Hayagreeva Rao Keynote Talk: Scaling Up Excellence at Stanford GSB (Full Transcript)

You know, you sort of say, sunny days, sun on the arise, the enemies in the hills or whatever. Just look at the number of variables that are being incorporated in that story. And it is very efficiently being packaged. So the army is actually trying it out. So anyway after doing this for a couple of years, we sort of thought, we’ve actually learned, and we interviewed a number of people, we wrote case studies, we did a bunch of things.

So six years after the original question, we actually thought, okay, let’s write this book. And first, a word about excellence. We could debate this to what excellence is, Plato says this or Socrates says this. If you’re interested in eastern philosophy the Gita says this. But Bob and I are social scientists and for us excellence simply means people do the right job even when nobody is watching over their shoulder. That’s what excellence is. Because when you need people to monitor others executing a task, that’s not excellence. For every 10 people whom you hire, you can’t have three cops monitoring them. There is no way you can scale if you do that, because it’s just going to be huge in bureaucratic and expenses and so forth.

So what’s the problem of excellence? There are two dimensions to the problem. On the one hand, if you’re in a large organization, or even a small one, you might have a pocket of goodness, somewhere. And what your challenge as a manager is, or as an executive or leader is, how do I actually construct a domino chain of goodness? How do I spread goodness from one place to the others? The challenge is when you do that you have voltage loss. There is dilution.

There’s kind of another dimension of scaling up excellence and that is, if you’re a small organization and as you’re adding people how do you actually scale up excellence? So, one is, if you will, horizontal or cross divisional or cross business unit, the others, kind of much more temporal.

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There’s also a little problem and the little problem is, the larger an organization gets, the more likely are smart people inside the organization to become dumber. And I don’t say this to be coy. And what I mean by beep smart people becoming dumber is, I don’t mean to imply obviously that they become stupid. But I certainly mean to imply that they become silent. And that’s the problem in a large organization. If they become silent, you’re basically in trouble.

So lots of examples of scaling, a lovely little start-up called Pulse, they were two Stanford grads, and they would call us and say, we have a scaling problem. I’d say like, what kind of problem? There’s just the two of us, we’ve hired four more people, we have a scaling problem. I’m like, you guys are all working in one room, how could that be a scaling problem? But sure enough you realize they needed to coordinate, they needed to communicate.

And on the other extreme, you have the Institute for Health Improvement in Cambridge. They want to reduce debts caused by preventable medical errors. 100,000 people a year die. How do you do that when you don’t have cloud, when you don’t have authority, when you don’t have resources, and you have 3,500 hospitals? So that gives you, if you will, the breadth of the scaling challenge.

So, the, the main sort of point I want to suggest is, scaling up is deceptively easy but screwing up is easier. And the term — the scientific term Bob and I use is, we call it a clusterfug. And we can’t, of course, use the actual word. And so what we did was we suddenly remembered, wait a minute, Norman Mailer wrote about fug successfully, and so we thought let’s actually exploit this literally lineage of the term, so we called it clusterfug, and writing the case as we speak, On the Navy Seals, yeah I know, can you imagine a guy like me writing a case on Navy Seals. I know, even I’ve chuckled about the absurdity of this. So, I spent –we actually have two amazing students who are helping me write this case: Carter Bowen, who’s a Navy Seal himself, and Gib Lopez, who’s actually an MBA also. Both of them are helping me write this case, and Carter and I went and spent a chunk of time at Coronado.

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When I was with the Navy Seal commander, they use a lot of abbreviations. And there was one abbreviation that kind of baffled me. They called it PFM. And after awhile I sort of had a pretty good idea of what the F stood for. I’m sure all of you know that. It was the P and the M that I was actually utterly befuddled by. And later when I asked the commanding officer, I said what is PFM? He said, pure, you of course know what the F is, and the M, of course, means madness. He said, that’s what happens to us when we try and scale sometimes, PFM.

Now, if you really look at, 30 years of social psychology, why is it that scaling ends up in a clusterfug? And this could be any decision. New product, new technology implementation, an acquisition, expansion overseas, whatever the articulation or realization of scaling. It turns into a clusterfug because of three things. The first is a sense of illusion. You actually have the illusion because the smart people have become silent. You’re not getting any feedback and it’s kind of like an echo chamber.

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