Human nature

I’m still processing many of the extraordinary findings discussed in Reinventing Organizations (Laloux 2014), but for now I want to address a single foundational topic that has come up repeatedly: assumptions about human nature. Are human beings fundamentally lazy, egocentric, and antagonistic, or are we fundamentally compassionate, self-motivated and trustworthy? As Laloux points out, “people can debate this topic endlessly.” There is plenty of evidence for both points of view — it’s easy to find examples of both bitter conflicts and inspiring selflessness, shattered trust and stalwart dependability, stubborn resistance to change and pursuit of lofty dreams, and everything in-between. So which is true?

All of it! Specifically: People meet the expectations of their environment. This has been known scientifically for decades and validated repeatedly. “This comes down to the fundamental spiritual truth that we reap what we sow… If you view people with mistrust and subject them to all sorts of controls, rules, and punishments, they will try to game the system, and you will feel your thinking is validated. Meet people with practices based on trust, and they will return your trust with responsible behavior. Again, you will feel your assumptions were validated.” (Laloux, chapter 2.3) Once you understand the essential flexibility of human nature, you can avoid the fate of getting stuck in one camp or the other, debating endlessly, unable to get out or lead others out.

The idea of self-management is a direct corollary of the fact that all humans are trustworthy, intelligent, and responsible, but only if we treat them that way. Conversely, the idea behind traditional management is that employees need to be directed and protected. No matter how much “empowerment” you try to inject into the system, employees operating in a power hierarchy will act as if they need to be directed and protected. The only known way to fully unleash the creative, intelligent, and trustworthy potential of humans is to practice some form of self-management.

There are many reasons why self-management is attractive, and Reinventing Organizations discusses all of these in depth. But to me, the chain of reasoning above is the most compelling. It underlies my belief that self-management is not a radical idea at all. It’s surprising at first — but seems obvious in retrospect.

Purpose, not Profits

I have a theory about why Apple continues to spook investors.

The spooking itself is well established. Apple stock is remarkably volatile for a company that is so large and has been growing and profiting so consistently. One commonly-cited reason is that Apple’s revenue has generally been dominated by a single product or product line: first the Mac, then iPods, and now iPhones make up the majority of their revenue (for example, in the latest quarter, 68% of total revenue came from iPhone sales). The thinking goes that individual products can swing wildly in popularity. So any time a potential threat to iPhone sales emerges, Apple stock plunges (the same pattern occurred in the past around threats to iPods and Macs). Many other reasons for volatility are also cited, including the fact that Apple almost went bankrupt twenty years ago, and the general unpredictability of rapidly evolving technology markets.

Despite all this, Apple has actually been remarkably resilient since Steve Jobs returned in the late 1990’s. Customers upgrade their devices regularly and they rarely switch away from Apple. iPod sales eventually declined — because customers were buying iPhones instead. Horace Dediu has proposed that instead of focusing on the current product lineup, it makes far more sense to value Apple based on the ongoing revenue streams from its loyal customers, who each spend roughly $1 per day per product line. In this model, iPhones and Macs can (and probably will) disappear eventually, but those sales will be replaced by new product lines that Apple will have introduced by then. This model pegs Apple’s valuation far higher than the current stock price does.

But investors are smart people. They can see for themselves Apple’s customer loyalty and history of resilience in modern times. So why do they continue to be spooked?

I think one clue to the puzzle can be found in the striking disconnect between the way most journalists and analysts describe Apple, versus the way Apple describes itself. The outside narrative tends to focus on competitive opportunities and threats. For example, a recent MacRumors story about a new display technology notes: “Apple is apparently looking to quickly switch to OLED displays to [boost] iPhone sales, which analysts expect to stall.” The unspoken assumption behind this type of statement is that Apple’s goal is to boost sales — that strategic decisions tend to be made in service of “the bottom line”.

In contrast, when Apple executives are interviewed, they consistently say that Apple’s goal is not to hit any particular revenue target but rather to make the best products they possibly can. “Competitors help us improve” and “we are far more interested in customer satisfaction than market share.” The famous Steve Jobs quote is: “We’re here to put a dent in the universe.” The rhetoric from Apple executives is so consistent and unified that 60 Minutes reporters actually asked them directly if this was some sort of hype or marketing strategy. “No,” the executives replied, “this is really how it works around here.”

You can either believe Apple, or you can believe the mainstream cynicism. It’s easy to assume that Apple is no different from the rest, especially given the extraordinary amount of money they’ve made. But from all the evidence I’ve gathered as an Apple watcher over the last decade, I believe that their focus on purpose is sincere, and indeed is the cause of their consistent profitability (in what appears to be a paradox). In fact, this focus on “purpose, not profits” is one of the three pillars of radically progressive companies described in Reinventing Organizations (Laloux 2014). (The other two pillars are “wholeness” and “self-management”, which Apple currently does not score as highly on.)

The notion that a company is not trying to maximize profits would seem to be, by itself, enough to spook investors who are trying to maximize their returns. But you never see this given as a reason to dump Apple shares. Rather, the idea that profitability is not the goal is still so countercultural in business and investing today that it is apparently easier to believe that Apple is basically doing the same thing as other companies but is engaged in an elaborate marketing hoax about “thinking different” and making “the best products in the world.” Analysts can never quite figure out why this hoax continues to “fool” so many consumers into buying expensive iDevices. The whole thing feels like a house of cards that could tumble at any moment when a competitor introduces a low-cost product with similar specs. The recent history of resilience feels like a string of luck.

Once you come to understand the power of “purpose, not profits”, you realize that it’s not a reason to be spooked at all — quite the contrary, it’s the most essential ingredient in Apple’s success. But to accept that, you must abandon what might be deeply held beliefs about survival, competition, power, productivity, and the nature of success. These beliefs are often personal — what if you have been striving after profits your whole life, and the whole endeavor was fundamentally misguided? These are not ideas that you overturn just because an Apple executive told you so — indeed, mistrusting people, particularly those in power, is part of the old belief system. (See Reinventing Organizations for more on this.)

In other words, understanding Apple does not merely require an analysis of strategy or operations. It requires a worldview change. It requires a reassessment of basic assumptions about how all organizations function and disfunction.

It’s been clear for a long time that investors misunderstand Apple. Only recently am I starting to understand just how deeply the disconnect goes.

The Paradox of Self-Preservation

One of the things that has frustrated me about organizations I have worked for is their deep commitment to self-preservation.

That might sound surprising. What’s wrong with seeking financial success, stability, and job security? The problem comes when these goals become the unspoken basis for decision-making. Actions or ideas that could pose a risk to self-preservation are rarely, if ever, taken. And as a result, organizations can only serve their purpose and their customers in a suboptimal way because it must fit within the confines of the self-preservation agenda.

This is true even in many of the most mission-driven companies you can think of. For example, a company where I used to work had a great web page where they pointed out that most companies have an unwritten primary goal to make money (i.e. “the bottom line”). In contrast, this company felt that making high-quality software was truly the top priority, and making money was demoted to priority #2 — “so that we can continue to make high-quality software.” What I found is that while the team was truly dedicated to writing high-quality software — even at the expense of profitability when necessary — there remained an unwritten, even higher priority of keeping the business going. This was based on a scarcity assumption, that having to work anywhere else would necessarily be worse. The resulting commitment to self-preservation created a surprisingly risk-averse and slow-moving culture which I believe is significantly limiting the impact that their high-quality software could have in the world.

Here’s one simple clue that your organization is being guided by self-preservation: Do you have competitors? As Frederic Laloux points out in Reinventing Organizations, “when an organization truly lives for its purpose, there is no competition. Anybody that can help to achieve the purpose on a wider scale or more quickly is a friend, an ally, not a competitor.” If some other company finds a way to serve your customers faster, better, cheaper — great! This is a breakthrough for the purpose, even if it also means that your organization may no longer be relevant. Organizations should not outlive their useful lifetimes. There are always creative solutions for moving forward.

When organizations set out to preserve themselves, they waste untold energy fighting against the fundamental reality that “the only constant is change.” As a result, there is less energy available for serving customers and pursuing the mission; daring ideas are abandoned, the organization crusts over… and it is much more likely to go out of business. This is the Paradox of Self-Preservation: the harder you try to preserve an organization, the less likely you are to succeed (at least in the long term). Instead, the less you care about self-preservation, the more you can focus on serving the mission, creating value, adapting, changing, and innovating — efforts which, in turn, tend to cause organizations to thrive.