Reinventing Organisations … Creating a “teal” business which is more human and agile, ready to win in the 21st century
April 10, 2018
Frederic Laloux’s Reinventing Organizations is considered by many to be the most influential management book of this decade. It has inspired hundreds, probably thousands, of organizations throughout the world to take a radical leap and adopt a whole different set of management principles and practices.
- Download a summary of the book
Most books on organizations are written for people hoping to find the secret key to gaining market share, beating competition and increasing profits. They offer advice on how to better play the game of success within the current management paradigm. “Reinventing Organizations” comes from a different place. It is written for people (founders of organizations, leaders, coaches, and advisors) who sense that something is broken in the way we run organizations today and who feel that something entirely different is called for… but wonder what that might be.
- Reinventing Organisations by Change Factory
- Bursting the Bubble, Teal Ain’t Real by Corporate Rebels
Here the Belgian thinker describes exemplary success stories, explains why the future belongs to self-managing organisations, and describes what he means by ‘wholeness’ and ‘evolutionary purpose’ – and why they represent important breakthroughs.
Part 1 of Frederic Laloux’s Reinventing Organizations takes a sweeping evolutionary and historical view. It explains how every time humanity has shifted to a new stage of consciousness, it has also invented a radically more productive organizational model. Could we be facing another critical juncture today? Could we be about to make such a leap again?
Part 2 serves as a practical handbook. Using stories from real-life case examples (businesses and nonprofits, schools and hospitals), this section describes in detail how this new, soulful way to run an organization works. How are these organizations structured and how do they operate on a day-to-day basis? (Spoiler alert: it’s not the pyramid we know. There are no job descriptions, no targets, hardly any budgets. In their place come many new and soulful practices that make for extraordinarily productive and purposeful organizations.)
Part 3 examines the conditions for these new organizations to thrive. What is needed to start an organization on this new model? Is it possible to transform existing organizations? What results can you expect at the end of the day?
Evolution, Purpose and Wholeness … aka “Teal” Organisations
In a recent article for S+B magazine, The Future of Management is Teal, Laloux describes how organisations are moving forward along an evolutionary spectrum, toward self-management, wholeness, and a deeper sense of purpose.
Here is an extract from his article:
Many people sense that the way organisations are run today has been stretched to its limits. In survey after survey, businesspeople make it clear that in their view, companies are places of dread and drudgery, not passion or purpose. Organizational disillusionment afflicts government agencies, nonprofits, schools, and hospitals just as much. Further, it applies not just to the powerless at the bottom of the hierarchy. Behind a facade of success, many top leaders are tired of the power games and infighting; despite their desperately overloaded schedules, they feel a vague sense of emptiness. All of us yearn for better ways to work together — for more soulful workplaces where our talents are nurtured and our deepest aspirations are honored.
The premise of this article is that humanity is at a threshold; a new form of organization is emerging into public view. Anthropological research suggests that this is a natural next step in a process that began more than 100,000 years ago. There have been, according to this view, at least five distinct organizational paradigms in human history. Could the current organizational disillusionment be a sign that civilization is outgrowing the current model and getting ready for the next?
A number of pioneering organizations in a wide variety of sectors — profit and nonprofit — are already operating with significantly new structures and management practices. They tend to be successful and purposeful, showing the promise of this emerging organizational model. They show how we can deal with the complexity of our times in wholly new ways, and how work can become a place of personal fulfillment and growth. By contrast, they make most of today’s organizations look painfully outdated.
A History of Organizational Paradigms
In describing the pattern of organizational evolution, I draw on the work of a number of thinkers in a field known as “developmental theory.” One of its basic concepts is the idea that human societies, like individuals, don’t grow in linear fashion, but in stages of increasing maturity, consciousness, and complexity. Various scholars have assigned different names to these stages; philosopher Ken Wilber uses colors to identify them, in a sequence that evokes the light spectrum, from infrared to ultraviolet. I borrow his colour scheme as a convenient way to name the successive stages of management evolution.
Around 10,000 years ago, humanity started organizing itself in chiefdoms and proto-empires. With this shift away from small tribes, the meaningful division of labor came into being — a breakthrough invention for its time. With it came the first real organizations, in the form of small conquering armies. These organizations, which in integral theory are labeled Red, are crude, often violent groups. People at this stage of development tend to regard the world as a tough place where only the powerful (or those they protect) get their needs met. This was the origin of command authority. The chief, like the alpha male in a wolf pack, needs to constantly inspire fear to keep underlings in line, and often relies on family members in hopes that they can be trusted. Today’s street gangs, terrorist groups, and crime syndicates are often organized along these lines.
Starting around 4000 BC in Mesopotamia, humanity entered the Amber age of agriculture, state bureaucracies, and organized religion. Psychologically, this leap was enormous: People learned to exercise self-discipline and self-control, internalizing the strong group norms of all agricultural societies. Do what’s right and you will be rewarded, in this life or the next. Do or say the wrong things, and you will be excommunicated from the group.
All agrarian societies are divided into clearly delineated castes. They thrive on order, control, and hierarchy. In organizations, the same principles characterize the Amber stage. The fluid, scheming wolf pack–like Red organizations give way to static, stratified pyramids. The Catholic Church is an archetypal Amber organization, complete with a static organization chart linking all levels of activity in lines and boxes, from the pope at the top to the cardinals below and down to the archbishops, bishops, and priests. Historically, the invention of formal roles and hierarchies was a major breakthrough. It allowed organizations to scale beyond anything Red society could have contemplated. Amber organizations produced the pyramids, irrigation systems, cathedrals, the Great Wall of China, and other structures and feats that were previously unthinkable. They also considerably reduced violence; a priest whose role is defined by a box in an organization chart doesn’t scheme to backstab a bishop who shows a sign of weakness. A second breakthrough was the invention of stable, replicable processes, such as the yearly cycle of planting, growing, and harvest in agriculture.
Today, this hierarchical and process-driven model is visible in large bureaucratic enterprises, many government agencies, and most education and military organizations. In Amber organizations, thinking and execution are strictly separated. People at the bottom must be instructed through command and control. In today’s fast-changing, knowledge-based economy, this static, top-down conception of management has proven to be inefficient; it wastes the talent, creativity, and energy of most people in these organizations.
Starting with the Renaissance, and gaining steam with the Enlightenment and the early Industrial Revolution, a new management concept emerged that challenged its agrarian predecessor. In the Orange paradigm, the world is no longer governed by absolute, God-given rules; it is a complex mechanism that can be understood and exploited through scientific and empirical investigation. Effectiveness replaces morality as the yardstick for decision making: The best decision is the one that begets the highest reward. The goal in an Orange organization is to get ahead, to succeed in socially acceptable ways, and to best play the cards one is dealt. This is arguably the predominant perspective of most leaders in business and politics today.
The leap to Orange coincided with three significant management breakthroughs that gave us the modern corporation. First was the concept of innovation, which brought with it new departments such as R&D, product management, and marketing, as well as project teams and cross-functional initiatives. Second was accountability, which provided leaders with an alternative to commanding people: Give people targets to reach, using freedom and rewards to motivate them. This breakthrough, sometimes called management by objectives, led to the creation of modern HR practices, budgets, KPIs, yearly evaluations, bonus systems, and stock options. Third was meritocracy, the idea that anyone could rise to any position based on his or her qualifications and skills — a radical concept when it appeared.
The transition to Orange brought a new prevailing metaphor. A good organization is not a wolf pack or army, but a machine. Corporate leaders adopted engineering terms to describe their work: they designed the company, using inputs and outputs, information flows, and bottlenecks; they downsized the staff and reengineered their companies. Most large, mainstream publicly listed companies operate with Orange management practices.
In just two and a half centuries, these breakthroughs have generated unprecedented levels of prosperity, added decades to human life expectancy, and dramatically reduced famine and plague in the industrialized world. But as the Orange paradigm grew dominant, it also encouraged short-term thinking, corporate greed, overconsumption, and the reckless exploitation of the planet’s resources and ecosystems. Increasingly, whether we are powerful leaders or low-ranking employees, we feel that this paradigm isn’t sustainable. The heartless and soulless rat race of Orange organizations has us yearning for more.
Postmodernity brought us another world view. The Green stage stresses cooperation over competition and strives for equality, solidarity, and tolerance. Historically, this perspective inspired the fights for the abolition of slavery, and for gender equality, and today it helps combat racism, homophobia, and other forms of discrimination. Green organizations, which include many nonprofits as well as companies such as Southwest Airlines, Starbucks, and the Container Store, consider social responsibility the core of their mission. They serve not just shareholders but all stakeholders, knowing that this often results in higher costs in the short term, but better returns in the end.
Green leaders have championed the soft aspects of business — investing in organizational culture and values, coaching, mentoring, and teamwork — over the hard aspects of strategy and budgeting so prized in Orange. Family is their metaphor; everyone’s voice should be heard and respected. You can’t treat knowledge workers like cogs in a machine. Empowerment and egalitarian management are among the breakthroughs they introduced.
Practice shows, alas, that empowerment and egalitarian management are hard to sustain. Efforts to make everyone equal often lead to hidden power struggles, dominant actors who coopt the system, and organizational gridlock. Green companies, universities, and organizations that take egalitarianism too far have tended to bog down in debate and factionalism. Successful Green companies maintain a careful balance: taming the traditional hierarchy through constant investment in training and culture; reminding leaders and managers to wield their power carefully; and raising the skills of people on the front lines.
All of these organizational paradigms coexist today. In any major city one can find Red organizations (entities at the fringes of the law), Amber organizations (public schools and other government entities), Orange organizations (Wall Street and Main Street companies), and Green organizations (values-driven businesses and many nonprofits). Look closely at how an organization operates — its structure, leadership style, or any core management process — and you can quickly guess the dominant paradigm. Take compensation, for example: How are people rewarded? In a Red company, the boss shares the spoils as he or she pleases, buying allegiance through reward and punishment. In Amber organizations, salaries are tightly linked to a person’s level in the hierarchy (“same rank, same pay”) and there are no incentives or bonuses. Orange companies offer individual incentives to reward star performers, while Green companies generally award team bonuses to encourage cooperation.
Today, in small but increasing numbers, leaders are growing into the next stage of consciousness, beyond Green. They are mindful, taming the needs and impulses of their ego. They are suspicious of their own desires — to control their environment, to be successful, to look good, or even to accomplish good works. Rejecting fear, they listen to the wisdom of other, deeper parts of themselves. They develop an ethic of mutual trust and assumed abundance. They ground their decision making in an inner measure of integrity. They are ready for the next organizational paradigm. Its color is Teal.
The Nature of Teal
In 2012, I set out to find some examples of Teal organizations and describe the factors that set them apart. To qualify, an organization had to employ a minimum of 100 people and had to have been operating for a minimum of five years in ways that were consistent with the characteristics of a Teal stage of human development.
After screening a great number of organizations, I focused on 12, selecting those that were most advanced in reinventing management structures and practices. (See “Examples of Teal Management,” where ten are listed; the other two, AES and BSO/Origin, reverted back to more traditional management practices after a change of CEO or ownership). I was struck by the diversity of these organizations. They include publicly held and privately held for-profit corporations along with nonprofits in the consumer products, industrial, healthcare, retail, and education industries. Typically, the leaders of these companies didn’t know about one another. They often thought they were the only ones to be so foolhardy as to rethink their management practices in fundamental ways. Yet, after much trial and error, they came up with strikingly similar approaches to management. It seems that a coherent new organizational model is emerging.
Like previous leaps to new stages of management, the new model comes with a number of important breakthroughs:
• Self-management. Teal organizations operate effectively, even at a large scale, with a system based on peer relationships. They set up structures and practices in which people have high autonomy in their domain, and are accountable for coordinating with others. Power and control are deeply embedded throughout the organizations, no longer tied to the specific positions of a few top leaders.
• Wholeness. Whereas Orange and Green organizations encourage people to show only their narrow “professional” selves, Teal organizations invite people to reclaim their inner wholeness. They create an environment wherein people feel free to fully express themselves, bringing unprecedented levels of energy, passion, and creativity to work.
• Evolutionary purpose. Teal organizations base their strategies on what they sense the world is asking from them. Agile practices that sense and respond replace the machinery of plans, budgets, targets, and incentives. Paradoxically, by focusing less on the bottom line and shareholder value, they generate financial results that outpace those of competitors.
One common misconception about self-management is that everyone is equal and decisions are made by consensus, which requires endless meetings. The truth is very different. Self-management requires a whole set of interlocking structures and practices, so that decision rights and power flow to any individual who has the expertise, interest, or willingness to step in to oversee a situation. Fluid, natural hierarchies replace the fixed power hierarchies of the pyramid. This requires explicit training. At Buurtzorg, all new team members take a course called Solution-Driven Methods of Interaction, learning sophisticated listening and communication skills, techniques for running meetings and making decisions, and methods of coaching one another and providing perspective.
You might assume that all this is managed through staff functions — the source of capability and power in many Orange and Green organizations. But Buurtzorg’s 9,000 nurses are supported by fewer than 50 staff people. The nurses do their own recruiting and purchasing, contracting for specialized medical or legal expertise when needed. They align with the larger organization not through rules and procedures, but through the collaboration methods they learned. A powerful internal social network allows them to draw on guidance and medical expertise from fellow nurses in other parts of the country, many of whom they’ve never met.
In Amber, Orange, and Green organizations, people typically show up wearing a mask: the bishop’s robe, the doctor’s white coat, and the executive’s suit all embody subtle, but real, expectations. Leaders fear that if people brought all of themselves to work — their moods, quirks, deepest aspirations, and uncertainties — things would quickly fall into disorder. Most people adopt an air of resolution and determination, favoring their masculine, rational selves. It feels unsafe to reveal the caring, inquiring, intuitive, and spiritual aspects of the self, or to express a desire for meaning. Many of us end up disowning some fundamental aspects of our selves. When an organization feels lifeless, is it because we bring so little life to work?
Teal organizations start from the premise, resonant with many wisdom traditions, that a person’s deepest calling is to achieve wholeness. These organizations engender vibrant workspaces and practices where trust flourishes. People feel they can truly be themselves. Simple management practices foster a sense of personal connection. At Patagonia’s headquarters in Ventura, Calif., for example, the company maintains a child development center for employees’ preschoolers. Children’s laughter and chatter are regularly heard; kids visit their parents’ desks, join adults for lunch at the cafeteria, and run around in the playground outside. One sometimes sees a mother nursing her child during a meeting. At another Teal company, Sounds True, people regularly bring their dogs to work. Meetings often take place with two or three dogs lying at people’s feet. Having children and animals present tends to reconnect people with deeper parts of themselves; they see one another not only as colleagues, but as part of a common humanity.
One harbinger of the rise of consciousness in the business world is the support given to contemplative practices. It’s becoming fashionable, even in Wall Street banks, to offer meditation classes. But these are often treated as add-ons, separate from the real work. At the Heiligenfeld hospital chain inner work is woven deeply into daily life. Every week, colleagues from their five hospitals come together for 75 minutes of intensive, reflective dialogue about a theme such as dealing with risks or learning from mistakes. Heiligenfeld also devotes four days per year to silence. The staff speaks only when needed, in whispers; patients engage in forms of therapy that require no words, such as walks in the woods or painting sessions. People learn to interact from a deep place when words are not at hand.
FAVI also has an in-depth onboarding process that ends with new teammates writing an open letter to the colleagues they have joined. The letters often describe how, perhaps for the first time in their career as a machine operator, their voice counts at work and they are considered worthy of trust and appreciation.
Most organizations define a purpose for themselves in the form of a mission statement, which is typically engraved on a plaque in the headquarters lobby. Most of these statements, of course, sound hollow. The espoused purpose can’t compete with the pursuit of profits or competitive advantage.
Buurtzorg’s purpose, as discussed above, is to help sick and elderly patients live a rich and autonomous life. Its competitive advantage is the way it fulfills that purpose, with self-organization and wholeness. If it were a more traditional organization, it would try to keep this competitive advantage secret, and gain market share accordingly. Founder de Blok did the opposite. He wrote a book (Buurtzorg: Menselijkheid Boven Bureaucratie, [Boom Lemma uitgevers, 2010], coauthored with Aart Pool, whose title translates as “Humanity above Bureaucracy”) in which he documented Buurtzorg’s revolutionary ways of operating in great detail. He accepts all invitations from competitors to explain his methods, and acts as an advisor for two direct competitors without compensation.
“The whole notion of competition makes no sense,” says de Blok. “If you share knowledge and information, things will change more quickly.”
Making purpose the cornerstone of an organization has profound consequences for leadership. In today’s dominant management paradigm (Orange), leaders are supposed to define a winning strategy and then marshal the organization to execute it, like the human programmer of a machine who controls what it will do. In the Teal paradigm, founders and leaders view the organization as a living entity, with its own energy, sense of direction, and calling to manifest something in the world. They don’t force a course of action; they try to listen to where the organization is naturally called to go. None of the organizations I researched has a strategy document. Gone are the often dreaded strategy formulation exercises, and much of the machinery of midterm plans, yearly budgets, cascaded KPIs, and individual targets. Instead of trying to predict and control, they aim to sense and respond.
FAVI uses a metaphor to explain this. Other companies look five years ahead and make plans for the next year. They prefer to think like farmers: Look 20 years ahead, and plan only for the next day. A farmer must look far out when deciding which fruit trees to plant or which crops to grow. But it makes no sense to plan a precise date for the harvest. One cannot control the weather, the crops, the soil; they all have a life of their own. Sticking rigidly to plan, instead of sensing and adjusting to reality, leads to having the harvest go to waste, which too often happens in organizations.
Practices based on sensing and responding, combined with self-management, lead to high levels of innovation. Two nurses on a Buurtzorg team found themselves pondering the fact that elderly people, when they fall, often break their hips. Could Buurtzorg help prevent this? Their team created a partnership with a physiotherapist and an occupational therapist from their neighborhood. They advised patients on small changes they could bring to their home interiors, and changes of habit that would minimize the risk of falling. Happy with their success, they approached de Blok to suggest turning “Buurtzorg+” (Buurtzorg + prevention) into a national program.
Had de Blok been a traditional CEO, he might have analyzed the idea and, if he approved it, assigned a team in headquarters to develop a comprehensive implementation plan. His actual answer was much humbler: Why should he, rather than the system itself, decide if this was a wise thing to do? He suggested that the same team of nurses package their approach and disseminate the idea on the company’s internal social network. Hundreds of teams showed interest and the idea quickly caught on. Within a year, almost all teams had incorporated prevention into their work using that model.
In a self-managing, purpose-driven organization, change can come from any person who senses that change is needed. This is how change has occurred in nature for millions of years. Innovation doesn’t happen centrally, according to plan, but at the edges, when some organism senses a change in the environment and experiments to find an appropriate response. Some attempts fail to catch on; others rapidly spread to all corners of the ecosystem.
Becoming a Teal Organization
Some companies are advanced on all three Teal breakthroughs: self-management, wholeness, and evolutionary purpose. Others are more advanced in one area than others — FAVI in self-management, Heiligenfeld in wholeness. None of the Teal companies I have identified have the scale of the largest Orange companies (such as Walmart) or Green ones (such as Southwest Airlines). This is still the dawn of the Teal paradigm. However, its promise is suggested by the success these organizations are having.
Every stage of organizational evolution is more mature and effective than the previous stage, because of the inherent attitude toward power. A Red leader asks, How can I use my power to dominate? An Amber leader asks, How can I use it to enforce the status quo? An Orange leader asks, How can we win? A Green leader asks, How can we empower more people? A Teal leader asks, How can everyone most powerfully pursue a purpose that transcends us all?
Research suggests that there are two — and only two — necessary conditions for developing a Teal organization.
1. Top leadership. The chief executive must have an integrated world view and psychological development consistent with the Teal paradigm. It is helpful if a few close colleagues share this perspective.
2. Ownership. Owners of the organization must also understand and embrace Teal world views. Board members who don’t get it, experience shows, can temporarily give a Teal leader free rein. But when the organization hits a rough patch or faces a critical choice, owners will want to regain control in the only way that makes sense to them: appointing a CEO who exerts top-down, hierarchical authority.
What about businesses, nonprofits, schools, hospitals, government agencies, and other institutions where these conditions are not in place? Can a middle manager hope to influence an entire enterprise by showcasing Teal practices locally? As much as I would like to believe this is possible, my hopes are not high. Experience shows that it takes more than a successful local example to catalyze this sort of system-wide change.
However, as a middle or senior manager, you can introduce some elements of the new paradigm for your own benefit and that of your colleagues. Practices that encourage people to show more of their true selves might come across as unusual, but are unlikely to raise red flags with top leadership. Some elements of self-management can be introduced; for example, instead of imposing new targets, ask team members to determine, in a peer-based process, which targets could be changed. If the team functions well, don’t attend the meeting. Let them come up with the best solution on their own so the targets will be theirs. Or when it’s time to appoint someone to report to you, don’t do it yourself. Let the team one level below write up the job description, interview candidates, and select their boss. Executives who have tried this find that subordinates take choosing their boss very seriously, and the process gives the boss a much stronger working relationship with the team.
The full benefit, of course, accrues to those organizations that fully embrace the new paradigm. When I spent a day with de Blok in the small headquarters of Buurtzorg, I was struck by how much simpler work life could be. Buurtzorg is a 9,000-person organization growing at breakneck speed. But after several hours of conversation, I realized we hadn’t been interrupted once. No urgent phone calls; no assistant coming in to whisper in the CEO’s ear that something had come up. Work in Teal organizations seems to unfold so easily it sometimes verges on the magical. Control and self-correction is embedded in the system, and no longer requires leaders to be on top of everything at all times.
In the past, with every change in consciousness (from Red to Amber to Orange and to Green), more powerful and life-enhancing forms of management have emerged. After the full emergence of the Teal paradigm, we will probably look back and find the organizational forms and practices of the late 20th and early 21st century alienating and unfulfilling. Already, it’s clear that we can create radically more productive, soulful, and purposeful businesses and nonprofits, schools, and hospitals. We are at an inflection point: a moment in history where it’s time to stop trying to fix the old model and instead make the leap to the next one. It will be better suited to the complexity and challenges of our times, and to the yearning in our hearts.