by Aaron Dignan
In order to keep these established companies growing in perpetuity, we need a steady stream of startups for them to acquire someday. Which is why it’s distressing to learn that the firm entry rate—the number of startups less than one year old as a share of all firms—was cut in half between 1978 and 2011 in the United States. Self-employment among people aged 15 through 34 has been declining since 1990. Even scarier, the firm exit rate—the number of business deaths as a share of all firms—crossed the entry rate in 2008 for the first time since researchers started tracking this data. While it may feel like we’re living in an entrepreneurial boom, the reality is more complex.
As a result of both M&A and entry/exit rates, established firms are becoming a bigger and bigger part of the economy. A recent report from the Brookings Institution showed that the share of firms aged sixteen years or older went from 23 percent in 1992 to 34 percent in 2011. That’s roughly a 50 percent increase in the space of two decades. Which would be fine, if we did our best work in large organizations. But that doesn’t seem to be the case. Among firms that pursue patents aggressively, small businesses produce sixteen times more patents than their bigger brethren. Innovation, it would seem, is somewhat scale dependent.
Surprisingly, labor productivity growth—the increase in the amount of goods and services produced by one hour of work—is also facing headwinds. This metric, perhaps more than any other, has always been an indicator of how fast our quality of life was improving. For much of the twentieth century it was steady. But labor productivity growth over the last decade has been crawling along at the lowest rate since the end of World War II. Occasionally now it even comes to a complete stop. In 2016 it was actually negative. This is so perplexing that economists can’t even agree on why it’s happening. With all the technological innovation of the last ten years, shouldn’t we be getting vastly more productive? It’s almost as if some other force is counteracting all those gains.
While labor productivity may not be growing as fast as it used to, it is certainly higher today than ever before. Between 1973 and 2016 net productivity rose by 73.7 percent. What do you think happened to wages over that same time frame? If you guessed that they were stagnant, you’re catching on. Wages were up just 12.5 percent over those same forty-three years, meaning that productivity has outpaced pay by 5.9x. Meanwhile, the ratio of pay between the CEO and the average worker went from 22.3:1 to 271:1. Move along, folks, nothing to see here.
It seems likely that our economy is demonstrating what systems designers call graceful degradation. It’s functional even as parts of the system are failing us. This failure isn’t catastrophic. Not yet. But there are signs that the mindsets, structures, and incentives present in our economy are faulty. In their haste to satisfy the market, organizations are becoming bigger, less efficient, and less human-centric. But the market is us. We’re doing this to ourselves. And in the midst of that dysfunctional feedback loop, we have an obligation to stop and ask if this is really the best we can do.
EVOLUTIONARY ORGANIZATIONS
The antidote to the diminishing returns of the status quo is to think differently. Imagine fourteen thousand healthcare workers managed by a headquarters of fewer than fifty people. How on Earth is this possible? It’s actually quite simple. Don’t manage them. Jos de Blok was fed up with bureaucracy long before he founded Buurtzorg, a neighborhood nursing company based in the Netherlands. In his country it was common for care providers to pay visits to patients at home, particularly those in need of end-of-life care. But much like the rest of the healthcare industry, these services had become soulless and productized. Personal care was out of the question. Some patients saw as many as 150 different nurses in a year. Nurses were treated as automatons to be deployed, measured, and managed for maximum efficiency. And yet, ironically, costs were up and quality was down. The nurses hated it. Patients did too.
To put things right, de Blok set out to build an organization where nurses could pursue their calling to help others unencumbered. That meant completely reinventing the way care was delivered. At Buurtzorg, each community is served by a self-managed team of ten to twelve nurses who have the freedom to care for their patients as they see fit, with the goal of “helping home-based patients become healthy and autonomous.” These teams are responsible for the complete end-to-end delivery of care, and they take that duty seriously. Their very first interaction with a patient is often a conversation over a cup of coffee—to get to know the patient, their needs, their support system—so that they can develop a care plan using everything at their disposal (including family members, friends, and neighbors) to improve the patient’s health. A nurse might administer medication one moment and then engage the patient’s neighbors about the patient’s progress and needs the next. It’s a completely empowering experience for the nurses (and the patients), which is why it’s no surprise Buurtzorg is routinely named the best place to work in the Netherlands.
How does this approach compare with the traditional, financially motivated model? You might assume it’s more expensive, the luxury of a quasi-socialist economy. It’s just the opposite. Buurtzorg uses less than 40 percent of doctor-prescribed hours and saves the Dutch social security system hundreds of millions of euros every year. In fact, according to Ernst & Young, delivering care in this new way resulted in a 20–30 percent reduction in per-patient costs. Not only is it financially efficient, but it’s structurally efficient as well. The firm generates more than €350 million every year, with just six financial administrators and no CFO. Since delivery of care is owned by decentralized teams, Buurtzorg has been able to avoid the seemingly inevitable bloat of bureaucratic leaders and functions for more than ten years.
Stories like this seem almost unbelievable. Yet Buurtzorg is just one of dozens of similar cases—both past and present—that I discovered during my research for this book (view the complete list on page 269). These Evolutionary Organizations have found ways to achieve what conventional wisdom says is impossible. They make better decisions faster. They allocate resources dynamically. They form and disband teams fluidly. They innovate both product and process. They grow without losing the culture they love. They work fewer hours but get more done. They protect the planet but maintain outsized profitability. They create prosperity, not just for their shareholders but for employees, customers, and communities. These organizations have been operating in the shadows for decades. Now a growing dissatisfaction with work has pushed everyone—not just a few iconoclasts—to seek a better way of working.
But curiosity and bravery are two different things. What would possess someone like Jos de Blok to disrupt healthcare (of all industries) with such a radically human approach? He certainly didn’t do it because of the numbers. And he didn’t do it to keep up with his competition. He did it because, in his view, it was the right thing to do. And that highlights what is profoundly different about Buurtzorg’s founder: his mindset. At a very fundamental level, de Blok’s mental models of human motivation, how healthcare works (or doesn’t), and what success looks like are dramatically different from his contemporaries’. And that alternative worldview allows him to see possibilities others cannot. It allows his organization to do things others can only dream of.
We can’t change anything until we get some fresh ideas, until we begin to see things differently.
—James Hillman
As rare as someone like Jos de Blok might be, he is not alone. Evolutionary Organizations may operate in vastly different categories and cultures, yet what I’ve found in talking to them is that these communities all share two crucial mindsets. When it comes to human nature, development, and motivation, they are People Positive. But they also share a deep appreciation for the dynamic and interconnected context in which we operate, a mindset I refer to as Complexity Conscious. Together these provide the scaffolding for a new way of working based on fundamentally different assumptions about people and the world we inhabit. These mental models, a
nd the dynamic tension between them, are central to the work we need to do. So let’s take a moment to understand them better.
PEOPLE POSITIVE
What does it mean to be People Positive? Just ask Jean-François Zobrist, the former CEO of brass auto parts foundry FAVI. When he took the reins of this five-hundred-person firm in 1983, things were pretty bleak. Workers punched in and out on a carefully monitored time clock. Arrive five minutes late and five minutes’ salary would be deducted from your pay. In the summer, workers toiled in sweltering heat with the windows closed to earn a “heat premium” for keeping the temperature high. And even getting a new pair of work gloves was a laborious process. Employees had to get a voucher from their boss, walk to the warehouse, wait around for someone to help them, exchange the voucher for what they needed, and head back to work. The cost of their downtime far exceeded the cost of the gloves.
Zobrist believed that if you trust people, they will do the right thing. So he tried something radical. “I came in the day after I became CEO, and gathered the people. I told them, ‘Tomorrow when you come to work, you do not work for me or for a boss. You work for your customer. I don’t pay you. They do. Every customer has its own factory now. You do what is needed for the customer.’”
FAVI organized itself into a dozen or more “minifactories” that operate as they see fit. No time clocks. No quotas. No management. Just a commitment to doing what is right for the customer and one another. Now a worker at FAVI can buy a whole new piece of equipment without a voucher. And the results are impressive. They’ve actually managed to reduce prices by an average of 3 percent per year. And they haven’t shipped a late order in more than twenty-five years. Why? Because teams at FAVI have end-to-end control and responsibility for what happens on their watch. On-time delivery isn’t a goal; it’s a social expectation. Beyond that, workers aren’t incentivized by local performance indicators that might pit them against one another. They simply get a share of the total profits of the firm. Because of this, in a good year, workers will make the equivalent of sixteen months of salary. It all adds up. While their competitors have long since outsourced their factories to China, FAVI is the one European holdout in its space, with roughly 50 percent market share. Today FAVI exports to China.
What this story illustrates is that our way of working is a reflection of our assumptions and beliefs about human nature. Are we trustworthy or undependable? Are we lazy or industrious? Can we self-manage or must we be controlled? Human behavior, development, and motivation have been subjects of fascination for ages. But in the last century two contradictory schools of thought have collided in the battle for our working lives.
The dominant view, the one held by Legacy Organizations the world over, paints a mechanistic picture of who we are—conditioned by rewards and punishments, our futures dictated by our pasts. This mindset assumes that we don’t really want to work or learn without an incentive to do so. Ergo, we must be coerced and controlled in the service of organizations and society.
There may be said to be two classes of people in the world; those who constantly divide the people of the world into two classes, and those who do not.
—Robert Benchley
The minority view, the one held by FAVI, Buurtzorg, and Evolutionary Organizations everywhere, contends that we have an innate desire to fulfill our potential and self-actualize. Rooted in the work of psychologists such as Abraham Maslow and Carl Rogers, this view maintains that people are naturally motivated and capable of self-direction. That we are worthy of trust and respect. And importantly, that we are all chameleons, capable of suppressing or distorting our true nature depending on our environment and social context. Ultimately, the People Positive leader believes that when it comes to human beings, we show up the way we are expected to show up—the way we are treated.
Had you met Douglas McGregor in his office at MIT in the early 1960s, he might have pulled you into his office to explore this dichotomy, asking which of these two statements best described you:
X) I dislike work and will avoid it if I can.
Y) I find work to be natural and fulfilling.
If you’re like me, you’d probably choose Y. After all, given the right conditions, you do find work meaningful and satisfying.
But then he might ask you which one best describes factory workers, fast food employees, or your colleagues. If you answered truthfully, here you might choose X. I mean, just look at their behavior, right? But not so fast.
In 1960 McGregor published The Human Side of Enterprise, in which he introduced two theories about human behavior and motivation that he called Theory X and Theory Y. In his view, each theory was built upon a set of assumptions about human nature, that, if acted upon, would lead to very different management styles.
Theory X reflected the dominant assumptions of his day:
The average human being has an inherent dislike of work and will avoid it if he can.
Because of this human characteristic of dislike of work, most people must be coerced, controlled, directed, threatened with punishment to get them to put forth adequate effort toward the achievement of organizational objectives.
The average human being prefers to be directed, wishes to avoid responsibility, has relatively little ambition, wants security above all.
Considering the modern world of work, the assumptions of Theory X still feel remarkably present. Our job description tells us what to do. Our manager tells us how to do it. Our office hours tell us when to come to work. Our meeting invites tell us which conversations we can participate in. Our performance review tells us how to learn and grow. They all smack of distrust that stems from the simple belief that we’re incapable of taking responsibility for our own contribution and development. McGregor saw this belief in the “mediocrity of the masses” as inherently limiting. No matter how well intentioned, Theory X management practices, in his view, would always lead to suboptimal performance.
Theory Y reflected an alternative motivation theory:
The expenditure of physical and mental effort in work is as natural as play or rest.
External control and the threat of punishment are not the only means for bringing about effort toward organizational objectives. Man will exercise self-direction and self-control in the service of objectives to which he is committed.
Commitment to objectives is a function of the rewards [in terms of ego and self-actualization] associated with their achievement.
The average human being learns, under proper conditions, not only to accept but to seek responsibility.
The capacity to exercise a relatively high degree of imagination, ingenuity, and creativity in the solutions of organizational problems is widely, not narrowly, distributed in the population.
Under the conditions of modern industrial life, the intellectual potentialities of the average human being are only partially utilized.
These two lists force us to confront a cognitive bias that we hold about our exceptionality. As individuals, we each identify with Theory Y. I want to achieve great things. I am creative. I am responsible. But what about everyone else . . . our colleagues? It’s much easier to label them as Theory X. While we have direct access to our own thoughts and feelings, we have no such window into the minds of other people. We have to judge them purely by their behavior, and their behavior is shaped (at least in part) by their environment. If you place someone in a workplace that pays them by the hour, scrutinizes their every move, and treats them like they are disposable, they may (gasp) present with Theory X behavior. So we live with the cognitive dissonance that we are (somehow) capable and others are not.
Pay attention to the conversations happening in your office. What kind of language is used to describe people and teams? If you hear words such as “incentivize . . . control . . . enforce . . .” and phrases such as “they can’t handl
e . . . they don’t need to know . . . they don’t get it . . . ,” chances are Theory X is driving a lot of the decision making in your organization, albeit unintentionally. Notice this and call it out. Ask yourself and your peers, “Does how we talk reflect what we actually believe about people?”
McGregor’s message may have been ahead of his time, but his work found new life and empirical support in the decades that followed. In the early 1970s, research psychologist Edward Deci began to turn the field of human motivation on its head. He asked students in one early experiment to solve a puzzle cube. One group was paid for every solution they discovered; another was not. When participants were offered a break and left alone, the paid students kept working at the puzzle longer than the unpaid group. But when the reward was later removed, these students were less motivated to work on the puzzle during their breaks, even compared to the students who had been unpaid the whole time. Something about the reward had disrupted their intrinsic motivation. Yet in a variation of the study, verbal praise in place of a financial reward actually had the opposite effect, increasing motivation throughout.
Deci went on to create more experiments in this area, culminating in a book called Intrinsic Motivation. This controversial publication caught the eye of graduate student Richard Ryan, who invited the author to lunch. A powerful partnership was born. Over many years of collaboration and study, their groundbreaking work evolved into self-determination theory. They proposed that we have three innate psychological needs that drive and shape our behavior: autonomy, competence, and relatedness. Perhaps the most important among these is autonomy—the ability to make choices and direct our own lives, free from the control of others. It’s so fundamental that Deci and Ryan have routinely referred to intrinsic motivation as “autonomous motivation.” Their theory states that we come into the world naturally curious and ready to explore. We don’t lack motivation to learn and grow; it’s built in. And this innate sense of autonomy can be enhanced or undermined.