Organizations must adapt or die, says Gary Hamel8 min read . Updated: 17 Apr 2015, 01:33 AM IST
It's the irregular people, with irregular ideas developing irregular strategies that create irregular wealth
Can large organizations be nimble, disruptive and inspiring places to work? Yes, by dismantling hierarchical, bureaucratic ways of working, says management guru Gary Hamel in an interview. Edited excerpts:
From your early books like ‘Competing for the Future’, ‘Leading the Revolution’ to the last two, ‘The Future of Management’, ‘What Matters Now’, how do you think your ideas have evolved over the years?
It always seemed to me that the two most interesting questions in strategy were: where do game-changing strategies come from and how do you change a successful strategy once it starts to mature and decline?
As I thought about those two problems, I began to realize that there was something very deep inside organizations that made innovation difficult and made renewal difficult. That’s what led me to start to think about management, because it was clear that there was a problem in organizations that wasn’t around particular tactics or strategies, but something even deeper. Almost at the level of DNA. Because when you look at traditional organizations all around the world, very seldom do they spawn game-changing innovation. And very often, they hung on to old strategies too long. That really led to the work of The Future of Management and then to the more recent book What Matters Now, where I started to understand that if you want to build organizations that are instinctively innovative, and intrinsically adaptable, you would have to go even deeper and think about the DNA—the principles if you like—upon which our organizations were based.
Looking back at your past work, if there were one idea you want to tweak, what would it be?
If I could go back, I would’ve put more emphasis earlier on reinventing how companies are managed. In particular, I would have put more emphasis on the challenge of busting bureaucracy. Most organizations around the world—whether it’s the Hongqiao Detention Center in Shanghai, Salesforce.com, HSBC—are still based on a mash-up of military command structures, the traditional pyramid that goes back thousands of years, and then the principles of industrial engineers that go back 150 years or so. It took me a long time to understand—longer than I would like to admit—that until we change that underlying organization architecture, until we challenge those fundamental assumptions about our organizations, that it would be very difficult to build companies that were truly innovative or truly adaptable or inspiring places to work.
It’s only when I started working with and doing research in very non-traditional organizations that I understood that you can manage large-scale human organizations without a traditional pyramid. You can crowdsource the strategy process. You can use the principles of markets rather than traditional hierarchies to allocate resources.
You say management models need to be re-engineered so that they’re based on market principle. Why is it so important to do this?
There’s really a two-part question there. First, do we need to reinvent management? And second, what are the principles we should use in doing so?
Over the last 30 years, I’ve done a lot of work with many organizations around the world, helping them become more innovative and more adaptable. At the same time, many, many times I was frustrated because it was just so hard to get organizations to be really truly innovative on a consistent basis. It was so hard to get them to change ahead of the curve rather than only once the crisis had struck. That forced me to go deeper and to ask: what problem was management attempting to solve?
When you go back to the early years of modern management in the late 19th century, you realize that management was invented to solve the problem of efficiency of scale.
Moreover, the way we solved the problem of efficiency of scale was that we built organizations where we deskilled work, we put people in silos, we created a very tight matrix of rules and procedures, and we valued conformance above everything else. Conformance to quality standards, work methods, product standards, schedules, budgets and customer requirements. To create very efficient organizations, we had to drive the variety out of those organizations. We had to drive out the irregularities, and to do that we actually had to drive out the humanity. And then you wake up in a world and you discover it’s the irregular people, with irregular ideas developing irregular strategies that create the irregular wealth, and our organizations were never built to encourage those kinds of behaviours.
Then the question becomes: what principles do you use to reinvent management?
What I’ve started to do and my work over the last few years is to say: all right, what things in our world are very adaptable? If we need organizations that can change as fast as change itself, then where do you look to see this in action? What are the systems that seem to be very resilient and very adaptable?
One is markets. Markets are very good at moving resources to new opportunities.
Here would be a simple analogy: imagine if there was only one venture capital company in the world. How much innovation would we have if there was only one place to go for funding? And yet, inside most organizations, there’s only one place to go for funding and that’s up the chain of command. So you think today of the power of venture capital and now the power of crowdfunding, where there are many, many sources of experimental capital. It is fundamentally dangerous, I think, for an organization’s adaptability when a single executive has the power to act as judge and jury and executioner on a new idea.
The idea of using market mechanisms to make decisions is only one of the principles that we need when we think about management 2.0, if you will. If you look for example at the Web, it is extraordinarily innovative. You see an emphasis on experimentation, you see this built around a meritocracy where people attract followers in social media only if people want to follow them—there’s no top-down assignment or distribution of authority. You see the power of community, people coming together around shared interests.
So, I think we have to look at markets, at biology, at the Web and anything in the world that is highly resilient and adaptable, and we have to mine those things for the principles that will help us build organizations that are more adaptable.
Is it possible to have an organization with massive scale, and also the flexibility and agility of a young start-up?
I think you’ve put your finger on exactly the challenge.
The secret to doing that is to be able to distinguish between what and how, or between ends and means. Bureaucracy was a particular way of getting control, it used narrow job descriptions, a lot of highly specified rules and close supervision to make sure people were doing the right thing. Can you get that level of discipline without having all of that bureaucracy and supervision? I think you can. Let me give you my own example as a teacher. In an academic institution, there’s not a lot of hierarchy; it’s a very flat organization. But there is a lot of discipline because at the end of every term, all of my students would rate my performance. And all of those ratings were visible to all of my colleagues and every other student. So, there was no place for poor performance to hide.
And that’s what I think you see in some of the organizations today that are both highly disciplined, but also are not very bureaucratic. They’re using much more peer-based models.
Most organizations have a set of legacy management practices...and that will not change overnight. If we want to create organizations where meritocracy rules, where communities rapidly form around new ideas, moving to that goal is going to take probably at least a decade for traditional companies. But the important thing is to encourage management experimentation, to go back to these new principles of transparency and meritocracy and openness and disaggregation, and to ask: how do I experiment with that in a small low-cost way?
Let me give an example. A couple of years ago, I was talking to one of the largest food and beverage companies in the world (...that) wanted to start to become more open and transparent. They were conducting their annual meeting of their senior marketing executives from all over the world—400 top marketing executives from every corner of the world—and traditionally, in a company like this, those meetings are very carefully scripted; there’s very little opportunity for dissent or for questioning. They started to recognize that’s a problem and they wanted to create a more open dialogue. How do you do that without it degenerating into chaos? They invited 20 young people to sit in on this big meeting and to live-tweet their reactions. It was OK to say I don’t think that makes sense, or to say I think that seems like a brilliant idea. And so at the same time they were streaming this meeting around the world, they also streamed all of these tweets, hundreds of them, from the young people. Now that’s not an expensive thing to do, it’s not a difficult thing to do. It takes a little bit of courage, but it starts to send its message: we want to hear your voice, we want to give young people more influence over our thinking and our policies.
An unabridged version of this interview can be read on www.foundingfuel.com, printed in an exclusive partnership with CKGSB Knowledge.
Neelima Mahajan is a senior journalist based out of Beijing.