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With Great Freedom Comes Great Profitability

When companies grow, rules proliferate. And that's what strangles them.
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If the ball's falling, catch it.

That is the job description for everyone who works at Gripple, a global engineering firm. The company has no HR department, and it's expected that employees will take only as much vacation as they need and the company can bear. In other words, this is a company which provides its staff members (the CEO won't call them employees) with a great deal of freedom.

Another impressive characteristic: 25 percent of all sales today come from products that did not exist four years ago. The company prizes and achieves high levels of innovation.

Freedom to Succeed

The combination of freedom and innovation is not accidental. According to Caterina Bulgarella, of advisory firm LRN, freedom drives innovation--and the companies that give their work force high degrees of freedom are necessarily the ones that innovate.

In her study of nearly 1,000 companies, Bulgarella studied what she calls high-freedom and low-freedom businesses. High-freedom companies are, she demonstrates, at least 10 times more likely to achieve high financial performance, and 20 times more likely to innovate and to be successful long-term.

The sting in the tail of her research is that these outstanding businesses were also in the minority, making up just 20 percent of those studied. By contrast, 50 percent were low-freedom companies, in which hierarchies are steep, rules proliferate, and people, relationships, and ideas remain isolated. These businesses may believe in free enterprise--just not inside their own offices.

"One of the most intriguing findings has to do with the role of values," Bulgarella told me. "I wasn't surprised that they matter, but the finding that human values are so influential is remarkable. Emphasizing performance and winning has far less impact than placing a great deal of value on integrity and creativity."

And what about the low-freedom companies; how did they react to her findings? "They recognize that there is some growth they're missing out on," says Bulgarella. "But they are so enveloped in the way they work that it's hard for them to envisage drastic change. They appreciate that freedom-from could just mean chaos. But it's the freedom-to (to take the initiative, to reach out, explore, and think broadly) that they find most hard."

Bulgarella's work formalizes much of the same thinking as Reed Hastings's HR strategy for Netflix: Freedom and responsibility are sides of the same coin. And the policy there is nearly as simple as Gripple's: Act in Netflix's best interest. Both echo the psychologist Barry Schwartz, who argues that we need to pay attention to practical wisdom, and couple moral will with moral skill in order to do a great job.

The biggest threat to a business is that, as it grows, it becomes mired in rules and regulations which, aiming to prevent chaos, prevent creativity and responsibility, too. The solution isn't to lower expectations--but to raise them.

Last updated: Apr 16, 2014

MARGARET HEFFERNAN

Margaret Heffernan is an entrepreneur and author. She has been chief executive of InfoMation Corporation, ZineZone Corporation, and iCAST Corporation. In 2014, she published her fourth book, A Bigger Prize: How We Can Do Better Than the Competition.




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