The hair salon I work on with a colleague of mine has hit a major profitability milestone! Weâve been working on the salon for a year, investing time and driving improvements. Itâs been a huge learning opportunity for me to participate in a really small âbrick and mortarâ services business.
What Iâm most excited about is that the companyâs profit has been flat for years before this recent uptick, so the recent profit increase represents a meaningful move.
One of the toughest things was that business performance was static for a while, despite our efforts. Putting in work without seeing results isnât great. But we were working on the system, and in systems work thereâs often a lag between your inputs and your outputs. Ultimately, things are working, so Iâll take it!
Weâve got momentum, and weâre nowhere near done. Itâll be interesting to see where we can go from here!
For Group 18, Iâm going to be experimenting with providing OKR services. I have so many years of experience running multi-level OKRs across a global team at Atlassian - and I enjoy OKRs! - so Iâd like to see if businesses are interested in help. This type of service complements my work as a COO helping businesses transform, AND my financial modeling work, so itâll fit in quite nicely.
By working on this, itâs forcing me to organize my thoughts on OKRs, and start to get collateral put together. If successful, it gives potential customers a targeted outcome-driven project to develop trust with me, where I can then earn future business.
Iâm working with someone whoâs helping me develop this experiment. Youâll see more about this soon. If you use OKRs in your business (or even EOS), let me know - Iâd love to ask you some questions.
With school back in session, my weekends are now filled with sports again. Not only is it fun to watch my kids, but I get a little extra vitamin D and additional reading time.
Hope youâre having a great month! Kevin
A Quote
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Character is built in the course of your inner confrontation. Character is a set of dispositions, desires, and habits that are slowly engraved during the struggle against your own weakness. You become more disciplined, considerate, and loving through a thousand small acts of self-control, sharing, service, friendship, and refined enjoyment.
I love Perplexity, the AI-powered search engine, and was excited this week to get my hands on their Comet browser. I have a couple invite codes; if you want to try it yourself, email me and Iâll share it with you (first come, first served, until I run out).
This 1995 moving starring Sandra Bullock was really funny to watch 30 years later. Itâs not a comedy, but it shows what people felt like computers and the internet were going to do to us. They got a lot wrong! What are we getting wrong about our fears around AI?
Iâm late to the party as this first came out 10 months ago, but this session by Argentinian duo Ca7triel and Paco Amoroso blew up. At 40M views itâs the 11th most popular video on NPR Musicâs channel, just behind Adele. They even have a song about imposter syndrome that they did five months later, showing people watching their Tiny Desk concert on their phones on the bus. Pro tip, if you turn on captions for Tiny Desk you can get the lyrics in English.
(please enjoy this đ minute read)
Deep Dive on Big Companies Ossifying
Is it the destiny of all big companies to ossify?
I first started thinking about this in 2003 when I started working for Ford Motor Company. At the time, that company had over 300,000 employees - enormous! I noticed a lot of âbig companyâ things that slowed progress. Rules, policies, procedures. A lot of it felt like the movie âOffice Spaceâ and TPS reports.
For example, if I had to move desk locations, I wasnât allowed to bring my computer and material from one desk to the next. I had to box it up, label it, and wait for other people to come move it - even if the desk was literally down the hall!
Not having worked elsewhere, but having seen enough movies and read enough Dilbert, I got curious. Is it inevitable that as companies grow, they get stuck? They become rigid, inflexible, and unfeeling? Or can they retain their youthful dynamism as they grow?
You may have observed this big-company-rigidity play out at large tech companies during layoffs. They often notify affected staff through email or a pre-recorded video, followed by same-day offboarding.
At large scale, operating choices tilt from bespoke, high-touch processes toward standardized, low-variance ones - they're often faster and safer for the business, but are experienced very differently by employees.
So is it the destiny of all companies to ossify as they grow, or is there an antidote? Letâs explore!
What ossification looks like
One of the best ways to see ossification at work is to spend time with its opposite. If youâve only ever been with a large company, I encourage you to find people at a really small company and share notes. Ask them how x, y, or z thing is done at their company. The contrast is really stark!
If youâve only been with a small company, seek out your big company counterpart and do the same exercise.
If you've never seen big companies at work, here are a few symptoms.
One way in which this shows itself is in a lack of creative destruction. Large companies can milk what makes them money today versus thinking of what will make them money in the future. They exploit rather than explore. They stop experimenting.
Another way you see this is that large companies are slow in decision making. Sometimes itâs slow because decisions are pushed up to a big leader, which adds time. Other times itâs because of a drive for consensus and fear of failure, so a decision maker waits for a consensus to develop before being willing to make a call.
There are a LOT of people involved in decision-making at a large company.
A huge indicator is policy over people. Policies donât handle edge cases well. Human judgment is lost, and you fall back on whatever the policy says. Any time youâve heard a customer service representative say, âSorry, thatâs the policy,â youâve experienced this issue.
Another symptom is meeting obesity; meetings that go on too long, with too many people. The classic joke is there for a reason; large companies are well known for having meetings to prepare for meetings.
The last symptom Iâll talk about is cross-team friction. It can be really hard to get work done with others in a large company. If two people or multiple teams need to work together you have to escalate up their respective management chains to resolve resourcing before the teams can actually work together.
I could go on for a while, but I think you get it by now đ These may be the symptoms, but why does this happen?
Why do companies ossify?
One key insight I got for this comes from the book âLoonshotsâ by Safi Bahcall. In that book he talks about how incentives begin to shift - coincidentally right around Dunbarâs number - from favoring business outcomes to favoring careers.
Essentially, what begins to matter more is whether your boss is happy, not whether youâre achieving business goals. In a small company, those things are usually one and the same. Your boss is happy when youâre hitting business goals because youâll all go out of business if you donât.
For a larger company, those two things can start to drift - what makes your boss happy may not be the best thing for the business. These misaligned incentives can cause a lot of the bad outcomes.
âFor typical real-world values of the control parameters there is, in fact, a sudden change in incentives around the magic number 150. At that size, the balance of forces in the tug-of-war changes, and the system suddenly snaps from favoring a focus on loonshots to a focus on careers.â
Another insight comes from Netflixâs famed culture deck related to talent density. They purport that as businesses increase in size, so does complexity. Also, because there are only so many amazing employees, talent density tends to come down as you grow in size.
The gap between high complexity and low talent density results in chaos, which is often filled with policies and procedures to combat it. These policies and procedures tend to drive out high performers, lowering talent density even further, driving more policies and procedures - and the cycle continues.
From Netflix's old culture deck.
The quote below from Stephen Bungay in âThe Art of Actionâ is long, but perfectly encapsulates whatâs going on.
âIn an attempt to cope with the complexity the organization grows complex as well. It becomes opaque, which creates internal uncertainty to add to the uncertainty outside. Different parts of the organization are concerned with different things and seek to do a good job by optimizing them. The results clash. Faced with uncertainty, people search for more information; faced with complexity, they do more analysis. Meetings proliferate and decisions are delayed. People in the front line become frustrated at the lack of the decisions they need someone to make to let them get on with their job, and people at the top become frustrated at the apparent lack of action, although the level of activity is high. More initiatives are launched, increasing the level of activity. The psychological effect is to increase confusion. There is lots to do, but what will have the greatest effect and who should do it? Accountability becomes more diffuse, so controls proliferate. This slows things down and restricts the scope for front-line decision making. In an attempt to increase clarity, actions are specified in more detail. The emotional effect is an increase in cynicism and frustration. Trust erodes. The cycle is toxic.â - Stephen Bungay in âThe Art of Actionâ
Org. structure also comes into this. Large companies tend to design around centralized functions because they think they get economies of scale (e.g. thereâs a single data engineering org, or a single product management org.). But this comes at the cost of business acumen and speed.
It seems like itâs not inevitable that companies will become rigid as they grow in size. Are there any businesses that can serve as counter-examples?
Large companies with youthful flexibility
I canât speak first hand, but from my reading it seems like there might be a few businesses that stay flexible as they grow large.
Netflix is one that comes to mind. Reading their current careers and culture page, and youâll see a lot of language about speed. And not just language, but practical examples of how they run internally, like this quote about âinformed captains.â
We avoid decision-making by committee, which tends to slow companies down and undermine accountability. For every significant decision, we identify an informed captain whoâs responsible for making a judgment call on the right way ahead. Then different teams, each led by their own informed captain, implement the decision. This highly aligned and loosely coupled approach gives teams the freedom to move quickly and operate independently, while ensuring responsibility for the outcome.
I think Microsoft under Satya Nadella (not under Balmer) is another good example. They have over 200K employees today, which is extremely large. But in reading his book, âHit Refreshâ and seeing their market performance, it makes me think heâs been able to implement improvements to keep things supple internally.
âOur culture had been rigid. Each employee had to prove to everyone that he or she knew it all and was the smartest person in the room. Accountabilityâdelivering on time and hitting numbersâtrumped everything. Meetings were formal. Everything had to be planned in perfect detail before the meeting. And it was hard to do a skip-level meeting. If a senior leader wanted to tap the energy and creativity of someone lower down in the organization, she or he needed to invite that personâs boss, and so on. Hierarchy and pecking order had taken control, and spontaneity and creativity had suffered as a result.â
- Satya Nadella in âHit Refresh,â talking about the Microsoft culture he was trying to fix
For a long time I was going to suggest Amazon was a good counter-example (1.5M employees - mind-bogglingly large), but lately Iâm not so sure. My original rationale for inclusion was the extensive writing of Jeff Bezos - his âDay 1â thinking and focus on speed seems like exactly the kind of thing that would prevent that company from ossifying.
But with Andy Jassy at the helm, and things like their handling of a Return to Office (RTO) mandate (aka policy) makes me think itâs not as supple as it mightâve been under Bezos.
Iâm sure there are a lot of examples of companies that are doing well that Iâve never heard of. If you work for a company that you think is a great place to work and is doing well to avoid the large company fate, please let me know.
How to keep things loose as your company gets bigger
Itâs better to prevent yourself from ossifying than to try to fix it once itâs happened. With that in mind, here are a few things that can help along the way.
When it comes to org. design, my personal opinion is that the economies of scale for centralized functions are never realized - and if they are, they donât counteract the downsides elsewhere. Most companies would do better to keep smaller decentralized teams.
Companies and teams should practice what I call âbusiness autophagy:â Kill off policies, procedures, products, and anything else that isnât appropriate any longer. For example, just because you can report on 100 metrics doesnât mean that you should. A former colleague of mine at Atlassian introduced me to something she called âkill a stupid rule,â and I loved it. It was an intentional practice to get a bottoms-up perspective on what was no longer working so we could investigate and kill it. Do that proactively.
Too many metrics.
Have an external enemy. You need something to fight against to keep your orgâs fitness. Make sure you have someone or something that youâre striving against. Steel sharpens steel.
Develop psychological safety - specifically challenger safety. You need your team to feel comfortable challenging the way things are, which will not happen if you donât have sufficient safety.
Encourage experimentation and crazy ideas. Keep things fresh. Try to disrupt yourself before others do it for you.
Lastly, keep your decision-making speed high. Be comfortable with âfailureâ and your ability to pivot. Move authority to information. Most decisions are two-way doors anyway, so thereâs no reason to go so slow! You often waste more time prepping and planning than you would just getting started and adjusting if youâre wrong.
Is it the destiny of all companies to ossify as they grow large? Whatâs your assessment?
I think itâs not inevitable, but avoiding it is really really hard. Thereâs a lot that goes against human nature. Weâre tribal people, and as Safi Bahcallâs research shows, above 150 people those incentives start to switch. And 150 people isnât large!
Even if itâs hard, itâs worth it for us as leaders to try. Weâll be happier in those environments, and our people will flourish more than in the alternative.
Call to Action
No matter where you work, youâve got a role to play in preventing the ossification of your company.
Not every collection of humans is going to avoid this fate, but the more youâre aware of the milestones along the way, and best practices to avoid it, the more likely you are to delay or avoid that outcome.
Take a look at the section above for how to keep things loose and assess your team against them. How close or far are you from challenger safety? Howâs the culture of experimentation? How slow is your decision making?
Pick one thing, no matter how small, to improve this week. Delegate a decision or make a call. Run an experiment. Kill a stupid rule. Your customers and employees will appreciate the effort.
Kevin
PS - If youâve got anecdotes and experiences related to todayâs newsletter, Iâd love to hear them as part of my ongoing research. Please share your thoughts with me at heykev@kevinnoble.xyz. Thanks!
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