Large organizations of all types suffer from an assortment of congenital disabilities that no amount of incremental therapy can cure. First, they are inertial. They are frequently caught out by the future and seldom change in the absence of a crisis. Deep change, when it happens, is belated and convulsive, and typically requires an overhaul of the leadership team. Absent the bloodshed, the dynamics of change in the world’s largest companies aren’t much different from what one sees in a poorly-governed, authoritarian regime—and for the same reason: there are few, if any, mechanisms that facilitate proactive bottom-up renewal.
Second, large organizations are incremental. Despite their resource advantages, incumbents are seldom the authors of game-changing innovation. It’s not that veteran CEOs discount the value of innovation; rather, they’ve inherited organizational structures and processes that are inherently toxic to break-out thinking and relentless experimentation. Strangely, most CEOs seem resigned to this fact, since few, if any, have tackled the challenge of innovation with the sort of zeal and persistence they’ve devoted to the pursuit operational efficiency. Their preferred strategy seems to be to acquire young companies that haven’t yet lost their own innovation mojo (but upon acquisition most likely will).
And finally, large organizations are emotionally sterile. Managers know how to command obedience and diligence, but most are clueless when it comes to galvanizing the sort of volunteerism that animates life on the social web. Initiative, imagination and passion can’t be commanded—they’re gifts. Every day, employees choose whether to bring those gifts to work or not, and the evidence suggests they usually leave them at home. In Gallup’s latest 142-country survey on the State of the Global Workplace, only 13% of employees were truly engaged in their work. Imagine, if you will, a car engine so woefully inefficient that only 13% of the gas it consumes actually combusts. That’s the sort of waste we’re talking about. Large organizations squander more human capability than they use.
Inertial. Incremental. Insipid. As the winds of creative destruction continue to strengthen, these infirmities will become even more debilitating. Few companies, though, have made much progress in eradicating them. Most of the recommended remedies—idea wikis, business incubators, online collaboration, design thinking, “authentic” leadership, et al—are no more than minor tweaks. They are unlikely to be any more effective than the dozens of “fixes” that came before them. Remember T-groups, total quality management, skunk works, high performance teams, “intrapreneurship,” re-engineering, the learning organization, communities of practice, knowledge management, and customer centricity? All of these were timely, and a few genuinely helpful, but none of them rendered organizations fundamentally more adaptable, innovative or engaging. Band-Aids®, braces and bariatric surgery don’t fix genetic disorders.
To build organizations that are fit for the future, we have to go deeper, much deeper. When confronted by unprecedented challenges, like an inflection in the pace of change, the most important things to think about are the things we never think about—the taken for granted assumptions that are to us as unremarkable as water is to fish. The performance of any social system (be it a government, a religious denomination or a corporation), is ultimately limited by the paradigmatic beliefs of its members; by the core tenets that have been encapsulated in creeds and reified in structures.
Reflect for a moment on the development of constitutional democracy. Ancient and medieval societies were predicated on the “divine right of kings.” The sovereign was answerable only to God and royal edicts could not be countermanded. Society was ordered in descending ranks of royal privilege and everyone from dukes to peasants “knew their place.” To most of those who lived in this pre-democratic world, the idea of self-government would have been ludicrous, if it could have been imagined at all. Thankfully, a few brave souls like William Penn, Thomas Paine and Patrick Henry not only imagined self-government, but devoted their lives to making it a reality. Today it’s the imperial alternative that’s unthinkable.
Until we challenge our foundational beliefs, we won’t be to build organizations that are dramatically more capable than the ones we have today. Despite our best efforts, we will fail to build organizations that are as nimble as change itself. We will fail to make innovation an instinctual and intrinsic capability. We will fail to inspire extraordinary contributions from our colleagues and employees. If we’re serious about tackling the core incompetencies that afflict our organizations, we have to start by scrutinizing the architecture and ideology of modern management—two topics that aren’t often discussed in boardrooms or business schools.
Architecture: Beyond the Pyramid
Most of us grew up in and around organizations that fit a common template. Strategy gets set at the top. Power trickles down. Big leaders appoint little leaders. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Rules proscribe actions. Managers assess performance. This is the recipe for “bureaucracy,” the 150-year old mashup of military command structures and industrial engineering that constitutes the operating system for virtually every large-scale organization on the planet.
Ask just about any anyone to draw a picture of their organization—be it a Catholic priest, a Google software engineer, a nurse in Britain’s National Health Service, a guard in Shanghai’s Hongkou Detention Center, or an account executive at Barclays Bank—and you’ll get the familiar rendering of lines-and-boxes. This isn’t a diagram of a network, a community or an ecosystem—it’s the exoskeleton of bureaucracy; the pyramidal architecture of “command-and-control.” Based on the principles of unitary command and positional authority, it is simple, and scaleable. As one of humanity’s most enduring social structures, it is well-suited to a world in which change meanders rather than leaps. But in a hyperkinetic environment, it is a profound liability.
A formal hierarchy overweights experience and underweights new thinking, and in doing so perpetuates the past. It misallocates power, since promotions often go to the most politically astute rather than to the most prescient or productive. It discourages dissent and breeds sycophants. It makes it difficult for internal renegades to attract talent and cash, since resource allocation is controlled by executives whose emotional equity is invested in the past.
When the responsibility for setting strategy and direction is concentrated at the top of an organization, a few senior leaders become the gate keepers of change. If they are unwilling to adapt and learn, the entire organization stalls. When a company misses the future, the fault invariably lies with a small cadre of seasoned executives who failed to write off their depreciating intellectual capital. As we learned with the Soviet Union, centralization is the enemy of resilience. You can’t endorse a top-down authority structure and be serious about enhancing adaptability, innovation or engagement.
Ideology: Beyond Conformance
And what about ideology? Business people typically regard themselves as pragmatists, individuals who take pride in their commonsense utilitarianism. This is a conceit. Managers, no less than libertarians, feminists, environmental campaigners and the devotees of Fox News, are shaped by their ideological biases. So what’s the ideology of bureaucrats? Controlism. Open any thesaurus and you’ll find that the primary synonym for the word “manage,” when used as verb, is “control.” “To manage” is “to control.”
Managers worship at the altar of conformance. That’s their calling—to ensure conformance to product specifications, work rules, deadlines, budgets, quality standards, and corporate policies. More than 100 years ago, Max Weber declared bureaucracy to be “the most rational known means of carrying out imperative control over human beings.” He was right. Bureaucracy is the technology of control. It is ideologically and practically opposed to disorder and irregularity. Problem is, in the age of discontinuity, it’s the irregular people with irregular ideas who create the irregular business models that generate the irregular returns. In this environment, control is a necessary but far from sufficient prerequisite for success.
Think of Intel and the extraordinary control it must exert over thousands of variables to produce its Haswell family of 14-nanometer processors. This operational triumph is tempered, though, by Intel’s failure to capitalize on the explosive growth of the market for mobile devices. More than 60% of Intel’s revenue is still tied to personal computers, and less than 3% comes from the company’s unprofitable “Mobile & Communications” unit.
Unfettered controlism cripples organizational vitality. Adaptability, whether in the biological or commercial realm, requires experimentation—and experiments are more likely to go wrong than right—a scary reality for those charged with excising inefficiencies. Truly innovative ideas are, by definition, anomalous, and therefore likely to be viewed skeptically in a conformance-obsessed culture. Engagement is also negatively correlated with control. Shrink an individual’s scope of authority, and you shrink their incentive to dream, imagine and contribute. It’s absurd that an adult can make a decision to buy a $20,000 car, but at work can’t requisition a $200 office chair without the boss’s sign-off.
Make no mistake: control is important, as is alignment, discipline, focus, accountability and all the other liberty-limiting virtues so beloved by accountants and engineers—but freedom is equally important. If an organization is going to out-run the future, individuals need the freedom to bend the rules, take risks, go around channels, launch experiments and pursue their passions. Unfortunately, managers often see control and freedom as mutually exclusive—as ideological rivals like communism and capitalism, rather than as ideological complements like mercy and justice.
With it’s one-sided exaltation of control, bureaucracy is ideologically lop-sided. To overcome the core incompetencies of the corporation, management practitioners and theorists must devote themselves wholeheartedly to the task of bringing the ideologies of control and freedom into equipoised tension. One ideology cannot win consistently at the expense of the other.
Bureaucracy must die
The most profound challenge facing 21st-century leaders can be simply stated: How to reap the blessings of bureaucracy—control, consistency and predictability—while at the same time killing it. Bureaucracy, both architecturally and ideologically, is incompatible with the demands of the 21st century.
Some might argue that the biggest challenge facing contemporary business leaders is the undue prominence given to shareholder returns, or the fact that corporations have too long ignored their social responsibilities. These are indeed challenges, but they are neither as pervasive nor as problematic as the challenge of defeating bureaucracy. First, only a minority of the world’s employees work in publicly-held corporations that are subject to the rigors and short-comings of American-style capitalism. Bureaucracy, on the other hand, is universal. Second, most progressive leaders, like Apple’s Tim Cook or HCL Technologies retired CEO, Vineet Nayar, already understand that the first priority of a business is to do something truly amazing for customers, that shareholder returns are but one measure of success, that short-term ROI calculations can’t be used to as the sole justification for strategic investments, and that, since corporate freedoms are socially negotiated, businesses must be responsive to the broader needs of the societies in which they operate. All this is becoming canonical among enlightened executives. Yes, work still needs to be done to better align CEO compensation with long-term value creation, but that work is already well underway. And while some CEOs still grumble that Anglo-Saxon investors are inherently short-term in their outlook, their argument breaks down the moment you realize that investors are typically happy to award fast-growing companies with a price-earnings multiple that is many times the market average. Simply put, at this point in business history, the pay-off from reforming capitalism, while substantial, pales in comparison to the gains that could be reaped from creating organizations that are as fully capable as the people who work within them.
I meet few executives around the world who are champions of bureaucracy, but neither do I meet many who are actively pursuing an alternative. For too long we’ve been fiddling at the margins. We’ve flattened corporate hierarchies, but haven’t eliminated them. We’ve eulogized empowerment, but haven’t distributed executive authority. We’ve encouraged employees to speak up, but haven’t allowed them to set strategy. We’ve been advocates for innovation, but haven’t systematically dismantled the barriers that keep it marginalized. We’ve talked (endlessly) about the need for change, but haven’t taught employees how to be internal activists. We’ve denounced bureaucracy, but we haven’t dethroned it; and now we must.
We have to face the fact that any change program that doesn’t address the architectural rigidities and ideological prejudices of bureaucracy won’t, in fact, change much at all. We need to remind ourselves that bureaucracy was an invention, and that whatever replaces it will also be an invention—a cluster of radically new management principles and processes that will help us take advantage of scale without becoming sclerotic, that will maximize efficiency without suffocating innovation, that will boost discipline without extinguishing freedom. We can cure the core incompetencies of the corporation—but only with a bold and concerted effort to pull bureaucracy up by its roots.