Last month, we introduced our 2021 Business Trends report based on in-depth conversations with top CSOs in our Outthinker Strategy Network. We will be expanding on one of these trends every week with the intention of supporting your organization’s strategy for the next year and beyond. This is our seventh installment.
As we reenter the post-Covid workplace, many companies are facing a period of reorganization and restructuring. Our research has forecasted and proven that organizations of the future will need to adopt agile approaches and embrace open, networked structures instead of outdated, top-down hierarchies.
Strategy will become a company-wide conversation, rather than a quarterly report, and employees will be seen as a critical source of creative, innovative advantage. Organizations who learn to establish a culture that inspires continual innovation will be the ones to succeed in the long-term.
Gary Hamel’s Humanocracy
This transformation of culture is easier said than done, especially after a year of chaos like the one we just endured. When so much of the world is left in the hands of fate and more employees are working remotely out of their own homes, it can be tempting for organizations to grasp for increased controls and regulations. However, employees being left responsible for making their own choices about when and how to work may be precisely the opportunity that leadership needs to realize that they can.
Gary Hamel warned us about the need to reform organizational models. In the near future — and in many cases in the present — bureaucracy will be pushed aside and humans will move to the center of organizations. Many members of our network of chief strategy officers have expressed concern about the struggle to shift to agile development, to bring Scrum and Lean models outside of IT and into all aspects of the organization. Gary suggests that, although these models are correct in methodology — they provide the foundation for speed, flexibility, teamwork, and innovation — they will fail if we do not consider the humans inside of them.
Gary explains that there is no shortage of human creativity: every day 50,000 hours of content appear on YouTube, 3 million blogs are published on WordPress, 40 million photos are posted on Instagram, and 1,300 new apps show up on Google Play. Speed, production, and creativity are everywhere, but our existing organizational models struggle to harness the power of the humans working for them.
Organizations must learn to eliminate what Gary calls “controlitis”, the stringent management principles that prevent employees from trying new things. To do this, he offers five critical steps:
- Measure the costs: Managers are used to paying attention to what they can measure. Gary offers a free tool to calculate your Bureaucratic Mass Index — the cost of existing bloat, friction, distortion, apathy, rigidity, conformity, insularity, timidity, and politicking that you will endure by sticking to your existing management model.
- Learn from organizations who are evolving: For example, Buurtzorg, a healthcare organization in the Netherlands, has divided itself into small teams of 12 nurses. Each team is self-managed, like a small business, with a common goal and a shared platform to learn best practices from 11,000 other nurses. Team performance is visible to every other team. The company is an example of entrepreneurship inside a larger organization.
- Reject bureaucracy and embrace new principles: Organizations impose new models (agile, lean, etc.) on their employees and then wonder why they aren’t working. We cannot instill a shift until we have learned to let go of our old ways. Gary reminds us that true culture change comes from innovation, meritocracy, openness, community, and ownership.
- Hack the management model: Leaders and teams must experiment across their organizations with new ways of managing. Solicit ideas and feedback. Be ready to adapt when something is not working. Make failure an acceptable and celebrated feat.
- Start where you are: One of the best parts of new organizational models is that you do not need permission or to have the perfect structure in place. These models are built on continuous experimentation and iteration. You can start exactly where you are.
The Haier case
Gary frequently points to one example of an established company that has reinvented itself to eliminate bureaucracy. Haier is a Chinese appliance maker that demonstrates how a large corporation was able to decentralize its 80,000+ employees into about 4,000 micro-teams, all while increasing growth profits 23% per year and enjoying 18% revenue growth annually.
By implementing a set of future organizational models, Haier shows us that organizations can still enjoy the benefits of bureaucracy — control, coordination, and consistency — without so many of the costs.
How Haier exemplifies the IN-OVATE model
In my book, Driving Innovation from Within, I’ve summarized the problems and subsequent resolutions for organizational models using the acronym IN-OVATE (Intent, Need, Options, Value blockers, Act, Teams, Environment). Let’s take a look at how Haier has addressed each aspect of the model.
Intent. Traditional organizations have structures in place that act as natural barriers to innovation. This often frustrates would-be internal innovators and causes them to lose faith in their intentions to innovate. Organizations that survive in the future are going to give employees their intent back and turn them into internal innovators.
- At Haier, each microenterprise (an autonomous team of 10-15 employees) decides which opportunities to pursue and sets its own priorities. Microenterprises are grouped into platforms based on product category or customer need. Contribution is voluntary and inspired by a combination of problem solving and ambitious goal setting.
Need. Most employees do not fully understand their organization’s strategy. Fewer than 55% of middle managers can name even two of their company’s strategic priorities. Who can blame them, if strategy is only discussed quarterly in boardrooms with closed doors? Future organizations are going to evolve from overly complex strategic plans into a simple statement of purpose that tells our employees what the company and the world need.
- Haier’s CEO, Zhang Ruimin, has established a “zero distance” policy according to which every employee is considered accountable to customers. The company’s core values are best summarized by the Chinese term rendanheyi, the connection between each employee and the needs of each user. Platforms of microenterprises are facilitated by a “platform owner” who has no direct reports but is chosen after presenting their plan to the team.
Options. Strategic conversations are happening every day. Their patterns and conclusions lead us to breakthrough ideas. If leaders and employees learn to listen and are free to act upon these conversations, we will see innovative ideas coming not from boardrooms but from our hallways.
- At Haier, every new product is developed in the open. The company uses social media to ask users about their needs, preferences, pain points, and desirable product features. Business partners are encouraged to share their patents with the promise that they will be rewarded if the idea or feature is used. After launch, Haier crowdsources customer feedback on products.
Value blockers. Instead of just one established way of delivering value, we’re going to see organizations adopt an ecosystem of business models that give employees greater freedom to change the world.
- There are three types of microenterprises at Haier, each operating with a slightly different business model and collaborating within the larger organization. “Transforming” microenterprises operate in the legacy appliance business, with the goal of shifting toward more web-centric business models. “Incubating” microenterprises are new businesses built around familiar products meant to tap into emerging markets. “Node” microenterprises operate within the organization. Nodes sell services such as design, manufacturing, and HR through a bidding model to the other two types.
Act. We will move away from a model where companies ask that employees prove their idea before they can act, because they will recognize that innovations require you to take action in order to prove the idea.
- Haier’s ambitious method of goal setting inspires innovation and encourages risk-taking. Objectives are set not based on past performance, but on market growth rates. Microenterprises are expected to grow 4-10x faster than industry averages. However, targets are continuously adjusted based on changing market conditions. Teams decide amongst themselves the right tactics to meet these targets.
Teams. We’re going to move from hierarchical siloed structures toward agile teams that can move quickly and reconfigure at will.
- Haier’s model of microenterprises grouped into shifting platforms demonstrates that fast-moving agile teams can indeed exist within a large, formerly bureaucratic organization.
Environment. We will see a new environment evolve, as our organizations shift toward more open platforms where employees can find opportunities and rally resources to change things. We’re going to see a seismic shift in organizations, from asking employees to operate within a confined job description to one that gives them an open structure that allows them to pursue and test ideas outside of their stated role.
- There are three ways that internal innovators at Haier can pursue new ideas. They can post an idea internally and invite interested colleagues to help develop a business plan. Platform leaders can invite insiders and outsiders from their microenterprise to submit project proposals. Employees can also pitch their ideas at Haier’s monthly roadshows to appeal to outside investors.
Companies today have a unique opportunity to reimagine the future workplace by replacing outdated hierarchical models and significantly reducing bureaucracy. Thought leaders like Gary Hamel along with companies like Buurtzorg and Haier show us the path to a brighter future where organizations wisely value and inspire innovation from their employees.