Adapt or Die

Can large organisations be nimble, disruptive and inspiring places to work? Yes, if they dismantle hierarchical, bureaucratic ways of working, says management guru Gary Hamel.

CKGSB Knowledge

 

By : Neelima Mahajan

Gary Hamel is a one-man army on a mission: to rid corporations and CEOs of complacence and sloth. Part strategist, part crusader and orator par excellence, Hamel has for the past three decades, trained his guns on the biggest culprit of them all: antiquated management ideas and practices that lead organisations into a downward spiral, and ultimately into irrelevance. His prescriptions, though radical, are often the bitter pill that organisations need to jolt them out of their deep slumber. If you want sugar-coated advice, Hamel's not the guy for you.

While his early books Competing for the Future (co-authored with C.K. Prahalad - the two coined the now-legendary term of core competence) and Leading the Revolution were about strategic innovation and competition, his new books The Future of Management and What Matters Now touch upon a more fundamental theme that few management theorists dare to explore - the need to change the very building blocks or DNA of organizations and usher in what he calls Management 2.0.

"I could see many organizations found strategic renewal very difficult. They often hung on to an old strategy long after the point it was starting to produce diminishing returns," says Hamel, a professor at London Business School. "I began to realize that there was something very deep inside organizations that made innovation difficult and made renewal difficult."

In this interview, Hamel, who ranked 19 on the 2013 Thinkers50 ranking of the best management thought leaders, talks about how and why traditional management models need to be reengineered, an idea that's core to his latest book What Matters Now.

Q. From your early books like Competing for the Future, Leading the Revolution to the last two, The Future of Management, What Matters Now, how do you think your ideas have evolved over the years?

A. I started out and was trained as a strategy professor and it always seemed to me that the two most interesting questions in strategy were: where do game-changing strategies come from and how do you change a successful strategy once it starts to mature and decline?

At the time I began teaching, in the early 1980s, Michael Porter had an extraordinary influence on the way people thought about strategy. Every manager around the world will be familiar with his five forces model. What that allowed us to do was talk about the economic efficiency of a strategy. Given a particular strategy, did it have the power to create above average returns? That was a very, very important breakthrough to help us think systematically about the attractiveness of a strategy.

When I looked around the world at that time and I saw new businesses being created like Virgin Atlantic Airways or the Body Shop—now remember this was way back in the 1980s—the question that was very interesting to me was where does the fundamentally new strategic idea come from? It's one thing to evaluate a strategy and its effectiveness once someone has already thought of it, but where does that initial idea come from? And so over the next few years that would lead me more and more to think about innovation, and particularly innovation at the level of the business model. How do you change the rules of the game in an industry? And more particularly, given the fact that we all live in the same world, with the same information, why is it that some people are able to see a brilliant strategy and others aren't? What are the perceptual habits of mind, if you will, that can help us envision new strategic opportunities? So that was the thought process that was going on even in the early 1980s when I was teaching at the London Business School. And that particular avenue of thinking, around strategic innovation, was really introduced and competing for the future and then I tried to take it much further in leading the revolution.

But the other thought at the same time, which was always in the back of my mind, was how do you change a successful strategy once it has started to lose its economic vitality? Clearly, we live in a world where change is accelerating, where no strategy lives forever, strategies have lifecycles just like individuals, and when I looked around me I could see many organisations [...that] found the work of strategic renewal very difficult. They often hung on to an old strategy long after the point it was starting to produce diminishing returns.

As I thought about those two problems, I began to realise that there was something very deep inside organisations that made innovation difficult and made renewal difficult. That’s what led me to start to think about management, because it was clear that there was a problem in organisations that wasn’t around particular tactics or strategies, but something even deeper. Almost at the level of DNA. Because when you look at traditional organisations, and public organisations, all around the world, very seldom do they spawn game-changing innovation. And very often they hung on to old strategies too long. And so that really led to the work of The Future of Management and then to the more recent book What Matters Now, where I started to understand that if you want to build organisations that are instinctively innovative, and intrinsically adaptable, you would have to go even deeper and think about the DNA—the principles if you like—upon which our organisations were based. So that’s really the evolution of my thinking, and it goes all the way to my early years at the London Business School in 1983 and 1984.

Q. If you were to put your finger on one common thread running through all of you work, what would that be?

A. I think the common thread is that innovation is the most important advantage of all. That innovation in today’s world is the only insurance against irrelevance. And let me make two comments there. First of all, you can think about innovation as occurring in five distinct ways, or at five distinct levels. At the bottom you have operational-level innovation, so this is the work that companies do every day to be more efficient. To be faster, better, cheaper, to take costs out, and to improve productivity. And breakthroughs in recent years—there have been things like enterprise resource planning (ERP), customer relationship management (CRM) systems, six sigma, lean software development. These are all tactics that are designed to drive operational innovation.

The level up from that you have innovation in products and services. That could be the latest flat screen television, the latest refrigerator from Haier lets say, a new exchange traded fund, a new financial services product, but innovation in products and services.

Taking another step up you have innovation in strategy. So, call it strategic innovation or as I called it years ago, business concept innovation. But here's when somebody rethinks an entire industry. This is, of course, what Amazon did in bookselling and music retailing all those years ago when it got its start. More recent examples of business model innovation would be Twitter. IKEA would be an older example, Air Asia—these are all examples of companies that really innovated not just around a single product or service, but in many aspects of the business model.

If you take a step even higher, you get the innovation—what I would call platform innovation. This is not just a single company with a new business model; this is when somebody brings an entire industry together around a new platform. So as example, the early innovation of Amazon, when they were simply selling physical books online—that was business model innovation, but when you build a new platform for digital publishing that engages the entire publishing industry around the world, that's platform innovation. Another example would be the App Store from Apple that allows people from all over the world—software publishers—a new platform on which to publish their software.

And then at the top, at the highest level, I think is innovation in management itself. If you look at over the last 100 years, the sort of innovation that has produced the biggest returns and then accounted for the most significant and enduring shifts in competitive advantage, has been innovation in management itself. Innovation in how we meet, how we plan, how we organise, how we allocate resources, but innovations that extend human capabilities. A recent example of management innovation would be open source software development. So the idea that you can have a volunteer army around the world developing something as complex as enterprise software without any traditional management structures at all, that was a very radical idea. That would’ve seemed impossible I think just 10 years ago for most chief executives around the world. But that is an entirely new way of achieving large-scale human collaboration. If you go back in history, other examples of management innovation would the invention of capital budgeting, strategic planning, divisionalisation.

So the one thing that I think unites my work from beginning to end is an emphasis on the importance of innovation, and I believe that companies need to learn how to innovate at all those levels, and rather than innovation being something that happens despite the system or occasionally or in quarters of the organisation, it has to become a systemic capability so everyone, everyday feels responsible for innovating—everyone has the tools they need, the skills they need and are working in an environment that encourages innovation. Organisations that work for that end are going to be the ones that I think succeed now and in the decades ahead.

Q. Looking back at your past work, if there were one change you would like to make or one idea you want to tweak, what would it be and why?

A. I suppose one of the good things about being an academic is that you don't have to do product recall [laughs]. And there's no liability I'm sure if your ideas don't work out.

Certainly, my ideas have evolved, so it's kind of hard to go back at a particular point in time. I would certainly say that if I could go back, I would've put more emphasis earlier on reinventing how companies are managed. In particular, I would have put more emphasis on the challenge of busting bureaucracy. Most organisations around the world—whether it’s the Hongqiao Detention Center in Shanghai, Salesforce.com, HSBC—are still based on a mash-up of military command structures, the traditional pyramid that goes back thousands of years, and then the principles of industrial engineers that go back 150 years or so. And it took me a long time to understand—longer than I would like to admit—that until we change that underlying organisation architecture, until we start to pull apart the traditional pyramid, and until we challenge those fundamental assumptions about our organisations, that it would be very difficult to build companies that were truly innovative or truly adaptable or inspiring places to work.

I wish I could have seen that earlier and understood that the single biggest barrier to building more capable organisations is that legacy, tradition-encrusted manager model. Like many other academics and leaders and consultants around the world, I simply took that for granted. I really couldn't imagine an alternative, and it's only when I started working with and doing research in very non-traditional organisations that I understood that you can manage large-scale human organisations without a traditional pyramid. You can crowdsource the strategy process and it involves hundreds of thousands of voices in that conversation. You can use the principles of markets rather than traditional hierarchies to allocate resources. It took me a long time to understand that and I wish somehow I could have come to that understanding much earlier in my career.

Q. In your latest book, you say that existing management models need to be reengineered so that they're based on market principles. Why is it so important to do this?

A. There's really a two-part question there. First, do we need to reinvent management? Second, what are the principles we should use in doing so?

Over the last 30 years, I've done a lot of work with many organisations around the world, helping them become more innovative and more adaptable. I and my colleagues have trained tens of thousands of people in the methods of innovation. We've created billions of dollars of market value, so we've had a lot of success. At the same time, many, many times I was frustrated because it was just so hard to get organisations to be really truly innovative on a consistent basis. It was so hard to get them to change ahead of the curve rather than only once the crisis had struck. That forced me to go deeper and deeper and to ask the question: what problem was management attempting to solve? All these organisations around the world are much more alike than they are dissimilar—they have more or less the same approach to strategic planning, more or less the same approach to allocating resources, to budgeting, to promotion, to compensation.

When you go back to the early years of modern management in the late-19th century, you realise that management was invented to solve the problem of efficiency at scale. And we did this. If you think, today there are one billion people in the world who own an automobile, that's almost inconceivable. Management—that traditional management model that was focused on efficiency and productivity—has made an extraordinary contribution to human prosperity. I began to realise that today organisations face new problems that are not simply about efficiency and discipline and alignment and scale. Yet, that whole organisational model was built primarily to solve that single problem. Moreover, the way we solved, historically, the problem of efficiency of scale, was that we built organisations where we deskilled work, we put people in silos, we specialised their activities, we created a very tight matrix of rules and procedures and we valued conformance above everything else. Conformance to quality standards, work methods, product standards, schedules, budgets and customer requirements. So, to create very efficient organisations, we had to drive the variety out of those organisations. We had to drive out the irregularities, and to do that we actually had to drive out the humanity. We wanted organisations that were as efficient as machines and that meant we needed human beings who would behave like machines. And then you wake up in a world and you discover it’s the irregular people, with irregular ideas developing irregular strategies that create the irregular wealth, and our organisations were never built to encourage those kinds of behaviours.

That's really what led me into the latest book, [it] was understanding that if you don’t change that management model at its core, anything you layer on to it—you can have an idea wiki, or you can have a Skunk Works for new ideas, or a corporate incubator—but anything that's built on that old management model is really not going to be very effective. That’s the reason why we have to reassess management. Because we are now facing a set of problems—of accelerating change and hyper-competition and so on—that lie outside the performance envelope of that old management model.

Then the question becomes: what principles do you use to reinvent management? And I think it’s interesting, very seldom as managers, very seldom do we talk about our principles. Most leaders, most managers around the world, see themselves as very pragmatic, as utilitarian and most of them will not even believe that management is built around a particular ideology and a set of principles. But of course, the ideology of management is controlism—that was what it was built to do. It was to drive control and conformance, and every organisation needs some of that, but if you want to build an organisation that is capable of more than that, you have to start with a different set of principles.

So, what I’ve started to do and my work over the last few years is to say: what things in our world are very adaptable? If we need organisations that can change as fast as change itself, then where do you look to see this in action? What are the systems that seem to be very resilient and very adaptable?

One is markets. The New York Stock Exchange over the last 50 years has outperformed every company on the New York Stock Exchange, and so markets are very good at doing something where hierarchies typically underperform. Markets are very good at moving resources to new opportunities because capital is always seeking the next big golden opportunity. So people may sell their shares in Google and buy Twitter, and then sell shares in Twitter and buy something else, and that decision making in a market is highly decentralised. No one executive can stymie new ideas, nobody will say: well that’s not our core business or we’re not going to invest in that because it will cannibalise our old business. On average, that decentralised decision making results in a better allocation of resources than top calibre decision making.

Here would be a simple analogy: imagine if there was only one venture capital company in the world, and it was led by, well let’s say Bill Gates for example. How much innovation would we have if there was only one place to go for funding? And yet inside most organisations, there’s only one place to go for funding and that’s up the chain of command. You think today of the power of venture capital and now the power of crowdfunding, where there are many, many sources of experimental capital. It is fundamentally dangerous for an organisation’s adaptability when a single executive has the power to act as judge and jury and executioner on a new idea.

But I would argue that the idea of markets and using market mechanisms to make decisions is only one of the principles that we need when we think about management 2.0, if you will. If you look for example at the Web, it is extraordinarily innovative and as a platform for innovation it is constantly evolving and adapting, spawning new business models and new forms of social organisation. So you look at the Web, in addition to markets. When you look at the Web and you see an emphasis on experimentation, you see this built around a meritocracy where people attract followers in social media only if people want to follow them—there’s no top-down assignment or distribution of authority. Or you look at the Web and you see the power of community, people coming together around shared interests.

I think we have to look at markets, at biology, at the Web and anything in the world that is highly resilient and adaptable, and we have to mine those things for the principles that will help us build organisations that are more adaptable than the machine-like organisations we inherited from the past.

Q. So this boils down to organisational DNA at some level?

A. Yes, I think so. You might want to call it culture or our management DNA, but it's the deep principles on which our organisations are built. Managers tend to look to imitate someone else’s best practices. One of my strong beliefs is that today we’re at the point in business history where we not only need better practices, [but] we need better principles. In almost any field of human endeavour, you get to a point where you can’t solve new problems with the old principles. For example, it was impossible to understand the sub-atomic world if you started with the principles of Newtonian physics. We had to invent a whole new set of principles around quantum mechanics. I think there’s a danger in looking at one particular practice and saying, oh, let’s imitate that, without going deeper and saying, no, we have to start with a different set of principles and now think over the next few years how those principles come alive in our organisation. For example, the principle of openness and transparency, that’s a very important part of being an innovative and adaptable company.

The generation coming to work right now expects organisations that are open and transparent, and yet in terms of practices, that principle could be implemented in many different ways. Openness could mean that we share all of our compensation payments so that people feel they’re being compensated fairly wherever they are in the organisation. Openness could be that we invite people to be part of the strategy conversation, that we open up our strategic planning to everyone in the organisation. Openness could be that we set our salaries in a more peer review way.

You have to start with a principle and be clear what these principles are, and then over time say: all right, how do we translate that principle into action? I think it’s much more important for the long-term to start with the right set of principles than to imitate any single or particular practice.

Q. The question that comes to my mind repeatedly is: what would the role of managers be in this new kind of management model?

A. I think in some sense that remains to be seen. We’re obviously now in a transitional state, but I think one of the things [...that will] happen is that more and more of the work that we traditionally thought of as managerial work is going to migrate outwards to the edges of the organisation. So more and more of the work of managing is going to be done by people who aren’t perhaps managers.

In most organisations we still have almost a kind of feudalistic system where there are executives—the leaders who set strategy, set direction, make the key appointments—then you have the managers who are responsible for translating strategies into specific goals and holding people accountable and coordinating operations, and then you have the actual operators, the doers. There was this implied distinction between the thinkers and the doers. That distinction has already started to blur or break down.

One of the great innovations of Toyota, many years ago, was the principle of kaizen and the idea that you could take so-called ordinary employees and turn them into sophisticated problem solvers, you could teach them the principles of statistical process control and pareto analysis, you could help them identify quality problems, solve them right there on the line, you gave them the power to stop a production line if they saw a problem. That goes back more than 30 years, but it was a very radical idea because it represented a profound shift of power from factory managers into kind of first-level employees. I think the same is now happening as we think about more and more managerial work for example, and even executive work… Red Hat, the software company, their strategy making process is open to the entire organisation—a company-wide conversation. I was at a plant of General Electric in Durham, North Carolina, and GE is a fairly bureaucratic company, but in this plant which does the final assembly for the largest jet engines in the world, they have 400 employees and one plant manager. Those employees are doing the production scheduling, they’re doing the quality control, they’re doing the training, a lot of the things that historically we thought of as managerial work is now being done by what are essentially front-line employees. I think that’s really what’s going to happen to management, it’s that more and more of that work will be distributed across the organisation.

There are several preconditions for that happening. We have to give people the information they need to manage themselves, we have to make them more financial and business literate, we have to make sure that their actions and behaviours have consequences so they get immediate feedback on whether they are helping move the business forward or not. But the idea that you need multiple levels of managers to manage I think is increasingly untrue—it's perhaps the deepest orthodoxy, the deepest thought of all that you need managers to manage. But I now see larger organisations where the work of managing is highly distributed.

In any organisation, there are still going to be some people who have more influence and more authority than others. There’s no assumption here that the organisation is flat and that everybody has the same influence or the same pay—that's not at all what I mean. There will be a meritocracy, but the distinction is that in that traditional organisational form, we pre-emptively and systematically empower some while disempowering everyone else, and we vest power in positions. So power is kind of binary—I'm either a senior vice-president or I’m not. And, of course, what happens over time is you end up with many people in leadership positions that aren’t actually really leaders. They're there because they had good political skills, they’re there because they had connections, they're there because they added value last year or five years ago, but they are not there because they are true leaders now and they are individuals that other people want to follow.

Even in these organisations that have moved to what I would call a post-bureaucratic model—I wrote about one of them at length in my book called Morning Star, but there are others—when you go in those organisations and ask people who's really making the most valuable contribution here, who are the individuals who are most critical to the organisation’s success, people will all give you the same names. People will largely agree on who those individuals are, and they're often compensated more, they have more responsibility, but they've achieved that by virtue of their value added rather than someone appointing them and saying you're senior vice-president or you're a department director.

I think that the goal is we still need people who are leaders and we still need people who are capable of coordinating and directing, but the people in those roles are going to get there because of the value they add and the fact that other people are willing to follow them. That's the same way power influence happens on the Web. Now that could degenerate into kind of cliques and sub-optimisation if everyone is not incented and is accountable ultimately to customers and the marketplace. But if you have that ultimate economic accountability, then I think you could have a power structure that is much more fluid and is much more based on followership, the quality of your followership, than it is on whether you’re a successful bureaucrat.

Q. You once said that as an organisation becomes bigger, more and more of its energy goes into managing its own complexity. Is it then possible to have an organisation with the best of both worlds: massive scale and also the flexibility and agility of a young start-up?

A. I think you've put your finger on exactly the challenge. Historically, most organisations have faced a number of what seemed to be intractable trade-offs. You could be large, or you could be adaptable. You could be highly efficient, or you could be innovative. You could be enormously disciplined, or you could be empowered. I would argue the fundamental challenge in reinventing management is to transcend those old trade-offs. 

The secret to doing that is to be able to distinguish between what and how, or if I can say between ends and means. Because bureaucracy was a particular way of getting control, and it used narrow job descriptions, a lot of highly specified rules and close supervision to make sure people were doing the right thing. Now, can you get that level of discipline without having all of that bureaucracy and supervision? I think you can. Let me give you my own example as a teacher. In an academic institution, there’s not a lot of hierarchy; it’s a very flat organisation. But there is a lot of discipline because at the end of every term all of my students would rate my performance. And all of those ratings were visible to all of my colleagues and every other student. So there was no place for poor performance to hide. Moreover, when I published an article, it was reviewed by my academic peers. Not by some hierarchy, not by a boss, but it was reviewed by peers who would decide whether it was worth publishing or not.

And that's what you see in some of the organisations today that are both highly disciplined but also are not very bureaucratic. They're using much more peer-based models. For example, they will ask employees to rank each other by their value added and then they use that to drive compensation.

Back to your question, can we get scale and resilience and entrepreneurship at the same time? I think the answer—we're still trying to invent that—but I think there are very promising examples. One of those examples is the Chinese company Haier. This is a company with 80,000 employees that recently divided itself into 2,000 business units. Because you cannot have a resilient business organisation if the operating units are very large, if they’re monolithic things. Big things are not adaptable, we know that—dinosaurs are gone, bacteria are still here. So Haier divided itself into 2,000 business units, but then you have to ask: where does the coordination come from? And I think increasingly coordination will come from lateral communication and social networks where peers across the organisation can discover for themselves where coordination needs to happen, where we need to be working together and then solve those problems. But it won’t come from a senior group that’s imposing those across the whole organisation. So at Haier they're creating a lot of lynchpin roles where, for instance, for small operating units they really let individuals to coordinate across all of these smaller business units. In the past it was impossible to achieve coordination without centralisation, but now because we can move and share information laterally so easily, you can begin to see how we get coordination and the benefits of scale without having multiple layers of management, or as many layers of management.

One of the companies that is very good at this is the Mexican Cement Company. They have national subsidiaries all over the world, local cement companies, but they also have a very robust social platform where there are more than 500 user-defined communities of peers coming together from around the world to work on shared problems. That could be inventing new kinds of cement, setting quality standards, reducing energy costs, but everyone in every plant around the world has the incentive to be more efficient, more successful. We can create these communities of passion online where people can share what they're doing or you can immediately see who’s performing best, who’s lagging behind, and so a lot of the coordination will come from that horizontal communication rather than from top-down control.

There’s no company I can point to yet that has completely figured this thing out, but there is some very promising progress being made in companies like CEMEX, like Haier and maybe a few others.

Q. You also say that companies stand to overinvest in what is as opposed to what could be. How can companies really manage the present without losing an eye on the future?

A. There are three things that are very, very important in answering that question. Number one, as long as we still have more hierarchical organisations where the leaders have a disproportionate share of responsibility for setting strategy, as long as that's still true, leaders need to spend a lot of time investing in their own learning and asking themselves what are the things that are changing around the world that are still small but are accelerating and one day [could] affect our business. That may be the emergence of the web of things, the emergence of social activism around the world, environmental issues. It’s very, very important for a chief executive or for other senior leaders to set aside perhaps three or four weeks a year where they are in parts of the world where they have a chance to be surprised by the future. Where they are not talking internally, they are not talking to their peers, they are not talking to the usual government ministers, but where the outward change is happening—technology change, regulatory change, demographic change—where these things are happening. Because as a leader, when a young person comes to me and says, here's something that's new that we could do, I have to know how to calibrate what I'm hearing.

Let me give you an example. Just a year ago I was working with a large company in Asia—I won’t mention the name, it wouldn’t be fair—but we had trained hundreds of young people to innovate and they were working on new business models in social media, and they came up with some amazing opportunities, but the dilemma was when it came to getting approval for those ideas, they had to pitch them to executives who were 55 and 60 years old, who had spent no time really understanding the world of social media. So they had no context for making a decision on whether to invest or not, and since they didn't instinctively understand that space, they were sceptical about it.

That's the first responsibility of a leader—it’s to make sure you are having a first-person experience with the future. Invest in learning, invest in reverse mentorship. That’s number one.

The second thing you have to do as a leader is to make it safe for people to dissent. An organisation cannot challenge the status quo if individuals cannot challenge their leaders. So often organisations fail because the leaders often fail to write off their own depreciating intellectual capital—their emotional equity is invested in the past and people don’t feel confident in challenging them. I’ve sat in many, many meetings where young people and middle-level managers in getting ready to present to senior executives, try to guess and anticipate what the senior executives want to hear. So they're not coming in and talking about what's changing or talking about the truth or what's uncomfortable, they’re talking about what will make the senior leader comfortable, what will fit that person’s pre-existing prejudices. That’s very, very dangerous.

So, as a leader, I have to encourage people to dissent. That means at every meeting asking certain questions. Asking your subordinates, people around you, where did I get it wrong in the past? Where did I make a mistake? In other words, making yourself vulnerable and being able to acknowledge that sometimes you’ve made the wrong call. I would also want to ask people, what would you do if this was your decision? If I wasn't going to sign off at all, if you were going to make the decision, how would you make it? Or what would our fiercest critics say? So you legitimise people talking about people outside the firm who may be critiquing a strategy or critiquing a direction. So, the second thing a leader must do is to create an environment in which people feel free and empowered to challenge the status quo.

The last thing—and this brings us back to the conversation we were having about markets—you have to make it easy for employees to get small amounts of experimental funding to try new things. If to get funding I need to go to my boss and my idea has to fit with their priorities or beliefs, that’s going to make it very difficult to start new things. I don’t think you want people to take big risks initially, but you have to make it possible for them to take small risks. What I’ve been advocating, and a few organisations are doing this now, is to create something more like an internal Kickstarter. Or perhaps in an organisation of size, there are tens of people, maybe hundreds of people, maybe more, all of whom take a small amount of their budget every year and support any project that seems to be interesting. So if I have an idea, there are multiple places to go for funding, rather than just one.

Those three things: investing in getting closer to the future as a leader, making it safe for people to challenge you and making it easy for experiments to get started, those are three very important things.

One of the most innovative companies right now on the planet is Amazon. Jeff Bezos has said in his letter to shareholders in 2013, he said our goal is to be the biggest laboratory in the world, we are simply going to try more new things. To do that you have to be able to experiment cheaply and fail quickly, but it also means that every idea cannot come first of all to get the approval of the chief executive, because that would be a choke point, that would be a block on innovation. So those for me are the three most important things that have to happen.

Q. One question that comes to mind is that not every company is born with a business model like Morning Star or W.L. Gore. We do have companies with more traditional business models and long histories and legacies like a GE or a Unilever. If they were to decide to future proof their business model, what would be the starting point?

A. I think many of the companies we see as today’s management pioneers did start with a clean sheet of paper. They started with a different set of principles. The founders of Gore, 55 years ago, started by asking themselves how do you create an organisation where people spend all of their time innovating and almost no time fighting bureaucracy.

You’re right though, most organisations have a set of legacy management practices, they have that traditional hierarchy, they have many levels, they have many rules, they are inherently conservative, people feel disempowered, strategy is controlled by a small number of senior executives, and that will not change overnight. The secret here, whether it’s evolving your business model or evolving your management model, one of the most important principles is the same, and that is experimentation.

I gave the example of Amazon constantly experimenting in a way that helped them evolve their business model over time and create new businesses. But the same thing is true when we try to evolve our management model. If we want to create organisations that are truly post-bureaucratic, where meritocracy rules, where every idea competes on an equal footing, where innovation is an instinctive capability, where communities rapidly form around new ideas, moving to that goal is going to take probably at least a decade for traditional companies. Management 1.0 didn’t get invented overnight. Management 2.0 will not get invented overnight. But the important thing if I'm GE or I'm Unilever or any large organisation is to encourage management experimentation, to go back to these new principles of transparency and meritocracy and openness and disaggregation and to ask: how do I experiment with that in a small low-cost way where I can test that idea without taking a big risk?

Let me give an example. A couple of years ago I was talking to one of the largest food and beverage companies in the world—everybody would know this company, they have very powerful brands around the world—and wanted to start to become more open and transparent as a company, and they understood that young people particularly demanded this. They were conducting their annual meeting of their senior marketing executives from all over the world—400 top marketing executives from every corner of the world—and traditionally in a company like this, those meetings are very carefully scripted in advance. Everyone’s presentation is pre-approved, all the messaging has been decided upon, they’re very clear on what they want people to take away as key tasks at the end of this meeting. There’s very little opportunity for spontaneity or for dissent or for questioning.

Well, they started to recognise that’s a problem and they wanted to create a more open dialogue. How do you do that without it degenerating into chaos? How do you do it without blowing up that model, your annual meeting that has served you well for years? They ran a small experiment—they invited 20 young people to come and sit in on this big meeting, and they asked these young people to live tweet their reactions to what they were hearing from their senior leaders. They made it clear that they wanted to hear dissenting voices—it was ok to disagree, to say I don’t think that makes sense, I think that’s stupid, I think that’s rubbish, or to say I think that seems like a brilliant idea. So, at the same time they were streaming this meeting around the world, they also streamed all of these tweets, hundreds of them, from the young people.

Now that’s not an expensive thing to do, it's not a difficult thing to do. It takes a little bit of courage, but it starts to send its message: we want to hear your voice, we want to give young people more influence over our thinking and our policies. That’s what I mean by a management experiment—something that can be done cheaply, that can be done easily, but starts to take that principle and make it more real in an organisation.

My hope is that a large organisation of the sort you are mentioning, they would be doing hundred of experiments a year. Because I think today you have to be able to imagine a radical alternative to the management status quo. You really do have to be able to think about the post-bureaucratic world. At the same time you have that revolutionary goal, you have to take evolutionary steps because the management systems and processes we have, most of them are there for a reason. You can't simply go and remove them or blow them up, you have to experiment with the new in parallel to the old and you have to do it in low-cost ways. So you go in with some hypotheses to test, you do this with volunteers, you’re very clear on what business outcomes you’re hoping to get and then you see whether this works or not. I think the challenge in organisations of all sizes is to make this kind of management experimentation legitimate, to encourage it, and then the things that work we’ll propagate those, we’ll roll those out. The thing that failed? Well we learned something and we won’t make that mistake again.

I might close with this broader idea which goes beyond anything I’ve mentioned about thus far: if you think about how we’re going to evolve our management model, how we’re going to change anything about our organisations going forward, I think the old model of top-down change is essentially bankrupt. By the time a problem or an opportunity is big enough to capture the shared attention of the leadership group or the CEO, almost by definition it’s too late—that problem has either arrived on your doorstep or someone has already exploited that opportunity and it’s really too late to catch up. And so traditionally a problem had to grow, to be very large, to be almost inescapable for it to capture an executive’s attention. And that almost always belatedly the company would roll out some big change programme. So in most organisations, change programmes are almost always behind the curve.

I think going forward we have to think of change as something that's socially constructed, that’s happening all the time in small ways and where change rolls up rather than rolls out or rolls down. And that’s true for changes that influence the business model, it’s true for changes that influence the management model. But if we can move to what is a more socially open and unopposed to change, I think we’ll have organisations that are more and more adaptable and far more humane and far more inspiring places to work.

[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]

[An abridged version of this interview was concurrently published in Mint.]

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CKGSB  Knowledge
CKGSB Knowledge

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CKGSB Knowledge (knowledge.ckgsb.edu.cn) is the online publication of the Cheung Kong Graduate School of Business (CKGSB), China's first faculty-governed independent business school. Headquartered in Beijing, and with campuses in Shanghai and Shenzhen, and offices in London, Hong Kong and New York, CKGSB has a finger on China's pulse as well as a good understanding of global business trends, and China's role on the global stage. CKGSB Knowledge features articles, videos and interviews on the intricacies of doing business in China, local competition, the evolution of "Made in China", policy issues, the globalization of Chinese multinationals and foreign multinationals' strategy and operations in China. It also features interviews with influential thought leaders and CEOs on trending topics and stories of global significance.

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