Reinventing Organizations: From Legacy to Evolutionary

Introduction to Reinventing Organizations

Is your organization prepared for transformation? This is the question posed by Erin Dignan in “Brave New Work,” a thought-provoking exploration into the necessity of transforming traditional organizational structures. This introduction sets the stage for a journey into the challenges and opportunities that come with organizational reinvention.

Many workers today find themselves constrained by outdated bureaucratic processes, hierarchical structures, and the endless cycle of mandatory meetings. These issues are not just minor inconveniences; they are significant barriers to achieving the best work of one’s life. The call to action is clear: to survive and thrive in the global marketplace, organizations must rethink and reinvent the way they operate.

The authors advocate for a shift from old legacy operating systems to new evolutionary ones that are more flexible, open, and human-centered. This transformation is not about implementing a one-size-fits-all solution but about finding a unique path that suits each organization. The content that follows will delve into these themes, offering insights and guidance on how to embark on this transformative journey.

You’ve got to rethink and reinvent the way you work.

The Crisis of Traditional Organizations

During World War II, a special field manual was commissioned by the director of the agency that would later become the CIA. This manual contained guidelines for destabilizing communities and commerce through what was termed “simple sabotage.” The manual suggested actions such as creating complicated bureaucratic systems, avoiding shortcuts, and strictly adhering to regulations to interfere with organizational productivity.

Interestingly, when modern leaders are shown this list, they often laugh, recognizing these behaviors as common in their own workplaces. This highlights a significant issue: “Traditional organizations are in crisis.” What was once considered sabotage in 1944 has become routine in today’s offices.

The problem is not that employees are intentionally sabotaging their companies, but rather that the organizational structures themselves are inherently flawed. These structures encourage behaviors that inadvertently hinder productivity and efficiency.

This crisis manifests in several ways:

1. Decreased Company Lifespan: Companies listed on the S&P 500 used to have an average lifespan of about 60 years. Today, that number has dwindled to approximately 10 years.
2. Reduced Return on Assets: Return on assets, a key performance metric, has significantly declined. In the U.S., it has dropped from nearly 5% in 1965 to just above 1% today.
3. Stagnant Productivity Growth: Despite technological advancements, productivity growth has plateaued. We are not producing more per hour than we were a decade or two ago.

If you ask economists about these struggles, they might be puzzled. However, those working on the ground, dealing with daily challenges, often point to one clear culprit: bureaucracy.

“What amounted to sabotage in nineteen forty four is now just another day in the office.”

Understanding Organizational Debt

Organizational debt is a concept that highlights the burden outdated procedures and policies place on businesses. It refers to the accumulation of processes and structures that no longer serve their intended purpose, often resulting from automatic responses to problems. These measures, initially implemented to address specific issues, can become obsolete and counterproductive over time.

A poignant example of organizational debt can be seen in the case of Favi, an auto parts manufacturer. Unlike many European competitors, Favi has thrived despite the challenges posed by Chinese competition, even exporting to China. However, this success was not always the case. In the past, Favi was weighed down by bureaucratic inefficiencies. For instance, a simple task like replacing worn-out gloves required a worker to navigate a cumbersome process involving managerial approval and multiple steps, taking up to thirty minutes. This inefficiency cost the company significantly more than the price of the gloves themselves.

The origins of organizational debt often lie in well-intentioned attempts to maintain order and prevent issues, such as theft. However, these attempts can lead to a proliferation of self-sabotaging rules and processes that hinder business operations. The urge to fix issues by imposing rules is deeply ingrained, with roots extending over a century. As businesses evolve, it becomes crucial to reassess and eliminate these outdated practices to prevent them from dragging down organizational performance.

“Organizational debt is dragging down businesses.”
“The urge to fix issues by imposing rules goes deep, more than a century deep, in fact.”

Legacy Operating Systems and Their Limitations

Behind every organization, there’s a set of assumptions that underlie and guide how everything is done. These assumptions can be thought of as a sort of organizational operating system. For more than a century, the vast majority of companies have been using an operating system inherited from traditional organizations, often referred to as “legacy OS.” This system encompasses all the structures, norms, and practices that are so prevalent they become nearly invisible, such as managers, budgets, and performance reviews.

The legacy OS is rarely challenged because its popularity is often mistaken for quality. A key assumption of legacy organizations is that managers should think for workers. This assumption has been foundational since the birth of traditional organizations over a hundred years ago.

Historically, factories were not as efficient as they are today. There was no standard instruction manual for workers, and veteran machinists each had their own techniques. Novices learned on the job, adopting the habits of their elders, and the approach to production was artisanal. Workers were often incentivized to work slowly because they were paid per part produced, and producing too many parts could lead to a reduction in their piece rate.

Into this environment came Frederick Winslow Taylor, who revolutionized the world of work by measuring each step in the production process and offering workers a raise if they followed his methods. This led to a loss of employee autonomy in exchange for higher pay, marking the birth of the legacy organization.

In the decades that followed, the assumption that managers do the thinking and workers do the working became enshrined as basic business common sense.

“Legacy organizations assume that managers should think for workers.”

“The legacy organization had been born.”

Complex vs. Complicated Systems

In the realm of organizational theory, understanding the distinction between complex and complicated systems is crucial. Complicated systems, such as automobile engines or playing a Beethoven Sonata, are predictable and can be understood through manuals and rules. In contrast, complex systems, like traffic and weather, are dispositional. They require a deeper understanding of their quirks and behaviors, as they cannot be fully predicted or controlled.

One of the fundamental issues with legacy operating systems (OS) is their treatment of organizations as complicated systems. This approach assumes that with the right rules and scientific understanding, organizational challenges can be solved. However, this is a misconception. Organizations are not complicated systems. They’re complex. People, as complex organisms, form complex systems when they come together, and these systems cannot be “solved” in the traditional sense. Instead, they must be managed.

The analogy of traffic management illustrates this point well. Traffic signals, akin to legacy organizations, are prevalent and familiar but not necessarily the most effective. They operate on the assumption that people need explicit instructions at every turn. On the other hand, roundabouts, which are less common, allow for more autonomy and judgment by drivers, leading to better outcomes in terms of traffic flow and safety.

This comparison highlights the need for a new approach to managing organizations—one that embraces the complexity of human systems. Evolutionary Organizations represent this new paradigm. They function like roundabouts, allowing individuals to navigate complex issues with greater freedom and trust in their judgment, rather than relying on rigid, hierarchical structures and micromanagement.

“Organizations are not complicated systems. They’re complex.”

By rethinking the way we structure and manage organizations, we can create environments that are more adaptable and effective in dealing with the complexities of modern work.

Evolutionary Organizations: A New Paradigm

In the evolving landscape of organizational management, a new paradigm is emerging—one that likens organizations to a roundabout rather than a rigid structure. This shift from legacy habits to evolutionary practices is encapsulated in the concept of evolutionary organizations, which are defined by two key characteristics: being complexity conscious and people positive.

Evolutionary organizations are complexity conscious and people positive.

Characteristics of Evolutionary Organizations

Evolutionary organizations recognize that businesses are complex systems. They are mindful of global complexity and, more specifically, human complexity. This awareness is what it means to be complexity conscious. Additionally, these organizations are people positive, believing that when individuals are empowered in the workplace, they are capable of navigating and managing this complexity effectively.

The Concept of Complexity Consciousness and People Positivity

To be complexity conscious is to understand and embrace the intricate nature of modern business environments. It involves acknowledging the multifaceted challenges that arise and preparing to address them with a nuanced approach. Being people positive, on the other hand, involves fostering an environment where employees are trusted and encouraged to take initiative, thereby enhancing their ability to contribute meaningfully to the organization.

Case Study: USS Santa Fe’s Transformation

A compelling example of these principles in action is the transformation of the USS Santa Fe under the command of David Marquette. Initially, the USS Santa Fe was an underperforming nuclear submarine, ranking poorly within the fleet. However, Marquette’s leadership, which emphasized decentralizing control and empowering his crew, led to a remarkable turnaround. By sharing his vision rather than issuing direct commands, Marquette encouraged his crew to think independently and take responsibility for their actions.

He decentralized control, making it possible for his crew to devise quick solutions to complex problems. This approach not only improved the submarine’s performance but also fostered a culture of ownership and innovation among the crew.

The Importance of Decentralizing Control and Empowering Employees

The success of the USS Santa Fe highlights the importance of decentralizing control within an organization. By empowering employees to take ownership of their work and encouraging them to experiment and learn, organizations can become more adaptive and responsive to challenges. This approach aligns with the principles of being complexity conscious and people positive, ultimately leading to a more dynamic and resilient organization.

In conclusion, while there is no one-size-fits-all plan for transitioning from a legacy operating system to an evolutionary one, embracing these principles can guide organizations toward a more flexible and effective future.

Rethinking Structure and Purpose

Reconsider the domains of structure and purpose.

In the evolving landscape of organizational management, rethinking the domains of structure and purpose has become imperative. A notable example is the approach taken by Marquette, a submarine captain, who decided to redefine the domain of authority, yielding surprisingly positive results.

Imagine arriving at work to find your boss encouraging you to write your own job description and set your own salary. This is not a hypothetical scenario at Morningstar, the world’s largest tomato processor. Each year, Morningstar’s 400 employees draft documents outlining their responsibilities, which are then critiqued by their peers. This peer review process replaces traditional top-down directives with community-driven suggestions. Employees can also set their own salaries, subject to peer review. This innovative structure has contributed to Morningstar’s impressive revenue of over $700 million annually, with consistent growth over the past two decades.

Another example of rethinking structure is Burtzorg, a Dutch home care provider. Despite employing 14,000 nurses, Burtzorg operates with a core team of only 50 people. The secret lies in dividing the workforce into self-managing teams of 12, each handling tasks from scheduling to recruitment. This model allows Burtzorg to function like numerous small businesses, all aligned with the common goal of delivering quality, personalized home care.

The domain of purpose is equally crucial. An organization’s purpose should be eudaimonic, fostering human happiness and flourishing. Tesla’s mission to accelerate the world’s transition to sustainable energy is inspirational and eudaimonic, yet it faces the challenge of being too vague for practical application. Facebook, on the other hand, has developed a system to keep its purpose both aspirational and actionable. By evaluating their 30-year vision twice a year and determining actionable steps for the next six months, they maintain a balance between long-term aspirations and immediate actions.

Reevaluating Meetings and Membership

Reconsider the domains of meetings and membership.
The average employee regards about half the meetings he attends as a waste of time.

In the realm of organizational efficiency, meetings and membership are two critical areas that demand reevaluation. A striking example is a team that decided to discontinue their monthly strategy review after realizing it was not only unproductive but also costly, amounting to three million dollars annually. This highlights the need to reconsider the domains of meetings and membership.

The average employee perceives about half of the meetings they attend as a waste of time, attending approximately sixty-two meetings per month. Meetings often serve as a microcosm of the organization, reflecting its broader dynamics. To address inefficiencies, one effective technique is the meeting moratorium, where all meetings are canceled for two weeks. This approach, though seemingly drastic, has proven successful. For instance, a leadership team reduced their meeting hours from forty-five to eighteen per week after implementing a moratorium.

During the moratorium, focus on identifying pain points and determining where meetings are genuinely beneficial. When reintroducing meetings, ensure they have a clear purpose and structure, akin to the organization itself. Meetings lacking these qualities are likely unnecessary.

Membership is another crucial domain. It involves determining who is included in the organization and who is not. This can be assessed through hiring practices. When onboarding new employees, it is essential to align their personality and passions with the company’s mission and environment. However, hiring solely for cultural fit can lead to underperformance over time. Instead, consider hiring for cultural contribution, which can enhance organizational success.

The Continuous Process of Change

In the realm of organizational transformation, change is often misconceived as a linear journey with a clear start and finish. However, this metaphor falls short of capturing the true essence of change. The key takeaway is that change is a never-ending process, not a one-time event. Unlike a sequential journey, change is more akin to the transformative blending of milk into coffee, where the process is fluid and ongoing.

To truly embrace change, organizations must shift away from top-down initiatives and hierarchical decrees. Instead, change should be continuous and participatory, involving everyone in the organization. One effective method to achieve this is through the concept of looping, which consists of three stages: identifying tensions, proposing practices, and conducting experiments. This loop allows for continuous adaptation and improvement, whether on a small team scale or across the entire organization.

For instance, a team might identify a tension where only the loudest voices are heard. By introducing a practice such as a check-in at the start of meetings, where each member shares their mood, the team can experiment with creating a more inclusive environment. If the practice doesn’t resolve the tension, the loop continues with new proposals and experiments.

Ultimately, there is no one-size-fits-all solution, as each organization is a complex system with unique challenges. By keeping this in mind and empowering colleagues to engage in this continuous process, organizations can foster an environment where everyone is on the path to doing their best work.

“If you keep that in mind, however, and empower your colleagues and teammates to do the same, you’ll be well on your way to doing the best work of your life.”