Do We Need Managers or Management?
Note: this was originally posted on Harvard Business Review Blogs, with terrific editing by Sarah Green Carmichael.
Maybe you’ve heard the old cliché – if you’ve got “too many chiefs,” your initiative will fail. Every time I hear it, I wonder, “Why can’t everyone be a chief?”
For instance, the Second Chance Programme is a group that raises money to help reduce homelessness among women here in Southeast Queensland. It’s achieved impressive results since being founded in 2001, and is run by a committee of about ten people. In the early days, a management consultant used the familiar chiefs/Indians line to predict they’d fail.
This kind of thinking assumes:
- You need a hierarchy to succeed.
- The people that do the work are of lower status than those that decide what work to do.
- Organizations that don’t follow the norms are likely to fail.
I think that all of these ideas are wrong. Second Chance has certainly been very successful with their flat, non-hierarchical structure. They have achieved a great deal, while keeping their overhead close to $0. If the structure of the management committee was a problem, they would have failed by now.
But maybe this kind of structure only works for not-for-profits?
Nope. About 20% of the world’s websites are now on the WordPress platform – making it one of the most important internet companies. And yet, Automattic, the firm behind WordPress, only employs a couple hundred people, who all work remotely, with a highly autonomous flat management structure. GitHub is another highly successful firm with a similar structure.
So, maybe this structure only works for not-for-profits and software firms with open source platforms?
Well, Valve is a gaming company that makes Half Life, Portal and many other popular games. Their software is proprietary. And they are famous for not having bosses at all. And 37Signals has a structure that looks a lot like Automattic’s, while building software that enables distributed collaboration, such as Basecamp and Ruby on Rails.
Ok, then, flat structures work for not-for-profits and software startups. But you surely can’t run, say, a big manufacturing firm like this, can you?
Actually, you can. Take a look at W.L. Gore. Gore is one of the most successful firms in the world. They have more than 10,000 employees, with basically three levels in their organizational hierarchy. There is the CEO (elected democratically), a handful of functional heads, and everyone else. All decision-making is done through self-managing teams of 8-12 people: hiring, pay, which projects to work on, everything. Rather than relying on a command-and-control structure, current CEO Terri Kelly says:
“It’s far better to rely upon a broad base of individuals and leaders who share a common set of values and feel personal ownership for the overall success of the organization. These responsible and empowered individuals will serve as much better watchdogs than any single, dominant leader or bureaucratic structure.”
They’ve had challenges in maintaining their structure as they’ve grown, but the remain one of the most innovative and most profitable firms in the world.
But all of these examples have had flat structures from the day they were founded – you couldn’t do something like this in a firm that has been operating for a while with the normal hierarchical structure, could you?
That’s exactly what Ricardo Semler and his team at Semco did when he joined the firm in 1983. In the 30 years since, the Brazilian conglomerate has continually worked at distributing decision-making authority out to everyone. One of the firm’s key performance indicators is how long Semler can go between making decisions. The time keeps getting longer, while the firm has maintained around 20% growth for nearly 30 years now.
All of these are examples where everyone is a chief. The flat organizational structure can work anywhere. This works best when:
- The environment is changing rapidly. Firms organized around small, autonomous teams are much more nimble than large hierarchies. This makes it easier to respond to change.
- Your main point of differentiation is innovation. Firms organized with a flat structure tend to be much more innovative – if this is important strategically, then you should be flat.
- The organization has a shared purpose. This is what has carried Second Chance through their tough times – their shared commitment to the women they are helping. While the objectives may differ, all of the firms discussed here have a strong central purpose as well.
There is a growing body of evidence that shows that organizations with flat structures outperform those with more traditional hierarchies in most situations (see the work of Gary Hamel for a good summary of these results).
But while we are seeing an increasing number of firms using flat structures, they are still relatively rare. Why is this so?
It’s not because people haven’t heard of the idea. There have been more than 200 case studies of Gore and Semco alone, and I would bet that nearly every MBA program in the world includes at least one case study looking at a firm with this kind of structure. But there are other obstacles:
- Many people don’t believe in democracy in the workplace. Even people who adamantly oppose small amounts of central planning in government are perfectly happy to have the strategy of even very large firms set by just a handful of people.
- Even if you do believe in democracy, it can be hard to imagine work without hierarchy. The “normal” structure is so deeply ingrained, and so widespread, that it can challenging to even think of an alternative in the first place. That’s why these case studies are so important.
- Fear of the unusual. John Maynard Keynes said, “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” Unfortunately, this is still largely true today.
- It’s hard to change organizational structures. Despite the positive example of Semco, in reality it is very hard to change organizational structures. Even with Semco, it took a financial crisis to trigger the change in thinking. It takes a strong belief in democracy in the workplace along with a resistance to criticism to stay the course and execute such a change.
However, as digital technologies make it easier to work in a distributed manner, and we enter the social era, flat structures will become increasingly common. There are sound business reasons for treating people with dignity, for providing autonomy, and for organizing among small teams rather than large hierarchies.
It’s time to start reimagining management. Making everyone a chief is a good place to start.
Notes: Here’s a related post that explains where the image comes from.
Is Your Innovation Problem Really a Strategy Problem?
Note: this was originally posted on Harvard Business Review Blogs, with terrific editing by Sarah Green Carmichael.
Sometimes, the problem that we think we’re solving isn’t the real problem that we face.
I was running a workshop with a multinational engineering firm when I ran into a perfect example of an air sandwich, which illustrates this point. This dangerous obstacle to innovation is described by Nilofer Merchant in The New How as “the empty void in an organization between the high-level strategy conjured up in the stratosphere and the realization of that vision down on the ground.”
The firm is facing some challenges. Much of the work in their industry is becoming commoditized, and their margins have been shrinking. Furthermore, the amount of work they were winning dropped off significantly during and after the global financial crisis.
They have responded to these changes in their competitive environment and have started to position themselves as the most innovative firm in their market. But because the industry’s margins are so low, this strategy carries real risk. Backing up this claim will take significant investment to build the skills they need.
And yet the potential rewards are also significant. If they do become the most innovative firm in their market, they will be able to build long-term relationships with clients instead of transactional ones, charge a premium because they deliver better work, and possibly even start winning work outside of the bidding process.
I’ve been teaching innovation courses to groups of their both their senior and future leaders for a couple of years now to try to help them build this innovation capability.
The chart below shows the responses to a questionnaire I administered called the Innovation Value Chain survey, and it demonstrates what an air sandwich looks like in practice. The bars reflect how two teams of managers, a senior team and a junior team, rank this firm on the five stages in the innovation process – idea generation, selection, and implementation, as well as sustaining innovations and diffusing them. Higher scores on the scale of 1-3 mean that they believe they are stronger in those areas.
This is a fairly typical profile of innovation capability within a large firm. They are very strong at generating ideas. Their weakest areas are idea selection and implementation, and they are adequate at sustaining ideas (keeping internal people engaged throughout the process of making the idea real) and diffusing the new ideas more widely. (One good sign: if you rank the five skills from the strongest to the weakest, the two teams have identical lists despite the gap between the two teams’ scores.)
So why does the senior team rank the firm a lot higher than the junior team in all five areas?
I’ve gotten a few different suggestions in response to this question, including:
- The senior team is delusional. They believe that they have great innovation capabilities, but this is not true on the ground.
- The junior team is ignorant. It might be that they simply don’t know what’s going on inside the firm.
- The scores reflect differences in autonomy. The senior team might be more optimistic because they have more control over the process.
In this case, I think all three answers are partly true. The junior team didn’t know about a major R&D initiative that the firm was undertaking. And there are clear differences in autonomy: When the junior team gave presentations to some of the senior team outlining their ideas for improving innovation, the results were not good – the senior bunch shredded the ideas. This tells me that their perception that the senior team is out of touch with front-line realities is probably pretty close to accurate.
The problem with an air sandwich like this that it can kill an innovation initiative before it even gets started. Gaps like this between those that formulate strategy and those that execute it will make it incredibly hard to implement new ideas. This is one of the reasons that it is almost impossible to just add some innovation into an organization, without changing the culture.
Merchant’s argument is that the best way around this is to develop systems that allow strategy to be created collaboratively. She writes:
“The same few problems crop up, over and over again. We limit participation in strategy creation based on title and rank rather than relevant insight. We insist on lobbing strategy over the wall to the execution team without creating a shared understanding of what matters and why. And we reward individual accomplishment because it is easier than rewarding co-ownership of the ultimate outcomes.”
There are three key points to this story:
- Top-down strategy is dangerous. When one group creates the strategy and expect another bunch to implement it, the result will be an air sandwich. The consequences of this are that strategies that may be great on paper die on the ground. Expanding the number of people that contribute to strategy creation is one good way to avoid this problem.
- Innovation and strategy are tightly linked. Merchant is focused on strategy creation, but the same issues are true for innovation. Innovation works best when everyone in the firm is involved with creating and executing the ideas that will drive the firm to success.
- Our problem isn’t always obvious. The firm right now thinks that they have an innovation process problem, but they’re really facing a strategy problem. If they change the way they make strategy, they will start to get different innovation outcomes. And that will make it easier to realize their strategy.
Making changes like this is never easy. The firm faces significant challenges. And their ambition is to re-make their industry – a bold, yet risky goal. They can improve their chances of reaching it not just by improving their innovation skills, but also by getting more people involved in creating their strategies and plans.
First, they need to get rid of that air sandwich.
How Do We Build 21st Century Business Skills?
“How do you teach people to be more comfortable with ambiguity?”
That was the question from the person in charge of Talent for a big bank at a workshop we ran with them recently at UQ.
My response was: “The first thing we need to do is give them projects to do where we can’t know what the right answer is in advance.”
Of course, we often avoid doing this in universities, mainly because……..we’re uncomfortable with ambiguity ourselves. It’s a lot easier to teach a framework, then assess recall. But that doesn’t really work today (did it ever?) – and if we teach that way, we’re doing people a disservice.
What are the capabilities that managers need to be effective today? Here’s what the World Economic Forum says, based on a large survey of organisations:
Dealing with uncertainty isn’t on the list, but it’s a central part of cognitive flexibility, complex problem solving, and creativity. How do we build these skills? Now that I’m an MBA Director, that’s a pretty important question to me!
It’s not really an information issue. We’ve known what to do as managers for a long time. And when Mary Parker Follett, Frank Knight, Elton Mayo and others started writing about management in the 1920s, this information started to be systematised. And there was another wave of high-quality thinking about management in the 1950s from Edith Penrose, Alfred Chandler, Peter Drucker and just to start with. The knowledge of how to deal with uncertainty, and how to manage, have been readily available to everyone for 100 years now – and yet we still struggle with how to do it. Why?
It’s not an information problem – it’s an action problem.
Which brings us back to my answer in the workshop: “The first thing we need to do is give them projects to do where we can’t know what the right answer is in advance.”
I’ve experimented with a few different ways to do this. We collaborated with the Wharton Business School for eight years on their now sadly-ended Global Consulting Practicum program. These projects were great. They were collaborative projects of five UQ MBA students and five from Wharton. We did them for actual clients that were trying to enter or expand their business in the North American market. The projects ran for six months, and they were packed with uncertainty. IN some cases, the teams didn’t nail down the answers until five months and twenty-nine days into the project!
These projects worked best when they were discovery projects – most commonly it was looking for the business model that the client needed to successfully grow their business in the US.
The projects were life-changing for many of us involved with them. I think a big part of why is that the level of uncertainty was so high – it forced us to try new things, to learn (a lot!), and to grapple with ambiguity head-on. Both the learning outcomes for students and the commercial outcomes for clients have been fantastic.
I’ve had similar experiences working with the CSIRO in developing the ON Prime program designed to help researchers achieve impact with their science. The issue here is that great new ideas need new business models – it’s another discovery problem.
We’ve experimented with shorter programs, that mostly focus on giving people the knowledge they need to go do the work. I’m not sure that these are as successful as longer programs that force people to do the work. We often need that extra push to do things that make us feel uncomfortable – especially the things that make us realise that there are things we don’t know.
This is also why it’s valuable for people to do entrepreneurship and innovation projects as part of their study. It’s not necessarily because we want to launch a bunch of new businesses – but trying to build something is a great example of working on a problem where we don’t know the answer in advance. This is why I’ve worked hard to contribute to initiatives like iLab, Idea Hub and our new UQBS Startup Academy on campus.
Since the GCP program ended last year, I’ve been working on building a similar experience that more of our MBA students can do. So this year we launched a new MBA Industry Project program at UQ.
The way we pitch it to businesses is: do you have a problem that you know is strategically important, but you don’t currently have the bandwidth within your organisation to find the best solution? If so, we will put a team of MBA on that problem for one semester to help you find the best way forward.
(And if so, and if you’re in Australia, and you’re interested, please get in touch!)
The way we pitch it to students is: if you look at that list of 21st Century capabilities, and agree that they are important, this is the best way to build them.
Will it work? I don’t know – we’re learning ourselves as we build this. But to me, if we don’t offer opportunities like this, we’re not doing our job.
It’s forcing me to be more comfortable with ambiguity too. Which is exciting, and scary. Just like everything else that’s worth doing.
How Do You Invest Your Most Valuable Asset – Your Attention?
I’m probably paying a bit too much attention to hockey right now.
When people here in Australia ask me about sports, I often say “I’m the only person in the world whose two favourite sports are cricket and ice hockey.” I have to call hockey ice hockey because around here hockey means field hockey.
Anyway, hockey was the first sport I learned how to play when I was growing up in Alaska, and it’s still my favourite.
But at the moment, I might be paying it too much attention. It’s an escape I fall back on when I feel a bit too much stress.
But it’s important to remember that attention is an asset – it’s something we invest. Elizabeth Gilbert nails it in Eat, Pray, Love:
There is so much about my fate that I cannot control, but other things do fall under my jurisdiction. There are certain lottery tickets I can buy, thereby increasing my odds of finding contentment. I can decide how I spend my time, whom I interact with, whom I share my body and life and money and energy with. I can select what I eat and read and study. I can choose how I’m going to regard unfortunate circumstances in my life—whether I will see them as curses or opportunities (and on the occasions when I can’t rise to the most optimistic viewpoint, because I’m feeling too damn sorry for myself, I can choose to keep trying to change my outlook). I can choose my words and the tone of voice in which I speak to others. And most of all, I can choose my thoughts.
Our thoughts, our attention.
I love the word attend. Its the base of attention, and it derives from the latin ‘attendere,’ which meant ‘to stretch’ and it eventually turned into the middle English ‘attend,’ which meant ‘apply one’s mind or energies to.’
Here’s a question then: are the things we attend to worthy of the application of our minds and energies? Do they stretch us?
This blog started when I actually took those questions seriously. At the time, I was really good at fantasy hockey. And I also had semi-regularly written a movie review blog, and a few other online things. I asked myself – what would happen if I took the time I’m investing in knowing that it would be smart to trade Chris Drury for Jarome Iginla, and instead investigated communicating online what I know and am learning about innovation?
As Gilbert says, we have choice. Do our choices reflect our values and passions? (Monica Byrne found a surprising answer to that when she looked at who wrote the books she reads)
Here’s a picture of the laptop I’m using to write this:
It’s an obscure art joke. But it’s also a signal – one that asks “who is in my tribe?”
It just shows how our investments of attention add up to who we are, and what we can do. They drive the ideas we can have. Nilofer Merchant says:
No original ‘big idea’ ever starts out that way. It’s starts out with one person seeing something only they see.
We make choices about how we invest attention constantly, and, mostly, unconsciously. There’s value in thinking about this more consciously. And I’m not talking about efficiency. This isn’t about making more efficient use of time. It’s about making our investments more purpose-driven.
What would happen if we were a bit more deliberate with our investment of attention?
It Doesn’t Have to Be the Way It Is
Innovation is subversive
Are you happy with the way things are right now?
Probably not, if you’re reading blog posts about innovation. There’s likely something bothering you. It might be something small, or large. If we’re not happy with the status quo, there’s only one thing that will change it – doing something differently. This always starts with an idea.
And not just having an idea – but executing it so that it creates value. That’s innovation.
Where do these ideas come from? Usually, imagination. You have to start by saying “it doesn’t have to be the way it is.” I stole that phrase from the great author Ursula K. Le Guin in her latest book No Time to Spare:
It doesn’t have to be the way it is. That is what fantasy says. It doesn’t say “Anything goes” – that’s irresponsibility, when two and one make five, or forty-seven, or whuddevva, and the story doesn’t “add up,” as we say. Fantasy doesn’t say “Nothing is” – that nihilism. And it doesn’t say, “It ought to be this way” – that’s utopianism, a different enterprise.
It doesn’t have to be the way it is is a playful statement, made in the context of fiction, with no claim to “being real. Yet it is a subversive statement.
Subversion doesn’t suit people who, feeling their adjustment to life has been successful, want things to go on just as they are, or people who need support from authority assuring them that things are as they have to be. Fantasy not only asks “What if things didn’t go on just as they do?” but demonstrates what they might be like if they went otherwise – thus gnawing at the very foundation of the belief that things have to be the way they are.
Upholders and defenders of a status quo, political, social, economic, religious, or literary, may denigrate or diabolize or dismiss imaginative literature, because it is – more than any other kind of writing – subversive by nature.
Like fantasy, innovation is also subversive by nature. That’s partly why innovators often read fantasy and science-fiction (by the way, if you haven’t read them yet, I highly recommend Station Eleven by Emily St. John Mandel, The Three-Body Problem by Cixin Liu and The Fifth Season by N.K. Jemisin).
This subversion is important. And often overlooked.
This is why it’s hard for big companies to innovate, even though they have lots of advantages – they have to subvert themselves. If you’re a big company, you’re by definition a big part of the status quo. This makes ideas that subvert the status quo, well, unattractive.
That’s also why some startups work on the edge of what’s legal.
But mainly, it’s why innovators must focus on value creation. New isn’t by definition better. Innovation isn’t always good – we’re not working in deterministic systems. Our new ideas need new business models – ones that focus on value.
It’s also why we need to make sure we’re working on important problems. It might be small ideas and experiments that we try, but our goals should be ambitious. A lot of people talk about changing the world – and innovation does that. But it’s not enough to change the world – we need to make it better.