Innovation Principles from Ken Iverson’s “Plain Talk”

Written by Sean Murphy. Posted in Books, skmurphy

Ken Iverson wrote “Plain Talk” 1997 to document the management and innovation principles that led Nucor from bankruptcy to the number three position in the steel industry in the United States. Since the publication of the book Nucor has become the number one player.

Innovation Principles from Ken Iverson’s “Plain Talk”

Plain Talk

“To my eyes, two of the most fascinating sights to behold are hot metal in motion and a group of people in headlong pursuit of a shared purpose.”
Ken Iverson in “Plain Talk

Iverson offers this powerful metaphor in the second paragraph of the book and spends the rest of book explaining the management and innovation principles he employed Nucor to foster a sense of shared purpose that achieved astounding results. Iverson outlines four management principles that Nucor followed:

  1. Management is obligated to manage the company in such a way that employees will have the opportunity to earn according to their productivity;
  2. Employees should feel confident that if they do their jobs properly, they will have a job tomorrow;
  3. Employees have the right to be treated fairly and must believe that they will be;
  4. Employees must have an avenue of appeal when they believe they are being treated unfairly.

They seem obvious but Nucor refrained from layoffs–and instead shared the pain of downturns by cutting employee pay by 25% and upper management 40-60%–and was never unionized: Iverson viewed unions as an unnecessary layer of management and held the company to four levels of management.

Decentralization Drives Innovation and Flexibility

“A decentralized structure pushes the power to set strategy, spend money, make decisions, and create policies out toward the marketplace. It promotes local autonomy. […] If your success depends heavily on uniformity and consistency, centralized decision making may be justified. If your success relies more on innovation and flexibility, you should make a conscious effort to push decision-making power down. […] I am an advocate for decisiveness. Managers at all levels need to assess what is most crucial for the operations they manage and, based on that assessment, choose where the locus of decision-making power should reside.”
Ken Iverson in “Plain Talk

Its a clear eyed view of organizing around your business around the key qualities that create value.

Tie Monetary Compensation to Productivity

“I’ll let you in on a little secret: most people will work hard for money! In fact, we find that motivating people boils down to: a) the opportunity to earn an above-average income; b) job security; and c) opportunities for advancement. […] Most businesses vastly underutilize money as a day-to-day motivator. They set a strict budget for what they’re willing to pay people in wages and salaries, then they squeeze as much work as they can out of their people for the fixed number of dollars. […] What must employees do to earn their weekly bonus? Two things: a) work in teams; b) produce!”
Ken Iverson in “Plain Talk

I think startups can do a lot to share upside with employees. It can be hard to measure the output from some teams on a weekly basis but certainly on a monthly or quarterly basis it’s worth attempting to make an effort. And to make the effort to connect each team’s objectives to corporate objectives for revenue, profit, growth, risk reduction, etc..

Tolerate Failure, Expunge the Impulse to Criticize

“People won’t try to accomplish extraordinary things if their managers won’t tolerate failure. You should take care never to criticize when things turn out badly. That’s a surefire way to prevent people from taking prudent risks. […] Study the experience with those who went through it. Figure out together if the idea is worth attempting another time and, if it is, what adjustments should be made in the approach. […] If it’s worth doing it’s worth doing badly: don’t study an idea to death with experts and committees. Get on with it and see if it works. This approach leads to more than a few failures. Probably half of the new technologies, approaches, and other ideas we try fail. We think some mistakes are perfectly acceptable. The knowledge we gather from some of our so-called ‘failures’ may lead us to spectacular success.”
Ken Iverson in “Plain Talk

I think the key is to run many small experiments and push the decisions down to the team’s that will have to make them work. In Iverson’s highly decentralized approach at Nucor, he was willing to tolerate duplicate and redundant efforts at different small plants (the basis for a business unit of up to 400-500 people) because it allowed for a lot of experimentation. He then encouraged the senior managers to compare notes three times a year on what was working to foster the diffusion of innovation between different units. Because compensation is tied to output at the team level, the team is in a position to do a risk assessment and live with the consequences.

Encourage Automation By Eliminating The Risk of Job Loss

“Most of the time, automation does eliminate jobs. The loss of those jobs, not automation itself, is why people tend to resist technological change. When we automate a process, we guarantee every employee who is affected the opportunity to choose between two jobs that pay as much or more than the position they will lose.”
Ken Iverson in “Plain Talk

People will continue to resist change for other reasons, for example the loss of expertise and need to start over or the perceived loss of status (as distinct from compensation), but the commitment to keeping them as valued employees should go a long way to neutralizing a lot of fears.

Bottom-Line Performance and Long-Term Survival

Mainly, we try to keep our focus on what really matters–bottom-line performance and long-term survival. That’s what we want our people to be thinking about:

  • stressing long-term survival over short-term profitability;
  • “sharing the pain” instead of lining the pockets of executives;
  • pushing decision making authority down to the front-line worker;
  • minimizing distinctions between managers and employees;
  • paying people for their productivity.

Ken Iverson in “Plain Talk

These actions are the core innovation principles that enabled Nucor to come out of bankruptcy and achieve a leadership position against a set of much larger incumbents.

I think it’s easy for founders to put themselves first and to manage themselves to different set of rules than they hold employees accountable to. It’s harder to engage in servant leadership: managing for the long term, sharing the pain, delegating, making what perks your support universally available. But I think you build a more sustainable and longer lived business by doing so.

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