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Culture: ownership and internal markets

  • 13 April 2021
  • Posted by Marcella Bremer

Humanocracy, the book by Gary Hamel and Michele Zanini, presents the research and the practices that help build organizations that foster freedom and responsibility. Here’s part 2 on how to upgrade your organization and develop a positive culture. Let’s look at ownership and internal markets. 

How many of the statements below are true for you:

My work is my passion
I make meaningful business decisions
I feel accountable to customers
My team is small and flexible
Business success depends on me 
I solve interesting issues
I have a financial stake in this business

For many people working in a bureaucracy, these statements are alien. Ownership is lacking when you have to wait for permission and procedures; when another silo, HQ or your boss is responsible and can control what you do.

Ownership

These statements resonate with those working in “new organizations” that experiment with more freedom and responsibility. They feel mentally stimulated, trusted, included, accountable to peers and customers, supported by co-workers and rewarded for their contribution to a meaningful purpose. 

Ownership comes naturally when you can decide about what and how you work and you are responsible for business success. It’s what start-ups and self-employed professionals experience. 77% of millennials dream of starting their own business. Why can’t they do this inside a large organization?

Svenska Handelsbanken is large, but they see every location as a separate business. Local units are accountable for their results, but they also have the freedom to decide on their goals and strategy and resource allocation. The same goes for Vinci SA, a French construction giant with 221,000 people globally. They combine autonomy with accountability for unit results - and that works very well.

Hamel and Zanini offer suggestions to stimulate ownership, even in traditional pyramid-organizations:
Step back from critical decisions and let your team decide
Make a profit-sharing plan
Split units to smaller units
Give units their own profit and loss statement 
Once they have their P&L - add team compensation 
Give frontline teams responsibility for decisions on strategy, operations and people
Let units negotiate on the price of centrally provided services (such as HR)

  • How can your organization become a confederation of owners?

Market intelligence

Another way to upgrade to humanocracy is to benefit from the collective intelligence just like markets do. While we know how well markets work, inside organizations we work in centralized-plan economies.
Individual CEOs make mistakes, such as Intel’s Otellini who didn’t see value in contributing to the iPhone. There can be a large “ignorance tax” when leaders fail to consult the crowd… Intel missed out on a huge opportunity.

Markets work great because they rely on collective intelligence - stock prices reflect the current estimate of value, for instance. No single team can process all the information out there - but masses of people can and do better than individuals or small teams, as research shows.
There’s no CEO of Silicon Valley, but it creates economic and cultural value. There’s no head of bread supply in Amsterdam - yet all people enjoy lovely fresh loafs from various bakeries. The market does its work well.

Executives aren’t the best decision makers, argue Hamel and Zanini:
They tend to defend their own resources
The larger their department, the more power and resources they have
They tend to overinvest in struggling projects for the sake of consistency
They cut cost across the board rather than protecting high-priority areas
They often empathize with the departments they worked before and the people they know best
They depart from last year’s budget - relying on what worked in the past (also: there’s never evidence for what will work in the future!)

In an organization, you can only sell your idea up the chain of command. In a market, you can be turned down a dozen times but you might find an investor and become a success!

A great example comes from IBM, 109 years old and still alive and learning. They created a brilliant internal funding platform, ifundIT in 2013. Every employee received a virtual 2000 USD to invest. If a proposal got 25000 in peer funding, it moved forward as an officially sanctioned project. This way, unconventional ideas had a chance and were reviewed by the peer market, adding all their intelligence to gauge each proposal.
The idea pitchers received a lot of useful feedback and were able to activate a network of advocators.

Hamel and Zanini offer suggestions to stimulate markets, even in traditional pyramid-organizations:

Acknowledge the limits to centralized, top-down decision making of a small group of top executives in today’s complex, volatile world
Test strategy and projects in an internal opinion market - let the crowd rank competing priorities 
Beware of biased resource allocation - challenge decision makers
Give internal innovators access to multiple funding resources
Let units negotiate how they serve each other and at what cost
Let indirect functions compete with outside vendors
Expand the jurisdiction of the crowd: let them define core values, decide which leaders to promote, and so on.
If you’re familiar with the Competing Values Framework of culture, ownership and internal markets thrive in the entrepreneurial Create culture type and the results-oriented Compete culture type. The suggestions stimulate these culture types.

  • Which of these suggestions appeals to you most?
  • Do you focus on ownership or internal markets first?
  • What can you start tomorrow?

© Marcella Bremer, 2021. All rights reserved.

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