LJD: Robert Phillips wrote a book called Trust Me, PR is Dead. He was the CEO of Edelman in Europe and Asia and despite having a solid track record, stopped believing in PR. It's a great book and it reminded me about some of your thoughts on corporations, Jon.
JH: Yeah, in the business world in particular, there's a shared model for strategic planning, objective setting, and predictability. Corporate performance is typically judged on whether you meet analysts' quarterly earning estimates. That's frankly a hell of a way to run a business.
Shoshana Zuboff wrote a book about ten years ago called The Support Economy: Why Corporations Are Failing the Individual and the Next Episode of Capitalism. In that book she coined the term “managerial capitalism.” Before 1988 there was very little bonus pay for senior managers in an organization. Nowadays, executive compensation has outpaced any other type of compensation. Managerial capitalism means that senior managers of corporations have a significant amount of incentive compensation tied up in stock options. Arguably, an awful lot of senior managers drive company performance to maximize their personal growth. This isn't capitalism—this is managerial capitalism, where you’re driving the rest of the workforce as hard as you can to make your stock options worth as much as possible. It's a really distorted way of looking at work.
LJD: Yeah, it's the point of view of capital as opposed to labor. I agree, it’s a bit of a distortion. Mark, how did you get into ideas of responsiveness and design in organizations?
MR: In 2009 I moved to New York because of a girl, which is the best reason to do anything like that really. I was trying to find where the most interesting conversations and most provocative thoughts were living. A friend in Toronto recommended I connect with this guy Mike in New York who was at a company called Undercurrent that was about two years old. At the time, I was leading a strategic planning and design practice in Toronto. The idea behind Undercurrent, which called itself a digital strategy firm, was that there was no objective counsel for leaders of complex organizations on what the internet was going to mean to them. At the time you had agencies who were simplifying social media and telling you to stick the Facebook logo on your TV ad.
So when I joined Undercurrent it was this place that was doing really interesting strategy work. Clients would come to us with problems related to the shift happening online and we would do strategy work for them. We would work over eight or twelve weeks and then deliver PDFs to clients.
Like most strategy firms, we would see our work sit on a shelf and collect dust while the organization struggled to metabolize and do anything with it. Back in 2011, when I joined Undercurrent, I was handed a spreadsheet of companies that we were tracking that were doing really well, like Google and Facebook.We were trying to figure out why they were doing better. It was the beginning of a shift in the work we were doing from strategy towards operating models. At that time, no one in our group had formal education on organizational development. We were early on in our journey. Our work emerged from the idea of the digital operating system, which later became known as a responsive operating system, and finally, a responsive organization.
JH: This search for an operating system is an obsession of mine, because we’re in the middle of this really massive transition. A new piece of information can literally change the game overnight. That bumps up against fundamental assumptions of predictability, strategic planning, creating quarterly objectives and so on.
There's a dominant belief in the business community that you need to find specific solutions to problems. But as we approach more and more complexity, there’s different groups like August and Undercurrent coming along and none of them have the answers. It’s kind of like operating in Dave Snowden’s complex Cynefin framework where you probe, sense, and then respond; you figure things out only in retrospect. There's been this relatively rapid acceptance of the prescriptive method of Holacracy ever since Zappos decided to adopt it. Nothing is predictable; there’s not going to be one specific response or set of patterns anymore. We’re talking about design thinking that's flexible and can be applied to specific issues and opportunities. There's also this idea of “Wirearchy,” a dynamic two-way flow of power and authority based on knowledge, trust, and a focus on results. It’s all about a shift in power. It used to be that CEOs and VPs controlled and distributed information. Now everyone has a keyboard and can share that information. It’s creating massive disruptions.
LJD: Even the name organizational design is a little bit of a taboo inside organizations. You don’t just come into an organization and say we do org design. You’ll trigger some special alarm somewhere.
MR: Yeah, we were hesitant to call what we were doing org design when we started to do it. We started out being a bit skeptical of the practice. Anyone who leads a team or an organization is in some way practicing org design. No one learns how to do it. It’s sort of like getting into parenthood. Back then it was largely big consulting firms doing this kind of work. An organization would spend a huge sum of money, we're talking millions of dollars, to get what they believed was an extremely smart team of analysts to understand the complexity of their organization. Then the team would sort of divine the right structure that should exist and then deliver a document that gives everyone comfort and makes everyone feel safe.
JH: It can’t be done.
MR: Right, it can’t be done. It's a waste of money and it’s a lie. Even if a group of consultants could hold all that complexity in their head and get to the right answer, the problem is that a week later things shift and the structure no longer works.
JH: It's a lie committed to paper. What fascinates me is that organizations by and large are still using these methods. From the end of World War I to about 1990, people believed in these principles of scientific management by F. W. Taylor that dealt with specialization of labor, efficiency seeking, and cost control. It was incredibly effective at creating the affluent society that we have today in the Western world. However, these ideas are becoming increasingly obsolete. The employee and the customer become prisoners to the process. The customer is always changing and moving and the business can’t keep up with all those changes.
There's always been ongoing change. And the secret to these large consulting firms is that every time there was a fairly significant change in strategy, which was pretty regularly, you would get called in to reevaluate the company all over again. It’s quite frankly a racket. Once you knew the method it became really straightforward. We would charge a client three days of consulting at three thousand dollars a day for a job that could take ten minutes.
MR: This is what gave us the confidence to step forward into this work: realizing that the existing approaches to solving these issues were ineffective and poorly matched to the problems of today. I have this allergy to using the term organization design just because I think it’s a silly idea. Originally we called what we were doing “ways of organizing.” It's like what Eisenhower would say: the practice of designing the organization is essential but the emerging plan is a fiction and should be treated as such.
LJD: What's the approach you’re taking with August?
MR: We talked a bit about Holacracy, which many people think of as this totally chaotic system, but it’s actually rule-based. Unlike other organizations where the rules are implicit, in a Holacracy organization it's much more explicit.
Our approach at August is very integrative: there’s a lot of different stuff that has influenced us. At Undercurrent we found ourselves educating organizations about the principles of product ownership and product management and how organizations should be continually improving their product. How we create change or help organizations address issues of structure will likely be different a year from now than it is today.
JH: I have a friend that’s written a lot about this stuff, Harold Jarche, from Sackville, New Brunswick. He’s pretty well known around the world for this concept of “personal knowledge mastery,” which is basically architecting your own framework for dealing with all these connected information flows. It’s a really important discipline, particularly in the Wirearchy world. I would argue it should be taught to everybody in high school.
One of the terms Jarche uses is “perpetual beta.” It's this notion of continuous, rolling change. Information is the energy. It's like the raw material of our economy. We’re in perpetual beta; once something moves out of beta, it’s hooped.
MR: You’re not trying to get an organization to change from static thing A to static thing B. What we’re talking about is something different: it's going from a static thing to a dynamic thing and not having to reorganize all the time.
LJD: How do clients present a problem to you and then what’s your approach?
MR: In order for a client to work well with us, they have to believe that the world is changing faster than ever and that their own complexity is getting in the way. They have to embrace those ideas and believe them to be true. We’re codifying principles that seem to underlie organizations that are thriving and continuously evolving. It’s not like these organizations have a playbook that they're operating out of. It's more Darwinian than that. There’s little differences in how they do things. We’re looking at how they plan, hire, and reward people differently. And then we're also looking at the values and principles that drive these organizations, such as companies that empower and distribute authority instead of trying to control it.
One of the main shifts of August is this focus on the people in the organization who come together to deliver work. We actually think of our output not as an artifact or product, but that we’re producing high-performing teams that are embracing these new kinds of principles. We’re trying to unwind the biases that exist such as strategic planning, budgeting, and resourcing.
The most common clients for us these days are CHROs [Chief Human Resources Officers], the people responsible for human resources in an organization. What's challenging about that side of the organization is that it's at the heart of where the problems lie. And then we also get the owners of organizations. By owner I mean the person that's been given the authority to make the organization work through their leadership team. Right now, our bias is strongly towards working with leadership teams.
We typically start working with a couple of teams in the organization who are delivering projects as well as the leadership team. We work with them for a few months, and instead of using the current paradigm of change from the top-down, we try to broadcast it through those few teams. Once we get some momentum with that group we'll get them to talk to a larger group in the organization and say what worked or didn't work for them. Instead of a top-down push it’s more of an edging-in kind of thing. We still do some division strategy work but we prefer to work with teams that have an aligned vision and are ready to embark on a journey of change.
JH: In the Western world, we have this notion that for every existing problem there’s a solution. Well, there’s an awful lot of problems that don't really have a solution.
The two terms that are bandied about at the moment are digital transformation and the future of work because we know that the future of work is uncertain. What fascinates me is that it’s still mostly about collaborative platforms, hyperlinks, and social tools.
We used to talk about self-directed workgroups and learning organizations but they all got crushed in the 90s. It was like, “Let’s put all the job descriptions in one line, cut out the fat, and then pour concrete over the business process in search of efficiency, optimization and so on.” Then there was the game of change management with enterprise resource planning. Now we're coming back to version 2.0 of self-directed work teams and there’s finally people in the equation again. People are at the heart of all of this and yet we’ve been using mechanical and technological assumptions up until now.
LJD: Back to this idea of “living in beta.” How do you think this relates to organizations and whether they should be less focused on longevity?
JH: This sounds like Reid Hoffman, the LinkedIn guy, who wrote a book called The Alliance where he was talking about employment like a military mission. As in people sign up for a specific mission and they shouldn't pretend it's anything other.
LJD: I wholeheartedly agree with that. Right now we’re at the end of the budget year and for me, I always ask my bosses, “Do you want me to stay another year?” It’s like a military mission. If not, I should just be relieved of my command and give it to somebody else. I feel like we need to think in these ways.
MR: One thing that I've learned recently through my exposure to Holacracy is the difference between consensus and consent-driven decision-making. Consensus basically means I agree with what you’re saying and consent means I accept it. In a world that's moving as fast as it is, most organizations are hemorrhaging time trying to reach a consensus and they shouldn't be doing that. Having operated in a way that was more consent-driven has been transformative. The basic principle is to trust that everyone on your team has the interest of the organization at heart and is trying to fulfill the stated purpose of the organization. A good suggestion is to propose things that you think are safe to try and only object to proposals if you really believe they’re going to harm the business. It doesn’t mean you think it’s the best idea, it just means that you consent to trying it knowing that you can change it if it’s not right.
JH: If I were a board and I was really interested in the longevity of our organization, I'd say we should look to family-run companies. I would tone down the emphasis on quarterly performance and start looking at ways to create more human places in the company.
What’s taking late-stage capitalism into really dangerous territory is the nearly ubiquitous predictions of huge amounts of unemployment as a result of automation, robotization, and algorithmization. That may happen on a company-by-company basis and a board might approve it because they're maximizing shareholder value. If I were a courageous board, I’d tell the analysts to fuck off, “We’re going to run this company and we’re going to tell our shareholders that we’re aiming for something different.” We’d still make a profit—you of course need to make a profit to survive. But I would go to the government and say, “Change the rules of the capital markets. Reward companies that make profits between five and twenty percent and anything above twenty percent profit should be taxed up the wazoo.” The other metric for rewarding corporate performance is increasing the number of jobs created in a society. Otherwise we’re living in a broken world.