Your guide to company brain surgery

Companies are wired – like humans – to resist differences. To change organizations, you need to understand their biology.

The jargon suggests that companies have a brain. We often hear terms and concepts such as ‘organizational learning’, ‘organizational memory’, ‘the culture of an organization’ and ‘organizational behaviours’. This begs the question: do organizations even think? And, if they do, do they have one brain higher up, above the structure and systems, the people and processes? Since organizations are collections of individuals, is there a parallel between how we think, as individuals, and how organizations function?

Like people, organizations must move between operating states as a result of changes in market conditions; customers’ tastes; regulations; political atmosphere; and, in many cases, a turnover in their own management. People learn, through experience, what is acceptable and what is not, what leads to desirable outcomes and what makes them harder to achieve.

Organizations face the same set of challenges, but, unlike their human counterparts, the lessons learned are often transitory as people move from job to job and company to company. Leaders try to preserve knowledge by instituting organizational policies and procedures; we set up compliance departments and give HR teams the task of distributing the rules of behaviour (both people behaviour and market approaches).

However, numerous organizations still fall short of converting day-to-day interactions into experiential knowledge. It’s as if their brains suffer from a disconnect between past lessons learned, present inspiration and insight,  and future outputs and outcomes. As organizations face new market challenges and opportunities, they must switch between operating states, sometimes becoming more customer focused, at other times aiming to be a product leader. Ultimately, at some point, organizations strive to be operationally excellent by concentrating on streamlining their operations.

Changing the focus of an organization is no small task: it’s like changing all the brainwaves of an individual and creating a new personality. Even when individuals in organizations say they want to change, or they welcome change, the reality for most organizations is that people strive to maintain the status quo, much as the brain, after a certain age, starts to accept the natural forces of inertia.

Most people are also apprehensive about impending changes in their jobs, routines, governments and many other aspects of their lives, but they sometimes develop the resolve to change, adapt and try new things. Organizations, with their larger and more abstract brains, often find themselves firmly stuck in conflicts between the why and the what, the how and the when.

At the most basic level, an organization is indeed merely a collection of people in a network, put within a decision-making framework, in much the same way as our brains and nervous systems are organized. So can recent discoveries in brain research provide insight for leaders who face transitioning their organizations from one operating state to another, as market conditions change?

The Diagnosis

The human nervous system comprises four distinct interoperating components that form our behaviour. This is similar to the way organizations are designed to function.

The policies and procedures of organizations act in a similar fashion to the body’s autonomic nervous system, regulating key involuntary functions such as paying bills, collecting accounts payable, making payroll happen on time and many other day-to-day functions. Like the nervous system, departments within an organization react to changes in the operating environment in a same way a body reacts to shifts in external stimuli. Management employs operating procedures to regulate the pace at which the organization adapts to change, while ensuring that the everyday activities keep the organization earning revenue.

In the body, there are two distinct systems at work: sympathetic and parasympathetic. The sympathetic nervous system accelerates the heart rate, constricts blood vessels and raises blood pressure. In the organization, favourable economic activity, a surge in new orders or sudden popularity of a product, produces the same effect: productivity increases, management authorizes overtime pay, priority shipping takes place, the volume of transactions rises.

The parasympathetic nervous system works in the same manner. It slows the heart rate, increases intestinal and glandular activity. This is analogous with the actions management takes when there is a downturn in economic activity, the time at which reducing the workforce, cost cutting, and process optimization becomes a key focus.

Leaders often face the challenge of having to restructure the organization because of a sudden change in the economy. A loss of orders many change the focus to cost reductions; a large contract won may necessitate the development of a new business process; an emerging market may call for close integration with a supplier or customer where business process synchronization will be key to customer satisfaction. Many external factors such as disintermediation, ‘coopetition’, rightsizing and re-engineering provide the necessary catalysts for a radical change in operating state.

In many cases, the organization needs to adopt new behaviours – such as becoming more entrepreneurial in nature, whereby middle managers, in order to survive, must take a greater leadership role, often assessing risks in new ways. The body functions in a similar way: external stimuli (cold, heat, anything that creates emotion) catalyze chemical reactions that change the way the body responds and the mind works. A self-fulfilled individual will master these, and put the challenges to work to his or her advantage; a healthy organization will do no different.

In that sense, partnerships, collaboration, cells of competencies and other new structures, are all viable options if the individuals in the organization have the appetite for change. If individuals have no appetite for change, just like the body rejecting a foreign object, they act like antibodies to reduce, delay and impede change initiatives at every opportunity. In numerous cases, this resistance to change is involuntary. The functional silos of the organization act to protect the policies and procedures that represent years of knowledge aimed at optimizing the production process.

The body, in fighting an infection, becomes weaker temporarily, but it also strengthens itself longer term. Often, it desensitizes itself to a virus. Organizations don’t always respond in the same way; sometimes a wave of challenging external or internal conditions can strengthen an organization, at other times it can weaken it without any positive outcome.

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Three states of being

In the seminal book The Discipline of Market Leaders, Michael Treacy and Fred Wiersema argue that organizations strive to operate in one of three states based on market forces. These are:

  • customer intimacy
  • product leadership
  • operational excellence

What they observed is that,  although most organizations would like to be excellent in all three disciplines, they are typically constrained by their resources, tending to focus energy on excelling in just one. That said, the economic conditions of the past two decades have brought about conditions wherein organizations have been oscillating between operating states, as technology rapidly rewrites the relationship between consumers and businesses. Like the body reacting and adapting to changes in the external environment, organizations either consciously or subconsciously change their operating state with varying degrees of success.

Many management consultants have observed that changing operating states is almost like brain surgery. Any false step can result in complications or ruinous events. Changing operating states impacts both an organization’s sympathetic nervous system and parasympathetic nervous systems. In most cases, what is missing is that, as an organization transitions between operating states, it needs to unlearn and relearn rules, guidelines, policies, and procedures whose formalization may lag behind the organization’s need to conduct business in a timely manner. And this level of proactivity and nimbleness is difficult, to say the least, for an organization with that big, abstract brain hanging up above.

Modifying day-to-day behaviour

Yet many organizations now face the change-or-die syndrome, where leaner, non-traditional competitors are entering the market; in many cases with a significantly lower cost base. So what can the science behind how the brain functions do to help senior executives be smarter when they initiate change initiatives?

Successful change initiatives aren’t possible without modifying the day-to-day behaviour of people throughout the organization. Doctors have observed that only one in nine patients who have undergone coronary bypass surgery adopt a healthier lifestyle. Many start programmes of regular exercise, lose weight and improve their diet, yet eventually revert back to their old habits, even though they are aware of the risks.

One can observe the same behaviour in financial institutions, for example, as their actions move from underregulation to over-regulation, based on their inability to understand and interpret local economic activity and take action to mitigate risks in their lending decisions. Given the tendency of such companies, and others, to trend back to bad habits and poor health, what can senior executives do to institute change to reduce the risk of organizational atrophy?

In recent years, medical technologies such as functional magnetic resonance imaging (fMRI), positron emission tomography (PET) and quantitative electroencephalography (QEEG) have given neuroscience a whole new array of information-gathering devices to aid in understanding the previously unknown neural connections in the brain. This has led to a host of new theories linking the physical composition of the brain with functions of human consciousness. How we feel and think, the way we act and perceive the world around us, is based on a network of communications between our sensory and autonomic systems.

But these are yet to be translated into meaningful connotations for business, for the workplace, the classroom and so on. The more control one has over the once seemingly random responses of the individual brain, the more able a senior manager, chief executive or board will be to lead the random mutations around, and within, organizations, increasing their efficiency and effectiveness.

The Prescription 

What does all this mean for leaders? Imagine that, for the most part, you are a charismatic leader; you go to your competitor and see their latest product or service. It is futuristic, and you know it will resonate with your customers. Let’s say that the innovation you glimpsed was a newfangled take on the lava lamp. You go back to your team and tell them that your company’s future is in producing the lamps. The experience of seeing the product in use is fresh in your memory. You describe the product to your team. Great, we now have a vision, based on what you saw the competition doing.

Now, you say, let’s build it. Where do you start? You have a great vision; but the organization lacks the know-how, tools, and capabilities to move rapidly into implementation. Probably your staff will hope that you will forget about it in a week, which undermines your leadership. So the future – the lava lamp business – and the organization itself are threatened.

What could you, as chief executive, have done differently in this scenario? Brain research offers relevant insight for organizational leaders. Our understanding of how the brain works is vastly different to that of a decade ago. Then, scientists believed the brain was fully developed by the end of childhood, only to discover that, during adolescence, the brain undergoes profound changes as it continually rewires the connection between neurons, based on our learned experiences. And this continues into maturity.

Rewire for change

Think of the people in an organization as independent neurons each comprising a set of skills and knowledge. As the brain learns, it rewires the connections between neurons to cope with changes in stimuli. This would be analogous to reorganizing the company every time market conditions change. In practice, organizations resist change, which is actually at odds with the way our brains work. So the leadership challenge is to motivate change by sharing a vision that focuses on what’s possible, what’s real and what will make an impact.

New thinking from neuroscience may help leaders overcome the ‘status quo effect’ by examining how the brain remembers and reacts to learning and change. The brain has a capacity called working memory, which takes stimuli in the form of perceptions, and contrasts them with stored information to determine if something is new. This recognition of newness determines how the stimulus is processed. Humans process the new things they encounter by contrasting their attributes and properties against known benchmarks.

Things that are familiar become routine and a part of our working memory. For example, you learn to drive, and within a few months of driving around your neighbourhood, you drive without thinking. You are familiar with your surroundings; you instinctively anticipate things. When you travel to an unfamiliar place, you tap into your working memory and begin to compare the current surroundings with the benchmark (home territory). However, within a relatively short time, you adapt to the new environment and revert to driving without thinking.

It is the same process of cognitive dynamics that are invoked when organizations experience fundamental changes. How senior managers ‘sell’ change to the organization sets the level of stress the organization will encounter. As routines are interrupted, eliminated or drastically altered, individuals react because their ‘driving without thinking’ has been changed. This leads to people feeling unsure of their own decision-making processes, so they resist the change and hope for a return to the status quo.

Scientists studying brain functioning note that human brains react to perceived differences between operating states. In people’s brains, those differences push individuals to become emotional or act impulsively. Organizations react in the same way – when change is not sold properly to them, and people don’t know what to expect, nor understand the likely impacts, they take undue risks; for example, offering discounts to retain customers, or selling one product below cost to beat the competitor hoping to make a profit by linking sales to another product. Yet if their brains expect a change, they are rewarded by that change occurring – the change itself is interpreted as a success rather than a threat.

The key for managers is to nurse an organization’s working memory into one that enables change, so functions associated with managing the process seem less like a foreign body and more like a part of the company’s collective history. Leaders need to be expert surgeons, and operate within the limits of their organization’s brain function, rather than going dangerously against them.

Joe DiVanna is the Møller By-Fellow of Churchill College, University of Cambridge, and author of People – The New Asset on the Balance Sheet.