We just finished our eighth Developing Market 100 meeting of 2014, this time in Jakarta. One of our most important discussions there focused on the question of “What’s happened to our heroes?”—and that led to an exploration of what one founder called “the economics of empowerment.” Let me explain.
One of the things founders talk a lot about is how difficult it is to balance “heroes” and “systems.” Most companies during the start-up phase are perpetually short on talent. Heroes step into the breach, doing amazing things they really have no business doing, and their exploits become the foundational stories of the company. Eventually, however, even these overachievers get stretched too thin, leading to an urgent need to “professionalize” the company. Leadership seeks to broaden the team, bring in systems to support the team and move the company to the next stage.
The problem is, efforts to professionalize very often go too far. Rather than support the heroes, the new systems constrain them and make the company unattractive for new heroes to join. This issue has been so central to our DM100 discussions over the past year that it led us to co-create a set of actions designed to get this heroes-systems balance right. These actions became Step 3 of the Journey North.
In Jakarta, we talked about why companies so often overcorrect by adding too many systems. One of the founders summed it up this way: “It is all about risk, I think. Your initial investors are risk seeking and the founding team is rewarded for taking risks. But as you get bigger, your stakeholders expect predictability of performance. They want you to hit targets, and management suffers real downside from empowering a potential hero who then lets them down. You worry far more about risk and control and far less about swinging for the fences.”
We all agreed that this was a big issue. As companies grow, there is increasing pressure to deliver within a narrow band of outcomes. “Delivering to budget” becomes more important than taking significant risk to potentially blow through targets. This pressure cascades down through the organization and managers begin to lean on “control” rather than “empower” to encourage results. Through a thousand little decisions, the company then swings from an overemphasis on heroes to a massive overreliance on systems.
Listen to how founders describe the problem:
- “We fall into mythmaking. We start to believe that it was right at the founding for people to be massive risk takers and that it is right now to be risk averse and operate under very tight financial control. But our founding period was never as risk seeking or empowering as people remember. The founder and investors were all over every decision and directly controlled the actions of the so-called heroes. They held pretty tight leashes, because each decision was a make-or-break decision for the enterprise. It is also true that empowering people now doesn’t mean betting the company. You give them investment parameters and a clear framework of control. But within that framework, you give them freedom. Empowerment has never meant ‘bet it all.’ But as we grow, the ‘controllers’ want to frame the debate that way.”
- “I think we overcontrol by default. I don’t remember being involved in a discussion where we said, ‘We need to disempower our front line.” Sure, there have to be clear no-go areas where our people have no choice—employee safety, legal and regulatory compliance, etc. But I would hope that my people are given the right to take certain pricing decisions, to overdeliver for a key customer, to reward someone on our team beyond what our pay grades say. As I reflect now, my guess is that none of this is actually going on. And that’s probably because I’ve taken my eye off the ball.”
- “I am ashamed to say this, but I think as we grow, we make our people smaller. We ask our systems to take over and reward people for obeying the systems. I don’t think we empower them enough to surprise us, and then we are surprised that we aren’t surprised. After awhile, we look around and wonder where the heroes are. And then we congratulate ourselves for at least bringing in all the systems.”
- “I just think we don’t actually understand the economics of empowerment. It is a risk-reward thing. We don’t empower in those areas where the reward can be huge and the risks controlled. We’ve got the math all wrong.”
And there it was: the economics of empowerment. These founders were saying that as a company grows, there’s not enough deliberation over the costs and benefits of empowering people, which allows excessive control to creep in. How often do we ask: “Where will empowerment deliver the biggest reward and how can we mitigate any downside risk?” Systems are too often designed to control the misguided actions of bad apples (both customers and employees), rather than to empower the activities of good apples.
You know the huge rewards of solving customer issues quickly and surprising them. So what is the real downside of giving your customer-facing team the chance to correct a customer problem, even if that means a full refund? The downside may be that a small number of employees engage in systematic fraud, using customer returns to enrich themselves or their friends and family. But it doesn’t take long to sort through some basic guardrails to keep that from happening. Likewise, you know the rewards of giving your people P&L responsibility early, letting them succeed and fail early. How hard is it to put protections around the actual money at risk?
Too much control is never the intent. It comes from bad execution or because little decisions accumulate into a world of hurt for your people. Pretty soon your heroes face a tipping point: The organization that used to empower and support them is now sucking away their energy at every turn. What the economics of empowerment tell you is that it is worth the time and energy to create the right balance between freedom and framework. It results in a pretty long list on the positive side: delighted customers, delighted employees, early and systematic development of the next generation of leaders, and an ability to recruit and retain better talent.