W.L. Gore: Lessons From a Management Revolutionary, Part 2

Posted by Gary Hamel on April 2, 2010

W.L. Gore & Associates has been called the world’s most innovative company. For an introduction to Gore, and its weird but effective leadership model, see my previous post. Below, the second half of my recent interview with Gore’s CEO, Terri Kelly.

Gary: What does it feel like when a new associate joins Gore? They aren’t assigned to a boss, so how do you bring them on board? How do they learn about the culture?

Terri: On day one, they won’t know what to work on, so we work with each associate to develop their starting commitments. They’ll also get a sponsor, which is a very unique role within Gore and different than a leader. A sponsor makes a personal commitment to an associate’s success and development. A leader can also be a sponsor, but needs to be very clear about what hat he or she is wearing. If you’re the leader of a business, you can be conflicted, since your success is around driving business results; but one of your valued team members might need to leave your business to develop and grow. That’s a tension, but your responsibility as a sponsor is help the associate reach their full potential.

New associates rely on their sponsors since they don’t know how to get things done; they don’t know our language. A new associate will probably experience a lot of freedom they didn’t have in their last job, but also a lot more responsibility in terms of having to be self-driven and self-initiated. Even though the sponsor is there for you, you need to set your own career goals, and determine for yourself where you can make the biggest contribution. For a lot of people, this is very different from what they would have experienced in a more structured environment.

Gary: Another unique thing about Gore is your approach to locating factories. For the most part, you’ve avoided building large, focused factories in low-cost labor locations. Factories are clustered together. Gore also splits a business in two when it reaches a certain size. None of this sounds very efficient. What’s the logic?

Terri: There are a couple of practices that have served us well. First is the three-legged stool. We like to have the functions co-located because innovation depends on having research, manufacturing and sales all in the same place, where they can build off each other. This also helps us develop leaders. Our campuses are all cross-business, whether in the U.S. or Germany or China.

Secondly, if a plant gets too big or a business gets too large—more than 250 or 300 people—you start to see a very different dynamic. The sense of ownership, the involvement in decision-making, the feeling that I can make an impact starts to get diluted. So we look for opportunities to divide big business into smaller businesses. Bill Gore said that one of the most important responsibilities of the leader is to figure out how to divide so we can multiply. We look for opportunities where dividing a unit up and replicating some of its activities can accelerate growth.

In Gore, you’ll see a lot of small plants with fewer than 300 associates, because this drives a different level of focus and ownership. Large businesses tend to stifle smaller businesses by hogging critical resources. When you split a business up, the smaller unit gets its own resources and can set its own priorities. Another bonus: new leaders emerge because you no longer have a single leadership team under one big roof, but now have two distinct leadership teams.

The last thing that’s helped us in the current economic environment is that we co-locate different businesses together. If a particular industry has a downturn, you want to be able to move the associates to another opportunity. If our plants were all in isolated locations, this would be much more difficult. So we like the idea of campuses where a number of small factories are co-located within a 25-mile radius. This way, people don’t fear moving on to something else, and are less hesitant to take on a new opportunity. This lessens the risk the associates will try to preserve a business or product area that may no longer be so promising to the company.

Gary: To a typical hard-driving manager, the Gore model probably seems utopian, maybe even naïve. You don’t have a hierarchy. Leaders can’t command. Employees choose their own commitments. It sounds like a slacker’s paradise. No wonder the company is consistently ranked as a great place to work. But where does the discipline come from? Most managers view freedom and discipline as mutually exclusive trade-offs, but that’s clearly not the case at Gore. You sell to demanding customers like Nike and Procter & Gamble, and have made money every year since the company was founded. What drives discipline at Gore?

Terri: Some days things are chaotic. I don’t want to paint a picture of something that’s perfect. You have teams coming together, storming and forming and building relationships. But there are some fundamental things that hold Gore together. One is the values to which we all subscribe, in terms of how we’re going to treat each other—there’s a huge trust element in the Gore culture.

One of the more powerful things that creates discipline is that everyone in the organization knows that they will be ranked by their peers, and that their compensation will depend on this ranking. This peer pressure is much more powerful than top-down pressure.

Our associates get to choose what commitments to make. If they didn’t know they’re going to be evaluated by their peers, they might be tempted to take on an assignment that is personally interesting to them, a hobby, but one that’s not important for the company. But instead, every associate is constantly thinking, ‘I want to be viewed as making a big contribution to the enterprise,’ so they’re constantly looking for opportunities that will leverage their strengths, and that they’re passionate about. So there’s a natural, built-in pressure: every associate wants to work on something impactful.

Every associate knows that they won’t be judged by one boss or superior, but by all their peers, by individuals who know what they’ve done and how they interact with others on daily basis.

Typically, an associate will be evaluated by 20 or 30 peers and will, in turn, evaluate 20-30 colleagues. You rank your peers from top to bottom. It’s a forced ranking. You’re asked to rank only people you know. What we find is that there’s typically a lot of consistency in who people view as the top contributors, and who they view as the bottom of the list. We don’t tell our associates what criteria to use, we simply ask them to base their ranking on who’s making the greatest contribution to the success of the enterprise. You don’t evaluate people solely on the basis of what they’re doing within their team, but in terms of the broader impact they may be having across the company. And then beyond their contributions, are they behaving in ways that are collaborative? Are they living the values? Sometimes someone will get great results but at great expense to the organization. These are the issues associates think about when they’re putting together their rankings.

We have a cross-functional committee of individuals with leadership roles who look at all this input, debate it, and then put together an overall ranking, from 1 to 20, of those particular associates. Then, in setting compensation, they ensure there’s a nice slope to the pay curve so that the folks who are making the biggest contributions are also making the most money.

The process is a bit brutal, but it ensures that real talent gets recognized. This system avoids the problem of paying someone more because of seniority or title. New associates joining the organization, the scientists who don’t want to be people leaders—we want these people to feel highly valued, because the next invention may come from them. No system is perfect, but ours levels the playing field and allows real talent to emerge and get compensated accordingly.

We don’t need a bureaucratic system to hold people accountable. We don’t need time cards, because we don’t care when the person comes or leaves—we just care about their contribution. So you can deconstruct a lot of the typical bureaucratic processes that are typically used to measure and control performance. We’ve also found that by not having hard and fast metrics of performance we can avoid a lot of unintended consequences. You get a lot of negative behavior when you have narrow metrics that really don’t represent the complexity of the business. Instead, we ask our associates to view performance holistically, in terms of someone’s total impact, versus focusing on a few specific variables.

Gary: A lot of companies struggle to balance trade-offs—between growth and earnings, short-term and long-term, and so on. Often these trade-offs are made at the top. A CEO will say, “this year we need to focus on getting our costs under control”—and then next year the company discovers it has missed a big new opportunity while it was obsessed with slashing costs. Or a leader will demand growth and then later discover that this came at the expense of near-term earnings. So you get the pendulum effect. How does Gore avoid this? How do you decentralize the responsibility for managing tough trade-offs?

Terri: We introduce this sort of ambiguity and polarity to our associates early on. We don’t protect them. If you put them in a box and feed them a simplistic model of business, they won’t be able to handle these subtle trade-offs. We want to put these conflicting pressures on all associates and not just on the leaders, who often think they’re supposed to protect the rest of the organization from these tensions. Our associates have a very good understanding of how complex these trade-offs really are. That’s because our leaders take a lot of time to help associates understand the trade-offs. Leaders have to explain all the factors that need to be taken into account in making a decision. Rather than having a small population of individuals who are capable of making these trade-offs, we have a broad base of associates who are capable of making complex decisions.

We sometimes worry about how to scale this model. We asked that question at 50 associates; it was asked again at 500; and we’ll ask it again at 10,000. But what we’ve found is that our management model helps us scale, because we’re not relying on a few centralized, enterprise leaders to make all the key decisions. Instead, we push authority out to operating teams that are much better equipped to make the right decision at the right moment.

Gary: Gore is more than 50 years old and has been the subject of many case studies. Why hasn’t this management model taken root in other companies? Why hasn’t it been emulated more broadly?

Terri: First, I should say that we’re still evolving. We haven’t figured it all out. But what I’d tell another CEO is this. You have to look at the values that are embedded in your company: what behaviors have been rewarded and reinforced over the decades? Is it a culture that really believes in and encourages individuals? Does it foster a collaborative spirit? Does it encourage knowledge sharing? You have to tackle this first. One of the biggest mistakes an organization can make is to articulate all these great values but then not live up to them—then people get cynical, because the values are out of synch with what they experience every day from their leaders.

Second, you have to evaluate your leadership model. It’s incredibly important to look at the motivation of your leaders, how they’re rewarded, what they value. If you don’t tackle this, you’ll be in trouble. Our model requires leaders to look at their roles differently. They’re not commanders; they’re not lynchpins. Their job is to make the rest of the organization successful. They have to give up power and control to allow this chaotic process to happen—so you get diverse perspectives and teams coming together to make decisions.

Third, you have to be clear about the checks and balances. At Gore, it’s the peer review process, but it might be something else in another organization. What is it that will reward and reinforce the values on an ongoing basis? This needs to be embedded in your management practices. This is the sequence I would follow if I were trying to foster Gore’s culture in another organization.

Gary: In the past, someone might have looked at the Gore model and said, “well, that’s interesting, but it’s not essential—there are other ways to manage.” But when I think about the core elements of your model—a collaborative decision-making process, an organization where leaders aren’t appointed but emerge from below, associates that have the knowledge and authority to make the critical real-time trade-offs—it seems to me that these things are becoming competitive imperatives.

Terri: If you think about changing demographics, our young associates expect these things. They expect to have the chance to make an impact. They expect to know why they’re working on something. They expect to work in a collaborative network where information is freely shared. If an organization doesn’t have these things, my suspicion is that it won’t be able to compete. You won’t be able to attract the talent, and you certainly won’t be able to retain it. This is what it’s all about—getting the best brains together.

OK, dear reader, a couple of questions to exercise your considerable intellectual talents. First, why do you think the Gore model is still so rare? If it works, as it seems to, why hasn’t it been more widely emulated? And second, what do you think of Gore’s peer-based salary-setting process? Can you imagine it ever working in your organization? Why or why not?

Shameless Plug Department: If you want to learn how to build a Gore-like management model in your company, see my latest book, The Future of Management.




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Why Gore's model isn't emulated more

When power is dispersed, so are profits. Gone will be the profits for non-working owners. Gone are the inflated leaders' salaries. The people with the power to change organizations are these same people. They're afraid they will lose something. Of course, if they really understood what would result, they would probably be glad to disperse power and have a richer enterprise because of it.