Organizational Psychology for Silicon Valley

Organizational Psychology is a fascinating field. Understanding insights from this field can be amazing useful for Silicon Valley Tech. managers/executives and yet this field remains underrated in the mainstream.

Today’s post will explore the dynamics between managers/executives and their employees. In the past, I’ve covered related ideas at the intersection of leadership and psychology:

The importance and applicability of organizational psychology is true irrespective of the size of the organization - people are people, whether they work for a large corporation or a small startup. Here are two quotes to set the context for today’s post (emphasis mine) and show how important but hard this is, in real-life:

A lot of this is intuitive to effective leaders… They can ‘read the room’ - understand (and empathize with) the body language and emotional disposition of their team members. They take it for a given that we humans are not perfectly rational creatures - we are also a bundle of emotions. They naturally factor in the human element in their strategy, organizational design, incentives, etc.

Let’s now look at a real-life story from the lens of organizational psychology.

Countless tech employees in the Bay Area pass by the Tesla Factory in Fremont, unaware of the remarkable transformation that took place there before Tesla took ownership. The real-life story of transformation offers profound insights for leaders in the tech industry (whose idea of improving productivity is firing the “bottom 5%”).

The original Fremont GM plant had been notorious for its problematic workforce, with rampant issues including alcohol consumption on the job, high absenteeism, and needless to say, poor vehicle quality. In 1984, General Motors and Toyota embarked on a historic joint venture called NUMMI (New United Motor Manufacturing Inc.).

Toyota helped implement its production system at NUMMI, teaching GM workers the principles of teamwork, quality, and continuous improvement. Workers were sent to Japan for training, where they experienced a radically different approach to manufacturing.

The cornerstone of this system was the ‘Andon cord’, which allowed workers to stop the production line if they spotted quality issues - a practice that had been strictly forbidden under GM's management, because every stoppage of the assembly line was potentially hundreds of thousands of dollars of lost revenue.

While it was very expensive to stop the entire line, Toyota had learnt it was far better to fix existing problems early than to ship defective cars.

A pivotal moment in NUMMI's history occurred when Tetsuro Toyoda, the President of Toyota, visited the newly opened factory. While touring the production line, he noticed a worker named Joe struggling to install rear lights on a vehicle.

Mr. Toyoda approached Joe and requested him to pull the Andon Cord. Observing Joe's continued struggle and hesitance to pull the cord, Mr. Toyoda decisively took Joe's hand, and together, they pulled the cord. A yellow light began flashing, and the production line came to a stop, allowing him to complete the installation properly. Joe finished his work and pulled the Andon cord again – the production line return to normal work.

After the incident, Mr. Toyoda bowed to Joe and delivered a powerful message:

The impact of this moment was immediate and profound to those who witnessed it. By noon, the entire factory had heard about the incident. The following day, workers pulled the Andon cord over ten times, and within a month, it was being pulled an average of 100 times per day.

This transformation led to remarkable results - within two years, NUMMI was producing cars at quality levels matching Toyota's Japanese factories, while absenteeism plummeted from 45% to 3%.

Listen to the whole story of NUMMI on This American Life and ask yourself this question about your organization: How are developers treated when they report that something is impeding their productivity? Is the developer productivity team focussed on shaving off a few seconds from the build system or paying attention to the days/weeks lost in the death by a thousand paper cuts - the frustration they have to endure with the endless reviews and approvals?

B2C purchases and brands can be largely explained with the idea of satisficing as a decision-making approach where individuals or consumers prioritize solutions that are "good enough" rather than seeking the absolute best or optimal choice. We don’t want the best. Just not crap. They are fundamentally different perspectives.

Similarly, B2B purchases can be largely explained with the idea of ‘blame avoidance’.

That is still a widely-known business adage that describes risk-averse decision-making in corporate environments. Using the “Gartner Magic Quadrant” to make and justify procurement decisions is another example.

Watch Rory Sutherland explain this elegantly:

He goes on to explain how in B2B or institutional settings, the apparent quality and logic of your decision making is much more important to your career than the consequences of your decision and contrasts it with an entrepreneurial setting where the quality of your decisions is all that matters and that determines whether your business survives or thrives.