Nothing works (without trust)

Delightful treatment of the idea that efficient markets produce products that work by Dan Luu.

The whole thing is worth reading, but the most interesting section to me was the one on trust in between firms and within firms.

Coming back to when it makes sense to bring something in-house, even in cases where it superficially sounds like it shouldn't, because the expertise is 99% idle or a single person would have to be able to build software that a single firm would pay millions of dollars a year for, much of this comes down to whether or not you're in a culture where you can trust another firm's promise. If you operate in a society where it's expected that other firms will push you to the letter of the law with respect to whatever contract you've negotiated, it's frequently not worth the effort to negotiate a contract that would give you service even one half as good as you'd get from someone in house. If you look at how these contracts end up being worded, companies often try to sneak in terms that make the contract meaningless, and even when you managed to stamp out all of that, legally enforcing the contract is expensive and, in the cases I know of where companies regularly violated their agreement for their support SLA (just for example), the resolution was to terminate the contract rather than pursue legal action because the cost of legal action wouldn't be worth anything that could be gained.

If you can't trust other firms, you frequently don't have a choice with respect to bringing things in house if you want them to work.

Although this is really a topic for another post, I'll note that lack of trust that exists across companies can also hamstring companies when it exists internally. As we discussed previously, a lot of larger scale brokenness also comes out of the cultural expectations within organizations. A specific example of this that leads to pervasive organizational problems is lack of trust within the organization. For example, a while back, I was griping to a director that a VP broke a promise and that we were losing a lot of people for similar reasons. The director's response was "there's no way the VP made a promise". When I asked for clarification, the clarification was "unless you get it in a contract, it wasn't a promise", i.e., the rate at which VPs at the company lie is high enough that a verbal commitment from a VP is worthless; only a legally binding commitment that allows you to take them to court has any meaning.

Of course, that's absurd, in that no one could operate at a BigCo while going around and asking for contracts for all their promises since they'd immediately be considered some kind of hyperbureaucratic weirdo. But, let's take the spirit of the comment seriously, that only trust people close to you. That's good advice in the company I worked for but, unfortunately for the company, the implications are similar to the inter-firm example, where we noted that a norm where you need to litigate the letter of the law is expensive enough that firms often bring expertise in house to avoid having to deal with the details. In the intra-firm case and you'll often see teams and orgs "empire build" because they know they, at least the management level, they can't trust anyone outside their fiefdom.

While this intra-firm lack of trust tends to be less costly than the inter-firm lack of trust since there are better levers to get action on an organization that's the cause of a major blocker, it's still fairly costly. Virtually all of the VPs and BigCo tech execs I've talked to are so steeped in the culture they're embedded in that they can't conceive of an alternative, but there isn't an inherent reason that organizations have to work like that. I've worked at two companies where people actually trust leadership and leadership does generally follow through on commitments even when you can't take them to court, including my current employer, Wave. But, at the other companies, the shared expectation that leadership cannot and should not be trusted "causes" the people who end up in leadership roles to be untrustworthy, which results in the inefficiencies we've just discussed.

People often think that having a high degree of internal distrust is inevitable as a company scales, but people I've talked to who were in upper management or fairly close to the top of Intel and Google said that the companies had an extended time period where leadership enforced trustworthiness and that stamping out dishonesty and "bad politics" was a major reason the company was so successful, under Andy Grove and Eric Schmidt, respectively. When the person at the top changed and a new person who didn't enforce honesty came in, the standard cultural norms that you see at the upper levels of most big companies seeped in, but that wasn't inevitable.

I’m not sure at the moment how much I agree with his approach to build vs. buy decisions but I know I agree with his assessment that the essential ingredient for productivity is trust.