Hamel, Zanini

The typical medium- or large-scale organization infantilizes employees, enforces dull conformity, and discourages entrepreneurship; it wedges people into narrow roles, stymies personal growth, and treats human beings as mere resources.

Bureaucratic organizations are inertial, incremental, and dispiriting. In a bureaucracy, the power to initiate change is vested in a few senior leaders. When those at the top fall prey to denial, arrogance, and nostalgia, as they often do, the organization falters. That’s why deep change in a bureaucracy is usually belated and convulsive. Bureaucracies are also innovation-phobic. They are congenitally risk averse, and offer few incentives to those inclined to challenge the status quo. In a bureaucracy, being a maverick is a high-risk occupation. Worst of all, bureaucracies are soul crushing. Deprived of any real influence, employees disconnect emotionally from work. Initiative, creativity, and daring—requisites for success in the creative economy—often get left at home.

These companies were built, or in some cases rebuilt, with one goal in mind—to maximize human contribution. This aspiration is the animating spirit of humanocracy, and stands in stark contrast to the bureaucratic obsession with control. Both goals are important, but in most organizations, the effort spent on ensuring conformance is a vast multiple of the energy devoted to enlarging the capacity for human impact. This gross imbalance is dangerous for organizations, a drag on the economy, and ethically troubling.

In 1987, 28.8 percent of US employees worked in companies with more than five thousand employees. Thirty years later, the percentage was 33.8. Today, the number of employees working in companies with more than ten thousand employees exceeds the number who work in businesses with fifty or fewer employees.

As you may have noticed, people with power are typically reluctant to give it up, and often have the means to defend their prerogatives. This is a serious impediment, since there’s no way to build a human-centric organization without flattening the pyramid.

While CEOs often justify megamergers by promising increased operating efficiencies, research suggests that the real benefits are less about economies of scale and more about oligopolistic advantage. A comprehensive study of the US economy by Jan De Loecker, Jan Eeckhout, and Gabriel Unger found that “markups,” a proxy for market power that measures firm-level difference between prices and marginal costs, have increased sharply over the last several decades. In 1980, the average firm charged 21 percent over marginal cost; by 2016, the average markup had grown to 61 percent. This trend has been observed not only in the United States, but in other developed economies as well.

As of this writing, the world contains 433 “unicorns”—venture-backed companies that boast a market value of $1 billion or more. While these companies get a lot of press, they’re a relatively small part of their respective economies. In early 2020, US-based unicorns had a combined market value of $650 billion. This seems like a big number, but at the time amounted to just slightly more than 2 percent of the combined market value of the S&P 500. While entrepreneurial enclaves like Silicon Valley are important, we need to find ways to turn up the entrepreneurial flame in every organization.

As the change in sentiment starts to bite, and governments become more aggressive in challenging monopoly power, CEOs will need to find new routes to profitability and growth. Their best bet: committing wholeheartedly to creating organizations that allow human beings to do their best work, unfettered by the shackles of bureaucracy.

This workplace alchemy—turning dead-end jobs into get-ahead jobs—becomes possible when an employer:

• Teaches frontline staff to think like businesspeople

• Cross-trains associates and organizes them into small, multifunctional teams

• Gives these teams accountability for a local P&L Pairs new employees with experienced mentors

• Encourages employees to identify and tackle improvement opportunities

• Grants associates the time and resources to run local experiments

• Gives employees a financial upside that encourages them to do more than their job strictly requires

• Treats every individual and role as indispensable to collective success

Rather than deskilling work, we need to upskill employees. Rather than outsourcing low-value jobs, we need to increase the creative content of every role. Instead of assuming that middle-class jobs must ultimately fall to globalization and automation, we need to redesign work environments so they elicit the everyday genius of every human being.

If our organizations are inhuman, it’s because we designed them to be so—whether consciously or not. Every institution is an assemblage of choices about how best to organize human beings in light of some particular goal. The premise of this book is that most of these choices can and must be revisited.

This shift from autocracy to democracy didn’t occur spontaneously, nor was it led from the top. Instead, it was the work of a sprawling confederation of philosophers, protesters, and patriots who were inspired by the promise of self-government.

We must be no less radical in rethinking the foundations of human organizations. Like our forebears, we must do our part to emancipate the human spirit. It is here we find a cause worth serving—to build organizations that give every human being the opportunity to thrive.

However daunting, even the most entrenched problems yield to courage and tenacity. We must not flinch or look away. Instead, we must confront what we have long known —our organizations are incapacitated by their inhumanity.

Imagine a world in which every change of state— every movement, flow, transaction, and perturbation—produces data. The planet itself will finally be sentient.

The data suggests that institutional inertia is endemic, and costly. Consider:

• Only 11 percent of the companies that made up the Fortune 500 in 1955 are on the list today

• The average age of a company on the S&P 500 Index has fallen from sixty years in the 1950s to less than twenty years currently

• Between 2010 and 2019, US public companies reported more than $550 billion in restructuring charges, which are typically the product of belated or inept attempts at strategic renewal

A 2018 Gallup study found that barely a third of US employees were fully engaged in their work—where engagement is defined as being “involved in, enthusiastic about and committed to work.” The majority of employees, 53 percent, were “not engaged,” while 13 percent—the maliciously compliant—were “actively disengaged.” Globally, the situation is even worse, with 15 percent engaged, 67 percent disengaged, and 18 percent actively disengaged.

There’s no secret about what drives engagement. From Douglas McGregor’s The Human Side of Enterprise to Dan Pink’s Drive, the formula hasn’t changed in sixty years: purpose, autonomy, collegiality, and the opportunity to grow. Unfortunately, engagement levels haven’t changed much either. It seems that every generation rediscovers the essential elements of human engagement and then does nothing.

Our organizations are less than fully human because they were designed to be so. Writing in the early twentieth century, Max Weber, the pioneering German sociologist wrote: “[B]ureaucracy develops more perfectly the more it is ‘dehumanized,’ the more it succeeds in eliminating all purely personal, irrational and emotional elements which escape calculation.” Then as now, the goal of bureaucracy was to turn human beings into semi-programmable robots.

In a bureaucracy, human beings are instruments, employed by an organization to create products and services. In a humanocracy, the organization is the instrument—it’s the vehicle human beings use to better their lives and the lives of those they serve. (See figure 1-2.) The question at the core of bureaucracy is, “How do we get human beings to better serve the organization?” The question at the heart of humanocracy is, “What sort of organization elicits and merits the best that human beings can give?” As we’ll see, the implications of this shift in perspective are profound.

For now, let’s be clear on one thing: bureaucracy must die. We can no longer afford its pernicious side effects. As humankind’s most deeply entrenched social technology, it will be hard to uproot, but that’s OK. You were put on this earth to do something significant, heroic even, and what could be more heroic than creating, at long last, organizations that are fully human?

When an organization confronts a large number of novel problems, a top-down structure is likely to be a choke point. As issues get escalated, problems pile up on the doorstep of senior leaders who often lack the experience and bandwidth to make smart, speedy decisions. Over time, the backlog grows and the pace of decision making decelerates. Stratification is the enemy of speed.

First, senior leaders often have much of their emotional equity invested in the past. The average age of an S&P 500 CEO is currently fifty-eight, up three years since 2008. Average tenure is eleven years, the longest since 2002. While veteran leaders may have the benefit of experience, they’re weighed down by legacy beliefs. Many of their assumptions about customers, technology, and the competitive environment were forged years or decades earlier, and reflect a world that no longer exists.

Though mere mortals, CEOs are often paid as if they were omniscient. At present, the average CEO compensation in America’s 350 largest companies is $17.2 million a year, or 278 times the pay of a typical frontline employee. It’s not clear those millions buy much in the way of vision. Repeated studies have shown that the correlation between CEO pay and relative share performance is negligible or slightly negative. No amount of money can transform an executive into Iron Man or Wonder Woman.

Though expensive and usually belated, reorganizations are widely regarded as the only way to realign an organization with its environment. As a report by the Boston Consulting Group put it, “Rapid change requires companies to reorganize faster than ever before.” Good luck with that!

What’s needed are radically new organizational models that downplay formal structure. In a world of relentless change, trade-offs need to be made as close to the front lines as possible. Boundaries must be malleable. Resources, rather than being hoarded, must flow unhindered toward promising opportunities. Interunit coordination must be the product of nimble, self-organizing communities and market-like transactions rather than blanket policies or cumbersome councils. In short, we need organizations that, like the biosphere, the internet, or a vibrant city, are more emergent than engineered.

Rules, no matter how enveloping, will never deliver an exceptional customer experience. Colleen Barrett, who in her forty-seven-year career at Southwest served as head of marketing, customer service, people, and operations, describes the airline’s approach to rules: “The rules are guidelines. I can’t sit in Dallas, Texas, and write a rule for every single scenario you’re going to run into. You’re out there. You’re dealing with the public. You can tell in any given situation when a rule should be bent or broken. You can tell because it’s simply the right thing to do in the situation you are facing.

By investing in the judgment of its people, Southwest creates a business that is smarter, more innovative, and more profitable.

How is it that in their personal lives, employees can be trusted to buy houses and cars, but at work can’t requisition a $300 office chair without a manager’s approval? If we thought about it for a minute, we’d realize this is stupid. Autonomy correlates with initiative and innovation. Shrink an individual’s freedom and you shrink their enthusiasm and creativity.

To paraphrase the Nobel acceptance speech of Austrian economist Friedrich Hayek:

If managers are to do more good than harm in improving organizational performance, they must learn that in a complex environment, they can’t acquire sufficient knowledge to orchestrate the desired outcomes. Instead, they must use whatever knowledge they have not to shape results as a craftsman shapes a piece of handiwork, but to cultivate growth by providing a proper environment, much as a gardener does for plants.

Second, the structures and rituals of bureaucracy constitute a set of social norms which, like all norms, are difficult to challenge without looking like a buffoon. Suggest abolishing the trappings of bureaucracy— the multiple management layers and all-powerful staff groups—and your colleagues will scoff at your naivete. What’s next? Letting people design their own jobs, choose their colleagues, and approve their own expenses? Well, yes, actually, but if you go there, heads will explode.

Government agencies demand evidence of regulatory compliance and are satisfied only when presented with the artifacts of bureaucratic control—a chief compliance officer, compulsory training, and comprehensive reporting.

Third, like nuclear power plants and space rockets, bureaucracies are complex, integrated systems. Every process is connected to every other process. This lack of modularity makes it difficult to change one thing without changing everything. Where do you start? That’s the paradox of change in a bureaucracy: what seems doable isn’t transformational and what’s transformational doesn’t seem doable. The result: an endless succession of tweaks that never succeed in making the organization fundamentally more capable.

Fourth, bureaucrats are inclined to defend the status quo. Bureaucracy is a massive, multiplayer game in which millions of human beings compete for the prize of promotion. These are zero-sum battles. To advance, you must master the art of ducking blame, defending turf, managing up, hoarding resources, trading favors, negotiating targets, and escaping scrutiny. Anyone who’s spent years honing these skills is unlikely to be enthusiastic about a radical rule change.

Let us not pretend, though, that bureaucracy advances independent of human intention. The fuel that feeds the growth of bureaucracy is the quest for personal power. Power brings survival advantages, and we are wired to seek it. Having the power to direct your life is essential, but like the desire for food, alcohol, or sex, the lust for power can enslave us. That’s why philosophers and moral teachers so often warn us of its dangers.

Formal power is the currency of bureaucracy; it is the prize for which the game is played. Bureaucracy inflames our natural desire for power, sometimes to the point of caricature. As a result, bureaucracy often brings out the worst in people, whether it’s a minor functionary gleefully enforcing a petty rule, or a CEO getting an ego massage from a deferential underling. In other words, bureaucracy isn’t simply an organizational problem—it’s a human problem.

So, let’s face facts.

BUREAUCRACY IS FAMILIAR. You won’t have the courage to take on bureaucracy unless you believe there are alternatives. We must search out organizations that have successfully defied management orthodoxy.

BUREAUCRACY IS COMPLEX AND SYSTEMIC. Fragmented, half-hearted attempts won’t cut it. We need to replace the entire edifice of bureaucracy—one stone at a time.

BUREAUCRACY IS WELL DEFENDED. There will be resistance, so management rebels need to join forces. You have to build a grassroots movement that can overwhelm or route around the defenders of the status quo.

BUREAUCRACY SERVES A PURPOSE, HOWEVER POORLY. The goal is to carefully dismantle bureaucracy, not simply blow it up. You need a change strategy that is both audacious and prudent.

BUREAUCRACY IS SELF-REPLICATING. There will be no easy victories. Bureaucrats will fight back. To persevere, you’ll need a sense of purpose that’s as unshakable as the path is arduous.

Real-time analytics make it possible to assess job performance minute by minute—catnip to control-obsessed managers. Two academics, Brett Frischmann and Evan Selinger, call this “time cards on steroids.” They rightly note that “technical innovations have made it increasingly easy for managers to quickly and cheaply collect, process, evaluate and act upon massive amounts of information.” Given the relentless growth of the bureaucratic class, and their susceptibility to “controlitis,” where would you expect this to lead?

The lack of gender and racial diversity in the tech industry is another long-ignored problem that was brought to light by data-driven consciousness raising. In 2008, Mike Swift, a reporter for the San Jose Mercury News, set out to measure diversity in Silicon Valley’s fifteen largest companies. Swift’s analysis, which showed blacks, Hispanics, and women losing ground even as staffing levels increased, prompted a rare instance of soul-searching among the tech elite.

The index covers ten questions across seven categories of bureaucratic drag. (See the sidebar “Bureaucratic Mass Index Survey Questions.”)

WASTE: Number of organizational layers and time spent on low-value bureaucratic tasks

FRICTION: Bureaucratic impediments to speedy decision making

INSULARITY: Percentage of time devoted to internal versus external issues

AUTOCRACY: Limits to frontline autonomy

CONFORMITY: Likelihood that unconventional ideas are greeted with skepticism or hostility

TIMIDITY: Constraints on experimentation and risk taking

POLITICKING: The prevalence of political behaviors and the role they play in determining personal advancement

Bureaucratic Mass Index Survey Questions:

1. How many layers are there in your organization (from frontline employees up to the CEO, president, or managing director)?

1. What percentage of your time do you spend on “bureaucratic chores” (e.g., preparing reports, securing sign-offs, complying with staff requests, and participating in review meetings)?

1. How much does bureaucracy slow decision making and action in your organization?

1. To what extent are your interactions with your manager and other leaders focused on internal issues (e.g., resolving dispute, securing resources, getting approvals)?

1. How much autonomy do frontline teams have to design their work, solve problems, and test new ideas?

1. How often are frontline teams members involved in the design and development of change initiatives?

1. How do people in your organization react to unconventional ideas?

1. In general, how easy is it for an employee to launch a new project that requires a small team and a bit of seed funding?

1. How prevalent are political behaviours in your organization?

1. How often do political skills, as opposed to demonstrated competence, influence who gets ahead in your organization?

To size the problem in your organization, have your colleagues take the full BMI survey, which you’ll find in appendix A and online at www.humanocracy .com/BMI.

There’s a reason economists obsess over productivity growth. When it stagnates, so do living standards. The ensuing economic frustration opens the door to populism, protectionism, and social divisiveness. That’s why George Osborne, Britain’s former Chancellor of the Exchequer, described rekindling productivity growth as “the challenge of our time.

The goal, of course, is not to throw 23 million people out of work, but to refocus their talents on productive activities. If each of these individuals contributed $148,000 to the economy, rather than zero, GDP would increase by roughly $3.4 trillion. That gain, if achieved in equal increments over the next ten years, would add nearly 1.6 percent to annual productivity growth, which would more than double the 1.3 percent rate turned in between 2007 and 2018. Achieving similar gains across the OECD would add $10 trillion to global output.

Aristotle argued that an individual cannot achieve happiness without self-direction. If we believe that a just society is one in which people have the opportunity and freedom to become their best selves, then we shouldn’t tolerate the soft tyranny that millions of employees face each day at work—what oral historian Studs Terkel called “a Monday through Friday kind of dying.

Their successes teach us that a purely utilitarian argument is not enough to dislodge a deeply embedded social system that serves the interests of the few rather than the many. While data can crack the ice, real progress is possible only when hearts begin to melt.

Yet what Thomas Paine said of monarchy in 1776 is equally true of bureaucracy today: “A long habit of not thinking a thing wrong gives it a superficial appearance of being right.

As he [Ken Iverson] explained in his book, Plain Talk: Lessons from a Business Maverick,

Most of today’s corporations were conceived as command-and-control organizations. The founders of integrated steel mills, for example, clearly assumed that the “genius” of the organization resided almost completely in management … In contrast, we built Nucor under the assumption that most of the “genius” in our organization would be found among the people doing the work. 2 3 From the outset, we shaped our business to let employees show management the way to goals that once seemed unreachable.

Each division is also responsible for creating the demand for its products by winning and retaining customers. Unlike other steel companies, Nucor’s plants aren’t mere manufacturing sites, but end-to-end businesses. Accordingly, each division has its own P&L, which is entirely free of corporate cost allocations.

Beyond the CEO, Nucor’s executive ranks include only one other functional head, the CFO. Similarly sized U.S. Steel, based in Pittsburgh, has at least eight central functions—including performance analytics, strategic planning, compliance, supply chain, manufacturing excellence, IT, HR, and finance—which are supported by a head-office staff group of about a thousand individuals.

Across the 5 company, full-time managers and executives, a population that doesn’t include team supervisors, account for only 2 percent of employment—four times less than the percentage in the overall economy. As a percentage of revenue, Nucor’s general and administrative expenses hover around 3 percent, or roughly half that of its competitors.

Critically, bonuses are paid to teams, not individuals. A typical team comprises twenty to thirty operators who work across multiple shifts and have joint accountability for a particular process. Team rewards encourage collaborative problem solving, which is essential in a process industry where tasks are highly interdependent. (See figure 4-1.) The furnace, caster, and maintenance teams, for example, are all part of a continuous process, so they have a common production target. One caster crew member in the Hickman plant remarked, “If one area goes down, we all go down with it. My problem is their problem, and everyone will jump in to solve it.

The expectation is that teammates will grow their skills over the arc of their career. Accordingly, Nucor’s hiring process is aimed at finding individuals who are eager to learn. The process includes a two-hour, standardized test to gauge quantitative and verbal problem-solving skills, followed by a behavioral interview with a psychologist. The final hiring decision is made by teammates who take part in an hour-long panel interview.

Exposing people to multiple skills and functions is a win-win. For individuals, the change in pace, activity, and colleagues makes work more interesting. In return, Nucor gets a workforce that’s able to solve complex, multidisciplinary problems.

As part of their training, Nucor teammates participate in a daylong, Monopoly-like game called “Dollars and Tons,” where five-person teams run a fictional Nucor division. Teams make decisions on how much scrap to buy at what price, on how many people to hire, and when to invest in new equipment to expand capacity. At the end of the simulation, teams are assessed on profitability, return on assets, working capital management, and balance sheet strength—all drivers of a plant’s performance.

By bolstering business thinking deep in the organization, Nucor maximizes the quality of decision making at all levels and reduces the perceived status gap between frontline employees and commercially savvy managers.

Commercial data is similarly open. This includes bids, orders, inventory, shipments, return on assets—anything that’s potentially relevant to running the business. Most of this information is available in real time, but in each facility, performance data also gets posted weekly near the plant entrance or in the cafeteria.

Nucor’s profligate transparency creates a healthy competition between divisions, prompting friendly contests to see which plant will be first to achieve a particular goal around safety or efficiency. It also makes it easy to spot plants and practices that deserve to be best-marked.

JOB SECURITY. Nucor has never laid off employees at its steel mills, a remarkable feat in an industry that shed 40 percent of its employees between 2000 and 2018. Nucor could have followed suit, but that would have violated the company’s long-standing promise to employees: “do your job well today, have it tomorrow.” When orders plummet, the company reduces the workweek, not the workforce. This reduces the odds of making the weekly bonus, but for most employees, that’s better than being laid off. In the rare instances when Nucor closes or scales back a plant, people are offered positions in other mills.

PROFIT SHARING FOR ALL. Nucor’s profit-sharing plan is another mechanism for building commitment. Each year, the company contributes at least 10 percent of its pretax earnings to the plan. In 2018, Nucor paid in $308 million, which worked out to about $12,000 per employee. Teammates receive a small portion in cash and the remainder goes into a retirement account, which, for many employees, constitutes their largest financial asset.

Said Ferriola: “We encourage our people not to fear failure. You cannot stretch the limits of your knowledge, your imagination, or your skills, if you’re afraid to fail. It’s very typical to hear a manager or a supervisor coach a new teammate by saying something like: ‘If you’re not failing, you’re not pushing the limits of your abilities.

True to the spirit of humanocracy, Nucor’s model isn’t about pushing employees to do more, but giving them the opportunity to be more—more than blue-collar workers, more than order takers, more than mere operators, more than employees. Nucor’s frontline team members are experts, innovators, risk takers, and owners.

SPECIALIZATION. Nucor’s team members are deeply skilled, but they’re also multiskilled. Shared targets, cross-training, and malleable roles help them tackle the sort of tough, boundary-spanning problems that yield big productivity gains. There are no “slots” at Nucor and, thus, no artificial limits on where and how team members can contribute.

As they say at Nucor, “We don’t build steel, we build people.

Haier’s success is the result of a root-and-branch overhaul of its once-traditional management model. Led by Zhang Ruimin, Haier’s renegade chairman and CEO, the radical makeover focused on three objectives:

1. Turning every employee into an entrepreneur

1. Creating “zero distance” between employees and users

1. Making the company a power node in an ever-expanding, web-centric ecosystem

A good example is Community Laundry, a business that installs and maintains over forty thousand internet-connected washing machines across a thousand Chinese college campuses. Having developed a popular smartphone app that allows students to schedule and pay for the use of dormitory laundry facilities, the ME team gave outside vendors access to the app’s more than 10 million users. Today, the Community Laundry platform hosts dozens of other businesses, such as food delivery and dorm room furniture, and takes a share of the revenues they generate.

Zhang often reminds his colleagues that it’s impossible to engineer a complex system from the top down. It has to emerge through an iterative process of experimentation and learning. When asked how Haier can accelerate its transformation, Zhang has a simple answer: run more trials and replicate the most successful ones faster.

Zhang finds another beacon in the writings of Immanuel Kant, the nineteenth-century German philosopher whose “categorical imperative” holds that we must never regard human beings as mere tools. In a long-ago meeting with the authors, Zhang echoed this belief when he laid out his aspirations for Haier: “We want to encourage employees to become entrepreneurs because people are not a means to an end but an end in themselves. Our goal is to let everyone become their own CEO.

Zhang’s worldview is centered on the power of human agency. Like Chris Rufer at Morning Star, he believes the best organization is the one that gives human beings the maximum freedom to excel. Iverson’s worldview revolved around the idea of everyday genius. He believed that it’s employees, rather than managers, who drive a business forward. If you believe this, heart and soul, then bureaucracy isn’t something you whine about, it’s something you try to kill.

If your worldview places a premium on human freedom and growth, you’ll regard the inhumanity of bureaucracy as intolerable and feel compelled to act. If, on the other hand, you regard human beings as factors of production, you’ll make excuses for bureaucracy and be content with minor reforms.

As a tightly integrated system, bureaucracy was designed to produce exactly what it does: compliance, discipline, and predictability. It’s a sausage-making machine that produces—wait for it—sausages! Maybe it can be upgraded to make fatter sausages, or vegan sausages, or more sausages per hour, but it’s never going to produce anything other than sausages until we go back to the drawing board.

As the late Harvard historian Arthur Cole wrote: “To study the entrepreneur is to study the central figure in economic history.” The Industrial Revolution was powered by entrepreneurial energy. In the nineteenth century, as political and economic freedoms advanced, millions of human beings were at last free to make of themselves whatever their passions and energies allowed.

Entrepreneurship, or what Nobel Prize–winning economist Edmund Phelps calls “grassroots innovation,” is as central to economic dynamism today as it was in the nineteenth century. Entrepreneurs unlock the value of new technologies, spur competition, satisfy unmet needs, and create new jobs.

So while companies spend millions of dollars on “leadership development,” they invest next to nothing supporting bottom-up entrepreneurship. This has to change. Unleashing the problem-solving, business-building energies of every team member is essential to building a humanocracy.

The bedrock of entrepreneurship is ownership. Yale law professor Henry Hansman argues that every business owner has two formal rights: “the right to control the firm and the right to appropriate the firm’s residual earnings”—in other words, the freedom to make decisions and a shot at the brass ring.

… of the eight leadership behaviors, empowerment was the most highly correlated with employee engagement, job satisfaction, and organizational commitment, while accountability was the strongest factor impacting job performance.

It is the combination of autonomy and upside that fuels entrepreneurial fervor.

The 2015 European Working Conditions Survey found that just 14 percent of nonmanagerial employees were eligible for bonuses based on individual or team performance. The figure from a parallel American survey was slightly higher, at 15 percent, but only a scant 4 percent of frontline employees were eligible for productivity-related rewards.

A former managing partner at McKinsey & Company expressed this view when he advised executives to focus their attention on the “2 percent [of employees] who are really going to drive [results.]” “It’s a very small proportion of people,” he argued, “who drive a lot of value.” When pressed, he admitted his assertion had “no regression analysis or analytics behind it.” It was, in other words, an untested assumption or, to be more accurate, a prejudice.

This sort of disdain for the average employee mirrors the hauteur of eighteenth-century aristocrats—and has the same stifling effect on creativity and initiative. Stunted freedom and upside yield stunted commitment and performance.

Anders Bouvin, a past CEO, explains: “If you really believe that customer satisfaction is the main reason for achieving superior results, you have to eliminate any kind of steering mechanisms that could push one of your employees to do something that is not in the interest of customers.

Like Nucor, Handelsbanken shares the rewards of its success with those on the front lines. In any year that the bank’s return on equity exceeds the average of its peer group, one-third of the difference is paid into a foundation that invests on behalf of employees, mostly in Handelsbanken shares. The proceeds are distributed equally among all employees, regardless of rank. The contribution in 2018 was $90 million, or approximately $7,500 per employee—a significant sum for a frontline staff member. Withdrawals can be made once an employee turns sixty. The stake for a long-tenured associate can be worth over $1 million.

Vinci is divided into three thousand compact business units, two-thirds of which have fewer than a hundred employees. So strong is the commitment to disaggregation that businesses are frequently split in two as they grow.

Vinci’s buccaneering spirit is illustrated by its entry into the airport business. A decade ago, the company was about to sell off two Cambodian airports it had acquired as part of a larger deal. Nicolas Notebaert, then a business development director working in France, thought the airports could be the launching pad for a new business. After lobbying successfully to keep the airports, he moved to Asia to run them. The experiment validated the opportunity, and today Vinci employs 14,500 airport staff who support 240 million passengers a year. Huillard notes that as CEO, “My sole merit was that I provided [Nicolas] with the conditions which helped him to demonstrate his enthusiasm. In other words, I let ‘wild grass’ grow.” At Vinci, ambitious young leaders can be entrepreneurs without having to set up in a garage.

Each of these companies—Nucor, Haier, Handelsbanken, and Vinci— has built an organization that is, at its core, a league of owners. Over the decades, each company has demonstrated conclusively that distributed ownership…

• Reduces turnover and creates a smarter, more experienced workforce

• Unlocks reserves of discretionary effort

• Increases the incentives for innovation

• Creates more cohesion and camaraderie

• Strengthens the connection with customers

• Produces faster, better-informed decisions

• Leads to a flatter, leaner organization

• Yields above-average returns

Over time, centralized control creates profound distortions— unbalanced sectoral growth (typically favoring capital-intensive industries), bloated state enterprises, chronic under- or overcapacity, and epic waste. China’s state-owned enterprises, for example, generate about 20 percent of Chinese output, but account for more than three-quarters of all corporate borrowing.

While most CEOs acknowledge the virtues of free markets, the companies they run are typically structured like command economies. As in the former Soviet Union, decision-making power is highly concentrated at the top. Changing this is essential to making our organizations more resilient, innovative, and human. To see how this might be done, we need to understand the conditions under which markets outperform hierarchies and then try to imagine how these advantages might be replicated within our organizations.

Researchers have identified a cluster of anomalies that corrupt this process and lead to suboptimal allocation decisions. Among the most pernicious …

• DEFEND WHAT’S YOURS. Leaders tend to be territorial about the resources they control and are typically reluctant to share money and talent with other units, even when the returns might be higher.

• THE RICH GET RICHER. The biggest units in a multibusiness company tend to get more than their fair share of capital, not because they offer better returns, but because the leaders of these businesses have more political clout.

• GOOD MONEY AFTER BAD. Executives tend to overinvest in struggling businesses in hopes of turning them around. Research shows that in most cases, returns would have been higher if the money had been invested in less troubled units.

• SHARE THE PAIN. When cash is short, executives tend to cut spending across the board rather than protect high-priority areas.

• IT’S WHO YOU KNOW. Senior leaders with strong internal networks typically win more resources than leaders who are less well connected, irrespective of the merits of the particular business case.

• HOME IS WHERE THE HEART IS. Senior executives are less likely to defund or divest a business in which they worked earlier in their career.

• PRETTY IT UP. In competing for funds, business unit leaders have an incentive to inflate the merits of their investment proposals. These distortions are often difficult for corporate-level executives to ferret out.

• MORE OF THE SAME. Funding decisions are often made relative to last year’s budget. Every business or product line gets pretty much what it got the year before, plus or minus a few percentage points.

With rare exceptions, those who work in internal functions aren’t exposed to market forces. While staffers may be individually competent and compassionate, collectively they’re the corporate equivalent of the administrative state. They wield immense power, but are subject to few checks and balances.

The argument for centrally run functions is that they ensure consistency, promote best practices, and mitigate risk. Problem is, few leaders stop to ask whether these benefits could be acquired more cheaply or with fewer side effects.

These aren’t mere gripes. They are evidence of a fundamental disconnect in incentives. Employees in market-facing roles know that if they fail to satisfy user needs, they’ll get fired by their customers. Corporate staffers, by contrast, can only be fired by their overlords, so that’s where their loyalties lie. Internal administrators suffer little or no penalty when they inflate costs, offer substandard services, or insist on compliance at any cost.

In Dalio’s view, believability-based decision making …

Eliminates what I believe to be one of the greatest tragedies of mankind, and that is people arrogantly, naively holding opinions in their minds that are wrong, and acting on them, and not putting them out there to stress test them. Collective decision-making is so much better than individual decision-making if it’s done well. It’s been the secret sauce behind our success. It’s why we’ve made more money for our clients than any other hedge fund in existence and made money 23 out of the last 26 years.

As Google’s then chairman Eric Schmidt wrote with Jonathan Rosenberg in How Google Works: “What’s most important in the Internet Century is product excellence, so it follows that big rewards should be given to people who are close to great products and innovations. Pay outrageously good people outrageously well, regardless of their title or tenure.

As the former editor of the American Journal of Public Health observed in a piece summing up AA’s first seventy-five years: “From what looks like anarchy—traditions rather than rules, maximum local autonomy and independence, and absence of centralized or layered tiers of authority—emerges consistency and stability.” That’s the power of community.

As different as they are, AA and Strive are both committed to solving complex, nonroutine problems. Every recovering alcoholic is a unique bundle of predispositions, traumas, and traits, and needs to be uniquely supported in recovery. Every underperforming school faces a unique mix of circumstances—demographic, cultural, pedagogical, and institutional— and must develop a similarly distinctive set of responses. In both cases, success depends on local improvisation. That’s why these organizations are communities, not hierarchies. They are driven forward not by executive fiat, but by unity, selflessness, determination, and accountability.

Remember the Gallup finding that only two out of ten employees say they have a best friend at work? Based on its research, Gallup estimates that if this number was tripled, to six out of ten, the average company would increase its profitability by 12 percent. Again, when you think about it, this just makes sense. You can hardly expect employees to be engaged in their work if they’re not engaged with each other.

Here are seven suggestions, based on what we’ve learned from Nucor and Southwest:

1. Recraft the mission statement for your unit or, if possible, the entire organization, in a way that makes it emotionally resonant for every team member and gives people a common cause.

1. Do whatever you can to provide team members with the skills and information they need to collaborate and exercise their collective judgment. Help them become less reliant on their managers.

1. In interpersonal encounters, look for opportunities to reveal something of yourself, and encourage others to do the same. Have a tender heart for those who are struggling with issues outside of work.

1. Ask your team to identify areas where greater autonomy would help 38 them deliver a better customer experience or improve operations, and then carefully expand their decision-making prerogatives.

1. Institute team-based goals and rewards as a way of encouraging mutual accountability.

1. Cultivate mutual respect by creating opportunities for individuals to shadow other jobs, and work to reduce distinctions of rank and hierarchy wherever possible.

1. Hire for compassion, follow the golden rule, and celebrate acts of kindness.

The impact of Lego Ideas has been equally modest. In the course of ten years, only twenty-three customer-proposed kits have made it to market—a tiny fraction of the seven thousand internally sourced products that were launched over the same time period.

Most incubators are located far from head office. In theory, this helps insulate them from stale, corporate thinking, but it also makes it difficult to leverage parent-company skills— a problem that becomes even more acute when the incubator is staffed by newbies who lack strong internal networks. In practice, while locating the incubator in Silicon Valley or Shoreditch, London’s startup hub, may make it easier to hire fresh talent, it doesn’t offer much protection from executive meddling. In our experience, corporate paymasters often saddle incubators with expectations, policies, and processes that are ill-suited to the risky and hard-to-script work of birthing a new business. Moreover, a single incubator, with a relatively small staff, is unlikely to work on more than a few ideas at a time. This limits the chance of stumbling on the next big thing. For all these reasons, incubators seldom have a catalytic effect on the parent’s fortunes.

The irony, of course, is that large organizations are open. Employees interact with thousands or millions of customers each day. Executives and managers talk constantly with suppliers, consultants, regulators, and other stakeholders. Why, then, hasn’t open innovation made a bigger difference? Why isn’t the typical corporation as resilient and innovative as a city or a university? Because, to put it bluntly, they’re often run by people whose minds are hermetically sealed against unconventional ideas.

There are several reasons we get stuck in our thinking, but denial tops the list. As human beings, we tend to discount discomforting facts. In 2016, for example, a senior executive at Comcast, the US broadcaster and cable operator, told a conference that his company had little to fear from new media. YouTube, he claimed, was “basically a side bar,” and Netflix’s programming wasn’t “consistent enough to affect us in a meaningful way.” This, despite the fact that both streaming services were growing at near exponential rates.

Second, even when we’re not in denial, we’re often oblivious to data that doesn’t fit our existing mental categories. Before C. K. Prahalad’s pioneering work on the “bottom of the pyramid,” most businesses ignored the 3.5 billion human beings who live on less than $5.50 per day.

Finally, most of us are consumed by the urgent. Eyes down, we scurry along the furrows of ritual and routine. There’s a world of wonder around us, but we frequently mistake the edge of our rut for the horizon.

Habit #1: Challenge Unexamined Assumptions

Let’s go back to Kuhn’s classic study of scientific innovation. Having reviewed decades of scientific progress, he concluded that:

Individuals who break through by inventing a new paradigm are almost always either very young … or very new to the field whose paradigm they change. These are [individuals] who, being little committed by prior practice to the traditional rules of normal science, are particularly likely to see that those rules no longer define a playable game and conceive another set that can replace them.

First, spot the similarities. Over time, the strategies of incumbents tend to converge. A useful exercise is to overlay the business models of companies in the same industry and then look for areas of overlap. Wherever you see competitors doing the same thing, ask yourself, “What’s the shared assumption behind this policy or practice?” and then, “What would happen if we challenged that belief?” For centuries, innkeepers assumed you had to own rooms to offer guests a bed for the night. Airbnb inverted this belief and now has more than six million listings across the world.

Second, focus on what hasn’t changed. What aspects of your strategy have remained stagnant for years or decades? Over time, legacy practices, like wallpaper, become invisible. Your job is to question whether those 12 13 taken-for-granted practices still make sense. For example, though it endured a lot of pushback from traditional carmakers, Tesla challenged the long-held practice of selling cars through independent dealers. The company’s sleek stores, often located in luxury shopping venues, offer customers a hassle-free buying process. Tesla understands that the best orthodoxies to challenge are those that degrade the customer experience.

Third, go to extremes. Pick some parameter of performance—price, choice, availability, speed—and ask what would happen if we aimed for a 10X improvement? Fifty years ago, a retired physician, Dr. Govindappa Venkataswamy, launched an epic quest to eradicate unnecessary blindness in India. Millions of his compatriots had cataracts but couldn’t afford corrective surgery. How, Dr. V. wondered, could he reduce the cost of surgery by 90 percent or more? For inspiration, he looked at the fast-food industry. “If McDonald’s can sell millions of burgers,” he thought, “why can’t [we] sell millions of sight-restoring operations?” Today, Dr. V.’s network of specialty hospitals, the Aravind Eye Care System, performs half a million cataract surgeries annually.

Habit #2: Be Alert to What’s Changing

Having an open mind means being open to what’s changing. Successful innovators pay attention to things that are peeking over the horizon— nascent trends that seem ripe with revolutionary potential.

Large companies often seem incurious about new trends. Why was it Lululemon, for example, and not Nike or Under Armour that capitalized on the growing passion of women for fitness in general and yoga in particular? Orthodox thinking was partly to blame. Traditional athleticwear companies didn’t regard yoga as a sport. Yoga has no professional league and no superstar endorsements. Yet if a sport is something that requires athletic prowess, yoga definitely qualifies. (If you doubt this, open your browser and search “side crow pose.”)

Habit #3: Repurpose Skills and Assets

An open mind means rethinking the identity of your organization. You’re probably used to defining your business by what it makes or sells, but to see new opportunities, you have to look deeper. You need to ask, “What are the skills, or ‘core competencies,’ that underpin our success?” And then, “How might we use those skills to create new products and services?

Habit #4: Unearth the Unmet Needs

Sometimes you have to open your heart to open your mind. You have to get close enough to customers to feel what they feel. Only then will you see opportunities to transform the customer experience in ways that lift the human spirit.

Bureaucracies value thinking over feeling. That’s why most businesses are astoundingly bad at reading customer emotions. Every day they irritate their customers in countless ways. You’ll know this if you’ve ever been stuck on hold waiting to talk to a customer service rep. What makes the hold time even more intolerable is the pointless prattle you have to endure —which seems to have been designed solely to increase the production of cortisol.

The key is to tune in to the emotional states that are produced, or not, at each stage of the customer journey. You have to look for the emotional cues—a pinched brow, pursed lips, confused look, clenched jaw—and then ask, “What’s generating that emotion? How have we let this person down?

What’s true for you is equally true for institutions. The pace at which any organization evolves is determined in large part by the number of experiments it runs. Despite this, most employers provide little encouragement to workers who are eager to “learn by doing.

In our survey of ten thousand Harvard Business Review readers, 61 percent of large-company respondents said it’s “very difficult” for frontline employees to try something new. Corroborating this, Gallup’s 2019 Great Jobs survey revealed that in the United States only 9 percent of nonmanagerial employees strongly agreed that they are free to take risks to improve products and services or solutions. Managers also feel hemmed in. In the Boston Consulting Group’s long-running annual poll of senior managers, a “risk averse culture” and “overly lengthy development times” consistently rank as the biggest barriers to innovation.

The downside risk of a $100 million project with a 10 percent chance of failure is $10 million. The risk of a $5,000 experiment with a 90 percent chance of failing is $4,500. Yet despite the trivial sums involved, we haven’t come across many organizations where you could get funding for an experiment with a one-in-ten odds of success. It’s crazy that in most organizations, a CEO has an easier time getting a multimillion-dollar project through the board than a frontline operator has in getting a few thousand bucks to run an experiment.

Perversely, the desire to avoid risk often magnifies it. Dumping money into big me-too projects with modest upside is a lot more perilous than seeding lots of early-stage ideas that are further out on the fringe. In the age of upheaval, incrementalism is the riskiest bet of all. What’s needed is a radical shift in how we think about experimentation. The goal isn’t simply to reduce the uncertainty around new products or get them to market faster, but to build an organization where everyone is working to extend the boundaries of what’s possible. That’s how an organization buys insurance against irrelevance.

Yet in our experience, few companies appreciate the distinction between project risk and portfolio risk. Each potential experiment gets evaluated on its own merits and is expected to clear a high bar of feasibility. That pretty much ensures the company will never invest in the sort of crazy-ass idea that might actually deliver a thousand-fold return.

Cook’s challenge inspired a multiyear effort to make experimentation a companywide capability. Today, Intuit nurtures experimentation in five key ways.

EXPERIMENTAL TEAMS. Intuit assembles small “discovery teams,” like the ones behind SnapTax and PersonalPro, around promising ideas. A typical team includes individuals drawn from engineering, product management, and design— what cook calls “a hacker, a hustler, and a dreamer.” Once constituted, these teams operate outside the chain of command and enjoy a high level of autonomy. To ensure they don’t get bogged down in bureaucracy, teams are matched up with executive sponsors. The SnapTax team, for example, was mentored by the VP of product management for TurboTax, Intuit’s VP of engineering, and Scott Cook. Sponsors meet with teams once a week to provide coaching, remove bottlenecks, and help secure resources. Further support comes from Intuit’s innovation catalysts—a group of two hundred experimentation “black belts” who dedicate 10 percent of their time helping colleagues identify customer needs, design experiments, and build prototypes.

INNOVATION TRAINING. Designing experiments takes skill, and at intuit, every employee gets the chance to become a pro. The company’s innovation curriculum, Design for Delight (D4D), is a weeklong course that builds skills in three areas: customer empathy, idea development, and rapid prototyping. New hires are expected to complete the course within their first three months. Further training is offered via “Lean StartIn,” a weeklong workshop where a team uses the D4D methodology to address customer pain points. Over the course of five days, the group develops three to four prototypes and runs multiple tests. More than two thousand employees have participated in a Lean StartIn since the program’s launch in 2012.

TIME FOR EXPERIMENTATION. Intuit also supports experimentation with “unstructured time.” All associates are encouraged to spend 10 percent of their time working on a passion project. Employees can consolidate this time into blocks and are encouraged to sync up with colleagues to tackle chunky problems. In a typical example, the team responsible for QuickBooks saved up its unstructured time over several months so it could devote a full week to brainstorming new product features. During the week, the team created a prototype for a mobile version of its signature product. Jeff Zias, an innovation leader at Intuit, reckons that over the last decade, unstructured time spawned five hundred discrete projects that eventually shipped products or services to internal and external customers.

DEDICATED FUNDING. Innovators at intuit have multiple sources of experimental capital. Each department has an experimentation budget for upgrading current products. Would-be experimenters can also compete for funds in periodic innovation challenges and 13 14 hackathons. Finally, innovators can seek support from the CEO fund, a discretionary pool Cook established to ensure that outlier ideas don’t get starved of resources. Investments are typically small—tens of thousands of dollars over two to three months—but can range higher when an idea needs longer incubation. PersonalPro, for example, received several million dollars over three years. Existing businesses are expected to match the CEO fund for ideas that will benefit their customers.

ENABLING FUNCTIONS. Support functions are responsible for enabling experimentation. In 2012, Intuit’s IT department cut the time it took to set up an online test from two months to two hours. The following year, the legal department published guidelines on how to run an experiment without the need for a legal sign-off. Staff functions are also expected to experiment with their own services. A few years ago, an HR project manager prototyped a program that put job applicants into a live Intuit project before the final hiring decision. The results were so impressive that this is now a key part of Intuit’s recruitment process.

Nature is eternally restless. It doesn’t sit still, it doesn’t wait for a catastrophe, it doesn’t ask permission, it doesn’t plan—it just tries stuff. The same needs to be true of your organization. That means letting people be as experimental at work as they are in the rest of their lives. In the words of the great management thinker, Elvis Presley, it’s time for “a little less conversation and a little more action.” So just go try something.

Charles Simeon, the nineteenth-century cleric and fellow at King’s College, Cambridge, put it well when he said of mercy and justice: “Truth is not in the middle and not in one extreme; it is in both extremes.” G. K. Chesterton, the English essayist, expressed a similar idea when he defined paradox as “two opposite cords of truth [that have] become entangled in an inextricable knot.

Decades ago, James March, the organizational theorist and Noble Prize winner, argued that the most basic problem for any organization was to “engage in sufficient exploitation to ensure its current viability and, at the same time, devote enough energy to exploration to ensure its future viability.

Consider big pharma. In 2018, the world’s ten largest drug companies spent more than $76 billion on R&D—42 percent of the global total. Yet of the fifty-nine drugs that were approved that year, only 15 percent originated in the labs of the top-ten pharma giants. Pint-sized innovators with less than $1 billion in sales accounted for 63 percent of all new drug approvals.

Pedro Cuatrecasas, an industry veteran who brought more than forty medicines to market, blames bureaucracy for big pharma’s malaise:

[Drug companies felt] confident that they could manage and mandate results with discipline, order, formality, and efficiency. Unfortunately, many of these qualities are ones that suffocate creativity and innovation. Freedom, spontaneity, flexibility, nimbleness, tolerance, compassion, humor, and diversity were replaced by bulky and inflexible organizational structures characterized by regimentation, control, conformity, and excessive bureaucracy.

There’s a final threat to subtlety: bureaucrats abhor ambiguity. Their sense of order is offended by the idea that not every trade-off can be resolved once and for all. Uniformity is a virtue. Never mind that any universally applied policy will be wrong a significant percentage of the time—as when an across-the-board hiring freeze unfairly punishes a small but fast-growing unit, or a zealously enforced policy inconveniences a high-value customer. The alternative would be to grant those on the frontlines the freedom to optimize trade-offs locally, as circumstances dictate. To a bureaucrat, this is anathema, since it erodes “order.” How can you manage a large organization if people on the ground are free to do their own damn thing? We need to know what’s going on, and that’s possible only when everyone’s following the same script. This, as much as anything, explains why senior leaders favor uniform structures and uniformly applied policies—yes, they may be suboptimal, but they reduce the cognitive load on executive leaders. They make the world seem understandable to those at the top, and thereby help to preserve the illusion of control.

Before moving on, let’s recap:

• Bureaucracies are replication machines. They’re designed for exploit, not explore.

• Bureaucracies tend to be monocultures. They’re run by individuals temperamentally inclined to favor the status quo.

• Bureaucratic information systems fail to capture the hidden costs of one-sided trade-offs. As a result, many decisions are underinformed and, therefore, suboptimal.

• Bureaucracies tend to enforce uniform trade-offs across the entire organization. Though unsophisticated, this preserves the center’s power and sense of order.

• The bureaucratic aversion to ambiguity leads to either/or thinking. Rather than maintaining a creative tension, organizations tend to whipsaw between counterposed priorities.

The key to Handelsbanken’s unrivaled performance is its highly unorthodox organization model. In 1970, Jan Wallander, an economist 9 working at a regional bank in northern Sweden, was appointed as Handelsbanken’s CEO. At the time, the bank was losing money and was embroiled in a dispute with regulators. As Wallander analyzed the bank’s underperformance, he became convinced that overcentralization was the culprit. The bank’s bloated head office and rigid planning process made it unresponsive to shifts in economic conditions and customer needs. (At the time, loan approvals took two months to complete.) Moreover, senior bankers had made a spate of poor credit decisions that had imperiled the balance sheet.

Every branch got a dashboard that provided read-outs on cost-income ratio, customer defections, profit per employee, loan performance, and per-customer profitability. The goal was to turn every branch into something close to a stand-alone business, a goal expressed in Wallander’s oft-repeated mantra that “the branch is the bank.” Where other banks saw branches as mere stores, charged with selling products and handling transactions, Handelsbanken saw branches as full-fledged businesses charged with building long-term relationships.

Finally, decentralization reduces systemic risk. In a typical bank, credit decisions are made by a comparatively small number of risk managers 12 whose decisions are bound by lending rules based on credit scores, loan-to-value limits, and other factors. Centralized credit decisions also get skewed by corporate priorities, like gaining market share with small business borrowers or reducing exposure to a particular industry. This centralized, rule-driven approach tends to concentrate rather than diversify risk.

You’ll notice that the bank’s SG&A expenses (selling, general, and administrative costs) average less than 40 percent of revenue, versus an average of 67 percent for its rivals. This massive efficiency advantage gives Handelsbanken the ability to resolve the high-touch/low-cost paradox. When compared to its competitors, Handelsbanken underinvests in bureaucrats and overinvests in customer service. In so doing, it rejects the black-and-white thinking that is typical of other big banks.

Former president Arne Mårtensson notes that “Radical decentralization can only work with fast and open information systems,” so that problems “are not hidden within the nooks and crannies of management layers and allowed to fester.

Recognize, localize, depolarize—these are the secrets to building an organization that can walk and chew gum at the same time.

So where do you start in helping your organization become a master of paradox? Here are some suggestions:

1. Be honest about the implicit biases in your organization that skew important trade-offs. Go out of your way to include individuals with countervailing views in important conversations.

1. Challenge yourself and others to get better data on the hidden costs of default trade-offs. Don’t assume that no data equals no downside.

1. If you’re a manager, resist the urge to standardize trade-offs across the organization. Be willing to sacrifice a bit of uniformity for more locally appropriate decisions.

1. Never accept an either/or. Think creatively about how you could achieve your goals without sacrificing other equally vital goals.

1. Work systematically to equip people with the information and skills they need to make smart trade-offs, and then push those trade-offs down.

1. Give frontline teams a genuine P&L, radically reduce the number of KPIs, and hold people accountable for results.

1. Even if you’re not the CEO, search for ways to “stop the train.” Question every click of the ratchet that moves power and decision making toward the center.

Mindful that he was challenging a century of bureaucratic orthodoxy, Ballarin urged his audience to think big. “Why,” he asked, “couldn’t Michelin be the Toyota of the twenty-first century—a company that brought the world a new management model by enlarging the freedom and accountability of every employee?

In a significant twist, the launch team at Olsztyn identified “trust” as the keyword for its experiments. As plant manager Jaroslaw Michalak explained:

We used to operate with the implicit assumption that operators weren’t trustworthy, and that trust must be earned. We now start by completely trusting everyone, and it’s up to the individual to lose trust based on his or her actions. It sounds like a trivial shift in perspective, but it’s had a big impact. When we consider changes to our practices now, the burden of proof is on the side of those who want to keep control.

Wresting authority from central functions was a challenge, yet several plants made progress—none more than Olsztyn. The key, local managers realized, was to win permission for a targeted experiment and then use the results to gain further autonomy.

The goal was to build commitment rather than force the adoption of detailed protocols. Ballarin understood that real change happens through persuasion and persistence, not via mandates and metrics. As Michelin’s apostle of autonomy, Ballarin traveled from plant to plant looking for believers and converts. He knew it was their support, more than anything else, that would ultimately determine whether his mission flourished or floundered.

In every respect, Ballarin’s approach to responsibilization met the critical tests that face any attempt to upend the bureaucratic status quo:

1. It was anchored in timeless human values

1. It provided ample space for improvisation

1. It routed around points of resistance

1. It invited, rather than demanded, leaders to reimagine their roles

1. It minimized risk and disruption

For all these reasons, responsibilization gained enough runway to reach takeoff speed.

Like Michelin, every company must chart its own path to humanocracy. Nonetheless, it’s reassuring to know that you don’t need a legion of consultants, or a massive corporate change program, to get started. In fact, as we’ll see, those may be the last things you need.

Bureaucracy, as we’ve noted, is a game. It pits contestants against one another in a battle for positional power and the rewards that come with it. We have no problem with competition—unless winning comes at the cost of one’s humanity. Bureaucracy will start to crumble when talented and principled people walk off the playing field; when big-hearted heretics decide to forgo bureaucratic wins for the sake of their own integrity, and for the sake of those who’ve been diminished by bureaucracy. As Harvard professor Marshall Ganz notes, the goal of people who change the world is “not winning the game, but changing the rules.

Here’s a simple exercise you can do. Reflect on your actions across the last week or month and ask:

1. DID I SUBTLY UNDERMINE A RIVAL? In a bureaucracy, power is zero-sum. When a slot opens up, only one person gets promoted. In the battle to move ahead, it’s tempting to discount the contributions of others, or sow doubts about their integrity or competence.

1. DID I HOLD ON TO POWER WHEN I SHOULD HAVE SHARED IT? In a formal hierarchy, it’s the people who make the big decisions who get paid the big bucks. To justify their superior status, managers must be seen to be making the tough calls. This creates a disincentive to share authority.

1. DID I PAD A BUDGET REQUEST OR EXAGGERATE A BUSINESS CASE? Resource allocation in a bureaucracy is inflexible and conservative. Budgets often get set a year in advance, and anything that looks risky gets down-rated. Given this, it’s tempting to bid for more resources than you need or overstate the merits of your case.

1. DID I FAKE ENTHUSIASM FOR ONE OF MY BOSS’S IDEAS? In a bureaucracy, disagreeing with your boss can be a career-limiting move. Hence, individuals often swallow their reservations rather than risk being seen as disloyal.

5. DID I DISREGARD THE HUMAN COSTS OF A DECISION? If your organization treats people as mere resources, you may be pushed to make decisions that sacrifice trust and relational capital for short-term business gains.

1. DID I PLAY IT SAFE WHEN I SHOULD HAVE BEEN BOLD? In a bureaucracy, the penalties for screwing up are often bigger than the penalties for sitting on your hands. Given that, it’s tempting to defend timidity as prudence.

1. DID I FAIL TO CHALLENGE A COUNTERPRODUCTIVE POLICY? It’s easier to whine about a stupid rule than to challenge a senior policy maker. Civil disobedience is never the safest choice, but systems don’t change until people take a stand.

1. DID I DO LESS THAN I COULD TO FOSTER THE GROWTH OF THOSE WHO WORK FOR ME? As we noted earlier, there’s often an assumption that “commodity jobs” are filled with “commodity people.” As a result, it’s easy to overlook opportunities to nurture the growth of employees doing mundane jobs.

1. DID I FAIL TO CREATE TIME AND SPACE FOR INNOVATION, OR MISS AN OPPORTUNITY TO BACK A PROMISING IDEA? There’s not much glory in being an innovation mentor. It takes time and often ends in failure. It’s easier to keep your head down than to champion a new idea, but the result is inertia and incrementalism.

1. DID I FAVOR MY TEAM AT THE EXPENSE OF THE BUSINESS OVERALL? Bureaucracies offer few rewards for sharing scarce resources with other units. Behaving parochially often produces the best personal outcomes, even when it’s suboptimal for the organization at large.

1. DID I UNFAIRLY DEFLECT BLAME OR CLAIM CREDIT? In a bureaucracy, performance assessments are typically focused on individuals rather than teams. The goal is to be Teflon when the shit hits the fan and Velcro when plaudits are being handed out. This behavior distorts reputations and misallocates rewards, but it’s the way to win in an individualistic organization.

1. DID I SACRIFICE MY VALUES FOR EXPEDIENCY? Bureaucracies value results above all else. If you exceed your targets, no one’s likely to ask what shortcuts you took. Over time, the bias for outcomes over ethics desensitizes an organization to the moral consequences of its actions.

There are many ways you can begin syndicating the work of managing to your team. Here are a few.

Setting Direction

1. Ask your team to define its shared mission. Give them time to brainstorm answers to questions like, “What’s our value proposition?” “How should we measure the success of our team?” and “What are the most important things we could do to increase our impact?”

1. Hold a monthly half-day session to discuss business unit or corporate-level strategy. Ask your colleagues to identify what they could do to support the overall mission.

1. If your company has a formal planning process, ask your team to take the lead in defining priorities, setting milestones, and developing budgets.

Organizing Work

1. Give your team the authority to reassign work roles with the goal of increasing engagement and effectiveness.

1. Invite team members to craft their ideal job descriptions. Set aside time to review and iterate these as a team.

1. Ask the team to take the lead in setting daily or weekly goals and assessing progress.

Sharing Information

1. Host a quarterly discussion that gives team members the chance to interact directly with internal and external customers they otherwise wouldn’t meet. Focus the session on identifying and solving unmet needs.

1. Ask the team if there’s additional financial or operational information that would be useful to them and do your best to provide it.
2. Help frontline team members better understand the strategic measures and screens that business unit or corporate leaders use to judge organizational effectiveness.

You can’t demolish bureaucracy with a giant wrecking ball or a stick of dynamite. Instead, it must be dismantled, brick by brick. Detox and delegation are the first steps, but then what? Obviously it’s not enough to change yourself and your team. Ultimately, you have to change the core processes by which your company is run—planning, resource allocation, project management, product development, performance assessment, promotion, compensation, hiring, training, and all the rest. Each of these processes must be rebuilt atop the principles of humanocracy.

By definition, humanocracy is a radical departure from the status quo. Yet in building it, we have to be careful not to throw a giant wrench into the clanking machinery of bureaucracy. What’s required is an approach that is both revolutionary and evolutionary; that’s radical in its aspirations yet pragmatic in its approach. In practice, this means running lots of experiments—this is how human beings test whacky ideas without blowing things up. Before sending an astronaut into space, we launch a monkey or two. Before putting a new drug on the market, we test it on rats. Luckily, in the case of humanocracy, no animal testing is required— unless, of course, you count us.

How would you test the hypothesis that transparency is a more effective means of control than top-down rules? That’s the question a group of midlevel managers in a global pharma company asked themselves during a workshop led by one of our colleagues.

The first step was to look for a Byzantine policy that was widely regarded as a pain in the ass. As you might suspect, they had plenty of candidates, but the company’s irksome travel policies seemed a particularly juicy target. In an attempt to rein in a corporate travel budget of roughly $500 million per year, the finance function had developed a maze of niggling rules. There were strict guidelines on who could travel, for what purposes, on which airlines, and in which class of service. Hotel and rental-car choices were similarly constrained…

The experiment, modeled on the company’s methodology for drug trials, involved two pairs of treatment and control groups—one pair at head office and the other in an operating unit. The experiment was designed to test the hypothesis that increased autonomy and transparency would (1) simplify travel planning, (2) reduce frustration, and (3) not raise costs. Fifty people were recruited for each group, for a sample of two hundred individuals. The treatment groups were told that for the next ninety days, they’d be able to make their own travel arrangements with no pre-trip authorizations or post-trip audits. The catch: all their travel expenses would be posted online for everyone to see.

At the end of the trial, the team analyzed the results. A large majority of those in the two treatment groups—74 percent and 87 percent— reported that the new process was less time consuming than the old one. What was more surprising was that 45 percent of the participants said the simple rule change had increased their overall job satisfaction. The researchers had expected travel costs to edge up slightly, and were prepared to argue this was a price worth paying for a more time-efficient process, but in the end, travel costs fell for the treatment groups while remaining essentially unchanged for the control groups.

Important questions at this stage will include:

1. What’s our proposed solution, in a single sentence?

1. What are the key components of our hack?

1. What hypotheses do we need to test?

1. Who will participate in the experiment?

1. What data will we collect?

1. How do we ensure we get meaningful results?

1. How much time will we need to run the experiment and what resources will be required?

Remember, the goal is to test your proposed solutions as efficiently as possible, not build something that’s bomb-proof. Nevertheless, you’ll want to be thoughtful about minimizing risks. A few tips:

1. Keep it simple. Test one or two hypotheses at a time, starting with the most critical.

1. Use volunteers. Don’t compel anyone to take part in your experiment.

1. Make it fun. Think of ways to gamify the experience.

1. Start in your own backyard. That will minimize the number of permissions you need and the risk that someone tells you to stop.

1. Run the new in parallel with the old. Don’t blow up the existing process until you’ve validated the new one.

1. Refine and retest. Create an expectation that this will be the first of many experiments.

1. Stay loyal to the problem. Don’t fall in love with your solution. If it doesn’t pan out, search for other testable hacks.

CONTRARIAN THINKING. If a problem’s been around for a while, it probably can’t be cracked with conventional thinking. Seek out the positive deviants, like Nucor and Haier. Borrow ideas from other domains, like biology, startups, and crowdsourcing. Rigorously challenge your deepest assumptions. Do all this, and you’ll increase the odds of finding a novel solution.

COMPASSION. People aren’t merely skeptical; they’re cynical—and with good reason. Everyone’s fighting their own corner and looking out for their own interests. When asked to help, most people will ask, “What’s in it for me?” To jump this hurdle, you have to put others first. When colleagues see you working to understand their needs, when you help them craft their experiments, and ensure they get the credit, they’ll start to trust you. When your compassion shines through, people will take risks with you and pick you up when you fall.

CONNECTIONS. Building a community is the most important thing an activist can do. This is the ultimate multiplier of individual effort. Employees eager to try something new often make the mistake of asking their boss for permission. Usually they get shot down, or win only grudging support. This isn’t entirely the manager’s fault. A priori, it’s hard to know whether an underdeveloped idea is brilliant or batty. Since great ideas are rare, the default setting for most managers is to say no. So don’t go up, go out. Talk to your peers. Find a few colleagues who will help you build and run an experiment. It’s easy for a manager to say no to a lone supplicant, but much harder to turn aside a small band of partisans who are passionate about making things better and have already made a start.

At the risk of being impertinent, we reminded him that what matters is not time to rollout, but time to success.

Even when an organization is led by a pioneering CEO like Jan Wallander or Zhang Ruimin, crafting a new management model is more about “discover and test” than “engineer and impose.

Genuine buy-in, as distinguished from compliance, is the product of involvement, not exhortation. To embrace change, employees need a hand in creating it.

1. Scott Cook interview with Michael Chui, McKinsey & Co., https://www.mckinsey.com/business-functions/strategyand-corporate-finance/our-insights/how-big-companies-can-innovate

1. Scott Cook, “Accounting for Intuit’s Success,” Stanford University Lecture, November 4, 2015, https://stvp-staticprod.s3.amazonaws.com/uploads/sites/2/2015/11/3594.pdf.

1. James March, “Exploration and Exploitation in Organizational Learning,” Organization Science 2 (1991): 71–87.