3
Which Would You Rather Work In—A Freedom-Based or a Control-Based Work Environment?
Pete broke in. “Let me see if I’ve got this.” His tone had an air of disbelief. “You’re telling me that you were prepared to get rid of your hierarchy, supervision, quotas, policies, and procedures? How did you keep your job?” Pete’s incredulity was written all over his face.
Looking at Pete, Kip couldn’t help but give out a belly laugh for the first time that day. “I not only kept my job, but I became one popular guy,” Kip beamed with pride. “I mean, folks actually cheered when they heard about us abandoning control!”
“What about the supervisors? Did they cheer, too?” asked Pete, with apparent skepticism.
“No, not exactly,” Kip said with candor and a smirk. “Some did, of course, but most didn’t. Some were scared to death, while others were paralyzed by thoughts of the staff taking over the place. You know, they had visions of the inmates running the prison.” Kip smiled, but it was evident that Pete wasn’t amused as he folded his arms and moved slightly away from Kip.
As Kip continued, you could see that he was having fun sticking it to his younger and now noticeably stiffer colleague with all this revolutionary talk. “Supervisors at every level kept asking me how their jobs would get done. My phone rang off the hook in the early days, but I gave the supervisors the straight answer—I never faltered. I told them straight out, ‘It’s no longer your job. It’s theirs!’”26
Trying to alleviate Pete’s obvious discomfort, Kip quickly added, “Please understand, Pete, we didn’t run out to the stores and institute all these changes that same week—we might have been crazy, but we weren’t stupid! No, we took our time. We planned for this change over several years, but that part of the story will come later, so let me go on.” Pete sat back, a little more confident that he wasn’t sharing a train compartment with a madman. He unfolded his arms but still maintained his distance, just in case.
“It took us all morning to sort through the first category because it was hard for me to let go of these controls. As we began to talk among ourselves during lunch, Brad came up with the notion that offering rewards was a form of control that was strangling us. We began to recognize that he was right. So the second category we called ‘Offering Rewards.’ Brad identified two of the elements in this category; Jennifer came up with the third.”
Who invented the modern corporation? Men like John D. Rockefeller of Standard Oil, and Alfred Sloan of General Motors. In the postwar era of economic expansion, you had Robert McNamara at Ford and Harold Geneen at ITT, Reginald Jones at General Electric. It was the heyday of multiplex managerial strata, with chief executives assisted by staffs of planners and auditors and operations strategists. Rigid structures were necessary to conserve and manage the scarcest resource of all, the most valuable resource of all—information. Now, what happens if information becomes as free and copiously available as the air we breathe or the water we drink? All that becomes unnecessary. All that gives way.
—Gregson Manning, in The Prometheus
Deception by Robert Ludlum
(New York: St. Martin’s, 2000)
By now Pete was leaning forward again and looking more relaxed. He realized that Kip was unfolding for him what would amount to revolutionary changes. He was an experienced manager and had grown up in a corporate environment that thrived on controls as its staple diet. He understood instinctively that each control element comprised part of an entrenched bureaucracy. And he knew that these controls had taken on lives of their own and wouldn’t just roll over and go away without a fight.27
“Brad felt that internal competition and incentive plans were subtle forms of control,” continued Kip. “We talked about this for some time. Internal competition, something many of us were raised on, became the number one element in this second category.”
Pete looked puzzled, then spoke. “I’m a little confused. Isn’t it a good thing to have internal competition?”
Kip nodded knowingly. “I thought so, too, Pete, but as Brad began to relate all the downside activities, such as cheating, withholding information, sabotaging colleagues, backstabbing, entitlements, and bad-mouthing, it appeared to us that his comments needed to be heeded.”
Kip waited for a response from Pete, but it never came. Pete’s only signal that he had heard Kip was a resigned nod, that Kip was right and that he, too, knew of these things in his career. And at that moment, Pete was reflecting on the brewing internal competition between himself and the new CFO at his optics company, something he wasn’t looking forward to facing.
Kip brought Pete back to the present. “Jennifer thought the appraisal system should be in the second category, too. I didn’t need much convincing, and neither did Brad. I thought back to a time when I was being appraised, and I didn’t like it. Here’s a short story to make my point.
“I was in my late twenties and flying high. That winter we got a new boss. He came in and started to review all of us. I was, at that time, leading the branch and second in the nation in sales. My numbers were great. The appraisal system was composed of a one to five ranking, with five being the top. Did I get all fives? Not on your life! My new boss gave me all fours! And why? Because, he said, if he gave me all fives, there wouldn’t be any place for me to grow. I instantly hated him and left the branch at the first chance of a transfer. Do appraisals systems control people? I’ll let you answer that,” said Kip earnestly.
“OK, so the second category,” summed Pete, “covers internal competition, incentive plans, and appraisal systems, and you’re saying these need to go, too?” He had just a hint of resignation in his voice.
“Yes, I am,” said Kip. “At National Stores we slam-dunked these three into the garbage can.” The vision of Kip playing basketball was a little much for Pete, and he smiled.
“And, after we explained our reasoning to our staff, there weren’t many who opposed this move. I know you have questions, but let me go on.”
The older man next turned to the third category and the final four elements. Pete now leaned even closer to Kip and began reading upside down what Kip had written. Pete had learned to read upside down like many students do, and he had refined the technique during his years of negotiating with unions.
Kip continued debriefing his fellow passenger. “I wanted to establish National Stores as a place where every staff member would take personal responsibility for his or her actions, decisions, and results.
“So, we abandoned the elements in this third category. Jennifer made the case for abandoning any attempts to delegate authority. She said we should either do it ourselves or let the other person or group do it. And if we let others take on responsibility, we shouldn’t follow up on them. If we wanted people to be accountable, then we needed to treat them like adults.
“Pete, by the time we were discussing this third category, I wasn’t sure I was going to have a business left. I was the one who had come up with the idea of abandoning controls the night before, but now that Pandora’s box was open, it scared even me.”30
“That’s the second time I’ve heard you use that phrase,” said Pete.
“What’s that?” said Kip.
“The one about treating people like adults. I always thought I was treating my people like adults, but after reading this list and hearing your explanation, I realize that I’m playing the parent role and not letting them behave as adults. I’m treating them like children.”
Kip smiled and recognized that Pete was beginning to personalize these ideas. Kip wasn’t sure how much of his argument Pete was buying, but at least Pete was trying the ideas on for size.
Pete continued. “But I don’t understand how you eliminate following up on people and still ensure that they do what they’re supposed to do.”
Kip looked at Pete and for the first time seemed a little impatient with him. “Pete, we replaced follow-up with personal accountability. We made the person who took on the responsibility directly accountable, with no middle man or woman to see that the job got done.”
“But what happened to all the supervisors?” asked Pete.
“Our supervisors still had plenty to do, but they weren’t wiping noses anymore. The ‘kids’ had learned to tie their own shoes and go out to play,” said Kip with a half smile and a wink, “and they loved it!”
It all began to sink in at some level for Pete, but he wasn’t fully ready to accept what Kip was saying. “Are you trying to tell me, Kip, that none of the high-profile programs, systems, or processes you mentioned helped your company improve? We’ve implemented some of those same programs, and we’ve seen improvement. In fact, I’d argue that it’s because we’ve added sensible controls that things have gotten better. Without these controls in place, I believe my people would be less accountable, not more.”
“I understand your point,” said Kip, “but what I’m saying is you don’t need controls to get people to be accountable, and that’s what I realized. And the experience I’ve had instituting this approach has been powerful beyond my imagination. I’d submit to you that people at every level within your operation are much more capable and willing to be accountable than you think, and that even sensible or subtle control programs are ultimately counterproductive. In fact, to see greater accountability, you’ve got to give up control totally and give people the freedom to be accountable. That’s the paradox. But there is good news, too. Your people are ready for the change.31
“Maybe we should now take a look at the right side of the chart so you’ll see what we did.”
Pete welcomed the suggestion and said, “Please, by all means.”
Pete read the three new categories. He held his tongue until he couldn’t any longer. “Kip, I just can’t buy this approach and here’s why. I have 10 to 20 percent of my people doing 80 percent of the work. That means there are a lot of people who would run wild under your approach. Sure, 10 to 20 percent of my people might do well under your system, but I have 80 to 90 percent of my people who would take advantage of us if we instituted anything like this. Heck, with controls they aren’t producing; now you want me to treat them like adults? How do you respond to that?”
I’d submit to you that people at every level within your operation are much more capable and willing to be accountable than you think, and that even sensible or subtle control programs are ultimately counterproductive.
Kip took this opportunity to poke some fun at Pete. “Pete, who’s to blame for this situation? Was the hiring process at your company so poor that this happened, or did your control systems kill the potential of 80 percent of your people?” Even Pete had to laugh at Kip’s comment, but Kip had made his point. The point was clear: Controls weren’t the solution, but Pete still wasn’t ready to recognize it.
“We realized that our beliefs about people were holding us back,” Kip explained further. “The solution was to give up control. The challenge was, could we ultimately trust people? Because if we couldn’t, these new ideas would never work.
“I came to believe that we had never been in control and that we were literally killing our people’s spirit. Control was an illusion, like looking out the window of this train and feeling as if you’re going backward, when what’s really happening is that a train next to you is pulling forward and tricking your senses into thinking you’re moving backward.”
Shaking his head, Pete broke in. “I’m sorry, but I’m just not comfortable with the idea of giving up control. Yes, I want to trust my people, but….” His voice trailed off.
Kip smiled in understanding. “It was tough for me as a CEO to give up control. I was ‘Mr. Control’ himself! But I ultimately realized it was even tougher to control people who resented being controlled.” He paused for a moment to let his message sink in. “Pete, before you became a CEO, how did you feel when your boss tried to control you?”
Pete immediately answered, “I hated it and it made me mad! I felt that he didn’t trust me.”
“I’d bet the people at every level of your operation feel the same way,” said Kip.34
Pete nodded in agreement. “That’s a sobering thought I never before considered, but I’ve got a question for you. Don’t you think management has a right and responsibility to maintain at least some measure of control? Without controls in place, I’m afraid my operation would sink into anarchy.”
“Pete, please don’t misunderstand me; it’s not easy for people who have known nothing but control-based management systems to make the leap to a freedom-based work environment. I include in this statement both labor and management. Both have a lot of learning to do. But once they’ve tasted freedom, there’s no going back.”
“That sounds great,” said Pete in mock agreement, “but can you give me a real-life example of a well-known company that’s successfully made the transformation from a control-based management system to a freedom-based work environment and still stayed in business?”
“Sure!” said Kip. “Harley-Davidson is a wonderful example. In 1981 when the management of Harley-Davidson bought the company back from AMF, they were mired in controls and red ink. And they’d be the first to admit that, at the time, the bikes they were producing were, in their own words, ‘junk’!
“The management team at Harley did one thing really right, but it wasn’t until they tried a lot of control-based programs that didn’t work that a miracle happened. They visited a Honda plant in Pennsylvania and what they saw blew their minds. Here was a plant of more than seven hundred people that had less than ten managers and only a couple of people who compiled the quality numbers on the bikes—and their bikes were going out the door in almost perfect shape every time.
“In contrast, Harley was experiencing quality problems to the tune of 30 percent, meaning that one out of three of their bikes needed to be fixed when it reached the end of the line. Combine their quality problems with an almost one-to-ten supervisor/manager-to-worker ratio and a bloated quality department of nearly thirty people where nothing ever went out on time, and even a blind man could see the contrast.
“So Harley management went back to their plant and changed everything. Why? Because they now knew what was possible. And the change was more than just abandoning systems and programs. It was really about what people could do. That was the biggest change. It was a change in thinking about people,” said Kip.35
“You’re absolutely right,” said Pete. “Several of my top executives own and ride Harleys. But they talk about how in the seventies, Harley-Davidson motorcycles ran poorly and leaked oil. What exactly did they do to turn the company around?”
“Well, under the leadership of CEO Vaughn Beals, Harley began a transformation up out of the red ink and back to a reputation for producing the finest motorcycles in the world,” said Kip. “And they didn’t do it in the traditional way of turning a company around by imposing new control-based management systems.
“Instead, they started by asking the people who produced the motorcycles what they thought the company should do. Management listened to the workers and turned control of the systems over to them. By instituting a freedom-based work environment that said ‘Trust the workers completely,’ the turnaround has been nothing short of spectacular!” Pete nodded.
“Harley-Davidson has experienced fifteen consecutive years of record revenue earnings. In fact, I saw that they finished the year with a total return of over 24 percent!
And they’re not the only ones who’ve enjoyed that kind of financial success using a freedom-based approach.
“Harley modestly cut back the quality group from almost thirty people to one person in the early days. They realized that to create a quality bike they needed to make everyone a quality expert or, better said, a quality owner of their job. Building accountability could never have happened in the old days because it was the quality control department’s job to define quality and to measure it. Now it was everyone’s job.”
“Those are impressive results,” added Pete.
“Yes, they are. When given the freedom to be responsible, the people at Harley-Davidson created unique ways of organizing and governing themselves. In fact, once an organization has created a freedom-based work environment—one based on trust and freedom without control—I believe the possibilities are infinite. Just look at what free enterprise has done for new technology and innovation.”36
“But, Kip,” argued Pete, “don’t some people take advantage of the lack of controls in a freedom-based work environment?”
“Of course a few members of every staff take advantage of an open workplace,” answered Kip. “I’m sure it even happened at Harley. But my experience suggests that only a small percentage of people take advantage of an open society. A society or an organization has the right to protect itself from lawbreakers. But neither a business nor a nation should compromise the freedoms of an open society to accommodate a few wrongdoers.”
“You’re starting to sound like a politician,” said Pete smiling.
Kip returned Pete’s smile. “I believe it’s the obligation of a freedom-based organization to create an environment where people have the opportunity to be responsible for making their own choices and to be accountable for their own results. That’s what creating an adult environment is all about. It is an environment with choices, and I’d venture to bet that in the old days at Harley the workers didn’t have any choices. What they had were control-based systems that said, ‘Trust the numbers, not the people!’”
“Well, that sounds good for Harley or for National Stores,” said Pete, “but is that approach really practical for every company and organization?”
“It’s very practical,” responded Kip, “but as I said, you have to change your beliefs about people to make this approach work. You’ve got to believe that people really can be trusted and really want to be great. In contrast, control-based thinking believes that people cannot be trusted and without controls in place, will perform poorly, take advantage—or worse.
“If you want to know how inefficient control-based thinking is, just take a look at the 80-to-20 rule. The rule goes like this, and it’s prevalent in all industries: ‘Twenty percent of the people do 80 percent of the work.’ That’s not too different from your own experience, is it, Pete? But in a freedom-based workplace, 95 percent of the people become fully engaged. That’s the new rule!”37
Pete, still not convinced, responded with another question. “So, are you suggesting that control-based management systems are to blame for a lack of accountability and that poor performance is a consequence of not trusting people?”
“I sure am,” shot Kip right back. “In fact, I’ll take the risk of adding that as long as an organization tries to control people with the latest control-based fad, its hope for sustained success is doomed!”
“Kip, I’d like to trust my people,” said Pete, “but I find that some are always bending or breaking our company rules, so we have to keep adding new ones.
“That sadly seems to be the pattern almost everywhere,” Kip acknowledged. “About 5 percent don’t make it in a freedom-based workplace. But remember, that’s one heck of a lot better than your alternative where 80 percent don’t take responsibility.”
But why set up new rules that penalize everyone for the failures or sins of the few?
Why build control-based systems to safeguard the operation from the actions of a few untrustworthy people and in the process discourage your most creative people from generating the big wins?
Kip went to his more salient point. “But why set up new rules that penalize everyone for the failures or sins of the few? Why build control-based systems to safeguard the operation from the actions of a few untrustworthy people and in the process discourage your most creative people from generating the big wins?”
Pete listened intently as Kip made his points. “It’s ironic when I think about it now in my own operation,” admitted Pete, “but putting new rules in place probably sent the message that no one was to be trusted.”38
“Precisely!” said Kip. “Control-based thinking says that controls establish accountability. But freedom-based thinking says that controls stifle accountability and that only by trusting people will accountability become a reality.
“Frankly, Pete, you ultimately have to make a choice. You can’t straddle the fence on this basic issue. Either you trust the people around you, or eventually you’ll face what I faced that fateful Monday morning many years ago.
“I also learned that everyone will be looking at you to see if you really mean what’s coming out of your mouth. Don’t expect that just because you said it once people will believe you. No, you have to say it over and over again in lots of different ways. Pete, expect that your credibility will be tested. Mine was, and so was that of every manager and supervisor at National Stores. People want to know if your walk and your talk are consistent. If they aren’t, they’ll tell you soon enough.”
Control-based thinking says that controls establish accountability. But freedom-based thinking says that control stifles accountability and that only by trusting people will accountability become a reality.
Both men sat lost in their own thoughts about the fragility of credibility.
After a moment Kip continued. “The basis of the freedom-based approach is to trust people completely, and you must refuse to place controls on them as a matter of principle and practicality. If a few individuals prove to be untrustworthy or unwilling to be accountable for both their performance and behavior, they simply can’t stay.
“In my experience, I’ve found that the vast majority of people can be trusted and appreciate being treated with trust, and that a freedom-based environment is the best way to achieve sustainable results. When people are invited to own their job, you’d be surprised at the results you’ll get.”39
Pete was silent for a moment, then looked at Kip and said, “If you’ve got concrete proof, then I’m all ears! But this leap of faith you’re asking me to take is asking a lot.”
“I know it is!” Kip looked at his watch and added with a wink, “If we keep talking like this, we’re going to talk ourselves right out of lunch—something I rarely do.” The two men stood up, stepped out into the corridor, and walked toward the dining car.
Pete wasn’t convinced, and he wasn’t about to accept anything Kip had said on faith alone. But in the relaxed atmosphere of the train, Pete was enjoying the conversation, and if nothing else, Kip was making an interesting argument.
As the two men made their way toward the dining car, Pete thought, “I haven’t been on a train since my wife and I toured Europe.” At the time, he was a penniless graduate student and his wife was a microbiologist at the Rockefeller Institute in New York City. Looking back on it now, their early years together were some of his happiest. Money wasn’t the barometer then, and his future seemed full of hope.
Now he faced an unknown future. When he got back to corporate headquarters, he needed to produce results, and he knew that the new CFO would welcome any stumbling on his part. The irony was that the very systems he’d put in place were now the enemy to the very changes he was hearing he needed to make.