Social Psychology and Business

• Many of the books I’ve relied on most heavily were published within the last decade or so. These include Blueprint (2019), The Goodness Paradox (2019), Social (2013), The Ape That Understood the Universe (2018), The Folly of Fools (2011), Everybody Lies (2017), Why Everybody Else Is a Hypocrite (2010), The Elephant in the Brain (2017), The Enigma of Reason (2017), The Secret of Our Success (2015), Not Born Yesterday (2020), The WEIRDest People in the World (2020), Catching Fire (2009), The Social Instinct (2021), and Hidden Games (2022).
• —Andrew McAfee. The Geek Way: The Radical Mindset that Drives Extraordinary Results (p. 19).1

McAfee writes,

• The geek way is a set of solutions for thriving in a faster-moving business world. They’re cultural solutions, not technological ones. p. 26

In the middle of the last century, the American economy was dominated by heavy industry, making automobiles, steel, and other manufactured goods for the mass market. The business culture that evolved in those industries stressed planning and top-down control, as John Kenneth Galbraith argued in The New Industrial State. The leaders of such firms were allocating massive amounts of capital in irreversible ways, as in the decision to build a new plant. Needing to get these decisions right, corporate leaders relied on a cumbersome evaluation process in which each proposal was examined by a cadre of division managers and their staff analysts.

Today, much of the capital in American business consists of software systems, not physical plant and equipment. Managed correctly, this software capital can be acquired—and changed—much more quickly than physical capital. This environment rewards an entirely different management culture, what McAfee calls the Geek Way, that today’s successful business leaders have arrived at.

The new business culture needs to be able to make decisions quickly, rather than put proposals through a long and painful process of analysis. It can afford a trial-and-error approach, rather than committing to an elaborate plan. And it must make good use of what we know of human psychology rather than rely on hierarchical authority.

Recent literature emphasizes collective brains rather than individual brains.

• … humanity’s superpower is at the level of the group, not the individual, so it makes sense to focus on the group. p. 102

McAfee says that today’s business leaders have arrived at four cultural norms:

• The first is speed: a preference for achieving results by iterating rapidly instead of planning extensively. The second norm is ownership. Compared to industrial-era organizations, geek companies have higher levels of personal autonomy, empowerment, and responsibility, fewer cross-functional processes, and less coordination. Third is the norm of science: conducting experiments, generating data, and debating how to interpret evidence. The fourth and final great geek norm is openness: sharing information and being receptive to arguments, reevaluations, and changes in direction. p. 59

The challenge is to get people to collaborate in ways that run counter to our native psychology. We care a lot about status, which makes the process of undertaking a new initiative fraught. McAfee writes,

• Our minds are inherently justificatory about their own ideas, and argumentative about the ideas of others. p. 143

• Excess bureaucracy is a bug for anyone who wants a company to run efficiently, but it’s a feature for the Homo ultrasocialis who seek to gain status in the organization. They’ll invent work so that they can be part of it. They’ll want to participate in more and more activities over time. They’ll strive to be consulted on lots of decisions, and if possible have veto power over them. p. 156

Thus, there are two ways that a corporate decision process can go wrong. If it allows individual managers too much autonomy, they will undertake flawed initiatives. But if it allows other managers too much ability to interfere, they will suppress good initiatives. To try to avoid these excesses, senior leaders must try to establish a culture in which initiatives are to be evaluated objectively, preferably with low-cost testing and data gathering, rather than undertaken or vetoed solely at the whim of individuals competing over status. McAfee writes,

• Conduct evidence-based arguments so that the group makes better decisions, predictions, and estimates. For the great geek norm of ownership—the subject of this chapter—the specific ground rule is, To reduce bureaucracy, take away opportunities to gain status that aren’t aligned with the goals and values of the company. p. 166

I would say you need to reward people who contribute to solving problems, not people who build and protect empires within the organization.

Concerning the norm of ownership, McAfee writes,

• The whole point of setting up two-pizza teams was to minimize the amount of coordination and communication needed with other Amazonians, and the number of dependencies the team had with the rest of the business. Instead of starting from the assumption that important business efforts require a lot of coordination, involvement, and buy-in from many groups, two-pizza teams were born out of the opposite assumption: the more important an effort is, the more its dependencies should be reduced and the more the team responsible for it should be given sole ownership and complete autonomy.

• … As two-pizza teams were getting rolled out across Amazon, the company found that the ones that worked hardest early on to reduce their dependency on the rest of the organization were the most successful over time. p. 169-170

Achieving clarity of purpose and limiting dependencies sounds like a great idea, but it requires a lot of intellectual effort and discipline. I have never seen an organization chart that neatly separated functions. No matter how you draw the boxes, there are always areas of overlap. The challenge is to avoid unnecessary overlaps, and to manage those that remain. If an organization has an incoherent structure, then the software that supports it is also bound to be messy and difficult to maintain.

You want a software system that does exactly what it is supposed to do, no more and no less. But that is easier said than done. McAfee points out that software development at Amazon was disciplined by adopting so-called service-oriented architecture.

Note that bureaucratic rules and checks exist for a reason. McAfee writes,

• … ownership provides high autonomy but has two obvious weaknesses. The first is that it can be abused. People can take advantage of the lack of required prior approvals and other checks to commit fraud, embezzle, or otherwise enrich themselves. The second potential weakness is chaos. There’s no guarantee that a bunch of atomized teams will, in aggregate, act in ways that will advance the goals of the company. p. 171-172

Perhaps surprisingly, in many organizations low-level managers and employees do not really understand how their work fits in with the goals of the enterprise. This ignorance undermines accountability, so that units focus on activities rather than results. Instead, leaders need to clearly articulate objectives and key results while conveying these down to the unit level.

Humans evolved to gossip. In an organizational context, this can be counterproductive, as one team seeks to learn about and demean other teams. McAfee writes,

• The geeks’ distaste for coordination can seem extreme. They often don’t even want teams to talk with each other, or with the higher-ups in the company. They believe that cross-team communication can be harmful because it often turns into a soft form of bureaucracy. p. 188

Instead of noisy gossip, an organization should encourage iterative development and testing. Each time a product is put forward, the results feed back into the next iteration of the product. The product team responds to objective information, not the mere opinions of other people within the organization.

The literature on cultural evolution shows that people learn by copying and by trial-and-error. The idea is to find the sweet spot between reinventing the wheel and failing to innovate. McAfee cites research showing that it is best to have multiple good models to copy from, allowing for innovative combinations. Also, trial-and-error is best done as rapidly as possible, in order to minimize time wasted on ideas that do not work out.

McAfee explains how Elon Musk’s SpaceX was able to outperform NASA:

• The vast differences between NASA and SpaceX are well summarized by Musk: “I have this mantra. It’s called, ‘If a schedule is long, it’s wrong. If it’s tight, it’s right.’ And I just, basically, [go with] recursive improvement on schedule, with feedback loop. ‘Did this make it go faster?'” p. 225

Our psychological tendencies include being over-confident and self-justifying. Most of us are inclined to defer to authority, fearing offending high-status individuals.

One can see how these characteristics could lead to disaster. An over-confident, highly defensive leader will undertake a very unwise course of action because he shuts off feedback from lower-level managers who know better, but who are intimidated by the leader. According to David Halberstam in The Best and the Brightest,3 this describes Robert McNamara during the Vietnam War escalation.

McAfee uses the term “Model 1” to describe cultures that suppress bad information.

Its norms include:

• • 1. Be in unilateral control over others.
  • 2. Strive to win and minimize losing.
  • 3. Suppress negative feelings.

  (p. 242)

To avoid creating a Model 1 organization, leaders need to create a culture of openness, in which it is understood that the leader welcomes criticism and bad news. For example, one CEO shared the performance review he received from the corporate board, which was mostly flattering but not entirely so. Doing so showed that he was open to getting negative feedback.

The Israeli military is known for allowing junior officers to openly challenge the views of senior generals. The intelligence failure in October of 2023 will probably be blamed in part on a failure by senior officials to adhere to this cultural norm.

McAfee quotes Marc Andreessen making the interesting observation that,

• “The most serious problem facing any organization is the one that cannot be discussed.” p. 251

I would point out that university Presidents and their Boards have not been willing to discuss the issue of campus radicalization. Now that they are losing political support, funding, and reputation, the problem is so deeply embedded that even those willing to discuss it may be unable to solve it.

The recent literature on human culture has much to tell us about organizational behavior. Humans need to participate in groups in order to thrive. Groups in turn have to adopt and enforce norms that align the psychology of the individual to the functioning of the group. The individual desire for status needs to be channeled constructively. And large organizations must be inculcated with habits and norms that make group behavior and individual incentives congruent with the success of the organization. The more we understand about social psychology, the better we will be at maintaining organizations.

Footnotes

[1] Andrew McAfee, The Geek Way: The Radical Mindset that Drives Extraordinary Results. Little, Brown and Company, 2023.

[2] Note that I have previously reviewed Robert Plomin’s Blueprint (see “DNA Determinism,” by Arnold Kling, Library of Economics and Liberty, Feb. 4, 2019) and Joseph Heinrich’s The WEIRDest People in the World (see “A WEIRD Turn in Social Science,” by Arnold Kling, Library of Economics and Liberty, Nov. 2, 2020), and I am familiar with several of the other books listed above. In addition to those works, McAfee also cites Gad Saad, author of Evolutionary Psychology in the Business Sciences.

[3] See my review of Halberstam here: “Lessons from The Best and the Brightest,” by Arnold Kling. Library of Economics and Liberty, Aug. 7, 2017.