Why most companies are doomed to fail
The Operating System for Evolutionary Organisations Part 1/10
In today's world, many organizations still adhere to outdated practices dating back to the 20th century. Behaviors that prove to be ineffective and leave their employees dissatisfied. It is evident that traditional approaches have led numerous organizations to failure or will eventually do so if they fail to adapt. However, there exists a superior path that propels organizations to the next level—the path embraced by a new breed of evolutionary organizations.
These innovative companies are knowingly or unknowingly applying an approach that not only brings out the best in their teams but also fosters a sense of fulfillment and happiness. They are highly successful, operate at an accelerated pace, constantly innovate, and remain relevant in a rapidly changing landscape. Moreover, these organizations strive to make a positive impact on the world.
At the core of this approach lies a profound understanding of the science behind productivity, personal growth, fulfillment, and performance. It draws insights from the experiences of successful leaders, such as those at Netflix and Bridgewater, as well as from esteemed organizational experts like Aaron Dignan. Additionally, it incorporates my own personal experiences in building multiple companies.
The foundation of these evolutionary organizations rests upon three universal principles: They are people-positive, developmental and complexity conscious. I have distilled this wealth of knowledge into an actionable operating system comprising eight essential components.
By embracing these universal principles and implementing the essential components, any CEO or founder can create an evolutionary organization that not only achieves enduring success but also fosters a culture of happiness among its members. In light of our current understanding of organizational dynamics and human behavior, we have a responsibility to transform the way we work—for the well-being of individuals within organizations, for the prosperity of organizations themselves, for the economy, and for the betterment of the world. If you are a founder or CEO, adopting this approach significantly enhances the likelihood of your company's remarkable success.
In a series of 10 articles I will dive into this topic. Explaining why companies fail, how work gets done, the universal principles of evolutionary organizations and then deep diving into the 8 essential components of the operating system of organizations.
Why most companies are doomed to fail
Most of the current organisations don’t work. The reason is that they are unproductive, don’t create lasting impact and, generally, don’t contribute to people’s happiness. So, why does this happen?
Consider the following situations:
Insist on doing everything through “channels.”
Never permit shortcuts to be taken in order to expedite decisions.
Make “speeches.”
Talk as frequently as possible and at great length.
Illustrate your “points” by long anecdotes and accounts of personal experiences.
When training new workers, give incomplete or misleading instructions.
Hold conferences when there is more critical work to be done.
Does anything sound familiar to you? Maybe some of these examples even got you smiling? Most of us know that these issues are relatable, and they are exactly what makes our work environment so frustrating at times.
Aaron Dignan, author of the book “Brave New Work”, explains that these situations are so ironically common that anyone would have a recollection of something similar in their career, possibly happening too often to count. However, as amusing as these statements are, the mind blowing fact is that they were in fact, developed by William Donovan, director of the US office of strategic services and the precursor to the CIA, who was looking for ways to undermine and destabilise enemy states. All these actions were listed in separate handouts and given out to cooperating citizens in enemy states to use in acts of sabotage.
Even though everything has seemingly changed since the start of the 20th century, including housing, infrastructure, technology and other things, management barely changed at all.
“Information flows up. Decisions flow down. A place for everyone, and everyone in their place. Somehow, amid a period of relentless innovation, including the internet, mobile computing, autonomous vehicles, artificial intelligence, and rockets to space that can land themselves, the way we come together as human beings to solve problems and invent our future has stayed remarkably constant,” — Dignan says.
While he also says that this means either of two things - we as humanity perfected the way we manage things or we are stuck in “a Gordian knot of our own design”. Based on common knowledge about today’s work, I would suggest the latter. For whatever reason, we have not been asking enough questions to change how most companies operate today.
Professor Robert Kegan and Lisa Lahey, scholars from Harvard University, share a similar view but take a different approach coming from an adult development perspective (adult development theory part 1 and part 2). They describe it in their book “An everyone culture: Deliberately Developmental Organisations (DDO)” (summary here). Kegan and Lahey compare these new modern, so-called evolutionary, organisations to old-fashioned ordinary organisations and investigate how the former create extraordinary results.
“In an ordinary organization, most people are doing a second job no one is paying them for,” - Kegan and Lahey say, — “covering up their weaknesses, managing other people’s impressions of them, [and] hiding their limitations.”
According to them, one of the consequences of this problem is that work has become a place to perform, not a place to learn: “Confidence and equanimity get promoted. Humility, vulnerability, and struggle get labeled weak. So we put on a show for one another (and ourselves). Our egos become inflated and fragile. And learning becomes a secret shame.”
They suggest that this employee culture is “the single biggest loss of resources that organizations suffer every day”. They stress that the need to impress others at work ultimately prevents companies from realising their full potential and achieving new heights.
As we can see, everything points to the fact that, in today’s traditional organisations, everyone works a second job that consists of hiding imperfections. Consider it from the employer’s point of view and try to imagine yourself paying a full-time wage for part-time work to every employee, every day. Even worse, think about it this way: when people are working hard to hide their weaknesses, they have fewer chances to overcome them, so you must continue paying the costs of these limitations as well.
Let’s consider a simple example. A person working for a company is working on a project timeline, but isn’t confident he has enough knowledge to do the task well. But this person is too afraid to admit this, so they don’t consult colleagues that would clearly know more about it. This way, this person creates an unrealistic timeline for people to rely on, which in turn leads to stressful deadlines, delays and disruptions in both production processes and marketing campaigns. All these issues come as additional costs to the company.
The consequences of this need to conceal one’s weaknesses from everyone has even more serious consequences — employee burnout. In fact, research shows that the single biggest cause of work burnout is not work overload, but working too long without experiencing personal development. Now, imagine the cap on personal development we create by hiding our weaknesses rather than having a regular opportunity to overcome them.
Thus, adult developmental theory illuminates the gradual evolution of people’s meaning-making systems and psychological capabilities. For years, developmental practitioners have known how to provide effective support to individuals but little attention has been given to applying these principles and methods to an entire organization.
“The culture always wins, but not because it is put above profitability; profitability is the oxygen that keeps the company alive. The culture wins because it is seen as the route to profitability. […] Culture creates success, and the success allows you to further invest in the culture. It’s a circle. It’s all one thing,” — the authors say.
In ordinary organisations Kegan and his team regularly ask, “On a one-to-ten scale, how frank are you with each other on matters of importance to how the business is run? ‘One’ equals ‘not at all,’ and ‘ten’ equals ‘completely.’” The scores were gathered anonymously.
The average scores were usually around 6 out of 10. The average is surprisingly low, suggesting that, in most companies, employees know only around 60 percent of everything they need to know. Clearly, employees are free to hide things they want to hide from others, because, to many, sharing this information may put them in a vulnerable position. But imagine your doctor, your attorney, or your spouse telling you just 60 percent of what she feels you need to know. How would that feel? Most likely, you are thinking to yourself, that knowing 100 percent would be the only way to go.
From my experience, this happens a lot. At a company I was consulting, the CTO was not the right fit for the job, but no one openly told him. As a result, the company kept suffering from his ineffective decisions, and more resources were put into working around him. Instead of openly addressing the issue and solving the situation. Another example of how people are hiding information from others is a story of a friend of mine, who worked remotely but continued hiding it from everyone by putting a neutral background on Zoom for the fear of being criticised for it. As you can see, these situations happen everywhere and all the time, but only take away the resources and energy from employees and organisations.
So, why should a business become a DDO? Answer: To move its Frankness Score from 6 to 9 or 10! A business with a score of 6 runs only at 60 percent efficiency.
For companies to be able to boost their results, Kegan suggests asking an important question: “For my particular business, at this moment in history, will the challenges we face be largely technical ones, or largely adaptive ones?”
This particular distinction was made by another expert from Harvard, Ronald Heifetz, who mentioned that technical challenges require new skill sets, while adaptive challenges need a change to mindset in addition to skills. This way, technical challenges allow using already existing paths and solutions that can be simply applied to the problem. However, the key problem arises when organisations try solving adaptive issues with technical solutions.
To illustrate, here is a simple example. Imagine you’re a person who always wants to be around people. This is something that affects your partner who needs their space for peace and quiet. Here, we can see an adaptive challenge because you would need to understand that you and your partner are different people with varying needs, and you need patience to let your partner be alone sometimes. You cannot solve this problem with a ready-made solution, which means it is an adaptive challenge and not a technical one.
In turn, let’s look at a situation that presents a technical challenge from my personal experience. In my company, one of the junior product managers lacked general product management skills which affected the efficiency of his work. The technical solution was ready at hand — signing him up for a product management training program to help him learn quickly.
What if, in a VUCA (volatility, uncertainty, complexity and ambiguity) environment, companies’ challenges are predominantly adaptive? If that’s true, then most companies - whether or not they are initially enthusiastic about people development - will need to consider the best ways to equip themselves to meet adaptive challenges.
This is what Kegan believes the deliberately developmental organisation (DDO) to be: the jet engine culture for meeting adaptive challenges when most organisations are still flying a prop plane. In light of this, we should all perhaps think twice before assuming that a DDO is always a rare flower, limited to those places whose leaders begin with a burning passion to combine business development with human development. DDOs may be the first adopters, the ones who turn an eccentric path into a blazed trail, but they are surely not an unachievable standard
Even though most companies are still operating in this outdated way of work, there is a chance for hope. Some companies have been embracing a new way of work and are very successful with it. These include, for instance, Ray Dalios Bridgewater (the most successful hedge fund in the world) or e-commerce company Next Jump Inc. These companies are committed to the principles of development that make them one of the few companies recognised as DDOs in the world. For instance, Next Jump Inc. prides itself on over 20 years of training and collaboration with industry leaders across sectors including military, education, sports, medicine and NGOs to provide developmental programs to its employees. In turn, Bridgewater leaders are keen on allowing employees to make mistakes, choosing not to punish them for errors but help them see their failures as opportunities for growth.
As we have discussed in this article, many companies today simply don’t work. People working for these organisations are unhappy and unproductive, so they are unable to create any lasting impact. Most employees work a second job covering their weaknesses and incompetencies, and the overall frankness score in these organisations hardly ever goes over 6 points on the scale of 10.
Why does it happen? Because management principles haven’t changed since the last century. Therefore, in order to keep up with trends, companies need to step up and apply the three universal principles used by evolutionary orgnisations — people-positive, development-oriented and complexity-conscious. By being people-positive, companies put trust in their employees’ capacity to motivate themselves. Complexity-conscious stands for being aware of complex problems that need guiding and simple rules. Finally, development-oriented companies are those that make their employees’ development the top priority.
We can already see how some companies adopt these approaches, like Bridgewater and Next Jump Inc. In the future, others that don’t adapt, even if they are still successful today, will fail in the near future because this will soon become the defacto standard of organisation running.
In the next article I will cover how work actually gets done and how companies work before diving into the operating system of the future. If you are interested, please subscribe. I will then notify you when I release the 2nd article (in around 2 weeks) and send you the full white paper about the operating system for evolutionary organizations when it’s done.