Human Beings Are Resilient. Our Organizations Aren’t

We live in a world of accelerating change, where the future is less and less an extrapolation of the past. Change is unrelenting, pitiless, and occasionally shocking. (Picture robots working a stripper pole in Vegas. Yeah, that’s a real thing.) Welcome to the age of upheaval.

Some argue that change has been accelerating since the Big Bang.¹ Across the eons, the rate at which matter organizes itself into more complex structures and systems has been gradually, imperceptibly quickening. And now, after 14 billion years, the pace of change has gone hypercritical. Lucky us!

This sudden acceleration is the product of radical shifts in the growth of computational power and network capacity. The latest iPhone has nearly six thousand times more transistors than the i486 chip that powered PCs in the late 1980s. In 2017, global internet traffic amounted to more than 46,600 gigabytes per second—a nearly 40-million-fold increase over the number in 1992.²

This exponential growth has opened up dazzling new horizons. Thanks to computational biology, we’re beginning to understand the elaborate biochemical processes of human cells. Greater computing power means radically more capable machines. DRIVE AGX Pegasus, the dual-chip system designed by Nvidia to support self-driving vehicles, performs 320 trillion operations per second.³ As the cost of bandwidth has plummeted, entirely new industries, like social media, have emerged. Powerful networks allow human beings to collaborate in ways never before possible. The paper that announced the discovery of the Higgs boson, for example, had more than five thousand coauthors.

The shockwaves of this explosion in computation and communication are reverberating all around us: e-commerce, the sharing economy, synthetic biology, blockchain, augmented reality, machine learning, 3-D printing, and the internet of things. As these shocks dissipate, new ones will thunder across the landscape. Within the next few years, somewhere between 200 billion and a trillion things, mostly sensors, will get connected to the web.⁴ Imagine a world in which every change of state—every movement, flow, transaction, and perturbation—produces data. The planet itself will finally be sentient.

In this maelstrom, the most important question for any organization is this: Are we changing as fast as the world around us? For most organizations, the answer is no.

CEOs are inclined to blame this lack of adaptability on human nature. “People,” they solemnly intone, “are against change.” Like so many trite managerialisms, this is rubbish. Think about the people you know. Over the last three years, how many of them have done at least one of the following things:

Moved to a new city

Started a new job

Ended a romantic relationship or started a new one

Enrolled in a course

Adopted a new exercise regime

Taken up a new hobby

Lost ten pounds

Redecorated a room

Traveled to a new holiday destination

Formed a new friendship

Probably everyone you know has made a change in at least one of these areas. Fact is, we’re change addicts. We have an insatiable appetite for the new. All those changes that are roiling our world, they’re our doing. We are the agents of upheaval.

Unlike human beings, organizations are pretty much crap at change. That’s why incumbents so often find themselves on the back foot. Today, we expect the newcomers to beat the geezers. Instinctively, we know that in a fast-changing world, resources are no substitute for resourcefulness—and that even the smartest companies are vulnerable.

Despite its commanding lead in search, Google missed the opportunity to take a pioneering role in social media. By the time it launched Google+, Facebook had built an insurmountable lead. When Apple’s iTunes was slow to offer streaming content, it opened the door to newbies like Spotify and Netflix. When eHarmony, a pioneer in online dating, was tardy in responding to the smartphone revolution, Tinder filled the gap.

If you believe the future is essentially unknowable, you might argue that today’s much-fêted insurgents were simply lucky. It was mere chance that they got the future right. Such a conclusion is wrong on two counts. First, the future isn’t as opaque as is often assumed. If you pay attention to what’s changing—the nascent trends that are gathering speed—you can often see the future a long way off.

Right now, America’s cable television companies are scrambling to adjust to a world in which they no longer have a monopoly on the distribution of video content. By the end of 2019, over 40 million American households had shunned cable television for new, online services.⁵ That same year, the number of streaming subscriptions surpassed the number of cable TV customers.⁶ This shift was entirely foreseeable. In the early 1990s, technologists at AT&T predicted that video streaming would become commercially viable in 2005, and they were right. YouTube was launched in 2005, the first iteration of Apple TV appeared in 2006, and Netflix streamed its first movie in 2007.

Second, even if stumbling onto a future-friendly strategy is a matter of luck, one must still explain why the old guard is so predictably unlucky. If you watch someone play blackjack for several hours and they lose every hand, you won’t mark it down to bad luck. You’ll assume the hapless gambler is incompetent.

The data suggests that institutional inertia is endemic, and costly. Consider:

• Only 11 percent of the companies that made up the Fortune 500 in 1955 are on the list today
• 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
• Between 2010 and 2019, US public companies reported more than $550 billion in restructuring charges, which are typically the product of belated or inept attempts at strategic renewal

All this is testament to a simple fact: the world is becoming more turbulent faster than most companies are becoming more adaptable.

In practice, organizational change tends to be either trivial or traumatic. Every day, companies refresh products and improve processes with little drama. Strategic pivots, by contrast, tend to be convulsive, not unlike the uprisings that occasionally concuss poorly governed dictatorships. In large companies, as in authoritarian states, regime change—replacing the top dog—is the only way to rescind calamitous or superannuated policies.

Given these dynamics, companies that fall behind tend to stay there. Since 1990, there have been only five years in which General Motors hasn’t lost share in its domestic market.⁷ The company is alive today thanks to a government bailout in the wake of the 2008 financial crisis.

Sadly, senescent companies can’t be euthanized. Instead, semi-comatose, they hang on, closing facilities, killing brands, throttling R&D, shedding staff, merging with lethargic rivals, and lobbying for regulatory help. These are “treadmill companies,” and there are more of them than you think.

In January 2020, there were 454 firms in the S&P 500 that had existed as public companies for at least ten years. Of these, 124 had failed to deliver top-quartile returns in more than one year out of the previous ten. Among the league of laggards: Berkshire Hathaway, Coca-Cola, Comcast, ExxonMobil, Ford, Intel, Merck, Oracle, PepsiCo, Procter & Gamble, United Parcel Service, Verizon, Viacom, Walmart, and Wells Fargo. Between 2009 and 2019, these and other treadmill companies produced a median cumulative return of 172 percent—or less than half the 388 percent median gain achieved by the other veterans in our data set.

Shareholders aren’t the only losers when a company gets stuck in the mud. Organizations that are slow to change tie up talent and capital that would be better deployed elsewhere. This depresses wages and returns across the economy. Inertial organizations also postpone the future. Having been shamed by Tesla, every major vehicle maker now plans to bring a full range of electric vehicles to market.⁸ That’ll be great for the planet, but it would have been better if the incumbents had embarked on this quest years ago, rather than waiting for a newbie to rub their noses in the future.

What we need are organizations with an “evolutionary advantage”—a capacity to change as fast as change itself.

A truly resilient organization would …

Never take refuge in denial

Rush out to meet the future

Change before it had to

Continually redefine customer expectations

Capture more than its fair share of new opportunities

Never experience an unanticipated earnings shock

Grow faster than its rivals

Have an advantage in attracting the world’s most dynamic employees

One of our favorite New Yorker cartoons portrays a pair of dinosaurs. One is lounging against a boulder while the other is sitting bolt upright, stubby forelimbs punching the air. “All I’m saying,” says the reptile, “is now is the time to develop the technology to deflect an asteroid.” Unlike those doomed dinosaurs, human beings have a large prefrontal cortex and opposing thumbs and forefingers. We’re clever enough to see the future coming and dexterous enough to do something about it. We’re not dinosaurs, and neither should be our organizations.

Human Beings Are Creative. Organizations Are (Mostly) Not

Innovation is the fuel for renewal. CEOs get this. In a Boston Consulting Group poll, 79 percent of leaders rated innovation a top priority. They know that innovation is the only insurance against irrelevance. Yet in another survey, this one conducted by McKinsey & Company, 94 percent of executives expressed disappointment with their organization’s innovation performance.

Despite this, a capacity for innovation is the hallmark of our species. Each of us was born to create—whether it’s landscaping a garden, writing a blog, composing a photograph, inventing a recipe, developing an app, or starting a business. A recent study of US millennials, aged thirty to thirty-nine, found that 55 percent of them had used online videos to hone their creative skills, with a significant number also posting a handcrafted object for sale online.⁹

Digital technology has democratized the tools of creativity and given creators a global audience. Every day …

• More than 700,000 hours of new content gets uploaded to YouTube
• Three million blogs get created with WordPress
• Ninety-five million new photos get posted on Instagram
• Google Play adds 1,300 new apps to the 3 million already available
• Thousands of projects get launched on crowdfunding sites like Kickstarter, Wefunder, Indiegogo, and Crowdcube

Scientific innovation is also advancing at a blistering pace. Since 1985, the number of patents granted each year by the US Patent and Trademark Office has grown by more than 400 percent. There is no shortage of ingenuity in our world. Why, then, do long-established organizations generally suck at game-changing innovation?

Every year Fast Company magazine publishes a list of what its editors regard as the most innovative companies in the world. In a recent year, the top fifteen innovators were:

1. Meituan Dianping
2. Grab
3. NBA
4. Walt Disney
5. Stitch Fix
6. Sweet Green
7. Apeel Sciences
8. Square
9. Oatly
10. Twitch
11. Target
12. Shopify
13. AnchorFree
14. Peloton
15. Alibaba

Notably, all but two of these companies are less than thirty years old, and two-thirds were born digital. It would seem that if an organization is old and analog, it’s screwed. Yet many of the companies crowned “most innovative” turn out to be overhyped, one-hit wonders. In 2012, when Gilt Groupe appeared on Fast Company’s most innovative list, the online retailer boasted a $1 billion valuation. Unfortunately, the company’s business model, built around “flash sales” of high-end fashion items, turned out to be a flash-in-the-pan itself. After several rounds of downsizing, Gilt Groupe was acquired by Hudson Bay Company in 2016 for $250 million. Fifteen months later, Hudson Bay wrote off half the purchase price. Other once-lauded innovators have experienced similar slides, including Zynga, Groupon, SolarCity, and GoPro. Inventing a killer business model is hard; reinventing it is harder still. Serial innovators are rare.

Apple and Amazon are the exceptions that prove the rule. Despite their size, they have repeatedly created category-defining products and services like the iPhone and the iPad, and the Kindle and Echo. They’ve also pioneered radical new business models—such as the App Store and Amazon Web Services. In a rare feat, both Apple and Amazon have appeared on Boston Consulting Group’s list of the world’s most innovative companies for thirteen consecutive years, with Apple headlining the list in each of those years. So, yes, large organizations can be consistently innovative—but most aren’t, and if innovation depends on having a creative genius like Steve Jobs or Jeff Bezos at the helm, most never will be.

Hoping to overcome their habitual incrementalism, many companies have set up purpose-built innovation “incubators” and “accelerators.” By one estimate, there are now 580 idea labs around the world, up from 300 just two years ago. Despite their popularity, there’s little evidence these creative outposts deliver significant returns. A few creative souls living large in their accelerator digs are no substitute for a deeply embedded capacity to continually reinvent the core business.

Acquisitions are another oft-used strategy for overcoming an innovation deficit. Unfortunately, like lonely barflies at closing time, perennial laggards are often overeager and indiscriminate suitors. Between 2008 and 2016, Hewlett-Packard, once an innovation luminary, spent over $37 billion on acquisitions aimed at transforming itself into an IT services powerhouse. Many of the deals led to big write-offs. As we write this, HP Enterprise is worth less than half what it spent on its acquisition binge.

Despite a torrent of books promising to unlock the secrets of innovation, large organizations seem as incapable as ever of unleashing the creative energy of their people. Some management pundits, like the nineteenth-century skeptics who believed human beings would never fly, claim that large companies are genetically incapable of game-changing innovation. We understand their pessimism, but are more hopeful. Across the globe, 1 million people are airborne at this very moment. If we aim high, there’s no reason our organizations can’t soar as well.

Human Beings Are Passionate. Our Organizations Are (Mostly) Not

Undoubtedly there’s something in your life that ignites your passion, something that captivates and energizes you. Maybe it’s your family, your faith, a social cause, a sports team, or a hobby. Passion can have a dark side, of course—like religious extremism, racial hatred, or sexual predation. These are passions misdirected and corrupted. Thankfully, most human passions are life-affirming.

When we’re in the thrall of a healthy passion, we experience a magical melding of effort and enjoyment. Formidable obstacles become intriguing puzzles, and minor wins, badges of accomplishment. We are most alive when we’re doing something that enchants us. Sadly, for most people, that something isn’t found at work.

A 2018 Gallup study found that barely a third of US employees were fully engaged in their work—where engagement is defined as being “involved in, enthusiastic about and committed to work.” The majority of employees, 53 percent, were “not engaged,” while 13 percent—the maliciously compliant—were “actively disengaged.”¹⁰ Globally, the situation is even worse, with 15 percent engaged, 67 percent disengaged, and 18 percent actively disengaged.

Here’s why this matters. Picture for a moment a hierarchy of work-related capabilities, a bit like Maslow’s hierarchy of needs (see figure 1-1). At the bottom is obedience. 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.

These higher-order capabilities are the products of passion, of a commitment to something that inspires us, something outside ourselves that needs and deserves the best of who we are. Initiative, creativity, and valor can’t be commanded. They are gifts. Every employee gets to decide, “Do I bring these gifts to work today, or not?” and as the Gallup data suggests, the answer is usually “no” and, sometimes, “hell, no.”

Just as a company can’t build an evolutionary advantage without an innovation advantage, it can’t build an innovation advantage without an inspiration advantage. 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.

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. Unfortunately, engagement levels haven’t changed much either. It seems that every generation rediscovers the essential elements of human engagement and then does nothing.

You might argue that disengagement is inevitable. After all, a lot of jobs aren’t very appealing. Every day you meet people with jobs you wouldn’t want. Maybe it’s a retail clerk, a service center rep, a short-order cook, a delivery driver, a gardener, or a housekeeper. You can hardly expect these people to be enthusiastic about their jobs, right? Actually, wrong. In a study conducted by the Pew Research Center, 89 percent of employees said they were either “very satisfied” or “somewhat satisfied” with their daily activities.

The engagement deficit isn’t about what people do at work, but how they’re managed. In Gallup’s research, 70 percent of the variation in engagement scores was explained by differences in the attitudes and behaviors of the employee’s boss.¹¹ For example, employees who felt they could approach their boss with any type of question were more engaged than those who couldn’t. “But wait,” you say, “if two-thirds of employees are disengaged, does this mean most managers are jerks?” Maybe, but here’s the thing: managers are no more engaged than their subordinates. Per Gallup, 51 percent of US managers are not engaged, and 14 percent are actively disengaged.¹² In other words, your boss is probably just as disheartened as you are. Good lord! Maybe it’s assholes all the way up. Or maybe not.

The Legacy of Bureaucracy

What if the inhumanity of our organizations is symptomatic of something deeper, something that has nothing to do with any particular manager or organization? Doesn’t that seem likely? If virtually every organization on the planet suffers from the same afflictions—inertia, incrementalism, and emotional anomie—maybe there are common underlying disease mechanisms. A mutation in the BRCA gene raises the risk of breast cancer for a woman whether she lives in China or France. A carb-heavy diet raises the risk of diabetes whether you’re Mexican or Australian.

Following this logic, we need to ask, in what ways are organizations alike? What traits are common to Sony, Telefonica, UNICEF, the Catholic Church, Oracle, Volkswagen, HSBC, Britain’s National Health Service, Petromex, the University of California, Rio Tinto, Carrefour, Siemens, Pfizer, and millions of other, lesser-known organizations?

The answer: they are all bastions of bureaucracy. 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

These organizational features may seem innocuous, but as we’ll see, it’s here, in the unremarkable landscape of bureaucracy, that we find the roots of institutional incompetence. Our organizations are less than fully human because they were designed to be so. Writing in the early twentieth century, 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.”¹³ Then as now, the goal of bureaucracy was to turn human beings into semi-programmable robots.

The word bureaucratie was coined in the early eighteenth century by Jean-Claude Marie Vincent, a French government minister. Translated as “the rule of desks,” the label was not intended as a compliment. Vincent viewed France’s vast administrative apparatus as a threat to the spirit of enterprise. (Plus ça change, plus c’est la même chose.) A century later, in 1837, the British philosopher John Stuart Mill described bureaucracy as a vast tyrannical network.

This depiction seems as apt today as it did 180 years ago, so why haven’t we yet rebelled? Why have we remained mired in an abusive relationship with our organizations? Because, to put it simply, we’ve lacked for a better alternative, or so we’ve assumed.

When compared to the despotic, disorderly organizations that preceded it, bureaucracy was a blessing. In pre-bureaucratic organizations, leaders were capricious and decision making mostly guesswork. Planning was haphazard and work practices idiosyncratic. Oversight was spotty, compensation poorly correlated with effort, and employee turnover often more than 300 percent per year. Bureaucracy changed all this and, in so doing, turbocharged productivity growth.

Between 1890 and 2016, the value created by an hour of labor increased thirteenfold in the United States, sixteenfold in Germany, and eightfold in Great Britain. While other factors—such as capital accumulation, universal education, and scientific invention—contributed to this bonanza, the biggest boost came from advances in bureaucratic management including workflow optimization, production planning, variance reporting, pay-for-performance, and capital budgeting.

Though dehumanizing, bureaucracy was, as Weber noted, “superior to any other [organizational] form in precision, in stability, in the stringency of its discipline and in its reliability,” and thus “capable of attaining the highest degree of efficiency.”¹⁴ It is thanks to large, bureaucratic organizations that a billion people on the planet now own a car, that 4 billion of us carry a mobile phone, that when inclined to travel, we can choose from more than one hundred thousand commercial flights each day, and that when we buy and sell we can rely on a global financial system that processes more than one million transactions per minute. Whatever its faults, bureaucracy has earned its spot atop the pantheon of human inventions.

Yet as with other instruments of progress—firearms, fossil fuels, the combustion engine, large-scale agriculture, antibiotics, plastics, and social media—this triumph came at a price. Bureaucracy multiplied our purchasing power but shriveled our souls.

The fault lies not with any particular manager, but with a management regime that empowers the few at the expense of the many, that prizes conformance over originality, that wedges human beings into narrow roles, robs them of agency, and treats them as mere resources.

Like all technologies, bureaucracy is a product of its time. Since its invention in the nineteenth century, much has changed. Today’s employees are skilled, not illiterate; competitive advantage is the product of innovation, not just scale; communication is instantaneous rather than tortuous; and the pace of change is hypersonic, not glacial. Yet the foundations of management have remained cemented in bureaucracy. This must change.

In recent decades, we’ve seen mind-flipping innovation in operating models and business models. Ocado, Britain’s leading home-delivery grocery service, has a warehouse where dozens of robots scamper across an enormous grid of open-topped boxes, picking out items and delivering them to human beings who place them in plastic bags. That’s radical. YouTube, Netflix, and Amazon Prime Video offer viewers a virtually unlimited menu of on-demand choices. For someone who remembers half a dozen channels of terrestrial television, that’s radical.

To cure the disabilities that cripple our organizations, we need to be equally radical in reimagining the bureaucratic management model. Building organizations that are endlessly malleable, ridiculously creative, and brimming with passion requires entirely new approaches to mobilizing and coordinating human effort. We must try to imagine new management models that are as radically different from the bureaucratic template as FaceTime is from a landline phone call, or Alipay is from a wad of banknotes.

We need to put human beings, not structures, processes, or methods, at the center of our organizations. Instead of a management model that seeks to maximize control for the sake of organizational efficiency, we need one that seeks to maximize contribution for the sake of impact. We need to replace bureaucracy with humanocracy. We’ll spend much of this book exploring the differences between these two models, but the essential distinction is this. 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. (See figure 1-2.) The question at the core of bureaucracy is, “How do we get human beings to better serve the organization?” The question at the heart of humanocracy is, “What sort of organization elicits and merits the best that human beings can give?” As we’ll see, the implications of this shift in perspective are profound.

To move beyond the old model, we must understand the precise ways in which bureaucracy has disabled our organizations. We must face up to the costs of bureaucratic malaise. We must learn from the management vanguard—progressive organizations that have demonstrated the viability and value of post-bureaucratic management practices. We must embrace new human-centric principles and operationalize them within our organizations. We must rid ourselves of bureaucratic mindsets and rethink our core assumptions about “leadership” and “change management.” We’ll tackle all this and more in the chapters that follow.

For now, let’s be clear on one thing: bureaucracy must die. We can no longer afford its pernicious side effects. As humankind’s most deeply entrenched social technology, it will be hard to uproot, but that’s OK. You were put on this earth to do something significant, heroic even, and what could be more heroic than creating, at long last, organizations that are fully human?