How To Prepare For The Next Recession

Even though the business environment is improving for some companies, don't close the book on the recent recession until you've set a game plan for how you will lead your business between now and the next recession. And, for how you will lead during the next recession.

Write down the lessons you learned over the past couple years and determine how you'll apply each going forward.

You can also take note of the suggestions from savvy business leaders that offer this advice:

•  You have to build trust with your colleagues before a crisis comes or no one will follow you when it does.
•  There is no substitute for preparation. Access your company's strengths and weaknesses at all times.
•  Conduct an annual risk review that encompasses both financial and non-financial risks.
•  When removing employees from your business, be courageous, quick and fair.
•  Pay attention to those who leave and those who stay. And, for those who stay, remove work so the employees left behind don't feel punished for staying.
•  Talk more about values more than rules.
•  Reward not only the performance, but also how that performance is achieved.

Learning from Peers

Last week I attended CUCCIO, which is the world's worst acronym (sounds like an Italian dessert). It actually stands for the Canadian University Council of CIOs and it is essentially a meeting of university Chief Information Officers from across Canada.

I find this meeting of peers useful on many levels. We all have similar roles in similar organizations so we have similar problems. The single most obvious benefit of these meetings is learning how others solve common challenges. We share processes, ideas, and even software. Problems are always much easier to solve when you hear how someone else fixed the same issue.

A less obvious but equally important benefit is the feeling that you are not alone. When others share common challenges you can commiserate. We're all empathetic to each others' situations. Although one might think of the cliché "misery loves company," I don't think it really captures the flavour of these meetings. Despite the challenges there is a prevailing feeling of optimism. With such a large support group you can't help but feel that collectively no matter what the problem, you can solve it.

Ultimately, these meeting are like comfort food for a manager's soul. We inevitably are all re-assured that we are not alone. Other folks have similar management challenges and opportunities. However, I'm not advocating a pack mentality because we could all end up making the same mistake. We need to disagree, challenge, cajole, and be intensely critical of each other. Out of disputes arise better ideas and faster solutions.

I may not go to a meeting of peers with all the solutions. But the discussions, camaraderie, and sharing removes irrational pressures that we sometimes feel when we are moving into uncharted territory. And I always emerge with new ideas and a renewed confidence born from being challenged and being challenging.

~

'The Best'

For the past few years the vision of the department I manage is to be the best Canadian university information systems department. Simple, clear, and ambitious. It is a vision that sets the bar high.

When we first published this vision, feedback was positive. But we consistently heard one concern: how do you measure 'the best'. There are some basic metrics we use. Examples include external rankings for specific areas of our business, awards from appropriate groups, and benchmarks against similar organizations.

These metrics are useful in charting progress, however none of them will ever conclusively indicate our ranking in our business. Individually and collectively, none of them will ever prove we are 'the best'. And I'm quite happy with that.

If we ever officially became the 'the best', then bad behaviors would begin to creep into our culture. We would become complacent, over confident, and we would lose our desire to continuously improve.  The goal of a lofty vision is that it is always just slightly out of reach. A goal just beyond your fingertips is an eternal incentive. In our case it is an incentive to continuously get better all the time.

I don't really want to be 'the best', but I do want to always be trying to be 'the best'.

~

Before There Was Management

Management is a rather recent invention in the history of human evolution – it’s been around for maybe 100 or 150 years, about two or three times longer than software. But people have been living together for thousands of years, and it could be argued that over those thousands of years, we did pretty well without managers. People are social beings, hardwired through centuries of evolution to protect their family and community, and to provide for the next generation. For tens of thousands of years, people have lived together in small hamlets or clans that were relatively self-sufficient, where everyone knew – and was probably related to – everyone else. These hamlets inevitably had leaders to provide general direction, but day-to-day activities were governed by a set of well understood mutual obligations. As long as the hamlets stayed small enough, this was just about all the governance that was needed; and most hamlets stayed small enough to thrive without bureaucracy until the Industrial Revolution.

The Magic Number One Hundred and Fifty
Early in his career, British Anthropologist Robin Dunbar found himself studying the sizes of monkey colonies, and he noticed that different species of monkeys preferred different size colonies. Interestingly, the size of a monkey colony seemed to be related to the size of the monkeys’ brains; the smaller the brain, the smaller the colony. Dunbar theorized that brain size limits the number of social contacts that a primate could maintain at one time. Thinking about how humans seemed to have evolved from primates, Dunbar wondered if, since the human brain was larger than the monkey brain, humans would tend to live in larger groups. He calculated the maximum group size that humans would be likely to live in based on the relative size of the human brain, and arrived at a number just short of 150. Dunbar theorized that humans might have a limit on their social channel capacity (the number of individuals with whom a stable inter-personal relationship can be maintained) of about 150.[1]

To test his theory, Dunbar and other researchers started looking at the size of social groups of people. They found that a community size of 150 has been a very common maximum limit in human societies around the world going back in time as far as they can investigate. And Dunbar’s Number (150) isn’t found only in ancient times. The Hutterites, a religious group that formed self-sufficient agricultural communities in Europe and North America, have kept colonies under 150 people for centuries. Beyond religious communities, Dunbar found that during the eighteenth century, the average number of people in villages in every English county except Kent was around 160. (In Kent it was 100.) Even today, academic communities that are focused on a particular narrow discipline tend to be between 100 and 200 – when the community gets larger, it tends to split into sub-disciplines.[2]

Something akin to Dunbar’s number can be found in the world of technology also. When Steve Jobs ran the Mackintosh department at Apple, his magic number was 100. He figured he could not remember more than 100 names, so the department was limited to 100 people at one time. A team that never exceeded 100 people designed and developed both the hardware and software that became the legendary Apple Macintosh.[3] Another example: in a 2004 blog The Dunbar Number as a Limit to Group Sizes, Christopher Allen noted that on-line communities tend to have 40 to 60 active members at any one time. You can see two peaks in Allen’s chart of group satisfaction as a function of group size – one peak for a team size of 5 to 8, and an equally high peak when team size is around 50.[4]

Steve Job’s limit of 100 people was probably a derivative of the Dunbar Number, but Allen’s peak at 50 is something different. According to Dunbar, “If you look at the pattern of relationships within… our social world, a number of circles of intimacy can be detected. The innermost group consists of about three to five people. … Above this is a slightly larger grouping that typically consists of about ten additional people. And above this is a slightly bigger circle of around thirty more…”[5] In case you’ve stopped counting, the circles of intimacy are 5, 15, 50, 150 – each circle about three times the size of the smaller circle. The number 50, which Allen found in many on-line communities, is the number of people Dunbar found in many hunting groups in ancient times – and three of these groups of 50 would typically make up a clan.

Does this Work in Companies?
One Hundred and fifty is certainly a magic number for W.L. Gore & Associates. Gore is a privately held business that specializes in developing and manufacturing innovative products based on PTFE, the fluoropolymer in Gore-Tex fabrics. Gore has revenues exceeding 2.5 billion US dollars, employs over 8000 people, and has been profitable for over a half a century. It has held a permanent spot on the U.S. "100 Best Companies to Work For" since it’s inception in 1984, and is a fixture on similar lists in many countries in Europe. This amazing track record might be related to the fact that Gore doesn’t have managers. There are plenty of leaders at Gore, but leaders aren’t assigned the job, they have to earn it by attracting followers.

You’ve got to wonder how such a large company can turn in such consistent performance for such a long period of time without using traditional management structures. The answer seems to have something to do with the fact that Gore is organized into small businesses units that are limited to about 150 people. “We found again and again that things get clumsy at a hundred and fifty,” according to founder Bill Gore. So when the company builds a new plant, it puts 150 spaces in the parking lot, and when people start parking on the grass, they know it’s time to build a new plant.

Since associates at Gore do not have managers, they need different mechanisms to coordinate work, and interestingly, one of the key mechanisms is peer pressure. Here is a quote from Jim Buckley, a long-time associate at a Gore plant: “The pressure that comes to bear if we are not efficient as a plant, if we are not creating good enough earnings for the company, the peer pressure is unbelievable. …This is what you get when you have small teams, where everybody knows everybody. Peer pressure is much more effective than a concept of a boss. Many, many times more powerful.”[6]

Like many companies that depend on employees to work together and make good decisions, Gore is very careful to hire people who will fit well in its culture. Leaders create environments where people have the tools necessary for success and the information needed to make good decisions. Work groups are relatively stable so people get to know the capabilities and expectations of their colleagues. But in the end, the groups are organized around trust and mutual obligation – a throwback to the small communities in which humans have thrived for most of their history.

Google’s management culture has quite a few similarities with Gore’s. Google was designed to work more or less like a university – where people are encouraged to decide on their own (with guidance) what they want to investigate. Google is extremely careful about hiring people who will fit in its culture, and it creates environments where people can pursue their passion without too much management interference. For a deep dive into Google’s culture, see this video: Eric Schmidt at the Management Lab Summit

Peer Cultures
Before there were managers, peer cultures created the glue that held societies together. In clans and hamlets around the world throughout the centuries, the self-interest of the social group was tightly coupled with the self-interest of individuals and family units; and thus obligations based on family ties and reciprocity were essential in creating efficient communities.

There are many, many examples of peer cultures today, from volunteer organizations to open source software development to discussion forums and social networks on the web. In these communities, people are members by their own choice; they want to contribute to a worthy cause, get better at a personal skill, and feel good about their contribution. In a peer culture, leaders provide a vision, a way for people to contribute easily, and just enough guidance to be sure the vision is achieved.

Arguably, peer cultures work a lot better than management at getting many things done, because they create a social network and web of obligations that underlie intrinsic motivation. So perhaps we’d be better off taking a page out of the Gore or the Google or the Open Source playbook and leverage thousands of years of human evolution. We are naturally social beings and have a built-in need to protect our social unit and ensure that it thrives.

Example: Hardware/Software Products
“We have found through experience that the ideal team size is somewhere between 30 and 70,” the executive told us. At first we were surprised. Aren’t teams supposed to be limited to about 7 people? Don’t teams start breaking up when they’re much larger? Clearly the executive was talking about a different kind of team than we generally run into in agile software development. But his company was one of the most successful businesses we have encountered recently, so we figured there had to be something important in his observation.

We spend a morning with a senior project manager at the company – the guy who coordinated 60 people in the development of a spectacular product in record time. The resulting product was far ahead of its time and gave the company a significant competitive advantage. He explained how he coordinated the work: “Every 2 or 3 months we produced a working prototype, each one more sophisticated than the last one. As we were nearing the end of development, a new (faster, better, cheaper) chip hit the market. The team decided to delay the next prototype by two months so they could incorporate the new chip. Obviously we didn’t keep to the original schedule, but in this business, you have to be ready to seize the opportunities that present themselves.”

It’s not that this company had no small teams inside the larger teams; of course they did. It’s just that the coordination was done at the large team level, and the members of the smaller teams communicated on a regular basis with everyone on the larger team. All team members were keenly aware of the need to meet the prototype deadlines and they didn’t need much structure or encouragement to understand and meet the needs of their colleagues.

Another Example: Construction
The Lean Construction Institute has developed a similar approach to effectively organizing construction work. The first thing they do is to break down very large projects into multiple smaller ones so that a reasonable number of contractors can work together. (Remember Dunbar’s Number.) For example, they might completely separate a parking structure and landscaping from the main building; in a large building, the exterior would probably be a separate project from the interior. Each sub-project is further divided into phases of a few months; for example, foundation, structure, interior systems, etc. Before a phase starts, a meeting of all involved contractors is held and all of the things that need to be done to complete that phase are posted on cards on a wall by the contractors. The cards are organized into a timeline that takes dependencies into account, and all of the contractors agree that the wall represents a reasonable simulation of the work that needs to be done. This is not really a plan so much as an agreement among the contractors doing the work about what SHOULD be done to complete the phase.

Each week all of the “Last Planners” (crew chiefs, superintendents, etc.) get together and look at what they SHOULD do, and also what they CAN do, given the situation at the building site. Then they commit to each other what they WILL complete in the next week. The contractors make face-to-face commitments to peers that they know personally. This mutual commitment just plain gets things done faster and more reliably than almost any other organizing technique, including every classic scheduling approach in the book.

The Magic Number Seven
George Miller published “The Magical Number Seven, Plus or Minus Two” in The Psychological Review in 1956. Miller wasn’t talking about team size in this article; he was discussing the capacity of people to distinguish between alternatives. For example, most people can remember a string of 7 numbers, and they can divide colors or musical tones into about 7 categories. Ask people to distinguish between more than 7 categories, and they start making mistakes. “There seems to be some limitation built into us either by learning or by the design of our nervous systems, a limit that keeps our channel capacities in this general range [of seven],” Miller wrote.

This channel capacity seems to affect our direct interaction with other people – we can keep up a conversation with 7 or so people, but when a group gets larger, it is difficult to maintain a single dialog, and small groups tend to start separate discussions. So for face-to-face groups that must maintain a single conversation, the magic number of 7 +/-2 is a good size limit. And historically, most agile software development teams have been about this size.

Moving Beyond Seven
The problem is, 7 people are not enough to accomplish many jobs. Take the job of putting a new software-intensive product on the market, for example. The product is almost never about the software – the product is a medical device or a car or a mobile phone or maybe it’s a financial application. Invariably software is a subsystem of a larger overall system, which means that invariably the software development team is a sub-team of a larger overall system team.

In the book Scaling Lean & Agile Development, Craig Larman and Bas Vodde make a strong case for feature teams – cross-functional teams that deliver end-to-end customer features. They recommend against component teams, groups formed around a single component or layer of the system. I agree with their advice, but it seems to me that software is invariably a component of whatever system we are building. We might be creating software to automate a process or software to control a product, software to deliver information or software to provide entertainment. But our customers don’t care about the software; they care about how the product or process works, how relevant the information is or how entertaining the game might be. And if software is a component of a system, then software teams are component teams. What we might want to consider is that real feature teams – teams chartered to achieve a business goal – will almost certainly include more than software development.

Agile development started out as a practice for small software teams, but these days we often see teams of 40 or 50 developers applying agile practices to a single business problem. In almost every case, we notice that the developers are organized into several small teams that work quite separately – and in almost every case, therefore, the biggest problem seems to be coordination across the small teams. There are many mechanisms: use a divisible system architecture so teams can be truly independent; draw from a common list of tasks, which makes teams highly interdependent; send small team representatives to weekly coordinating meetings; and so on. But rarely do we see the most powerful coordination mechanism of all for groups this size: create a sense of mutual obligation through peer commitments.

Mutual Obligation
You can call mutual obligation peer pressure if you like, but whatever name you use, when individuals on a large team make a commitment to people they know well, the commitment will almost certainly be honored. Mutual obligation is a much more powerful motivating force than being told to do something by an authority figure. And the interesting thing is, the power of mutual obligation is not confined to small teams. It works very well in teams of 50, and can be effective with teams up to 150. The time to split teams is not necessarily when they reach 10; team sizes up to 100 or 150 can be very effective – if you can create a sense of mutual obligation among the team members.

There are, of course, a few things that need to be in place before mutual commitment can happen. First of all, team members must know each other – well. So this won’t work if you constantly reform teams. In addition to knowing each other’s names, teammates must understand the capabilities of their colleagues on the team, have the capacity to make reliable commitments, and be able to trust that their teammates will meet their commitments. This process of creating mutual obligations actually works best if there is no manager brokering commitments, because then the commitments are made to the manager, not to teammates. Instead, a leader’s role is to lay out the overall objectives, clarify the constraints, and create the environment in which reliable commitments are exchanged.

For example, the project manager of the hardware/software product (above) laid out a series of increasingly sophisticated prototypes scheduled about three months apart. Having made a commitment to the team, sub-teams organized their work so as to have something appropriate ready at each prototype deadline. When an opportunity to dramatically improve the product through incorporation of a new chip, the whole team was in a position to rapidly re-think what needed to be done and commit to the new goal.

In the case of lean construction (above), a large team of contractor representatives works out the details of a “schedule” every few months. Each week, the same team gets together and re-thinks how that “schedule” will have to be adapted to fit current reality. At that same weekly meeting, team members commit to each other what they will actually accomplish in the next week, which gives their colleagues a week to plan work crews, material arrival, and so on for the following week.

It certainly is a good idea to have small sub-teams whose members work closely together on focused technical problems, coordinating their work with brief daily meetings to touch base and make sure they are on track to meet their commitments. But the manner in which these sub-teams arrive at those commitments is open for re-thinking. It may be better to leverage thousands of years of human evolution and create an environment whereby people know each other and make mutual commitments to meet the critical goals of the larger community. After all, that’s the way most things got accomplished before there was management.

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Footnotes:
[1] Technically, Dunbar calculated the relative sizes of the neocortex – the outer surface of the brain responsible for conscious thinking. For a humorous parody of Dunbar's theory, see "What is the Monkeysphere?" by David Wong.

[2] Information in this paragraph is from: How Many Friends Does One Person Need? by Robin Dunbar.

[3] See John Sculley On Steve Jobs.

[4] This figure from “The Dunbar Number as a Limit to Group Sizes” is antidotal.

[5] From How Many Friends Does One Person Need? by Robin Dunbar. Interestingly, while Dunbar finds 15 an approximate limit of the second circle of intimacy, Allen finds a group of 15 problematic.

[6] The Dunbar Number was popularized by Malcolm Gladwell in Tipping Point. Much information and both quotes in this section are from Chapter 5 of that book. See http://nextreformation.com/wp-admin/general/tipping.htm for an extended excerpt.