Is your organization a machine or a rain forest?

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Do you see the organization you work for more like a machine or a rain forest?

We design machines to turn inputs into products in an organized, deliberate fashion. A rain forest, on the other hand, is a complex natural system that you nurture rather than control.

Mental models are important, and in his latest book, When More is Not Better, Roger Martin, former dean and now professor emeritus at the Rotman School of Management, argues our preference for machine models of our companies and the economy is harming both and also endangering democratic capitalism. His thoughts are a useful complement to those of UBC law school professor Joel Bakan in his just-released book The New Corporation; both express concerns about the social impact of corporations, but Prof. Martin is more appreciative of corporations and offers more guidance for managers who want their work to lead to positive societal results.

Prof. Martin believes our economic system is out of balance, with too many people seeing paltry rewards, often while struggling with more than one job. That defies a widespread notion that the economy is a fabulous machine, churning out greater prosperity over time for all. Supposedly, economic rewards are distributed in a Gaussian or normal curve, with the great swath of people in the middle and very few at the extremes, either receiving billions or trifles. As productivity improves, the curve shifts towards greater wealth, with everyone seeing an improvement in income.

However, Prof. Martin points out we actually have a Pareto distribution in which a small number of people are getting a disproportionate amount of the economic bounty. It used to be that the poorer you were, the more you benefited from growth in the economy. His research found, for example, Americans in each income percentile group did better than those in the group just above them until 1980. Economic growth was an equalizing force, its bounty widely shared. But that’s no longer true.

And we can’t fix that problem if we continue to believe the economy works like a machine that we can overhaul by deftly pulling some monetary and fiscal levers. Instead, he writes that we have to treat the economy as a complex natural system: “There’s an irony in that while America is entranced with Amazon Incorporated, with its machine learning and algorithms, the country would actually learn more by drawing analogies from that company’s eponym, the world’s biggest and most complex rain forest.” In a natural system, the outcome is the product of the dynamic interactions between and amongst the parts rather than a simple addition of the outputs of the various parts. We must balance efficiency with resilience.

And that’s true of the organization where you work. It’s also a complex, natural system that you are ineptly leading when applying machine thinking – if I improve this vital input (often on the expense side, keeping salaries extremely low, adding to the number of struggling people in our Pareto economy), the machine will hum and profits roll in.

He wants you to turn your back on “reductionism,” breaking everything down into their constituent parts and trying to optimize each. He highlights a favourite restaurant, Joe’s Stone Crab of Miami Beach, and the Four Seasons hotel chain started in Toronto, because both embrace their reality as complex systems. Four Seasons founder Isadore Sharp treated his employees like he wanted those employees to treat his guests. He didn’t endlessly seek greater efficiencies – cutting, cutting, cutting – and surprised his competitors by showing that having the highest paid employees could co-exist with the highest profitability.

He urges you to recognize that slack is not the enemy. The great operations guru, W. Edwards Deming, didn’t aim to eliminate all slack but to find its optimal level. Prof. Martin points to 3G Capital’s efforts when it bought Kraft Heinz to reduce what it saw as a bloated food conglomerate. From 2015 to 2018, sales and general and administrative costs were shaved down by 2 percentage points; the only problem was those apparently weren’t all wasteful expenses, and profit margins sank by 3.5 percentage points.

He warns against having one supreme goal – one proxy for success – in managing your organization or unit. That’s blinkered machine thinking. Wells Fargo fixated on the number of accounts it managed, and so its employees started wildly inflating those. The company would have been wiser, he says, with a broader array of targets, including growth in activity level per account, growth in customer-bank interactions and customer-retention. Southwest Airlines seeks to be the lowest cost airline in America but also No. 1 in customer satisfaction, employee satisfaction and profitability. That broader scope echoes the balanced-scorecard approach promoted by Harvard Business School professor Robert Kaplan and consultant David Norton in the mid-1990s, which argues for multiple, independent financial, customer, operational and learning-innovation targets.

Changing your focus won’t magically return us to a better economic distribution. But he argues it will make your organization more successful and contribute to that broader societal goal, hopefully alongside political leaders, educators and citizens who also substitute rain-forest thinking for our machine models.

Cannonballs

• What three decisions or interactions did you fumble this past week? How can you improve in future?
• Here are four questions to ask a new employee after 90 days from consultant Paul Falcone: Which co-workers have been helpful since you arrived? Who do you talk to when you have questions about your work? Have you had any uncomfortable situations or conflicts with supervisors, co-workers or customers? Does your supervisor clearly explain what the organization expects of you?
• Your next great leader is hiding in plain sight, claims leadership coach Joel Garfinkle – in a low-profile department, in somebody else’s shadow, on a different track, under the cloud of a failed project, under unsupportive management, or from an unconventional background. Anyone spring to mind?

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