Author: Robin

I thought this was a nice way of organizing strengths relevant to leadership: Beyond “Dreamers vs Doers” — Full Circle Leadership

My strengths are firmly on the “visionary” side and I need collaborators who are strong in “operational” leadership.

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.

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.

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.

“Why would anybody accept the leadership of another except that the other sees more clearly where it is best to go? Perhaps this is the current problem: too many who presume to lead do not see more clearly, and in defense of their inadequacy, they all the more strongly argue that the ‘system’ must be preserved.”

-Robert Greenleaf, The Servant as Leader (1969)

“The choice to [speak out about an injustice] is risky, and the choice of saying nothing is risky. I think courage is having the clarity to see the two bad choices. There is no safe path, but what you do know is that if you don’t speak up, everything will stay the same.”

-Margaret Heffernan (via TED Radio Hour)

Steven Johnson (via Daring Fireball): “Steve Jobs, Jony Ive, Larry Page, Sergey Brin, Travis Kalanick—these people didn’t just accumulate wealth [by inventing technology]; they accumulated dynastic wealth, wealth that could keep their descendants in the one percent for centuries.”

It’s clear that those startup founders are brilliant people, but it’s equally clear that those people by themselves were not responsible for creating millions of times more value than the thousands or millions of other people who helped make their companies possible — from scientists working under government funding to invent the Internet and GPS, to open-source programmers creating widely-used code libraries, to finally all of the employees who worked to create better products, year after year.

As Clayton Christensen and others have noted, one reason we compensate executives so extremely is because we make the attribution error that top managers actually have significant control over company performance. That is, we thank the CEO when an organization is performing well, and several years later when it’s crashing we blame the very same CEO for causing the problems. (Much of Christensen’s research into the causes of success and failure grew out of his dissatisfaction with the theory that the very same CEO is brilliant one year and an idiot the next.)

“Over the past 40 years, the average pay ratio — the gap between the highest and median employee — inside an American corporation has increased from 30:1 to more than 300:1. […] If you want to defend Silicon Valley in a discussion about inequality, [note] that Silicon Valley has a much more sensible pay ratio than most other industries in the United States — closer to 40:1, not so far from the ratio that predominated in the age of Big Labor. [Also,] the top 100 tech companies granted 19% of their total ownership to non-senior-executive employees (i.e., everyone excluding the CEO and four lieutenants). For the rest of corporate America, that number was 2%.”

“Let’s say we decided as a society that no private company should have a pay ratio above 40:1. That would lead to a radical decrease in income inequality, and it wouldn’t involve a cent of additional taxes.”

Sounds reasonable. And even if this particular idea turns out to be impractical, it raises the point that there’s a lot of creativity to apply to the problem of income inequality.

Whether in business or academia, there are usually far more good ideas than there is time and money to explore them. So decisions must be made about who and what will get the limited funds to proceed with a novel idea. In science, these decisions are made via grants and research funding boards. In corporations, these decisions are usually made by executives and middle managers. And for many startups, these decisions are made by venture capitalists and angel investors who network with founders and review business plans and “pitch decks”.

As a result, the culture usually becomes competitive. Researchers compete for limited funds, corporate teams compete for executive approval, and startups compete for venture financing. In some ways, this is like any other market economy. “May the best idea win.” The problem is that scarcity, pressure, and stress inhibit creativity. Many studies have shown that under such conditions our minds tend to focus more narrowly, causing us to perform better at well-practiced tasks but worse at generating new ideas.

By contrast, in order to be maximally creative, we need to be relaxed and feel that resources are abundant — basically the opposite of a competitive situation with limited funds.

This is a major paradox of our innovation economy. The rewards of innovation are huge — businesses and scientific careers succeed or fail on the strength of their ability to innovate. But that very pressure causes these innovators to underperform. The more desperately you want to innovate, the more difficult it is to do so.

For most innovators stuck in an environment of scarcity, a “jedi mind trick” is necessary, similar to the one I wrote about in The Paradox of Customer Focus. Namely: to innovate, stop trying so hard to innovate. Instead, relax, work on hard problems, and assume everything will work out. All while battling off requests for progress reports, 3-year plans, and reminders that your scarce funding and position are up for renewal.

“These organizations manage to operate at very large scales — some have thousands or tens of thousands of employees — entirely without the pyramid, entirely without anyone being the boss of anyone else. And I know that sounds extraordinary — it sounds like a recipe for chaos. I mean, how could you run a large organization without hierarchy? It doesn’t make any sense. I wasn’t expecting this when I started the research. [But] what I found out the truth is: yes, you need structure, but no, you don’t need a boss. This is really a place where we need to upgrade our thinking.”

-Frederic Laloux, Reinventing Organizations
(excerpt from his talk)

“An over-focus on resource efficiency [leads to chain reactions of superfluous work that does not add value]. The efficiency paradox is that [by focusing on] utilizing our resources efficiently, we are actually being inefficient since much of that utilization comes from superfluous work. […] Paradoxically, not focusing on utilizing resources makes it possible to free up resources.”

“The efficiency paradox exists at an individual level [and] on an organizational level. What if it also exists at the societal level? […] How many resources could we avoid wasting if we started to see the ‘big picture’ and focus on flow efficiency?”

-Niklas Modig and Pär Ahlström, This is Lean (p.58-65)

See also: the paradox of customer focus.