Beware of organizational incompetency

According to leadership expert and longtime Global Institute for Leadership Development faculty Gary Hamel, strategies have life cycles and the great challenge for any successful organization – which is one that has a great strategy – is to change its strategy. Very few companies have the capacity to reinvent themselves. Most either coast on their decades-old strategy, or they go sideways.

The Fundamental Incompetencies of Organizations

Organizations are incompetent in some fundamental ways.

They are not adaptable. The world is becoming increasingly turbulent, changing at a faster pace than organizations can adapt. And adaptation is usually triggered only by a crisis or a long period of sideways performance. Virtually every change program in large organizations is essentially a catch-up program.

They are not very innovative. Today, we expect new ideas to come from the start-ups. Resources have become a poor predictor of future success. It’s not that innovation isn’t happening at established organizations – there are plenty of corporations that innovate – it’s just that they’re not consistently innovative. In a world of relentless change where 99 percent of companies fail, innovation is your insurance.

And, they are not very inspiring. As the strategy life cycle shrinks, companies have to reinvent themselves at a faster pace. But you can’t be innovative unless you know how to inspire people. Like Maslow’s hierarchy of needs, Gary suggests there is a hierarchy of human capability at work. At the bottom is Obedience (abiding by ethical rules and policies, taking responsibility for results). Then come Diligence and Intellect. Today, these components in the bottom half of the hierarchy are all commodities. If these characteristics are all that individuals are contributing, the organization will not succeed. You need the next three levels, which are Initiative, Creativity, and finally Passion. We talk about the knowledge economy, but these top three are what create value in the economy. These are the gifts that people bring to work that can drive success.

Gary asks people all over the world to draw a picture of their organization, and he typically gets an image of an org chart. This structure is what enabled the pharaohs to build the pyramids, and Henry Ford to build an automobile company, but this structure is also the exoskeleton of a bureaucracy. Bureaucracy solves the problem of driving out variety and building in precision, which is good, but it also comes with costs. For example, it overweights experience. Companies fail to reinvent themselves because their leaders cannot write off their depreciating intellectual capital. In other words, what got you here is not what will move you forward. Can you instead build an organization that is radically decentralized and perfectly synchronized? The answer is yes, but where do you start?

First, you have to recognize that it’s an architectural problem. We tend to believe the following equation: Discipline x Autonomy = a Constant. That means that if you chart discipline along the X axis and autonomy along the Y axis, you’ll get a straight line that goes from the top left down to the bottom right. In other words, the more you have autonomy, the less you have discipline and vice versa. But we can get off this curve – from the bottom up. If you want to create leaders whom people want to follow, then you need to let those people pick them – and un-pick them if they’re not getting the job done.

It’s also an ideological problem. Look up “to manage” in any thesaurus in virtually any language and you’ll see it means “to control.” The ideology of management is “controlism.” Control isn’t all bad, but we need to incorporate a complementary ideology. What is the most adaptable, innovative, engaging, and least managed thing on the planet right now? The Internet. It provides the freedom to create, innovate, communicate, argue, and more. Taking the ideology of the Internet and baking it into our existing organizations will give people more freedom to innovate.

Three Key Principles

The ideology of the Internet provides three key principles needed for organizations to quickly adopt new strategies.

1. Experimentation. The cost of experimentation is going down and that increases the pace at which an organization can adapt. Try something new – no permission needed.
2. Disaggregation. The Web is adaptable because it consists of a lot of small pieces that are loosely connected. Hierarchies are built from the bottom up such that, when someone stops adding value, their power is taken away.
3. Activism. Activists are not content with mediocrity, nor are they helpless. They find ways to innovate in their spheres. You need to syndicate across the organization, but companies don’t train employees to be activists. Focus on causes, not symptoms, and be explicit about your hypotheses. And then you need to…

Be Experimental

If you want to make a huge difference in your organization, if you want to help your organization become a company that is built for the future, you need to be experimental. Take the three above principles and ask yourself: If I’m really serious about this, what would I change? How can I hack the management systems in my company? And then start doing it in your corner of the organization.

What are you doing to combat organizational incompetency?

See Gary in person at Linkage’s Global Institute for Leadership Development^™ this September in Palm Desert, CA.

Gary Hamel is a longtime GILD faculty member. He speaks frequently at the world’s most prestigious management conferences, and is a regular contributor to CNBC, CNN, and other major media outlets. He has also advised government leaders on matters of innovation policy, entrepreneurship and industrial competitiveness. Hamel is leading an effort to build the world’s open innovation platform for reinventing management. The Management Innovation Exchange has been designed to radically accelerate the evolution of management knowledge and practice.