Understanding Industry
A discussion of
Putt’s Law
Augustine’s Laws,
CEO Lockheed Martin
Augustin’s Laws
Background
• Murphy’s Law
– If anything can go wrong it will.
• Peter Principle
– A person rises in an organization until he/she
reaches his level of incompetence.
– Implies that with time the whole organization
is incompetent.
Putt’s Law
• Every technical hierarchy, in time develops
a competency inversion.
– Technology is dominated by two types of
people:
• Those who understand what they do not manage.
• Those who manage what they do not understand.
Personal Planning
• “If you do not know where you are going any
road will get you there,” Turkish Proverb
• Have a plan - Any plan will do!
• "It is a paradoxical but profoundly true and an
important principle of life that the most likely way
to reach a goal is to be aiming not at that goal
itself but at some more ambitious goal beyond
it." - Arnold Toynbee
Personal Prestige in an
Organization
• Attribute successes to people and attribute
failures to computers.
• To remove doubt from your actions, invoke
a computer solution.
Communications
• The purpose of communication is to
advance the communicator.
• The information conveyed is less
important than the impression made.
– It is not what you say, but how you say it.
• For Managers
– A decision is judged by the conviction with
which it is uttered.
Managers
• Managers make decisions.
– Any decision is better than no
decision.
• Technical analyses have no value
above the mid management level.
Computer Projects
• All computer projects take longer than
estimated and overrun their budgets.
– Erie Canal – 12,000% over budget
– Trans-Alaska Pipeline 425% over budget
• Anything that can go wrong will go wrong
faster with computers
• Adding manpower to a late technology
project will only make it later.
Law of Innovation
• Change is the status quo
• An innovation manager cannot tell if he/she is leading or
being chased by the innovation.
– Innovation managers do not commit until the objectives are
clear.
• An “innovated success” is as good as a successful
innovation.
• The true measure of success in innovative projects is the
size of the management's reward.
• Innovation may be the goal, but technology transfer is
the business of technical hierarchies.
Laws of Innovation Management
• Management by objectives is no
better than the objectives.
• But, 90% of the time, we don't know what
the objectives should be. Peter Drucker
– Artificial yeast invented by Mobil Oil
– A very poor 3M adhesive became the Stickies
– Dry Plates lead to flexible film at Kodak
Innovation Management
• Rejection of management’s objectives is
undesirable when you are wrong but
unforgivable when you are right.
– Tom King-Kaiser
Survival
• To get along, go along.
• Survival is achieved through risk
reduction.
– To protect your position, fire the fastest rising
employees first!
Promotion
• In Big Political Organizations
– The maximum rate of promotion is achieved
at a level of crisis only slightly less than that
which will result in dismissal.
• In Small Organizations
– There is no promotion in a small organization
• Any crisis that you are responsible for will get you
fired!
– Your value to the organization is the skills that
you have, so get as many as you can.
Motivation
• “productivity increases exponentially with
capability”, W. Shockley 1956 Nobel Prize
• It is most important to motivate the
best workers!
• “We know nothing about motivation – all
we can do is write books about it.” Peter
Drucker
Reorganizations
• Getting Rid of the Dead Wood
– Management must periodically fire the least
productive workers to improve productivity.
• Organizational Stagnation
– No manager wants organizational stagnation
• Accelerating the rate that positions are
changed accelerates the rate toward a
competency inversion.
Reorganizations
• “Reorganization is a wonderful method of
creating the illusion of progress while
producing confusion, inefficiency and
demoralization.” Petronius Arbiter, ~10 BC
• “There is no problem with rotating people
as long as they aren’t doing anything
anyway,” Anonymous Senior Executive
Organization Stagnation
Stagnant
0.1
Salary Raise
• “OS occurs when
the punishment for
success is as large
as failure.”
• You can tell when
your are in a
stagnant
organization when
the salary raises
across all
employee’s looks
like this.
0.08
0.06
0.04
0.02
0
 10
5
0
5
Merit Review Score
10
Decision Making
• Decisions are justified by the benefits to
the organization, but they are made by
considering the benefits to the decisionmakers.
• When in doubt, form a task force or
committee or call a consultant.
• “The optimum committee has no
members.” Augustine’s Laws
Consulting
• A successful consultant never gives as much
information to his clients as he gets in return.
• The correct advice to give is the advice that is
desired.
• The desired advice is revealed by the structure
of the company and who in the structure is hiring
you.
• The value of an idea is measured less by its
content than by its compatibility within the
corporate structure.
• Simple advice is the best advice.
Patents
• 300/d patent applications to USPTO
• 180/d patents
• 1/d make any money
– “In One Day,” Tom Parker (1980’s)
• 13 of Thomas Edison’s 1069 patents
made it to the market.
Patents
1 10
3
Number of Patents w Profit Greater Than
Data from Scherer, F.,
Ann Econ. & Statistic, 1998
5/772
>$10M
1/74
>$1M
100
10
1
0.01
0.1
1
10
Profit (Millions $)
100
# Licenses >$1M=0.6%
Acronyms
• Acronyms and abbreviations should be
used to a maximum extent possible to
make trivial ideas profound.
– Augustine’s Law IX
MBA
• “An MBA - A decision that could affect you
the rest of your life – if you live that long.“
N. Augustine, CEO Martin-Marietta
MBA
• America has 600 business schools
• 63,000 MBA’s/year graduate
• GE recruits 50 MBAs and 1950 other college
graduates annually. Forbes
• “There is no value to the MBA degree,” Robert
Mills, GE University relations manager
• “The best business school is the school of hard
knocks,” N. Augustine, CEO Martin-Marrietta
New Products
• “80% of all newly advertized products fail,”
Frank Perdue
• “58% of all innovations ultimately fail but
those originated by top management fail
74% of the time.” The Economist
• All technologies follow the S-curve
• You need to know when it is the best time
to get out if your career is to prosper.
S-curve
Business Structure
• Organization Chart
• Levels of management in decision making
• Efficiency of the organization
• The efficiency of a hierarchy equals that of a single
group raised to the power of the number of levels
in the hierarch
• Example
–
–
–
–
3 levels @80% each gives 51% total Eff.
5 levels @80% each gives 33% total Eff.
7 levels @80% each gives 21% total Eff.
9 levels @80% each gives13 % total Eff.
Regulations
• “As new rules are added none of the old
rules are ever discarded,”
• “If you really want to mess up a company
do exactly as they tell you.”