Buy The Best Practices for Operational Excellence on Amazon
There is not early enough written on how to be good at operations. It seems obvious but most companies are bad at it in a way that materially hampers the rest of the organization.
There is a lot of focus on building and marketing the best product, but not enough on building an organization that can repeatedly produce great products.
It is important and something I have been thinking about a lot lately so I thoroughly enjoyed this book from Luca Dellana on Operational Excellence.
The overall framework is good, the key action items both resonate with what I have seen work and also gave me a number of new ideas and I would recommend it as a worthy read to anyone who feels their business or team is a little “out of whack”.
The book starts with 4 Operational Principles:
- Good managers set unambiguous, individual and rewardable objectives.
- Good managers always explicitly assign full accountability together with objectives.
- Good managers demonstrate priorities with visible costly actions.
- Good managers are obsessively consistent in holding their subordinates accountable.
These themselves are well explained with examples before the second half of the book gets more tactical and lays out specific suggestions such as Management Walks, Weekly Meeting Agendas, and how to create Standard Operating Principles.
My favorite insight from the book was from the 3rd Principle: Good managers demonstrate priorities with visible costly actions.
Said another way, Company culture builds around whatever is signaled in a costly manner.
Let me come back to what that means and first a word about creating good core values.
One of my rules of thumb around creating core values or guiding principles is that you could state the opposite of each principle, and it could be argued that it’s a valid principle or at least one that is implicitly used for a different company.
Principles like “integrity” are meaningless as no one could make the argument that for some companies the opposite is appropriate.
Principles like “safety” are good because their opposite is plausible. Indeed, Facebook’s motto for many years was “move fast and break things”.
This is helpful because it highlights a trade-off that makes sense for Facebook, but doesn’t make sense in another context. Someone running a nuclear power plant or manufacturing business where safety is more important would plausibly make their slogan “move slow and double check everything.”
So step one is establishing priorities, principles and values for your business or team. Many people never do this step, but even fewer do the next one: enforcing them.
How do you enforce them?
Through visible costly actions. The challenge with core values is that good core values tend to have big downsides. “Move fast and break things” means a lot of things break. Having safety as a core value means things can take a lot longer.
The reason why good core values are so difficult to adopt in the day-to-day of Operations is that they represent short-term costs. “Sustainability” means that environmentally friendly products and machines have to be sourced at a higher purchasing cost. “Safety” means that workers must wear their Personal Protective Equipment and respecting safety procedures (a time cost).
The costs of practicing Core Values take place in the short term, its returns only materialize in the long-term.
Core Values are about optimizing over longer time preferences and you have to demonstrate short-term sacrifices start from the top to make them a reality throughout the organization.
Management and leaders need to make visible, costly actions showing that “people who follow these values do well at this company and people who don’t do poorly”.
Core Values get adopted if and only if the managers go first and make visible tradeoffs that publicly show that the short term costs of practicing the Core Values are a worthy investment that will bring future long-term benefits.
A lot of what CEOs do seems like a dumb waste of their time but it is symbolically important.
When the CEO of a 50,000 person company goes to do a tour of the factory and they spend 15 minutes putting on all the appropriate protective gear even though the factory isn’t running at that time, the point is not that the CEO was in danger. The point was that it was a costly signal (their time is valuable) and visible to employees.
If the CEO has time to always put on his protective gear, no one else in the company has an excuse.
Facebook was famous for having engineers push live code into production on their very first day. The reason most companies don’t do this is because when you have someone that doesn’t know what’s in the broader codebase push changes, things break. And, I’m sure lots of people broke stuff on their first day. However, for Facebook’s culture, that was a feature, not a bug.
Reed Hastings, the founder of Netflix, is disciplined about taking vacation time off. He noticed that everyone was burning out at the company because they were trying to keep up with his work pace. Reed’s time is very valuable and him taking off a week signals to everyone else that it is ok, indeed expected, to take a week off.
Some other examples from the book I liked:
A16Z’s fines. Silicon Valley Venture Capital firm Andreessen Horowitz (A16Z) charges its employees $10 per minute if they’re late at meetings with entrepreneurs (their “customers”).
Amazon’s doors. During the first months of life of the retail giant, when cash was a constraint, CEO Jeff Bezos and the rest of the employees used to work on desks made of a wooden door horizontally placed over two stands. The practice of using doors as desks continued for several years, even as cash became more available. Why? So that, when a new employee would join the company and ask why he is supposed to work at a desk made with a door, his manager could reply something along the lines of, “Here at Amazon we look for every possible way to keep costs low and offer our customers the best price.”
What cultural values and principles are important for your team and how can you signal them in a costly way?
Last Updated on October 25, 2021 by Taylor Pearson