Putting Principles Over Practices

September 15, 2020

Putting Principles Over Practices

Companies like Nucor Steel and Haier Group challenge the assumption that bureaucracy is indispensable to large­-scale human enterprise, yet neither company would claim to be a perfectly developed specimen of “humanocracy.” Moreover, they would be the first to tell you that not all of their systems and processes are exportable. What makes these companies valuable as role models isn’t so much their unique practices as the distinctive belief systems that gave birth to those practices. Drawing lessons from these and other vanguard companies is a bit like trying to learn from Tiger Woods. The challenge is less to mimic the mechanics of his golf swing, which are uniquely suited to his physique and are constantly evolving, than to learn something about the reserves of stamina and determination that helped him win 15 major golf tournaments. 

When benchmarking other organizations, we tend to ask, what do they do differently? But when we’re trying to make sense of a company that is different in almost every respect, we need to ask, how does it think differently? What beliefs or principles drove Ken Iverson at Nucor Steel to build a company that grants team members unprecedented freedom to learn and grow? Why did Zhang Ruimin at Haier Group sign up for the seemingly impossible task of turning a mature manufacturing company into an entrepreneurial hot house? Being a pioneer isn’t easy. There’s no trail map. The only thing that can guide you is your worldview about people, organizations and success.

Your Worldview Guides You

Ruimin’s worldview is centered on the power of human agency. He believes the best organization is the one that gives human beings the maximum freedom to excel. Iverson’s worldview revolved around the idea of everyday genius. He believed that it’s employees, rather than managers, who drive a business forward. If you believe this, heart and soul, then bureaucracy isn’t something you whine about, it’s something you try to kill. 

The extent to which someone regards a problem as important, or even acknowledges its existence, depends on their worldview—their paradigmatic beliefs. If, for example, you believe human beings have a sacred trust to be good stewards of the natural environment, you’re likely to take the threat of climate change very seriously. If, instead, you see the earth as a reservoir of resources to exploit for short-­term gain, environmentalism will make little sense to you. 

It is the same with humanocracy. If your worldview places a premium on human freedom and growth, you’ll regard the inhumanity of bureaucracy as intolerable and feel compelled to act. If, on the other hand, you regard human beings as factors of production, you’ll make excuses for bureaucracy and be content with minor reforms. Your worldview matters—a lot. Yet as a rule, most of us spend a lot more time thinking about practices than principles. That, as much as anything, explains why we’re stuck. You can’t solve a truly novel problem, like building organizations that are fully human, with fossilized principles. 

Principles and Process

The managerial obsession with processes is understandable. Corporate processes like planning, budgeting and performance reviews are pivotal in determining whose ideas prevail, what projects get funded and how rewards get distributed. Yet if the goal is to build a humanocracy, a focus on processes is insufficient. Individual processes, like Haier’s approach to setting “leading targets,” are often context­ specific. What works in one organization may not work in another. 

Additionally, each process is part of a larger whole. Bolting a single, vanguard process onto a conventional management model is usually a fruitless exercise—like donning Cristiano Ronaldo’s number seven jersey in hopes of becoming a soccer legend. Think again about the principles of self-­government. While political systems in mature democracies differ in their particulars (Britain, unlike the United States, lacks a written constitution), they’re all grounded in the same corpus of pro-­democracy principles. The strength of a democracy doesn’t hinge on any specific structure or process. A dictator can hold elections, but if he stuffs the ballot box and persecutes the opposition, the results won’t be democratic. 

In any established field of human endeavor—like politics, physics or management—you’ll find a high degree of congruence up and down this hierarchy. Within the relevant professional community, there will be a shared worldview, broad agreement on the core problems to be solved and an allegiance to a common set of guiding principles. Over time, as those principles get operationalized, a body of supporting processes and practices will emerge. They, in turn, will determine the system’s performance. 

Within the management profession, the hierarchy might look like this:

  • Paradigm: Human beings at work are factors of production, charged with producing goods and services.
  • Problem: In business, the primary challenge is to maximize operational efficiency by reducing variances and excising waste.
  • Principles: Organizational efficiency is maximized through stratification, specialization, formalization and standardization. 
  • Processes: In the quest for efficiency, essential processes include goal setting, resource allocation, job design, recruitment, performance assessment and compensation.
  • Practices: Routine management practices include setting targets, defining KPIs, assigning tasks, tracking progress, ensuring compliance and assessing performance.
  • Performance: If diligently applied, these processes and practices will maximize alignment and control, and thereby profitability.

Limits to Productivity

As a system matures—as bureaucratic management has over the past hundred­ plus years—performance gains get harder and harder to come by. In the 19th and 20th centuries, the disciplines of bureaucracy produced stunning advances in labor and capital efficiency, but in the last several decades, productivity growth has slowed. The rich seam of operational inefficiencies addressable by bureaucracy is largely tapped out. The point is this: over time, a system’s performance becomes limited less by processes and practices than by paradigms and principles.

As researchers and consultants, it took us many years to understand this simple truth. Over the decades, we’ve spent a lot of time helping large organizations innovate. In a typical project, we’ll spend weeks lining up the necessary sponsors, co­designing the initiative and recruiting a project team. After that will come weeks of training, brainstorming, and coaching, then months spent building and testing new business concepts. When, at last, a slew of new products hits the market, there will be an uptick in revenue. But when we return, a couple of years later, we invariably find that the innovation pipeline has run dry. The bureaucrats are back in control and top-­line growth has stalled out. 

Having watched this movie a few dozen times, it finally hit us—we were working to achieve a category of results—rule­-busting innovation—that was constitutionally incompatible with the system’s basic design. 

New Organizational Paradigm

To be more innovative, adaptable and inspiring, our organizations need new DNA. They need to be rebuilt on human-­centric principles. Tweaks to existing systems and processes—a smidgen of mindfulness training, a dollop of agile teams, a spritz of digital transformation or a fresh coat of analytics—will never produce nonlinear improvements in organizational effectiveness. For that to happen, we have to go back to first principles. As a tightly integrated system, bureaucracy was designed to produce exactly what it does: compliance, discipline and predictability. It’s a sausage-­making machine that produces—wait for it—sausages! Maybe it can be upgraded to make fatter sausages, or vegan sausages, or more sausages per hour, but it’s never going to produce anything other than sausages until we go back to the drawing board. 

If we’re going to build organizations that are as capable as the people within them, we need to start over. We need a new organizational paradigm—one in which human beings are no longer viewed as “resources” or “capital.” We must also reframe the problem—the goal is to maximize contribution, not compliance. And we need to embed new human-­centric principles in every structure, system, process and practice. If we’re serious about creating organizations that are fit for human beings and fit for the future, nothing less will do. So, let’s press forward.

Reprinted by permission of Harvard Business Review Press. Excerpted from Humanocracy: Creating Organizations as Amazing as the People Inside Them by Gary Hamel and Michele Zanini. Copyright 2020 Gary Hamel and Michele Zanini. All rights reserved. 

The Authors: 

Gary Hamel is a longtime faculty member of the London Business School and author of several books, including The Future of Management. Together with Michele Zanini, Hamel is co-founder of the Management Lab.
 
Michele Zanini is the co-founder of the Management Lab.