My MBA was in Entrepreneurial Studies. I have always been fascinated by entrepreneurship, which is why I thoroughly enjoyed a section in Humanocracy: Creating Organizations as Amazing as the People Inside Them by Gary Hamel and Michele Zanini, where the authors discuss how companies can become more entrepreneurial.
“Entrepreneurship is equally essential to human flourishing.” I think it is true, and I wish more companies understood that. Edmund Phelps, a Nobel Prize economist, argued that “the experience of mental stimulation, the challenge of new problems to solve…and the excitement of venturing into the unknown,” are when we feel most alive.
One would think that large companies should be well-positioned to be entrepreneurial. They have money, talented employees, access to customer data, and established brands. Unfortunately, as anyone who has worked for a large organization knows, most of these places are not entrepreneurial at all. Why is that?
Hamel and Zanini assert that employees at large organizations lack ownership, and the basis of entrepreneurship is ownership. While many companies invest millions of dollars in leadership training, these companies invest next to nothing in bottom-up entrepreneurship and teaching their employees to think like owners.
One of the main reasons people choose to become entrepreneurs is the freedom to create their professional path and the ability to control their destiny. These types of people need autonomy to function at their best. It is tough for them to work at a typical large company that commonly utilizes rigid compensation plans and provides little incentive for an employee to do more than the job requires.
As I mentioned in the previous article, many organizations view their employees as “commodity resources doing commodity work.” A new management model is needed, which minimizes bureaucracy and maximizes entrepreneurship.
Hamel and Zanini suggest that the best way to create a sense of ownership at large organizations is to keep business units small. The bigger the company is on the outside, the smaller it should be on the inside. The authors also observe that once employees think and act like owners, they do not need a lot of oversight.
Additional ways to increase the sense of ownership at an organization are:
- Delegate a part of your own authority to the team and let them make some critical decisions
- Make a profit-sharing plan available to all employees
- Divide big units into small ones, keeping operating units to fewer than 50 people
- Give each operating unit their own P&L to manage, minimizing corporate overhead allocations
- Empower frontline operating teams with more decision-making authority for their unit strategy, people, and operations
- Align the team’s compensation to performance, paying above-average rewards for above-average performance
The problem with the bureaucracy at most organizations is that companies are structured as command economies, where the decision-making power is concentrated at the top. Often, the bigger the problem, the fewer people are involved in making decisions. Then, once a decision is made, even fewer people, if any, can challenge the decision-maker. This is the opposite of what is needed to build an organization that is innovative, resilient, and human.
“Bureaucracies excel at solving routine problem,” say Hamel and Zanini. That works in situations where tasks are clearly specified in advance. Today, we are constantly confronted with new problems with no precedent and no scripts. Bureaucracies struggle when faced with novel problems. Teaching employees to be entrepreneurial is how we overcome today’s challenges.