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Creating Effective Organisational Systems through Experimenting with Human Nature

October 18, 2016 • David De Cremer on Management, LEADERSHIP, STRATEGY & MANAGEMENT, Team Managment

By David De Cremer and Tian Tao

If organisations are serious in building cultures that can translate the desire to create joint value into a competitive advantage, it is needed that they become architects of systems that account for the human nature of its employees. One company that has become known to implement experimental approaches based on insights on how human nature works is the Chinese telecom giant Huawei.

 

Although effective organisations that create joint value combined with a long-term view are predicted to be the future model, they are still considered to be a rarity. A contemporary problem is that all too often performance systems are focused on achieving results with not enough attention to the human aspects of the work that influence the effectiveness of the system itself. Indeed, performance is still believed to improve by employing systems that are tailor-made on the assumption that rational actors populate organisations. As a result, the influence of emotions, irrationalities and psychological forces at large are discounted when designing these organisational systems. Research on human decision making flaws have identified very clearly now that the idea of rational man is an illusion and that organisations continuing to treat their most important asset – humans – in ways that do not accommodate their irrationalities will not go far.
Despite the rise of automation processes and the use of robots, people are still at the heart of organisations. Organisations nevertheless base their management processes, systems and even HR policies on outdated ideas of human behaviour and organisational design. This is a serious limitation to the capacity of any organisation trying to balance improving productivity and at the same time keeping their employees satisfied and motivated. What is needed is that HR managers and organisational leaders adopt an attitude to design systems that are based on the best understanding of human nature. This kind of attitude requires that organisations consider themselves to be architects of organisational designs that fit human needs and irrationalities. Relying on the best insights on what motivates people and what the irrational biases may be underlying their pursuit of those desires will allow organisations to design systems that are not only more effective in getting the best out of people but also reduce costs on the long term significantly. At the end of the day, organisations with such an architect mindset will be able to create more joint value for all of their stakeholders (society, customers and employees).

An important problem that prevents most companies to adopt this strategy and foster an architect mindset concerns the fact that experimenting and learning about the beneficial impacts of human nature on organisational design requires short-term losses to achieve long-term gains. Because of the pressure of many companies to satisfy and meet the requirements of their shareholders, this trade-off is hard to achieve. As a result, we see less experimentation based on sound reasoning happening. One company that does not face the pressures of public shareholders and consequently has become known to implement experimental approaches based on insights on how human nature works is the Chinese telecom giant Huawei. The company is a leading global information and communication technology (ICT) provider that was founded in 1987 in Shenzhen, by Ren Zhengfei. Today it employs more than 170 000 staff and serves more than 3 billion customers worldwide. It is the only Chinese company that receives more sales revenue from markets outside  (67%) than from inside China. In the fiscal year of 2015 Huawei´s revenue reached CNY395 billion (US$60.8 billion) and CNY36.910 billion (US$5.68 billion) in net profit.

This kind of attitude requires that organisations consider themselves to be architects of organisational designs that fit human needs and irrationalities.

A feature relevant to the purpose of the present article is that Huawei is an employee-owned company facing no pressures from any private investors. This allows the company to develop long-term strategies and engage in thoughtful reflections on the business models Huawei will employ. It is an understatement to say that Huawei breeds an intellectual climate fostering thoughts and ideas about a wide variety of business challenges. In fact, Ren Zhengfei is repeatedly quoted as saying that the most important thing to value is the power to think. It is the belief of the company that innovation without a solid academic foundation is never going to be big business. It is just messing with the details. Ren Zhengfei has the belief that the Internet age has created a generation of inflated ideas in China’s young people and therefore fears that serious scientific research is lacking these days. The only way to achieve great leadership is therefore to do some hard learning and this idea has become a mission for all of Huawei employees.   

So, how has this intellectual look at business challenges resulted in Huawei´s experimentation with human nature with the aim to promote organisational effectiveness? We identify three important experiments that have and are defining Huawei as the company it has become today. Each of these three behavioural-based interventions are derived from insights into the drives of humans and their corresponding biases.



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