How to beat the ‘Problem of More’

How to beat the ‘Problem of More’

February 4, 2014: 4:30 PM ET selects the most compelling short essays, anecdotes, and author interviews from “250 Words,” a site developed by Simon & Schuster to explore the best new business books — wherever they may be published.

FORTUNE — For today’s installment, 250 Words‘ Sam McNerney sat down with Robert Sutton, coauthor with Huggy Rao of the new book, Scaling up Excellence: Getting More Without Settling For Less, which is being published by Crown Business today. Sutton, a professor of management science and engineering in the Stanford Engineering School, talks with Sam about Big Macs and Buddhism, the critical difference between “bad apples” and “bad behavior,” and why — when it comes to business — pre-mortems are much more important than post-mortems.

Sam McNerney: Scaling Up Excellence focuses on what you and your coauthor, Huggy Rao, term the “Problem of More.” As companies grow, size becomes a handicap while productivity and efficiently decrease. Tell us more about the Problem of More.

Robert Sutton: I sometimes get criticized for this, but as organizations get larger they need a little more hierarchy, more process, and more specialized roles. You want to add these components — but only the ones you actually need. It’s a difficult balancing act, and that’s why we call it the Problem of More.

The other problem is the Problem of Less. Organizations that do the best are mindful of a few questions: What are we doing that is slowing us down? What did we used to do that was effective that we no longer do?

I recently gave a talk to the top 75 people at Adobe (ADBE). They did a great job of managing these size issues. They started with the floppy disk and then they went to DVDs, CDs and download. Now things are in the cloud, and their profits look so good because they could make that transition. However, when it comes to scaling, I’ve never met an organization that doesn’t have some problems. Nobody is perfect.

Jim Delligatti created the Big Mac in 1967, but corporate executives rejected his invention because it was twice the price of a regular McDonald’s burger. Explain how this example illustrates, as you and Rao write, “The Buddhism-Catholicism dimension.”

There was a tension in nearly every organization we looked at: Do we find something that works and do the exact same thing in the exact same way? Or do we allow a little bit of local variation?

When we were writing the second chapter we kept going back to the Buddhism-Catholicism dimension, this notion of standardization versus local customization. In the McDonald’s (MCD) case, the problem was that on one hand, a Bob’s Big Boy was next door to Delligatti’s restaurant stealing business. However, not every McDonald’s restaurant was competing with a Bob’s Big Boy. McDonald’s vice president Fred Turner eventually allowed Delligatti to sell the Big Mac, which obviously turned out to be a great success. The lesson there is that successful scaling won’t necessarily happen everywhere but that it can happen anywhere.

There are certainly innovations that come from local franchisees that are probably not right. We also talk about how large chain stores with too much local customization actually did worse than the more standardized ones. My advice is to start with a firm template and watch closely for things that don’t work — as opposed to just starting anew in every new place you go.

The book mentions that negative interactions with bosses and coworkers had a five times greater impact on their moods than positive interactions and performance drops by 30 to 40 percent when just one deadbeat or [jerk] joins a group. What are some methods for dealing with bad apples in the office?

Let’s distinguish between “bad behavior” and “bad apples.” Bad behavior tends to be about norms that are difficult to stop. One example is a disease of our time: cell phones. You go to business meetings and everybody is looking at their phones. One of the executives in the book — Chris Fry, the Senior Vice President of Engineering at Twitter (TWTR) — said that when he first got to Twitter people were looking at their cell phones in meetings so much that he asked them to put their phones in a basket for the duration of the meeting. He said the phones would vibrate for a little bit, but that the meetings were shorter and people made better decisions.

Then there are people with destructive characters. There is a lot of evidence suggesting that bosses should move quickly to give them warnings and to coach them. It also helps to not let them stay in the same group for too long. One of the guys who endorsed the book, Laszlo Bock, Senior Vice President of People Operations at Google (GOOG), said Google moves low performers who are really having problems to another group just to see what happens. Sometimes a change in environment helps — somebody may be a dead beat in one group but ok in another.

You write: “The more tasks that people do, that worse they tend to performance each one.” The same effect occurs at the group level: as teams get bigger, individual performance suffers. How can large organizations stay lean?

Two things: always think about what you can remove and how you can keep teams small. I went to this internal meeting at Intuit (INTU) between Brad Smith, the CEO, and Bill Campbell, the chairman of the board. Brad was saying that they have a new philosophy about their engineers, which is to reduce as much friction between them as possible. We discuss in the book how Intuit used to have all of these different people evaluating a product before it was released. They ended up removing most of them from the process — it was slowing down the engineers too much — and now there are only two managers who deal with product releases.

The research on team size is compelling. But the one-sentence summary is this: if you have a group that you think has a bad leader and has dysfunctional dynamics and is big, before you do anything else, cut it in half and see what happens.Naïve optimism plagues long-term projects. We tend to imagine best case scenarios and ignore potential pitfalls. To eliminate confirmation errors you suggest that we should “look back from the future.” What do you mean?

We stole the idea of the “pre-mortem,” or looking back from the future, from [research psychologist] Gary Klein and [Nobel Prize-winning economist] Danny Kahneman. The research says that before you engage in a project you should imagine the following scenario: “It’s a year later, we’ve done the project, and it’s been a massive failure.” In contrast, avoid asking the question: “What do we do to succeed or to avoid failure for the future?” For some reason human beings are considerably more likely to imagine a more detailed and accurate future when they consider worst-case scenarios from a future perspective. The pre-mortem is quite simple and very powerful.

Implied throughout the book is the idea that growth is good. Are there times when inaction is the optimal solution?

There is certainly evidence that as organizations get larger they have to become more formalized and less personalized. Otherwise, they don’t work. But I think that there are some fundamentally bad things about those effects even though I don’t see how there is any way to avoid them. So while scale may make things more efficient, size often takes away individual autonomy from people, which can lead to alienation.

I mentioned IDEO earlier. Some people suggest that IDEO should be bigger. (For more, see “How IDEO brings design to corporate America.”) But IDEO now employs about 600 people who work in about eight different offices. I have to give them credit because even though the old-timers (like me) like to reminisce about the “good old days,” [founder] David Kelley and [president and CEO] Tim Brown have been very mindful of what won’t work for IDEO in terms of the quality of the people and the experience. I wonder if they can become any bigger and maintain their greatness. That is a question that many questions face today.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: