The Number One Killer of Successful Organizations: How To Avoid Being Its Next Victim

Every unsuccessful organization fails in its own way; all successful organizations fail alike.

As the organization grows, it differentiates into specialized parts but these parts don’t integrate. Each part pursues its own interests at the expense of the whole. The organization loses its coherence; it becomes dis-organized; it dies.

It is possible to revert this.

Just like organisms can develop increasing levels of complexity in a world of entropy, organizations can develop increasing levels of cooperation in a world of self-interest.

Let’s understand first the problem, and propose then a solution.

A Killer Problem

The right incentives (to break organizational silos) are the wrong incentives (to attract and motivate people).

In order to optimize the system, you must sub-optimize the sub-systems. If you optimize any sub-system, you will sub-optimize the system. This is the problem of organizational silos. (See my previous post.)

In order to incentivize people, you must reward them for their sub-systems. If you reward them for the whole system, you will incentivize them to sub-optimize both their sub-systems and the system. This is the problem of free riders. (See my previous post.)

But when you evaluate people based on the performance of their sub-systems, they will optimize their sub-systems, sub-optimizing the system. You are damned if you do; damned if you don’t.

Take for example the customer retention representative featured in this outrageous example of Comcast. Most likely, the rep’s compensation depends on the number of cancellations during his watch, regardless of whether he has anything to do with them. This seems reasonable, since the organization wants him to minimize these cancellations.

But it is unreasonable, since the organization wants to make a profit, and destroying its reputation and alienating customers is quite unprofitable—especially in the Internet age (as United found out).

So it would seem reasonable to compensate customer retention representatives on the global profits of the company.

But it is unreasonable, since it is profitable to retain customers. An incentive system that does not distinguish between retention rates will discourage (or at least not encourage) customer retention. In this system, the worse rep, one that has no talent or shirks on the job, would get the same compensation as the best. Soon, the best would begin to shirk as well, or would leave the company, bringing the pool of reps to the lowest common denominator.

Damned if you do; damned if you don’t.

Organizational Misalignment

Successful organizations die from loss of alignment. As the number of members grows, people lose sight of the global mission and focus on their individual goals.

This is both for socio-biological and for practical reasons: We are genetically conditioned to associate with our next of kin, as our ancestors have done since the beginning of times. And we are economically rewarded to attend to our KPIs (key performance indicators), as our role models have done since the beginning of corporations.

Each team furthers its individual goals, sapping the energy to further the organizational goal. As I explained here, if the defensive players of a soccer team are punished for every goal they allow, they will never go on the offensive, even when their team is about to lose the game by a goal. And if sales people are paid on commission, they will always sell the highest revenue products, even when these generate no profits for the company.

This cannot be reverted through managerial means. Behavioral controls miss the most important dimensions of knowledge work: passion, creativity, intelligence, cooperation, and so on. At best they yield compliance, not commitment. Financial incentives get crushed between the rock of silos and the hard place of free-riders.

As Albert Einstein said, “We cannot solve our problems with the same thinking we used when we created them.” So we need to think outside of the polarity between centralization and decentralization. We need to look beyond the material and focus on the psychological dimension of human existence.

We need to look at inspirational leadership as the process of aligning the members of an organization in the pursuit of a common goal.

Inspirational Leadership

Let’s define inspirational leadership as the process of eliciting members’ internal commitment to achieve the organizational mission.

An inspirational leader seeks what she cannot demand: internal commitment rather than compliance, enthusiasm rather than obedience, love rather than fear. These are gifts, given only to a leader who is worthy of them. And to remain worthy over time, the leader must reciprocate with an equal value: meaning.

We all want our lives to be significant, to mean something. We want to become important, to matter. True leaders tap into this existential thirst. They provide an opportunity for us to create an identity, to become the ones we feel proud to be. They let us become who we aspire to be.

They do this through three means:

1. Purpose: the why
2. Principles: the how
3. Plan: the what

1. Purpose: The Why

“If a leader demonstrates that (the organization’s) purpose is noble, that the work will enable people to connect with something large – more permanent than their material existence – people will give the best of themselves to the enterprise.” –Mihaly Csikszentmihalyi

Great leaders know that before getting to the details of the what and the how, people must understand the why. Why the organizational project makes sense, why it is worthy of blood, sweat and tears, why their existence will be made more significant by participating in it.

As Simon Sinek argued, great leaders inspire action starting with why. “We are drawn to leaders and organizations that are good at communicating what they believe. Their ability to make us feel like we belong, to make us feel special, safe and not alone is part of what gives them the ability to inspire us.”

2. Principles: The How

The way in which you pursue your purpose matters. Integrity is essential for peace of mind, as we are moral beings. Our self-esteem depends on the alignment between our actions and our values.

Inspirational leaders elicit internal commitment from its followers setting the right culture. As I defined here, culture is the set of beliefs people hold about how we do things around here. Culture is the set of expectations that members of an organization hold about how one has to think and act in order to be one of us.

Leaders establish these principles first and foremost through example, as I argued here. They know that nothing speaks louder than what they do—especially in difficult situations. That is why they take every challenge as an occasion to establish the how.

In previous posts and in my book, Conscious Business, I have discussed some principles that are universally desirable, such as unconditional responsibility, essential integrity and ontological humility.

3. Plan: The What

To commit to a path, you must believe that it leads to your destination. In addition to the emotional drivers such as purpose and principles, it is necessary to have material grounding.

Great leaders transform anxiety into confidence. They give followers the means to confront overwhelming forces. They provide a credible plan that enables the organization to go from here to there.

Confidence does not derive from assurances of success. Even the best-laid plans cannot guarantee results. People feel empowered through the combination of a noble purpose and noble principles, unconditionally worthy of pride, and a solid plan that does as well as any plan can do to navigate the conditional realities.

“No battle plan survives contact with the enemy,” warned field marshal H. Von Moltke. Similarly, no business plan survives first contact with the market. Great leaders don’t stick to outdated strategies. They have a process to adjust them. They are always helping their teams integrate new information, discover opportunities and threats, understand tradeoffs and decide how to proceed.

There Is No Cure But…

Life is a terminal disease, according to John Cleese. Yet there are things you can do to live more in quantity and quality, like exercise and a healthy diet.

Similarly, every organization is bound to disorganize. There is no final cure for misalignment. Yet there are things you can do. You can help your organization—and everybody who has a stake in it—survive and thrive through purpose, principles and plan.

This advice is simple, but not easy—just like a diet. Don't wait until tomorrow to implement it, unless you want to be the next victim.

Readers: If you have tried some of these ideas or have seen great leaders put them in practice, please write a comment below and help us all learn from your experience.

Fred Kofman, Ph.D. in Economics, is Vice-President of Executive Development at Linkedin and Professor of Leadership and Coaching at the Conscious Business Center of the University Francisco Marroquín. He is the author of Conscious Business, How to Build Value Through Values (also available as an audio program.)

Photo: Mayovskyy Andrew/Shutterstock.com