Think at London Business School
Leaders and employees alike find themselves thrust into a new world of work where communication and collaboration are key
By Lynda Gratton, Stefan Stern
Over the past few weeks and months, employees in many organisations have reacted to the coronavirus crisis with creativity and vigour. Temporarily freed from the top-down structures and nitpicking rules, those on the frontlines have responded with ingenuity to the ambiguities and complexities of the emerging crisis.
This came as no surprise to Gary Hamel, Visiting Professor at London Business School and acclaimed author and guru. He has long advocated freeing workers from the tyranny of bureaucracy. In a recent Executive Education webinar, Hamel explained why it’s time to uninstall bureaucracy and build something better in its place.
In his much-anticipated new book Humanocracy: Creating Organisations as Amazing as the People Inside Them, co-authored with McKinsey & Company alumnus Michele Zanini, Hamel provides a radical yet practical alternative to the management model that has underpinned large organisations since the industrial age.
Professor Hamel starts with a critique of the failing status quo. Recent surveys show that only one in five employees believe their opinions matter at work, and only one in 10 feel they can influence decisions that are important to their work.
Despite all the talk about empowerment, “task discretion” is declining. In 1992, 60% of employees in the UK reported that they had some say over their work activities, but a generation later that proportion had fallen to under 40%. In the US, data from the Bureau of Labor Statistics indicates that 70% of jobs require little or no originality.
A survey conducted by Hamel and Zanini suggests that 76% of people in large organisations (those with 5,000 or more employees) believe the best way to get ahead is through political manoeuvring, rather than through competence or leadership ability.
Based on this and other data, Hamel believes that most organisations waste more human capacity than they use. This, he argues, is the inevitable result of bureaucracy. As the political theorist Max Weber observed: “Bureaucracy develops the more perfectly the more it is dehumanised.”
Hamel concurs: “As a mash-up of military command structures and the disciplines of industrial engineering, bureaucracy has little room for courage, intuition, artistry, playfulness, and love – the things which make us human.”
Unfortunately, Hamel notes, most organisations still conform to the bureaucratic template:
Until this changes, our organisations won’t be fundamentally more capable than they are right now.
People, Hamel argues, are far more resilient than the organisations they work for. “In most organisations, deep change is infrequent, belated and convulsive.” While leaders often blame organisational inertia on change-phobic employees, Hamel notes that, “Human beings are change addicts – we move house, switch jobs, change life partners, take up new hobbies, and venture off to new holiday destinations.” In Hamel’s view, it’s bureaucratic structures, not human beings, that resist change.
He observes that at the moment, the word “transformation” is everywhere in the business press. Yet according to major management consultancies, only one in four change programmes meets its goals. Given this, Hamel muses that the very idea of “change management” may be an oxymoron.
In a bureaucracy there are long lags between sense and respond. By the time a problem or opportunity is big enough to capture the scarce attention of the CEO, the organisation is already on the back foot – and usually stays there. We need to “change how we change,” argues Hamel. Change needs to “roll up, not down.” It needs to be “socially constructed,” and “all employees must see themselves as potential change leaders.” The word “cascade,” Hamel notes dryly, needs to be banished from the corporate lexicon.
In his plea for a radical management makeover, Hamel cites a fact gleaned from Gallup’s Global Workforce Survey. Around the world, just 17% of employees are emotionally and intellectually engaged in their work. Fifty-one percent are “not engaged,” and 32% are “actively disengaged” – in other words, maliciously compliant.
Contrary to what one might assume, what makes work disengaging isn’t the work itself. Eighty-nine percent of employees say they enjoy what they do. The problem, says Hamel, is how they’re managed: “It’s not the work, it’s the work environment.”
Formal hierarchy empowers the few at the expense of the many. Says Hamel, “Bureaucracy is a caste system that creates deep distinctions between managers and employees, the ‘thinkers’ and the ‘doers,’ the clever and the compliant.”
Hamel notes that at the moment, 44% of US workers are stuck in low-wage jobs, and that this percentage has been going up, as it has in other developed economies. While a wide variety of factors have been blamed for this trend, including the decline of labor unions, global competition and the growth of gig economy jobs, Hamel argues the real culprit may be the tendency of bureaucrats (and policymakers) to assume that low-wage jobs are filled with low-capability workers.
“It’s a mistake,” says Hamel, “to view any job as inherently low-skilled. What makes a job low-skilled isn’t the nature of the work to be performed or the credentials required, but the limited opportunity most employees have to advance their skills and exercise their minds.”
As a counter-example, Hamel cites Nucor, America’s largest and most profitable steel company. At Nucor, frontline employees take the lead in business development, capital planning, product innovation, process improvement, and cross-plant coordination. Every employee is trained in the economies of the steel industry and participates in a generous bonus system that rewards teams for boosting capital efficiency.
At just 3% of revenue, Nucor’s “general and administrative” expenses are roughly half that of its peer group. Return on capital exceeds industry norms by 50%, with revenue per employee a whopping three times the industry average.
In Hamel’s view, every company should follow Nucor’s lead and “work hard to unleash the everyday genius of every employee.” Upgrading jobs, Hamel argues, is the key to reducing income inequality and reversing declining productivity growth.
Hamel bemoans the fact that management seems caught in a timewarp. “Like all technologies, bureaucracy was the product of its time. In the nineteenth century, most employees were illiterate, information was hard to gather, administrative competence was rare, change was glacial, and scale was a decisive advantage. None of those things are true today, and yet we’re still stuck inside the bureaucratic paradigm.”
Why has bureaucracy persisted, despite its manifest limitations? As you might expect, Hamel has a theory. “You can’t roll back bureaucracy without redistributing power, and, as you may have noticed, people with power are reluctant to give it up, and are often adept at acquiring more of it.”
Hamel describes bureaucracy as “a massive multiplayer game in which people compete for the prize of positional power.” To get ahead, ambitious players must master the “dark arts of bureaucratic infighting,” which include hoarding resources, negotiating targets, defending turf, sucking up, and deflecting blame.
Not surprisingly, notes Hamel, a career bureaucrat who’s spent 20+ years learning how to play the game may not be eager for a radical rule change—but that’s exactly what Hamel is calling for. He buttresses his call for a management reboot by pointing to the extraordinary results being achieved by a growing cadre of “post-bureaucratic” pioneers—organisations like Nucor, Svenska Handelsbanken, Haier, Southwest Airlines, WL Gore, and Buurtzorg, the Dutch home healthcare provider.
What we need, says Hamel, is a management model that’s built to maximise contribution, not conformity. To help his listeners calibrate the sort of change that’s needed, he draws an analogy with business model innovation. “In recent decades we’ve seen revolutionary changes in business models, from terrestrial broadcast television to streaming services like Netflix and YouTube, from landline phones to smartphones, and from petrol-powered cars to electric vehicles. Now we need a similarly radical shift in how we mobilise and organise people at work.
Hamel’s plan for reinventing management has 5 key steps:
For the most part, the costs of “bureausclerosis” don’t show up on the P&L, Professor Hamel says. That’s a problem, because as a rule, we only pay attention to things that can be measured. Hamel’s solution: the BMI, or “bureaucratic mass index,” a tool that helps leaders calculate the costs of bureaucratic drag.
Symptoms to look out for:
Twenty years ago, few companies accounted for their environmental impact, but now, thanks to external demands, most do. Hamel believes stakeholders should put similar pressure on companies to publicly account for the costs of excessive bureaucracy.
Most of us grew up inside the old, bureaucratic model. Given this, Professor Hamel says, it can be hard to imagine alternatives. Luckily, alternatives exist, and it’s here, Hamel believes, that we can see the shadow of the future.
Take Haier, the Qingdao-based, global leader in home appliances and a bold pioneer in the Internet of Things. Hamel’s association with Haier goes back a decade. In an early meeting, he recalls Haier CEO, Zhang Ruimin, laying down a bold challenge: “We want to encourage our employees to become entrepreneurs, because people are not a means to an end; they are an end in themselves. Our goal is to let everyone become their own CEO, to help everyone fully realise their potential.”
In the years since, Haier has broken its 80,000-person organisation into more than 4,000 independent “microenterprises.” These small units are free to set strategy, hire staff and distribute rewards. Teams choose their own leaders and have a substantial financial upside in the performance of their units.
Buurtzorg is another beacon of humanocracy. The largest health provider in the Netherlands, Buurtzorg employees 12,000 nurses and 4,000 homecarers who are organised into more than 1,000 compact teams. Each team is responsible for renting office space, recruiting team members, and finding customers. Teams are tied together by a social platform that facilitates joint problem-solving.
Buurtzorg’s administrative personnel includes 36 on-demand coaches, 50 head office employees (most in IT), and two line managers, one of which is the company’s founder, Jos de Blok. That’s one manager to every 8,000 employees. Exclaims Hamel: “That’s lean.” It’s also what happens when, like Buurtzorg, you make a decision to put humanocracy over bureaucracy.
While the case studies Hamel cites cover a wide variety of industries, they share common features:
This, Hamel argues, is the template for building a humanocracy.
Hamel is adamant that to reinvent management, we need to start with new principles. What makes companies like Haier and Buurtzorg valuable as role models, he argues, isn’t so much their unique practices as the distinctive principles that gave birth to those practices. Referencing Thomas Kuhn’s The Structure of Scientific Revolutions, Hamel argues that it’s impossible to solve truly novel problems, such as building humancentric organisations, with old belief systems.
He contrasts the foundational principles of bureaucracy – stratification, standardisation, specialisation, formalisation and routinisation – with those required to build a humanocracy – entrepreneurship, openness, meritocracy, community and experimentation.
The key, Hamel points out, is to gain the advantages of bureaucracy – control, consistency and coordination – without the attendant costs. This requires new, more sophisticated ways of dealing with the trade-offs between size and flexibility, innovation and efficiency, and freedom versus control.
Rather than managing these trade-offs through either-or policies, Hamel argues for localising them on the frontlines, where employees equipped with both autonomy and data are able to balance competing demands on a moment-to-moment, decision-to-design basis.
Reinventing management requires organisations to embed the principles of humanocracy within their management systems and structures – such as planning, goal setting, resource allocation, task design, performance management and compensation.
Hamel doesn’t believe it’s possible to retool management top-down in a single, giant change programme. While the goal may be revolutionary, the process is evolutionary.
As an example, he tells the story of a bottom-up “management hackathon” he and his colleagues hosted for the North American business of Adidas. Over several weeks, more than 3,000 participants generated 4,000+ ideas for hacking the company’s management model. Each was peer reviewed, and the most promising were developed into “hacks”—low-cost, low-risk experiments for testing principle-driven changes to existing management systems and structures.
“You evolve a management model,” argues Hamel, “in the same way that you evolve anything that’s complex and systemic – through experimentation. Successful experiments get selected into the management ‘genome,’ while the failures get left behind.”
Hamel is frustrated by what he sees as an executive blind spot around the problem of change. “Every CEO I meet says their organisation needs to change faster, but I’ve yet to find a company that teaches frontline employees to think like activists – not terrorists or anarchists, but activists. That seems like a glaring omission, since it’s the activists, not the aristocrats, who change things.
But even in the absence of top-level support, Hamel argues that anyone can start hacking management within their team or unit. The problem is, many employees assume they’re helpless and that only the leadership can initiate meaningful change. “They’ve been taught that an individual’s power to change things is a function of their title or rank. But that’s rubbish. Look back through history. It’s not positional authority that changes the world, but courage, compassion, contrarian thinking and a sense of community.”
Hamel’s advice to those on the frontlines is simple: “If you’re tired of all the bureaucratic BS, stop whining and start hacking. You are only as helpless as you choose to be.”
Hamel closes with a quote from the political philosopher Thomas Paine: “A long habit of not thinking a thing wrong gives it a superficial appearance of being right.” That’s where we are with bureaucracy, Professor Hamel says, and it’s high time we ditched it.