Jennifer isn’t happy. She started her career in strategy consulting, got her MBA from a top business school, went back into consulting for a few years, and is about to be promoted from director to senior manager in a Fortune 500 company. While Jennifer has achieved what she had set from the start as her ultimate career goal, deep down she isn’t satisfied with her work situation, and she isn’t exactly sure why.

Derek works in corporate finance. He took the traditional path, starting at a big bank after landing what he thought was his “dream job.” Since then, he has moved laterally to be an analyst at three different hedge funds. Each time he gets the feeling that something is “off,” he reaches out to a recruiter who finds him a similar job with a nice pay bump. Yet despite making more money than he could have imagined, a feeling of restlessness returns faster every time that he changes positions. His family is proud of him and tells him he is doing the right thing, but deep down he feels doubt and dissatisfaction about his career choices.

The stories of Derek and Jennifer reflect themes that I have heard over and over throughout my career as a strategy consultant, coach and someone generally fascinated with organizations. Some stories are not as subtle, such as the young woman who told me she is verbally assaulted almost weekly at a hedge fund, or the acquaintance who is terrified of taking a pay cut and so endures a dysfunctional workplace culture. One friend got so fed up with office politics in his company that he just said “screw it” and left the corporate world for good.

We are leaving a huge amount of untapped human potential on the table. Gallup found that only 21% of employees strongly agree that “their performance is managed in a way that motivates them to do outstanding work.” Yet, when looking for a new job, the same report found that the number one thing people are prioritizing is a place that enables them to “do what they do best.” It’s no wonder that a majority of the workforce is actively looking or open to a new opportunity.

Why are so many people feeling stuck and miserable where they work, and why are our organizations failing to capture the hearts, minds, and enormous human potential among their ranks? While the answer is complex, I’ve spent the last 10 years of my career trying to unravel this mystery. Here are six reasons why thriving in today’s organizations is so hard:

We’re Defaulting to the Wrong Goals

Peter Drucker’s quote “what gets measured, gets improved” looms over every aspect of the business world. People seek to measure their progress, especially where work is concerned. Yet it’s not always easy to track your own success, whether personal or professional. In our personal lives there are few tangible metrics we can rely on to determine whether one individual is “successful” compared with another. Even if we do identify areas to measure — such as seeing our children attend college, it may take years to see the results of your efforts.

In the corporate world, many of us have a hard time connecting our short-term actions to long-term career success. If we don’t take the time to figure out a definition of success for our career up front, it’s easy to default to goals such as ‘make more money’ or ‘get a promotion’. While few people will admit that their main career objective is to maximize their salary potential, many people are defaulting to exactly that.

More profit, more growth. Default assumptions like these are where we land when there is no deeper purpose or set values in place. In the corporate world, we have defaulted to a paradigm centered on shareholder value — a concept many believe is deeply flawed — that is forcing everyone to keep their attention riveted on profit and power without figuring out what type of system actually increases both engagement and productivity. This is taken for granted: a majority of Millennials (who now make up the largest generation of the workforce) feel that businesses “have no ambition beyond wanting to make money.”

Millennials (and all workers) may be surprised to learn that shareholder value was not always the accepted ideology of the firm. In the 1900’s, there was a debate in the legal world on the purpose of the firm. In one corner was Adolph Berle, who championed the “shareholder primacy” view and in the other was Merrick Dodd who supported a “managerialist” stance. The managerialist view said that firms should serve not only shareholders, but multiple stakeholders including employees and the public good. In multiple court decisions, the courts made it clear that corporations did not have to prioritize shareholder above all other stakeholders.

As the legal debate subsided, Dodd’s managerialist view became the accepted view of how a firm should be run and it stayed that way for over forty years. However, in 1976 economists William Meckling and Mike Jensen helped re-ignite the debate, publishing a paper with the view that ‘maximizing shareholder value’ was the best way to maximize wealth because the managerialist approach made it more confusing to manage, imposed increased costs and lowered the overall wealth created by a firm. By the end of the century, Berle’s “shareholder primacy” had emerged from the dead and in the words of Columbia Law Professor Jeffrey Gordon, “the triumph of the shareholder value criterion was nearly complete.”

While an increased focus on shareholder value could be plausibly credited with increases in efficiency and optimization in firms, it has also increased a focus on short-term results. The pressure on short-term performance is so high that eight out of ten financial officers would be willing to sacrifice long-term value to avoid the headaches of missing short-term targets. Given the fact that executives now see more than 75% of their compensation coming from stock, it is also in their own best interest to act this way.

All things being equal, a move to a corporate model that revolves around maximizing shareholder value increases the attention on financial goals and rewards. The problem is that most employees don’t see the massive economic benefits that the senior leaders are raking in. Research has repeatedly shown that many people are not that motivated by money. In fact, offering money as a reward tends to decrease intrinsic motivation and decrease increased individual performance. As a result, our strong embrace of shareholder value over the last 40 years has likely demotivated and frustrated employees and may have led to worse firm performance.

We’re Mistaking Authority For Performance

Imagine after Tom Brady won his first Super Bowl in 2001, New England Patriots owner Robert Kraft sat Brady down and told him, “Tom, you had a fantastic season. We want to see you keep growing with the organization. We are going to promote you to General Manager.” In sports, we would quickly question Kraft’s sanity. Yet, in the corporate world, we call this talent management.

Google indirectly addressed this issue after trying to figure out how to keep its high performers after the IPO in 2004. They stumbled upon research from Ernest O’Boyle and Herman Aguinis showing that across a wide range of fields, human performance followed the power law: high performers are not only one or two standard deviation above the average — they have dramatically higher levels of impact than average performers. This led to changes in the way google rewarded its people. As Laszlo Bock, Google’s former Chief People Officer wrote in his book Work Rules! “we have many cases where people at more “junior” levels make far more than average performers at more “senior” levels. It’s a natural result of having greater impact, and a compensation system that recognizes that impact.” Google tells their MVPs to stay on the field.

Despite the clear signals from organizations that success and climbing the ladder go hand in hand, most people are unconvinced. McKinsey’s Women in the Workplace 2016 laid out this lack of desire for both men and women. They found that only 40 percent of women and 56 percent of men had any ambition to become a top executive in a company. If we are basing our metrics of success on obtaining powerful positions, why don’t more people actually want that power?

It could be because the climb is exhausting. As companies have become more complex, the range of functional expertise and skills has expanded. What this means for selecting today’s leaders is that they need to meet an almost impossible set of requirements. At the CEO level, the demands are even more extreme, with them having to be highly skilled in investor relations, operations, strategy, community relations, politics and on top of that, being cheerleader in chief for the organization.

We are requiring today’s leaders to be the best player on the team, the coach, general manager and CEO. Instead of attracting people that want to lead and inspire, we end up attracting those that are good at checking the boxes (as well as narcissists and psychopaths). Getting more diversity among senior leaders likely has more to do with changing the way we are doing business than focusing on pushing people up a broken ladder. Without a new way of thinking about what success means in the business world, we are not poised to disrupt this cycle anytime soon.

We Aren’t Providing a Connection to Purpose

People crave purpose. For ages, many people got that sense of purpose from social structures such as religion, family, and local community. In today’s world, though, the only thing we seem to have shared alignment on is consumerism , symbolized by the fact that more than twice as many people have Amazon Prime subscriptions than volunteer – this is a problem.

Lacking a clear route to purpose in our personal lives, we often turn to organizations to provide a sense of meaning and mission. Yet instead of finding purpose at work, employees often find themselves lost in complex organizations with lots of noise and frustration but little in the way of a purpose to which they can feel genuinely connected. This disconnect leads some employees to develop personal mission statements, but this can cause an even greater sense of dissatisfaction when there is dissonance between their mission and that of the company.

Let’s take a look at two companies and their mission statements:

• Mission 1: “The company was founded in 2002 to revolutionize space technology, with the ultimate goal of enabling people to live on other planets.”
• Mission #2: “…to be a leader in the distribution and merchandising of food, pharmacy, health and personal care items, seasonal merchandise, and related products and services.”

Based on research from Edwin Locke, I would predict that you aren’t that excited about committing to Mission #2 (hint: #1 is SpaceX and #2 is Kroger). Locke’s research found a link between challenging goals and higher performance. He also found that one of the foundational elements that determines the level of employee motivation was something called “goal-commitment” — that one’s commitment and their motivation was directly related to how important or significant they felt the goal was. I’m guessing most people at Kroger are not all that personally inspired to be distribution and merchandising leaders, whereas SpaceX is successfully self-selecting new hires based on a bold mission. The types of people they attract and hired are more likely to be aligned with the mission as well as motivated and engaged at work.

We Don’t Understand How Organizations Operate

Everyone that takes a basic business class likely learns about Fredrick Taylor and his influence on management thinking. He looked at organizations as inefficient and filled with waste and bureaucracy. This meant business leaders should spend their time standardizing processes, removing waste and fine-tuning plans for the organization. This point of view often goes hand in hand with a “Theory X” view of the worker as one that is not internally motivated and one that needs to be controlled and told what to do.

Modern business thinkers rarely accept these harsh tenets of Taylorism, but many of the new business paradigms such as “paying for performance”, “six sigma” and “process re-engineering” still operate on the same fundamental assumptions. The goals remain the same — remove waste, increase efficiency and improve planning. But what if an increase in control of the organization increases the chances that the organization will fail? That is the conclusion of researchers who think organizations should be understood as “complex adaptive systems.”

In the 1970’s and 80’s a new field of research began to emerge called Chaos Theory. Scientists were looking at complex dynamic systems and trying to understand how they emerge and evolve. They started in nature, looking at natural phenomena like how organisms grow in nature and how weather evolves, and began applying the lessons to many fields such as finance, biology, economics and eventually, organizations.

One of the fundamental beliefs of chaos theory is that small changes have the potential to have big effects within the system whereas large changes are less likely to shift the underlying order of the system. This is because the organization is seen as a complex system rather than a fixed body. The individual behaviors and reactions of people within a complex system are unpredictable, but they are linked to one another. The feedback from each of those unpredictable actions will give feedback to others in the organizations and influence their subsequent decisions and reactions.

If we assume a certain unpredictability in individual actions, it makes a lot of modern management practices look feeble. In a paper on complexity in organizations, Professor Gary Grobman summarized the implication for organizations and managers quite simply:

“Complexity theory suggests that organizational managers promote bringing their organizations to the “edge of chaos” rather than troubleshooting, to trust workers to self-organize to solve problems, to encourage rather than banish informal communication networks, to “go with the flow” rather than script procedures, to build in some redundancy and slack resources and to induce a healthy level of tension and anxiety in the organization to promote creativity and maximize organizational effectiveness”

Can you imagine a business school class titled “Going With The Flow: How To Relax and Trust Your People”? I didn’t think so. Our leadership pipelines are filled with people getting hired and promoted based on the assumption that they do something. What does this mean for managers and leaders? One could argue that they have an even more important role, but the frame of their role shifts. From a manager and planner who makes top-down decisions to an enabler of experiments, cultivator of healthy competition and supporter of emergent ideas that gain momentum.

Instead of shame and blame, complexity theory says that today’s leaders should accept that fine-tuning and organization is a never-ending and shift their focus to the true power of the organization — the people. We can create plan after plan, but all we are doing is driving our people crazy and as chaos theory researchers say — fighting against the fundamental laws of nature.

We Aren’t Giving People Autonomy

For most employees, working in a large organization means being on the receiving end of a continuous barrage of new initiatives, decisions, and processes. Middle managers experience the result of these changes, but often play little or no role in making these decisions — nor are those decisions likely to connect with their personal values. It’s not a surprise, then, that according to Gallup, front-line managers responsible for carrying out the wishes of senior executives are 16 percent less engaged than those executives.

The cost of this disconnect is a breakdown of trust — the fundamental currency on which someone is willing to do something for someone else. Edelman’s “Trust Barometer” measures the level of trust in different institutions globally. Looking at different levels of the organization, Edelman found that trust in a firm increased the higher you went in the organization, with most senior-level executives showing the highest levels of trust.

Daniel Pink has done extensive research on why we continue to run our organizations blind to decades of research on human motivation. One of the gaps he’s highlighted is autonomy, or the sense of control over one’s own work. Higher rates of autonomy are correlated to higher engagement and productivity. Employers like Costco, Trader Joe’s, Zappos.com and Atlassian are famous for their efforts to give more autonomy to their workers, but for most people in today’s organizations there is a lack of trust in their ability to solve problems on their own. Instead we spend time creating processes and demanding people follow them.

Trust is often hidden, but can have a powerful impact on people. A friend put this into words talking about a perk at his company, “My favorite thing at this company is what the beer kegs represent. It’s not that we have free beer in the kitchen-that’s secondary. It’s the implication that management trusts us to be able to handle ourselves like adults.”

When there is a lack of trust, people can spend weeks spinning their wheels trying to convince leaders to take action. As a leader it can take courage to break this cycle. At Amazon.com, Jeff Bezos talked about how he embraces the principle of “disagree and commit” in his 2016 letter to shareholders,

“I disagree and commit all the time. We recently greenlit a particular Amazon Studios original. I told the team my view: debatable whether it would be interesting enough, complicated to produce, the business terms aren’t that good, and we have lots of other opportunities.” Looking back, he reflected: “given that this team has already brought home 11 Emmys, 6 Golden Globes, and 3 Oscars, I’m just glad they let me in the room at all!”

More companies are putting trust back in the hands of all employees. Basecamp is a company that offers a “no-red-tape expense account.” That’s right, no red tape: “No pre-approval needed, and no limits — just be reasonable.” Organizations like this place value on autonomy over authority and trust over rules. In addition to the savings from the accountants that would need to monitor a more formal policy, companies that put trust in their people are unlocking enormous human potential.

We’re Choosing Comfort Over Growth

The American system of employment is unique in that it ties having a job to the security of many social benefits such as healthcare and life insurance. these pressures increase the anxiety around job security and contribute to the tendency of employees to stay in jobs they hate. In 2016, Aon found that 8% of the workforce disliked their job but had no intention of doing anything about it. And despite conventional wisdom, todays millennials are “job hopping” less than previous generations.

Business author Seth Godin has been fascinated with what keeps people in sub-optimal jobs has challenged people to separate the concepts of safety and comfort. We have an inherent drive towards safety in the sense of not being harmed. But when we default to a comfort zone, we may feel unsafe any time we step outside of it, when really we’re safe, just uncomfortable. Making decisions that keep us in our comfort zone can hurt our career more than taking risks. As Godin says, “the riskiest thing you can do is play it safe.”

Jim Koch would have never started the Boston Beer Company if he wasn’t able to overcome this comfort. He had been working at Boston Consulting Group for six years in what he described as “a great job.” However, he reflected and “I asked myself do I want to do this for the rest of my life? The answer was no. If I don’t want to do it for the rest of my life, I don’t want to do it tomorrow.” He re-framed risk in his mind to help him make the decision. He said “The risk of it was continuing to do something that didn’t make me happy and getting to 65 and looking back and go oh my god, I wasted my life. That is risk, that is danger.”

Americans are quite complacent and comfortable with their current job. A report by the American Psychological Association found that 69 percent of people either agree or strongly agree with the statement “All in all, I am satisfied with my job.” However, if you dig deeper, you find that people still lack is a sense of opportunity. Only 44 percent of employees agreed that the growth and development opportunities at their company were sufficient.

Organizational change researcher and consultant Jacob Morgan challenges people to think about staying in a job you hate like this: if you were given a pill that had the side effects of “weight gain, hair loss, stress, arguments with our spouse…and in some cases death” would you take that pill? Most will say no, yet those are the possible side effects of working in a dysfunctional organization or a joyless job. Our jobs are not giving us what we want, but we keep coming back for more.

Hope for the future

I’ve painted a rather bleak picture of today’s organizations, yet there are signs of hope. The emergence of new business models in the tech sector, the elevation of people operations as a function and increased experimentation with new organizational models are all tailwinds for the companies that want to work in new ways. However, building the organization of the future is not going to be easy. We must change the way we think about our default metrics for success, cultivate leaders who inspire and trust people, root our businesses in big and challenging goals and push people to take more risks and choose uncertainty over comfort in their careers. Organizations don’t have a choice. As noted author on workplace dynamics Dan Pink has said, “talented people need organizations less than organizations need talented people.”

Special thanks to Jake Stone for the help with this piece

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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Everyone has heard the statistic from Gallup that 70% of people are not engaged at work. This information is sad — but not useful in understanding how I can actually increase my own engagement.

I’ve often been a fan of creating my own self-assessments to measure how well I am aligned with my own leadership principles — in becoming the type of person I want to become in the workplace. Feedback from colleagues is valuable — but often aligned with a company culture that mindlessely supports principles that may or may not make sense for any type of long-term career success.

So when I read Culture Amp’s professional services benchmark — I was impressed by the individual questions they used to measure employee engagement. I took their questions they asked in a broader company context and applied them to myself:

Now every quarter I assess my engagement levels against these 10 areas both for my immediate team and role in the broader company.

It helps me assess what is energizing me and more importantly, what is sapping my energy. I can then think about what I should o next to address it.

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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In the startup world there is a lot of focus on product-market fit and making sure that alignment is perfect. The better the fit, the more you will sell and the bigger your company gets.

I’ve been thinking about how this applies to individual skill level and organizations. Some organizations excel at maximizing people’s strengths. Others do well at maximizing certain kinds of strengths. A bank may excel at taking advantage of financial acumen, but may struggle to take advantage

Scenario 1: Untapped Potential

In this scenario, an organization can support talent levels up to 90% — this means it will likelt waste some talent of the best of the best people in this area.

In this case, the individual still has an opportunity to improve and grow in this environment

Scenario 2: Wasted Talent

Consider the same person who has the ability to improve up to a 90% proficiency in analytical skills — this organization can only take advantage of any skill level up to 40% proficiency. This same person doesn’t have room to grow any more — they are limited by the talent-organizational fit.

This person should probably look for a new job that better aligns with their skills

Mapping Your Skills

To take stock of your current skill-organization fit, try to take a step back and assess yourself on the skills where you are strong or where you want to improve and develop. Next assess the organizational capacity — basically an estimate of whether these skills are valued or not and if they are able to support the best of the best in these areas.

As you can see in the above chart — the person’s organization is not taking advantage of their above average leadership, written communication and analytical skills. However, there is still room to grow in public speaking and problem solving.

Depending on where you see your career going and which skills you want to develop, you need to think about whether staying at your current organization is doing more harm than good.

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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The is-ought “problem” was identified by David Hume. Also known as Hume’s Law or Hume’s Guillotine (I prefer this)— he noticed it was the logical error people would make connecting what “is” with what “ought” to be.

This conclusion starts with his belief that all knowledge is the result of two things:

1. Logic and definitions
2. Observation

Thus, if you start with an observation and then come up with a statement that it “ought” to be true — this is a mistake. For example, if we step back twenty years:

Gay marriage is illegal, therefore — this is the way things are meant to be

In the workplace this is closely related to the “not invented here” mindset. As someone that is always trying to question and understand a better way of doing things, I found myself incredibly frustrated when others did not always agree. However, as I learned more about the psychology around the resistance to change and phenomena like the “ought-is” fallacy I understood why progress was so hard in the workplace.

Before the creation of the internet, the ought-is fallacy was a logical way to behave in the workplace. It was hard to figure out what other firms were doing or if there was a better process. You often had to hire a consulting firm that would help you identify what other companies were doing.

As the internet has emerged, this has changed. Google is one company famous for continually experimenting and trying new ways of innovation on its people operations. It even published the information for all the world to see: Re:Work With Google.

At Basecamp, DHH and Jason Fried are constantly challenging the status quo of the working world. Here is DHH on questioning the conventional wisdom that since most startups is never-ending work that it OUGHT to be the case:

One of the most pervasive myths of startup life is that it has to be all consuming. That unless you can give your business all your thoughts and hours, you don’t deserve success. You are unworthy of the startup call.

There are many more examples. The point is that relying on ought-is thinking as a way to make sense of what is happening in your workplace is no longer ignorance, but pure ineptitude. The information is out there — and if not, we should be running experiments and making changes to figure out what the answers are. We need to start with “why” instead of accepting what was created long long ago.

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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Yesterday I read about Naval Ravikant’s approach to hiring the right people — it has nothing to do with hiring and selecting the right people. It is about one thing — making sure you fire the wrong people fast.

Two great reads — Malcolm Gladwell’s The Talent Myth and a book, The Halo Effect — made me aware of how little we actually know about “talent.” For the most part, we look at people’s past work experience and the companies they have worked for. If they have worked for highly respected companies and have shown signs of continuous promotion, they are labeled “talented.”

It is incredibly hard to assess for most people in the knowledge economy. Is it the context people are in and the systems they are part of or are they actually talented on their own? We may never know the answer to this question.

Back to Naval —I like how he has some simple systems that help address some of the shortcomings in this talent problem. Here are some of his thoughts on getting the right people:

• Create a pipeline — Asking people the best people they know
• The mission: You need a clear mission to excite people
• Bringing them in: Having a talented in-house recruiter
• Quick decisions: Move fast with hiring AND firing
• Level Playing Field: Bring everyone in at the same level and have a true meriotocracy. Most companies use age as a heuristic for “experience” — he thinks this is a big mistake.

I love the simplicity of this. Most companies I have been part of spend months recruiting a single person. This is under the belief that the more time you spend the better at decision making you become. The best companies I have worked for — McKinsey & Company — did the thing Naval talks about really well: they fired the wrong people quickly, but did it in a compassionate way.

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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What were these companies going to do instead? Are they addressing a symptom or the root cause?

The elimination of performance review is a reaction to the “measure it and control it” attitude that has proliferated in the past twenty years.

Many organizations understand that we need a new way — but by eliminating the performance review companies are plunging themselves into a period of uncertainty and chaos.

Complexity & Control

Over the last twenty years, the business world has seen an unprecedented increase in information and a simultaneous increase in complexity and confusion. In reaction, many well trained MBA’s and other business types (count me as one!) have taught ourselves many different methods for planning, controlling and optimizing. This has driven an unprecedented rise in complexity.

BCG has done research to show how dramatic this shift has been:

The performance review has similarly become more and more complicated over the years. How many categories were you assessed on last year? I would bet most of you can not name the exhaustive list of criteria you were evaluated on. Nor could your manager — that’s why your performance still comes down to a few simple things:

• do people like working with you?
• does the person evaluating you have a favorable impression of your work?
• do you have a strong reputation for what you are expected to do?

Almost everything in the business world has been reduced to a performance metric than can be measured and controlled. Yet, assessing talent remains largely an elusive mystery. Even identifying performance of a CEO is close to impossible. Only 21% — at most — of a companies performance can be directly linked to a CEO. Even then, some researchers believe it is luck still — because a CEO’s job is predicting the future and deciding whether to pursue strategy A or B. If assessing even the performance of the CEO is hard — how can a company truly assess performance at all levels?

Some of you may stop me here and say “my company is the exception — we have the best people!” You may be right — but this is almost impossible to test. There is no alternative scenario to test your organization with different people. This leads to a well-documented phenomenon called the halo effect — which in the business world — ascribes positive traits to people who happen to be in successful organizations.

Ditching the Performance Review

By re-thinking the performance review, companies are rebelling against the analyzing, controlling and measuring tendencies of the last twenty years — and a long-term trend since Taylor. These companies have taken the bold step to acknowledge that the business world has changed and they had to adapt. Whether they know it or not, these companies have taken the plunge into figuring out what the future looks like.

These companies may not fully know what that end state looks like, but I believe it will be harder than they realize. Take GE’s CHRO Susan Peters who said: “The world isn’t really on an annual cycle any more for anything.”[2] This seems to indicate that the reason for removing the performance review has more to do with the increased pace and exchange of information than trying to move towards a healthier and more successful reality. GE’s solution is to implement an app-based model where you can constantly get feedback from your co-workers. As Pascal-Emmanuel Gobry, a writer and fellow at the Ethics & Public Policy remarks, “Constant feedback also means constant pressure.” [3] How companies manage the unintended consequences of these decisions remains to be seen.

Google’s former Chief People Office Laszlo Bock offers a different perspective:

Performance management as practiced by most organizations has become a rule-based, bureaucratic process, existing as an end in itself rather than actually shaping performance. Employees hate it. Managers hate it. Even HR departments hate it. [2]

Eliminating the performance review may be a leading indicator of the exhaustion from more rules, more analysis, more spreadsheets, more data and the illusion of control. However, the move to eliminate the performance review is a net positive for the business world and not for the reason you expect.

I don’t believe companies will figure out a magic formula for assessing talent in a better way (at least not in the near term future). However, the real benefit for these companies is the fact that they are accepting that the working world has changed and they need to figure out how to operate in that new world.

What Could the Future Look Like?

As complexity continues to increase, controlling and measuring will no longer suffice. The companies that succeed will be the ones that master the core principle that will be the driver for 21st-century governance:

TRUST.

Warren Buffet is one of the few Fortune 500 CEO’s that have fully embraced this. Compared to most companies, some would say his system is radical. His right-hand man Charlie Munger puts it best:

A lot of people think if you just had more process and more compliance — checks and double- checks and so forth — you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust

Consider the following:

• Over 50+ CEO’s report to Buffett and they only have to submit monthly financial statements and the free cash flow generated by operations
• The CEO’s of individual businesses do NOT have to meet with anyone from HQ, ever. They don’t need to submit strategic plans.
• The global HQ does not have HR, a general counsel, PR, Investor Relations or corporate strategy

He prides himself on his bare bones operations. Here is his modest corporate staff in 2016:

Change is Hard.

Unfortunately, you cannot appoint Warren Buffett and Charlie Munger to be co-CEOs of your organization. Nor can you manufacture trust and magically transform your culture by eliminating performance reviews. Building a strong culture around a set of values that reinforces behavior is hard work — and may even be harder if people have become accustomed to yearly cycles and clear expectations of how they are assessed.

The language many companies are using around eliminating performance reviews signals that leaders are still re-imagining a future state based on the current system. Most of today’s business leaders were promoted through this system — one that was built on structures, processes, and hierarchies — and are assuming that changing a few of the policies will position the company for long-term success. They are likely not anticipating the state of increased uncertainty and confusion

CEB has done some analysis on the companies that have eliminated rating and found less than positive results:

• Less than 5% of managers are able to effectively manage employees without ratings
• Managers have more time, but time spent on informal conversations decreases by 10 hours
• Employee engagement drops by 6%

This has not stopped companies. Eliminating the performance review has shifted from a bold move to conventional mainstream practice. The increasing popularity of eliminating performance reviews with the proliferation of low-cost HR technology ensure that this trend will not slow. Not to mention the ability to placate an increasingly restless millennial workforce.

What does the future look like?

Companies are being forced to give up more control to employees, whether they want to or not. The performance review is the start of a broader trend. To cope with increased complexity, companies that succeed will need to be self-governing, focused on trust, values, and behavior.

The inevitable failure of the elimination of performance reviews will force companies to re-think the types of people they hire, re-define how they approach culture and even re-think the way people are organized and deployed to solve problems across their organizations. These are big questions that some organizations are likely dealing with, but have not fully tackled.

I expect three kinds of companies to emerge over the next several years:

Many companies shifting to “Company 2.0” are eliminating performance reviews but they are layering new systems and behaviors on a foundation that prioritizes policies, processes, and controls.

The companies that react quickly and continue to make bold moves — beyond eliminating the performance review — will create the future. The journey will be hard — but it will be one that ultimately determines which companies survive in today’s economy.

As Warren Buffett says about his business strategy, “find good people and trust them.” Trust is going to be the competitive advantage of the 21st century and if leaders are not willing to find good people and trust them, they will struggle to build a scalable, sustainable modern organization. Getting rid of the performance review is a necessary first step, but companies have a long way to go.

[1] “In a big move, Accenture will get rid of annual performance reviews and rankings” Washington Post, 21 July 2015

[2] “Why The Annual Performance Review Is Going Extinct” Fast Company, 20 October 2015

[3] “Why eliminating annual performance reviews will make your job worse” The Week, 20 August 2015

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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I was talking with fellow alumni from my grad school program and the conversation turned to performance management and feedback. These were people working at great companies. I was startled by how many questions they started asking me and it dawn on me that people are rarely trained on how to give feedback. Instead, people are usually guided by conventional wisdom or gut instinct.

Giving feedback without knowing what you are doing is like driving blind.

Before we get into what good feedback looks like, lets talked about the famed feedback sandwich:

Everyone knows the feedback sandwich. In theory it is great — most feedback tends to downplay what you are good at. However, it may offer a false sense of accomplishment that the content of your message is in fact valuable. At worst, the feedback sandwich protects someone from constructive feedback that would help them improve, not to mention someone at risk of losing their job.

Before I show you how to give world class feedback, lets talk about annual performance reviews.

The Drive to Eliminate the Annual Performance Review

This has not been a good year for the annual performance review. What do the following companies have in common?

You guessed it. Within the past three years, all of them have eliminated annual performance reviews. Why? Research from CEB (a best practice insight company) shows why this is happening:

“CEB found that 95 percent of managers are dissatisfied with the way their companies conduct performance reviews, and nearly 90 percent of HR leaders say the process doesn’t even yield accurate information” Source: Washington Post

However, lets not jump to conclusions. Many leading thinkers are railing against the annual performance review, but I think it may be getting a raw deal. It is likely a symptom of broader failed performance management systems and processes and likely not the root cause of the problems.

That doesn’t mean these companies are making the wrong move. This type of bold action is likely necessary to signal to their organization that they want to move in a new direction.

At the core of any effective organization there is a shared alignment around helping each other improve. Unfortunately, many organizations unconsciously support a culture of playing nice or passive aggressiveness that fails to enable self-improvement.

No one has broke this down better than Kim Scott, a former Googler who has championed a concept called “radical candor.” In a presentation to First Round Capital in 2015 (see video at end) she presented an intuitive framework:

Many people can quickly identify experiences where they have received feedback that falls in the yellow or green zone. This is what we want to avoid. Scott goes on in the video:

Radical candor is humble, it’s helpful, it’s immediate, it’s in person — in private if it’s criticism and in public if it’s praise — and it doesn’t personalize.” That last P makes a key distinction: “My boss didn’t say, ‘You’re stupid.’ She said, ‘You sounded stupid when you said um.’ There’s a big difference between the two.”

Now that may seem a little tough, but this type of approach can be effective — if it is grounded in a culture of respect and follows the principles I call out below:

The Five Elements of Great Feedback

1. Self-Reflection: “Know Thyself” is a great idea in theory, but hard to do in practice. Anyone who aspired to be great at coaching and feedback needs to start to separate what bothers them personally versus what will help another employee improve. Too many times, I have seen managers default to focusing on their own neurotic pet peeves. This leads to a lack of appreciation of other working styles and can lead to teams becoming more homogeneous and less creative. So ask yourself — Is this feedback I am about to give about me or will it really help this person improve? Everyone has two or three things that drive them crazy. It may be helpful to share these with the people you work with, but become aware of what percentage of your overall feedback and coaching focuses on these things.

2. Cultivate a Foundation of Respect: All feedback is built on a foundation of respect. The big mistake here is focusing on being well-liked versus building a strong relationship and embracing the concept of radical candor. The easiest way to develop a strong rapport with colleagues is to get to know them. Crazy! I know — but many people do not take this step. Take the effort to ask what others are working on, what they think they are good at and what you can do to help them generally or on a specific project. When it comes time to offer timely feedback (see next step) you will already have a strong relationship to build on. One thing I do with people when I first start working them is ask “How do you like to get feedback?” and “What are you trying to improve on?” I also share my personal preferences which shows that I am open and looking forward to them helping me improve as well.

3. Timely: Most feedback fails on this point. If you are receiving feedback in December about a phone call you made in September, this will just make you resent the person for not telling you at the time. This person really was afraid to be honest and you’ll lose faith that the person wants to see you improve. If it’s not a cultural norm, you need to be proactive to seek out timely feedback. For example, anytime I give a public presentation I always ask one audience member to give me feedback. I always specify two or three specific things I am working on so that they know what to look for. Without someone proactively asking for feedback, I typically ask them, Would you like feedback on X? immediately after the observed action. Most people happily say yes.

4. Specific: Giving someone the feedback that “sometimes you do X” is not helpful. Be specific and use examples when giving someone feedback, especially if it refers to an event in the past. Specific feedback should sound something like this: “I noticed you spoke in a quiet voice when speaking on Tuesday. It could help you appear more confident if you worked on communicating with more energy.”

5. Next Steps / An Offer to Help: While working at McKinsey, we were trained on giving feedback. One of the impressive things was that people I worked with always made an offer to help with next steps. Building on the last example, you will notice that the person offered an observation about someone’s energy level but offered no plan for how to actually change and improve. A better offer could be: “I noticed you spoke in a quiet voice when speaking on Tuesday. It could help you appear more confident if you worked on communicating with more energy. I’m happy to observe your next talk and provide feedback on your progress. I’d also suggest watching Eric speak and asking him for advice, he is very good at this”

So next time you are giving feedback to someone ask yourself:

• Do I really care about this person’s improvement?
• Is this feedback on something that they can control?
• Is the feedback timely and specific?
• Have I made an offer to help them act on the feedback?

Watch Kim Scott’s Radical Candor video here:

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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Millennials are the greatest scapegoat available to the business world right now.

• Have problems at work? Blame it on a millennial.
• Have too many people leaving your company? Blame it on millennials.
• Have people not listening to bosses? Blame it on a millennial

Focusing on the traits of a group of people makes for great complaints and headlines, but is a waste of time. Boomers may have a tendency for autocratic leadership, but I’ve met some aspiring autocrats among my peers just as I’ve worked for inspiring and collaborative X’ers and Boomers.

As a Millennial, we are a product of our time. We grew up comfortable with technology, questioning authority and skeptical of any employer telling us they are committed to us. Despite this, we are also incredibly optimistic about the future: 80% of us think we will be better off than our parents.

Despite the fact that millennials likely are not going to be better off than their parents, companies should thinking about harnessing the energy of this group rather than blaming them for not following the same paths as their predecessors.

Technology is transforming our organizations and Millennials are ready to harness that power to shape the future of organizations. While they may not hold most leadership positions, but they are already the largest percentage of the working world as of 2015.

The future of companies depends on keeping this vital portion of the workforce engaged, but it is much more than that. I would urge instead that we take what we know about Millennials and use it as an excuse to create a more vibrant workforce that is more engaging (and profitable) for all generations.

So what is the answer?

Free Food!

(Just kidding)

Everyone looks at google and thinks that free food and bouncy balls are the key to happy workers and an engaged workforce. Anyone who has worked there or read about their culture (Work Rules! or How Google Works are great) understand that everything they do starts with a deep respect for people and not sashimi and chocolate.

Fortunately Millennials are more similar to other generations than different. The things they want will benefit everyone: It all comes down to opportunity, respect and voice.

I offer three examples of what this could look like in the modern organization. I don’t promise to have perfect answers, but I promise to continue to put my ideas out there.

Hopefully you can help me improve on them…

OPPORTUNITY: Give people places to play & experiment

It’s no secret that companies are struggling with growth. McKinsey recently did a study and found that 90% of the companies that exceeded GPD growth rates happened to bein only four sectors: finance, high tech, healthcare and retail.

Companies are desperate for growth.

Luckily, companies need look no further than to their own people. Many people have the desire to start their own business — including 66% of Millennials. The fact is, many will not take the leap to starting their own company — but companies can harness that energy.

66% of Millennials ( and 39% of all employees ) have a desire to create their own business

Companies should think about two things:

First, creating environments where people from all levels of the organization can engage on new and powerful business ideas. It doesn’t have to be a full-blow startup accelerator in your company (though companies like GE and MasterCard are doing exactly this). Just involving a junior team member in a new strategy, new product or new service is a step in the right direction.

Second, soliciting ideas more actively throughout the organization. Managers and leaders at all levels need to ask “what do you think?” and have a safe space where people can offer their ideas — even if they are bad. The quickest way to kill motivation is to consistently shut down someones ideas or perspective. Toyota has built a culture around unlocking creative ideas from front line workers. It has a term, genchi genbutsu, meaning leaders ‘go and see.’ They go to the front line to understand problems, but also involve the front line workers in solving those problems and engaging them in continuous improvement. This is a model companies can borrow to unlock ideas, growth and opportunity in their companies.

RESPECT: Find good people and trust them

Find good people and trust them. That’s Warren Buffett’s philosophy. Of his 50+ portfolio companies he manages as part of Berkshire Hathaway, he only requires a monthly submission of financial results. He trusts them to take care of everything else. Google has a similar value. Laszlo Bock (their Chief People Officer) said the key to google’s success has been to “hire amazing people…” and “…give them more freedom than you’re comfortable with…”

This type of trust is still rare for obvious reasons — but it can be applied in many places, especially work-life balance.

I’ve been lucky to work for some great companies and great leaders that cared much more about the work I did rather than where or how I got it done. They supplied the tools (easy remote access, laptops etc…) and let us make the decisions. This sense of freedom was powerful and made me feel incredibly motivated and valued. The Gen X moms and dads I worked with seemed to deeply appreciate it as well.

This type of thing cannot be implemented as a policy (though a policy helps) — it is born out of culture, one that values performance over face-time and control. This type of culture can be built in two ways. First, you have to share stories and celebrate people who take advantage of the opportunities — not pretend they are an exception. Second, leaders and managers have to role model the change. No one will ever work remotely if they see their manager in the office 24/7.

Managers can also go a step further and ask their team questions like:

What is one thing we can do to make your work-life less stressful?

Or…

What is a small thing we can do that would have a big impact on your performance and success here?

Millennials are the least compensated, most indebted and have the least vacation of any employees in your company. Often the responses you will get will be simple — working remotely on a Friday to start a summer weekend, being able to take an early call from home in the morning or maybe just working from home so you can make some healthy meals for yourself. Who knows, but why not ask?

VOICE: Loosen up the top-down control of information and power

Everyone in your organization is thinking things that they do not feel safe sharing. This is true at google as much as it is anywhere else.

The way to overcome this is to re-think how information flows in your organization. Instead of top-down, you have to create the opportunity for information to flow bottom-up and peer to peer.

I’ve worked at companies where the CEO or office leader would have open Q&A and also allow anonymous questions in front of the entire office. This is incredibly powerful as it gives everyone in the organization the sense that they have a voice. Most people never submit a question, they just like knowing they can.

Another way to give people a voice is to encourage teaching. I’m sure there is a Millennial that could teach some of your executives how to use technology to make their lives and work more efficient. I’m also sure there is a senior executive that could teach your Millennials about financial planning or just sharing learnings from their career. These types of interactions can break down barriers and give people a voice.

Another area is feedback. This is a sensitive topic. When I first started at McKinsey early in my career I was blown away by how open the feedback culture was. Sure, some of the feedback may have been tough to stomach, but what made it genuine was there was a two way street for sharing feedback with more senior people. In fact, I had an experience in my first week where a senior consultant asked me for feedback on what he could improve on. The experience made me realize that everyone wanted to improve and having the culture to support that was powerful.

Giving people a voice is important. Otherwise, Millennials are likely to blindly follow your orders. Surprisingly, they are more likely to follow managers’ orders than their contemporaries:

41% of Millennials “agree” or “strongly agree” that employees should do what their manager tells them vs. 30% of Boomers and Xers (link)

This is not a good dynamic. Today’s business world is changing faster than ever and it requires dynamic teams who can constantly question the status quo and continually improve. Giving people a voice will help you move the needle.

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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I have studied organizations, people and motivation and am fascinated by the changes that have unfolded in my relatively short career. I’ll defer to Neils Bohr to qualify this entire piece:

Prediction is very difficult, especially if it’s about the future — Neils Bohr

Since I can’t predict the future, I promise this will contain ideas that are not fully baked. I hope you can help me improve them.

Accelerated Transformation

Most people agree that that change is happening and that the pace of change is accelerating. However, if you look around, our modern organizations are not much different than they were 20 years ago. When I talk to people and HR leaders about their organizations they share with me the feeling that something is not right and that organizations need to evolve.

I’ll get to my vision of that future, but first wanted to call out three trends that I believe are driving this uncertainty. These are trends that are equal parts powerful and also hard to notice on a day-to-day basis:

1. Increased competitiveness — In the 1920’s, the average lifespan of a company on the S&P 500 was 67 years. Now? 1 company is dropping off the S&P 500 every two weeks!
2. Open Talent Networks: Individuals are increasingly becoming aware of their own market value thanks to resources like Glassdoor and LinkedIn. This information is not perfect, but it’s getting better. As more talented people realize they are worth more, they will seek to maximize their value either by switching to a new job, or as technology continues to facilitate a freelance path — go it on their own.
3. Dis-aggregation — Paul Graham had an excellent essay on what he called “the refragmentation” (see here). A key insight was that organizations are setup to minimize transaction costs (coase theory). Technology has dramatically reduced the cost of doing business across many industries. While still substantial, scale advantages will continue to diminish.

But Wait!

Your counter argument is that we have some of the biggest companies ever, right? Yes, this is true in a monetary sense. But in terms of number of employees — not even close. in 1979, GM had 853,000 employees. Now? 215,000. The historical GM is now a complex supply chain consisting of hundreds of companies across the globe.

Your second counter point may be the observation that the biggest firms seem to be getting bigger or merging with other big companies. On this, you are also correct. Between 1997 and 2012 the share of the top four firms’ revenues has risen from 26% to 32% of total industry revenues.

The employment trends also tell the same story:

So where is all this freelancing and disruption that everyone in Silicon Valley promised us?

A lot of it has yet to be realized, but we are seeing evidence of it across industry (with the tech sector leading the way).

I believe that “aggregation” and “dis-aggregation” can both exist within the same industry. In fact, it may signal a more stable strategy for our economy. Nassim Taleb offered the image of a “barbell” in his book Antifragile to talk about a two-sided investment strategy. I think this image of a barbell also offers a compelling vision for firm and industry dynamics more broadly:

I initially used the image of the barbell to describe a dual attitude of playing it safe in some areas…and taking a lot of small risks in others…hence achieving antifragility. That is extreme risk aversion on one side and extreme risk loving on the other, rather than just the “medium” or the beastly “moderate” risk attitude that in fact is a sucker game (because medium risks can be subjected to huge measurement errors). But the barbell also results, because of its construction, in the reduction of downside risk — the elimination of the risk of ruin.

In the book, he discusses how systems become more stable through a healthy amount of fragility — meaning that continual shocks (companies going out of business in this case) make the overall system stronger.

So in a hypothetical industry, there will be a small number of firms that have disproportionate power, but also a very large number of small firms that will be more volatile. These small firms will be ready to pounce or merge when the larger firms stumble.

This could also be a winning strategy at a firm level. Google moved in this direction with its newly re-organized Alphabet. It has a central large operation, but a separate arm to incubate its early stage investments such as Nest, Fiber and Calico. Many firms are taking the route often espoused by Clayton Christensen — of setting up completely separate business units that may or may not cannibalize its central operations — as a path for long term survival.

Setting up this barbell approach internally will not be enough for success for big firms to stay on top.

So what will?

Four Factors of Thriving 2025 Firms

From the successful companies I have observed, studied, or worked at, I believe there are four elements that will drive successful firms in 2025. These firms will be a roadmap for large firms to maintain power and for smaller firms to take to disrupt the big players:

1. Process Excellence — According to BCG, firms are becoming 6.7% more “complicated” every year — a measure of the number of layers, procedures and decisions within an organization. Technology has no mercy for the organizations that continue to complicate. Sub-par processes cannot hide (think cab companies) and firms will decreasingly find protection from existing structures and regulation. Healthcare is a perfect example. A hospital resisting a new process to save lives could still succeed in the 90’s but will have a tough time in 2025. With increased transparency of outcomes, entrepreneurial physicians will spot an opportunity to take a different approach and move to a more innovative practice or start their own. Across all industries, firms will have a tough time retaining high-performers if they are not continually evolving on processes and operational excellence.
2. Purpose-Driven Cultures — Apple is the world’s most valuable company. It’s no surprise that they are synonymous with “think different” and “making the world’s best products.” Some of the smartest people I know now work for Apple — I don’t think that’s a coincidence. John Kotter did a famous study that found purpose-driven companies returned 10 times more than non purpose driven companies over a period of 10 years. Millennials are driving a lot of this change — they make up more than half of the workforce already. Deloitte found that 87% of Millennials believe that “the success of a business should be measured in terms of more than just its financial performance.” In 2025, organizations will need to answer the question: Why are we here?
3. Adaptive Technology: Legacy IT systems don’t cut it anymore — they are too costly to maintain and don’t align with a fast moving processes. In 2025, technology will have to both simplify processes (save time) and enable continuous improvement. Having the wrong system will be costly. Upstart competitors will do the same thing in half the time and half the cost and put you out of business (Compass is a good example of this in the real estate industry). Companies will have to rely on custom and proprietary solutions that can evolve fast and help generate revenue itself. This is Amazon.com’s strategy. It systems are the backbone and driver of continuous improvement on its its e-commerce strategy, while also being a generator of revenue (its Web Services business generated $7.8 billion in 2015!)
4. Agile Teams: In writing about his experiences with transforming the modern military organizations, General Stanley McChrystal’s wrote a book and introduced the concept of “Team of Teams” (here is a great podcast on it). During the Iraq war, the traditional command and control organization did not cut it. This shift was necessary to deal with the information-rich environment in which they operated. They needed to have flexible and autonomous teams that could make decisions quickly but be able to extract the information from other teams and the central office. As the working world continues to become more complex, being able to deploy the right team in the right situation will become more important than ever. It is also imperative not only to attract the best people, but to have the best people working on transformative new ventures that will drive growth. For example, MasterCard tapped into the power of FinTech startups by launching an internal startup accelerator. Google is going one step further and letting employees craft their own roles (in my mind, this helps overcome some of the obstacles of top-down org design). Not being limited by traditional roles and hierarchy and creating more agile teams will be an imperative for high-performance teams in 2025.

These four factors are not the only factors that will determine success in 2025, but a failure to succeed on any one of these four will put you at risk for being disrupted well before 2025.

The best way to predict the future is to create it 

Peter Drucker

41k+ Sold! (Top 1% Book) The Pathless Path is Paul's book about walking away from a "perfect" job with a promising future and starting over again. Through painstaking experiments, living in different countries, and a deep dive into the history of our work beliefs, Paul pieces together a set of ideas and principles that guide him from unfulfilled and burned out to what he calls "the pathless path" - a new story for thinking about work in our lives. Learn More & Buy The Book Here

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