X marks Exploit, Y marks Explore

(TLDR: I am preparing a workshop for a client designed for a group of newly minted leaders. I want to demonstrate the differences between leaders and managers. However, I also want to highlight that being a leader and manager is also contextual, in certain cases we need to be more "managerial" (or theory X) in our approach while in other scenarios, we need to exercise our leadership skills (theory Y). Beyond these contextual situations, we must be aware that we manage things, but we lead people. Furthermore, when we operate in a world where both the problem and solution are known, management is useful. However, when we live in an unpredictable world, our inner leader must emerge. )

Theory X Theory Y

In a 1957 speech, Professor Douglas McGregor of MIT advanced our thinking about managerial mindsets. McGregor challenged the underlying assumptions about the dominant management model since the Industrial Revolution—an autocratic, “command and control” style of management. To do so, he categorised leaders into two distinct types.

Theory?X?managers are distrustful and micromanage workers in an authoritarian style. They believe people are inherently lazy, dislike work and have little ambition, do the bare minimum, resist change and are lucky to have job. Furthermore, theory X managers believe that most people prefer to be treated this way, so they can avoid responsibility.

Theory?Y?managers believe people have the agency, desire, capacity, creativity, and the inner resources to do great work. They instil high levels of confidence in their teams and are inclusive, employing a participatory management style. They do not see their role as hierarchical, they see it as a privilege.

In most companies, Theory?X?and?Y?management style coexist. Managers may employ both styles and switch between the two depending on the situation. But the culture of an organisation leans toward one style or another. (I will discuss more on this on next week's Innovation Show with Ed Hess when we discuss High-Performance Learning Organisations.) The point of this Thursday Thought is that these styles also depend on both business model maturity and business environment. Let's look at the business environment first.

Exploit (X) and Explore (Y)

McGregor's Theory X and Theory Y map to the dual modes that many established organisations struggle with today. The challenge as Steve Blank told us on (Innovation Show Episode?194) is “Companies need to figure out how to execute and innovate in parallel.” That is a mammoth challenge because as companies figure things out as startups and scale-ups, they move from an explore mode to an exploit mode. This maturity from a company figuring itself out (exploring uncharted waters), to becoming a "grown-up" (exploiting what it has discovered) parallels a shift in culture from theory Y to theory X. Theory Y characteristics such as high levels of confidence in teams, inclusivity and a participatory management style take a back seat to theory X characteristics that include: HR processes, regulatory processes, procurement processes, security processes and crippling bureaucracy.

This is why we see so many founders and their original crew press the ejector button to exit the vessel that they originally built. Often when a VC has a majority holding, they want to see more theory X than theory Y behaviours. In this shift in culture from Y to X, much of the original exploratory search, driving vision and innovation mindset is jettisoned along with the original crew members.

This is a real conundrum for leaders. We need both modes, but we also need to know when to employ one or the other. To be clear I am not condoning theory X behaviours, what I mean here is we need to behave slightly differently when dealing with knowns than with unknowns.

Established organisations excel in steady-state, predictable, homeostatic environments, when both problems and solutions are known. In this instance we need processes, procedures and protocols to be as effective and profitable as possible. However, today's business environment is anything but steady and predictable.

Because established organisations are built for pristine execution, it becomes very difficult for an organisation designed around exploitation mode to survive in a disruptive world. This is why a volatile business environment needs to organisations to embrace the characteristics of theory Y leadership. Theory Y leaders understand that mistakes in the pursuit or exploration are natural, while Theory X managers slam any deviation from the norm and rarely tolerate mistakes. In their defence, not all mistakes are born equal. Mistakes in predictable environments should rarely be tolerated, but mistakes in unpredictable environments are simply a step closer to success. Theory Y organisations understand that mistakes are part of learning.

Theory Y organisations are comfortable in chaos, thrive in uncertainty and relish change. Theory X organisations suit people who like to follow orders, who strive for efficiency and who dislike deviation from known paths. You can see how these two modes contradict one another. You can understand how the Y's would irritate the X's and vice versa. The Y's despise rules, paperwork and what they see as unnecessary processes. The X's see the Y's as scattered, undisciplined and chaotic, while the Y's see the X's as resistant to change, bureaucratic and idea killers. But, we need both. The Y's need the X's to fund exploration and if successful the X's will exploit the bounty uncovered by the search.

Novelist Aldous Huxley said, "The secret of genius is to carry the spirit of the child into old age, which means never losing your enthusiasm." I think that goes for organisations too. The key to remaining undisruptable is to retain a spirit of exploration as you exploit, never losing a reinvention mindset.

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On this week's Innovation Show we have the real pleasure of exploring what it was like trying to innovate from within Kodak with none other than the Inventor of the Digital Camera - Steve Sasson.

We discuss so many aspects of innovation and the struggle to let go of a successful business model.

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