Growth and innovation doesn't necessarily come from the people with lofty titles, but from the people who develop new ideas and execute them on a daily basis. And that's why, increasingly, traditional hierarchies don't work--and neither do traditional promotion and recognition systems.

Here's another in my series of interviews in which I pick a topic and connect with someone a lot smarter than me. This time I talked to Jim Whitehurst, the president and CEO of Red Hat, one of the largest and most successful providers of open-source software. (For more with Jim, check out this, and this, and this, and this.)

Everyone talks about building a meritocracy, but few companies actually operate that way.

When you think about how we coordinate human behavior, we tend to do it hierarchically. During the growth of large corporations many organizations adopted the military philosophy: positional authority based on hierarchy.

But that no longer works well, hence the explosion in the number of organizations that aren't formal hierarchies. If you think about it, most opt-in organizations aren't hierarchical--Silicon Valley is, in a way, one big opt-in community.

But without a formal hierarchy, how does a reasonable size company operate effectively?

For us it's somewhat natural. Red Hat grew out of the open source movement. In open source, code talks. The best source code ultimately emerges. You can apply that same principle to how you make decisions. The best ideas emerge--if you let them.

The other thing that's fascinating with open source is how a meritocracy develops around long-term contributions. One person can toss out the same idea as a person who has been an outstanding contributor for 10 years, and the longer tenured person tends to get listened to more.

Influence is often based on a history of outstanding contribution. In any organization there are people others really listen to, because they've earned that right.

So how do leaders emerge in a system that's not highly structured?

It's not a lot of people sitting around saying, "This person is smarter or this person did a better job." It really happens organically.

Leaders build their own followership. If people follow you, you're a leader. Why do they follow you? In an opt-in, they follow you because they want to. People who are brilliant, inspiring, contribute a lot--have a solid track record. They naturally are seen as leaders.

Think about it this way. In every company, everyone knows who the jerks are. Everyone knows who the kiss-ups are. And everyone knows who the real leaders are. Yet somehow the bosses don't.

The analogy we used at Boston Consulting Group is thermometers and thermostats: thermostat sets the temperature; a thermometer reflects the temperature. You need the thermostats on your side because they set the temperature. Informal thought leaders are thermostats. Unfortunately most companies jam the leaders in instead of letting them emerge.

But partly that's because the only way to advance, if only in terms of salary, is to get promoted into a leadership position.

A definite shift in the traditional career arc is taking place. In addition to careers of advancement there are now increasingly careers of achievement. If a person is happy in what they're doing, they should be able to earn more power/credibility/compensation/etc for continued contributions instead of having to get promoted--often into a job they don't really want to do and may not even be great at.

We try to reflect that in our compensation. As long as you continue to contribute, voice your opinions, make things happen. You can continue to build a reputation and a career without having to change jobs. That's a really important framework a lot of people in traditional enterprises don't get.

I'm not sure every employee gets that either. Promotion is recognition.

You always hear from older, traditional managers, "These kids all want to get promoted in six months, they all want to be CEOs in six months." What's really happening is people say they want to be heard, want to be listened to, want to be recognized, and in a traditional organization the only way for that to happen is to get promoted.

If you let people build influence without moving up the ladder, they aren't dissatisfied. With many ambitious people the outlet for their ambition is having more influence on the company and being a great contributor and building a followership. Contributing, influencing, leading: those are incredibly fulfilling in a way a job title can never be.

So in a meritocracy, how do I get promoted into a leadership position that's what I really want?

I always say, "If you want to be a leader, prove it by finding people who will follow you."

At Red hat we try to defer as much as possible to the perception of the organization. It's clear who the organization sees as leaders. We want a 360-degree view, not just the view from above.

We don't have a formal way to distill that, but in general you just kind of know. It's amazing how three different people from different functional areas will eventually arrive at the same conclusion about a person's leadership skills. Everyone knows who are the people are who do great work, who create great outcomes, who are the leaders. It's glaringly clear to most people.

Use that and not the traditional, hierarchical system of promotion.

Doesn't that in effect blow up a traditional org chart?

We still have an org chart, but that org chart does its best to defer to the culture and to the leaders who make great decisions. It's not like we're saying tear up the org chart, we're saying listen to your employees to determine the real leaders. The people who are leaders are the people you would call because you trust them, because they get stuff done, because they make things happen--on their own and through other people.

In Econ 101, you learn about supply demand curves and equilibrium, and in the last class the professor says, "Those are all simplified explanations. In the real world, true equilibrium doesn't exist. The real world is a lot messier."

We do the same thing when we create traditional management hierarchies. We assume motivation doesn't matter, that people are always rational and unemotional: we make all these simplifying assumptions that deep inside we know aren't true. Yet many businesses still operate as if those assumptions are true.

Traditional hierarchies ignore all the real-world, messy stuff. A meritocracy recognizes the subjective--and it recognizes people who are true contributors and leaders.

Is it subjective? Sure. And that's okay, because real leaders make subjective decisions. If everything was objective you wouldn't need leaders.

Check out other articles in this series: