| 0:37 | Intro. [Recording date: October 23, 2023.] Russ Roberts: Today is October 23rd, 2023, and my guest is Andrew McAfee, a Principal Research Scientist at MIT's [Massachusetts Institute of Technology's] Sloan School of Management and the Inaugural Visiting Fellow in the Technology and Society group at Google. This is Andrew's third appearance on EconTalk. He was last here in October of 2019 talking about his book More From Less. Our topic for today is his latest book, The Geek Way: The Radical Mindset That Drives Extraordinary Results. Andy, welcome back to EconTalk. Andrew McAfee: Russ, it is a pleasure to be back. Thanks for having me. |
| 1:13 | Russ Roberts: The Geek Way is, as you describe it, a set of solutions for thriving in this faster-moving world. They're cultural solutions, not technological ones. And I want you to talk about the two parts of that. Let's start with actually the last part. It's not a technological claim. You're not saying that the tech companies of America have figured out something special. The second claim you're making is that what's special is the cultural impact of these companies you're looking at. Let's take those two parts together. Tell us about both parts. Andrew McAfee: Yeah. Correct and correct. So, Russ, if you had told me, I think even five years ago, that I would ever write a book about corporate culture, I would have laughed in your face. I couldn't imagine a universe in which that would feel like something I would want to do. I got a little bit jaundiced about discussions around corporate culture, because they seem to me to be either some kind of virtue signaling or scolding about how you should be behaving and how you should be managing your company. Or if the CEO [Chief Executive Officer] wrote their book, it was autohagiography--it was just kind of self-praise for the tough calls they made as they led the company through. I wasn't getting anything out of discussions about corporate culture. I want to be clear: There are people doing amazing work on corporate culture. Amy Edmondson, my former colleague at Harvard Business School, comes to mind because she stressed one very concrete aspect of a corporate culture, which is psychological safety. So, there were people doing amazing work, but I wasn't part of it, and I didn't want to be part of it. But, as I kept trying to understand why companies based in a very small piece of real estate in Northern California kept on accomplishing amazing things, and as I tried to pattern-match or pattern-contrast what those companies were doing, and how they felt, and how they ran versus companies in the rest of the economy. Because for my entire career, I've had the good fortune of having one foot in both economies--even though I hate that distinction, new economy versus the old economy. And so, I was trying to figure out what was different about these companies that were just accomplishing amazing things. And I lit on a set of things that, as you point out, they're not technological. It's not that they have cooler AI [artificial intelligence] than the rest of us, and that accounts for their success. They do things differently, fundamentally. And they look at their company, and they look at how to get things done differently. The best label I can hang on that is culture. And then, as you see in the book, I finally found a body of research that really solidified, and made super concrete and pragmatic, this notion of culture, and gave me a better way to look at the topic. |
| 3:56 | Russ Roberts: And I found that way extremely provocative. We're going to talk about it. It isn't what I thought it was going to be. Like you, I'm allergic to books on corporate culture. When I first entered business school ages ago--about 30 years ago--there were all these books about building a good corporate corporate culture: 'Here's the secret.' And, I never could figure those books out. I'm sure I still would struggle to understand them. But, you have an overarching way of looking at the cultural differences between successful companies and unsuccessful companies that I found deeply appealing and helpful. And I think it goes way beyond how to run a better company. It actually helps us think about the world around us in lots of different ways. Let's start by talking about what one might mean by a corporate culture. Andrew McAfee: Yeah. And, I relied on a definition that comes from the anthropologist, Joe Henrich, who has been a pioneer in this field that--I hope we're going to talk a fair bit about--called cultural evolution. And, this is my spin on the whole discipline. The founding question of this discipline of Cultural Evolution to me is something like, 'Wait a minute. Why are we human beings the only species on the planet that launches spacecraft?' Nothing else is even close, right? You and I have probably seen sci-fi where the monkeys figure out--the chimpanzees figure out--how to launch a spaceship. Or, someday, there will be the octopuses that figure it out, or a bunch of ants will figure it out. That's sci-fi. We all know nothing else on the planet is anywhere close to launching a spaceship. And, it brings up this fairly deep question: What is it about us? Right? And, I talk in the book a bit about how the answer is not our intelligence. We are super-intelligent compared to other species, but that doesn't really get us there. What we humans do is not just create cultures. Chimpanzees have cultures. We are the only species that has incredibly fast-evolving cultures. Our cultures change with lightning speed compared to any other living thing on the planet. And so, the name of the discipline is the signal of what makes us unique: Cultural Evolution. And, I started to say: Wait a minute. That not only makes the notion of culture very, very concrete. It also gives me a way to think about what these companies--that I call Geek Companies--are doing differently. They have just figured out how to evolve their cultures faster in directions that they want than the old-fashioned companies that I'm used to studying. But, you asked about a definition of culture, and Joe Henrich has this one that I love because it's extraordinarily concrete. And, I'm going to flub the exact quote from the book. But, he said, 'Culture is the set of beliefs, techniques, practices, heuristics that you acquire over time from the people around you.' In other words, it's a group-level phenomenon. And, the heart of it is not--it's not even so much your rituals, your belief, or your worldview. It's how you get stuff done. It's this very, very pragmatic definition of culture. So, I love that and I use that definition in the book. It's how you get things done. It's nuts and bolts of a group of people, and it is transmitted and enhanced by group-level activity. It's not given to you by the boss, or the priest, or anything. Culture is a peer phenomenon. |
| 7:24 | Russ Roberts: Which raises a question. At one point you talked--I really like this--the power of imitation. And, having a 15-month-old granddaughter and watching her acquire consciousness and language hand-in-hand, she's a very crude imitator. A huge portion of what she does is just doing what I do, or her parents do, or what my wife does, or what she sees other kids do. And, in a certain sense, there's no learning. It's not learning. Something magical is happening inside her cranium, obviously. But, the question that you raise, which is a deep question, is: if much of what human beings do is imitate those around them--certainly as they mature from infancy--how is there any progress? Russ Roberts: Right? Give your answer. Andrew McAfee: Yeah. First of all, congratulations on your beautiful granddaughter. Second of all, you've got this wonderful front row seat for watching the core of what human beings so special, what makes us so special. And, like, you're watching--your granddaughter was born with an innate tendency to imitate the people around her and start doing what they do. And, you're probably watching her get better at that. She's going to continue to get better at that. And, at some point, she's going to figure out who to imitate. And she's going to look around at successful people--older people, because throughout our history, if you lived a long time that meant you were doing some things right--and then prestigious people. And, what we mean by that is your granddaughter is going to look at who gets looked at by human beings. She's going to especially imitate them. And, what our brains appear to be really good at is creating some kind of subconscious--this is not usually a conscious activity--a weighted average of the things that she sees going on around her. Weighted by skill, age, and prestige. And, she's going to double down on those things. Now that sounds great. But, you bring up the fundamental question: Well then, how do we get better? Because, we humans are imperfect imitators. And, if she just kind of imitates with a little bit of loss built in, everything is going to degrade, right? We're going to get worse at everything over time. And, the phenomenon appears to be that most of us imitate imperfectly, but some of us are better than our models than our teachers at various aspects of things that we do. If you think about a musical prodigy who is better than their piano teacher, or a kid who is clearly a better baseball player even than his coach, even if he's not old enough yet. Those are the standouts. And then, the next generation, or people who use them as a model, overweight them. As they should: they weight them heavily. And the blended average kind of goes up. And, you can do these very simple mathematical simulations, and you can find out that if you have in every generation--think about learning as a process that goes through generation. If there are these standouts who are just a few percent better than their models--not crazy good, but few percent better--then, over time, the evolution, it accumulates. And, you wind up with the entire group who are all learning from each other better than the first initial teacher or the first initial model. When you do the math, you realize that culture can evolve remarkably quickly. Russ Roberts: And of course, that's how innovation takes place. That's how knowledge accumulates instead of being--we don't have to reinvent the wheel. We just start with a wheel and then turn it into the wing of an airplane, and then we're soon in space. Andrew McAfee: And you and I are lucky enough to be born in this era of scientific approaches and scientific progress. So, the rate of learning has gone up like crazy over the past few hundred years. But that is a very recent add-on to the ancient human module of imitative learning and cultural evolution via that progress. So, I think about The Geek Way: As far as I can tell, it's the first applied book of cultural evolution. It's the first book of kind of like, 'Now that we can think about the world this way, let's direct that to the task of running an organization over time.' |
| 11:40 | Russ Roberts: And, you don't have to understand the theory to apply it, because some of it is going to come naturally to certain types of people. But, my way of thinking--it's not quite the way I think you say it, and you can react to it. But, my way of understanding and simplifying what you're saying on this topic is: we stand on the shoulders of giants, but not just giants. Some normal people. So anything--any kinds of knowledge that accumulate can get passed on; or the better ones can get passed on because we can imitate them, and then copy them, and add our own twists to them, and improve them. And that, of course, is special about human beings. You point out that many animals use tools; they do many things. I would add they tend not to exchange. We exchange-- Andrew McAfee: Good point-- Russ Roberts: We interface economically and commercially, which adds to the wisdom of the crowd that we're talking about. Andrew McAfee: Which is literally just models for you to learn from. It's increasing the number of options you have to go pick up some knowledge or go blend stuff in. So, yeah, I think you make a really interesting point. The field of cultural evolution might not have emphasized trade as much as they should. I think that's interesting. |
| 12:56 | Russ Roberts: Yeah. But, the other part of this that we haven't really gotten to yet is norms. And so, it's not just about what I know that I can share with you using the gift of language in your large brain. We can have expectations of each--what I would call social expectations of each other--how we interact, how we treat each other. And, that's the other, I think, key part of culture that you're talking about. Correct? Andrew McAfee: Yeah. It's absolutely fundamental. And I find it hard to overemphasize how important norms are, because as every human group grows over time, and as they get bigger over time, there are these tensions that are going to come up. Russ, you have enough experience to know that people don't like it when economists talk about free-riding, because it just sounds like it's a cynical view of human nature. Well, we've learned from watching other species: Free-riding is a very common thing in the animal kingdom, and a more pleasant term for it is: you want more benefits while paying lower costs. Of course we do. In a human group, that turns into, you know, slacking off, or coasting, or free-riding, or letting the group do most of the work. So, every human group has to solve that challenge. How are we going to keep people in line? How are we going to make sure that they remain productive members, even when the group gets so big that we can't physically watch them all the time? If you watch hunter-gatherer bands out there, it's relatively easy to keep everybody in line and doing things that benefit the group, because you can watch them all the time. They're small groups of nomadic people with no fixed structures. Observation is really easy. But, the fundamental problem is that as groups get big, you have to figure out ways to keep people in line and keep them doing what the group wants and needs. And, I think one of the main tools we have to do that are norms: these expected standards of behavior. And, Russ, one of the things you're going to notice is that your granddaughter is going to start to become aware of norms. And, she is going to want to punish people who violate norms. She's going to value people who punish people who violate norms. And she's even going to punish people who don't punish people who violate norms. This is called higher-order punishment. And so, you can start to see that it just gets kind of fractal over time. But, I think in addition to the learning module--the innate learning module that we have--we all have the kind of norm-compliance module and the third-party punishment. When you talk about free-riding and punishment, it just sounds like this scoldy, very, very dark view of human nature. But, I don't think it is. It's: How are we going to keep members of the group in line with what the group wants to accomplish? And, I think the crown jewel tool for that are norms and norm enforcement. And Adam Smith--as listeners maybe we have already thought about--Adam Smith believes we are hardwired to care about that. He says famously, at least for EconTalk listeners, 'Man naturally desire not only to be loved but to be lovely.' We want the approval of people around us. Complying with norms are one of the ways that we show that we're lovely. We do what you expect us to do. We behave according to the expectations of those around us, and we're honored when we do so. And when we fail to do so, we are treated with dishonor. Andrew McAfee: And, that dishonor hurts. Physically. It's so painful to us that we will do a lot to avoid that feeling of social exclusion, or ostracism, or being shunned, or whatever. So, I completely agree. All of us human beings have standing in our groups, and high standing feels really, really, really good. And, low standing or falling standing feels deeply, deeply bad. I came across a great book called Social written by Matthew Lieberman, and he makes the point that mammals in general, because most mammals are social, and we humans in particular, we hijack the mammalian pain system for social purposes. And, I think that's a deep insight. It just teaches me a lot. Russ Roberts: And you also emphasize our desire for prestige, which is, again, very related to Smith's idea of wanting to be loved. That we want to matter, we want people to think highly of us. And, every organization has a status of some kind, and prestige, and all these non-monetary incentives that are at play. Andrew McAfee: Yeah. People think that economists have too narrow a view of things because they talk about incentives all the time. And, the instant you realize that some of the most powerful incentives for us human beings are social, then I think that that economic framework for looking at things makes a ton of sense. Your social incentives matter hugely to you. You use this word 'prestige,' which is fascinating, and I learned a ton about it when I was writing the book. Every social mammal has one kind of status. It's called Dominance Status. Who is the alpha chimp--which is a matter of basically physical formidability? Who can stay on top? Who is going to win the fights? So, we humans have dominance status hardwired into us. As far as we can tell, we're the only species that also has Prestige--which is not, 'Can you beat me up?' It's: 'Are you the person that I want to learn from? Are you clearly good at these things that our group wants to do? If so, not only am I going to learn from you, I'm going to accord you a great deal of status.' So, we humans have two different ladders we can climb to achieve status and standing in our communities, and it's a big part of why we have the rich, fast-evolving cultures. |
| 18:50 | Russ Roberts: Yeah, Smith said you can either be rich, famous, and powerful--that's one way you can be loved--and the other is to be wise and virtuous. That's a kind of prestige. There are multiple kinds, of course. But, all of those mean that people pay attention to us. So, the puzzle then is--if listeners out there wonder--'Well, what does this have to do with corporations?' So, it does. And, more importantly, I think it has to do with how we organize ourselves for social activity, whether it's corporations, nonprofits, and anything we do as a group. And of course, underlying this, one last factor that underlies it is our social nature. Talk about why that's important. Andrew McAfee: Yeah, there are plenty of social animals out there. Lots of birds are social, lots of mammals are social. The social insects are some of the most successful beings on the planet. So, if you carry that forward one more step, there is one species on the planet that gets the label ultra-social. And, guess who that is? That's us. And, the reason we need a label even beyond 'social'; or we use the phrase 'eusocial' to talk about the ants, bees, and termites. We get a different prefix, because we are the only species on the planet that cooperates intensely and does division of labor with large numbers of other individuals who we are not related to. Nothing else does that. An ant colony is literally one big family. A beehive is one big family. They're all weirdly closely genetically related. We human beings get together with complete strangers. And, instead of just automatically waging war, which is what most social species would do, we get together and we build cities. And we found and we advance religions. And we create these things called corporations where we spend as much time as we do asleep inside this thing called a company. If you're in America, you spend about as much time in your job as you do asleep. You spend more time at your job than you do with your partner. Almost as much time as you do with your children. These big groups of strangers are bizarrely important to us, and we're the only species on the planet that has that feature. So, when you combine our fast learning with this ability to form huge networks of intensely-cooperating strangers, that helps me understand why we are the spaceship species and nothing else is. It takes a lot of people to build a spaceship, and you have to do a lot of very rapid learning. |
| 21:25 | Russ Roberts: Now, let's get to some of the applications. You talk about four norms that you think are crucial for successful companies in our current time: Speed, ownership, science, and openness. Give us a quick thumbnail for each one of those. Andrew McAfee: Yeah. And, when we start to think about this discipline of cultural evolution and how to apply it to the work of running and growing a company, I think it's actually a short walk. I think it's a really easy lift. Because we all know that companies have cultures, and we have this endless discussion about corporate culture. And then, I said to myself at some point writing the book, 'Wait a minute, this is the way to talk about running an excellent company and improving it over time.' We humans have cultural evolution. The job of somebody trying to run and design an organization should be to make that evolution as fast as possible in the desired direction. And that in-the-desired-direction part is actually kind of important, because every company has a deep, dense culture. It just might not be the one that the boss wants. If you think about a culture of silence and undiscussable topics, we hear about toxic corporate cultures all the time. We talk about cultures where we just expect what the CEO says to have nothing to do with what goes on on the ground. Those are lousy cultures, and those cultures evolved over time, very often for reasons that I hope we talk about. Cultures evolve into a sclerotic bureaucracy--these kind of dispiriting places where you can't get anything done, you can't even figure out what you would change to be able to start getting something done. That's cultural evolution, too. It's just not in the desired direction. So, what I tried to figure out is what the business geeks--these people who are obsessed with the idea of running a company, willing to be unconventional about it, and largely concentrated in Northern California--what do they do differently to try to have cultural evolution be A) fast, and B) in the right direction--in the direction that a boss or a shareholder or an employee would want? And, like you point out, I homed in on four norms--and we talked about norms and how important they are--that the business geeks are obsessed with, and they really don't want to let go of them. And, my labels for them, as you point out, are speed, which is speed of iteration. Ownership, a culture of a fairly decentralized high responsibility, high autonomy culture. Science: Are we making decisions based on evidence and are we debating and arguing a lot as we make those decisions? And then, finally, openness, which is kind of the opposite of defensiveness, and very close to this concept of psychological safety that we talked about earlier, that my colleague Amy Edmondson has been so sharp about. So, I look for these norms of speed, ownership, science, and openness. The geeks seem obsessed about them, and they really don't want to let go of those or deemphasize those norms. Russ Roberts: And as an economist, I think of things being either top down or bottom up. Certainly the ownership and openness part are part of the bottom-up successful nature of many of the companies that you studied. Rather than the boss imagining that he or she can control the troops with directives, you empower the troops to use their local knowledge the way an economy motivates that and uses that knowledge through a decentralized process. Which on the surface should be an utter failure. There's no one coordinating it. There's no one on the top; there's no oversight. But, the openness can provide the oversight, if you give people enough autonomy and give them the incentives or responsibility where they prosper if they make good decisions and don't prosper if they make bad decisions. And then, you give them the incentive then to do things quickly and recover from mistakes. You're leveraging a lot of things that economists have been talking about when they talk about the virtues of the marketplace. Andrew McAfee: Yeah, exactly. And so, one way to think about it is that what the business geeks are doing is bringing some of that market energy inside the firm. And I think there's a lot of truth to that, in particular, like you point out: decentralization to an extent that's uncomfortable for a lot of bosses that grew up in the industrial era, where you do have--the whole point of the hierarchy--is to do command and control. The geeks are, like, 'That's actually not the point of the org chart at all,' and a comparatively huge amount of responsibility and autonomy to go do the things that you want. The market, Russ, like you know, punishes failure sometimes very, very quickly and sternly. One of the things that the business geeks have done to kind of soften the harshness of the market and that's inside their companies is to say, 'Look, if you fail at this project, that is okay as long as you learn. Sometimes our experiments are going to fail. And, you as the person responsible, as long as you learn, and as long as you were trying to do the right thing, that's actually good news.' And, one of the things that geeks have learned to do is publicly celebrate failure in a way that I just didn't see back in the industrial era when Jack Welch was writing books called Winning. That was just the thing that you had to do. That makes the corporation defensive. It just makes a very defensive culture. And so the geeks want a lot less of that. The last thing I would say is that, as you well know, the coordinating mechanism for market activity is usually the price system, and the geeks go a bit farther than that. They think that the job of the leadership is to say: 'This is what the company is going to try to accomplish. These are our aspirations over a--pick it[?]--you know, 10, five, one year. And your job--my job as the boss is to make sure that what you are telling me you're going to do over the next year is nicely aligned with what I want to have this company accomplish. Once we get that alignment and we both agree on that, great: knock yourself out. I'm not here to tell you how to do your job, but I am here to make sure that what you're doing is aligned with what we, the leadership of this company, want to accomplish.' Russ Roberts: You still have the issue of shirking. People accomplishing great things requires great work, and intense work, and commitment, and less time hanging around doing nothing. And that's-- Andrew McAfee: But, that's a big part of the reason why the geeks love openness. Right? The geeks want to work in the open. They want somebody to call you out if you are shirking. That's this egalitarian nature of the company, that--it's a guard against shirking. In addition to which, as I talk about in the book, the point of the geek norm of speed--which is not just velocity, it's iteration, it's cadence, it's clock cycle--I think the genius of speed and these agile approaches that we hear about is that it limits the amount of time--it limits how far behind you can slip before the rest of the organization knows about it. In other words, if you have a cadence where every couple of weeks you are expected to show something new that works, that your customer will give you a thumbs up on, the maximum you can really be late is two weeks. And, for me, that helps me understand why geeks are able to accomplish big, complicated efforts in a way that industrial-era companies are just, I think, completely unable to do. |
| 28:47 | Russ Roberts: And of course, this approach has a very unexpected and unintuitive set of expectations for the leader of the organization. So, I think a lot of people--I've spoken about this before--a lot of people think that to have a great restaurant, you need a great cook, a great chef, a great person who really understands food. And, of course, that's true about the chef, but it's not true about the owner of the restaurant or the person who runs the restaurant. Running a successful restaurant is as much about logistics, motivating employees, creating that open environment, and building the norms. And, it basically says that--and of course then across every kind of company, restaurants just one that we easily find unintuitive--the best energy company is not the one with the best petroleum engineer if it's an oil company. It's going to be somebody who has got a very different set of skills. Think about my own job as a college president. I think in most colleges, the president was a great researcher. But that isn't necessarily a characteristic of a great college president. But, it is the way often what comes to pass. And the strange, I think, implication of your book is that a great leader of an organization is one who understands how to create a great culture. That is not easily measured or identified in a human being, but it certainly is not the goal to have a leader who is really good, necessarily, at the core activity of the organization. And, that is so unintuitive, I think, for most people. Andrew McAfee: It's hugely unintuitive, because we look at Steve Jobs and think that is the model for modern leadership in this technologically sophisticated world. And, Jobs was a visionary. We overused the word 'genius.' He was probably a genius at knowing what digital products people actually wanted, and how you could change the world with them. Yeah, he was absolutely that. In a lot of ways, he appeared to be a terrible leader and a manager. He had no control over his temper. He swore at his people. He did engender a lot of loyalty for reasons that I don't completely understand. Maybe working with a genius is exhilarating in some ways. But that's the model that we have. And, Russ, I'm with you. I think that is one model--it's extraordinarily rare. The number of people I've met who think they're the next Steve Jobs is way bigger than the number of people who were the next Steve Jobs. And, in particular, I look at his successor. I look at Tim Cook, who has created unreal amounts of value, just unbelievable amounts of value at Apple. Made it, is it the most valuable company in the world? If not, it's very, very close. And, no one thinks that he is Steve Jobs, but he has realized how to take that momentum and that ability that Apple had, and keep scaling it up to just ridiculous degrees. One of the most interesting stories I learned when I was researching The Geek Way was the fact that early in its history, Amazon was a classic top-heavy, top-down direction from the top bureaucracy. To the point that if you had an idea for an innovation, you submitted it to the Amazon innovation bureaucracy, and they vetted it, and then they told you you could go ahead and innovate or not. And the only reason Amazon still doesn't do that is, I think as early as the late 1990s, Bezos and his colleagues at the top realized it wasn't working. It was slowing the company down. And, Bezos, as far as I understand, had to overcome one of his deepest-seated tendencies as a manager. Somebody who worked at Amazon wrote these really lively blog posts about it and he said, 'You have to understand: Jeff Bezos makes an ordinary control freak look like a stoned hippie--this guy.' And, he thought the way to realize his big ambitions was to control. And then, he realized, 'Nope, that's actually dead flat wrong. I got to get out of the way.' And, Amazon executed this 180-pivot, not only in its leadership and its management philosophy, but in its technology infrastructure. It decentralized it--that gave us Amazon Web Services and the cloud--and in its organizational practices where they worked incredibly hard to reduce the number of dependencies, and sign-off loops, and approvals and everything, that somebody inside Amazon has to accomplish. And, when you look at what Amazon's employees say, even today when they're a gigantic company, they completely stand out for the levels of actual autonomy and responsibility that people have there. That was deliberate. It was not in the DNA [Deoxyribonucleic acid] of the company from the start. |
| 33:24 | Russ Roberts: Talk about how prestige or desire for prestige leads to bureaucratization. On the surface, nobody likes bureaucracy. Nobody likes red tape. Everybody likes to empower their employees. It seems easy. It seems like a no-brainer, uncontroversial. Andrew McAfee: And, they mean it, right? I think bosses, not all of them, but a lot of them actually mean that they want to empower their people. Russ Roberts: So, how is it that we get this sclerotic bureaucracy within organizations? Obviously, it's a governmental problem historically. But, even within any large company, it's a serious issue that impedes flexibility, nimbleness, responsiveness, innovation, and so on. Where does it come from? Why does that happen? Andrew McAfee: It's tempting to look for the villain, the person behind the [inaudible 00:34:15], the mustache-twirling villain that created the bureaucracy. No, Russ: It's us. It's all of us. And, you got at it exactly. It is our desire for status. In other words, as important work goes on, we want to be part of it. We want to be in the loop. We want to have signoff power. We want to at least be consulted. A lot of bureaucracy is a very soft bureaucracy: 'I've got to go run it by Russ, because Russ is a pretty senior, pretty important person. And, we all know things really don't get done around here unless Russ wants them to get done.' There's a ton of that going on. I tell a couple of case studies in the book that I found incredibly vivid. There was a woman named Jennifer Nieva who was working at Hewlett Packard [HP]--which is historically a pretty well-run organization--in 2005. This is a 21st century story. And she wanted to spend a quarter of a million dollars on some specialized external consultants. She's, like, 'Okay, fine. I work in a great big company. I've got to get some approvals for this.' She found out that she had to get 20 different signatures from people to spend that quarter of a million dollars inside a multi-billion dollar company. And, she knew her boss, her boss's boss, her boss's boss's boss. Then she saw these names that she had never ever come across. She didn't even know that this part of the company existed. She wound up calling somebody in Guadalajara, Mexico every day to get the final signature that she needed to be able to go spend a quarter of a million dollars to go move quickly. This is just silly. And, I'm very confident that whoever was CEO of HP did not get out the blank sheet of paper and design a 20-signature sign-off process. That is not what happened. But at every--over time, you accrete loops, and layers, and processes, and sign-offs, and bureaucracy, because maybe something bad happened last year. And, as a result, well, we have to add another layer of approval of sign-off on all these things. And you just wind up at this barnacle-encrusted company. And, it's a decentralized process, and I think a largely unconscious one at some times. Nobody gets up and says, 'I'm going to slow the company down so I can advance my career.' That's not what happens. But, because we human beings, because status is so central to our lives, our tendency is to raise ourselves up by getting involved in more and more social activities. That's kind of a close synonym for bureaucracy. So, I've come to believe that bureaucracy--that kind of disheartening, sclerotic mess--is the default for organizations as they get bigger and as they get older. And, one of the really basic battles the geeks fight is to fight back against that tendency and keep those barnacles from encrusting things. Russ Roberts: When you're in a small company and you're sitting around a conference table making decisions, you don't have to worry about who gets the credit, because it's pretty transparent. When you're in an enormous organization with tens of thousands of people, that urge that you talked about is pervasive, human, normal. And, you want to get your share, and you can't get it without having some explicit control over it. Andrew McAfee: Exactly. And, keep in mind, status is subtle. It's not just where you are on the org chart, it's: 'Do you got to go through me to get this thing done?' Man, that is an absolute flavor of status, and that is incredibly appealing to us. And so, I think a huge part of what the geeks try hard to do is actually strip away opportunities to do that, strip away opportunities to climb the ladder, to be involved in more loops, to be the person that you've got to go through, and just say, 'No. I'm going to try to build a technology infrastructure in this company where you don't need to go to IT [Information Technology] to get anything done.' But, more fundamentally: you don't need to schedule eight meetings or socialize the idea with a bunch of people. Amazon has historically had this intentionally very, very decentralized culture exactly to avoid that ever-growing bureaucracy problem. Which, again, I think it's the default. When I read Reed Hastings talking about Netflix, they're willing to tolerate redundancy and some chaos, because they're so frightened of gumming up a company by giving people too many ways to gain status. What I think the geek genius is to say, 'The main way to gain status at this company is to help realize its stated, its explicit goals. We're going to try to strip away other things.' Let me say one more thing on that, because it's also important when you do that, that you don't get obsessed with winning. Because then your people will realize the only way that I can gain the status that my genes really want me to have is to win--is to make sure that my project gets selected, whether or not it's the best idea for the market. To make sure that my budget grows, my headcount grows, all that stuff. So, you hear about these things and they initially sound a little bit silly, where Amazon hands out Just Do It Awards. It's just big, dirty sneakers to people who do a thing--who have a bold idea even if it doesn't work. The even if it doesn't work part is really, really important. It's super-easy to celebrate winners and growers. And, you know, we should. It's also really important to separate people who had a good-faith effort. We believed in it. It turned out not to work. The market is an uncertain place. The future is an uncertain place: 'Attaboy, Russ; thank you for trying that. And, everybody around you will then watch what happens next in your career. So, it becomes important that you don't get a three-levels-down demotion after running a project that didn't succeed. Google celebrates moonshot failures. It's a pretty common thing among the geeks, is to not build a culture around just failing all the time, but to build a culture where failure is a very acceptable thing to do. Russ Roberts: I mean, it's just so interesting, because we never know ex ante which ideas are going to be good ideas or not. And, the human tendency to judge the quality of the idea of how it turned out is very normal. It's not a bad tendency. It's probably a pretty good tendency. But it's not the right tendency if you want to encourage innovation. Andrew McAfee: Yeah. Exactly. There's another very basic human tendency that I talk about in the book, which is the tendency to think that we are the person with the right idea. And, in particular, if we are the boss, if we have some kind of formal authority over somebody else, man, there's this tendency to just tell your underlings to go execute your vision. Because after all, you're the boss. You must be smart or you wouldn't have arisen to this place. And so, it's like: 'Underlings, go do the thing that I think is important, and don't talk back to me about it because after all, I'm a smart person.' This is called either decision-making- or leadership-by-HiPPO [Highest Paid Person's Opinion], which is my favorite business acronym these days. It stands for Highest Paid Person's Opinion. You know: my gut--my big HiPPO gut--tells me, 'This is how the market is going to evolve or this is what we need to go do. Everybody go execute.' And, that's a terrible recipe. None of us have a good-enough gut that we're going to be right all the time. One of the things that I think the business geeks have done is figure out, or at least keep trying very hard to build organizations that will get important things right, even when the HiPPOs get them wrong. And, Reed Hastings and Erin Meyer talk about this in the book No Rules Rules about Netflix, where Hastings very candidly tells a few different stories about when he was dead flat wrong, and he eventually built a company that would learn to push back against his bad ideas. Which is rare and really important. |
| 41:19 | Russ Roberts: Yeahstep out of this unique period of time. So, the Treasury-Fed Accord is, like, 1951, which is when the Fed becomes more ind. Talk about the metaphor of the press secretary. It captures some idea we talk about here a lot on the program. I found that metaphor though, even though I know the phenomenon, I found it very useful. So, what's the press secretary problem? Andrew McAfee: The press secretary is a piece of mental hardware that you have and that I have?, whose job is to whisper in our own ear about how awesome we are. And it tells the awesomest plausible, remotely plausible story about us for one very simple reason: so that we can confidently go present that version of ourselves to the world. And, that seems like a lot of effort. For what? For appearing confident. We human beings look around, we pay attention to confident people. We follow their lead. We were naturally drawn to them. It's actually true. And so, evolution said, 'Well, wait a minute, my job is to appear confident??--maybe more confident than the facts on the ground actually warrant. If the facts on the ground get in the way of my reproductive success, my evolutionary fitness, what should win out here?' Fitness always wins out. So, we humans have an over?confidence module. It's a module in our brains designed to make us feel overconfident by telling us very positive versions of ourselves. And again, that's a hard concept to swallow. I think the evidence for it is very, very strong. There are a bunch of these fiendishly clever studies that have been done. Two of my favorites are: they manipulated photos of people to be more or less attractive than raw reality. And, they asked people which photo looked most like themselves? And, on average, Russ, you and I picked the version that's about 20% more attractive than we actually are. They actually gave them 30% more attractive photos, and you and I, we can't tell that plausible story to ourselves, like, 'Nah, that's a little too much.' But, the 20% guy, 'Yeah, that's me.' Another one--this was so fiendish, I love it--is that they gave people a survey of how moral, how ethical are you? And people kind of marked off, again, above-average in all areas, because we're overconfident. They filled out the survey and they sent it back in. Then six weeks later, they sent them a letter and said, 'Okay, here are the average--here's the average across everybody that took the survey. Here are the averages for all these moral, ethical dimensions. Where are you compared to the average?' And, of course, Russ, you and I said, 'I'm a little better on this, I'm a lot better on this.' We were better than average on everything. Ready? Here's the catch, right? The curveball is that the experimenters didn't send them the average, like they said. They sent them back their own answers from six weeks earlier. That's all they did. That's enough time for us to forget. So, we're looking at how we thought about ourselves six weeks earlier and said, 'Now how do? you think about yourself?' And you and I are like, 'Yeah, I'm a little more moral. I'm a little more ethical. I do the right thing more often.' This is what our brains do for a living. And, you can push back against that, but I think the evidence is overwhelming. And, if that's true, then there's a really clear conclusion: Your job is to not let your press secretary carry the day. Because inside a company, reality is going to bite you at some point or other. So, you have to have a company that's actually a reality discovering advice[?] made up of people whose job is not to discover reality, but to be really overconfident. And, as you know, science is the shorthand that I use and that other people use to say?: the process by which chronically overconfident people gradually get closer to actual reality, even though that's not our job. It's an amazing trick. |
| 44:55 | Russ Roberts: So, there are many things I like in this book, but this is by far my favorite--what we're going to talk about next. And, it's an application of the press secretary idea, which is: Okay, fine, we're flawed. It's got to be a somewhat boring industry pointing out how flawed human beings are. But, you as do some of my other favorite social scientists and thinkers, point out that, you know, if it's a flaw, it's survived for a long time. Of course, some of our flaws don't work very well in 2023, but this one actually has a great value despite its seemingly irrational component. So, it looks like, 'I'm over confident. You're overconfident.' That seems like a recipe for disaster. And, what we have to do is explain to people that, actually, they have this cognitive bias of overconfidence, and they just need to be less confident, more realistic. They need to gather more data about their own unattractiveness and see how poorly they do. Andrew McAfee: Look in the mirror, Russ. Russ Roberts: Look the in the mirror. Right. But, you have a much deeper insight than that. And I think it, again, applies to a lot of this literature of: Human beings are irrational. We've had Nassim Taleb and Gerd Gigerenzer on the program, who both push back against these, what I would call narrow definitions of rationality. And, as you point out, the press secretary has a great side to it, which is that we realize that other people are really good at that, too. And also, it can be dangerous to give people more information. So, let's talk about those two--which is totally unintuitive to most people. Irrational, obviously, but I think it's extremely--it's favorite insight in the book. But, first, let's do the: how the press secretary plays out in a group. When you're alone, it's very dangerous, but in a group it has this--combined with science, or data, or evidence, or arguing--it has this great feature. Andrew McAfee: Yeah. And, you hit on a couple of really important words there. You talked about irrationality, which I loosely define as: do you accurately perceive reality? And: Hell no, you don't. And, like you know, there's a cottage industry of identifying and kind of quantifying how irrational we are. And, the Wikipedia article for human cognitive biases--which, in other words, departures from pure rationality--is about 200 entries long. It's just this laundry list of ways that we depart from reality. Russ Roberts: The ways we fool ourselves. Andrew McAfee: The ways we fool ourselves. And, you look at that and you're, like, 'Wait a minute.' And this was--I take this insight away from this discipline of cultural evolution--you can look at that list in one of two ways. You can say, 'Wow, we humans are incredibly poorly designed to perceive reality.' Yes, we are incredibly well-designed. We are the planet's most successful species. It's hard to believe that evolution would let us be as successful as we are, if we're this flawed, if we're this poorly designed. And so, then, it shifted my perspective. Wait a minute. No, we're actually incredibly well-designed. The question is well-designed to do what? Not to perceive reality accurately, at least as individuals. But, to be part of a group--as an incredibly social species, to be part of a group that gets stronger, that evolves its culture, that does things over time. And like, 'Okay, wait a minute. This list is not a list of bugs. It's a list of biases. It's a list of departures from rationality.' It's not a list of bugs. It might be a list of features, it might be a list of things that are there for a reason. The job is to figure out what the reason is and then to try to harness that. So, overconfidence is there for a reason. In the same way--I love this analogy. Russ, do you know why we have goose flesh? It's a remnant of our chimpanzee past where when chimpanzees are under threat, their hair stands up and they look physically bigger. Okay, but that's a departure from rationality or objective reality. Do you want to be the first chimpanzee that doesn't do that? The leopard is going to go for you very, very quickly if you're the only honest chimpanzee out there. So, I think about our overconfidence in the same category. It's a thing that we do because it's beneficial and everybody around us is doing it. Now you get to the heart of the matter, which is, then: Wait a minute. How do we chronically overconfident human beings ever get smarter, ever get closer to reality, ever improve things over time? And, one of the main mechanisms is what I call science in the book, which is a group level process for getting to the truth. The group level is the critical part there, because science is not just about conducting experiments and gathering data. Russ, as you well know, it's about getting into a seminar room and arguing about it with other people who also know a lot about the topic and having them poke holes in your argument. I came across this amazing book called The Knowledge Machine, which nailed what science actually is for me. And, Michael Strevens, who wrote the book, said, 'It's actually pretty simple. Science is an eternal argument governed by a ground rule.' And, the ground rule is, Russ, if you believe A and I believe B, we are not going to determine A versus B by seniority, or charisma, or PowerPoint, or anything like that. At some point, you and I are going to agree about the tests that we're going to do, the evidence that we're going to gather. Where if I'm right, it says one thing, and if you are right, it says something else. Let's nail that down in advance. Then we're going to go run the test and we're going to admit who is right here. So, science as a group level process of argumentation around evidence works extraordinarily well. And it turns out--I think evolution has realized this--we are overconfident individually. We're extraordinarily bad at evaluating our own ideas. I'm amazed at how bad I am at evaluating my own ideas. We're weirdly good at evaluating other people's ideas. In other words, I will poke holes in your arguments that you have not thought of, despite the fact that the argument came out of your head. You will do the same for me. And, I think that's by design, because nature kind of separated the individual-level process from the group-level process. Individual processes have ideas, group level is bang on the ideas. And, it works extraordinarily well. And, the geeks have really tried to harness that. It's no coincidence that a lot of them were computer scientists or spent a lot of time at universities, and they absorbed that norm of egalitarian evidence-based argument at group level, which is what science actually deeply is. |
| 51:38 | Russ Roberts: Yeah, we had an episode with Adam Mastroianni where he said that the peer review process is broken. And, I think he's right. I've come to believe he's right, although I have a big bias against the peer review process, so I have to recognize that. But, part of the reason that the peer review process is broken is that it's a lot like thinking alone. I write a paper, I do science, I do an experiment, I do a study, I gather data, and it's reviewed then by often a bunch of people who either already agree with me, or if not, don't have the time, or effort, the incentives aren't there for them to look at it so carefully. So, a lot of bad work that is literally not true makes it through the peer review process and gets published. Now you look at my paper and you might say, 'Well, I think he's wrong.' And, you write your own counter-paper, and it gets published. And, we are in dialogue in a sense, in the giant ecosphere of intellectual exploration, the marketplace of ideas. But, not in the same way that when a corporation or an organization makes a decision; or when a corporation or organization makes a decision, people sit around the table and have a conversation about it. So, the formal process of science through academic journals is a debate conducted seriatim--meaning you take turns--and eventually sometimes the truth emerges. In the kind of work that you're talking about in your book, people have to defend their ideas in a conversation, not a debate. It's not about scoring points. It's a conversation. And, in many ways, what the boss's job is to do in those meetings--the manager--is to facilitate the conversation-- Russ Roberts: Let people be comfortable saying things that are sometimes critical that might be awkward to say. And, to create again, those set of norms around that dialogue-or multilogue, whatever it's called--around that table. And, it's very different than the so-called scientific process of modern academic journal publishing. It's much more akin probably to what used to happen with the Royal Society, or other societies where the smartest people in a single country and often other countries would come together to share ideas. And, I think the power of that conversation is why things emerge from it that are better than what you do on your own, overconfident about your idea. Even if you're the smartest person in the room, by the way. Andrew McAfee: You're still going to be wrong. Russ Roberts: You're still going to make a lot of mistakes. Andrew McAfee: A lot of mistakes. Russ, let me tell you how right you are. I have a chapter about each of the four norms in the book, and in the science chapter I start by talking about A/B testing, which is this classic scientific thing that a lot of geek companies do. But, it sounds daunting, because you've got to set up a testing infrastructure, you've got to have the statistics-- Russ Roberts: Explain what it is for people who don't know what it is. Andrew McAfee: A/B testing is pioneered by Google in 2000 when they realized that they had all these people showing up at their homepage; and they did at that time a quick-and-dirty test where for half the people that showed up, they sent them one version of the page. And, for the other half of the people, they showed them a slightly different version of the page. And they were interested in some outcome. I don't know if it was engagement or how well people liked the search results. They said, 'Wait a minute, in this online world we can do an experiment--a high fidelity experiment--very, very quickly.' And, that was the first A/B test. And now they're just part of the infrastructure of the web. You can buy A/B testing as a service from the Cloud. But, it sounds daunting because it's statistically dense. You got to set up an infrastructure, blah, blah, blah. I tell a story about how science works at Apple--and Apple has a lot of the other trappings of science. But, my favorite story was when they were rolling out the portrait mode on the iPhone camera, and the background of portraits has that Bokeh Effect--it's blurry. It's kind of like the cool--the streetlights are a little bit misty--look. And, there was a debate inside Apple about whether you should give the user the ability to see the blur when they're framing the photo, or only afterward. Probably more computationally intense to do it live and let the person see it. And so, there was a debate about which path should we go down. All somebody at the Human Factors Team at Apple had to do was do a demonstration in a big room of how cool it was and how useful it was to the user to be able to preview the blur--to kind of shape the blur before they took the photo. That ended the discussion. And, it's exactly what you're talking about. It's a room full of people. You believe A, I believe B. Let's run an experiment and find out. And, as you point out, the advantage of the business world compared to this very slow process of academic science is that those discussions can happen a lot more synchronously. They can happen with people in the room. You can go test them in the market very, very quickly. And, it's a big part of why the geeks are able to build such fast learning organizations. |
| 56:38 | Russ Roberts: Yeah. I have to push back on that a little bit, because in that particular--are you a photographer, Andrew? Andrew McAfee: I have an iPhone, so yes and no. Russ Roberts: Yeah. That doesn't count. So, I'm into photography. For me, I don't think it's a big improvement to see it live, because after I've developed, and processed, and played with a zillion photos, I kind of have an idea of what's going on, and I'm very content to do it afterwards. In that particular case, I suspect it was a different thing going on, which was, 'Wow, it's cool. We can do it live. Let's do it.' And, that illustrates the challenge, I think, of the role of science in a company. It's not that much different than it is in academic life, which is: Science is hard. And, A/B testing can be poorly done. You give a fabulous example of Coke was going to change its formula-- Andrew McAfee: You and I are old enough to remember this, right?-- Russ Roberts: Yeah. When there were taste tests, Coke was struggling to do as well as Pepsi in a blind taste test, even though Coke was dominant in the marketplace. So, they said, 'Uh-oh, we're at risk, we're at threat. We have to change our formula.' Forgetting the fact that it was only a sip, as you point out. Forgetting the fact that it was part of people's identity. But, I would say the other thing they forgot is that it's really hard to change--strangely--the soft drink that you like, once you've gotten accustomed to one. So, people who have gotten accustomed to regular--what they called Classic Coke--for a while, they weren't going to switch to a new soft drink. Even if in a little sip, it seemed better: 'There's this new one.' Drinking a whole bottle of it was not going to be as pleasurable as they might've expected. So, I think it's hard. It's important, but it's hard. Andrew McAfee: No, it's really hard, right? Science is--it's a constant process, as we all know. But it's bizarrely difficult. Russ, you've seen this recent really good work coming out of the science--of science, community--where they give the exact same dataset and the exact same empirical question to, like, 200 different teams around the world. Even on an issue that you wouldn't think would be so loaded with tribalism and these other things. It's not: Do more handguns reduce crime? Where everybody has a super strong prior based on their moral foundations. But just a fairly benign topic. And, they give this out to 200 teams. And the results are all over the map. Almost might as well have just thrown darts at a dart board. What that teaches me is exactly what you said. Like, 'Science is difficult. It's not a one-shot deal. And, you had better set up a process to keep doing it. Never think that you've arrived at the answer.' And, what I learned from writing The Geek Way, that had better be an inherently group-level process. You better keep talking about this stuff as a group. |
| 59:26 | Russ Roberts: But I want to come back to the second part of the press secretary--and this is the part that's my favorite part, which I alluded to a minute ago. This is what you write: Because of confirmation bias, we have to be very careful when designing efforts to help people make better decisions. There's a real danger that these efforts could backfire. For example, we often think that giving people more information will help. But, replace the word 'people' there with 'press secretaries' and the risk becomes clear. The press secretary module will pick out the most self-serving bits and use them to draft even more convincing memos. I think that's extremely deep and wonderful. Andrew McAfee: Yeah, thank you. It's not my insight. There's this pretty good literature on, especially again, on issues that get to our deep beliefs and our moral core. When you give highly partisan voters--even really well-educated, allegedly good information-evaluators--when you give them information, even if whether or not it supports their view, they will pick the stuff that's most supportive of their existing view. And, in general, giving a polarized community objective information, I believe it tends to increase polarization instead of decrease it. And, the punchline from that is not: Don't try. We have to keep trying to be more rational. I want that work to continue. But, we can't stop at that. And, to my mind, you have to keep getting people to test their ideas in front of a group. The group is the antidote to the press secretary. Your mind is not the antidote to your mind. There's all this research that shows if you give people ethics training, they walk out going, 'Well, from now on, all the decisions I make are going to be ethical decisions, because by definition I've had ethics training.' I think that's incredibly dangerous. I think it's super dangerous. Russ Roberts: Yeah. I don't really believe in academic ethics courses, either. Andrew McAfee: Well, I quote Jonathan Haidt, who is, I think, in charge of or used to be in charge of the ethics curriculum at NYU [New York University]. He said: 'No one is going to invent an ethics curriculum that makes you behave ethically the moment you step out of the classroom.' I love that. It's a great caution, because what's going to make you behave are the norms of the culture around you. And, if there are very strong ethical norms, you are much more likely to be ethical. You know I tell the story about Arthur Andersen [accounting firm--Econlib Ed.] in its final days, which was this really sleazy place to do business while their annual report trumpeted stewardship and ethics, and the hypocrisy just gets overwhelming. The group is the only thing that's going to maintain the values--the ethics--of a human group of any kind. |
| 1:02:05 | Russ Roberts: So, let's close with a very tough question. When the Soviet Union fell, and when economists give advice generally to countries that would like to do better with their economy, if you look around the world, it's complicated, of course. But most people, certainly many economists--I'd be one of them--would argue, 'Well, property rights, economic freedom, a functioning price system, competition, regulation of externalities and certain other effects--these are the things that make economies work well.' And, then, 'Oh, by the way: of course government needs to work well, too.' Of course, where that's in the background. And, the economists, I think, who tried to apply those facts--which I think they're mostly true--struggled to implement them successfully in practice. Partly because sometimes one of the key pieces was missing. Often, that key piece actually was culture in the country that was under discussion. Many of the most successful market economies, either along the way or because of selection, have developed cultures that work well with those economic systems. Without those cultures, those systems are often corrupted by the imperfect culture. And so, the things that create a great economy are not easily done piecemeal. Or even en masse. It's hard to get there from here. I wonder if that's true of companies as well. You have a company; they hire Andrew McAfee for consulting; and he says, 'Look, here's what you need. You need openness, speed, science, and'-- Andrew McAfee: Ownership--forth one. Russ Roberts: What? Andrew McAfee: Ownership. Russ Roberts: And ownership. Yeah. Just: empower your people, let them make mistakes, make sure everybody can see what's going on, and use as much data and evidence as you can to make decisions. And, you've got a company from the 1950s culture: it's top-down, it's hierarchical, there's tons of bureaucracy, they're struggling for status. How do you get there from here? Of course, the easy answer is we just pick the right CEO to bring that new culture into being. Hard to do. I think it's somewhat akin to being an economist trying to create a free market system from scratch in a previously top-down Socialist or Communist country. What are your thoughts on how the ideas in this book--which are all fantastic, by the way--this is not a cheap shot at the book. But, how do you decide? Can you do them one at a time? Can you do a little bit of all them at a time? How do you get there from here? Andrew McAfee: Yeah. And, unfortunately, I see that we're just about out of time, so we don't have time for this question. The reason I'm trying to dodge this, Russ, you asked the tough question: Can an industrial era organization--kind of an archetypal industrial era company--can they get there? Can they embrace the Geek Way? And, there are a couple points of evidence here. One of them is just a thought experiment that I do. If in its last flailing days before the government found it guilty of obstruction of justice--if Arthur Andersen had brought in somebody who wanted to do the right thing and wanted the company, this kind of, like, ugly knife fighting, in-fighting thing among the partners: it was a very toxic culture. It had a deep culture of silence and hypocrisy. If they brought in somebody who was really good and really wanted to make a change, could that person do it? And, man, that answer might be No. I think a company can get too far down a path of dysfunction for good things to happen. I interviewed a bunch of my favorite alpha geeks for the book, and one of my favorite on-background questions for them was, 'Okay, if we parachuted you into large, sclerotic, industrial-era company tomorrow, and you were the CEO, could you turn it around?' And, the most common responses I got were, 'First of all, can I say no to the gig?' And then, I'd say no. And, they'd say, 'Well, is suicide an option?' And, I'd say no. And, they'd say, 'Can I bring my entire team with me?' And, they would say no. And, the response I got back fairly often was, 'Man, I would really not want that job. I would really not want that job, because of the difficulty of changing a large company's norms and culture.' That's extraordinarily hard to do. Right? So, let me give you the optimistic side of that answer. And, the optimistic side is Microsoft. Because even though it's not a young company, it's still a half-century old. And, you probably remember in the early years of the 21st century, it had descended into a massive sclerotic bureaucracy. The infighting was vicious at Microsoft. And, even though it was a large, profitable company, the market was saying, 'You're not going to get any more valuable.' The nominal market cap of Microsoft was static for about a decade. This was a company on its way to an industrial era decline, irrelevance, and slow fade-out story. And then, Satya Nadella took over as the CEO in, I believe, 2014. And has accomplished what I think is the most underappreciated and most impressive corporate turnaround maybe that I've ever seen with the possible exception of Jobs at Apple. Microsoft has come roaring back, and Nadella has just pulled off this amazing job of leadership. He made some brilliant strategic moves. But, when I got to interview him, I asked him about the cultural changes that he made, and he talked about trying to unjam his people, trying to remove some of the conflicting imperatives that they had or the requirements for their job that were pulling them in different directions. He tried to unblock the organization. He really tried to instill some ownership. He absolutely brought a fast cadence, iterative approach. So, he embraced the norm of speed. And, he demonstrated and he encouraged his top people to demonstrate authenticity, vulnerability, things that are close to this word of openness. He came into a culture at Microsoft with very, very low psychological safety. Microsoft was like GE [General Electric] in the 1980s, right? You just had to win, and hit your numbers, and grow, and beat up the other people in the room. And, he was able to kind of get their more original energy back, which is, 'No, we are a bunch of nerds who want to build cool things for the world. Let's do that,' while getting rid of a lot of the gunk and the impediments that were keeping the people from actually being able to do that. I asked him, 'What about these middle managers that we keep hearing about? How did you deal with that force of inertia?' And, he said, 'Man, I hate that characterization. I was a middle manager. And I had to deal with all of these conflicting incentives and all these directives that were pulling me in different directions.' He said, 'My job is to unblock that and let those people do what they want to do.' That was a great insight, super geeky. |
| 1:09:18 | Russ Roberts: I think of Herb Kelleher, who was the founding CEO of Southwest. And, I guess we'll close with this; it's just a twist on what we've been talking about. He would work the baggage claim in Dallas where they were headquartered on Christmas and Thanksgiving. Russ Roberts: And, the employees just couldn't believe it. They were so thrilled to have the CEO on a night they didn't particularly want to be working, keeping them company and doing his job. Doing their job actually, not his job. And, that seems like such a stunt, such a shtick. But, he never publicized it, I don't think, in any dramatic way--except within the company, and it was probably pretty well-known. But, that seems like a really good idea. And then, he asked the question: Well, why didn't other CEOs do it? And, the answer was: Well, they wouldn't have enjoyed it. He actually enjoyed it. So, I think--the real challenge I think for a lot of managers, I think the principles of this book are--it's hard to keep them front and center in any organization. It's hard to keep anything front and center in an organization. I think good leaders manage to focus on what's important. But there's also implementation. And, to tell a leader of an airline, 'You should make the employees feel like, do things for them that are not.' There's so many things you could say about that baggage claim thing; but you have to do it, and you have to do it well. And, I think the real challenge of your book--of the insights of your book--is applying them effectively. It's great to know what they are, but I think the best leaders are the ones that--it's not just so much that you can take a 1950s company and turn it into a wonderful, responsive culture that's effective. Even a modern culture--even a geek culture--can be done better and done worse. And, I think the best leaders are the ones who do it better. Andrew McAfee: Yeah. I categorically agree with that. And, think about that baggage handling example. Because, the tendency for a lot of CEOs would be to look at that and go, 'Okay, great. I'm going to go work the baggage claim area on Christmas Eve. I'm going to show up with a team of photographers and I'm going to do it for half an hour and shake a bunch of hands, and it's going to show up on social media, and we're going to put it in the press release, and maybe somebody will write us.' And then, they're going to leave after half an hour and go back to their family. Right? What you're saying Kelleher did was he actually wanted to move baggage. He thought that was an important thing. He was jazzed to do that as the CEO of the airline. And, it gets to this idea of vision or aspiration, right? The geek companies that I've learned so much from, they do have big aspirations, and their leaders articulate them over and over. And then they act in keeping with that thing. I don't think you have to be a founder, CEO, to do that. I don't think you have to work the baggage claim area on Christmas Day in order to do that. But, one thing that we human beings will sniff out super quickly is inauthenticity, or hype, or hypocrisy, or stuff like that. That is a terrible leadership strategy, mainly because I think we ultra-social people are so good at looking at what somebody else is doing and saying, 'Is that for the cameras or is that who this person really is?' Russ Roberts: My guest today has been Andrew McAfee. The book is The Geek Way. Andy, thanks for being part of EconTalk. Andrew McAfee: Russ, it is always a pleasure to be on EconTalk. Thank you. |
What's different about companies that accomplish amazing things? Perhaps surprisingly, says Andrew McAfee of MIT, it has nothing to do with being agile or with better technology. Instead, they've developed what he calls "geek" cultures, which emphasize intense cooperation, rapid learning curves, and a lack of hierarchy. Listen as McAfee talks about his book The Geek Way with EconTalk's Russ Roberts and how focusing on company norms, as opposed to organizational charts and structure, is a key to realizing big ambitions. They also discuss the role that data and evidence play in geek companies' decision-making and why the willingness to embrace failure is a winning strategy.
READER COMMENTS
N. Zenitram
Nov 20 2023 at 1:25pm
As a leader in a fast growing tech firm I’d like to contest not the content Mr. McAfee’s work but he description of “why” geek culture works the way it does.
Technology companies cannot operate under the old paradigm. A couple of observations: Most technology companies thrive in uncharted waters. By definition, technological innovation is novel and as a result there are no legacy processes that exist that can manage the rate of change that occurs inside of these businesses. They must all be developed in real time. This “nature of the business” bleeds into everything. Failure is a part of technology not because its some innovative or forward thinking way of doing business, but because it has to be. It defines the market. Founders were molded by this experience and as a result expect the leadership under them to take similar risks when building out their divisions. Again, this isn’t a “great trait” of a founder, its a necessary trait and legacy businesses can never duplicate this because it simply doesn’t provide the same ROI in environments where the rules of the game have been codified through regulatory regimes and maybe, more importantly, by the businesses margins.
There is always this trope out there that “no one knows what they are doing”, but this is doubly true in technology. I joined my current company less than four years ago with about three years of technology experience and have since built out its entire infrastructure and data security environment as we’ve 10x’d in size. This company couldn’t hire that kind of experience when it was small so they had to let me do it, and fail a bit here and there along the way. My division is run like its own company within the company and our customers are the teams inside of the organizations that need better and more efficient ways to deliver the product as well as comply with the regulatory regime that is developing around is. Not coincidentally, the regulatory regime is evolving as quickly as the our company evolves.
TLDR: There is something novel about the way technology companies run businesses but its not something that other business can duplicate as the nature of the industry leads to this “innovation”. This is all changing as the space “matures” into what everything else matures into, a heavily regulated, slow moving leviathan.
Jordan Henderson
Nov 20 2023 at 1:41pm
Interesting episode.
This guest certainly talks fast, which might explain his emphasis on urgency.
When Andrew explained how we’ve succeeded to improve things even though copying our elders is an imperfect process, I think he neglected the role of language and how we just don’t copy from our elders, but how we can copy many generations of elders through the written word.
I believe language to be an important factor in Social Evolution. Social Evolution has accelerated greatly since we’ve had the Printing Press and especially since widespread literacy has made the lessons of the past more widely available.
Ironic that the Printing Press and widespread literacy has greatly slowed the development of language itself in that it has codified language for “standard” use and made variation less attractive. We can read Shakespeare, but I’ve heard it said that Shakespeare would have had difficulty reading Chaucer.
I think there’s a wider message here that was touched upon in the episode with the New Coke experiment. Science told them that New Coke was a necessary change, but change often violates expectations. A corporate culture of continuous change may upset workers, customer and shareholders. People often confuse evolution with Progress.
I’m reminded of what a retired Executive told me about the large organization he’d retired from and living through the corporate layoffs of the 80s, the flattening of org charts. The MBAs that were being turned out from business schools were experts in justification of projects and new organizational methods. Executives couldn’t make arguments against them, but the Executives did recognize that all the changes weren’t really helping the bottom line. They had to get rid of the middle managers who saw their jobs as making changes big and small.
Celebrate failure, sure, but don’t forget that some failures lead to catastrophe. Organizations certainly often fail from failure to able to make changes, but they also fail from changes that result in bad outcomes.
Brandon Berg
Nov 21 2023 at 5:22am
The proliferation of veto points McAfee describes parallels a similar process in politics that makes it very difficult to build housing and infrastructure.
Seth
Nov 22 2023 at 12:43am
I know it’s possible to change. I’ve seen it.
I witnessed shift at mature company that went from the typical mature company innovation culture described here to having the elements of the Geek Way — at least for the part of the business I worked in — and then back again after three years.
It took me awhile to recognize it.
Most of the shift was caused by a new leader bringing his previous company’s innovation culture with him because that’s all he knew. He didn’t realize it was different nor did he or anyone else realize that it caused the mini-renaissance that filled our pipeline with ideas and produced several successes, including the biggest homerun I have seen.
While all that was going on, he also did the typical top down, 5-point plan that failed to deliver and was replaced.
His last action was to get the Board to approve rolling out the homerun, never realizing he could have taken credit for it and that there was more in the pipeline because the innovation shift he caused was just starting to bear fruit.
His replacement returned us to the typical mature innovation culture, the ideas in the pipeline withered because they didn’t meet his personal preference bias and wasn’t interested in the promise they were showing. The company has gone sideways since.
I’ve packaged those elements up and still use them with good effect on small scales within my span of control.
But, as I’ve pitched it for larger scales, I have discovered there are certainly A LOT of frictions against it, some of which were discussed in the podcast. I believe those frictions are the root cause of the eventual decline of some organizations.
One part McAfee briefly described was ownership. It deserves more discussion.
This was one element I brought to the table during our three year Geek Way. So many people threw their ideas over the wall at us to get patted on the back for having an idea.
The problem was most of their ideas were things we already tried and knew well why they didn’t work. But they didn’t care, as long as they got credit for trying.
Out of frustration, I started asking if the people would put their money where their mouth was to help prove out their idea. Could they fund a pilot or help us work on it with us as a side project?
That had 2 big effects. That cut down 90% of the dumb ideas. As soon as people envisioned owning the result, they became more interested in learning why it didn’t work.
But, it also got a few people to try ideas without having to go through the red tape, so more NEW ideas got tried and from that we tried and discovered the homerun.
I keep trying to pitch this and I hope to someday find a place to do it again.
Ben
Nov 24 2023 at 9:45am
In a basketball game, the team that takes the most quality shots usually wins. No one knows which of those shots will be made. The game operates at such a pace that the application of OODA loops, rather than creating plans for each situation, is almost certain to be more effective. The clock is set at 24 seconds. Whatever mistakes are made will be history in less than a minute.
The geek world does not operate at the pace of a basketball game, but it operates in an industry where most failures are recognized more quickly than other industries. And because failures are recognized earlier, the cost of failure is low by comparison. Based on the profitability of tech companies, made shots have extraordinary returns.
SOSO is a new way of saying what has been said in many leadership books for more than 30 years. Six Thinking Hats was published in 1985 and The Speed of Trust in 2006, and there were many change-oriented books in between that included these themes. In my view, this sounds like a practical book, and I enjoyed the concepts discussed in this podcast. However, the ideas are not hard to grasp. As noted by Mr. McAfee, changing the culture is the challenge.
There have always been tradeoffs between using trial and error vs. analysis to determine the next steps. Costs are a big consideration, but not the only one. To take a quality shot is different by industry. A quality shot by one basketball player is not a quality shot for every basketball player. If the quality shot is critical to survival of the business, I recommend that we give the ball to Michael Jordan with decision-making authority to take the shot or pass for a better shot.
It seems irrefutable that group level reviews of investment or innovation opportunities are more effective than peer reviews done in a series. However it can be challenging to bring such a group together. Getting the right people in the room to discuss and debate the feature requirements of a platform is different than the group that debates product features built on that platform. This group review is an area where leaders need to both show a respect for the process (not a check the box activity) and hold group participants accountable for being well prepared. Otherwise, what is the point?
One criterion or value or headset or norm or part of the culture to add to the discussion is a passion to serve. I always appreciated the passion of advocates for their project, but in my view, the passion to make the lives of others better is the most important. This is obviously a results-oriented view, but it fits with the idea of avoiding the focus of winning with a certain project or with the original scope of the original project. The higher purpose of serving provides the fuel for SOSO to become the practical culture that gets things done.
Jamie Gamache
Nov 25 2023 at 5:40pm
I felt inspired by this podcast to draft an open letter which I hope goes viral so that I can feel very very important! 😉
Hope you enjoy!
****
An open letter to all aspiring millennials and senior executives all over the world
I came across the story of a female employee at Hewlett Packard, who in 2005, wanted to spend a quarter of a million dollars on some specialized external consultants. She found out that she had to get 20 different signatures from people to spend that quarter of a million dollars inside a multi-billion dollar company. The story indicated that the employee wound up calling somebody in Guadalajara, Mexico every day to get the final signature.
While this may not surprise you, it does make you wonder how things end up this way?
The hypothesis was this situation was not the CEO of HP getting out the blank sheet of paper and designing a 20-signature sign-off process. Rather it’s a largely unconscious decentralized process where, because we are all human beings and because status is so central to our lives, our tendency is to raise ourselves up by getting involved in more and more social activities. We want to be in the loop. We want to be consulted and have signoff power.
Let me know if you have heard this before: “You’ve got to go run it by Bobby, because Bobby is a pretty senior, pretty important person. And, we all know things really don’t get done around here unless Bobby wants them to get done.”
Unfortunately, there’s a ton of that going on.
I plead with you today and in the future as you progress, to “CHECK YOUR EGO AT THE DOOR”.
Only inject yourself where your important status is really required!!!
Please remember our pleads in the future as your inner voices tells you how important you have become.
Continuously ask yourself: Do I really want to be another Bobby and add yet another cog in the wheel?
On behalf of those who have to battle the system daily and get through all the cogs in the wheel.
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