Good morning,
As I promised on Thursday, here is the first of my multi-part review for The Hard Thing About Hard Things.
We'll jump right into things today with my thoughts on some of Horowitz's insights into higher-level ideas about leading an organization.
-The Business Bro
What is the CEO’s role?
The CEO’s main function is to define how the work will get done. In a small organization, a CEO can do this by talking to the right people. As the organization grows, it becomes increasingly difficult to communicate directly with everyone. At some point, the CEO must formalize the communication architecture to ensure everyone understands how the work will get done.
Strong companies use this architecture to share information about problems. The CEO must exemplify this ethos through daily action. One way is to give consistent feedback. Regular feedback reinforces the importance of identifying rather than hiding problems.
Good feedback means challenging the person with the most knowledge to clarify an evaluation. A CEO who gives feedback without remaining open to admitting error will shut down discussions and encourage employees to hide problems. A CEO who does not give regular feedback risks having feedback taken personally.
A CEO who does not keep his or her word will slowly lose the organization’s trust. The same will result if important information is withheld, distorted, or leaked to the organization. An executive who loses the trust of the organization is rarely able to win it back.
Organizational design
The purpose of organizational design is to define how the CEO will communicate to the company how the work will get done. If designed successfully, the company will be an easy place for individuals to get their job done while also allowing management to quickly and efficiently share information pertinent to how the work will get done.
Designing an organization requires first determining who must know what. This is easy to derive if decision-making responsibilities are strictly defined. Next, prioritize the most important decisions by optimizing the needed communication paths and deciding who will run any groups involved in these decisions. Finally, identify any communication paths left unaccounted for and plan for ways to resolve the issues these will create.
Whenever any new work starts taking place, allow the people doing the work ad-hoc to eventually formalize the process. A good time for this is whenever there are clear problems with the work yet there is no sign of a looming crisis.
As an organization evolves, the organizational design must adapt with it. Simply evaluate the current design using the above criteria. If people understand their roles and expect good things to come for themselves and the company whenever they execute well, the organizational design is serving the present need. If there are unseen boundaries or obstacles that break process and lead to infighting, the organizational design is failing. Managers should use individual meetings with their teams to gather information about the strength of the organizational design and act quickly if they sense things slipping.
If the organizational design is broken, good CEOs ask themselves difficult questions and always opt for the hardest answers. If the choice comes down to courage or comfort, they choose the former. They reward performance over giving flat bonuses, for example, or cut projects which were kept in place only for consistency's sake. They ensure behavior that advances the business is rewarded and eliminate the incentives encouraging anything else. If there are issues with promotions or off-cycle raises, good CEOs establish a formal performance and compensation review process because they understand the importance of saying ‘NO’ to the squeaky wheels in the organization.
Human resources
Being a strong company is trivial when things are going well. However, it is perhaps the only relevant consideration when things go wrong. HR plays a vital role in ensuring companies remain strong by focusing on the process, being a diplomat among department leaders, and helping the management team improve. If quality slips, HR should be the first to notice.
A good HR team constantly evaluates the company. Here are some sample questions to use in the evaluation process:
-Are the requirements to fill all open positions well understood?
-Do interviewers prepare for every interview? Do they sell the company to candidates?
-Do interviewers arrive on time? Do they follow up once a decision is made?
-Does the company compete for talent?
-Do the benefits match up for the needs of the company's demographics?
-How long does a new hire take to get fully 'up to speed'?
-Is manager feedback regular and consistent? Are performance reviews on time?
-Are employees excited to come to work? Are any employees actively disengaged?
-How does turnover compare to the industry standard? Why do people stay or quit?Hiring…
The best way to hire for a new role is to have the hiring manager do the job first. Once a list of strengths needed for the job is established, put one person in charge of going out and finding the right person for the job. Since every employee has at least one serious flaw, make sure to hire for strengths instead of looking for someone with no weaknesses.
Hiring decisions should be lonely. Group hiring decisions tend to find candidates lacking obvious weaknesses rather than identifying the person with the strengths needed to succeed.
If the new hire would benefit from extensive internal knowledge about the product or the company’s culture, promote from within instead of hiring an external candidate. The more important inside information is for succeeding in the role, the less the organization benefits from outside hires. If the company does not cultivate the needed strengths for the open position, hire an external candidate.
A small company should seek out candidates who prefer to create while a large company should seek out interruption-driven hires. Top candidates from smaller organizations are likely good at running a hiring process, creating process from scratch, becoming an expert in the product, and consistently launching creative projects or initiatives. Strong candidates from larger organizations are likely good at complex decision-making, prioritization, organizational design, process improvement, and organizational communication.
…and firing
The way a company handles layoffs is remembered by anyone who remains behind. If a layoff is handled poorly, the company will permanently lose the trust of their remaining employees.
Start a layoff by addressing the company. This is not for the people who are eventually let go; the message is intended for those kept behind. Be present through the process, help people carry out their belongings, and make it clear to those let go that you appreciated their efforts.
Managers must lay off their own people. The most important task is to admit the company's failure. A company successfully hitting its targets does not lay anybody off. Managers should explain how the company failed, have all the information about benefits ready for the impacted employee, and make it clear the decision is not negotiable.
If an executive is let go, inform the direct reports first, the rest of the executive staff second, and the company last. Take over for the vacant role unless it is wildly inappropriate because doing the job will provide helpful insights into what skills the ideal replacement must have. Make sure executive severance packages are large enough to acknowledge how much longer it takes people to find work at higher career levels (about ten times as long for an executive than the average salaried employee).
A manager who fires someone should know for sure the employee fully understood the expectations of the position. Prior to the firing, it should be made clear how these expectations are not being met and the consequences for ongoing failure must be understood by both manager and employee. Setting these expectations begins in training.
Training
If McDonald's trains employees, so should everyone else. No one is so smart to be exempt from ongoing training.
Training is the highest leverage activity any manager can perform for the organization. A successful leader should know the exact details of how to train. A manager who asks to hire more people should first present a formal training plan for integrating the new hire into the team.
New hires should come to individual meetings with their managers with lists of questions about the people they've met. Leaders should clarify which people are the most important to meet and demand reports on what the new hires learned from each meeting.
As a new hire gets settled into the team, the focus of training will shift. The weekly individual meeting is a great tool to guide this progress. It should always be based on the employee's agenda and the employee should contribute about 90% of the time. The point is to discuss any possible threats to productivity that do not come up naturally during the regular work period.
If the employee struggles to come up with a weekly agenda, suggest exploring the answers to the following questions:
-How can we improve?
-What's our biggest current problem that no one is attacking?
-Who is doing really well here? Who do you admire?
-What's fun about working here?
-What's not so fun?
-If you were me, what changes would you make?
-What is the biggest opportunity we are missing out on?CEOs do not develop talent. If a person in the management team needs training, they are not good enough for the job. CEOs should leave the day-to-day details of training to their managers and focus instead on establishing and enforcing the communication architecture.
The CEO’s role in training is to ensure new people coming aboard at higher levels remain on track by meeting the right people and learning about the organization’s products. Since most people quit when they stop learning or stop getting feedback, CEOs should make sure their managers are continuously training their teams and always giving appropriate performance feedback.
