Longform Thoughts: Why Organizations Undermine Creativity & Potential

[01:00] Potential: Welcome to The Pathless Path, exploring the human side of work.

[01:05] Paul: I'm your host, Paul Millerd, and I'm fascinated with how we can imagine past the default path to do things that matter to us. I have conversations with entrepreneurs, freelancers, and thinkers who are questioning the role of work in our lives who are thinking about how we can unlock creative potential in ourselves and organizations and are carving new paths in the world to create a more human future of work. For more information, check out BoundlessPod.com. Welcome to the relaunch of the Boundless Podcast. I thought it might make sense to kick off this relaunch in September with a episode I recorded for Patreon subscribers several months ago, which was a complement to a piece I wrote called Crisis at Work, which outlines 6 things that really undermine human performance at work.

This informs a lot of my thinking in the work I do with individuals and also some of the consulting work I do with clients and organizations.

[02:09] Potential: So wanted to launch with this.

[02:12] Paul: You can find the link to the full piece in the show notes. But we have a number of amazing interviews lined up, and those will be coming every Wednesday for the next few months.

[02:25] Potential: So let me know what you think.

[02:26] Paul: If you want to find more information, go to BoundlessPod.com. If you want to support my crazy efforts and unpacking of some of these ideas, you can go to Patreon and become a supporter. So I start the article by laying out the issue, right? Gallup found that only 21% of employees strongly agree that their performance is managed in a way that motivates them to do outstanding work. I start with this because I think the conversation about performance at work often gets confounded with other things like getting promoted, getting paid, and I think it loses the point, right? I think we really need to ground ourselves in what the researchers Deci and Ryan have deemed self-determination theory, which says that people are motivated by autonomy, mastery, and purpose, right?

They are doing work that matters to them, it is connected to a higher goal, and they are working on things that are slightly beyond what they're currently competent at, but make them work towards some level of mastery.

[03:36] Potential: So one of the first points I lay out is that we are defaulting to the wrong goals.

[03:40] Paul: I argue that the idea of shareholder value is a deeply, deeply flawed aim for the modern business world. Digging into the background in this, I think I was actually personally surprised to find this out, but in the early 1900s, there was a debate in the legal world on the purpose of the firm. There was one person, Adolf Berle, who championed the idea of shareholder primacy, which is essentially what we have now. The other was Merrick Dodd, who supported a managerialist stance, as they called it. The managerialist view said that firms should serve not only shareholders, but multiple stakeholders, including employees and the public good. Then, in the legal world, through multiple court decisions, they agreed that this was the view that would take forth and that corporations did not in fact have to legally prioritize shareholders above all stakeholders.

[04:42] Potential: The funny thing about this is that this is still the legal standard.

[04:46] Paul: However, if you ask people, and I've tried this, what do companies have to maximize shareholder value? Most people think the answer is yes. However, that is only the case when a firm is selling itself. So this debate reignited in the 1970s and was really pushed forward by a paper published by William Meckling and Mike Jensen where they really pushed the idea that maximizing shareholder value was actually the best way to improve things for all the stakeholders. I think, in my personal opinion, that this idea really took over because one, we were getting more data, we were getting more ways to analyze numbers. A lot of industries are being financialized.

And two, it's actually just a lot simpler idea to hold in your head, right? Then you're taking care of many different stakeholders. Jeffrey Gordon, a Columbia Law professor, said that in this period, by the end of the 1970s, early 1980s, quote unquote, "The triumph of the shareholder value criterion was nearly complete." So what are the outcomes of this? I looked into some research and it's really driven a lot of focus on short-term performance. And as we've tied compensation of executives to this, it's really led to some unintended side effects. So if I looked at some research and said that— and the research showed that 8 out of 10 financial officers would be willing to sacrifice long-term value to avoid the headaches of missing short-term targets.

Given the fact that we see that executives now see more than 75% of their compensation coming from stock, it is also in their best interest, right? If you're an executive, it would be crazy to give up a sure thing for some unknown future paycheck, right? So we've got a system that rewards short-term performance, and most people are willing to admit that they're going to move their behavior in this way.

[06:53] Potential: So in the second point, we are mistaking authority for performance. And I start this out with the story of Tom Brady, one of my favorite athletes, side point. But after he won his Super Bowl in 2001, what would we have thought if Robert Kraft, the owner of the Patriots, sat down with Brady and said, Tom, you had a fantastic season. We want to see you keep growing in the organization, and we're gonna promote you to general manager. Now, this doesn't make any sense, yet in the corporate world, we call this talent management. So over and over again, we say that if you are successful, you need to get promoted to a higher level in the organization.

What this often does is take people away from the work work that they love, creating, doing the work, interacting with clients, and turns them into managers, a position many people don't want to have. Um, so what happens at this point? One, some people opt out and say, I'm going to go to another firm, just get a slightly higher raise and, uh, keep doing the work I want to be doing. Or two, those manager positions, because they pay more and have more status, attract the type of people that really just want the pay and status and don't really care about, uh, people and their performance. So what needs to happen in organizations? In organizations, we need to rethink where the value is in the organization.

We are so tied to pay more for higher in the hierarchy that we don't really know how to do this. Uh, Google actually was able to flip this paradigm. A few years ago, they did some research just trying to assess like what were the performance levels of their people in their technology organization. And what they found was that performance is not a normal distribution. Performance actually follows the power law. And there's research, if you look in the article, I linked to this, but research showing that this applies to many different domains, music, athletes, different things like that, where the highest performers are not performing just slightly better than the average performers.

They're dramatically outperforming, maybe up to 10x more than the average performer. So we need to change our paradigm in organizations such that when people are doing exceptional work, we're not telling them, well, you should try and change who you are and be— get promoted. But instead, hey, we're just going to pay you a ton more for the incredible quality that you deliver. So who does this affect? I think a lot of times we read about this kind of paradigm holding back women, but it actually holds back men and women alike. McKinsey's Women in the Workplace survey in 2016 laid this out, and they found that only 40% of women and 56% of men had any ambition to become a top executive in a company.

If we are basing our metrics on success and obtaining these powerful positions, why don't more people actually want this power? My hypothesis is that the climb is exhausting, right? As companies have become more complex, the range of functional expertise and skills has expanded, which means more people need to basically check the box for an impossible set of requirements. At the CEO level, I've seen this in some of my own work, the demands are even more extreme with that, them having to be highly skilled in investor relations, operations, strategy, community relations, politics. Oh, and also being the chief inspirational officer for the organization. So who do these jobs attract?

Research has shown that it attracts an above-average rate of narcissists and psychopaths. Not good. We need to develop new ways of thinking about what does success mean in the business world? How do we value talent? And how can we disaggregate that from rank or hierarchy? Key in an organization.

The third point is that most organizations, although they say they have mission and purpose, don't really provide a real connection to people around purpose. People crave this. In today's world, the only things we really seem to have alignment on are 100 million people having Amazon Prime subscriptions. That's more people that volunteer and more people that go to church. People are looking to work more and more for this meaning and purpose. Work, for the most part, is not delivering on it.

I think there's probably a deeper discussion here of should work provide that, but for all purposes of this article I've written, let's just focus on what the organizations can do. I talk about two organizations and their mission statements. One is, this company was founded in 2002 to revolutionize space technology with the ultimate goal of enabling people to live on other planets. Compare that to mission number 2, again both real companies, to be a leader in the distribution and merchandising of food, pharmacy, health, and personal care items, seasonal merchandise, and related products and services. Now which company would you want to work for? I think what a powerful purpose and clear mission does is one, it sets goals that are almost beyond reach and self-selects for the type of people that are actually interested in pursuing such crazy goals.

If we look at that second mission, it's Kroger, and that first mission is SpaceX. SpaceX has a clear mission and is going to select for the type of people that want that. If we look at employee motivation, there's a concept called goal commitment, and that's one's commitment and their motivation is directly related to how important or significant they felt the goal was. I'm guessing most people at Kroger are not that personally inspired by to be distribution and merchandising leaders, whereas SpaceX successfully selects new hires based on its bold, bold mission. We really need to think about next time we're creating mission or purpose statements, is this something that a small amount of people are going to be incredibly fired up by.

My fourth topic is the header, "We Don't Understand How Organizations Operate." And this is an exploration of chaos theory and our ideas of how organizations really operate. So everyone who's gone to business school learns about business ideas like Frederick Taylor and his influence back, I think it was in the early 1900s, but his idea was looking at organizations and saying there's a lot of inefficiency and waste and bureaucracy. This means that business leaders should spend their time working on standardized processing, removing waste, and fine-tuning plans for the organization. This also goes with a concept from McGregor called Theory X versus Theory Y. And this goes with the Theory X view of the worker, of one that is not internally motivated and needs to be controlled, managed, and told what to do.

Now, most modern business thinkers rarely accept that we should take Taylorism or this scientific management to its extreme, but We just reinforce similar concepts but with new and better buzzwords, right? Paying for performance, Six Sigma, process re-engineering. And we still operate on those same fundamental assumptions that we need to remove waste, we need to become more efficient, we need to get a better process, right? What if an increase in control of the organization actually is going to lead to more instability in the organization? And this is the conclusion of what researchers who study chaos theory might say about organizations and pursuing those aims. So in the 1970s and 1980s, new research began to emerge around what, what people were starting to call chaos theory.

Scientists were looking at complex dynamic systems and trying to understand how do they actually emerge, how do they evolve, and how do they exist. The first concepts it got applied to was nature, looking at how organisms grow in nature, how weather changes, and then they began applying these concepts to many fields like finance, biology, economics, and eventually organizations. So what does chaos theory mean for organizations? One of the fundamental tenets of chaos theory is that the fact that small changes in the organization have the potential to have big effects within the system, whereas the large changes are less likely to shift the underlying order of the system. So if we apply this to organizations, this would say that like central planning, organizational strategy is not likely to actually lead to big changes in a company.

And I think this would resonate with many people's personal experience of existing in an organization. And it says that what matters is the interactions between people and how you design those interactions. Unfortunately, this doesn't go well with people who want order, right? We promote and hire people who are able to, at least on the surface, seem to promote order. Fine-tuned processes, but complex systems are unpredictable and hard to control. So if we assume a certain unpredictable, unpredictability in individual actions, it makes a lot of modern management practices look not very smart.

Professor Gary Grobman summarized the implication for organizations and managers quite Simply, and I quote, complexity theory suggests that organizational managers promote bringing their organizations to the edge of chaos rather than troubleshooting, to trust workers to self-organize to solve problems, to encourage rather than banish informal communication networks, to go with the flow rather than script procedures, to build in some redundancy and slack resources, and to induce a healthy level of tension and anxiety in the organization to promote creativity and maximize organizational effectiveness. Wow, so that pretty much undermines everything I learned in business school. Can you imagine a class titled Going with the Flow: How to Relax and Trust Your People? That was the idea I came up with, and I don't imagine most schools would offer that. Maybe I'll have to start a class on Udemy.

Our leadership pipelines, as we discussed earlier, are promoting and hiring the people that want that power, think there's a lot of importance in terms of planning, controlling, strategizing. And it's also filled with a pipeline of people that think they need to do something, right? We don't send people to business school and then hire them into high-performing companies and say, like, OK, just relax. Trust your people. Create experiments. Empower the frontline people.

Don't work too hard, right? A lot of the people that succeed in organizations are the ones that need to show, hey, I'm really busy. I'm really devoted to this organization. Not that they're pushing a lot of autonomy and empowerment on their people and saying, yeah, I'm just going to let them figure it out. I'm trying a bunch of experiments. That person's is not going to succeed in a modern organization.

So we can create plan after plan, but all we're doing is driving our people crazy, and as chaos theory researchers would say, fighting against the fundamental laws of nature. So fifth is we're not giving people autonomy. This builds on the previous topic of chaos theory. Which says that is probably one of the most important things you can do is give people autonomy and let them fail, right? But for most employees working in a large organization means being on the receiving end of a continuous barrage of new initiatives, decisions, and processes. Middle managers experience the result of these changes but often play little or no role in making the decisions.

So it's no surprise that frontline managers responsible for carrying out the wishes of senior executives are 16% less engaged than those executives, according to Gallup. So the cost of this disconnect— we're saying the top people in the organization should make the decisions and people at the bottom have no control— is a breakdown of trust. If we look at some of Edelman's research into this, they have something called the Trust Barometer, which measures the different level of trust in different institution Globally, looking at the different levels of the organization, Edelman found that trust in a firm increased the higher you went in the organization, right? This builds on the previous point and data point I showed you guys. And most senior-level executives have the most amount of trust in organizations. So what's the disconnect?

Daniel Pink has done a ton of research on this. He's got an incredible TED Talk on what drives motivation and human performance. And one of the things he talks about in addition to mastery and purpose is autonomy, which is the sense of control over one's work. Higher rates of autonomy are clearly correlated with higher rates of engagement and productivity. So there are companies which fully embrace this. Companies like Costco, Trader Joe's, Zappos.com, and Atlassian.

They're famous for their efforts to give more autonomy. And what's the payoff? Companies dramatically outperform in terms of financial performance and long-term market success. So trust is often hidden, right? How do you actually create trust in a company? But it has a powerful impact on people.

I talked to a friend recently who was talking about a perk at his company, and he said, my favorite thing at this company is what the beer keg represents, right? They have a beer keg in the kitchen and they can have it whenever they want, right? There's no specific rules, there's no policies. He said, he goes on, it's not that we have free beer in the kitchen, that's secondary. It's the implication that management actually trusts us to be able to handle ourselves like adults. So this is the second company this friend was working at and he was blown away.

Like, why should this be a surprise that we should actually trust people to be adults? So what, what are examples of organizations that embrace this? Like, how do you transcend some of the insecurity and control? Like, you don't want people to just go off the rails and fail all the time, right? So Amazon is a company that actually has a principle to overcome some of this disconnect in the organization. And Jeff Bezos, if you read their two 2016 letter to shareholders, he talks about this principle, right?

And they call it disagree and commit. In his letter, he goes, I disagree and commit all the time. We recently greenlit a particular Amazon Studios original. I told the team my view— debatable whether it'd be interesting enough, complicated to produce, and business films aren't that good, and we have a lot of other opportunities. Looking back, he said, "Given that this team has already brought home 11 Emmys, 6 Golden Globes, and 3 Oscars, I'm just glad they let me in the room at all." So at most organizations, you'd have to imagine if a CEO expresses doubts that this project is going to be killed. And there's actually a phenomenon in organizations where you can have 11 people in a room and one person disagrees, and that can kill the whole product.

The whole project. So I love this idea of disagree and commit, right? It can transcend this lack of trust because it's so easy to kill a project. All you need to raise is one objection. But disagree and commit says we need these experiments, we need to trust people, we need to let them do things on their own and have the responsibility for their success and for their failure. Another great example is a company called Basecamp, which is a fascinating company.

Definitely encourage you to read more about them, but they're a company that offers a no red tape expense account. That's right. No preapproval, no limits. Just be reasonable. That's a direct quote from their policy. Organizations like this place value on autonomy over authority and trust over rules.

In addition to the savings from the accountants that would, they would need to monitor a more formal policy, companies that put trust in their people are unlocking enormous human potential. So next time you're thinking about implementing a new policy or regulation or rule at your company, think instead, what would it cost us to just trust people? Finally, the sixth point is we're choosing comfort over growth. And this looks at how individuals look at employment. In 2016, Aon found that 8% of the workforce disliked their job but had no intention of doing anything about it. And despite conventional wisdom, today's millennials are job hopping less than previous generations, despite what people think, right?

So looking at the American system, our system of employment is very unique in that it ties having a job to the security of many benefits such as healthcare and life insurance. So this increases a lot of pressure and anxiety people have around job security. If you look at some of the research Tyler Cowen has done around this, he says that we have a complacency problem. We actually need more dynamism. We need more people experimenting, more people leaving their jobs. And why don't people do this, right?

So many people stay in suboptimal situations or jobs. Seth Godin's been fascinated with this, and he frames it in a way that I love. He frames it in the concepts of safety and comfort. So we have an inherent drive towards safety in the sense of not being harmed, but we, when we default to a comfort zone, we may feel unsafe anytime we step out of it. When really we're safe, when we're just feeling uncomfortable. Making decisions that keep us in our comfort zone can hurt our career more than taking risks.

As Godin said, the riskiest thing you can do is play it safe. So a story I love is Jim Cook, who started the Boston Beer Company. However, he never would have started this company if he ever wasn't able to overcome this comfort he experienced. He felt safe and comfortable, but he had to fight against that to do what he really wanted to do. He was working at Boston Consulting Group and really crushing it. He worked there for 6 years and he said it was a great job.

He actually liked what he did. However, he reflected and said, I asked myself, do I want to do this for the rest of my life? And the answer for him was a clear no. If he didn't want to do it for the rest of his life, he knew that he didn't want to do it tomorrow. So what did he do? He reframed risk in in his mind to help him make the decision.

He said, and I quote, "The risk of it was continuing to do something that didn't make me happy and getting to 65 and looking back and going, 'Oh my God, I wasted my life.' That is the risk. That is the danger." So many people are quite complacent and comfortable with what they're doing. A report from the American Psychological Association found that 69% of people either agree or strongly agree with the statement, "All in all, I am satisfied with my job." However, digging deeper in this same report, you find that people still lack any sense of opportunity. 44% of employees agreed that growth and development opportunities at their company were sufficient. That's not great. So is there hope for the future?

I choose to be optimistic. I've painted a rather bleak picture of today's organizations, yet there are signs for hope. The emergence of new business models in the tech sector, the elevation of people operations to function, and increasing experimentation with new organizational models are, are all tailwinds for the companies that want to work in new ways. However, building the organization of the future is not going to be easy, and conceiving a new way of how we should work, how we should operate, how we should interact with other people is not simple. We must change the way we think about our default metrics for success, cultivate leaders who inspire and trust people, root our businesses in big and challenging goals, and push people to take more risks and choose uncertainty over comfort in their careers. And finally, we need to embrace chaos, right?

What do the chaos researchers say about modern organizations? They say that we're trying to control something that can't be controlled. Today, organizations don't have a choice. As Dan Pink has said, talented people need organizations less than organizations need talented people. So the imperative for organizations is more urgent than ever before.