# Humanocracy  ## Metadata - Author: [[Gary Hamel, Michele Zanini]] - Full Title: Humanocracy - Category: #Source/books - Document Tags: [[MBA]] ## Takeaways - [[it's possible to combine the best of bureaucracy with the benefits of agile flexible post-bureaucratic organisations]] - ## Highlights ### Preface - In a bureaucracy, the power to initiate change is vested in a few senior leaders. When those at the top fall prey to denial, arrogance, and nostalgia, as they often do, the organization falters. ([Location 212](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=212)) - Note: Link to mintzberg fallacy of distance. And resource based view. - ==post-bureaucratic pioneers are proving it’s possible to capture the benefits of bureaucracy—control, consistency, and coordination—while avoiding the penalties—inflexibility, mediocrity, and apathy.== ([Location 218](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=218)) - the vanguard—many of which you’ll meet in this book—are more proactive, inventive, and profitable. ([Location 219](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=219)) - This gross imbalance is dangerous for organizations, a drag on the economy, and ethically troubling. ([Location 223](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=223)) - Note: Discussing bureaucracy. My duty is to maximise efficacy for beneficiaries. - Despite all the talk of the gig economy, a greater percentage of the US labor force works for large companies than ever before. ([Location 229](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=229)) - Buurtzorg trains every employee in group decision making, active listening, conflict resolution, and peer-to-peer coaching. Teams are tied together by a social platform, “Welink,” where nurses post questions and tips. ([Location 244](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=244)) - Economists Gustavo Grullon, Yelena Larkin, and Roni Michaely estimate that between 1972–2014, more than 75 percent of US industries became more concentrated.1 FIGURE ([Location 263](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=263)) - Goldman Sachs, officiant at countless corporate weddings, has noted that if the trend toward greater concentration persists, it will mean “there are broader questions to be asked about the efficacy of capitalism.” ([Location 302](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=302)) - Between 1979 and 2016, the top-quintile of US wage earners saw their compensation grow by 27 percent, while those in the bottom quintile experienced a 1 percent decline.8 (See figure P-2.) ([Location 311](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=311)) - The most important lesson to be gleaned from post-bureaucratic pioneers is that it’s possible to radically upskill what would otherwise be regarded as low-skilled jobs—like operating a forklift truck, loading bags onto an airplane, or packing agricultural produce. ([Location 340](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=340)) - Tags: [[favorite]] - The vanguard companies offer better-than-average wages, not because they’re unusually generous, but because their employees create exceptional value. ([Location 352](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=352)) - Rather than being seen as inventors and makers, they’re regarded as “meatware”—costly machine substitutes that are incapable of being upgraded. ([Location 378](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=378)) - Note: Discussing basic staff at entry level or doing menial jobs ### Fully Human - We are defined by the causes we serve. Our identity is discovered in the challenges we embrace. However modest our means and finite our capabilities, we can gift ourselves the exhilaration of a noble quest. ([Location 438](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=438)) - The problem is that your organization, like most, is inherently hidebound, repressive, and fainthearted. ([Location 447](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=447)) - Take a moment and score your organization on the following dimensions: ([Location 448](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=448)) ![[Screenshot 2025-01-28 at 16.37.35.png]] - To one degree or another, every organization is diffident and dogmatic. ([Location 454](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=454)) - Yet for all their accomplishments, our organizations are inertial, incremental, and uninspiring. These are the core incompetencies of the corporation, and they’re so pervasive that we can be forgiven for assuming they’re irremediable. ([Location 468](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=468)) - Tags: [[favorite]] - As human beings, we are resilient, inventive, and exuberant. The fact that our organizations are not suggests that in some important ways, they are less human than we are. ([Location 471](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=471)) - Every institution is an assemblage of choices about how best to organize human beings in light of some particular goal. ([Location 475](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=475)) - Tags: [[favorite]] - Legacy is not destiny. ([Location 477](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=477)) - we should remind ourselves that when we regard a problem as intractable, we conspire to perpetuate it. ([Location 487](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=487)) - However daunting, even the most entrenched problems yield to courage and tenacity. ([Location 489](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=489)) - The paper that announced the discovery of the Higgs boson, for example, had more than five thousand coauthors. ([Location 509](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=509)) - Only 11 percent of the companies that made up the Fortune 500 in 1955 are on the list today ([Location 549](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=549)) - The average age of a company on the S&P 500 Index has fallen from sixty years in the 1950s to less than twenty years currently ([Location 551](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=551)) - What we need are organizations with an “evolutionary advantage”—a capacity to change as fast as change itself. ([Location 574](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=574)) - A few creative souls living large in their accelerator digs are no substitute for a deeply embedded capacity to continually reinvent the core business. ([Location 635](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=635)) - We are most alive when we’re doing something that enchants us. Sadly, for most people, that something isn’t found at work. ([Location 651](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=651)) - Every organization depends on employees who are capable of following basic rules around safety, financial discipline, and customer care. Next is diligence. An organization needs employees who are willing to work hard and take responsibility for results. The third level is expertise. To be effective in their jobs, team members need the requisite skills. While these capabilities—obedience, diligence, and expertise—are essential, they seldom create much value. Winning in the creative economy requires more. An organization needs people with initiative—self-starters who are proactive, who don’t wait to be asked and aren’t bound by their job description. Equally critical is creativity—people who are able to reframe problems and generate novel solutions. Finally, at the top, is daring—a willingness to stretch oneself and take risks for a laudable cause. ([Location 658](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=658)) - FIGURE 1-1 Hierarchy of work-related capabilities ([Location 665](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=665)) - If the goal is to build a self-renewing organization that ventures boldly into the future, then everything hinges ultimately on willing, enthusiastic, joyful engagement. ([Location 672](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=672)) - There’s no secret about what drives engagement. From Douglas McGregor’s The Human Side of Enterprise to Dan Pink’s Drive, the formula hasn’t changed in sixty years: purpose, autonomy, collegiality, and the opportunity to grow. ([Location 674](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=674)) - Tags: [[favorite]] - The engagement deficit isn’t about what people do at work, but how they’re managed. ([Location 681](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=681)) - managers are no more engaged than their subordinates. ([Location 685](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=685)) - They all conform to the same bureaucratic blueprint: There is a formal hierarchy Power is vested in positions Authority trickles down Big leaders appoint little leaders Strategies and budgets are set at the top Central staff groups make policy and ensure compliance Job roles are tightly defined Control is achieved through oversight, rules, and sanctions Managers assign tasks and assess performance Everyone competes for promotion Compensation correlates with rank ([Location 697](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=697)) - Max Weber, the pioneering German sociologist wrote: “[B]ureaucracy develops more perfectly the more it is ‘dehumanized,’ the more it succeeds in eliminating all purely personal, irrational and emotional elements which escape calculation.” ([Location 711](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=711)) - John Stuart Mill described bureaucracy as a vast tyrannical network. ([Location 717](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=717)) - Like all technologies, bureaucracy is a product of its time. ([Location 738](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=738)) - In a bureaucracy, human beings are instruments, employed by an organization to create products and services. In a humanocracy, the organization is the instrument—it’s the vehicle human beings use to better their lives and the lives of those they serve. ([Location 756](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=756)) ### Bureaucracy in the Dock - the archetypical features of bureaucracy—stratified decision rights, formalized unit boundaries, specialized roles, and standardized practices—undermine adaptability, innovation, and engagement? ([Location 774](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=774)) - Encompassing more than 3,000 scientists from 180 institutions, ATLAS was launched in 1992 ([Location 783](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=783)) - senior leaders often have much of their emotional equity invested in the past. ([Location 877](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=877)) - Power, as the late Karl Deutsch observed, “is the ability to afford not to learn.” ([Location 882](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=882)) - the single greatest threat to organizational resilience: the unwillingness or inability of senior leaders to write off their own depreciating intellectual capital. ([Location 883](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=883)) - Repeated studies have shown that the correlation between CEO pay and relative share performance is negligible or slightly negative. ([Location 897](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=897)) - What we need aren’t extraordinary leaders, but organizations that mobilize and monetize the everyday genius of “ordinary” employees. ([Location 903](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=903)) - Note: Tbis is democratisation - First, alignment is overrated. Yes, it’s important, but it’s not uniquely important. ([Location 909](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=909)) - SUBOPTIMAL.  Every formal structure accentuates certain goals and attenuates others. A functional organization, for example, is well suited to building deep expertise and exploiting economies of scale, but will be less good at serving diverse customer groups. ([Location 920](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=920)) - That’s why when companies reorganize, they often trade one set of problems for another. ([Location 930](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=930)) - the future seldom lines up with the org chart. Parochialism not only makes new opportunities hard to spot, but hard to resource. ([Location 934](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=934)) - In a bureaucracy, every new challenge spawns a new fiefdom, ([Location 937](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=937)) - Though expensive and usually belated, reorganizations are widely regarded as the only way to realign an organization with its environment. As a report by the Boston Consulting Group put it, “Rapid change requires companies to reorganize faster than ever before.” Good luck with that! ([Location 946](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=946)) - we need organizations that, like the biosphere, the internet, or a vibrant city, are more emergent than engineered. ([Location 952](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=952)) - “We believe you should do what you’re good at, so we don’t try to fit people into a job. As a colleague, you have the right to get involved anywhere you think your skills can add value. As a result, our people tend to have broader and more complicated roles than is typical elsewhere.” ([Location 1007](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1007)) - Note: Morning Star - “An organizational philosophy has to start with people, and the conditions that allow them to be more creative and passionate about their work, and freedom unleashes this. ([Location 1010](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1010)) - “Our organization is driven by reputational capital. When you have something to add to another part of the company, some valuable piece of advice, that increases your reputational capital.” ([Location 1018](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1018)) - We live in an age of fading faith and fractured communities. In consequence, work has become even more central to human identity. ([Location 1025](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1025)) - The spread of Taylorism across the world’s industrializing economies turned millions of obstreperous and occasionally lackadaisical laborers into rule-following, clock-punching employees. Today, we are so habituated to thinking of ourselves as employees that we have little concept of how unnerving this revolution was to the farmers, traders, and artisans of the eighteenth century. ([Location 1042](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1042)) - Backing up this freedom is a concerted effort to ensure every team member has the information needed to think and act like an owner. At Southwest, training programs cover industry economics, financial ratios, profitability drivers, and more. ([Location 1077](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1077)) - How is it that in their personal lives, employees can be trusted to buy houses and cars, but at work can’t requisition a $300 office chair without a manager’s approval? ([Location 1092](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1092)) - many still buy into the bureaucratic conceit that the thinkers are at the top and the doers at the bottom. ([Location 1100](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1100)) - If managers are to do more good than harm in improving organizational performance, they must learn that in a complex environment, they can’t acquire sufficient knowledge to orchestrate the desired outcomes. Instead, they must use whatever knowledge they have not to shape results as a craftsman shapes a piece of handiwork, but to cultivate growth by providing a proper environment, much as a gardener does for plants. ([Location 1116](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1116)) - Tags: [[favorite]] - I Corinthians 13: Love is patient and kind. Love is not jealous, boastful, proud or rude. Love does not demand its own way. Love is not irritable and keeps no record of wrongs. Love never gives up, never loses faith. Love is always hopeful and endures through every difficulty. ([Location 1140](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1140)) - bureaucracy … - Grants excessive credence to the views of precedent-bound leaders - Discourages rebellious thinking - Creates long lags between sense and respond - Calcifies organizational structures - Blinds silo-dwelling leaders to new opportunities - Suboptimizes trade-offs - Frustrates the rapid redeployment of resources - Discourages risk taking - Politicizes decision making ([Location 1151](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1151)) - Creates long and tortuous approval pathways - Misaligns power and leadership capability - Caps opportunities for individual contribution - Undermines frontline accountability - Systematically devalues originality ([Location 1161](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1161)) ### Counting the Cost - Since 1983, the number of managers and administrators in the US workforce has more than doubled, ([Location 1177](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1177)) - the structures and rituals of bureaucracy constitute a set of social norms which, like all norms, are difficult to challenge without looking like a buffoon. ([Location 1193](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1193)) - Government agencies demand evidence of regulatory compliance and are satisfied only when presented with the artifacts of bureaucratic control—a chief compliance officer, compulsory training, and comprehensive reporting. ([Location 1199](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1199)) - The fuel that feeds the growth of bureaucracy is the quest for personal power. Power brings survival advantages, and we are wired to seek it. ([Location 1228](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1228)) - Tags: [[favorite]] - ==63 percent of respondents listed the reluctance of leaders to surrender power as a significant barrier to reducing bureaucracy. Formal power is the currency of bureaucracy; it is the prize for which the game is played==. ([Location 1232](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1232)) - Assigning goals to teams rather than individuals Ensuring that all jobs encompassed both managerial and technical activities Giving teams responsibility for hiring and compensation decisions Rotating team members through different roles Integrating support functions into the teams Minimizing status differentials Providing open access to financial information ([Location 1255](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1255)) - Note: Principles of Sociotechnical systems (STS) - Harvard Business School professor Richard Walton, an early adviser at Topeka, blamed the recidivism on antagonistic managers: Topeka’s success … was threatening to other managers whose leadership style was built on opposing principles. Moreover, the plant management’s demands for autonomy in certain areas and its requests for exception from other corporate procedures was resented by staff groups. And many corporate executives simply did not understand the Topeka system. ([Location 1267](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1267)) - The goal is to carefully dismantle bureaucracy, not simply blow it up. You need a change strategy that is both audacious and prudent. ([Location 1290](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1290)) - these ==technologies have done little to reduce management layers, roll back top-down mandates, cut compliance costs, or expand the decision-making rights of those on the front lines==. ([Location 1295](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1295)) #### Building the Case #### The Bureaucratic Mass Index - The average respondent works in an organization with six management layers. In large organizations (those with five thousand or more employees), frontline employees are buried under eight or more layers. ([Location 1380](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1380)) - an average of 27 percent of their time on bureaucratic chores such as writing reports, documenting compliance, and interacting with staff functions. ([Location 1393](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1393)) - Seventy-nine percent of those from large organizations say that bureaucratic processes “significantly” or “substantially” frustrate high-tempo decision making. Speed is not a hallmark of bureaucracy. ([Location 1396](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1396)) - Survey respondents spend 42 percent of their time on internal issues—resolving disputes, wrangling resources, attending meetings, negotiating targets, and the like. ([Location 1399](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1399)) - More than two-thirds of nonmanagers in large organizations report having “little” or only “moderate” control over their work methods and job priorities. ([Location 1403](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1403)) - Seventy-five percent of survey takers say that new ideas in their organization are met with indifference, skepticism, or outright resistance—a ([Location 1407](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1407)) - Ninety-five percent of respondents working in companies with more than a thousand employees report that it’s “not easy” or “very difficult” for a frontline employee to launch a new initiative. ([Location 1410](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1410)) - Sixty-two percent of respondents believe that political skills “often” or “almost always” determine who gets ahead. In large organizations, the figure jumps to 75 percent. ([Location 1414](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1414)) #### The Economic Impact of Bureaucracy - A scant 11 percent of executives believe that strategic planning creates value, only 17 percent of managers regard the budgeting process as effective, and less than a third rate their company’s capital allocation process as “very” or “extremely” effective.9 ([Location 1464](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1464)) - The implication is clear: busting bureaucracy is probably the most profitable thing any organization can do—a conclusion that’s buttressed by the fact that the post-bureaucratic organizations we’ll profile in coming chapters are, on average, significantly more profitable than their peers.10 ([Location 1473](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1473)) #### The $10 Trillion Prize - There’s a reason economists obsess over productivity growth. When it stagnates, so do living standards. The ensuing economic frustration opens the door to populism, protectionism, and social divisiveness. ([Location 1486](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1486)) #### The Moral Imperative - Aristotle argued that an individual cannot achieve happiness without self-direction. ([Location 1526](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1526)) - we shouldn’t tolerate the soft tyranny that millions of employees face each day at work—what oral historian Studs Terkel called “a Monday through Friday kind of dying.”17 ([Location 1528](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1528)) - ==Thomas Paine said of monarchy in 1776 is equally true of bureaucracy today: “A long habit of not thinking a thing wrong gives it a superficial appearance of being right.”== ([Location 1543](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1543)) ### Humanocracy in Action ![[Nucor]] #### The Spirit of Humanocracy - Not coincidentally, it is these human attributes and behaviors that are most critical to producing extraordinary results. ([Location 1916](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1916)) - Nucor proves unequivocally that every job can be a good job, whatever the industry. ([Location 1919](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1919)) - In chapter 2, we laid bare the foundations of bureaucracy: stratification, standardization, specialization, and formalization. Nucor’s model challenges management orthodoxy in each of these areas. ([Location 1920](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1920)) - At Nucor, there’s no caste system, no distinction between thinkers and doers. ([Location 1925](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1925)) - Note: Atmosphere and the office - There are no “slots” at Nucor and, thus, no artificial limits on where and how team members can contribute. ([Location 1939](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1939)) - Note: Steve was held back because of this. And left. - if you’re looking for an overarching lesson, it’s this: whatever your organization makes or sells, its real business is growing human beings. As they say at Nucor, “We don’t build steel, we build people.” ([Location 1940](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1940)) ### Haier - To those trapped by bureaucratic dogma, it seems inconceivable that a large company could behave like a swarm of startups. That’s because they’ve never been inside of Haier, the world’s largest appliance maker. ([Location 1951](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1951)) - With revenues of more than $38 billion annually, Haier’s been on a tear. Over the past decade, gross profits in Haier’s core appliance business grew by 22 percent per year, while revenues advanced by 20 percent annually. The company also created more than $2 billion in market value from new ventures. Those feats are unmatched by any of Haier’s domestic or global competitors.2 ([Location 1958](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1958)) - Led by Zhang Ruimin, Haier’s renegade chairman and CEO, the radical makeover focused on three objectives: Turning every employee into an entrepreneur Creating “zero distance” between employees and users Making the company a power node in an ever-expanding, web-centric ecosystem ([Location 1962](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1962)) - Haier’s shorthand for these goals is rendanheyi, ([Location 1967](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1967)) - Haier has divided itself into more than four thousand microenterprises (or MEs), each with ten to fifteen employees. ([Location 1972](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1972)) - there are the roughly two hundred “transforming” MEs that have their roots in Haier’s legacy appliance business. ([Location 1974](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1974)) - fifty-plus “incubating” MEs. These are new homegrown startups ([Location 1976](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1976)) - MEs are free to form and evolve with little central direction, but share a common approach to target setting, internal contracting, and cross-unit coordination. ([Location 1984](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1984)) - In an entrepreneurial firm, aspiration outstrips resources, and innovation is the only way to bridge the gap. ([Location 1987](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=1987)) - In large organizations, by contrast, employees are often insulated from market forces. They work in functions like HR, R&D, manufacturing, finance, IT, and legal that are, in essence, internal monopolies. ([Location 2018](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2018)) - Nodes that are unable to provide competitive service can and do go out of business. A substantial part of a node’s revenue depends on the success of its ME customers. ([Location 2033](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2033)) - When a market-facing ME fails to meet its leading targets, the node takes a hit—since every internal agreement has a clause that ties the node’s compensation to the performance of the market-facing ME. ([Location 2037](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2037)) - Zhang is only slightly exaggerating when he says, “At Haier we are no longer paying our employees. Instead, they are paid by customers.” ([Location 2039](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2039)) - Haier’s approach is different. In pursuing economies of scale and scope, it emphasizes collaboration over compulsion. ([Location 2052](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2052)) - Zhang believes trade-offs are best made by those closest to the customer, by MEs that are free to choose when to collaborate and when to go it alone. ([Location 2100](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2100)) - goal is to create a virtuous circle in which an expanding customer base yields a torrent of insights that can be harnessed to improve the offering and attract still more customers. In a startup, customers are cocreators. ([Location 2103](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2103)) - Note: Are students co-producers or co-creators in an SU? Yes and no - The problem with a closed system is that it doesn’t adapt—it atrophies. Recognizing this, Haier sees itself not as a company but as a hub in a much larger network. ([Location 2109](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2109)) - First, every new product or service at Haier is developed in the open. ([Location 2111](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2111)) - In collaborative projects like the Tianzun, Haier creates a “patent pool” in which its partners confidentially share their inventions—with the understanding they’ll be rewarded if their technology is used in the final product. ([Location 2121](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2121)) - ==“The border of the company is not important. If you can help create value for users, it shouldn’t matter whether you’re an employee or not.”== ([Location 2132](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2132)) - Note: Associate members of the SU. - As Laurence J. Peter, author of The Peter Principle, wryly said, “Bureaucracy defends the status quo long past the time the quo has lost its status.” ([Location 2135](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2135)) - “Microenterprises are like a reconnaissance unit—they scan the battlefield and identify the most promising opportunities. It’s like a giant search function.” ([Location 2180](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2180)) - At Haier, MEs operate as self-managing business units, and their freedoms are formally enshrined in three rights: STRATEGY:  The right to decide what opportunities to pursue, to set priorities, and to form both internal and external partnerships PEOPLE:  The right to make hiring decisions, align individuals and roles, and define working relationships DISTRIBUTION:  The right to set pay rates and distribute bonuses ([Location 2185](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2185)) - If an ME fails to hit its baseline targets for three months in a row, a leadership election is automatically triggered. ([Location 2207](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2207)) - Note: I wonder how this cpuld be applied to Circles or the su in general - Immanuel Kant, the nineteenth-century German philosopher whose “categorical imperative” holds that we must never regard human beings as mere tools. ([Location 2242](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2242)) - Tags: [[favorite]] ### The Principles of Humanocracy - Zhang’s worldview is centered on the power of human agency. ([Location 2267](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2267)) - Iverson’s worldview revolved around the idea of everyday genius. ([Location 2268](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2268)) - What works in one organization may not work in another. Additionally, each process is part of a larger whole. Bolting a single, vanguard process onto a conventional management model is usually a fruitless exercise—like ([Location 2292](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2292)) - The point is this: ==over time, a system’s performance becomes limited less by processes and practices than by paradigms and principles.== ([Location 2310](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2310)) - Tags: [[favorite]] ### The Power of Ownership - Arthur Cole wrote: “To study the entrepreneur is to study the central figure in economic history.” ([Location 2352](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2352)) - Phelps is right when he argues 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.”3 ([Location 2361](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2361)) - when economies were populated by small proprietorships, Even the lowest-paid employee, if he had an idea for doing something new or different, could expect a chance to get the ear of someone well up the ladder, if not at the top. ([Location 2365](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2365)) - In a large company, only a fraction of employees are active members of what Phelps evocatively calls the “imaginarium.” ([Location 2373](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2373)) - Decades of consolidation, along with the winner-take-all dynamics of digital technology, have left us with an economy that is dominated by powerful, politically connected oligopolies. ([Location 2376](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2376)) - What percentage of the people who work in your organization would agree with the following statements? - My work is my passion - I get to make meaningful business decisions - I feel directly accountable to customers - I intuitively think lean - My team is small and super-flexible - The success of this business depends critically on me - I measure progress in days and weeks, not months and quarters - Every day I have the chance to solve new, interesting problems - I have a significant financial stake in the success of this business ([Location 2383](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2383)) - In a recent study, 62 percent of Americans said they dreamed of starting their own business. The figure for millennials was even higher, at 77 percent. The top-rated reason for taking the entrepreneurial plunge: the ability to “control my own destiny.” ([Location 2410](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2410)) - More than a hundred studies have explored the impact of autonomy and gainsharing on firm performance, and most have found a positive correlation. ([Location 2422](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2422)) - They started by building an eight-factor model of [[servant leadership]]. Critical behaviors included: EMPOWERMENT:  Increasing the decision-making autonomy of one’s subordinates ACCOUNTABILITY:  Holding individuals accountable for the consequences of their decisions SELFLESSNESS:  Giving priority to the needs of others HUMILITY:  Openly acknowledging one’s limitations and mistakes AUTHENTICITY:  Relating honestly and openly with others COURAGE:  Challenging institutional norms in the interest of supporting others FORGIVENESS:  Demonstrating empathy and a willingness to forgive STEWARDSHIP:  Taking responsibility for the success and integrity of the institution as a whole ([Location 2425](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2425)) - of the eight leadership behaviors, empowerment was the most highly correlated with employee engagement, job satisfaction, and organizational commitment, while accountability was the strongest factor impacting job performance. ([Location 2440](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2440)) - Note: Get empowerment and accountability right and then take it from there - It is the combination of autonomy and upside that fuels entrepreneurial fervor. ([Location 2480](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2480)) ##### Svenska Handelsbanken - Handelsbanken’s twelve thousand employees operate more than 760 branches. ([Location 2522](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2522)) - Anders Bouvin, a past CEO, explains: “If you really believe that customer satisfaction is the main reason for achieving superior results, you have to eliminate any kind of steering mechanisms that could push one of your employees to do something that is not in the interest of customers.” ([Location 2526](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2526)) - Tags: [[favorite]] - In any year that the bank’s return on equity exceeds the average of its peer group, one-third of the difference is paid into a foundation that invests on behalf of employees, mostly in Handelsbanken shares. ([Location 2535](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2535)) ##### Vinci - Employing 221,000 people in more than 100 countries, Vinci operates toll roads, airports, high-speed rail lines, and sports venues. ([Location 2542](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2542)) - One of the most challenging was a 36,000-ton, dome-shaped structure designed to entomb the radioactive remains of Chernobyl nuclear reactor number 4. ([Location 2544](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2544)) - compact business units, two-thirds of which have fewer than a hundred employees. So strong is the commitment to disaggregation that businesses are frequently split in two as they grow. ([Location 2551](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2551)) - Huillard notes, “Authority and responsibility necessarily go hand in hand. One cannot give responsibility to someone without having given the relevant authority. When a dysfunction takes place in a unit, it is always because of a separation between these two.” ([Location 2560](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2560)) - Over the decades, each company has demonstrated conclusively that distributed ownership … Reduces turnover and creates a smarter, more experienced workforce Unlocks reserves of discretionary effort Increases the incentives for innovation Creates more cohesion and camaraderie Strengthens the connection with customers Produces faster, better-informed decisions Leads to a flatter, leaner organization Yields above-average returns ([Location 2577](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2577)) - Handelsbanken opened a hundred branches in the United Kingdom in just three years. No self-funded, bricks-and-mortar startup could have matched that pace. ([Location 2588](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2588)) ### The Power of Markets - While most CEOs acknowledge the virtues of free markets, the companies they run are typically structured like command economies. As in the former Soviet Union, decision-making power is highly concentrated at the top. ([Location 2629](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2629)) #### Collective Intelligence - All too often, the opinions of a few senior executives are granted an immense and unwarranted credibility premium. In a bureaucracy, the bigger the decision, the smaller the number of people who can challenge the decision maker. That’s dumb. ([Location 2643](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2643)) - Tags: [[favorite]] #### Allocational Agility - In a bureaucracy, by contrast, major funding decisions are made by a small number of senior executives in what is usually a highly politicized budget brawl. Researchers have identified a cluster of anomalies that corrupt this process and lead to suboptimal allocation decisions.9 Among the most pernicious … DEFEND WHAT’S YOURS.  Leaders tend to be territorial about the resources they control and are typically reluctant to share money and talent with other units, even when the returns might be higher.10 ([Location 2681](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2681)) - THE RICH GET RICHER.  The biggest units in a multibusiness company tend to get more than their fair share of capital, not because they offer better returns, but because the leaders of these businesses have more political clout. ([Location 2688](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2688)) - GOOD MONEY AFTER BAD.  Executives tend to overinvest in struggling businesses in hopes of turning them around. Research shows that in most cases, returns would have been higher if the money had been invested in less troubled units.12 ([Location 2691](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2691)) - SHARE THE PAIN.  When cash is short, executives tend to cut spending across the board rather than protect high-priority areas. ([Location 2694](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2694)) - IT’S WHO YOU KNOW.  Senior leaders with strong internal networks typically win more resources than leaders who are less well connected, irrespective of the merits of the particular business case.14 ([Location 2697](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2697)) - HOME IS WHERE THE HEART IS.  Senior executives are less likely to defund or divest a business in which they worked earlier in their career.15 ([Location 2700](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2700)) - PRETTY IT UP.  In competing for funds, business unit leaders have an incentive to inflate the merits of their investment proposals. These distortions are often difficult for corporate-level executives to ferret out. ([Location 2703](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2703)) - MORE OF THE SAME.  Funding decisions are often made relative to last year’s budget. Every business or product line gets pretty much what it got the year before, plus or minus a few percentage points. ([Location 2706](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2706)) - In a bureaucracy, there’s only one place to sell an idea—up the chain of command. Any idea that doesn’t sync with near-term priorities or executive dogma gets spiked. ([Location 2724](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2724)) - We believe every company needs to build an army of angel investors. The benefits—more ideas, more passion, fewer blind spots, and faster development—are critical to building an evolutionary advantage. ([Location 2753](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2753)) ##### Dynamic Coordination - why do hierarchies exist at all? The answer given by most economists is that hierarchies emerge when the cost of market-based coordination via contracts exceeds the cost of bureaucratic coordination via administrative fiat. ([Location 2766](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2766)) - Economists divide the world into markets and firms. Markets are decentralized and firms are not—by definition. Yet, as Haier so clearly demonstrates, hybrids are possible. Haier’s microenterprises are bound together by a web of contracts that yield the coordination advantages typical of a hierarchical organization, while also delivering the blessings of the market—freedom, accountability to customers, and incentives for innovation. Haier is best described not as a pyramid of power relationships, but as an ecosystem of fraternal contracts. ([Location 2773](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2773)) - Performance metrics will cover the average time taken to load a truck, the percentage of loads shipped on time, the number of customer complaints received, and warehouse costs per ton shipped. All CLOU agreements are filed online, and can be viewed by any team member. ([Location 2784](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2784)) - ==Of the eight to ten signatories on a typical CLOU agreement, roughly half will come from the employee’s immediate team, with the others working in adjacent areas==. ([Location 2786](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2786)) - because everyone at Morning Star has access to all of the company’s financial data, there are no information asymmetries that might give one party an advantage over another. ([Location 2801](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2801)) - Morning Star’s internal market works because it’s socially dense. The contracting parties are bound together by common aspirations, intersecting roles, widely available information, and shared industry context. ([Location 2803](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2803)) ##### Competitive Discipline - They are evidence of a fundamental disconnect in incentives. Employees in market-facing roles know that if they fail to satisfy user needs, they’ll get fired by their customers. Corporate staffers, by contrast, can only be fired by their overlords, so that’s where their loyalties lie. ([Location 2834](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2834)) - Note: ==“The only way to surefire success is to constantly impress your boss”. Issue is boss aren’t customers.== - The logic for tearing down internal monopolies is unimpeachable: a company can’t expect to win in hypercompetitive markets if operating units are forced to buy uncompetitive services from internal providers. ([Location 2850](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2850)) ### The Power of Meritocracy - bureaucracy—the world’s most ubiquitous social structure—systematically undermines the cause of meritocracy. In our survey with the Harvard Business Review, ==76 percent of big-company respondents said that political behaviors highly influence who gets ahead in their organization==. It wasn’t supposed to be this way. Bureaucracy was designed to overcome the nepotism, elder worship, and class consciousness that hobbled preindustrial organizations. ([Location 2896](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2896)) #### Exaggerated Competence - In one survey, 84 percent of middle managers and 97 percent of executives claimed to be among the top 10 percent of performers in their organization. ([Location 2907](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2907)) - highly confident people tend to have an advantage in competing for power. [[Research shows that in judging the competence of others, we’re heavily influenced by bluster]]. ([Location 2913](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2913)) - ==“overconfident individuals are perceived as more competent by others.”== ([Location 2917](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2917)) - Stated more bluntly, the gap between self-perception and reality is likely to be greatest where the air is thinnest. ([Location 2919](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2919)) - Power differentials encourage acquiescence, which leaders often mistake for agreement. ([Location 2923](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2923)) - assumptions of exaggerated executive competence are endemic to bureaucracy—a fact that undermines the quality of decisions and, over time, erodes the confidence of employees in their leaders. ([Location 2943](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2943)) #### Misjudged Competence - we score even worse when it comes to judging the abilities of others. Research shows our assessments usually say more about us than those we’re evaluating. Again, this phenomenon has its own name—[[idiosyncratic rater bias]]. ([Location 2946](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2946)) - we tend to rate most highly those who are most like us. ... [[Psychologists call this “in-group bias.”]] ([Location 2953](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2953)) - There’s another cognitive quirk that leads to misjudgments—the halo or horns effect. ([Location 2966](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2966)) - [[A separate CEB study found zero correlation between individual performance ratings and actual business results]]. ([Location 2982](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2982)) #### Overweighted Competence - What distinguishes managers from nonmanagers is not creativity, foresight, or technical expertise, but their the mastery of administrative arcana—developing plans, building budgets, doling out tasks, preparing reports. ([Location 2988](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2988)) - It’s not administrative competence that generates a patent, spawns a new product, or reimagines a business model. ([Location 2992](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=2992)) - Indeed, a growing body of research suggests the opposite—that positional power increases the odds of bone-headed decisions. ([Location 3007](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3007)) - ==His conclusion: “Power makes individuals more impulsive and less risk-aware.”== ([Location 3009](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3009)) - Hard as it may be to admit it, in a meritocracy, management is one skill among many, rather than one skill to rule them all. ([Location 3022](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3022)) #### Toxic Competence - To change all this, to replace bureaucracy with meritocracy, we must do four things: decontaminate judgments about merit, better align wisdom and authority, match compensation to contribution, and build natural, dynamic hierarchies. Let’s take each in turn. ([Location 3033](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3033)) - Tags: [[favorite]] - Decontaminating Judgments about Merit ([Location 3035](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3035)) - As a Googler, you know your career isn’t in the hands of your boss. Instead of wasting time sucking up, you can focus on doing great work. ([Location 3050](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3050)) - Aligning Wisdom and Authority ([Location 3086](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3086)) - This is how most decisions are now made at Bridgewater, where influence is a product not of tenure or title but of an individual’s peer-attested “believability.” ([Location 3097](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3097)) - It’s hard to argue with Dalio’s point that “power should lie in the reasoning, not the position, of the individual.” ([Location 3109](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3109)) - Matching Compensation to Contribution ([Location 3112](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3112)) - Compensation at W.L. Gore, the maker of Gore-Tex and more than a thousand other high-tech products, is similarly divorced from rank. ([Location 3120](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3120)) - Gore’s peer-based compensation system pushes everyone to think about how they could add more value. The system also encourages collaboration. At Gore, associates understand they report to their peers, not a boss, and are thus more inclined to go the extra mile for colleagues. ([Location 3134](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3134)) - They want the energies of every employee to be invested in building a better business rather than winning a promotion tournament. ([Location 3137](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3137)) - Building Natural, Dynamic Hierarchies ([Location 3139](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3139)) - As a senior leader, you’re expected to be a savant—that’s how you validate your vaunted organizational status. The result can be an irresistible temptation to pontificate on issues you’re ill-equipped to address. ([Location 3150](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3150)) - HIERARCHIES GIVE SUBORDINATES LITTLE OR NO VOICE IN CHOOSING THEIR LEADERS.  In a bureaucracy, a manager’s power doesn’t depend on the consent of the governed. Contrast this with the social web, where power trickles up, not down. ([Location 3157](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3157)) - In addition, power should be fluid—flowing toward those who are adding value and away from those who aren’t. ([Location 3163](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3163)) - Morning Star’s organization isn’t flat—some associates add more value and get paid more than others—but authority is the product of expertise rather than positional power, and varies from issue to issue. ([Location 3167](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3167)) - In a meritocracy, hierarchies are natural rather than magisterial. Power is dynamic. Authority ebbs and flows depending on an individual’s track record. ([Location 3169](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3169)) - Gore eschews titles, so while you’ll occasionally see the word “leader” on someone’s business card, you’ll struggle in vain to find a VP, SVP, or EVP. ([Location 3173](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3173)) #### Getting Started - The goal of humanocracy is to create an environment in which everyone is inspired to give their best. That won’t happen as long as a significant share of individuals in an organization believe that it’s the blowhards who get ahead, that their own capabilities and contributions are often misjudged, that the suits get an excessive share of the spoils, and that many of their leaders aren’t actually worth following. The antidote to these poisonous realities is meritocracy—a principle that is central to the work of creating human-centric organizations. ([Location 3210](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3210)) ### The Power of Community - A 2015 meta study found that [[Loneliness]] is as dangerous to one’s health as obesity, inactivity, smoking, excessive alcohol consumption, or heart disease. ([Location 3227](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3227)) - Tags: [[favorite]] - AA delivers its service without a formal organization. AA’s 118,000 groups operate autonomously. ([Location 3258](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3258)) - its “Theory of Action”—the core steps required to build strong, problem-focused communities: Clarify shared, measurable results important to community partners Identify audiences that need to be involved in working to achieve the result Determine the skills different partners need to take effective action Design teams of leaders and practitioners and support them in ongoing, experiential learning ([Location 3296](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3296)) - Bureaucracies excel at solving routine problems—like processing millions of credit card transactions or churning out a zillion computer chips. They’re also good at integrating diverse inputs, as long as the coordination tasks can be clearly specified in advance. ([Location 3307](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3307)) - Jeff Edmondson, rightly notes, “Under conditions of complexity, predetermined solutions can neither be reliably ascertained nor implemented.” ([Location 3310](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3310)) ##### ![[Southwest Airlines]] - #### Getting Started ### The Power of Openness #### Closed Minds - As Kuhn observed, “All significant breakthroughs are break-‘withs’ old ways of thinking.” ([Location 3672](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3672)) - bureaucracy makes this worse: top-down power structures penalize heretical thought; near-term operational pressures leave little time for discovery; silos limit cross-boundary learning; an obsession with alignment truncates the search for new opportunities; and a penchant for secrecy bottles up valuable information. The net result: bureaucratically induced blindness. ([Location 3684](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3684)) - Tags: [[favorite]] #### Open Minds - Innocentive, the crowdsourcing platform where companies bid out problems to an army of more than 390,000 “solvers,” yet a study of 166 Innocentive contests confirmed his thesis: most of the successful solvers came from disciplines that weren’t directly connected to the problem at hand. ([Location 3714](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3714)) - the Aravind Eye Care System, performs half a million cataract surgeries annually. Each surgeon carries out 2,000 operations per year, versus an average of 125 for their American counterparts. ([Location 3737](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3737)) #### Closed Strategy - The top team should then ask itself: Is there a consensus on key priorities? Do we have a shared point of view? Would our agenda surprise competitors? Is it differentiated? Does the strategy imply significant stretch? Are we being sufficiently ambitious? ([Location 3844](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3844)) - In a 2018 survey by PwC, only 37 percent of the six thousand executives polled said their company had a well-defined strategy. Seventy-three percent doubted their company’s strategy was innovative, and a scant 13 percent felt their organization had a road map for building future-focused capabilities. ([Location 3850](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3850)) #### Open Strategy - What’s required is an approach that generates thousands, not tens, of novel ideas, and uses the wisdom of the crowd to distill them into a path-breaking strategy. ([Location 3863](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3863)) - In strategy making, you have to diverge—a lot—before you converge. This requires a process that encourages radical thinking and includes new voices. Strategy making should be a companywide conversation that is open to employees, customers, and external partners. ([Location 3867](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3867)) - if you want people to trust a strategy, they need to know how it was built. ([Location 3882](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3882)) - 3M thinks of itself less as a collection of businesses and more as a portfolio of competencies. ([Location 3904](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3904)) - Through its various open innovation initiatives, Cisco continually tests and evolves its strategy. ([Location 3933](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3933)) - Note: Could we do an entrepreneurial competition with our students?? - “This,” said King, “is your chance to co-create the future of our business.” ([Location 3954](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3954)) - Note: On strategy developments - Does this sound fanciful to you—the idea of building a hub for an open, always-on, real-time conversation about strategy? ([Location 3985](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3985)) - Tags: [[favorite]] - Note: Idea. Continuous strategy evolution. Use ideas platform to generate insights into which barriers are an issue, and how to overcome them? - You need to make it safe to dissent. ([Location 3996](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=3996)) - Senior executives need to surrender the conceit that they’re uniquely prescient strategists, and everyone else needs to stop pretending that they are. ([Location 4014](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4014)) ### The Power of Experimentation - Managers also feel hemmed in. In the Boston Consulting Group’s long-running annual poll of senior managers, a “risk averse culture” and “overly lengthy development times” consistently rank as the biggest barriers to innovation. ([Location 4040](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4040)) ##### An Evolutionary Advantage - As Ashby put it, “Only variety can absorb variety.” Restated in our terms, only a relentless pace of experimentation can protect an organization from a relentless pace of change. ([Location 4061](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4061)) - Tags: [[favorite]] - few companies appreciate the distinction between project risk and portfolio risk. Each potential experiment gets evaluated on its own merits and is expected to clear a high bar of feasibility. That pretty much ensures the company will never invest in the sort of crazy-ass idea that might actually deliver ([Location 4072](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4072)) - “Our success,” says Jeff Bezos, “is a function of how many experiments we do per year, per month, per week, per day.” ([Location 4091](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4091)) - “Everyone must be able to experiment, learn, and iterate. Position, obedience, and tradition should hold no power. For innovation to flourish, measurement must rule.”5 Can ([Location 4103](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4103)) - There would be no more “decision by bureaucracy,” he declared. “No more decision by PowerPoint, persuasion, position, [or] power.” Henceforth it would be “decision by experiment.” ([Location 4124](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4124)) - Intuit also supports experimentation with “unstructured time.” All associates are encouraged to spend 10 percent of their time working on a passion project. ([Location 4180](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4180)) - Amazon, Intuit, and Toyota show what’s possible when you view the entire organization as a lab. From top to bottom, the ethos is “show, don’t tell.” ([Location 4203](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4203)) ### The Power of Paradox - What are the competing priorities in your organization? Perhaps it’s scale versus flexibility, discipline versus creativity, diligence versus speed, or prudence versus risk taking. ([Location 4323](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4323)) - ==James March, the organizational theorist and Noble Prize winner, argued that the most basic problem for any organization was to “engage in sufficient exploitation to ensure its current viability and, at the same time, devote enough energy to exploration to ensure its future viability.”==5 The ([Location 4325](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4325)) - This frame of mind is reinforced by heavyweight processes—goal setting, budgeting, project management, performance measurement, and promotion—that favor constancy over change. ([Location 4349](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4349)) - FIGURE 13-1 Explore versus exploit ([Location 4351](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4351)) - senior leaders favor uniform structures and uniformly applied policies—yes, they may be suboptimal, but they reduce the cognitive load on executive leaders. ([Location 4364](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4364)) - If you’ve grown up in the church of “lean,” you may reflexively discount the merits of other belief systems. You’re convinced that rigor and regimentation are the surest routes to value creation. ([Location 4379](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4379)) - Note: Nicole - Bureaucracies are replication machines. They’re designed for exploit, not explore. ([Location 4392](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4392)) - Bureaucracies tend to be monocultures. They’re run by individuals temperamentally inclined to favor the status quo. ([Location 4393](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4393)) #### Handelsbanken: Beyond Either/Or - Nassim Taleb and professor Gregory Treverton have observed: “Although centralization reduces deviations from the norm, making things appear to run more smoothly, it magnifies the consequences of those deviations that do occur. It concentrates turmoil in fewer but more severe episodes, which are disproportionately more harmful than cumulative small variations.” ([Location 4525](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4525)) ##### Freedom and Control - How can the bank be radically decentralized and operationally disciplined? The trick is to distinguish between the “what” and “how”—to separate ends and means. ([Location 4565](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4565)) - Every Handelsbanken branch has its own P&L. ([Location 4570](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4570)) - Note: Every circle should have one too. - In other banks, branches are accountable for a ragbag of key performance indicators (KPIs)—top-down targets for customer acquisition, cross-selling, staff costs, and other performance parameters. There’s an assumption, manifestly wrong, that this jumble of goals will maximize branch performance. As much as bureaucrats might wish it were otherwise, there’s simply no way to construct a set of proxy goals that can adequately capture all the factors that drive profitability. ([Location 4577](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4577)) - We need the equivalent of an echocardiogram that reveals the build-up of bureaucratic plaque in our organizations. ([Location 4625](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4625)) - we must reinvent the “how” of control. Human freedom will never be absolute, but we have a choice in how that control is achieved. ([Location 4628](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4628)) - Recognize, localize, depolarize—these are the secrets to building an organization that can walk and chew gum at the same time. ([Location 4634](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4634)) - we’ve laid out the principles of humanocracy: ownership, markets, meritocracy, community, openness, experimentation, and paradox. At the moment, there’s no single organization that fully encompasses all these human-centric ideas. ([Location 4651](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4651)) - Bureaucracy versus humanocracy Bureaucracy Humanocracy Power is vested in positions Influence is earned from one’s peers Strategy is set at the top Strategy is an open, firmwide conversation Resources are allocated by fiat Resources are allocated via market mechanisms Innovation is a specialized activity Innovation is everyone’s job Mandates and policy force coordination Coordination is the product of collaboration People are slotted into roles Roles are built around individual skills Managers assign tasks Teams divide up work Control comes from oversight and rules Control comes from transparency and peers Staff groups are monopoly service providers Staff groups compete against external vendors Individuals compete for promotion Individuals compete to add value Units are judged against top-down targets Units are responsible for local P&Ls Compensation correlates with rank Compensation correlates with impact Employees have little financial upside Employees have significant financial upside There are ranks of managers Teams and individuals are self-managing Critical trade-offs are made at the top Critical trade-offs are optimized locally ([Location 4657](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4657)) ### The Path to Humanocracy How Do We Get There? - Michelin has been innovating in a wholly different realm. Under the banner of responsibilization, the company has been working to dramatically increase the authority and accountability of those on the front lines, ([Location 4714](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4714)) - FRONTLINE TEAMS WOULD TAKE THE LEAD IN DISCOVERING NEW WAYS OF OPERATING AUTONOMOUSLY. ([Location 4758](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4758)) - TEAMS WOULD BE ENCOURAGED TO FOCUS THEIR EFFORTS.  Rather than taking on the full gamut of decision making, demonstrators would zero in on one or two key areas where they could expand their autonomy. ([Location 4764](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4764)) - DEMONSTRATORS WOULD BE EXPECTED TO DELIVER ON THEIR OPERATIONAL COMMITMENTS EVEN AS THEY TESTED NEW APPROACHES. ([Location 4772](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4772)) - THERE’D BE NO MANAGEMENT INTERFERENCE. ([Location 4775](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4775)) - TABLE 14-1 ([Location 4778](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4778)) - These clustered into six categories: developing a shared mission and objectives, organizing work, developing competencies, driving innovation, coordinating with others, and managing performance ([Location 4874](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4874)) - We used to operate with the implicit assumption that operators weren’t trustworthy, and that trust must be earned. We now start by completely trusting everyone, and it’s up to the individual to lose trust based on his or her actions. It sounds like a trivial shift in perspective, but it’s had a big impact. When we consider changes to our practices now, the burden of proof is on the side of those who want to keep control. ([Location 4936](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4936)) - The goal was to build commitment rather than force the adoption of detailed protocols. Ballarin understood that real change happens through persuasion and persistence, not via mandates and metrics. ([Location 4993](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=4993)) ### Start Here - Bureaucracy, as we’ve noted, is a game. It pits contestants against one another in a battle for positional power and the rewards that come with it. ([Location 5039](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5039)) - As Harvard professor Marshall Ganz notes, the goal of people who change the world is “not winning the game, but changing the rules.” ([Location 5042](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5042)) - Can you recall times when you behaved more like a bureaucrat rather than a human being? What was the trigger? How might you reduce the chances of being triggered in the future? ([Location 5086](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5086)) - There’s an adage, variously attributed to Winston Churchill, Marshall McLuhan, and Father John Culkin, that “We shape our tools and thereafter our tools shape us.” ([Location 5101](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5101)) - ==“leadership is not defined by the exercise of power but by the capacity to increase the sense of power among those led.” ([Location 5108](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5108))== - Note: Mary Parker Follet - A good first step is to ask those who work for you, “What am I doing that feels like interference, or adds no value?” ([Location 5116](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5116)) - Next, ask, “What am I doing that you could do better?” ([Location 5118](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5118)) - You can’t demolish bureaucracy with a giant wrecking ball or a stick of dynamite. Instead, it must be dismantled, brick by brick. Detox and delegation are the first steps, ([Location 5171](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5171)) - It seemed that the simple act of paying attention to people improved their performance. ([Location 5226](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5226)) #### Building Your Hack - Ralph Waldo Emerson once said, “There are always two parties, the party of the past and the party of the future, the establishment and the movement.” ([Location 5327](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5327)) #### Scale It Up - You can change that. You can get a conversation going about the idiocy and inhumanity of bureaucracy, and what to do about it. The energy you unleash will help your organization to rediscover its heart. ([Location 5476](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5476)) - Leadership Promoter System (LPS) PRINCIPLE: meritocracy HACK: Introduce a new metric, the LPS, to gauge managerial value added. Generated via a quarterly survey of a manager’s direct reports and colleagues, the LPS was meant to be a simple index that would measure desired leadership behaviors, such as encouraging innovation within one’s team. ([Location 5527](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5527)) - As this example suggests, building a humanocracy requires a radical shift change in how we think about two management constructs: “leadership” and “change.” ([Location 5552](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5552)) - Tags: [[favorite]] ##### Rethinking Leadership - there’s little evidence we know how to grow leaders, or that most of those who claim to be leaders deserve the title. ([Location 5578](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5578)) - The absurdity of the bureaucratic leadership model is apparent to anyone who grew up on the social web, where leadership is about attracting followers rather than ascending a ladder. ([Location 5598](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5598)) ##### Rethinking Change - what matters is not time to rollout, but time to success. ([Location 5641](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5641)) - Even when an organization is led by a pioneering CEO like Jan Wallander or Zhang Ruimin, crafting a new management model is more about “discover and test” than “engineer and impose.” ([Location 5646](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5646)) - ==To eliminate the bureaucratic lags between sense and respond, the responsibility for change must be broadly syndicated.== ([Location 5648](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5648)) - Tags: [[favorite]] - Genuine buy-in, as distinguished from compliance, is the product of involvement, not exhortation. To embrace change, employees need a hand in creating it. ([Location 5670](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5670)) - when you’re challenging deeply entrenched interests, you need a process that is … - Open to everyone - Informed by new principles - Avowedly radical - Highly generative - Peer regulated - Experimental - Inescapable ([Location 5692](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5692)) - In the years ahead, the most effective change efforts will be socially constructed. They will roll up, not out, and the word “cascade” will have been banished from the corporate lexicon. ([Location 5699](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5699)) - Note: Interesting that previously criticism of holacracy was needed top down benevolent leader - David Barboza, “An iPhone’s Journey, from the Factory Floor to the Retail Store,” New York Times, December 29, 2016, https://www.nytimes.com/2016/12/29/technology/iphone-china-apple-stores.html. 10. Jack Morse, “This College Student Spent His Summer Undercover in a Chinese iPhone Factory,” Mashable, April 25, 2017, https://mashable.com/2017/04/25 ([Location 5956](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=5956)) - the application of digital technology, including automation, mobile, and data analysis, which McKinsey reckons could yield as much as 1.2% growth in productivity in the 2015–2025 time frame. ([Location 6038](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=6038)) - 9. Joseph Blasi, Richard Freeman, and Douglas Kruse, “Do Broad-Based Employee Ownership, Profit Sharing and Stock Options Help the Best Firms Do Even Better?,” British Journal of Industrial Relations 54, no. 1 (March 2016): 55–82. ([Location 6090](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=6090)) - Dirk von Dierendonck and Inge Nuijten, “The Servant Leadership Survey: Development and Validation of a Multidimensional Measure,” Journal of Business and Psychology 26, no. 3 (September 2011): 249–267. ([Location 6093](https://readwise.io/to_kindle?action=open&asin=B07B9HFSHX&location=6093))