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There are lots of ways to try to answer this question, but here is a great smell test.

Look around you and consider to what extent people feel comfortable taking initiative and making decisions in your organization.  Think about yourself, as well.

If it’s more common, more acceptable, and/or safer to not make decisions and rather do what you’re told, you’re in an innovation-killing organization.  Get out. Fast.

A friend shared with me a fantastic story that emphasizes the lesson from my recent post, though in a very different way than I originally put forward.  If you missed it, here is the general take-away from that post:

When norms, policies, and institutions fail to evolve and stay relevant, people develop new norms and institutions that align with their needs and beliefs and compete, often “illegally,” with the established frameworks.

My friend works for a corporation that has been struggling to understand and leverage social networking technologies within the company in order to build a stronger sense of community and facilitate information-sharing.  They have tried a few officially-sanctioned tools, but nothing has really worked due to lack of adoption by the employee population.

Recently, however, a rogue group of employees began to build a company community using another, free and publicly available technology that works much like Twitter for the enterprise.  Perhaps not surprisingly, people took to it.  The community grew rapidly, reportedly with over 10% of the company’s employees opting in over the course of less than a week.

The growing popularity of the tool, however, and the fact that it was not controllable by corporate IT, created a stir.  Within days of catching the wind of the non-sanctioned corporate community, the company blocked access and threatened to take action against any employees caught using it in the future.

Amazing.  Textbook, in fact. Relating it back to our above lesson, you can see how Corporate IT (i.e. government) failed to keep up with employee needs to communicate and share information, and provide tools that employees found relevant and useful (i.e. norms and institutions), and so employees went outside the system to have their needs met.

In this case, however, “illegality” was not left to fester and produce long-term negative dynamics/norms.  But nor did institutions adapt.  Instead, the corporation apparently had the means, at least in the short-term, to enforce existing policies and quash the “illegality.”

Certainly, it will be interesting to hear how this develops.  Will the norms and institutions developed by the employees prevail?  Stay tuned!

I recently wrote two SocialEarth posts – one on short-termism in the private sector and another on starvation in the nonprofit sector – that randomly and beautifully came together the other day in the form of Hernando de Soto’s book “The Other Path.”

“The Other Path,” Perverse Incentives, and Social Devolution

Hernando de Soto is a highly regarded and sometimes controversial Peruvian economist who is given significant credit for the downfall of the Shining Path, Peru’s Maoist guerrilla group known for its brutal tactics.  Written in 1986, De Soto’s work highlighted the entrepreneurial qualities and aspirations of Peru’s poorer urban classes, as well as the mercantilist policies and laws that were preventing these classes, and Peruvian society overall, from prospering.  He brought to light, for example, the amount of time and money required to legally secure land, build a house, and start a business (often years and amounts of money that equated to many times an average salary).

As indicated by its title, “The Other Path” re-framed the struggle of Peru’s poor from one of proletarian suffering and revolution (espoused by the Shining Path) to a fight for markets and policies that were inclusive and universally enabling rather than at the service of the politically-connected.  His message resonated and, importantly, gave Peruvians an alternative war to wage in the battle against poverty and inequality.

The other critical lesson to be gleaned from De Soto’s work, and the one pertinent to this post, is the following:

When official laws and policies exclude large groups of people or otherwise fail to be relevant to large sectors of society, these excluded groups are given incentives to create their own norms and institutions, in line with their own needs and values, in competition with the formal framework.

We see this all the time in the world around us – both in developing and developed nations.  In the U.S., people who believe in small government find “creative” ways to avoid taxes.  Underage individuals nonetheless consume alcohol.  Gays and lesbians find churches who will marry them, despite laws that prohibit or do not recognize same-sex marriage.  Across Latin America, poor urban families “invade” public and private lands in efforts to acquire property and housing where these are otherwise very difficult to attain.  In Peru, according to De Soto’s research, street vendors developed complex associations with other vendors to procure high-traffic locations and then protect their presumptive right to these locales, even when laws did not permit such action.

The common thread tying these examples together is the idea that when laws, institutions, and norms fail to stay relevant, people begin to systematically act in illegal ways, their actions justified by moral philosophies that are different and/or more progressive.  In instances where the law and institutions eventually adapt, these episodes of illegality are temporary.  Society accepts the moral basis for the formerly illegal action, we adapt our laws, and we go back to behaving legally.  This was the case with the civil rights movement in the U.S. and is likely to be the eventual outcome of the battle for same-sex marriage.

When laws and institutions fail to adapt effectively, however, and when government does not have the means to control illicit behavior, laws lose their legitimacy, illegality in general becomes increasingly acceptable, and whole generations can start to adopt the notion that ends justify means.  In other words, if you believe you have just reason for breaking the law, go ahead and do it.

Illegal actions are, indeed, justified by higher-order rights and moral philosophies in certain cases (the U.S. Declaration of Independence, for example, openly promotes revolution in the face of despotism).  However, the “moral drift” that results when laws and institutions fail to adapt and people are left to behave illegally can have disastrous long-term societal consequences and be incredibly hard to recover from.

Creating Another Path for Our Organizations

Okay, so where does that leave us?  Well, to bring this down to a very immediate and practical (and perhaps more mundane) level, I believe that, as a result of the unrealistic expectations we place on our organizations, both for- and nonprofit, we create incentives for them to behave badly.

In the case of for-profit organizations, our expectation that companies produce greater returns quarter after quarter drives “short-termism” and creates:

  • Disincentives to act in environmentally and socially sustainable ways
  • Incentives to engage in unethical, “creative” accounting
  • Incentives to make questionable business decisions, such as acquisitions that more-often-than-not destroy value

In the case of nonprofit organizations, our unrealistic expectations regarding overhead create:

  • Incentives to engage in unethical, “creative” accounting
  • Incentives to not give employees adequate  job training and competitive wages
  • Disincentives and an often an inability to invest in the sustainable growth of the organization

In these cases, we are the short-sighted lawmakers and government bureaucrats who have failed to adapt.  We have created norms and institutions that have failed to keep up with the needs and best interests of our organizations and our societies.  And our failure is both inhibiting the creation of a better world and encouraging our leaders to make unethical, undesirable, or simply questionable decisions that become more and more “normal” every day.

Time to stop pointing the finger.  We got ourselves into this mess.  What are we going to do to get ourselves out?  How are we going to create new norms and institutions that recognize reality and pull our societies and organizations away from the ledge?

I’m proud to have my first blog post up on!

SocialEarth is an up-and-coming media dedicated to the promotion of social innovation and social entrepreneurship.  They are doing fantastic work, and I’m excited to be taking part.

Here’s a link to the post, “Making a Profit: A Great Problem to Have.”  Check it out and leave comments!

1896 family photo -Texas by oldmantravels.

Rod Schwartz from ClearlySo started up a great conversation on SocialEdge about a week ago.   The conversation revolves around the double-edged phenomenon of charismatic social entrepreneurs (here for Max Weber’s definition of charismatic authority).  In addition to providing great commentary himself, Rod references a series of fantastic blog posts from Jessica Shortall on the topic of succession in social enterprises, which I found particularly compelling.

Here are some highlights:

The transition from entrepreneur to second-generation leadership is fraught with difficulty in any sector. Charismatic, passionate entrepreneurs are by their very nature difficult to replace overnight. They usually have a few things going in this respect:

  • Deep knowledge of the organisation and its networks
  • Loyalty from and personal ties to staff and stakeholders
  • Credibility (sometimes even awe) from all those years of hard slog in the start-up phase

However, across the board, it’s often true that the entrepreneur type is not the right (wo)man for the job in the later growth and maturity phases of the venture – this is a CEO’s job, and requires a different skill set.

The first few sentences here remind me of research I did several years ago on the relationship between socio-cultural norms and economic development.  The research at the time commonly cited China as evidence that cultures emphasizing strong intra-familial ties and values (i.e., Confucianism) tend to develop more slowly in economic terms.

Part of the reason, according to this theory, is that strong intra-familial ties are associated with lower levels of trust in individuals outside one’s family.  This increases transaction costs in general business dealings and, from an entpreneurship standpoint, makes successful founders less likely to pass on their growing businesses to professional management outside the family.  The result is an inability to scale over the generations.  Companies start to get big then fizzle out as less adept family members take over the business.

In fact, there is some evidence that China has traditionally struggled with this.  I challenge you, for example, to list three major global brands that are based in China.  It’s not easy, despite the fact that China has the fastest-growing economy in the world.

They also have an expression in China that, thought it varies from region to region, goes something like this:  “Rags to rags in three generations.”  The idea, again, is that the founder builds the company from scratch and hands it over to the son, who grew up working his tail off in the family business.  The third generation, however, raised in the lap of luxury, develops an interest in more leisurely pursuits and/or lacks the skills needed to continue building the enterprise.  Without a logical successor within the family, the company dies.

It’s a fascinating concept.  And guess what… an almost identical expression has long-existed in the English language.  “Shirt sleeves to shirt sleeves” or “Clogs to clogs in three generations.”  The proverb is so ubiquitous in the West, in fact, that we can only conclude that this has been a universal problem within budding industries and societies.  Wrestling a successful enterprise from the clutches of its founder is no easy task.

So what to do about it?

Well, for one, we need to acknowledge that that entrepreneurs play a critical role and can be, under the right circumstances, good CEOs.  Marc Andreesen, former founder of Netscape, confirms this in his outline for the vision of his new VC firm:

Above all else, we are looking for the brilliant and motivated entrepreneur or entrepreneurial team with a clear vision of what they want to build and how they will create or attack a big market. We cannot substitute for entrepreneurial vision and drive, but we can help such entrepreneurs build great companies around their ideas.

We are hugely in favor of the founder who intends to be CEO. Not all founders can become great CEOs, but most of the great companies in our industry were run by a founder for a long period of time, often decades, and we believe that pattern will continue. We cannot guarantee that a founder can be a great CEO, but we can help that founder develop the skills necessary to reach his or her full CEO potential.

Ok, now what?  We need to learn from companies who have solved this problem.  The ClearlySo blog posts mentioned earlier have some ideas.  Here are a few more:

  1. Institutionalize leadership development and succession planning programs early on. This can and should be driven by a Board of Directors in order to set the expectation that leadership of the organization will transition and to start to prepare individuals for those roles.
  2. Give the founders something else to do. I don’t mean this disparagingly. Certainly, entrepreneurs are some times dedicated to a single idea, which makes moving on incredibly difficult.  But just as often they are motivated by a general desire to impact the world around them and explore and implement revolutionary ideas.  If board members and investors can nurture these ideas, they can better leverage a founder’s native skills and help her weather the identity crisis that will accompany handing over the reins.
  3. Set a date for transition several years in advance. It sounds arbitrary but, like a couple thinking about having their first baby, we need to recognize that there will never be a perfect time.

Regardless of how you make it work, just be sure to never lose sight of how critical this issue is.  If we want social enterprises to succeed, this is yet another nut we’ll have to crack.

Social innovators tend to think big.  We want our organizations/companies to change the world.  Not just impact one community, but thousands; not just a million people but billions.  And we want to do it through awesome, disruptive innovations.

Here’s the catch.  Broad reach and large-scale impact don’t get along well with big-time innovation.

You probably think I’m nuts.  Every noteworthy idea in existence somehow reached scale.  I’d say you’re guilty of selection bias.  For every one idea that makes it big, there are 1,000 others that die on the vine.  When innovation and impact work together, what you’re seeing is the exception, not the rule.

Charles Leadbetter, in minutes 6:45-8:10 of this fantastic TED Talk, does a wonderful job of articulating one reason why.  

(Click here to watch only that section of the talk or watch the full talk below… WordPress doesn’t allow you to designate a starting point)

Organizations with the greatest reach and the resources to generate massive impact are also those with the most limited capacity to support disruptive innovation.  This is almost a foregone conclusion.  Some huge companies like Google, Apple, Cisco, etc. have cracked this nut.  Most others “innovate” through acquisition or simply fail to innovate and fall into the dark depths of irrelevance over time.

There are numerous lessons for social entrepreneurs here:

1. Your best bet is probably to start from scratch.  Don’t expect that a larger, existing org will be able/willing to support your big new idea.  According to Paul Light, in his recent SSIR article, you probably already know or suspect this: 

“Funders seem to prefer new organizations as platforms for change. At best, they dismiss old organizations as incapable of change. At worst, they view them as protectors of the status quo. Yet I find considerable evidence that old organizations can produce change, especially if they are able to rejuvenate themselves. In short, socially entrepreneurial organizations do not have to be new.”

While Paul is right that big, old organizations can produce change, I would challenge you to think about whether yours will. The organization and its executives have to be willing to take big risks and put significant organizational resources behind something that is relatively unproven. Then, they need to be willing to see it through despite painful resistance, failures and setbacks.  BP, with its “Beyond Petroleum” campaign is a good example of half-hearted commitment to change (listen also here). 

2. Scale is something that will have to be achieved the hard way.  Big organizations have big networks and numerous channels through which new products can often be funneled.  If the channels don’t exist, they can be created.  So reaching scale is much easier within the confines of a big company or org.  But, since your small business won’t enjoy the same privileges, scale will have to be achieved slowly, over time, through a huge amount of effort.  So… is your stomach as big as your eyes?

3. The bigger you get, the more you become one of “them.” Don’t fool yourself into thinking that your big, new idea will always be relevant.  It won’t.  And don’t assume you’ll always be on the leading edge of change.  You won’t. If you achieve scale and don’t find ways to enable innovation, you will become one of your former worst enemies.

There is one other lesson here for all of us.  That is the importance of building institutions to support ventures from start-up through to “big.”  What we’re seeing right now in the sector, it seems to me, is an abundance of orgs and structures targeted at supporting brand new ventures.  But the successful among these ventures will, at some point, need access to much larger pools of capital in order to grow.  Not thousands of dollars but millions.  If they can’t get that from traditional financial institutions, because they are generating below-market returns, for example, then we need to figure out how to provide it to them.  Is anyone working on that now?

Sober, Tipsy, Drunk by scott r hamilton by scott r hamilton.

A liquor store in my hometown used to (and still does) append all of its ads with, “please use our products in moderation.” It was a nice gesture from a social responsibility standpoint, and I was reminded of the tagline recently when pondering innovation.

I’m starting to believe, largely as a result of very-intense and self-involved introspection, that too much innovation can be a bad thing.

“Heresy!” you say (if you are of the entrepreneurial ilk, that would be the right answer). Before you get all bent out of shape, let me explain.

Innovation within an industry or society we generally consider a very good thing. I still believe this to be true. Technological progress, broadly defined, is the cornerstone of economic growth. Industries, cities, societies that innovate thrive. So let’s take innovation in aggregate off the table.

Innovation within an individual organization or person, however, can quickly become counter-productive.

Take gastronomy as an example. Let’s suppose that you make the sage decision to create a new and exciting dinner every single evening. No recipe will be repeated and cookbooks are only allowed if modifications are made to the written word. Now imagine the amount of planning and stress that would be associated with such an endeavor. Not only would your culinary aspirations distract from other important tasks, but you’d lose the “economies of scale” that come with cooking similar meals (or eating leftovers), and you’d also probably never get really good at any given menu item because of your reluctance to iterate and make minor tweaks.

Minor tweaks are not especially sexy or exciting. For that matter, neither are leftovers (except really good stews, which always seem to taste better the second day). However, they are the stuff of disciplined execution on great ideas, which is what big-time innovators can be absolutely terrible at.

If you’re an ideas person like me, you may very well read so much and take in so much information over the course of a day that your world is made up more of possibilities than realities. You sometimes have a difficult time settling down your mind enough to do make detailed to-do lists, set concrete goals, and prioritize your work. If that’s you or your organization, an overdone propensity for innovation may be officially kicking your ass.

As you think about this, here are two points of verification that might prove helpful.

1) Wendy Kopp’s NY Times Corner Office interview. It’s a fabulous interview – read it! Wendy is very clear that focus had to triumph over innovation early in Teach for America’s life in order for the effort to really take off.

2) Remember that the net impact of innovation is positive, but that the process of innovating is NECESSARILY wasteful. Don’t take my word for it. Jeff Bezos once compared the internet boom and bust of the early 2000’s to the Cambrian Explosion that took place 500 million years ago.  The “explosion” of diversity in animal life was a major step forward for the earth, but can’t be viewed as such without also considering the mass extinction that took place fifty million years later that allowed the fittest (and luckiest) species to really thrive.

So, to paraphrase Happy Harry’s, if you want to be successful at a personal or organizational level, “Please Use Your Innovation in Moderation.”


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