Why It’s Time For Leaders To Radically Rethink Power Structures And Create ‘Humanocracies’

November 16, 2020

By Adam Chapman, EyeForPharma on Mar 21, 2019
Gary Hamel
GARY HAMEL

Complexity is the defining business and leadership challenge of our time. But it has never felt more urgent than this moment, with the coronavirus upending life and business as we know it. For the past few months, we’ve been talking to leaders about what it takes to lead through the most complex and confounding problems related to the pandemic. Today, part 2 (read part 1 here) of our interview with Gary Hamel, faculty-member of the London Business School, cofounder of the Management Lab, and co-author of HUMANOCRACY: Creating Organizations As Amazing As The People Inside Them.

David Komlos and David Benjamin: It sounds like the biggest impact a leader at the top of the pyramid can have is to challenge the model of management that they are presiding over.

Gary Hamel: I think that's exactly right. Today, we have to push ourselves to think as radically about changes in our management and organizational models as we think about innovation in our business models. And as I said, unfortunately, most people have grown up in and around that old bureaucratic model and they struggle to imagine an organization that is radically different, where every single employee is an entrepreneur, where you have few if any formal managerial roles, where strategy is set in a bottom up, company-wide conversation, where every employee has financial upside in the business. We have to push ourselves to think more radically about management models because until we do, our organizations will never be fundamentally more capable than they are right now, and they need to be far more capable.

We need to abandon the idea of the leader as the decision-maker, chief-arbiter, and visionary-in-chief, because it's much more about becoming a system architect and thinking about how do you build the values, the systems, and the collaborative platforms that bring all of the organization’s genius to the fore.

Komlos and Benjamin: In the book, you quote economist Edmund Phelps’ argument that we’re most alive when we have “the experience of mental stimulation, the challenge of new problems to solve, . . . and the excitement of venturing into the unknown.” How can organizational leaders apply this insight?

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Hamel: All of the advancement today comes from doing new things, from reimagining a product or a business model, from solving a new customer need. For that to happen, you need individuals who are deeply empowered and feel like entrepreneurs. Many management pundits and consultants have told companies that the only way you can innovate is to hive off the new things by creating incubators and accelerators, and protect them from the incremental bureaucratic thinking back in the core business. So company after company set up incubators and accelerators and have been very disappointed by the results. That’s because the challenge is not to create a little innovation enclave; the challenge is to turn every employee into an entrepreneur.

There's really just a few things that are required to do this. Here’s the very simple recipe:

  1. Break big operating units down into small operating units, consisting of maybe 15 to 50 people, so everyone can understand and get their arms around it and feel like it’s theirs.
  2. Give the units real profit and loss responsibility, and ask them to make their business successful by making choices, managing trade-offs in real-time, and staying close to customers.
  3. Give the units autonomy over important business decisions, and guarantee three freedoms: the freedom to set their own strategy, the freedom to organize as they see fit, and the freedom to distribute rewards.
  4. Give each person a meaningful financial upside, so when they make great decisions, they can multiply their salary.
  5. Upgrade the business skills of frontline employees. You can't ask them to think like entrepreneurs if they don't know what P&L or NPS is, or how to read a balance sheet.

In the United States, 77% of Millennials say they'd like to start their own business. Many will never get that chance, but that doesn't mean they can’t work in an organization where it feels like they're running their own business.

Komlos and Benjamin: What impact do you think that new technologies will have when it comes to top-down structures?

Hamel: Right now, we are using new technologies to reinforce the old model. For example, we have information systems that allow us to track every bit of performance across the entire organization, to set targets and know exactly how people are doing. But there’s a fundamental arrogance in believing that senior leadership can know the winning formula, set people’s goals accordingly, and if they just follow those goals, all that effort will re-aggregate into success. You can have a lot of summary data, but that doesn't really tell you what's going on down on the ground. We've tended to take all the rich data we have and move it up rather than saying, how do we equip frontline teams with the data they need to self-manage?

The second thing we’ve seen with a lot of new tools - like Slack, Microsoft Teams and Zoom - is that they’ve been used to improve team productivity in the same way that Microsoft Office improved individual productivity 30 years ago. We use them to share documents, to schedule meetings, to brainstorm, and so on. And while all that's good, I see very few organizations that are using these new collaborative technologies to crowdsource the problem of strategy and direction-setting to the entire organization. I see very few that are using these new technologies to build an internal equivalent to Kickstarter, where new ideas and funding decisions are distributed and are made by the crowd, rather than ideas fighting their way up through the pyramid, only to have an executive say yes or no.

New technologies can be used to radically change where power lies, how ideas emerge and get funded, and whose voice gets heard, but mostly, we've been using them to do better what we’re already doing. Technology will eventually flatten the pyramid, it will change deeply the way we structure our organizations, but most of that has yet to happen.

Komlos and Benjamin: For a leader who wants to start down the path of humanocracy, what practical steps can they take?

Hamel: I meet a lot of leaders who are very frustrated, understand how fast the world is changing, and know that their organization is no longer fit for purpose. Here’s what a leader must do to finally break free from the status quo:

  1. You really have to have the motivation and believe that this is not just a nice thing to do; it's an imperative. Because most of the costs of bureaucracy are invisible (conservatism, pointless politicking, employees who are not bringing their creativity to work), we created an instrument called the bureaucracy mass index (or BMI) to help leaders assess the size of their challenge.
  2. You require new models, and to look at existing humanocracies not as aberrations, but as harbingers. Take the time and the energy to go learn and inquire about these models.
  3. You need a migration strategy to get from here to there. The examples in the book fall into two categories: companies that were born post-bureaucratic, and companies with a truly brilliant and inspired ‘Philosopher King or Queen’ who led the company into a new model. In the latter cases, typically that leader came to the fore in a crisis. The dilemma is that if you're not a startup and you don't have a crisis, how do you get the permission to do something this radical?
  4. You have to help people see the migration path and imagine a revolutionary alternative to what’s around them. The way to get there, though, is one step at a time. Equipped with helpful models but no templates, you're going to have to find your own path to this through a lot of experimentation and emergence.

In my experience, the best way to get the entire organization moving is to crowdsource the problem. Ask all 3000 or 5000 or 70,000 of your people to hack the old model and give you ideas on how to change it, and then start running local low-risk experiments. When you open up a problem to hundreds or thousands of people, that’s going to yield better solutions and it's an immensely empowering thing when you say to every employee: “Here's your chance to help design the work environment in which you spend most of your day / most of your life.”

Komlos and Benjamin: Any other advice you can offer? Any parting thoughts?

Hamel: I'm hoping that we will learn some lessons from  Covid-19, because clearly it is only one of many unprecedented challenges we face today as a species, including climate change, racial injustice, mass economic migration, the job-displacing impact of automation, cybersecurity threats, and geopolitical conflict. These challenges will only be solved if we have organizations that are far more resilient, adaptable and inventive than what is typical now.

We can no longer afford to waste even an ounce of human ingenuity and initiative, and that means surrendering the prejudice that there's a distinction between the thinkers and the doers, between executives and workers, between the clever and the compliant. That perspective simply no longer serves us well, if it ever did.

The required changes will be at least as radical as the revolution that gave birth to large scale industrial enterprises 150 years ago. Change won't happen easily, but I believe it will happen.

original article posted on Forbes on Nov 16, 2020

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