Humanocracy: Creating Organizations as Amazing as the People Inside Them

About the Author

Gary Hamel

Gary Hamel has been a professor of strategy and entrepreneurship at the London Business School for over 30 years. He has written 20 articles for the Harvard Business Review and has published several books, including The Future of Management in 2007 (Amazon’s business book of the year). The Wall Street Journal ranked Hamel as the world’s most influential business thinker, while the Financial Times labeled him a “management innovator without peer.”

Hamel is also a consultant and business thinker who has worked with leading companies all over the world to increase their capacity for innovation and strategic renewal.

Together with Michele Zanini, Hamel is cofounder of the Management Lab, an organization that builds technology and tools to support breakthrough management innovation. He lives in Northern California.

Michele Zanini

Michele Zanini holds degrees from Harvard University’s John F. Kennedy School of Government and the Pardee RAND Graduate School. For a time, he was a partner at McKinsey & Company. He also spent five years in RAND corporation, where he conducted research on terrorist and insurgent groups, studying how they harness technology to operate as agile networks.

Zanini has published articles in the Harvard Business Review, the Financial Times, and the Wall Street Journal. With Hamel, he is a cofounder of the Management Lab, where large, forward-thinking organizations become more adaptable, resilient, innovative, and engaging places to work.

Sources: garyhamel.com, michelezanini.com, humanocracy.com and “About the Authors” section of the book

Our one-sentence summary

Bureaucracy limits progress and innovation, as it halters imagination, creativity, and passion, but embracing humanocracy frees human spirits and allows organizations to become resilient, resourceful, and passion-filled.

Publisher’s Summary

“In a world of unrelenting change and unprecedented challenges, we need organizations that are resilient and daring.

Unfortunately, most organizations, overburdened by bureaucracy, are sluggish and timid. In the age of upheaval, top-down power structures and rule-choked management systems are a liability. They crush creativity and stifle initiative. As leaders, employees, investors, and citizens, we deserve better. We need organizations that are bold, entrepreneurial, and as nimble as change itself. Hence this book.

In Humanocracy, Gary Hamel and Michele Zanini make a passionate, data-driven argument for excising bureaucracy and replacing it with something better. Drawing on more than a decade of research and packed with practical examples, Humanocracy lays out a detailed blueprint for creating organizations that are as inspired and ingenious as the human beings inside them.

Critical building blocks include:

Motivation: Rallying colleagues to the challenge of busting bureaucracy

Models: Leveraging the experience of organizations that have profitably challenged the bureaucratic status quo

Mindsets: Escaping the industrial age thinking that frustrates progress

Mobilization: Activating a pro-change coalition to hack outmoded management systems and processes

Migration: Embedding the principles of humanocracy—ownership, markets, meritocracy, community, openness, experimentation, and paradox—in your organization’s DNA

If you’ve finally run out of patience with bureaucratic bullshit . . .

If you want to build an organization that can outrun change . . .

If you’re committed to giving every team member the chance to learn, grow, and contribute . . .

. . . then this book’s for you.

Whatever your role or title, Humanocracy will show you how to launch an unstoppable movement to equip and empower everyone in your organization to be their best and to do their best. The ultimate prize: an organization that’s fit for the future and fit for human beings.”

Source: Book Jacket

Detailed Summary

Preface

• Most organizations treat their employees as simple resources, as they infantilize them, enforce conformism, and limit growth and entrepreneurship. This is due to bureaucracy.
  • The main benefits of a bureaucracy are control, consistency, and coordination. Yet it leads to inflexibility, apathy, and mediocrity.
  • Post-bureaucratic pioneers have found a way to maintain the benefits of bureaucracy while avoiding its limitations, resulting in a more proactive, inventive, and profitable approach to managing organizations.
• Humanocracy is inspired by the idea of maximizing human contribution. While many big companies will argue that bureaucracy is the result of complexity, vanguard companies show they can be efficient, empowering, and disciplined despite their sizes.
  • E.g., Buurtzorg, a nurse-led healthcare organization with fifteen-thousand employees, two line managers, and a staff group of just over 100 people, is particularly successful. Their model empowers employees and allows them to be problem-solvers and decision-makers.
• De-bureaucratizing companies can become challenging, as such a process requires giving up the advantages of political and market power.
• There are many societal concerns regarding the impact big companies and their bureaucratic style of management have on the economy, including a wider gap between socioeconomic status and fear of automation displacing human skill.
  • The authors argue that many proposed solutions (such as placing a greater emphasis on science and math in secondary education) fail to consider “an unwarranted and damaging assumption” (p. 24): many of today’s jobs are inherently low-skilled.
  • Little expertise means low-wage jobs. Yet it’s not about required credentials but about jobs not allowing growth and specialization.
  • When employees create value, are self-managing, and become micro-entrepreneurs, there’s little to worry about regarding the future.
• This book offers a blueprint for redesigning work environments to promote creativity and innovation among workers. This is a blueprint for humanocracy.

Part I – The Case for Humanocracy: Why Poke the Bureaucratic Beehive?

Chapter 1: Fully Human

• Organizations are based on teamwork. Yet most of them are repressive and pusillanimous. More importantly, we are accustomed to them. If humans are naturally creative and inventive, the fact that most organizations are not like that means they are inhuman.
  • So, the first step to change is understanding that organizations are “incapacitated by their inhumanity” (p. 35).
• We live in a society characterized by continual, accelerating change and exponential growth. But organizations are not changing accordingly. Company leaders will want to blame people for lacking in their adaptability. But people like change. It’s organizations that impede it.
• Companies often fail to adapt to changes (e.g., iTunes being slow to offer streaming content opened the doors for Spotify and Netflix to fill the gap). While most will argue the future is unforeseeable, it isn’t fully opaque either. If organizations paid attention, trends would appear obvious (e.g., streaming services were foreseen by various technology experts).
• Institutional inertia is real. Companies are not adapting. Those that fall behind stay behind. And the biggest problem with this is they postpone progress as they tie down talents and capital that could have otherwise been put to better use elsewhere.
  • Most companies wait until rivals force them to adapt (e.g., Tesla forced other companies to launch their electric models).
• Research continually suggests that humans are naturally innovative and creative (e.g., content creators in social media are abundant). Yet, most of the top innovative companies are often “over-hyped, one-hit wonders” (p.44).
• Higher-order capabilities (initiative, creativity, and daring) result from passion. While most humans are naturally passionate, work rarely ever engages us.
  • Research found that the problem with the lack of engagement is not about the activities related to the job but about how people are managed. A lot of people’s level of satisfaction is based on their boss. Yet managers are often also disengaged.
  • The problem is that there is a common underlying cause for inertia and emotional anemia: bureaucracy.
• Because life was once tyrannical and despotic, bureaucracy was a blessing. It improved the quality of life. And at some point in history, it was superior to any other form of organizational management. But bureaucracy is “a product of its time” (p. 52). It worked then, but it doesn’t work anymore, as “today’s employees are skilled, not illiterate” (p. 53).
  • We need not structure and process but human innovation.

Chapter 2: Bureaucracy in the Dock

• Power structure with unity of command and hierarchy provides an illusion of efficient large-scale management. We tend to think that without it, there would be chaos. But, as the multiple case examples prove, we don’t need hierarchy.
  • Centralization of power limits an organization’s power to initiate change (e.g., most changes need the CEO’s approval, but it almost always takes too long for a problem to reach the CEO’s attention).
  • Hierarchical organizations also assign the sole responsibility for decision-making to a few senior executives who are expected to be “uniquely farsighted, inquisitive, and creative. [But] this is often not the case” (p. 59). E.g., Bill Gates’ and Steve Ballmer’s failure to see the potential of the iPhone cost Microsoft $400 billion in lost market revenue from failing to preempt Android.
  • Another problem associated with hierarchy has to do with leadership. Senior leaders are often emotionally invested in the past. And there is an inverse correlation between power and humility.
• Aside from hierarchy, bureaucratic organizations rely on stratification, where roles and responsibilities are precisely delineated. Formal structures are:
  • Structure and organization require choices. Some of these choices won’t be right. And it will blind people to opportunities (e.g., leading car brands failing to see the significance of Tesla’s electric cars).
  • People hyperfocus on their roles and responsibilities, resulting in an inability to spot new opportunities and an incapacity to resource those opportunities.
  • Today, most companies have so many forms of CxOs that there are longer than ever decision cycles and less accountability.
  • Formal structures are hard to change. Whenever reorganization is required, it takes a lot of energy and resources to adapt.
• Overspecialization, in the long run, leads to real costs. It restricts initiative and innovation because it limits individuals’ ability to improve, add value, and innovate.
  • E.g., Morning Star is a particularly successful tomato processor. The company has no managers or job titles. With 500 employees, they are all expected to act like self-managing professionals.
• Standardization under Taylorism cemented a distinction between managers and workers. Managers made sure that workers fulfilled their obligations and got paid, and those who failed to meet expectations got punished.
  • This is still true today. The problem is that Taylorism assumes people aren’t smart enough to make decisions.
  • E.g., United Airlines was at the center of a scandal when physician David Dao was forced off of a plane, the video of which went viral, showing him blooded and being dragged out. The company handled the scandal by saying their employees weren’t given the tools and policies to use common sense.
  • An opposing example is Southwest Airlines, a company that understands that not everything can be standardized. They provide a degree of freedom to each worker and trust in the judgment of their people so that they can make decisions according to any given circumstances.
  • As these examples show, as employees are stripped of their ability to use judgment, they either mentally check out or quit.
• Companies shouldn’t slander workers’ intelligence but give them opportunities to exploit their capabilities. Most companies have an intellectual caste system, where those at the top are thinkers and those at the bottom are doers. Yet this view only limits people’s creativity and, with it, the organization’s growth.
• Managers should equip employees to make smart decisions rather than control them. But standardization provides a cap to behavior, limiting opportunities.

Chapter 3: Counting the Cost

• Bureaucracy is hard to overcome. One of the main reasons is that it is omnipresent. It is also based on social norms that people have accepted and that are hard to challenge.
• Bureaucracy is also hard to beat because it is a complex, integrated, and interconnected system. It is difficult to determine where to start the change. Bureaucrats also tend to defend the status quo. And, despite its limitations, it works. So, people are afraid that letting go of it will lead to chaos.
• There have been several initiatives that sought to reinvent the workplaces, but they proved inconsequential. The authors argue that the main reason for this is that they need to be honest about why bureaucracy is so hard to defeat. Bureaucracy…
  • is familiar
  • is complex and systemic
  • is well defended
  • serves a purpose, however poorly
  • is self-replicating
• Many people used to think that technology would help cut bureaucratic procedures. But instead of replacing structure, it has reinforced it. “Digital technology allows jobs […] to be outsourced to the lowest bidder, further dumbing down work” (p. 87).
• The authors created the Bureaucratic Mass Index (BMI), an instrument that measures the following categories: waste, friction, insularity, autocracy, conformity, timidity, and politicking. They performed a study and found:
  • Waste: the average respondent works in an organization with 6 management layers.
  • Friction: 79% of participants say bureaucratic processes frustrate speedy decisions.
  • Insularity: respondents spent 42% of their work time dealing with internal issues (such as solving disputes).
  • Autocracy: more than 2/3 of managers reported having little control over their work methods and priorities.
  • Conformity: 75% of participants said their ideas are met with indifference.
  • Timidity: 95% respondents said it is very difficult to launch new initiatives.
  • Politicking: 62% of respondents said political skills often determine who gets ahead.
• Productivity growth has declined in the United States since the 1970s. While some claim that technology will reenergize such growth, the authors argue that the withering of productivity growth isn’t coincidental with the surge of bureaucracy, suggesting that without a change in the system, productivity growth won’t be as impacted.
• The authors argue that it is possible to eliminate bureaucracy without sacrificing performance. In fact, they contend that letting go of bureaucracy is rather profitable.

Part II – Humanocracy in Action: Can We Really Go Bureaucracy-Free?

Chapter 4: Nucor: Building People Not Products

• The following is a case study of Nucor, the US’s largest steel manufacturer.
• While it is expected that steelworkers must possess high strength and dexterity instead of creative and analytical skills, that’s not the case with Nucor, where progress is based on frontline workers’ expertise and autonomy.
  • E.g., when it came time to replace the furnace shell in one of Nucor’s locations, the team decided to design it themselves. They ended up with highly efficient equipment that cost the company 1/10 of the original price bids.
• “Nucor outperforms its peers on profitability and return on capital. It also leads by a wide margin on growth in market value, revenue, income, and tons shipped per employee” (p. 108). Nucor’s culture pushes for innovation over compliance.
  • E.g., Nucor introduced ultra-thin cast steel that consumed 95% less energy.
• Since the Great Recession, Nucor has increased its payroll by 30% while broader industry employment shrank by 15%. Ken Iverson, the CEO, believed in the capacity of ordinary people and gave them freedom through decentralization.
• Freedom and responsibility are at the core of Nucor. In North Carolina, decisions come from the lowest levels, as functions such as R&D, sales, marketing, engineering, etc., aren’t centralized. The corporate center is small; it only has a CEO and a CFO in its executive ranks. And across the company, full-time managers and executives account for only 2% of employment.
• Nucor have five important elements that break bureaucracy:
  1. Creativity: Paying for Breakout Thinking
     • At Nucor, productivity is rewarded. Through bonuses offered when a plant exceeds a given threshold, workers are prompted to think about strategies to reduce costs and speed workflows. Bonuses are paid to teams, not individuals, encouraging collaboration and discouraging slackers.
     • Nucor’s workers make 25% more than their industry peers.
     • With this payment style, teams share responsibility for growth, and there is less politicking and more financial flexibility – eliminating the need for layoffs.
  2. Competence: Cultivating Expertise
     • Nucor’s employees are more skilled than their peers (technically and commercially). Nucor has set practices that allow for growth and development, including selective hiring (finding people eager to learn), cross-training (in a variety of roles), commercial skill-building, and personal growth encouragement.
     • Ultimately, Nucor has a workforce that adapts, solves multidisciplinary problems, maximizes the quality of decision-making, reduces typical structural payment gaps, and strategically puts each individual in a position where they will succeed.
  3. Collaboration: Building Social Networks
     • At Nucor, coordination and decision-making happen from the bottom up. Team members continually visit sister plants and host cross-plant events, allowing for learning exchanges.
     • Plants often share leads and collaborate on their developments. E.g., when recognizing the potential for the auto industry, through cross-team meetings, they solved the issues that had kept them from reaching the segment and eventually became capable of shipping more than 1.5 million tons of steel to carmakers annually.
     • Nucor has a strong commitment to transparency, where employees can access a breadth of the firm’s commercial data.
  4. Commitment: Creating and Environment of Trust
     • Nucor foments the notion of the company being a community and a family.
     • With job security (Nucor has never laid off employees), few status symbols, workers involved in selecting their managers and supervisors, and a profit-sharing plan, Nucor has set pillars that strengthen trust.
  5. Courage: The Confidence to Act
     • Teams are responsible for controlling the production process, managing attendance and shift plans, having a degree of financial autonomy, hunting for new technologies, and interacting with customers.
     • Teams at Nucor have incentives and freedom to experiment with new production techniques. Everyone innovates at Nucor.
     • Nucor empowers workers. With that, there comes risk. But at Nucor, there is tolerance for smart failure.
• Nucor challenges the foundations of bureaucracy presented in chapter 2. The company is far less stratified than a typical organization. There is little standardization, as every plant is free to develop its procedures and protocol. Nucor has relied on social networks rather than formalized structures, and coordination happens organically. Finally, Nucor’s teams are deeply multi-skilled instead of overspecialized in one single skill.

Chapter 5: Haier: Everyone an Entrepreneur

• The following is a case study of Haier.
• Haier, the world’s largest appliance maker, acts as a group of startup organizations. It has 84 thousand employees and unmatched growth and market value.
  • The chairman and CEO made this possible through a radical makeover with three main objectives: 1) making everyone an entrepreneur, 2) creating zero distance between employees and users, and 3) making the company “a power node in an ever-expanding, web-centric ecosystem” (p. 130).
• Seven key elements allow Haier to break bureaucratic norms.
  1. From Monolithic Business to Microenterprises
     • Haier divided itself into more than 4,000 microenterprises (MEs), each with 10-15 employees. There are transforming Mes, incubating Mes, and node Mes, each specializing in its own goal, but all held together through technical standards. “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” (p. 131).
  2. From Incremental Goals to Leading Targets
     • Each ME pursues leading targets – goals set by the market instead of the previous year’s performance.
     • Every ME works to become an ecosystem through mass customization and connectedness with users and service providers.
     • Haier believes that, to match the valuation multiples of internet companies, it must grow its user base while reducing marginal costs.
     • In this organization, leading targets prompt MEs to reexamine core assumptions continually so that they can proactively adjust.
  3. From Internal Monopolies to Internal Contracting
     • In most large organizations, employees are isolated from the market. At Haier, every ME is free to contact other MEs or other vendors.
     • Haier has a particular compensation model in which each ME is responsible for its performance. It’s not the company paying its employees but the customers. Such an approach encourages excellence, provides a sense of team members fighting for the same goal, and maximizes flexibility (so that each ME can reconfigure its strategies as opportunities emerge).
  4. From Top-down to Voluntary Coordination
     • Haier has platforms made up of more than fifty MEs sharing either a product category or other capabilities. Each platform has an owner in charge of minimizing overlaps, identifying opportunities, coordinating investments and ME interactions with outside partners, helping diffuse practices, and coordinating with other platforms.
     • No one reports to the platform owner, as their job is to facilitate and not force coordination. They are also expected to grow the platform by creating new MEs.
  5. From Not-Invented-Here to Open Innovation
     • Haier considers itself a hub in a network. This view allows for several implications. Products and services are developed openly, with customer input. Haier has also developed a network of four hundred thousand solvers (experts) in several domains. Finally, it uses crowdsourcing to meet development costs.
     • By relying on these strategies and in online product development, the company has reduced product development time by 70%.
  6. From Innovation Phobia to Internal Venturing
     • There are three ways to launch a business at Haier. 1) An entrepreneur can post an idea online and invest their own time to help flesh it out. 2) A platform leader can ask for proposals around an opportunity. Or 3) in monthly road shows, entrepreneurs can pitch ideas to platform leaders and members of the company’s investment and innovation platform.
  7. From Employees to Owners
     • In startups, most employees act like owners and have great autonomy. Haier recreated this in their management model. MEs are self-managing units with three rights:
       1. they decide what opportunities to pursue and set priorities
       2. have hiring power and define working relationships
       3. set pay rates and bonuses
     • With these rights, they also have a great degree of accountability.
     • Additional compensation is tied to three thresholds:
       1. team members get a bonus according to the amount that their ME exceeds the target baseline
       2. bonuses are doubled if teams achieve a midpoint goal between the quarterly baseline and its leading target (VAM)
       3. when an ME beats its VAM for four consecutive quarters, they are eligible for profit-sharing.

Part III – The Principles of Humanocracy: What’s the DNA of a Human-Centric Organization?

Chapter 6: Principle over Practices

• The authors argue that the companies covered in the two previous chapters are valuable role models because of their distinctive principles that allow for their described practices. They also clarify that it’s not a matter of imitating what they do but rather what they believe.
• Humanocracy is set on the view that humans thrive in freedom and are capable of progress and growth. If you believe that, you’ll want to resist the bureaucratic system. Otherwise, you’ll be content with it.
  • Like political philosophers who challenged the monarchy and sparked the popular election, universal suffrage, and equality before the law, humanocracy needs to challenge managerial norms (e.g., the notion that processes are “one size fits all”).
• “…the disciplines of bureaucracy [once] produced stunning advances in labor and capital efficiency, but in the last several decades, productivity growth has slowed. The rich seam of operational inefficiencies addressable by bureaucracy is largely tapped out. […] Over time, a system’s performance becomes limited less by processes and practices than by paradigms and principles.” (p. 161).
• The main problem is that if you work to change results but fail to change the core beliefs of the organization, it will eventually revert to its old functioning style. These beliefs need to be human-centric principles.
• Bureaucracy was designed to promote compliance, discipline and predictability. A new organization paradigm requires reframing the problem: the goal is not compliance but contribution. Humans shouldn’t be seen as resources or capital.

Chapter 7: The Power of Ownership

• Entrepreneurship is essential to human development. It unlocks technologies, sparks competition and progress, satisfies unmet needs, and creates jobs. But as giant corporations came to dominate the economy, bureaucracy suppressed entrepreneurship.
• In a startup, people are committed, take risks, challenge conventional thinking, and connect with the customer. But bureaucracy puts all of these at risk. “Bureaucracies are run not by inventors but accountants, not by builders but administrators” (p. 165). In a large company, only a few employees are actively using their imagination.
  • Over the last 40 years, the number of startups has dropped by almost half, and big companies have gotten bigger. The result is higher prices, stalled productivity, and fewer choices.
  • While big companies have the resources and talent to become entrepreneurial, they fail to make employees feel like owners. Ownership is the bedrock of entrepreneurship.
• Of eight leadership behaviors, research suggests that empowerment is the one most highly correlated with employee engagement and satisfaction, and accountability the one most correlated with job performance. Another study suggests that the intersection of autonomy and upside incentivizes entrepreneurial passion.
  • But the norm within bureaucratic companies is to limit autonomy and upside. The authors argue this is because leadership believes staff has little to contribute.
  • Yet, it is possible to create such a culture. Haier has a modest base pay, but teams have the freedom to work and multiply their salary by ten times. At Nucor, their bonus system encourages workers to search for improvement strategies, as they have the freedom to experiment.
• Svenska Handelsbanken is a bank that operates in twenty-five countries. Each branch operates as a stand-alone business. Handelsbanken has outperformed its European peers every year since 1972. Branch teams make their own decisions, and the company shares the rewards with all employees equally, regardless of rank.
• Vinci, a French construction and engineering company, employs over 221,000 people in more than 100 countries. Its stock price has grown twice as fast as its European peers, and the company continues to grow. They have a unique management model where entrepreneurship is maximized by dividing the organization into 3,000 business units, grouped into divisions and clustered into groups. The groups have a great degree of autonomy and accountability. They create their business plans and are given the resources to pursue them.
• To increase a sense of ownership in your organization, the authors suggest you:
  • Redistribute your own authority to your team.
  • Lobby for a profit-sharing plan.
  • Disaggregate big units into small units with fewer than 50 people.
  • Give units freedom and autonomy.
  • Expand decision-making processes to frontline staff. Give them responsibilities.
  • Give teams the ability to negotiate prices of provided services and the right to opt out if they don’t think they’re getting a good deal.
  • Increase the proportion of individual or team compensation that’s at risk. Above average-performance should bring above average-rewards.

Chapter 8: The Power of Markets

• While most CEOs appreciate the principles of the free market and Adam Smith’s concept of the invisible hand, companies aren’t run as such but as command economies. Decision-making power is concentrated at the top. Changing this is key to making companies more human.
• In bureaucratic companies, a few senior executives make the most important decisions. And the number of people who can challenge those decisions is very limited. But most often, unquestioned authority leads to substantial costs.
  • E.g., Intel’s CEO, Paul Otellini, passed on building chips for iPhones and later justified his decision by saying that the iPhone was more successful than anyone could’ve thought. The authors question whether he consulted any engineer before making his decision.
  • Based on several research studies, the authors argue that companies incur an “ignorance tax” when leaders fail to consult with the crowd before making a decision. E.g., Cisco and their networking gear Umi, which survived only 18 months.
  • Collective intelligence is an invaluable asset in assessing the potential of a product, price shift, marketing campaign, etc.
• Based on research, the authors present the following elements as anomalies that corrupt the process of allocation decisions – all common among bureaucracies – as they lead to skewed decision-making based on biases and political advantage. Some of these include that:
  • Leaders tend to defend what’s theirs and are reluctant to share resources and talents with other units.
  • The bigger units in a company tend to have more share of capital because their leaders have more political clout.
  • Executives tend to overinvest in struggling businesses.
  • Executives tend to cut spending across the board rather than protect high-priority areas.
  • Well-connected leaders tend to win more resources, irrespective of merits.
  • Senior executives are less likely to defund a business they’ve worked in before.
  • In competing for funds, unit leaders inflate the merits of their investment proposals.
  • Funding decisions are often made relative to last year’s budget.
• In Silicon Valley, entrepreneurs constantly chase the new ground-breaking ideas, and one “no” is not enough to get people to stop pursuing backers. Yet the opposite is true in bureaucracies. But it doesn’t have to be that way. Instead, the authors propose allocation agility(e.g., IBM and Cognitive Build solutions advanced ideas by promoting competition, creativity, and innovation).
• While hierarchies emerged from the perception that you need someone handling and managing teams and contractors, Haier and Morning Star demonstrate that this is not necessarily true. Morning Star has only two layers of management, the president and everyone else. Haier has only four levels. They excel because they established a well-functioning internal market system through dynamic coordination.
• Centralization derived from the idea that it helps ensure consistency, promote best practices, and mitigate risk. Yet few leaders ponder whether these benefits could be acquired more cheaply and with fewer costs by relying on a different approach.
• Employees in market-like roles are motivated by meeting user needs, because they’ll otherwise get fired by their customers. Staff in corporations can only be fired by their bosses.
• Competitive discipline pushes forward an organization’s progress and growth through similar principles as those in the free market. Healthy competition and everyone having a degree of autonomy and responsibility will inspire a desire for innovation.
• To embed marketplace principles in your organization,
  • Challenge leaders to acknowledge the limits of centralized decision-making.
  • Test initiatives with an internal opinion market.
  • Provide access to funding resources among internal innovators.
  • Use arms-length contracts to direct the internal flow of goods and services.
  • Be alert to the factors that distort resource allocation.
  • Break administrative functions into smaller units and have them compete.
  • Slowly expand the jurisdiction of the crowd.

Chapter 9: The Power of Meritocracy

• Meritocracy allows for the returns of talent through freedom of contribution, where any individual can contribute whatever their social status (as compared to historical times before the Enlightenment when monarchs were seen as leaders through divine right).
• Bureaucracy in companies is ubiquitous and it undermines meritocracy. In theory, bureaucracy would put the most exceptional at the top. In practice, it is political connections that drive promotions.
• The better-than-average effect is a common phenomenon explaining our tendency to overestimate our abilities and underestimate our faults. This is particularly common among those at the top.
• Some of the most common ways that bureaucracy threatens meritocracy are:
  1. Exaggerated Competence. We also tend to believe that those who are confident are talented. Because of this, the most overconfident people, not the most talented, get to the top.
     • Power differential makes it unlikely that subordinates will question a superior’s competence.
     • Hierarchy is also hard to dismantle because of the notion that big issues are to be resolved by big leaders only. This approach asks too much of too few who think they can manage all.
  2. Misjudged Competence. As bad as we are judging our capabilities, we might be worse at judging those of others – this is called idiosyncratic rater bias.
     • Some people are naturally tougher or kinder at assessing people. We also tend to rate those who are similar to us more highly (this is called in-group bias).
     • The halo effect is another cognitive bias that leads to misjudgment. We are naturally fast to make judgments, and first impressions are hard to change. This impacts how we perceive others, despite their actual talents.
  3. Overweighted Competence. Bureaucracy tends to overvalue administrative expertise. Yet this isn’t the skill that’s most pivotal in an organization, however necessary. And, in a bureaucracy, people’s level of power and compensation is based on rank.
     • In practice, top managerial positions aren’t necessarily harder than other positions (e.g., EVP vs. VP). Yet people with power are less risk-aware. This means that people at top ranks aren’t necessarily better at making decisions, but their decisions are likely more risky and consequential.
  4. Toxic Competence. While bureaucracy supposedly allows employees to compete for raises based on skills and knowledge, the reality is that most promotions are rewarded to those who know or have learned the politics behind the bureaucratic process.

• To replace bureaucracy with meritocracy in the workplace, the authors recommend:
  1. Decontaminating Judgments about Merit. In Google, new hire interviews are performed by a team that includes direct reports. Promotions rely on peer and subordinate feedback. With that, they work hard to minimize bias and favoritism.
     • Bridgewater uses the Dot Collector, a feedback app that allows employees to rate one another across several attributes. This helps make staffing decisions and encourages aptitude and responsibility. It also reduces single-rater biases.
  2. Aligning Wisdom with Authority. Data reflecting transparent and nuanced competence allows leaders to properly weigh views when making decisions. E.g., Bridgewater makes investment decisions based on the Dot Collector data. That is, the degree of influence each individual has is grounded in a peer-based scoring of their credibility rather than their tenure or title.
  3. Matching Compensation to Contribution. Compensation shouldn’t correlate with rank.
     • Google’s rewards vary among same-level workers by more than 300% based on speed, ability, and efficacy.
     • W.L. Gore also uses a system where workers propose reviewers who will rate them. Via pairwise comparisons, a contribution committee examines results and makes decisions on rankings and according to compensation. This system encourages collaboration and contribution. Energy is targeted at building a better business rather than winning a promotion.
  4. Building Natural & Dynamic Hierarchies. While hierarchies might be necessary, the traditional approach to the allocation of power creates problems. E.g., it expects authority figures to know everything and make all the decisions, even when they lack knowledge in the matter at hand.
     • Another issue is that positional power tends to be binary. You’re either a person with authority or not. For someone to be moved out of a role, it takes a compelling degree of evidence of incompetence.
     • Finally, formal hierarchies provide little to no voice to subordinates.
     • In a meritocracy, power is dynamic, and authority flows depending on an individual’s merit. As previously described, Morning Star, W.L. Gore, and Haier have all developed systems that allow for such dynamism of leadership.
• To build a meritocracy in your organization, ask peers to rate your expertise across several categories. Ask for advice in the areas that require improvement. Exhort others to follow your lead. Then, ensure that competence and performance ratings are peer-based.
• When making a decision, consider peer assessment significantly, making sure you give a voice to those with relevant competence. Give teams the right to fire and hire leaders. And create opportunities for individuals to become meritorious (e.g., allow role rotations).

Chapter 10: The Power of Community

• While research continues to find that social connection and support are essential to human wellbeing, forming lasting and caring relationships has been getting harder in current years.
  • Alcoholics Anonymous is an example of the effectiveness of networks and communities.
  • Knowledge-Works was a community-based think-tank seeking to improve the educational system. Networks and effective programs and interventions naturally emerged. They developed Strive Communities and Strive Partnerships.
• Both AA and Strive developed their systems to solve problems, but success depends on communities, not hierarchies. Hierarchy and bureaucracy work only at solving routine problems. Whenever unprecedented issues arise, they struggle. The problem is a lack of a community – specifically, a performance-oriented community.
• Southwest Airlines is America’s most profitable airline and the largest domestic air carrier by passenger numbers. Despite several strategies that help them reduce costs, their biggest advantage is their people model. The founder of Southwest argues that their success is due to their community.
  • Southwest has the highest employee retention rate in the industry. They have a strong sense of collective responsibility, and everyone helps each other out (e.g., you might see a pilot picking up trash).
  • The sense of community Southwest was able to create is based on treating people as family and leading with love. With employees feeling respected and cared for, it’s easier for customers to feel the same. E.g., at Southwest, workers strive to reduce costs but never at the expense of wages, benefits, or profit sharing.
  • Southwest’s community building blocks include:
    • Everyone is part of the goal – workers share a sense of purpose and values.
    • Open communication is key.
    • People feel free to be themselves.
    • People have a sense of self-determination, empowerment, and autonomy.
    • There is peer-to-peer accountability.
    • Mutual respect is above any form of ranking (status is muted).
    • They created a sense of family based on love.
  • Most of us divide our self into two: our work and private selves. With companies and organizations taking over the functions of the community, such division is only detrimental to you and the company. As we hear more about work-life balance, the authors argue it would be better to strive for work-soul integration.
  • To start creating a community in your organization, recraft your mission to make it emotionally resonant for everyone. Then, provide workers with collaboration skills. In interpersonal encounters, be open. Ask your teams to identify areas where autonomy would help them deliver better experiences or improve operations. Institute team goals and rewards and cultivate accountability. Work to remove ranks and nourish respect. Finally, celebrate kindness and follow the golden rule.

Chapter 11: The Power of Openness

• Zillow and Lego are two examples of companies that have relied on openness to push for innovation. Airbus, Coca-Cola, Johnson & Johnson, Mastercard, and Walmart are others who have also set up incubators. Yet, despite its popularity, there’s little evidence that open innovation has made large companies more adaptable.
• The authors argue that the main reason open innovation in organizations is not as effective as it is in universities is that companies are run by people whose minds are closed to unconventional ideas.
  • Denial is among the most common reasons we get stuck in our thinking.
  • Or, we are oblivious to information that doesn’t align with what we already know or believe.
  • Finally, we live in a hurry and are hyper-focused. This shrinks our peripheral vision.
• Having an open mind is more about experiences than intelligence (e.g., Steve Jobs taking a calligraphy class and using what he learned to add fonts to Macs). Four habits are key to opening one’s minds:
  • Challenge unexamined assumptions. Like Dr. Govindappa Venkataswamy’s approach to reducing blindness in India, “Develop the habit of treating every assumption as a hypothesis that’s forever open to disconfirmation” (p.252).
  • Be alert to what’s changing. Like Lululemon noticing a growing interest among women for yoga, learn to spot trends and anticipate ripples.
  • Repurpose skills and assets. Like Time Out, find what skills or assets you could use to meet different needs.
  • Unearth the unmet needs of customers or society. Get the perspective of the customer.
• Strategy is necessary to develop the smaller, self-contained business units mentioned in the case examples, and to empower staff to make smart decisions. The goal of strategy should be to help entrepreneurs scale faster. It should also provide direction and stability.
• Setting strategies shouldn’t be the task of the CEO or senior executive alone, as they are reluctant to change. Breakthrough strategies should be developed from thousands of ideas using the wisdom of the crowd.
• While open strategy development might be more time-consuming than the alternative, the benefits are worth the effort. These include:
  • More radical and ambitious ideas
  • Heightened commitment
  • Greater credibility
  • More granularity
  • Faster implementation
  • Less inertia
• Examples of open strategy efforts that showcase its advantages include 3M, Cisco, and Adidas.
• To embrace the advantages of openness:
  • Change the climate of fear towards the boss. Make it so that people are not afraid to disagree with those in authority positions.
  • Invest in creative skills and ask employees for their input.
  • Start small, simple, and in low-cost ways.
  • Make it social so that people interact and build ideas off each other.
  • Link ideas to actions.
  • Stop looking to the CEO for strategy.

Chapter 12: The Power of Experimentation

• “The pace at which any organization evolves is determined […] by the number of experiments it runs. Despite this, most employers provide little encouragement to workers who are eager to learn by doing” (p. 272).
• Risk-averse culture and overly lengthy development times are the biggest barriers to innovation within bureaucratic organizations. Deviation from standards is rarely celebrated in bureaucracy, especially because people fear the risk of failure. Yet, incrementalism is a riskier path.
• The authors argue that organizations need a radical shift in how they approach experimentation. Rather than seeking to reduce uncertainty or get products out faster, the goal is to build an organization where everyone is working to “extend the boundaries of what’s possible” (p. 272).
• They also contend that people need to learn to be ok with failure. It’s important, therefore, to make workers feel free to experiment and fail. The best strategy is to use a portfolio approach.
• Amazon is among the most innovative companies in the world. Its breakthrough ideas include Amazon Marketplace, Kindle, Amazon Web Services, Alexa, and Amazon Go, among others. These ideas all emerged from a culture that encourages continual experimentation.
  • Experimentation requires patience – an uncommon virtue in most bureaucracies. E.g., it took Apple a lot of time to redefine touch-sensitive screens.
• Intuit, a financial software provider, first developed Quicken, but now offers tax preparation (TurboTax, ProConnect), bookkeeping (QuickBooks), and mobile money management software and apps (Mint). This is a particularly successful company because of the constant experimentation, the product of a culture that completely removed decision-making from bureaucracy. It exhorted customer input in the development of any service product.
• Scott Cook, Intuit’s founder, set the stage so that the company nurtures experimentation through:
  • Experimental teams – “a hacker, a hustler, and a dreamer” (p. 280) that are coached and supported but have a great degree of autonomy.
  • Innovation training – Design for Delight (D4D) is a training that develops skills. Lean StartIn’ is also a workshop that pushes for prototypes.
  • Time for experimentation – all employees are encouraged to spend 10% of their time working on a passion project.
  • Dedicated finding – innovators at Intuit have sources and a budget for experimentation. They can also compete for funds.
  • Enabling functions – there are support functions that enable experimentation.
• To promote exploration in your company, build a shared commitment to experimentation and equip people with skills and resources. Encourage workers to design experiments and elaborate plans. Remove barriers and have a system that supports ideas and innovation. Get rid of the risk of personal consequences if something goes wrong, and hold leaders responsible for promoting and mentoring experimentation.

Chapter 13: The Power of Paradox

• Most trade-offs are a product of limited time. Or they’re contradictory – a paradox. But paradox is the “pathos of intellectual life” (p. 287).
  • Certainty vs uncertainty, left vs right, mercy vs justice, these are all necessary contradicting viewpoints that allow progress and innovation. In the same manner, paradoxical and competing priorities are common in organizations, the most important being the explore-exploit dilemma.
• “James March, [an] organizational theorist and Nobel 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.’ [Yet] evidence suggests that few organizations get this right” (p. 292).

Humanocracy (p. 294)

• The authors argue that bureaucrats aren’t oblivious to the tradeoffs presented in the table above but tend to favor those elements on the right of the spectrum. They also dislike ambiguity, which leads to black-and-white thinking. While in some cases that might be true, most often it is not.
  • As an example, a while ago, it was thought that cost and quality were mutually exclusive (e.g., hand-matched hides for car seats should require a price premium). But Japanese carmakers defeated this line of thought, gaining competitive advantage, shifting outward the ‘efficient frontier’ of the industry by delivering better quality at a competitive cost .
• Handelsbanken, Europe’s most profitable bank, masters growth without blowing up balance sheets and manages costs without depersonalizing customer care. To do so, Jan Wallander, Handelsbanken’s CEO, got rid of over-centralization.
  • He froze certain positions and reduced the number of staff per department. The organization also reduced itself to three levels (headquarters, regional offices, and local branches).
  • With these changes, local branches gained autonomy. Branch-level employees got staffing decisions and were given the freedom to serve clients based on their needs and employees’ knowledge of each of the branch’s needs.
  • Localization was the key as it helped capture and integrate nonstandard information into the lending process, enabled smarter credit decisions, and allowed better forewarning of defaults that would be risky. With centralization, the bank also reduced systemic risk.
• Among the most fundamental trade-offs for Handelsbanken was the paradox between freedom and control. People need the freedom to innovate, but they also need rigor and discipline. To manage this tradeoff, one must distinguish between “what” (the ends) and “how” (the means). E.g., Kindle, Amazon reinvented the “how” of reading.
• Handelsbanken reinvented the “how” of control. Autonomy and accountability aren’t mutually exclusive.
  • Autonomy doesn’t mean being free of performance pressure. With consistent underperformance, branch managers can get replaced.
  • Another strategy the bank employed is transparency. Problems aren’t hidden behind management, so problems can be addressed. And knowing about other branches also incentivizes healthy competition.
  • Ultimately, those who have a significant stake will work hard.
• There are three main strategies to cope with paradoxes:
  1. Being open and honest about one-sided trade-offs.
  2. Training and equipping frontline employees to make smart trade-offs.
  3. Reinventing the “how” of control.
• To get started on building an organization that masters paradoxes, be honest about implicit biases and challenge yourself and others to get better data on the hidden costs of default trade-offs. Try not to standardize or accept either/or scenarios. Work systematically to equip people to make smart decisions.

Part IV – The Path to Humanocracy: How Do We Get There?

Chapter 14: Michelin: First Steps

• To begin the journey to humanocracy, your approach must “encourage radical thinking, redefine the interests of the powerful, be difficult to reverse, deliver superior business results, and maintain operational integrity” (p. 317).
• Michelin provides lessons on how to get started. Through what they termed responsibilization, they have been working to increase the authority and accountability of frontline staff by way of decentralization.
  • Bertrand Ballarin was a particularly vocal manager at a Shanghai plant. By focusing on the social factor of management, he built a shared purpose, improved skills, and provided more freedom among his workers. Eventually, he became head of industrial relations and investigated human motivation and engagement.
  • He realized that the notion that people would exert effort only if closely supervised wasn’t accurate, and he started making changes. In 2012 he developed MAPP (a French acronym for “autonomous management of performance and progress”) with seven key tenets:
    1. Participation would be voluntary (volunteers would be called demonstrators).
    2. Frontline teams would take the lead in discovering new operating ways autonomously.
    3. Demonstrator teams would be performers drawn from different geographies and product groups.
    4. Teams would be encouraged to focus on their efforts.
    5. Teams would be given a full year to run experiments.
    6. Demonstrators would be expected to deliver on operational commitments.
    7. There would be no management interference.
• Demonstrator teams brought promising results, which sparked a higher aim. Ballarin wanted to test responsibilization at the plant level. This time, six factories from around the world were given five years to develop plans to solve issues pertinent to their plants.
  • A team at Olsztyn, Poland identified “trust” as the key word for its experiments.
  • In the test plants, team members began playing more significant roles in areas like safety, quality, and scheduling. Operators started participating in top-level planning meetings.
  • In Homburg, Germany, support functions in maintenance, quality, and engineering created training programs for operators.
  • Eventually, with greater autonomy in the plants, managers had to redefine their roles. They were able to focus on higher-value-added work, such as building team skills and resource planning.
• The plants’ results gave responsibilization more credibility for twelve more plants to join. By 2018, a major reorganization happened, and CEO Florent Ménégaux declared that such a degree of empowerment would now be the hallmark of the company.

Chapter 15: Start Here

• Even if you are not a manager or senior leader, you can impact your organization. The first step is to change yourself. What you believe in will impact the way you act. So, to learn new ways, you have to unlearn old ones.
• To detoxify yourself from bureaucracy, the authors refer to an Alcoholics Anonymous principle.
  • Ask yourself, how has bureaucracy made you less human? Did you undermine a rival? Did you hold on to power when you should have shared it? Did you sacrifice any values?
  • Pages 342 and 343 offer twelve questions that the authors recommend you answer weekly as regular check-ins. You can share them with your team and ask for feedback as well.
• Humanocracy requires sacrifice. Leaders need to empower others. To syndicate the work of management to your team, consider the following strategies:
  • Setting Direction
    • Have your team define your mission and impact.
    • Hold monthly meetings to discuss corporate-level strategies.
    • Ask your team to define priorities and milestones, and develop budgets.
  • Building Skills
    • Ask teams what areas require skill building.
    • Have teams develop personal development plans and a corresponding budget.
    • Support them in the process.
  • Coordinating with Other Teams
    • Send team members to senior-level meetings.
    • Give teams the opportunity to work with other teams.
    • Facilitate job rotation.
  • Organizing Work
    • Give your team the authority to reassign roles.
    • Invite team members to craft their job descriptions.
    • Ask them to set goals and corresponding implementation programs.
  • Driving Team Results
    • Have your team organize meetings about performance.
    • Challenge them to develop, test, and improve ideas.
    • ost monthly innovation sessions.
  • Managing Performance
    • Ask members to suggest performance targets.
    • Facilitate peer-to-peer feedback.
    • Invite teams to develop initiatives that help monitor the health of the team.
  • Sharing Information
    • Host quarterly discussions where team members can interact with customers.
    • Provide financial and operational information that may help them.
    • Help frontline members better understand the strategies used for organizational effectiveness and have them judge it.
• You will require constant experimentation. It will take a while to find the best processes. The authors propose the idea of “hacking” humanocracy and present five beliefs that define a hacker:
  1. The world is full of fascinating problems to be solved.
  2. No problem should ever need to be solved twice.
  3. Boredom and drudgery are evil.
  4. Freedom is good.
  5. Attitude is no substitute for competence.
• The Hawthorne Experiments of the 1920 and early 1930s set the foundation for the human relations movement. In trying to define the role of lighting in work efficiency, two groups were put in test rooms to measure their output level as lighting was increased or decreased. Surprisingly, they found that both groups improved relative to the rest of the plant, showing that attention was enough to improve performance. The authors present this study as the first attempt at hacking work.
• To develop your own hack, organize a daylong management meeting with your team. Have members fill out the Bureaucratic Mass Index survey and use it as context. Then, ask them to identify bureaucratic problems that are the most costly to the organization (i.e., policies that undermine resilience, innovation, and engagement).
  • Then, give groups the opportunity to come up with a solution. Have them present their hacks and then, as a group, select the few best ones. After choosing one or two, develop an experimental design to test hypotheses.
  • Keep it simple and make sure you test the hypothesis. Use volunteers. Make it fun. Start in your own backyard to minimize asking permission that you might need as much as possible. Refine and retest. And stay loyal.
  • For more help building your hack, visit humanocracy.com/hack

Chapter 16: Scale It Up

• De-bureaucratizing yourself through experimentation is a good starting point, but eventually, you will “need to mobilize your entire organization around the challenge of building a humanocracy. To do that, you’re going to need to think like an activist” (p. 362).
• Five ways to propel impact include:
  1. Credibility. People tend to be skeptical about these matters, so make sure to act and build a reputation as a humanocracy endorser before enrolling others.
  2. Courage. You will need to be brave to stand up to bureaucracy.
  3. Contrarian thinking. Find ideas from other domains and challenge assumptions.
  4. Compassion. People are also cynical. They might ask you, “What’s in it for me?” Be compassionate and they’ll notice. This will make it more likely that they trust you.
  5. Connections. Build a community. Find peers and colleagues that might support you to reduce the likelihood that your boss will say no.
• From the UK NHS’s Change Day initiative, the authors extrapolate seven key lessons:
  • “People are willing to change for things that are worth it
  • Getting change started doesn’t have to be complicated
  • An invitation is more compelling than a mandate
  • Activists don’t wait to ask for permission
  • Technology can be a powerful accelerator
  • There’s no limit to the impact you can have
  • You have a choice: moan or mobilize” (p. 367)
• The first step in organizing a movement within your organization is creating awareness and spreading positivity. To do so, share the Bureaucracy Mass Index survey through social media, start an online discussion to identify processes and policies that need change, share a list of bureaucratic behaviors, or post the humanocracy principles in your social media.
• These efforts alone won’t lead to change as they don’t lead to action per se. They help in energizing people. After rousing people, host a hackathon.
• Building a humanocracy requires a shift in how we understand the constructs of “leadership” and “change.”
  • Leadership
    • The idea of leadership in a bureaucratic organization is the result of a 1980s movement where companies and business schools wanted to upgrade the idea of management. With it, training programs started to focus on leadership skills while still teaching administrative skills.
    • Leadership development is also stalled because of elitism – the idea that people can’t think beyond their given role. Thus, leadership teams are usually people atop the pyramid in a hierarchical approach to organizations.
    • Leadership should be about activating a community. Leaders should be activists and hackers.
  • Change
    • Traditional change models are slow and antagonizing. They assign the role of change to senior managers, and their work spawns often complex top-down programs that take too long to occur.
    • In a bureaucracy, programs rarely redistribute power, shrink corporate functions, reduce layers, or shift rules. And, centrally driven change tends to be uniformly applied but crafted with little input from those on the front lines. This results in change that doesn’t improve jobs.
    • Research suggests that 75% of all programs that seek change fail to meet their objectives. “To eliminate the bureaucratic lags between sense and respond, the responsibility for change must be broadly syndicated” (p. 380).
    • To implement humanocracy, organizations need to support dozens of management experiments happening in parallel. These experiments should be treated as hacks.
    • An open platform can help in this process as it activates pro-change coalitions that are big enough to counter the effect of those who may stall the process because they feel threatened.
    • When trying to make a change in anything that is systemic, the process needs to be open to everyone, informed by new and clear principles, generative, peer regulated, experimental (meaning, open to failure), and inescapable.
• “Across the world, organizations are disabled by bureaucracy—they are inertial, incremental, and inhuman. […] They squander imagination, suppress initiative, and bungle the future” (p. 384). People have little opportunity for growth, limiting the organization as well.
• Embracing humanocracy will allow organizations to become resilient, creative, and passion-filled, as they free human spirits. This will result in people who enjoy their jobs and will become innovative. With this shift, opportunities for growth and innovation and progress will flourish.