first learned about the Big Mac, a local franchise had come up with it, he was trying to stop him thinking it was bad for cost and all that sort of stuff. What happened was he saw that it worked and he sort of gave up and said I guess it is a good idea. Let’s spread it and then it became the huge success that it was. He thought the concept of selling a hamburger for 49 cents – one of the most expensive item in the menu was 25 cents – this was going to sink them and it cost too many operational problems. But once he was proved wrong he switched to 180 degrees and took credit and helped implement it.

You teach a class called Scaling Up Excellence

What happens to the mindset of the students when they enter the class and then the three months later when they leave the class?

It is interesting. Different things happen; one is sometimes they go to organizations that are really messed up and write us long notes about how they’re squishing rather than scaling excellence. Sometimes that does happen. What we do is, Huggy Rao and I, in our executive teaching and in our classroom with traditional Stanford students, this is half MBAs, half engineers, we like to have a combination of sort of lecture principles. We go from the principles in the book which is now just coming out. The other thing we do is we have them do hands-on scaling. The one that was probably the most fun was in 2012 and the most challenging was for any of your listeners who have not been to the Stanford campus, it’s a large campus that _ would be a bicycle. Most populations on campus wear bicycle helmets. It turns out that most faculty do, most staff do, most graduate students but undergraduates do not wear helmets. About once a week one of them gets mangled badly enough that they need to go to the emergency room throughout the course of the year. We got a project where our student groups work with various units on campus, dorms, sports teams, on and on, to try to get them to wear bicycle helmets. One of the most fun groups, they call themselves The Watermelon Initiative, they got the soccer team to wear bike helmets by going to practice and breaking watermelons all over the place and also putting pictures of people lying next to a crash bike with a smashed watermelon next to their head. That’s where they started a conversation about getting them to wear helmets. They actually have bike helmets to sell them that are really cheap. This is consistent with our philosophy. That is chapter 3 of the book – you leak a hot cause to a cool solution. You got stir up the emotion somehow and then give them a rational solution. That cause was actually pretty fun and pretty interesting. You see the combination of presenting the concepts but then going out and having the students actually deal with reality

Which is priceless. Let me just ask you, what makes scales so tough? Why do so many people and so many startups fail at that notion?

There are lots of reasons that it’s tough. I guess if I was going to pick one is you’re constantly in this position as an organization is expanding its footprint into different locales and is just simply growing that you got to be really mindful because you’re constantly in this situation where in general what got you to where you are now and is the key to your success may no longer be helpful. An example I like to use is one of the companies I tracked as a fellow for years at IDEO which is a well-known innovation consulting firm around here. In the mid-90s we used to hang out there. The great founder David Kelley would have these Monday morning meetings with 50-60 people and it was just awesome and when you get to talk it would be really fun. Then we you got 120 people it just did not work and they had to be divided up. It just no longer worked. So what got you there won’t get you here. The other thing is that as organizations get larger and more complex even the words like hierarchy, process, specialized roles, and everybody talks about how horrible those things and about how they want a completely flat organization. I think organizations should be as flat as possible. I think they should have the least specialized roles as possible. I think they should have as light a process as possible. It shouldn’t feel like you’re walking in muck. The fact is it’s almost like the laws of physics. As organizations get bigger you need to have bits of those things. You need to have a bit of hierarchy so that there are some decision making. People know what they’re supposed to do. There has to be a place where the buck stops. This question of knowing when and how much to add just enough as the organization scales but not too much it’s an incredible value and a very difficult thing to do

The brilliant metaphor you use in the book and you’ve used before is that you compare the Catholic Church versus the whole Buddhist philosophy and how a Catholic and a Buddhist would handle it. Dive into that a little bit for me because that is a brilliant metaphor.

We don’t mean to offend anybody religiously. I think really when I was talking about a Buddhist or a Catholic but we love them all. In fact, Huggy went to a Jesuit school and my daughter goes to Catholic school. We’re not doing it to stab religions or anything. The general notion is that as organizations scale a challenge that they constantly face is do we insist on a lot of cloning and that things be as similar as possible as we spread out or do we allow more local customization. There is a constant tension between those two things. Just to give you a quick example, in the last five or six years, two giant kind of box stores expanded into China. One is Ikea and the other one is Home Depot. They just _ at Home Depot. They expanded in China. There are about 12 of these in and they tried to sell the do-it-yourself culture to the Chinese people – a complete failure. The Chinese culture is not a do-it-yourself culture. In contrast, Ikea which was much smarter about this what they did is they sort of brought the same or 90% of the same stuff that you have in any Ikea store in the world but in addition to doing local things like having Chinese food in the cafeteria, they actually added a bunch of delivery services. For those of us who have bought Ikea furniture they also added heavy emphasis on service for assembly because in China they have a do-it-for-me culture. Ikea is massively successful. The last Home Depot store left China in 2012. That’s sort of an extreme case. There is always this question that comes up in organizations of scale which is one of the advantages and how much will I allow local customization, and you’ve got varied clients and you need creativity that makes more sense or varied markets, and how much that I insist that the same thing be done over and over again every place. It’s one of those things that – it isn’t a matter of what’s right or wrong, some people say I’m a Buddhist or I’m a Catholic but you got to figure out which way to tilt and what blend is best for the particular challenge that you face. That’s why it actually is a skill. It’s not like we could come up with a seven-point checklist so you could find out exactly how to do it where you are right now.

But you also emphasize that it’s not an either/or, it’s really more of an and

Yeah. I like that. Exactly. I should have said that. That’s great.

And the method that you guys help us, you also create a method in there that helps people identify which direction to take and when – the three questions, do I suffer from the delusions of uniqueness, do I have a successful template to prototype. Can you go through that a little bit because that’s very helpful?

That’s an interesting question. Some of the things that we’ve learned are – first of all, we actually are just now doing a case of an amazing company called Bill Direct that really reinforces this. It’s easier to go from Buddhism to Catholicism. Essentially it’s easier to start with a template of something that is standardized and then as you get feedback from the market that it doesn’t quite work, to make the changes just because there is less noise. The first Starbucks, actually the descendant of the first or the ancestor of the first Starbucks was a coffee store that Howard Schultz opened in Seattle. He just brought in a standard coffee store, a standard espresso bar from Italy and as things didn’t work he would make changes. People in Seattle did not want to standup like they do at a standard coffee bar so he put in seats. They didn’t like the opera music so he took out the opera music but he had a template to sort of work for him. We’re seeing that in sort of case after case. Some of the times when you might want to tilt towards more Buddhism or more local customization, you need more creativity and innovation because you don’t believe you can come up with the one right answer. In that case it’s logical to let a thousand flowers bloom and wait to see which ones work best. And then the other time, there is actually some interesting research on this especially in school reform, that if you want to have people have ownership, if you give them the power to change things as long as they’re not making things worse and they often can make things better that it will create more ownership. It’s one of those things that if somebody tells you that they have come upon the answer, one thing that’s going to work eventually they start to run out of gas. A great example is Home Depot. They just thought they had the answer that was going to work everywhere in the world but then when the market says no you either got to adjust or you’re in trouble. That’s the challenge with too much Catholicism is you run into the problem of cognitive narrowing. The problem with too much Buddhism is you end up with the sort of sloppy messy thing where it’s hard to say what’s good and what isn’t. Every approach sort of has its tradeoff

One of the other mantras you talk about that you take away from the book is to link short term realities to long term dreams. You have your own term that you use for that. Talk a little bit about that for a minute

It’s very hard to have. When it comes to scaling this notion of blending the short term and the long term is very difficult because one of the things that we sometimes say is that we’re all trapped in the perpetual present tense. The challenge is we look at people who are good are scaling what they do is they realize that they should just focus on accomplishing things in the short term but don’t have an advantage in the long term as they grow in scale. Things that set the stage for scaling rather than getting in the way. To give you an example, one of our favorite cases in the book is a company called Bridge _ which is actually a chain of now almost 200 schools for very poor kids in Africa. They describe what they did as sort of like the Starbuck-ization of education. They started in 2007 with just one or two schools and had all these concepts like we’ll have teachers who will teach on sort of tablets and we’ll send them standardized materials and then we’ll have parents pay with their cellphones because that’s a really convenient way to pay. If you see one school open you could have actually done that by hand but to make sure it would work what they would do is they actually have the teachers into one school and the parents in one school do everything electronically even though it’s possible to do it face-to-face so they could sort of work on things that were actually scalable. So rather than just sort of focusing to run that one school they’re always thinking of what will work when we’re 50, 100, 1000 or whatever. Another example of that to shift gears completely is going back to 2002 – I think it was 2002, my colleague Jeff Pfeffer and I interviewed Larry Page about Google. In those days Google was not Google. There were 400 people working for them. We couldn’t figure out whether he was going to be the next billionaire. He was just a crazy guy who was in a startup. You don’t really know when you have somebody at that stage. He was talking about how so many people at Stanford were annoyed at him and other places because he was so slow to hire and he would interview them so much. He only wanted to have people at Google who had the technical skills who had enough interpersonal and managerial skills so as the company grew they could grow with the company. He just didn’t want to throw bodies in to do the work. I do remember that period where lots of people were pissed off at Larry and the team because they were doing so many interviews and they wouldn’t hire them. In retrospect, what Larry had and Sergei but especially Larry had at the back of his mind is we’re building a huge multibillion-dollar company and we have to have people who can grow with the rolls. It’s pretty visionary really. It also takes quite a bit of guts to do that sort of thing.

Especially at a young age. I remember speaking to Jeffrey exactly about that actually. I want to talk about the four principles, that’s kind of the anchors in your class and the anchors in the book; cognitive load, build organizations where people are owners, connect people and cascade excellence and finally, bad is stronger than good. Can you touch on the four principles for us?

Real quickly, cognitive load while embracing necessary complexity is the notion that people always push for simplicity. We’ve touched on this already. As your organization grows you got to realize that you have to add more process as little as possible. There is always a balancing act between the two. The big lesson there is I think I’ve already touched on some is one of the worst things that you can do is create teams that are too big because they’re ineffective and lead to dysfunctional competition. The second one, I guess to sort of march through the principles is this idea of building organization where I own the place and the place owns me. It’s very difficult to spread excellence unless there is this sort of feeling of mutual obligation. A quick example there, to change industries, if you look at hospitals that are especially good at making sure that when unfortunately a patient has died and the right patient to donate or is dying donate organs then in hospitals where there is a high organ donation rate, the nurses, the doctors, the clergy, the receptionist, families of donors, they’re all involved in the process of sort of mutual obligation to make sure that it happens. Connecting cascade, when excellence spread it is like a thin coat of peanut butter. The way it usually happens is there is a little spot of it and then it spread from one place to the next place to the next place. You got to kind of be patient to do that connecting cascade process

And you’re a big proponent of social media, right? It could be a catalyst.

I’m a big proponent of social media as part of the process. To develop deep expertise in anything you really got to be there and do it. Social media might help you be aware of where to look and might help you create relationships and maintain relationships where there is already true excellence. I think that’s very important. The place that I would sort of go with this is our unfortunate role out of Obama care which still upsets me, they just sort of tried to roll the whole thing out at once instead of creating real pockets of excellence and then sort of spreading them. We have the example of an incredibly successful IT role at Kaiser Permanente, the largest healthcare system in the United States. What did they do? They started out by making it work perfectly in Hawaii first. Ironically where Obama was born I guess. Once that works they went to a next bigger region and a next bigger region. They didn’t roll it all at once. They worked out the kinks. And then you have the advantage of the people in Hawaii could help the people in Oregon who use it next. So you have all the sort of connecting cascade process. To sort of end, our mantra – I love saying this, it just cracks me up – you know that book Good to Great which of course is a great book but if we’re going to spread excellence it’s even more important to think bad to great because the path to excellence isn’t just a matter of sort of spreading something that’s overwhelmingly good. If there is bad things in the way like stealing, cheating, laziness, simple incompetence, it’s very difficult for excellence to spread. When we look at organizations that are good at spreading excellence they’re actually quite good at either clearing away or not allowing bad things to crop up. I know we’re running low on time so give you my quick favorite example, some of us may remember that a couple of years ago remember when Twitter would always have the ‘Fail Well’ come up? Of course. Some of us may have noticed I’m a pretty heavy Twitter user but the Fail Well isn’t there very much anymore. One of the reasons that happened is a guy named Chris Fry one of the heroes in the book, he took over engineering at Twitter and has really turned things around. It’s not just him. He _ obviously with many people he’s hired and helped create the organization. When we talked to Chris – this isn’t in the book – this is something that he just gave me permission to talk about actually over the weekend. When he first got there, he went to a meeting and all the folks at engineering they weren’t looking at him. They’re just looking at their cellphone. They weren’t paying attention. He took their cellphones away from them and put them in a basket. He said let’s just talk to one another and you can have your cellphones back. They sort of started vibrating because think of who works at Twitter. He said the meetings were better, the meetings were shorter and then they could go back to their cellphones afterwards. To me that’s a case of that addiction that so many of us and I plead guilty of not being able to get away from our phones even in a meeting. He was making it so that they weren’t having the kind of communication and coordination that they should have at a meeting of senior people at Twitter. To me that’s a pretty good and very simple example of sort of removing the bad and in this case also removing some cognitive load because when you look at your phone it’s really hard to pay attention at a meeting. I think it’s a good case of removing the bad to clear the way for the stuff that’s good.

Here is what happens, there is very clear evidence about this, it doesn’t mean you can’t have a meeting of 15 people where you sit around and talk and exchange ideas. If you’re actually doing day-to-day intense work it almost boils down to the math. If you are trying to coordinate your activity with 14 other people just the sheer load of what do I do and what are the other 14 of them doing? The other part of it is – just doing the number of permutations is a problem and then the other problem is the interpersonal relationships which is that trying to keep track of the moods of 14 people at once who are around us almost impossible. I know it’s just 7 plus or minus 2. It’s not an accident that Richard Hackman who is one of the most famous group of _ researcher who ever lived. He just passed away. He said that once you get over nine people you’re in trouble because it’s hard for us to keep track of more than eight or nine different bits of things. What happens is that as groups get bigger, in addition to the fact that they have more coordination problems and they have more conflict problems is that essentially they spend more and more time on trying to deal with the coordination and interpersonal issues and less and less time actually doing the work. The evidence about this is actually quite clear even if you talk to people who are boards of directors. Some friends of mine who are on boards that have 15 or 20 numbers, they say how do you get things done in a board of 50 or 20 people. This actually goes way back to Parkinson’s Law. He wrote about this 50-60 years ago at _ Parkinson’s. When you have a 20-person group what really happens is there is three or four people who meet before or after the meeting or in subgroups is where the work actually gets done. You can be part of a 20-person group but the real work is going to have to be done by a smaller group or subgroups.

A brilliant example. I can’t let you go without asking you a couple more questions. On this conversation, I’ve said it a million times and I’ve heard you say it and write about it, about this whole get a small group of people and “big teams suck.” What’s the problem? If I have 15 people in a team or on a project, is the problem obviously communication? Is that where…?


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Robert Sutton

Stanford Professor View Full Profile

Scaling Up Excellence

Starting a business is hard; scaling a business is harder.  The former has little barrier to entry; while the latter requires deliberate due diligence and strategic thinking.  In the beginning, most get their start in the preverbal garage with a simple idea, only to reach a ‘ceiling of complexity’ when their assumptions prove worthy.  For a fast growth startup, rapid scaling maybe exhilarating; still it brings with it a new set of challenges that not only require fresh thinking, and ‘adult supervision’, more importantly, it rarely succeeds without leadership expertise.

Although those challenges fall into several broad areas - often, its people and process that top the list.  The likely priorities will be to formalize an organizational structure and management system; to appoint a trusted board, and to fine tune HR; all while preserving the entrepreneurial culture.  Few will pull it off; and the lucky ones who do are likely to have put more emphasis on their organizational mindset, not just their footprint.  In their brilliantly researched book, Scaling Up Excellence- Stanford professors Robert Sutton and Huggy Rao unpack their convincing research on why beliefs and behaviors matter...