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Podcast Episode Notes: TruthWorks - How Bureaucracy is Killing Innovation, and How to Fix it! with Michele Zanini
Episode Overview In this episode of TruthWorks, co-hosts Jessica Neal and Bob Sutton engage with Michele Zanini, co-author of "Humanocracy." The discussion revolves around the detrimental effects of bureaucracy on innovation and organizational efficiency and offers insights into transforming traditional management systems into more human-centric structures.
Key Themes and Concepts
- Bureaucracy vs. Humanocracy:
- Definition of Bureaucracy:
- Treats people as instruments rather than resourceful individuals.
- Emphasizes hierarchy, control, and compliance.
- Success is based on adherence to processes rather than innovation.
- Definition of Humanocracy:
- Shifts the focus from control to enabling people and innovation.
- Encourages a flatter organizational structure with shared accountability.
- Promotes autonomy, collaboration, and meritocracy.
- Why Organizations Become Bureaucratic:
- Growth and scaling often lead to added layers of management and control.
- Inertia and fear of chaos drive managers to add rules and processes.
- Initial agility is often lost over time as companies expand.
- Radical Models of Leadership:
- Successful organizations like Netflix and Roche Pharmaceuticals showcase alternative management models.
- Emphasis on empowering employees and decentralizing decision-making.
- Performance measurement should include peer feedback rather than solely managerial reviews.
- Culture as Operating Systems:
- Culture is shaped by the choices made in managing and organizing rather than just values or slogans.
- It is vital to align managerial practices with the desired cultural outcomes.
- Examples of Successful Change:
- Roche Pharmaceuticals:
- Flattened hierarchy and formed small autonomous teams.
- Emphasized dynamic resource allocation.
- U.S. Army Initiatives:
- Experimented with selected brigades to foster innovation and agility in operations.
Key Takeaways
- Empower Employees: Organizations should view employees as resourceful individuals who can drive change rather than mere instruments of labor.
- Dismantle Bureaucracy: Identify areas where bureaucracy is hindering performance and create small pilot programs designed to innovate and test new systems.
- Performance Reviews: Shift from traditional annual reviews to more regular, collaborative evaluations that incorporate peer feedback.
- Culture is Actionable: Develop culture through actionable management choices that reflect the values of ownership, accountability, and innovation.
Practical Steps Forward
- Encourage Experimentation: Create a safe environment for teams to experiment with new practices without the fear of negative consequences.
- Build Coalitions for Change: Encourage employees to form alliances to advocate for process changes that increase autonomy and reduce bureaucratic friction.
- Quantify Bureaucratic Costs: Use metrics to illustrate the costs associated with inefficiencies to drive home the need for change.
Conclusion The episode concludes with a call to reimagine organizational structures to foster innovation and engagement. With practical examples and insights from Michele Zanini, listeners are encouraged to take actionable steps towards dismantling bureaucracy and creating a more human-centric workplace.
Additional Resources
- Book: "Humanocracy" by Michele Zanini and Gary Hamel
- Website: [MicheleZanini.com](http://MicheleZanini.com)
- Social Media:
- LinkedIn: [Michele Zanini](https://www.linkedin.com/in/michelezanini)
- Twitter: [@MicheleZanini](https://twitter.com/MicheleZanini)
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These notes aim to capture the essence of the podcast while providing a structured overview of the discussions, key concepts, and actionable insights for listeners interested in improving their organizational practices.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00Bureaucracy treats people as kind of instruments. We call the alternative humanocracy. The relationship of instrumentality is flipped. So instead of the human beings being the resources, it starts with the premise that human beings are actually resourceful and they use the institution, the organization to multiply their impact.
0:20What would happen if we just told the truth? Welcome to TruthWorks, where we dig into the nitty gritty of leadership and work and what needs to change. I'm Jessica Neal. And I'm Patti McCord. Our journey together started in HR, but trust us, it's evolved into something wild, honest, and well, a bit rebellious. So throw out the handbook. We're here to redefine rules to work for us, not against us. Let's dive into another episode.
0:57Hello, everyone, and welcome to another episode of TruthWorks. We still have Bob Sutton as co-host. So excited. Hi, Bob. How are you? Great. Great to be here. Yay. And Patty's still out. And we today have a special guest. So we have Michele Zanini, and he's a global thought leader in organizational design and management systems. He's the co-founder of Management Lab, a consulting firm that is focused on helping organizations get out of their own way. Welcome, Michele. what's happening at the end of August tell us Michele and tell us all about you yeah thank you thank you just again thank you Bob for the kind introduction for the opportunity to be here with with you today so I have a book that I wrote a couple of years well in 2020 with Professor Gary Hamill my longtime partner called Humanocracy and we spent the last two years doing a massive update to the book probably changed 40 percent of of the content thesis is still the same and maybe we can get into that later.
2:02But the new edition is hitting the book shelves on the 26th of August of this year. And I have to say like this, your let's get into your thesis and all of this, because it is something that I am incredibly passionate about. We worked very, very, very, very, very hard at Netflix to do the things that you talk about in your book. And many organizations just don't. So tell us, first of all, how did you get into this and stumble upon it? And then tell us about the research and the thesis and the book. Sure. Yeah. So I've always been passionate about organizational performance. I actually used to come at it from a strategy perspective.
2:45I used to be at first the RAND Corporation, thinking about the public sector and public government strategy. But But then I ended up working at McKinsey semi-randomly. And, you know, that's a lot of what McKinsey consultants do, strategy work. And what I realized is this happened in a few cases when you would help a client develop a brilliant strategy and they would start to execute it. And, you know, the strategy would run well for a couple of years. And then you go back and, you know, it was still the same strategy. There's a lot of inertia. Nothing had really changed. They were adapted to what was happening around the company, which was a lot of change.
3:22And so I started asking myself, why aren't organizations able to renew themselves, their strategy? Why aren't they able to innovate on a sustained basis? They may have an interesting innovative product once, maybe, maybe twice, but are they hotbeds of innovation? And that often didn't seem to be the case. and why are they also not very inspiring places to work? Why are people mostly disengaged? If you look at the Gallup data, it's pretty evident that's the case in the US and worldwide. And what I came to realize is that the problem isn't so much that they had the wrong business model or the wrong technology to run their operations.
4:06It was that they had a management model that the way they were organized, structured, and led that prized things that weren't about renewal and innovation and inspiration and passion. You know, there were things that had to do with control and predictability and conformance. And those things are important. I'm not saying that they're not, but in a way, the practices that most organizations have over-index on those things. And so that's really kind of my aha moment, you know, that the problem wasn't that they These companies didn't have the right strategy. They didn't have the right organizational model that would produce the right strategies.
4:49And so that really got me thinking about what are interesting alternatives, right? Because I think there are, and maybe we'll get into that today. There is a standard model, but there are alternatives to that. And that's really been my passion and my interest and area of work over the last couple of decades. Just thinking about how do we innovate the way we manage, lead, and organize so that we get the benefits of industrial-era management models, the consistency, the coordination, all of that, without all that toxic baggage that comes with it. So following that, Michele, I love your book. I just reread the new one.
5:28The new one is quite different than the older one. So for people who bought the old book, you should buy the new one too. So I love this table, bureaucracy versus humanocracy. I don't want to drive our listeners crazy by reading it all, but can you give us a short summary of bureaucracy versus humanocracy? Because it's a beautiful table, actually. Okay, thank you. Yeah, thanks for— It is. Agreed. I'm delighted you like the book and you find it to be relatively novel. I mean, the thesis is still the same, but we've packed it with lots of more examples and data. Yeah. Hopefully make it kind of unimpeachable, a case for change.
6:05But anyway, so, you know, bureaucracy sounds like really old fashioned, like horsepower, kind of an anachronism, or people might think about it in the context of the public sector. And we talk, you know, it's almost synonymous, you know, with government. But we kind of think about bureaucracy, you can call it industrial era management, whatever you call it, as a particular set of, well, certainly it's principles, but a particular set of practices that I think are in place in most organizations. So things like there's a form of hierarchy with multiple layers, you know, seven or more, you know, there's almost direct 100 % correlation between rank and authority and compensation, where it's the senior executives that set the strategy and allocate resources very top down where leaders are chosen by their superior.
6:57So it's like small, you know, big leaders appoint little leaders where people are slaughtered into very formal and rigid roles where coordination primarily comes from centralizations and committees where there's almost a rule and protocol for almost everything and where employees, the way they get ahead is to kind of compete with each other for a promotion. Right. So there are some pretty identifiable practices that go back to this industrial era way of managing. And that's what we call bureaucracy. And as I mentioned before, it's one way to sum it up is that it's a model that prizes in a way compliance over contribution, you know, process over kind of performance and meaning that, you know, adherence to a process is almost like more important than the results, right?
7:43that come out of that process where analysis is prized over being audacious and where control, in a way, it becomes an end in itself. And as I said, these are important things, but they're almost like table stakes. Of course, you need to be efficient, disciplined, and in control, but you also need to be agile. You also need to be innovative and creative. And this model doesn't really select for those traits and doesn't really generate a lot of that. So that's bureaucracy. And then if you kind of contrast it with, and by the way, the other thing we can get into, baby, is that bureaucracy, no company really starts with a very bureaucratic model.
8:26But basically, it's almost inevitable. There's a dynamic that kind of builds this over time and as the organization becomes bigger. And we can kind of get into that. So, you know, like startups or even Facebook, you know, in 2011 was a very bureaucratic, but now it finds itself with, you know, 13 layers of management. And so, you know, something something happens to the organization that makes that happen. So anyway, so that's that's bureaucracy. And, you know, maybe philosophically, bureaucracy treats people as kind of instruments. Right. It's what the organization uses to, you know, generate income or, you know, serve customers and whatever.
9:00And we we call the alternative humanocracy, for lack of a better word. You can call it post-bureaucratic management or, you know, whatever. We're not wedded to that term. But the basic idea is that, you know, the relationship of instrumentality is flipped. So instead of the human beings being the resources, you know, it starts with the premise that human beings are actually resourceful. And they use the institution, the organization, to multiply their impact. And it sounds like a bit of a kind of wordplay, but if you take that to its logical conclusions and to practical implications, it actually ends up changing the way the organization looks like.
9:38And so I'll give you some of the kind of, if you look at organizations that have taken this kind of idea to heart, that we're going to put people at the center and we're going to use the organization to multiply their impact, you end up with a pyramid that is much flatter and inverted, right? Where basically accountability flows both ways. Like the managers are accountable to the lead, not the other way around, where there are far fewer top-down mandates and rules, where the organization is comprised of small self-managing teams, each kind of running their own business. an organization that's far more lateral than vertical, where it's basically a community of communities where you do still have coordination, but it comes from collaboration, not necessarily centralizing everything into imperious staff groups, where you do have, again, staff functions, but they're kind of fully accountable to the teams.
10:25So they're real business partners to their internal clients. And in a way, in many cases, and we can get into this, the clients can actually fire the support function if the support function isn't adding value, where leaders are enabling and encouraging. They're mobilizing, not micromanaging. There's a really fundamental difference in what is taken to be a leader and what is prized as leadership behavior, where resources are allocated in a much more dynamic, fluid way, market-like in some respect, both people and capital, and where authority and compensation correlate with real impact and value added, sometimes attested by customers, sometimes attested by peers, and not necessarily with rank.
11:07So it's a true kind of meritocracy and where, you know, everyone feels like an owner. There's a sense that the company is mine and I can kind of drive meaningful, contribute to it meaningfully and to success meaningfully. And where, as I said before, like control still happens. But instead of having, you know, control coming from direct and micromanaging oversight and very narrow roles and kind of paralyzing fear of failure, it comes from like deep competence, you know, transparency and kind of skin in the game. So, Jessica, what this reminds me of is treating people as fully formed adults. Yes.
11:47Isn't this very similar to what you did at Netflix? Absolutely. So the whole premise that we had in our operating culture was that we wanted to hire the best people, right? And so if we were going to hire the best people, then we had to pay them the best, right? And then we had to get out of their way, right? Let them do their work. And so, you know, we thought about things like context, not control, right? And that was a big way of how we operated and lead it. And I think there was a fear from Reed and those of us that were most senior in the company is exactly what you're talking about. As companies scale and grow, they start to add all of this process and all of this bureaucracy because they're trying to control the chaos because it's like, oh, gosh, you know, one manager did hire 10 more people than they should have.
12:41And so it's like, well, let's have five people approve it, right, and make sure it goes. And then those processes are never changed. And then they just keep going and going and it just slows everybody down. And so we were just very paranoid about that and did not want that to happen to us. And, you know, Reid and I, when I was in the role of CHRO, we were constantly analyzing where is their consensus? Where are we not efficient? Where is there tension in the system that may not be good tension, right? And having to re-architect how we were thinking about working, right? It was a constant thing.
13:23Yeah, and it's hard work and one needs to be, as you say, incredibly vigilant and deliberate about keeping these things at bay. Because as you rightly say, you know, there are no sunset clauses typically to rules or processes being added. And so it's like a one-way ratchet. You know, it's really hard. It's really hard to unwind it unless you're facing a deep crisis. And then often that's then it's too late. Right. You're already in crisis. Right. But when you're in crisis, nobody thinks about any of those things, because, again, it's like we just need to get this done. And so then they they mobilize and make it make it happen.
14:05I'm curious with your your research and even your work in consulting, have you seen companies be able to unwind it? Yes. No, we definitely have. We dedicate a lot of text in the book to examples. I mean, they typically come in two flavors. One, like Netflix or Burtzorg or other companies that we've profiled in the book, they're kind of Lady Gaga. They were born that way. They were born with those genes. We were. We were. It was in our DNA. Right. Right. And so then the challenge there is how do you preserve it as you scale? But we have plenty of examples of companies that started in a very different way and are now kind of trying to try successfully to roll it back.
14:50Sometimes it's because of a near death experience that kind of jolts the organization into readiness for change. And it's a combination of that and having a very enlightened leader that says we need to like completely think this from first principles. Right. And start something completely different. So there's that case. But there are also cases where this happens when an organization isn't in crisis. But, you know, there are leaders who say, you know, we need to do something quite different and get ahead of the problem. I mean, one example of that that is very recent that we profile in the book is Roche Pharmaceuticals.
15:22Roche is a Swiss company that makes all sorts of like medical devices and drugs. But they know they own Genentech and that's like their big business in the US. and we tell the story of how the CEO back in 2017 basically said, we need to become much more agile. A bunch of our drugs are going off patent. We're going to have a big hole in revenue, so we need to kind of get ahead of this. And what they did, I'll just kind of keep it super short, and then we can go dive into it if you'd like, but they first focused on retooling leadership mindsets and behaviors and getting senior leaders to rethink about their role and their value added in a fundamentally different way.
16:02So again, away from sort of the micromanagement and the control obsession, which is what the system was selecting for, to being much more about enabling others to succeed and architecting the achievement of other people and removing the bottlenecks to achievement. So they worked on the individual kind of component of this, And then they worked on the institutional aspect as well. So the organizational changes. So they flattened the hierarchy that maybe had 10 layers and they went down to five. It's like a pretty significant cut in the number of layers. So information could kind of go up and down much more quickly.
16:39And there were fewer obstacles and fewer people that could say no. They also created smaller units that had all the different functions that were focused on different drugs in them with accountable for a P &L. So they were like creating little mini businesses that were end-to-end responsible for delivering results. Before, it was a functional organization where every single function could blame another function for something that wasn't working, right? And so that way, they created this system where there's full autonomy, but also full accountability. And then they coupled that with a very different mechanism for allocating resources.
17:16They called it sources and signals. So instead of doing a yearly budget cycle, they had 90-day sprints where they would look at all the to-dos across all these different micro-businesses. They would all come together and basically decide across all our businesses, these are the big priorities, irrespective of us pushing them. And they would say, okay, who needs more resources to work on the most suppressing things? Who needs fewer? And they started finding ways of reallocating very dynamically talent and capital. So those are some of the things they did. But over the course of maybe five years, they were able to generate a significant increase in revenue with fewer people.
18:00So they became much more productive. And I think it's not a perfect story. You know, I'm sure there were definitely dead ends that I won't bore you with. But in general, they were able to become a qualitatively different kind of institution by working on all these different fronts. And we can get into the details if you'd like. But I think what made it successful was the fact that they took a very systematic approach to change. They worked on both the individual side as well as the organizational side. And they didn't leave any aspect of their management model unchanged. They worked on different things and said, you know, this has to be systematic.
18:35And they were also, I would say, like quite, you know, I would give a lot of credit to them for doing this, quite bold in daring to go beyond what any other pharma company had done, right? Because like, what if everybody sucks? Like, you know, with benchmarking, you know, when it comes to organizational practices, if everybody does it in a bad way, you're not going to get necessarily very far, right? So they opened their minds to contemplate different alternatives. So anyway, so that's one interesting example. Yeah, no, it's super interesting. And it's so that's so hard to do. Like when you think about all the things that you just said that they like dismantled in a way, like that's very hard.
19:12I don't know, Bob, if you're thinking this, but like how do like because we were just talking about like companies don't start out this way. Like how how does how does this all happen? Like what's the what's the symptom? What's what's the early symptom? What do you see and you go, oh, no, it's happening. Well, one test is sort of when people start saying they decided and not we decided.
19:38That's one hallmark. I mean, in fact, it's one of the obsessions of a lot of these companies. And the reason why they want to keep the organization fairly decentralized and desegregated is to say, you know, we want people to feel like they have agency. And so we hear that. The other test is when the business unit leader doesn't know everyone's name in the business unit, right? Because then it becomes – you start to manage by proxy or have all kinds of other synthetic ways of managing performance because you don't necessarily have that intimate, personal, and granular relationship with the work of the people in your team.
20:13Well, I like that. There's a standard thing that has happened at every Silicon Valley startup I've ever worked with when it started. It was little. and it was when they had to have people badge in. And it's almost, I bet this happened at Netflix. I remember this happened at Idea with David Kelly. And I said, well, what happened? You're having me like badge in. And he said, it got so big that none of us could recognize everybody in the company. People were just walking in off the street of Palo Alto. So we had to do something because we have client confidentiality. So, I mean, that's a classic sort of force that leads to depersonalization and procedures and rules and security guards and all that stuff.
20:56Yeah. Yes. Yeah. And the other thing that happens is that also investors and others kind of expect serious management practices or the adults to come in and then kind of enforce a certain level of conformity because, again, I think we confuse means and ends. We think that that's sort of the only way of getting discipline. And it's one way of getting discipline. It's not a great way. And so there's pressure to conform, right? Sure. Yeah. So what do you, how do you, if you're a founder and, you know, we all work with many of them, how do you resist conforming, right? Because I see conforming happening at every level from how do you do performance reviews to compensation to, and it drives me crazy because nobody does anything uniquely, right?
21:48Everybody just copies and pastes what everybody else does. And some of that pressure is from the board or maybe other executives that you hire internally. But how do you resist? Yeah, and it's a good question. And it also drives me crazy because I think no business person would dispute the fact that you need to have to succeed. You need to have unique products and services. but when it comes to management practices, they're super happy to just copy and paste what, you know, what the template standard template is. And I'm like, in a way, if you actually think about like the drivers all the long-term advantage, it's probably, you know, management practices are actually a really important reason for that.
22:32If you think about, sorry, I'll answer your question, but if you think of even GE, which is now a shadow of its former self, the reason why GE thrives so much for much of the 20th century is because they were the first to invent the, a way to make scientific discovery more disciplined with industrial lab. They were the first ones to invent management development. You know, the first corporate university, they implemented management by objectives, they implemented strategic planning, they, you know, one of the, so they, they innovated on the way they managed for many, many times. And I think that's what made them, you know, leap ahead of the competition and be so successful for so long.
23:07But now we kind of seem to have stopped dreaming and we're okay with, you know, recycling whatever is the standard. So anyway, I hope that, and maybe that's part of how founders kind of resist the temptation is to say, well, the way we're organized actually could be our secret weapon. And so we need to be as curious and as iconoclastic and imagining how we do those things as we are in our products. Right. Right. So you need to have that kind of aspiration and this sense that, you know, there are alternatives. I think that would be number one. I think being curious and understanding how other people have done it and saying, again, not necessarily copying what other people have done, but at least understanding what are the principles that are driving those practices and how do we take those principles to heart in our organization and continually experiment with that.
23:54So, I mean, it takes a little bit of courage, determination, and also this idea that you should continually experiment and make everyone accountable in the organization for coming up with better ways of solving those organizational problems. So that's one of the things I really liked about your book. In fact, I have a favorite part of your whole book, which is a theme that runs through it is, yes, senior management, they have more power, let's face it. But that doesn't excuse people throughout the organization. And this is part of your us versus them. And so there's this wonderful set of questions, which is pretty late in the book, which is reflect on your actions.
24:29the last week and ask, did I hold on to power when I should have shared it? Did I fake enthusiasm for one of my boss's ideas? I'm not going to read all of them. Oh, I like this. Did I favor my team at the expense of the business overall? Did I unfairly deflect blame or claim credit? I love those questions. I love those. And for people who are interested in the book, like this alone is worth the price of admission, honestly, because from my perspective, and I think this is a, what is it, a song that all three of us sing? Certainly fully formed adults at Netflix. And Huggy and I talk about how everybody has like a cone to friction.
25:03You can make things worse or better for people. And that set of norms to me is what great organizations do. And Jessica, that was basically how to be a competent employee at Netflix or you leave, right? Wasn't that the model? That was the model. It was, you know, we didn't do annual performance reviews. We did the multiple times a year. And the deal was when you joined and it was written in the culture book, average performance gets you a nice average check and exceptional performance, you get to keep your job. It wasn't you get a raise, you get to keep your job. And so, you know, that was the expectation, but we were very, very clear about that.
25:44And I, you know, I think my wheels were churning in my head when we were talking just about like companies and how they just get in their own way. But I think when you think about like culture and work, everybody thinks culture is like values and it is, but it's really your operational model, right? It's how you make decisions. It's how you get, you know, alignment. It's how you communicate. And when people aren't clear on what those things are, then it's just really kind of messy. Yeah. Yeah, culture, I think, is probably one of the most misused words in business and management because it means everything and nothing and it's this evanescent kind of thing.
26:32But you're absolutely right. I mean, in a way, culture is the product of specific choices you make around how you manage and organize and which voices get rewarded and which actions get rewarded. it. But there's a sense that some, I think most people think about it very superficially because in a way, maybe that's easy to do, but it doesn't get you very far. So how do you get beyond thinking about it superficially? Yeah. Well, I think it's, to me, you need to work really hard at changing different aspects We call it the management model. We have a little illustration of it, but it's nothing more than choices you make around the way processes and roles and structures get designed.
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27:22Things like capital allocation or performance review or role definition. And are those things reflective of certain principles that you hold dear, whether it's ownership or meritocracy or other things? And unless you do that, I mean, take something, for instance, as, you know, there's a lot of talk about leadership being compassionate and pathetic and even psychological safety, right? That's like a really big topic. And it all makes sense. And you can even exhort people to be more pathetic or even train them maybe in sort of how to listen better or whatever or how you can do things like that. But my experience is that if that's all you do and you don't change the criteria of who gets ahead, right, of how people are evaluated, you know, how decisions are made, that stuff doesn't last very long, right?
28:19It's superficial. So if you're really truly serious about meritocracy, well, maybe you should make compensation, divorce that from position. Maybe you need to make testations of value added, something that is based on peer-based views, not just the view of the single manager. You need to give people the opportunity to try new ideas and profit from them if they're successful. So that's what I'm saying. Otherwise, it's just a slogan, and it doesn't go very far. I mean, there's a really interesting anecdote we have in the book about sensitivity training, which is kind of psychological safety from the 1960s or 70s.
28:5750s. Similar 50s, yeah. 50s. It was invented by Kurt Lewin, I think, like in the 40s and 50s. It goes way back. Yeah, it goes way back. They had trained, you know, Kurt Lewin and his crew trained thousands of people, tens of thousands of managers. It was just incredible. And then it didn't have much of an impact. And there's a really nice summary of it by, I think, Art Kleiner, who wrote an amazing book called Age of Heretics, which I recommend to our listeners if they're interested in management history. He basically said people that went through that training went back to the organization. Two things happened.
29:37Either they reverted back to type and became assholes again or they quit because the environment was so toxic. Yeah, they became stoned out hippies. That was one of the standard things that would happen. They'd move to California and smoke marijuana. that was one of the standard things that happened yeah which yeah right which is which is so like training is important right of course you need to train people you need to but if that's all you do so that's the point like you need to change a bunch of other things right and that's hard work that makes sense and i think that is hard work and many companies i don't know whether they're fearful to do it or it is just too hard to make some of these decisions because um in my advising and consulting, it's like, they're like, yeah, we want to do it, but there's all these other things that will happen if we make that call, then I'll have to change that person's title.
30:30They don't have to change that person's compensation. And it's like, I think it's overwhelming, right? When you, yeah. It's also true. Yeah. It's also true that in a way, a lot of companies haven't had to do that. You know, one of the things we added to the book is this idea that over the last 30 years, corporate America has had an amazing stretch of favorable conditions. The tailwinds have been unbelievable. Despite all we're saying about how competitively challenging the environment is, tax rates have come down, interest rates have been super low, the environment for expanding through acquisition, protecting your moat through regulatory you know kind of arbitrage all those things have allowed companies to essentially offset the problems that the old model this that's our contention that all these things have allowed companies to delay the inevitable but i actually think we're now at a point where all that stuff is sort of it's run its course things are going to be super challenging and difficult because that those all those things were like one-time things that are getting reversed globalization is certainly reversing you know interest is not going to come down very much there's only so much tax deductions or tax decreases you can get.
31:46And so now I think more and more CEOs and you're seeing this already I think more and more CEOs are waking up to the fact that they really need to tackle this. So that's my hope that we're now at a point where we've got to face this and eat our broccoli or whatever and do this. Eat your broccoli, people. I have a question because it's come up a bunch and Bob you mentioned this when we were prepping for our conversation but to get your thoughts on performance reviews because you you've mentioned it a couple times i have my own thoughts but i want to know your thoughts michael oh yeah i definitely would love to hear your your perspective on this because obviously uh you know netflix is a very unique way of doing it yeah so performance reviews you know the well one thing to say is that you know every year come at the end of the year there are all these articles written about performance reviews being broken and terrible.
32:38We need to rethink them. And then nothing really happens. But they keep doing them. But they keep doing them. It's insanity. Yeah. Yeah. The best thing we can do maybe is to say, hey, you know, now instead of just talking to your manager once a year of a performance, maybe you talk to them like once a month. Maybe that'd be nice. Okay. Yeah. Right. Yeah. That's literally like innovation, right? Yeah. Yeah. So, I mean, it is kind of crazy. I think to me, the most toxic aspect of it, well, I mean, is that, you know, in the vast majority of cases, the review is really dependent on the manager. So the manager is really doing, you know, responsible for largely, you know, for whatever rating the person gets, right?
33:21And so that creates all sorts of issues, right? So there's all kinds of biases related to that person making that decision. You know, that person might have hired the person who's getting reviewed, in which case, you know, there's a tendency to just overrate the performance. You know, there's also the issue of the person getting reviewed who probably doesn't want to speak truth to power. It probably doesn't want to say anything too controversial. Probably doesn't want to piss off their manager because they're, you know, they might get, you know, might get dinged. Well, their compensation is tied to it, right?
33:51Yeah, exactly. and obviously it's this idea that it's just once a year or maybe once a month kind of cycle and the other thing that is problematic to me is that performance isn't very holistic and it's not necessarily measuring like fundamental value add it's typically like a KPI or a set of capabilities which you can kind of, it's a little synthetic and maybe gameable I was talking to the former CEO of SAP, Jim Snabe And he says when he left SAP, there were maybe, I forget, maybe 5 ,000 KPIs across the organization. Sounds like a fake peeking. Yeah, SAP. And he said he wasn't bragging, right?
34:33He was basically saying, I think he basically said that we basically put all our brains on ice because we're just blindly following. We're evaluated on these little narrow things. And so that's the only thing we're going to worry about. And maybe in some cases, those were tied to value added. In some cases, they weren't. So anyway, so there are all sorts of problems with it. Again, you know, Netflix shows that there are alternatives. I mean, I'll give you maybe, if you want, like another example of another company that does performance review in a very different way. It's kind of interesting. So W.L.
35:02Gore, the maker of Gore-Tex, Elixir guitar strings, medical devices. So they're a very interesting company founded by Bill Gore, who wanted to flee this kind of DuPont toxic bureaucratic culture in the 50s, created an organization very much based on the principle that you and read another's espouse at Netflix, where, like, you know, people are. fully formed adults and they know what they're doing and we need to create an environment that maximizes their achievement. So anyway, so one of the things that they have is because there are no bosses, you don't really report to someone and you get to decide what you work on through commitments you make to your colleagues.
35:40So you're very free to decide what you work on, but the catch is at the end of the year, the people you work with get to have a say on how well you did, right? So you might have worked with 10, 12 different people over the course of the year on different projects, and they will basically rank you. They do this now with pairwise comparisons where they will, you know, the person that has been exposed to two different colleagues might say, you know, did Jessica, you might have to rate Bob and me and say who out of these two has contributed more value to the firm this year. And, you know, obviously in our case would be Bob, but that's literally the question.
36:19Like, you know, it's not like five-dimensional, whatever. So that's, but that's a really interesting model of performance evaluation because, Jessica, the traditional model is all you got to do is fool your boss, right? But in this Gore model, there's nowhere to hide because just having been in academia sometimes, I've been able to fool my department chair, but my colleagues know that I'm really screwing up. And that's a very powerful, it's actually more constraining than just having one person to fool. And I would imagine also leads to more performance too. And it's more stressful in some ways too.
36:54It is more stressful. I mean, yeah, these places that we profile in the book, and Netflix surely is one of them as well, are not necessarily places where you can coast or relax. Right. They're deeply caring human cultures, but they're not places where you can just like do whatever the hell you want. Bob, you're absolutely right. So you can't fool anybody. You can't brown nose like your boss or whatever. And then, you know, yeah, you're free to make your commitments. Right. But then you're encouraged to be collaborative because that's how you add value. And so anyway, might this work elsewhere?
37:25I don't know. But it's just a very different model of how you do performance reviews. And other companies do it in different ways. But just to say that it's not just Netflix. It's not just Gord. If you are like courageous and imaginative enough, you can come up with different ways of tying. Just be courageous and try to have an imagination about these things. I mean, my thought was like, you know, when I thought about the annual performance review, I just thought it was just a complete waste of time. And it was just to decide how much we were going to give a raise. And it's like, well, if we're just going to dole out on a curve, like 6%, then just let people choose.
38:03Right. Give each department the portion and let them choose how they want it to be. Yeah. But I think, you know, all these companies keep doing them and it's they're just a total waste of time from management and people taking away from like the important things that they actually should be working on. It's no gain for any of the employees. They get nothing really concrete out of it about what they can do differently or better. Yeah. And so I think, you know, the challenge for me in the seat was like, how do I have a constant pulse on performance? right i didn't want to know you know at the end of the year i want to know all the time yeah exactly you can ask a question to both of you because i mean we talked about performance reviews and other things that are just stuck in in neutral i mean you can make the same case for budgeting planning like survey survey after survey shows these things people don't think they work and yet we persist.
39:00And so like, you know, companies are, you know, private sector companies at least are in the business of making money. If these things are wasting a prodigious amount of resources, which I think they are, why does this keep going? Honest question. Because I mean, it's really... I mean, there's two answers. One is it's always been done. So to become mindlessly, we always do it. I mean, my favorite example was one year at Stanford had a freeze where nobody was getting a raise. And I said, why are we doing performance evaluations if no one is getting a raise this year? Good question. And I wrote to the head of HR, who's a friend of mine.
39:40And essentially, the message came back, well, the lawyers want us to do it because if we want to fire people, we need to have a record of bad performance. Oh, good Lord. So this is another reason not to have performance improvement plans, Jessica. Yeah, I know, I know. And when the lawyers are telling you, you're like, okay, come on, guys. Like, really? So my wife's a lawyer and my wife says there's dumb lawyers and there's smart lawyers. And this might be an example. Exactly. Exactly. Oh, good. I mean, I think that there may be, you know, Michaela, to your question, there may be something in there, Bob, because I think it's that risk-taking thing.
40:23Because if you look at that, that is like a, we need to, you know, make sure we have our asses saved. Right. So, you know, like we're trying to protect ourselves. And it's like all these companies tried to protect themselves from this, like one thing that might happen. Right. It's like an anomaly. It's like, oh, well, God, what if one person? And it's like, why are you making a whole process for one versus like a process for the majority? Right. Like, that's where I think some of this happens is like you're they're worried about this one little thing that's like a 2 percent, 1 percent chance of happening versus like, let's try to worry about, you know, amplifying the people that, you know, aren't going to do those things.
41:09Yeah, I think it's partly like the ideology of, as you say, like we need to lock things down. We need to keep everything predictable and in control. And that kind of blinds you both to alternatives, but also to the costs. You know, because there's a little bit of an asymmetry, right? Because, well, you can see if you change this, things will blow up. And that will be pretty visible. If I keep it the way it is, yeah, you know, people will complain. But, you know, no one's going to fire me because I've kept the same performance review process that everybody else has. And so. I would. Yeah.
41:46Exactly. I would. Sorry. You may have another question. but I'm super curious about another question, Jessica, for you and maybe for Bob. One other thing I sometimes hear as pushback is, well, these things can only work in certain companies. So Netflix works because it finds the top percent of people. And if this was done with lowering the ability distribution, talent density distribution, whatever, it wouldn't work. right and so these are kind of examples you know exceptions approve the rule right and they can only work at the edge you know it's like almost like polyamory you know i mean it works like for some people but not for most people yeah and so i wonder whether you i mean i i think not but but i'd love your take on this like how generalizable are these models to the broader i don't know what do you think bob well i i think once you believe that something doesn't apply to me you can come up with all sorts of explanations.
42:46And in as much as I actually, there's actually a lot of things, McKellen and I were actually talking about this earlier in the week that I admire about Walmart, the degree to which Costco pays people more and trusts them more in the front lines kind of scares the hell out of them. Because in theory, it shouldn't be possible. But in practice, Costco's doing really well. So I think that sort of belief in Costco is not the same population as Netflix hire. So I think they're a good example of a company that can actually apply many humanocracy principles to frontline hourly wage employees. But I think it's just this notion that it doesn't apply to us because we're different.
43:24And I like the polyamory example because it's so weird. So that was good too. Yeah, no, that's a great example. And I think, you know, when I think about this and I think about companies, I think they get worried about cost and they get worried about risk you know oh that's that we can't do that's too risky where we have regulations that we have to follow we're in banking or you know we it's all all the excuses to not do the work because i think the work seems overwhelming and hard and scary and then it's going to lead to other things like a you know a whole explosion of things that people don't want to deal with yeah you know and one thing that i'd like to dispel is this notion that i mean it is tough work but that it's like you know really daunting because i think there are ways to get started yeah that are very practical and very easy right so i don't want that's a good place to maybe we always ask for like a nugget at the end of of the show for the listeners so maybe this can be your your nugget for them okay a practical way to do this i right so i think no allow me maybe to just provide one example if I can, and then maybe try to make it personal.
44:37But we don't have it in the book, but hopefully it'll be published soon. Because this idea of, you know, changing from going from A to B is hard, right? It's like, you know, I might tell, you know, convince you that there is a better alternative, but like, how do I get there? And so I mentioned Arusha earlier, it took five years, and they kind of took step by step. Another interesting example comes from the U.S. Army. So they are a very bureaucratic organization, incredibly slow, very top-down. And the Army Chief of Staff, General George, a few years ago basically said, we need to change, but the way we've always done change, top-down, very programmatic, does not going to work.
45:15What I want to do instead is get the soldiers who are actually dealing with the reality of combat to be involved. And I'm going to do this in a very kind of experimental way. So So the army has about 32 brigades, which are groupings of about 4 ,000 soldiers. And they basically took three out of the 30, 32. And they basically said, we are going to give you a little bit of money. I think maybe$50 million each, not that much. And we're going to take you, protect you from all the bureaucratic bullshit that typically makes it impossible for you to do anything you want to do to innovate, to become more lethal, more agile, and whatever.
45:53And you have like, so you can do whatever the hell you want within limits. They got special dispensation. And then at the end of the year, we're going to find out what you did and compare your performance relative to the performance of other brigades that didn't do anything different. And we're going to do that in war games, you know, because that's how you kind of evaluate the performance. And so they took these three brigades and they had like the most amazing flourishing of like new initiatives, training programs. So this one brigade trained everybody how to use drones, just like they trained everybody to use pistols.
46:24And they started using hundreds and hundreds of drones that were produced by 3D printers that they bought. Others changed radically the way they organized different subunits, integrating different specialties in a way that no one had ever done before. And they ended up being incredibly successful, so much so that now the army is taking this logic and applying it to the division, which is sort of the level above the brigade. So the brigade might be like in business terms, might be, yeah, business unit. And then the group above the business unit, that's kind of what they're working on at the same time.
46:58And so the moral of the story is that, you know, you can catalyze pretty big change by focusing on smaller parts of the organization, use them as laboratories. Yeah, I was thinking like it's like A-B testing. Yeah, but like not just for products, right? But for management practices, And, you know, one of the things, one of the quotes from Gerald George, which I love was, you know, bureaucracy hates two things. One is change and one is being left behind. And so you're basically, what you're doing is you're kind of, you're proving what's possible without having to do it in theory, but you're doing it in practice and without having to convince everyone.
47:36With the idea that other people will then kind of follow the lead. So, again, like had he tried to transform everything all at once, he wouldn't have made much progress. But that would be my challenge. I love that. Can you identify specific areas in the organization, specific practices that are ripe for innovation and involve people, involve the users? User-centered design is a big deal when it comes to product, but people are users of internal processes. So can you involve those users in reimagining the new and doing it in a way that is very experimental and risk-bound? That doesn't require the CEO to approve, right?
48:13Yeah. And I remember Patty and I, like everybody hates change. I don't know why. Change is inevitable. But we would just say, we're just going to try it. If it doesn't work, we'll stop doing it. You know what I mean? Like, it's not a big deal. Like, everybody makes these things much more scary and big than they are. It's like, well, let's just try something new. And if that works, great. And if it doesn't, we'll try something else. Exactly. Oh, gosh, this was so good. I could talk to you for hours. Me too. This is our second conversation this week, and I feel like we're just getting started. No, you've got an additional conversation, Bob.
48:52I'm jealous. The backstage conversation. Although the backstage, Michaela, and front stage, Michaela, is kind of the same person. I'm happy to report. Oh, I'm sure. I'm sure it is. He's not bullshitting us. I'm sure. Well, Michaela, will you join us in a career confession? Sure. Absolutely. It sounds a lot scarier talking to something that sounds scarier than it is. It's just a work question. Okay, here's the context. I'm constantly finding myself stuck in decision-making limbo because everything requires approval from higher ups at each step. I know I could get things done way faster if I had more autonomy, but the layers of management are holding me back.
49:32How can I start pushing for more autonomy in decision making without stepping on toes or ruffling feathers? It's a great question for you. It's easy. Yeah, well, that is a really interesting question. I guess two thoughts on that. The first is that I'm sure this person is not alone in feeling this way. So can they find peers and other people who share the same frustration? And try to stitch together some sort of horizontal coalition that then, you know, tries to argue for change. You know, I mean, instead of like trying to persuade your bosses and work vertically, try to work laterally. And we have a nice story in, I guess, in the edition that Bob was holding earlier of someone in the National Health Service, NHS in the UK, like, you know, the public health system there.
50:28how they catalyze a whole set of changes to patient care based on this very logic of saying, I'm not going to ask for permission. We're going to have a conversation. What are steps that we can all take to improve patient care? And got like peers to kind of commit to doing things differently. And then that ended up being something that, again, back to this idea of the bureaucracy not wanting to be left behind. Then, you know, the higher ups kind of embraced it that kind of ran with it as well. But anyway, so can you try to mobilize? And then the other thing I would do is to, one thing that I think works really well is dimensionalizing the cost.
51:00And so can you find examples of where that friction that those seven, eight layers of approvals cost the company real money? Maybe you lost a client or maybe the product was six months late and lost share to other competitors or whatever. and make so make the cost of that tangible expose them we have a little like tool um in the book and also a line called the bureaucratic mass index bmi uh that is is a way to do a little like um diagnosis right because the problem is that a lot of these costs are not hidden they're not explicit and so you can kind of like ignore them you know so i would i would say those two things you know try to make build a little bit of a business case you know based on like missed opportunities of, you know, or other costs related to that.
51:48And then the other thing is, you know, work laterally. But it's, I know it may not be, yeah, I hope so. I mean, it's a tough, but it's a tough dilemma, I'm sure. So I hate to be snide, but I would also add that many of the greatest things that I've seen done in organizations I've worked with are essentially constructive defiance, where people ignore the bosses, they ignore the culture, they do what's right things get better and then their bosses take credit for it everybody wins exactly that's what i was thinking i was like i always thought about it as i'll ask for forgiveness later you know i'm just gonna go ahead and do it and then if it's great nobody's gonna care i mean if you're stealing it's different but if you're actually innovating it's a little different yeah yeah yeah you know i i think that's that's really good advice although it's also like kind of unfair Dare to ask people to have to take a career risk to do the right thing.
52:41Yes. But obviously, there's a place for that as well. Yes. Well, hopefully, whoever you are, this is helpful to you. And get McKinley's book and look at the BMI. The BMI. Yeah. I think exposing the costs of bureaucracy is a good way to start. Most organizations will respond to data, especially if it has to do with money and losing it. Nobody likes to lose money. Yeah, I've seen organizations do, for instance, that had high attrition, look at the cost of that high attrition in retail in particular and kind of understand. I mean, it should have been obvious, but it kind of wasn't that all this attrition was actually costing them a lot of money.
53:28And so being able to dimensionalize the tax you're paying for this is definitely a good way of getting people who are in management positions who are very focused on ROI to pay attention. Yes, indeed. Well, Michele, it has been so fun. Where can people find you if they want to know more about you? Yeah, they can find me on LinkedIn at Michele Zanini or the same thing for Twitter as my handle and MicheleZanini.com, which is my personal website. Okay. And then at the end of August, the new version of the book is coming out, right? It is indeed. And it's available for pre-order on Amazon if you'd like to get it, secure your copy now.
54:11Yay, do it, everybody. Do it. Do it. Okay. All right. Thank you so much. This was so fun. Thank you so much. Thanks for listening to TruthWorks.
From the publisher
In this thought-provoking episode of Truth Works, organizational visionary Michele Zanini joins Jessica Neal and Bob Sutton to unpack the tyranny of bureaucracy and the bold promise of humanocracy. Co-author of the updated book Humanocracy, Michele explains why traditional management systems fail to inspire innovation, agility, or meaning—and how companies like Netflix, Roche, and even the U.S. Army are rewriting the rules.
Together, they explore:
- Why companies become bureaucratic over time
- The flipside: unleashing resourceful people instead of controlling them
- Radical models of leadership, autonomy, and peer accountability
- How culture is built through operating systems—not slogans
If you’re a founder, HR leader, or executive trying to unshackle your team from inertia and unleash real human potential, this one is for you.