Imagine this: You've built a business that is succeeding beyond your dreams. And the business continues to grow, centered around a small group of key leaders.
But, then comes a downturn: A few years in, the demands of the business have outstripped what originally worked. Sales growth slows; profit stagnates. Employees are not engaged the way they once were or could be. The business has hit a wall.
I recently spoke with Jim Whitehurst, CEO of Red Hat, the open source software company; COO of Delta Airline; and now author of The Open Organization. His book lays out for companies a compelling vision that addresses the entrepreneur’s dilemma described above. What the book addresses in particular is the importance of a healthy company culture, which I agree is the foundation of a healthy business.
My conversation with Jim focused on the concepts in his book specifically as they apply to entrepreneurial and “main street” businesses. In my opinion, the ideas in many business books can be difficult for entrepreneurial companies to integrate. The Open Organization, in contrast, is a valuable resource, offering the following concepts:
1. What is an “open organization”?
An open organization is a business model based on igniting employee passion and engagement. It is designed to foster an employee-owned, inclusive, decision-making process. This contrasts with a traditional “top-down” business model, centered around hierarchy and dictating from the top. In an open organization, employees are more vested in their work, and both quality and execution improve.
2. How does an entrepreneur start to build an open organization?
I asked Jim, “If you were just starting to build an open organization, what is the first thing you would do?” He replied: “Start with engagement. Meaning must be attached to every job function.” Employees have to understand the company’s mission and strategy, he said. If employees are not deeply engaged in the company, an open organization cannot grow.
3. What are the roles of executives and managers in an open organization?
Jim described his role as Red Hat’s CEO as follows: “My job is to create the context for people to be successful.” In an open organization, the CEO’s role is to ensure that people understand meaning, direction and strategy, and that they have the knowledge and tools necessary to successfully perform their jobs.
Jim also said that it is essential that managers be "in line,” meaning that they're driving context to the front lines of the company. “Managers need to be sure people understand their roles,” he said. Both Jim and I agreed that recent efforts by companies like Zappos to eliminate management do not seem practical. But, we strongly agreed that the role of the manager must change in tomorrow’s company.
4. Why is an open organization the best vehicle for an entrepreneur to address growing pains?
Think back to the scenario I outlined above, where the entrepreneurial company has hit a stumbling block because it's entered a new stage of its life cycle. What used to work no longer does.
Jim commented on misconceptions of how to manage growth: “As we grow, we think that we need ‘professional management,’" he said. "What a mistake!” Often this professional management is not in sync with the organization’s culture. As the startup grows, the transition must be culture based. A healthy culture will shape the new leaders -- not the other way around.
Even though the time will come when a leader can no longer know everyone’s name, he or she must always explicitly model the values and expected behaviors in the organization and groom successors who model these values.
Asked how entpreneurs can find employees who fit the open organization and help it prosper, Jim made several points:
- Look for "thermostats," not "thermometers." Thermometers reflect the temperature. Thermostats regulate the temperature. Your opinion leaders are thermostats, and they can more effectively drive the organization’s values.
- Interview for a cultural fit. Nothing is more effective than an employee’s referral. Existing employees can identify excellent prospects better than anyone else. When interviewing, look for passion around something. A candidate with passion is more likely to transfer that passion to his or her work than a candidate whose interview has no passion around anything.
- Accept that a small fraction of employees “can’t handle the chaos.” Your company’s culture will weed these people out. Jim and I strongly disagree with the old-line thinking that leadership must weed out the bottom 10 pecent of employees each year. “People get pushed out by the culture. It happens naturally,” Jim said.
- Leaders who embark upon creating fundamental change must be prepared initially for higher attrition. When Jim was leading Delta Air Lines through its restructuring, his team was required to sign a “Count Me In” agreement, which established the behaviors expected or else offered a severance package for those who would not sign. About 20 percent of Jim’s team left during the restructuring. The transition from “command and control” to an open organization will not work for everyone.
- The open organization will attract millennials. According to Jim, “The majority of millennials do not want to work for large companies.” In his view, the large company on its own is not the problem.The problem is what large companies may breed: hierarchy and an “organizational model that dates back to the 1800s.” Business leaders who want to succeed in hiring the best young candidates will adapt their business structure over time to accommodate unprecedented demand for meaning, flexibility and engagement in their work.
I found Jim's ideas to be a blueprint for entrepreneurs' future success, regardless of the size of their companies. Small stature is an asset; small thinking is the kiss of death. My conversation with Jim reinforced my belief that a healthy company culture is the foundation of a successful business, and, as leaders, we must be prepared for change and healthy growth even as we create a team of empowered employees.