The Five Dysfunctions of your Organization

Innovation matters more than ever.  With innovation, your organization stays relevant.  It continues to evolve and bring wealth to society.  In a world that is moving faster and faster, innovation becomes a matter of life and death.  Yet, innovation is poorly understood. There are many stories of failed initiatives. Why is it difficult?

Innovation is a natural part of our lives.   We are curious, we are creative, we adapt to new circumstances and make the best out of it.  But in established organizations there are several psychological challenges to overcome.  Inside a corporation, it is more natural to avoid, undermine or postpone innovation than it is to fertilize the soil and help it grow.

If you work in an established organization, chances are high it suffers from these five dysfunctions.  The dysfunctions are interconnected, but sufficiently distinct to be mentioned seperately.

–        Low pressure to change
–        Inability to handle uncertainty
–        Striving for safety
–        Ineffective use of knowledge workers
–        Confused Leadership

These dysfunctions are a natural effect of tradition and psychology.  Let’s have a deeper look at why this is the case and how it affects innovation.

1 – Low pressure to change

Look at  the established organization as a ship.  You have a cargo of products, business models, ongoing projects, beliefs, culture, customers and so forth.  You also have a direction and a velocity.  To move a body, force or pressure is required.  (In physics this is called inertia, Newton’s 1st law).  In many organizations there is high pressure to increase velocity (optimize operations) and low pressure to change direction or cargo.

The pressure for innovation from existing customers is low.  Customers understand your current offering.  Of course, you can always do it cheaper or add some features.  There could be potential gain for the customer with your new offer, but it also represents a risk and an investment in time, effort and money.  Overall, they are content otherwise they would not buy.

The pressure for innovation from owners is low.  Usually, owners put higher value on predictability, safety and short-term gains than they do on long-term growth.  They do not push you to get out of the comfort zone, increase risk and invest in innovation; a journey that could lead to troubled seas.  They are satisfied if you deliver a predictable result.

The relationships we have with suppliers, vendors and other parties in the eco-system are another source of inertia.  These relationships are not easy to change or replace.

Finally, inside the organization there is also substantial inertia.  Our past actions and behaviors have brought us to where we are today.  We have invested substantial emotions and mental capacity in building our current cargo, both as individuals and as an organization.  The pressure for new ways of thinking and acting are low.

Overall, there is substantial inertia in an established organization and the forces required to change direction or cargo are weak.

Mark Zuckerberg founded Facebook with the motto: “Move fast and break things!”  The motto is a force for renewal.

Winners focus on the future and find their forces for renewal.

2 – Inability to handle uncertainty

Technology development and globalization increases complexity and uncertainty.  Our traditional (scientific) management methods were developed in an environment of low uncertainty with the aim to scale up production.  The methods are not useful when we want to do new things.

With traditional management we optimize operations.  We introduce organizational silos of specialists, we increase flow and we reduce usage of resources.  Lean, TQM and Six Sigma are modern flavors of traditional management.

Traditional management handles increasing uncertainty by further enhancing efforts to optimize the operations.   We add KPIs, launch new reengineering programs assisted by clever management consultants and attend more meetings in order to coordinate all efforts.  Sometimes we buy a start-up that has reduced uncertainty in a certain field to acceptable levels.   Innovation is bought, because traditional management is not equipped to develop it from within.

An example of traditional management’s inability to handle uncertainty is the New Product Development Process.  It is the least understood of traditional business process, often delivering too late, exceeding budget and with poor functionality.  It is also the business process with the highest amount of uncertainty.

Innovation is fuzzy, it does not lend itself to strict processes and structure.  Our traditional management has served us well. It is essential for growing a business, but it is not effective in achieving innovation.  It is entrepreneurial, not traditional, management that reduces uncertainty.  Agile methodologies and The Lean Start-Up are all good working practices, but without an entrepreneurial mindset, it doesn’t reach all the way.

The phase of reducing uncertainty  is often called “The Struggle” by entrepreneurs.  It is a painful process, not taught in business schools.

To win, learn to play with both feet!

3 – Striving for Safety

According to Maslow, safety and security are basic needs.  Innovation is exploring the unknown and it is inherently not safe.  There are many reasons or excuses to choose the safe road.

We know what we have, but not what we get.  Innovation is a threat, both to employees and executives.  Maybe innovation will make my position irrelevant?  Maybe innovation will reveal I was terribly wrong in the past? Maybe I will fail?  Our brains are hard-wired to avoid threat at any cost.  We play it safe.

Innovation is as much doing something new as stopping doing something old.  We feel safe with what has worked in the past and do not easily stop doing something old.  We argue: “If it ain’t  broke, don’t fix it.”

What is safe, predictable and reliable is rewarded.  In fact, for public companies there are even laws forcing companies to make good predictions regarding the future.  There is little leeway to explore new ways with unreliable results.  Innovation is a risk in the short term and risks should be minimized.

Status quo is safe and we seduce ourselves to feel satisfied.  Complalency is a contagious disease.

Beware!  “You can never cross the ocean until you have the courage to lose sight of the shore.” [Christopher Columbus]

Winners catch opportunities!

4 – Ineffective use of knowledge workers

When traditional management developed, the numbers of knowledge workers were few.  In today’s economy, we are all knowledge workers.

Peter Drucker, the world’s most influential management thinker, describes the required change:

“In a traditional workforce, the worker serves the system; in a knowledge workforce, the system must serve the worker.”  [Peter Drucker, Managing in the Next Society, 2002.]

Most companies have not adapted to this paradigm shift.  As an example, let’s have a look at creativity.  It is a psychological need and essential for innovation.  Creativity includes freedom, challenge, learning, autonomy and ideas of an alternative future.  It is oxygen for the knowledge worker.

In modern organizations there is no time, nor resources, left for creativity and thoughts of what could be.  Creativity is strangled.  As human beings, we adapt and let it go.

Or as Homer Simpson puts it to his daughter Lisa: “If adults don’t like their jobs, they don’t go on strike.  They just go in every day and do it really half-assed.”  We focus on other things in life that will more adequately fulfill our psychological needs.

A winning team enables the athlete to perform!

5 – Confused Leadership

Leadership has different parts.  There is the strategic leadership that focuses on Why we are doing what we are doing and What we do.  There is also the Operational Leadership, focusing on How, Where, When and Who.  Finally, there is the Human side of leadership, focusing on motivation, participation and the well being of the ones that will do the job.

Top management leads the organization through KPIs, activities, budgets, reward systems and so forth. We call this the governance system of the organization.  In many established organizations, both the strategic and the human leadership are left with poor weight in the governance system.  The operational leadership takes over and it is this part of leadership that in reality guides our actions.  The ship operates without a clear direction.  The engine is probably running on high rpm, but there is no torque.

We are talking about both visions and participation.  We say the staff is our greatest asset.  We send potential leaders to leadership courses where they do learn a lot about themselves, human relations, coaching, feedback, group dynamics and so forth.  But when they get back in the office, it is their ability to get things done that is rewarded.  That will be their focus.

Most organizations suffer from confused leadership.  We talk about leadership as if we were focusing on the strategic and human parts, but our actions focus on How, Where, When and Who. We reward getting things done here and now.

Winning trainers train both mind and matter!
Result of the Five Dysfunctions

People make innovation come true.  No organization, system or machine will ever be able to do it.  The history of traditional management, together with natural, psychological behavior make innovation difficult in established organizations.  It is the owners and the people inside the organization that must overcome the five dysfunctions in order to start the rewarding, but uncomfortable, journey towards innovation.

“Status quo, you know, is Latin for the mess we’re in.”

Ronald Reagan was right, it is urgent to get out of status quo and to start to innovate!  Leave your comfort zone behind and deal with the five dysfunctions!  Now!

Pontus Rystedt – Jan 28, 2015

 With compliments to Ideon Open, Lund, Sweden, for ideas and inspiration.

Special thanks to:
Sofia Börjesson, Professor, Chalmers Center for Business Innovation
Mats Dunmar, Managing Director, Ideon Open
Joakim Winborg, Professor, Sten K. Johnson Centre for Entrepreneurship
Richard Nilsson, Business Development, Ikano Bank
Robert Olsson, Author & Entrepreneur, Rob Ventures

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