Delegation is a vital skill for entrepreneurs to master. If you want to grow your business, you can’t just hire people and tell them to get on with it. You need a framework for delegation.
Derek Sivers tells an instructive story about the perils of delegation gone awry in Anything You Want, his autobiographical account of the founding of CDBaby. He delegated total responsibility for the creation of an employee bonus scheme at CDBaby to his own employees. He realised later that the resulting scheme was wiping out all profit in the business. When he amended the scheme, he faced a huge conflict with employees.
Although entrepreneurs agree about the importance of delegation, there are widely differing views on the best way to delegate. This article explains the three main approaches and outlines the pros and cons of each.
The "Operations Manual" Approach to Delegation
The Operations Manual approach to delegation is described in Michael Gerber’s book The E-Myth Revisited. This approach is geared towards the kinds of small businesses that Gerber spent many years advising. This method of delegation involves creating explicit and detailed instructions for work procedures that you expect your employees to follow. You tell them not just what you want done, but also how you want them to do it. Your instructions are codified in an operations manual or similar document.
In his book, Gerber describes an experience he had visiting a hotel where he noticed the great customer service. He asked the hotel manager how he had achieved this level of quality in service. The hotel manager showed him a detailed operations manual, which included well-defined procedures for all tasks, down to order in which the cleaning staff should clean each item in a room.
The idea behind this approach is to treat your business as if it were a franchise prototype. As the business owner, you try to get yourself out of the operational role as quickly as possible, in order to give yourself maximum freedom to grow the business and step away from it in future.
The operations manual approach works best with inexperienced employees who are willing to learn how things are done and to follow detailed instructions given to them. Since you want everyone to be working in line with your operations manual, you hire people willing to learn and follow your way of doing things. Experience in other ways of doing things could even be seen as a liability. Gerber recommends hiring inexperienced people in The E-Myth Revisited.
The advantage of the operations manual approach is that your business is highly scalable. The strategy of designing your business as if it were a franchise prototype makes it easy to increase production, doing more of the same.
The down side of this approach is that it can easily become outdated, because it is dependent on detailed prescriptions for all actions. Flexibility and adaptability are not built into a centralised system. You can codify all your procedures in an operations manual, but the business will grow and change. Innovation by staff members is deliberately stifled in this approach, which prevents you from benefiting from employee knowledge about what can be improved. Anyone adopting this approach has to implement feedback mechanisms to try to get some of that knowledge back into the centralised plan, such as asking staff for their suggestions as to how to improve procedures. But such feedback mechanisms tend to be cumbersome and bureaucratic.
You can try to mitigate the downside of this approach by involving employees as much as possible in the creation and updating of your procedures. I did this in my business by using a wiki-based operations manual, as I describe in my book Becoming An Entrepreneur. Everyone could edit any page in the manual and contribute to standardising the procedures. I found that with this adjustment, the operations manual approach to delegation worked very well with inexperienced employees.
The ROWE Approach to Delegation
The Results Only Work Environment (or ROWE) is a totally different approach to delegation. This kind of delegation involves giving your employees clearly defined outcomes to reach, and leaving it to their discretion as to how they reach them. What really matters to the entrepreneur is the results of an employee’s work. The way that the employee achieves those results should be irrelevant to the entrepreneur (as long as they don’t do anything that is in conflict with the interests of the business or that creates any problems). Consequently, according to the ROWE approach, the best way to get things done is to provide very clear targets or business goals, and then leave your employees completely free to achieve those results in their own way.
If you accept the logic of this approach, you shouldn’t care what time your employees come to work, or whether they work from home. The only thing that the entrepreneur should concern themselves with is the employee’s productivity. What matters is the quality and quantity of completed work by each employee. If the employee does better work at home in their pyjamas, so be it.
Advocates of the ROWE approach also see a benefits to entrepreneur’s work from adopting this approach. This method of delegation forces the entrepreneur to provide very clear goals for the business. In the operations manual approach, it’s possible for an employer to get bogged down in telling staff what to do and lose sight of their own job—to provide vision for the business. ROWE forces the employer to think about what needs to be done rather than the minutiae of how to do it.
One of the aims of the ROWE approach to delegation is to incentivise employees to find more efficient ways of working. By giving employees the opportunity to benefit from efficiency gains, they are encouraged to seek out faster, easier ways of reaching their own targets. This reflects an underlying insight that employees are likely to be more aware than managers of potential efficiency gains in their own workflows, because they are the ones doing the work. The aim of ROWE is to encourage improvements to efficiency at the most distributed level possible.
Ricardo Semler is a famous proponent of this kind of approach. He implemented ROWE principles throughout Semco, his corporation in Brazil. He has described his approach in two books Maverick and The Seven Day Weekend. The term ROWE was coined by Cali Ressler and Jody Thompson— two human resources executives who implemented these principles within the Best Buy corporation during the 2000s. They describe their journey in their book Why Work Sucks And How To Fix It. Jason Fried and David Heinemeier Hansson describe how they adopted a similar approach in their company Basecamp (formerly 37 Signals) in their book Rework.
The downside of the ROWE approach for the entrepreneur is that there is no clear mechanism to translate efficiency gains by individual employees into productivity gains for the business as a whole. Employees will always benefit from the greater flexibility. Increasing employee satisfaction certainly can benefit the business. However, more satisfied employees do not necessarily become more productive employees.
Efficiency gains can simply lead to employees finishing their work in less time and having more leisure time. This is exactly what Tim Ferriss suggests that employees do in his book, The Four Hour Work Week. He encourages employees to strive for the freedom to work at home so that they can take advantage of their own productivity gains to free up some of their employee time for personal projects. This means that all efficiency improvements are translated into higher effective wages for the employee. This higher wage might benefit to the business (by attracting better employees and improving retention) but it doesn’t necessarily lead to more productivity.
ROWE can only lead to greater productivity if employers are able to increase employee targets in line with increases in efficiency. This is going to be a difficult judgement call, since the employer gives up all detailed knowledge of working practices in a ROWE. It is interesting to note that Best Buy—which was the model example of a ROWE implementation—has since scrapped ROWE and gone back to previous working practices.
The Outsourcing Approach to Delegation
The third approach to delegation is to avoid employer-employee relationships as far as possible and outsource work to external contractors instead. This model of delegation works by outlining your desired outcome and then negotiating with an external contractor for an agreed price, timescale, and other conditions, to achieve the outcome.
In his book How I Found Freedom In An Unfree World, Harry Browne described his own implementation of this approach. He hated the bureaucracy involved with employing people, so he decided to arrange his business entirely using independent subcontractors.
Like the ROWE approach, the outsourcing model of delegation is focussed on outcomes and leaves it up to the person undertaking the work to identify the most efficient way of achieving the goal. This kind of delegation also incentivises the entrepreneur to create clear and explicit business goals.
Outsourcing has one significant advantage over the ROWE: with outsourcing there is a mechanism to translate efficiency gains by individual workers into productivity gains for the business as a whole. That mechanism is market competition. If the independent contractor does not pass on some of the efficiency gains to their customer in a lower price, then they run the risk of being uncompetitive relative to other subcontractors. In fact, this mechanism works for both sides, since it also means that the subcontractors will have to capture some gains in the form of profit in order for it to be worthwhile for them to innovate in the first place.
The cost basis of outsourcing is different from employing people. The entrepreneur gets to keep fixed costs as low as possible because he only employs people on a contract basis. He may have additional search and transaction costs when finding people to do the tasks (although the internet has reduced these costs significantly). The independent contractors may also be more expensive than employees because they need to charge more (since they don’t have the security of a fixed paycheque). However, the entrepreneur is also likely to get more skilled specialists by outsourcing, since he is not trying to fit a limited set of existing employees to a diverse range of tasks that need to get done.
If you accepted the logic of ROWE, then outsourcing is just a more consistent version of that approach. If you believe that people work better when they have autonomy, then why not work with people who have full autonomy (external contractors) and avoid hiring employees altogether? Hiring external contractors to achieve specific tasks is the ultimate version of ROWE.
I have had very positive experiences with independent contractors. I prefer the Harry Browne approach of relying on outsourcing instead of fixed employment contracts wherever possible.
Automation: An Alternative To Delegation?
Automation is one alternative to delegation that is becoming more feasible for many tasks. The act of delegation requires you, as delegator, to clearly identify your desired outcome. The Operations Manual approach also requires you to identify a detailed workflow for the work. Once you have clearly specified the task, you may be able to delegate it to a computer and avoid having to deal with human delegation altogether.
Automation is much easier now because there are so many applications available now to help with basic tasks. To take a simple historical example, typing on a typewriter used to be a slow and cumbersome process. Errors were not easy to correct and often involved restarting an entire page. Consequently, it made sense for any skilled professional to delegate typing tasks to an assistant. The professional would dictate a letter and give it to a secretary to type up. Very few people do this now, since word processors make the process of typing faster and easier than before. Even if you prefer to dictate a letter, personal computers can do a fairly good job of voice recognition and automate the transcription process for you. The job of typist has been effectively automated.
Over time, this kind of automation removes the need to delegate more and more simple tasks. This is the ultimate goal of the Operations Manual approach to delegation: specify the task so well that you can get a computer to do it automatically.
Choosing Your Approach to Delegation
If you need to delegate simple tasks to be done in exactly the way that you specify, it makes a lot of sense to adopt the Operations Manual approach to delegation. This approach will also likely inform your hiring strategy and you will tend to employ inexperienced, enthusiastic people at the start of their careers who are willing to learn your way of doing things. Consider automation as the final goal of this kind of delegation.
Alternatively, if you want to benefit from expertise that you don't have, it makes sense to delegate work to people in a way that gives them maximum autonomy. The ROWE concept is one way of implementing this approach. But if you accept the logic of the ROWE approach, then a more consistent implementation of the concept is simply to outsource work to external contractors, and avoid hiring employees altogether.