PDF Summary:Reinventing Organizations, by Frédéric Laloux

From ancient kingdoms to modern corporations, we humans have gathered in organizations to lift ourselves from barbarism into the modern age. However, those same organizations have restricted individual freedom and led to rampant overconsumption. Is there a way to preserve the benefits of modern civilization while staying true to our humanity?

In Reinventing Organizations, business consultant Frédéric Laloux identifies an emerging breed of company that operates from a new set of rules. Instead of serving an ego-driven focus on power, these visionary organizations embody principles of self-direction and individual authenticity while following a collective higher purpose. Laloux claims that humanity is on the cusp of a new paradigm in how we organize ourselves and suggests ways that businesses can adapt to this transition that will elevate how we work and how we live.

In this guide, we explain the practices and values Laloux says are inherent in the next level of human organization. In addition, we’ll contrast Laloux’s ideas to those of other experts in leadership, business, and personal well-being.

(continued)...

(Shortform note: Proponents of this approach claim that management is the most inefficient component of a workplace. A 2011 article inspired by Morning Star’s business model describes management as a “tax” on the organization that increases the risk of large-scale, poor decisions. Morning Star’s system of one-on-one contracts provides a web of checks and balances that reduces the likelihood of catastrophic error. However, Brian Robertson, founder of Holacracy (see below) says that Morning Star’s model is difficult to duplicate because its practices are enforced by that company’s specific cultural norms.)

Approach #3: The structure recommended by the Holacracy management system involves nested teams that work together when full autonomy isn’t possible. In this system, Laloux explains, groups of different size and authority take shape to address different levels of responsibility—a team of members from all parts of the company pursues the organization’s overall purpose, while smaller teams focus on specific aspects of it. One company that adopted Holacracy’s model was the online shoe retailer Zappos.

(Shortform note: Laloux’s description of Zappos comes from 2014; by 2020, Zappos reverted to a management-oriented approach. Zappos’ new structure divides the company into teams that function as small businesses within the larger organization. Zappos explains that they adapted to reflect the real-world marketplace.)

Roles Replace Titles

In addition to moving away from hierarchies, visionary organizations do away with job descriptions that spell out each person’s duties. Instead, a member of a visionary organization has “roles” they can pick up, create, or discard. Laloux says that these roles emerge organically from the combination of a person’s talents and the company’s needs.

(Shortform note: As opposed to job descriptions, roles can be described as small, indivisible cells of decision-making. Letting employees hold roles that would not necessarily fit into one traditional job description allows an organization to make the best use of each individual’s particular set of skills, competencies, and proficiencies. For example, a retail worker with strong interpersonal and design skills might be able to split their time between serving customers and creating advertisements without having to choose between career paths.)

Changeable roles give an organization flexibility to quickly adapt to situations. Without restrictive job descriptions, team members who identify opportunities or problems are responsible for dealing with them, either by assuming a new role or bringing it up with their team. Some companies even have a marketplace for roles, letting workers trade for projects that more closely match their talents. (Shortform note: Emphasizing roles instead of titles places the focus on the value employees add to the company, rather than merely their responsibilities. Flexible roles also let employees make better use of new skills they develop, whereas strict job descriptions set limits on whether workers are able to apply new knowledge.)

This isn’t to suggest that everyone is equal in influence or importance. Rather, says Laloux, people accumulate respect and reputation over time. As they gain experience, they take on more demanding roles, but their authority is strictly context-specific. Promotion becomes a meaningless concept—people advance by growing more fully into their own potential.

(Shortform note: The trouble with progressing based on reputation rather than traditional promotions is that reputation isn’t completely under your control. Hard work and integrity may not be enough without a dose of strategic self-promotion. In The 48 Laws of Power, Robert Greene says that reputation is something you must cultivate and protect. However, many tips on how to improve your reputation boil down to “be a decent human being.”)

Laloux states that leadership roles are inhabited by coaches who, unlike managers, have no coercive power. By necessity, there is always one person tasked with the role of taking the largest view of the company, usually dubbed the CEO. However, this position is vastly different than in modern corporations, as will be discussed later in this guide. (Shortform note: In The Coaching Habit, Michael Stanier differentiates between coaching and merely giving advice. Coaching actively empowers team members while helping them focus on the organization’s purpose. Especially in an organization defined by roles rather than job descriptions, coaching can help guide employees as to when to say “yes” or “no” to new roles.)

Decision-Making

The most counterintuitive aspect of visionary organizations is their approach to making decisions. Laloux explains that anyone can make a decision for the company, so long as they seek advice beforehand. Because everyone in the company has this power, it increases everyone’s responsibility, demands cooperation, and mandates the need for transparent communication.

Laloux says that theoretically, anyone in the company can make any decision, regardless of scope. This includes creating new roles, spending company funds, finding new clients, and implementing new systems. What’s important is that the size of the decision determines how much advice must be sought. Everyone impacted by the choice should be consulted, all the way to the CEO for decisions that affect the whole company.

The Netflix Model

One highly visible company that grants its employees a free hand to make decisions regarding their own projects is Netflix, as described by CEO Reed Hastings in No Rules Rules. By letting workers make (and be accountable for) crucial decisions that benefit the company, Netflix has been able to adapt to an ever-changing entertainment landscape.

Agreeing with Laloux’s advice-seeking model, Hastings emphasizes that Netflix employees are expected to make well-informed decisions after gathering feedback from managers and colleagues. Because absolute candor is necessary for this process, it’s considered bad form for a colleague to withhold a skeptical or contrary opinion. However, it must be noted that Netflix employees aren’t able to make company-wide decisions, as is the case with the model Laloux advocates.

Laloux makes it clear that the advice-seeking process is not a quest for consensus. Once the appropriate advice has been given, the employee can make whatever decision they feel is right. The advice process gives everyone a voice, but it doesn’t give anyone a veto, not even the CEO. In fact, even the CEO must go through this process before making decisions. Not doing so is a sure way to get fired.

Distributing so much power throughout the organization means it’s absolutely necessary that everyone employed has access to all available information. Laloux says that keeping information compartmentalized would be lethal to companies in which anyone can steer the ship. Visionary organizations make use of intranets, blogs, and all-hands meetings to keep staff apprised of the company’s initiatives, as well as any difficulties it’s currently facing.

The Bridgewater Model

In Principles: Life and Work, Bridgewater CEO Ray Dalio describes seeking advice from others as a process of setting aside your ego. He emphasizes that your goal should be to find the best answer to a problem, no matter where it comes from. It’s important to judge every source’s credibility, but you should also be aware of your own blind spots and accept that other people may have better ideas.

Dalio is also a proponent of extreme transparency, to the point that Bridgewater records all meetings and interviews, and makes them available to all employees. This practice reduces bad behavior and self-serving politics, while providing teachable examples for staff.

Performance Management

When everyone is free to act as a self-regulated agent, it may be hard to imagine how individual performance is measured. For the most part, claims Laloux, it isn’t. Performance in visionary organizations is measured at the level of teams, whose results are available for all to see. Individual feedback is given by peers, and that pressure is often sufficient for individuals to judge their own performance. Laloux describes specific processes that visionary organizations use to give feedback, resolve conflicts, and determine worker compensation.

The Feedback Process

Laloux is quick to point out that visionary companies strive not to use fear or coercion as a motivator. Instead, they approach interpersonal feedback sessions from a perspective of teaching and learning. These sessions are structured around active listening and effective communication—skills in which all employees are trained. If a colleague has trouble fitting into a role, feedback can help guide them to a different one in which they might actually blossom.

Feedback From Every Direction

In Thanks for the Feedback, Douglas Stone and Sheila Heen make the point that how you receive and incorporate feedback is just as important as how you give it. This is true at the organizational level as well, where they explain that it’s necessary to create a culture of learning and for there to be multiple routes feedback can take, either officially or otherwise.

For example, in No Rules Rules, Reed Hastings elucidates Netflix’s formalized framework for feedback, with written appraisals that can be given for anyone by anyone in the company, as well as live, in-person group appraisals that reveal the interpersonal dynamics of each team.

Conflict Resolution

Conflict between colleagues is inevitable, and the companies Laloux studied have structured procedures to address it. The first step is for colleagues to attempt to resolve their issues on their own. Failing that, two people in conflict can nominate a mediator whom both of them trust. The mediator can guide the process, but cannot enforce a solution. If the mediator’s help isn’t enough, a panel can be convened, conferring with the CEO if needed.

(Shortform note: In Difficult Conversations, Douglas Stone, Bruce Patton, and Sheila Heen lay out the ground rules for holding the type of sessions mentioned above. They recommend you adopt a position of curiosity by discarding the certainty that you’re right. You should differentiate between intent and results, practice active listening, and acknowledge the other party’s feelings.)

Setting Compensation

Another process unique to visionary organizations is how they determine compensation. Without formal hierarchies or HR departments, pay is either set by peer review or by the employees themselves, writes Laloux. In practice, many of these companies have found that people are good at accurately judging how much they should earn.

(Shortform note: Allowing self-managed employees to determine their own pay may not be as fair in practice as Laloux claims. A 2019 study reveals that in self-managed teams, women earn 25% less than male colleagues. The study’s authors attribute this discrepancy to men and women’s different negotiating styles and prosocial behavior in the workplace.)

The Culture of Visionary Organizations

The practices that define visionary organizations—flexible roles, self-directed decision making, a non-hierarchical sharing of power, and team-centered feedback and conflict resolution—can only be maintained within a certain kind of culture. Though cultures are unique to every organization, Laloux identifies many commonalities among the companies included in his research. These include placing a meaningful purpose at the core of the company’s mission, encouraging all employees to be their authentic selves at work, and building an air of transparency and trust that permeates the whole organization.

(Shortform note: Marcus Buckingham and Ashley Goodall offer a contrary view in Nine Lies About Work. They argue that overemphasizing a company’s culture can be harmful, especially if the culture only addresses surface-level issues and makes employees feel the need to conform. Instead, Buckingham and Goodall place more value on healthy, supportive teams.)

Organizational Purpose

The strongest driver of the company’s culture is its overriding purpose in the world. As Laloux explains, this purpose is not dictated from on high but emerges organically from the work the company does and the values of its members. This purpose replaces profitability as the reason for the company’s existence, while guiding how it interacts with competitors, clients, and the community at large. For example, a software company whose higher purpose is to raise computer literacy in impoverished areas might offer discounts to elementary schools and libraries, or partner with them to seek grants for funding.

(Shortform note: In Start With Why, Simon Sinek argues that a defining purpose is not only valuable for organizational structure, but is also an essential component of connecting with customers. Without a clear, inspirational purpose, marketers must rely on manipulation tactics that may lead to short-term gains but don’t establish long-term trust.)

Laloux asserts that from a visionary perspective, organizations have a calling, just as do people. While an organization’s calling is initially determined by its founders, it can change. The job of those in leadership roles is not to dictate what that calling will become but to allow the company’s purpose to emerge and shift organically over time. The needs of the world may align with the company’s values in surprising ways, pushing the organization in new directions.

(Shortform note: More has been written about individuals’ search for purpose than that of entire organizations, but many of the same ideas apply. In The Success Principles, Jack Canfield states that you can derive a statement of purpose by articulating your positive traits and aligning them with your ideal vision of the world. In Who Will Cry When You Die?, Robin Sharma recommends regularly stepping back for a big-picture view of your place in the world (or in our case, your organization’s) and how your overriding purpose creates meaning.)

The shift from “profit” to “purpose” as the prime motivator means that fear for survival is no longer an underlying factor. Laloux says that visionary organizations act from an attitude of abundance. When the mission is paramount, visionary companies will often aid their own competitors, if doing so helps them achieve their goals.

(Shortform note: Even companies operating from the modern paradigm can engage in this practice. For instance, Microsoft’s guiding purpose is “to empower every person and every organization on the planet to achieve more.” In Hit Refresh, Microsoft CEO Satya Nadella describes how in order to better focus on this goal, they began cooperating with Apple and Google, turning their rivalry into strategic partnerships that emphasize long-term goals rather than short-term competitive gains.)

To be sure, profits are necessary, but visionary organizations view them as a byproduct of fulfilling the company’s purpose. For example, the companies included in Laloux’s study all perform very well against their rivals. Nevertheless, Laloux admits that his research may be colored by survivorship bias—he did not survey any companies that implemented visionary practices and failed. (Shortform note: In Built to Last, Jim Collins and Jerry I. Porras conclude that strong core philosophies are essential to long-lasting organizations and that organizations don’t have to choose between purpose and profit. Collins and Porras argue that a core philosophy has two components—values and purpose—both of which must be concise and actionable.)

Fostering Authenticity

The culture of visionary organizations goes beyond merely furthering the company’s mission. Laloux claims that these organizations put a priority on enabling their workers to grow into their own potential. Visionary companies are places where employees find a safe space to show up as themselves, be treated as adults, and flourish in an environment of healthy collaboration.

(Shortform note: In The Power of Now, Eckhart Tolle argues that we must be fully present with others (putting aside the mask of our ego) in order to truly connect with and relate to the people around us. Tolle asserts, and Laloux would agree, that engaging as our whole, authentic selves not only benefits us, but is necessary for the world’s well-being.)

Laloux points out that in modern organizations, everyone is forced to close off part of themselves in order to present a mask of professionalism. Managers treat employees as parents would a child. On the other hand, companies with visionary cultures encourage people to be fully present, quirks and all. With no hierarchy, colleagues relate to each other as adults and are able to see each other as people, not merely cogs in a machine.

(Shortform note: In Built to Last, Collins and Porras take a different view. The companies in their study benefit from hiring people who are already in alignment with the company’s culture and indoctrinating them to feel like members of an exclusive group. Collins and Porras argue that assimilating workers into a culture—rather than accepting their authentic selves—allows a company to trust them with autonomy while upholding the organization’s values.)

Without having to impress a boss every day, workers are more likely to simply be themselves. But in order for people to bring their whole selves, the company must be a safe space to do so. Laloux shows that visionary companies accomplish this by training everyone in leadership skills such as listening, coaching, gratitude, and authenticity.

(Shortform note: Encouraging colleagues to open up about themselves requires the courage to set aside the management/employee power dynamic, but it can reap great benefits. In Dare to Lead, Brené Brown gives the example of Air Force colonel Dede Halfhill, whose honest conversations with her airmen about their emotions successfully stemmed a drop in performance by revealing their feelings of exhaustion and loneliness.)

Visionary organizations also create avenues for personal development by allowing for learning and growth at company meetings, onboarding sessions, and in the workplace. (Shortform note: Because everyone in a visionary organization is expected to take on some leadership responsibility, the learning curve may be steep. In The First 90 Days, Michael Watkins lays out even more areas of training than Laloux mentions, including the company’s history, its present composition, and where it’s currently heading.)

Transparency and Trust

These companies’ high-minded ideals rely entirely on the trust between workers and the organization. Therefore, says Laloux, it’s imperative that organizations demonstrate their trust by allowing everyone to act responsibly without a system of controls, in particular doing away with the compartmentalization of information. Laloux argues that total transparency is essential in building trust between an organization and its members. Trust allows workers to grow, gives them a sense of freedom, and challenges them to lead others by example.

(Shortform note: In Principles: Life and Work, Ray Dalio encourages total transparency while admitting that it can be painful in the short term. He also spells out several scenarios in which full transparency isn’t appropriate, such as when information is private or personal, or when it puts the long-term interests of the company or its clients at risk.)

Another benefit of transparency is that it allows every employee to see the organization from the CEO’s point of view. Keeping information on a “need to know” basis infantilizes workers by suggesting they can’t be trusted. Transparency lets employees honestly evaluate their own teams and others, while increasing their sense of ownership of the company’s successes and failures. (Shortform note: In No Rules Rules, CEO Reed Hastings identifies several key areas in which transparency is especially important for building trust and accountability—financial information, any possibility of downsizing, and admitting to leadership’s mistakes. According to Hastings, this level of transparency breeds confidence and loyalty in addition to trust.)

Laloux writes that visionary companies discard the illusion that any one person can control all the needs of the group. Instead, by distributing power, they make use of the whole organization’s intelligence while forcing tough decisions on individuals and teams who otherwise would have been told what to do. While this can be intimidating, it also lets workers come up with solutions far better than those from executives unfamiliar with their day-to-day work.

(Shortform note: Increasing everyone’s sense of responsibility for the organization’s well-being can also reduce fault-finding and blame. In The Oz Principle, Roger Connors, Tom Smith, and Craig Hickman argue that in general, we need to reassess our definition of accountability by identifying how we contribute to situations. This will empower us with a sense of agency that lets us take action to address any given problem.)

Implementing Visionary Practices

While many people, especially business leaders and managers, may find these organizational concepts to be intimidating, impractical, or even naive, others may see ways these practices and ideas can benefit their own workplace. Laloux concludes by suggesting ways that visionary concepts can take root in organizations. Leaders can build visionary companies from the ground up or transition them from older management paradigms.

Visionary Leadership

First, Laloux addresses the topic of upper management. For an organization to function from a visionary perspective, it’s vital that the CEO, the board, and principal investors buy into the concept. If that commitment can be established, then the CEO can create and maintain the space for visionary processes to develop, while holding back the pressures that will try to fit the company into a top-down hierarchical structure. (Shortform note: In Good to Great, Jim Collins expands this idea to include everyone on the management team. He argues that the right people have to be in place before change can occur and that those involved in company leadership need to see themselves as a group of equals working toward a common purpose.)

Laloux stresses that in visionary organizations, the role of the CEO differs greatly from that in other institutions. While the CEO acts as the company’s public face, their job is to refrain from using power. Instead, CEOs should model visionary principles, such as going through the advice process before making decisions, being transparent in communications, and holding themselves accountable. The CEO must bring their whole, authentic self to the workplace, even though that means showing vulnerability and not hiding behind a managerial demeanor.

The role of leadership in enabling visionary practices is so crucial that Laloux identifies the mindset of the CEO as a necessary precondition for all that follows, while admitting that resisting the urge to take charge is the hardest part of the job for business leaders to accept. Trusting staff to make broad-ranging decisions is so counter to modern culture that the CEO must affirm it continually by acting as an advisor only, not relying on traditional mechanisms of power.

Leading From Vulnerability

By demoting the CEO to a kind of organizational figurehead, Laloux’s ideas are pretty far from mainstream. In The 21 Irrefutable Laws of Leadership, John C. Maxwell presents a more traditional view—that people follow leaders, not visionary ideals, and that strength, character, and respect are paramount. However, in Dare To Lead, Brené Brown says that vulnerability is the defining characteristic of courageous leadership.

Being vulnerable lets leaders engage in difficult conversations with honesty and clarity, reduces their emotional reactivity, and enables them to build trust with the whole organization. It also helps the organization develop failure resistance if the CEO normalizes failure and lets employees know they’ll be supported for taking risks. Failure is so important to learning that Ryan Holiday (in The Obstacle Is the Way) says you should encourage small, frequent risks in order to fail as soon as possible while minimizing the cost to individuals or the organization.

Aside from describing the ideal CEO, Laloux also insists that visionary companies be very selective about who serves on their boards. They will have to understand the organization’s higher purpose and not put pressure on the organization to please investors to the detriment of following the company’s higher calling. Investors who share the organization’s values may be difficult to find, but in the long run, they’ll support the company’s mission.

(Shortform note: Creative management decisions may be needed to maintain a company’s vision through future changes in leadership. In 2022, Patagonia founder Yvon Chouinard gave his $3 billion company to a nonprofit trust instead of selling to investors, ensuring that all of Patagonia’s future profits would be used to fight climate change and protect undeveloped land. This unconventional move had the added benefit of letting Chouinard’s family maintain an interest in the company while avoiding the taxes they’d have owed had they sold it.)

Creating a Visionary Organization

Once the necessary leadership is in place, you can then set visionary practices in motion. Whether you’re starting a new company or steering one that already exists, Laloux suggests introducing workers to concepts of self-management, extolling the virtues of wholeness in the workplace, and embedding the company’s purpose into every aspect of work.

To do this, Laloux recommends you begin by educating all team members in the self-management practices the company will adopt. When members push back against these new ideas, reframe the conversation to talk about the positive assumptions about human nature that underlie self-management principles, such as that people are trustworthy, or that the best solutions often come from the front lines, not some lofty corporate office.

(Shortform note: Many of us may have trouble embracing Laloux’s positive outlook of human nature. However, in The Laws of Human Nature, Robert Greene argues that we sabotage ourselves by adopting irrational attitudes, such as holding onto needlessly negative views about ourselves and others. On the other hand, he explains that choosing positivity is empowering.)

The next components that Laloux says should be put in place are the advice process for making decisions, a method for conflict resolution, and tools for peer evaluation. In conjunction with this, leaders should implement safe space guidelines and provide training in collaboration and communication skills. From there, the organization can set a foundation to foster authenticity in the workplace and allow the company’s higher purpose to emerge.

(Shortform note: Showing up as your authentic self to work is a radical departure from the cultures many of us are used to. In Lean In, Facebook COO Sheryl Sandberg recommends delicate honesty when voicing your truth, but not hiding behind a professional persona. In The Coddling of the American Mind, Greg Lukianoff and Jonathan Haidt argue that safe spaces should not come at the cost of silence, and that diverse viewpoints must be honored.)

Companies based on an older paradigm will have to implement self-management gradually, with the full approval of the board and investors. Guiding an organization, or even one person, into a more elevated mindset is a twisting and bumpy process. However, Laloux contends that visionary organizations represent the wave of the future and that adopting their practices now may better position modern-day companies to weather the changes of tomorrow.

(Shortform note: Business experts agree that implementing sweeping changes is difficult, yet worthwhile in the end. In Principles: Life and Work, Ray Dalio estimates that it can take up to 18 months for employees to adjust to new mindsets such as extreme transparency. In Good to Great, Jim Collins compares the process of transformation to driving a flywheel that requires a lot of effort to get going but eventually starts to spin on its own.)