Transcript: Reinventing Organisations

The following is the transcript for my presentation on Reinventing Organisations by Frederic Laloux.

Slide 1 

Most people will recognise that the primary purpose of a commercial organisation is to make a profit. Some commercial ventures such as charities may not seek to make a profit in the most traditional sense, but still, the funds through which they do their work are generated by the same means as those organisations that are seeking profit.

Profit is a contentious thing in the world today, largely because of the disparity between large multinational corporations and the little guy. I think it’s worth spending some time exploring this argument.

A description of profit taken from Reinventing Organisations is this, “profit is like air; we need air to live, but we don’t live to breathe.” My own personal definition of profit is this: profit is not merely the mark of a robber baron, but an acknowledgement by the end consumer of the value added by each person prior to the consumer’s purchase.

I would suggest the issue most people have with profiteering organisations today is that faceless multinational corporations, non-describe shareholders and the pursuit of profit maximisation do not show any appreciation for the human endeavour behind that profit. Whose value am I acknowledging when I purchase a product off Amazon? Whose value is a homeowner acknowledging when they pay off interest on their mortgage? It’s not that there isn’t value to be rewarded, just that there’s no obvious person to reward. Profit has become disconnected from its purpose, in this regard.

Or consider it another way. If profit is like air, what does profit maximisation make you think? To me, I conjure a picture of many smartly dressed people desperately clawing at clouds until there is only one left, and the others have suffocated. Then I ask the question; can one person breathe more than another?

Profit as air is the business perspective, whilst not living to breathe is the social perspective. Profit as recognition of value is the economic – or at least political economy – perspective. All three of these perspectives are important but none should be considered in isolation. This will be a theme of this presentation.

Slide 2

Of the ideas Reinventing Organisations tackles, competition is one of the subtler. What’s interesting to me is the idea of competition within an organisation. When I read the book, I drew a picture, and wrote some annotations. This is basically what I drew.

Firstly, I said there’s a limited quantity of stuff. This assumption is obvious. In a competitive environment, only one person can win a race. Next I said if our organisation’s aim is to build as many towers as possible, out of the limited stuff we have – stuff is a technical term by the way – then competition works. But if our organisation’s aim is to build the highest tower, then competition drains resources, and in fact co-operating is better.

But if you think about this model, there is a glaring flaw in it – namely, if we want to build the most towers, isn’t it still better if we co-operate? Together, we can plan the most efficient pattern of construction, the best way to split resources and so on. Together we can make big decisions that in isolation we can’t even start to ponder.

Ultimately, it’s what we strive to do that should influence how we do it. And there’s almost no organisation on the planet – except maybe some banks (don’t get me started) – that actively work against their own self-interests. Of course, it’s important to understand what an organisation’s ‘self-interest’ is, because I think that’s an innately vindictive term.

Slide 3

My proposition is this: a company’s ‘self-interest’ is essentially its ‘purpose’, and succeeding in fulfilling its purpose requires profitability, for profit is air, and co-operation, for what we strive to do should inform how we do it.

My go to way of thinking about these things is via a constructed model. I think of these three things, purpose, profit and co-operation (I couldn’t think of a third ‘P’ word) as being cyclical. But this model still feels reductionist and removed from the real organisations discussed in Reinventing Organisations. My solution is to use profit and competition.

Specifically, I want to think about what organisations in the book do for their employees. This idea is touched on in The Puritan Gift by Hopper; the idea that managers should know what their employees want to achieve to allow them to better manage the employee. In Reinventing Organisations, we are asked to go beyond understanding and to actively encourage our staff to pursue their goals, with company interests not directly in mind.

When an employee does this, whether they are encouraged to or not, I call it self-profiteering. Primarily we work to earn money. When we change the way we work, without a change in our compensation structure, we are earning something else. This is self-profit, and it can be destructive. In fact, I’d suggest in some industries – banking, cough cough – this is why we see so much intra-company competition. Your standard company’s battle over departmental budgets is another prime example, often with department heads jostling for efficiency savings, and the benefits that come with that…

This competition, as shown prior, degrades the company’s purpose, and ultimately its profit. So why is it a good idea to encourage it? Because when an organisation takes an employee and treats them merely as a cog in a system they become atomised, and disconnected from the purpose of the organisation. This is the result of oppressing staff ambitions. When we engage in our staff in their future ambitions, their additional skills and, to an extent, just as people, we can bring people from all different areas of the organisation to the table – perhaps metaphorically – so they not only know what they’re doing and how they contribute, but importantly why they do it. How is their role helping the company, and how is the company helping them?

This is how profit becomes a way of acknowledging the value added by all people involved. It might not be an explicit social contract, nor a negotiated financial agreement, but it’s a meaningful, human reward.

Not only does adding in the idea of encouraged self-profit make the model feel so much more human, it also allows us to look at organisational hierarchies not as vast pyramids but as close, human networks. We can pick any individual and trace how they inform the company’s purpose, how they help others, and they contribute to profit and importantly what they get out of the whole arrangement.

Slide 4

I want to conclude with asking a question that I think is important: where next? The ideas I’ve spoken about have, in my opinion, sounded obvious on one level and very utopian, pie-in-the-sky on another. I refer you to Reinventing Organisations for answers to both these points: firstly, much of the book is obvious, and the perversion comes when we ask how the technocracy of modern large business has emerged, and secondly, the book demonstrates organisations that have these ideas already exist, and can be successful. If my ideas are pie-in-the-sky, well, that’ll make for a weird view.

The reason I ask where next is because two of the organisations referred in the book are Buurtzorg, a Dutch healthcare provider, and ESBZ, a German school. Not only are these both examples of sectors of extreme public relevance embracing these ideas (and so I would suggest worthy of inquiry for public benefit, even if no result is found), but they are sectors that we, as a country, are struggling to operate at this present time, and in the future.

Please do not for a moment think that I am proposing a resolution to the crisis in the NHS by distributing copies of Reinventing Organisations to every senior manager in the NHS; but the success of Buurtzorg in the Netherlands should not be underestimated. Equally, ESBZ seeks to encourage their students to become independent thinkers, to be creative and to engage in the outside world. In a future of increasing automation, increasing online presence and increasing mental health challenges amongst younger people, it is perhaps wise to ask why this school works so well, and what benefits can it provide for tomorrow’s, if not today’s children?

I don’t have the answer to these questions, but a good presentation should leave the listener questioning something. I question how the ideas in Reinventing Organisations can be applied to the world of finance to make a more stable and more suitable banking system. You will have your own interests. But let the book inspire questions. It’s not a manual. If the key to business success could be written down, business schools would be libraries. It’s an idea, one that places people – us – at the heart of it. 

Four Hands - Transcript of presentation given for the Hopper Institute for Good Management

The following is the transcript for the presentation 'Four Hands -Building on the story of The Puritan Gift' produced for presentation to the Hopper Institute for Good Management. Accompanying slides can be found here: http://www.slideshare.net/StuartMMills/four-hands-building-upon-the-story-of-the-puritan-gift

Four Hands – Building on the story of The Puritan Gift

When I was asked to give a presentation on The Puritan Gift I didn’t really know what I should say. That’s not because the book isn’t informative, on the contrary; it’s because by the end of the book you’ve been told a very simple and compelling story that really I couldn’t do justice. So instead I’m going to present something a little bit original, drawing off of ideas and quotes presented in The Puritan Gift to build a model that I think can be applied quite broadly.

I call it Four Hands, and I’m going to use it to demonstrate a few things. I’m going to look at individuals and what motivates them as well as innovation and how it can create communities; we’re going to think about the collective purpose of communities, and how the community works with The Individual. Finally, I’m going to bring in some political economy, Adam Smith, and a Founding Father.

So what is Four Hands? Well it’s a model – not a scientific one – of how individuals and organisations interact to achieve goals.

Of course every model needs a starting point, which I tentatively call the hand that feeds. It’s a bit of a forced name, but it articulates the key premise behind the first hand.

The hand that feeds is the starting point of our model and on the most basic level it assumes this – the goal of a person is to survive. It is a criticism of economics that it assumes people are rational, but I’m going to go out on a limb and say desire for continued existence is a reasonable expectation of your average person.

In a ‘trapped on a desert island’ scenario the hand that feeds is literally concerned with survival – there’s no point thinking about how great your future beachside mansion is going to be if you’re dead. In the more realistic scenario it can be about corporate survival or financial survival – are you under threat of losing your job or falling behind on your bills?

It’s helpful to consider the hand that feeds as the ‘struggle’ which inspires enterprise. From a business perspective, the hand that feeds could simply be a gap that an entrepreneur spots in the market.

If the hand that feeds is the starting point of the model, the divine hand is the end. Drawing directly on The Puritan Gift, we’re now considering what the Puritan’s goal – ‘to establish a Kingdom of Heaven on Earth.’ – means.

You could take this literally, in which case I think the Puritan’s were setting their sights pretty high, or less literally – to establish a more efficient, possibly pious society? Either way, what we’re looking at here is a long-term communal goal. This is the divine hand at play.

To give you an example; firstly, the Puritan’s establish a community with the intention to survive and colonise the new world. This is the hand that feeds. Provided this is met, their goals then shift to fulfil their debts on Earth – their debts to England – and ultimately to build the Kingdom of Heaven on Earth. It’s important to note that all of these goals – to survive, to profit, to prosper – could not have been achieved by an individual alone.

If we look at Adam Smith’s line, ‘glow over the horizon’ we can see this sentiment being reinforced – that some goals transcend the individual and only become attainable as a collective.

It’s interesting to consider Eliot’s quote, ‘things are not so ill with you and me… is half owing to those who lived… a hidden life’, essentially saying the community, you and me, benefit from the efforts of those that came before us. This reinforces the idea of the Divine Hand being communal but also, ‘hidden lives’ – this is a long-term goal which is again bigger than the individual.

Here’s another example just to illustrate that this idea. I’m not really into football but sports teams are great examples to look at. In the team there are 11 players who are actually doing the day to day work, making the many short-term decisions that have to be made. We could think of them as the individuals whose enterprise is inspired from their struggle – though I hesitate to say ‘footballer’ and ‘struggle’ in the same sentence. They’re the entrepreneurs, the innovators, the desperate island dwellers.

Then we have the football club. This is the company that is built around the efforts of the individuals. We might want to think of them as the institutions first established by the settling Puritan’s – farmers, fisherman, builders etc. They’re entities that exist with the individuals and have short-term goals, but also set long-term goals, i.e. fulfil contracts, make a profit, win the league.

Finally, we have the football fans – the community – who don’t necessarily play on the football pitch nor work for the football club but they benefit from and contribute towards the long-term goal of the club indirectly. They attend games and provide moral support; similarly think of a carpenter constructing a boat for a fishing company. Though the carpenter doesn’t directly profit from the long-term goal of the fisherman, which may be to make profit, the carpenter indirectly profits from there being an ample, cheap supply of food. Equally, though the fans aren’t actually on the pitch playing the game, they benefit from the long-term success of the team they support.

It is important to remember individuals do exist however. The subtitle of The Puritan Gift is after all ‘reclaiming the American Dream…,’ and there are a lot of parallels to be found between the Kingdom of Heaven on Earth and the American Dream, mainly that they both talk about achieving better things through hard work.

So let’s consider Smiles, who equates the pursuit of heavenly ideals to the self-concerned individual, i.e. the Kingdom of Heaven becomes individualistically the American Dream. This is important because we can kind of consider the Kingdom of Heaven on Earth as the aggregate of individual pursuits, which brings us nicely onto Adam Smith whose famous invisible hand equates the American Dream, i.e. individual pursuit, as having ‘a net benefit for all’, bringing us back to the communal goal, the Kingdom of Heaven on Earth.

Finally, before I move on some questions that are interesting to consider. MacCulloch’s take on pluralism said that capitalism is made up of many things that already existed within society and therefore is a by-product of social structure, the most crucial one he argued is religion. This leads to the question does there have to be a conscious structure in place for a societal goal to exist?

I’ve also asked is the zeitgeist of a community the same/similar to a societal goal, the implication being if it is can we change a societal goal? That maybe has some interesting implications in political theory?

Next we have the aforementioned invisible hand of Adam Smith. This is really where we’re beginning to see the model forming with the hand that feeds being the starting point, the divine hand being the end and the invisible hand linking the two.

This idea comes about from two places; firstly, Smith’s net benefit for all hypothesis, i.e. the end point of individualistic pursuit should benefit everyone somewhat, which is what I earlier talked about with football fans indirectly benefiting from team success.

Secondly we have Cotton with a great quote, ‘it is a disgrace to a good workman not to look at his work,’ saying that good work should receive acknowledgement, i.e. should receive some benefit. Again, individualism moves us towards the divine hand.

Also consider the message upon Benjamin Franklin’s epitaph, saying – in much fancier words – that nothing is perfect and we must always allow others to improve on things. I take this to mean be an individual and certainly be innovative, but do not ignore the contribution of the community.

The final hand is the visible hand; what Chandler described as the ‘substitution of “administrative co-ordination” for “market co-ordination”’, which solves the aforementioned problem by saying individuals who work together operate more efficiently – coordinate the market – and therefore will be more successful in achieving their goals. It’s also debatable this will make their short-term goals more aligned.

Ultimately this coalescence of individuals will distribute resources more efficiently and will work towards the divine hand much more successfully. They will not just be ‘individually coordinated’, they will be communally coordinated.

To conclude, Four Hands demonstrates the importance of allowing individuals to exist within communities. I think this is crucial in a business structure as it should allow greater innovation and communication of ideas throughout the organisation.

Secondly Four Hands allows managers to see the perspective of their staff better, i.e. they can see the survival point their staff occupy and the place their staff want to go. The implication of this is closer and more meaningful management of staff.

Finally, Four Hands illustrates the inefficiency of inter-community fighting and the benefits of community coordination. Therefore, Four Hands should encourage clear communication of long-term goals throughout an organisation. Individuals can then coordinate their efforts and skills rather than pursue individual goals and be less efficient.

These ideas I’ve just discussed relate directly back to key concepts discussed in the Puritan Gift; knowing who is in charge and what the organisation does, respecting and valuing the domain knowledge of individuals; and having effective lines of communication throughout the whole organisation.