Elon Musk is known as a first principles thinker when it comes to inventing new things, but he has recently started applying this type of thinking across all the different processes in his company.
In a letter to his employees he outlined how he will reform the spending practices in the company.
“Going forward, we will be far more rigorous about expenditures. I have asked the Tesla finance team to comb through every expense worldwide, no matter how small, and cut everything that doesn’t have a strong value justification.”
“All capital or other expenditures above a million dollars, or where a set of related expenses may accumulate to a million dollars over the next 12 months, should be considered on hold until explicitly approved by me. If you are the manager responsible, please make sure you have a detailed, first principles understanding of the supplier quote, including every line item of parts & labor, before we meet.”
So basically he wants to have his managers apply first principles thinking to all the things they do, including how they source different components from suppliers.
In an analysis of how subcontracting works in his company, Musk found out that it is a complicated system that creates a lot of overhead.
“I have been disappointed to discover how many contractor companies are interwoven throughout Tesla. Often, it is like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful. Also, many contracts are essentially open time & materials, not fixed price and duration, which creates an incentive to turn molehills into mountains, as they never want to end the money train.”
What this means is that all his employees, especially the ones in management positions, need to be first principles thinkers, no matter whether they sit in the lab and create new inventions, or sit in front of the computer looking at Excel tables all day.
Should you be a first principles thinker 100% of the time?