Picking up the pound notes

Why some companies are better at spotting them than others

‘What’s needed is a consortium of laboratory companies and a network of inspired innovators all eager to reinvent the way human beings work at scale’. Thus Gary Hamel earlier this year launching a ‘[New] Human Movement’ along the lines of the human Relations Movement – ‘the most important movement in management history’ – to kill bureaucracy and make business an environment ‘where human beings are free to flourish’.

Read it – it’s a stirring message. But with due respect for Hamel, I think that here he’s on the wrong track. What we lack is not labs or management inventors dreaming up flashy new ways of doing things. Instead, it’s patient thinkers able to integrate and take forward the basic things that we’ve known, or at least intuited, since the original human relations movement. As Jeff Pfeffer, another respected management professor, remarked at a 2008 conference on developing management ‘moonshots’, ‘we need an implementation, as much as an innovation, engine’.

Yet an ‘engine’ isn’t the right metaphor either. Consider what have been termed (including by Hamel himself) the ‘positive deviants’ of the business world: companies in a variety of industries that thrive and prosper by doing things so differently from their industry counterparts that they might be a different species. Think among others Toyota in motors, W L Gore in plastics and materials science, Handelsbanken (banking) and, a much more recent example, Buurtzorg, the fast-growing Netherlands nursing and social care organisation. By size, shape, industry and national culture, they are very diverse. Yet what they share is far more important than what they don’t. And it is something that their conventional congeners conspicuously lack: a commitment to building organisations around human beings.

Which prompts the thought: maybe they are a different species.

Thus, when Bill and Genevieve Gore founded their eponymous firm in the 1950s they wanted to create a framework in which entrepreneurially-minded engineers and scientists (as they were) could work on projects that mattered to them and would contribute to the world. They deliberately took as their starting point the human-relations-school theories of Abraham (‘hierarchy of needs’) Maslow and Douglas (‘Theory X, Theory Y’) McGregor.

It is probably not coincidence that the deviants share many qualities with Gore. They all exhibit a strong sense of purpose and identity – essential for cohesion, and powerful enough to deter those who don’t fit. They emphasize small groups acting as teams – nurses in Buurtzorg, multi-skilled craftsmen at Toyota. At Handelsbanken people talk of ‘the view from the church-spire’ view to illustrate the maximum geographical dimensions of a branch’s constituency; at both Handelsbanken and Gore expansion takes place as and when a leader emerges and a team forms around them to launch a new internal start-up. All depend on distributed decision-making around a few simple principles (Toyota crew members can and do halt the line many times during a shift to solve minor issues; Buurtzorg nurses switch between caring roles as required; Gore has ‘leaders’ – those who have followers – but no formal management ranks; Handelsbanken is run by its branches).

In all these organisations, personal commitments matter and are upheld by peer pressure. Since those commitments can be trusted, management bureaucracy (Hamel’s bane) is kept to a minimum. None of them has budgets, the linchpin of conventional command-and-control management, in the ordinary sense. The prime motivation is intrinsic, and the only performance management in the work. Headquarters overhead is typically tiny – at rapidly expanding Buurtzorg, 50 administrators and 20 trainers for 10,000 professionals deployed in 900 teams; Berkshire Hathaway, another positive deviant and one of the largest companies in the world, is run by 25 people from an office in an unprepossessing block in Omaha. While all of them use technology, none makes a fetish or boasts about it – at Toyota, the current manufacturing director, who worked his way up from the assembly line, is busy cutting and simplifying its automation.

Oh, and I nearly forgot: they are all outperformers. Toyota (which has been honing its production system, a genuine wonder of the business world, for 60 years old) is consistently the most profitable car company in the world. The privately-held W L Gore, in its way hardly less remarkable than Toyota, and also 60, has made a profit in every year of its existence; Fast Company labelled it ‘pound for pound, the most innovative company in America’. Handelsbanken has a 40-year profits record, ever since it adopted its current form. Even though it is formally a non-profit, Buurtzorg more than breaks even, ploughing the surplus back into R&D.

Intriguingly, the design principles that the deviants have in their own ways arrived at find echoes in significant research findings in other fields. Take the research that won Elinor Ostrom, originally a political scientist, the Nobel memorial economics prize in 2009. Ostrom researched ‘the tragedy of the commons’, the all-too-common occurrence, for obvious reasons highly unpopular with traditional economists, where the invisible hand of self-interest leads not to the common good but the reverse: overfishing, overgrazing, competitive nationalism and the exhaustion of planet earth.

Working from observation rather than mathematical equations (another slap in the face for conventional economists) Ostrom isolated eight core design principles that distinguished groups that made a success of managing a common resource from those that failed. Lo and behold, they closely replicate those used by our deviants: strong purpose, fairness in reward and cost, inclusive decision-making, commitment and peer-group monitoring, just conflict resolution, local autonomy and consistent governance.

Which brings us straight back to our opening theme – how to advance to a better paradigm – and the obvious puzzle it begs. Managers don’t customarily leave pound notes lying around on the ground: if we know what works, why doesn’t every company do it? One answer, ironically, is that groups, which as Ostrom found work by cooperation that favours all participants, can easily be derailed by self-interested individuals (aka the invisible hand) – after all, the joint capacity of a business group is a common resource that is just as vulnerable to over or unfair exploitation as a village green or fish-rich bay. Perversely, this behaviour is sanctioned and even encouraged by current economic and management theory, which consistently turns a blind eye to the commons problem and persists in viewing companies as machines and people as purely economically-driven robots.

Or think about it as an evolutionary struggle. Public corporations run on conventional lines are a waning breed, having lost half their US and UK numbers over the last decades. They are not well equipped for survival in a world that’s evolving towards broader, ecosystem-like constellations. But the new still struggles to make headway. The deviants are hard to copy, because (like Gore) they are born from different impulses, with as it were a new genetic make-up. As the company’s CEO told me recently, it’s tough for would-imitators to implement a Gore-type organisation piecemeal ‘because it’s an ecosystem – a truly holistic way of working’. In a forthcoming new book, John Seddon notes that the only way conventionally-trained managers ‘get’ a systems approach (common to all the deviants’ worldview) is by experiencing it at first hand. Abstract rational explanation doesn’t change their thinking – since the theory determines what they see, they perceive the paper on the ground as litter, not pound notes. What this means is that growth at the deviants is constrained not by opportunity or even competition, but the capacity to socialise new people into their different-in-kind way of working. Seddon calls this process ‘crossing the Rubicon’: the good news is that those who reach the other side don’t come back. The bad news: they have to do it one by one.

If this is halfway true, Hamel’s labs need a different agenda. Top of it would be removing the blinkers that prevent people seeing what’s before their noses – primarily ‘the absurd conception of human nature known as Homo economicus’, in the words of evolutionary biologist David Sloan Wilson, and secondly the simplistic notion of equilibrium or a natural state of things that is the only justification for Adam Smith’s invisible hand. As the inventor Edwin Land once remarked, the best innovations are often not a blinding realisation of something new but ‘a sudden cessation of stupidity … not having a new thought but stopping having an old one’. Now, where did all those pound notes go?

Leave a Reply

Your email address will not be published. Required fields are marked *