Management debt (review of The Hard Thing About Hard Things)

One of my favourite management books is The Hard Thing about Hard Things by Ben Horowitz. In a field frequently characterised by hype and hindsight, it is honest, pragmatic and uncompromising.

It is filled with insights, but it contains one concept that transformed my perspective. This is the idea of “management debt”. In Ben’s words:

“Management debt is incurred when you make an expedient, short-term management decision with an expensive, long-term consequence.”

According to Ben, you take on management debt when you dodge a difficult decision in order to remain popular; when you avoid giving tough feedback in order not to offend; when you break your pay structure by giving a rise to someone who threatens to leave. In each instance, you make things a little easier on yourself in the moment but the sum of these choices is a massive debt for the organisation. To further quote Ben:

“Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organizational issues.”

This sounds basic, but I think that swathes of dysfunction and failure are caused by the pursuit of short term expedience. It is not just a habit, it is hardwired into our social structures and requires drastic steps to eradicate. Expedience is like Japanese knotweed. You have to make it near impossible to be expedient, eliminate it entirely or it creeps back and slowly throttles your organisation.

The corrosive effect of expedience in social situations comes mainly from the fact that it leads to injustice and inconsistency. Some managers think that their shortcuts and exceptions, their special cases and compromises, their foibles and favourites, are invisible choices that lubricate the gears of the organisation to keep things moving. I can tell you straight: nothing is more visible. These choices are glaring; they are known to everyone and they are the regular topic of conversations in the canteen and Skype call. Imagine if every compromise you had ever made was documented for public consumption. They have been. What do you think people say of you now?

I have incurred management debt. Every leader I know has incurred management debt. Sometimes it is sadly necessary as your very survival depends on that moment. We all have to acquire debt from time to time, which is why we try to keep it as low as possible when times are good. But it is human nature to seek the smooth, comfortable, non-confrontational approach.

There are two ways to help avoid this sort of debt. Firstly, when making difficult decisions, focus on the option you are afraid of making. You may have good reasons to be afraid, but it also may be because of the personal consequences. To rebalance the scales, imagine if your expedient choice was multiplied across the whole organisation and visible to everyone. Does it feel so easy now? For example, you are weighing up between paying off an underperforming employee or initiating a painful disciplinary process. Tough call. On the other hand, imagine if you regularly had to pay off every underperforming employee and everyone knew that you would.

The second strategy is to tie your own hands. To make rules, to publicise those rules and to stick to those rules. This is also difficult, because you clearly want to reserve room for discretion in some circumstances, to avoid becoming hidebound. The trick is to find those areas where expedience is both common and consequential and develop unbreakable rules for those areas. As a hint: these often involve personnel decisions.

In many organisations I have worked in, it has been customary to advertise a range of starting salaries (or stay silent on the topic) and calibrate the offer to how much you like the favoured candidate and to their ability to negotiate. I have done this. It maximises your chance of making a hire. It also leaves you with a sloppy pay system, with people paid different amounts for similar roles. Given the difficulties of accurately estimating real quality at job interviews, these pay differences are seldom matched to performance. And given that ability to negotiate is often linked to perceived status and confidence, which is in turn often linked to protected characteristics, the resulting pay patterns can sometimes be wildly discriminatory. And, however hard you try to make salaries secret, you can be sure that everyone knows how much their colleagues are paid.

Eventually we decided that we would advertise a single starting salary for each grade. To be totally transparent with you, we also adopted a process for a non-consolidated market supplement, agreed in advance by a committee of peers using external benchmark data (not the hiring manager), for hard to recruit sectors like technology specialists or former head teachers. We would offer only that salary to every successful candidate, without negotiation. And we would make that clear at the start of the recruitment process. Have we lost candidates? Absolutely, although fewer than we feared. Have we solved all jealousies and injustices on the pay front? No way, but we have reduced one source of friction, created a little more space to focus on work not status.

Your compromises will return to haunt you. Make sure you only incur such debt in life or death situations. In the meantime, assume every expedient decision will be multiplied a hundredfold and known to everyone. Where necessary make compromise difficult through unambiguous, visible rules with automatic procedures.

undefined Read the book too.

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