Turbulent Times Demand Dynamic Rules

Over the past two decades, business leaders have been confronted with a great deal of upheaval and uncertainty. The COVID-19 pandemic is but the most recent of such events; organizations have also contended with a global financial crisis, significant technological changes, and major political-economic developments, including Brexit and trade wars, thus far in the 21st century. In the future, challenges such as social unrest driven by income inequality, and severe weather caused by climate change, are predicted to cause even more chaos.

These events all signal a much more dynamic environment for business. Yet many of today’s organizational practices and processes were created for comparatively predictable and stable circumstances, with the goal of optimizing long-term efficiency and effectiveness. Recent developments have revealed that many of these practices are ill suited to today’s unpredictable and volatile times. The popular expression “the new normal” describes exactly that — an era characterized by uncertainty that needs to be met with new organizational perspectives and practices.

To prosper in dynamic times, businesses need to change their approach to rule-making and adherence. During the pandemic, some companies stuck to their established rules, to their detriment. For example, the world’s largest pork producer, Smithfield Foods, continued to operate with employees working in close quarters without protective barriers. Many employees came to work sick to earn the “responsibility bonus” the company awarded to workers who did not miss any shifts. The company was forced to shut down multiple plants following COVID-19 outbreaks and was later fined by the U.S. Occupational Safety and Health Administration for violations in South Dakota and by Cal/OSHA for violations in California. In contrast, many meatpacking plants throughout the world modified their rules to increase social distancing on production lines and in break rooms, provided paid sick leave, and prohibited the use of temporary workers, all of which helped them continue to operate safely.1

It seems self-evident that when faced with a crisis, organizations should simply modify their policies. But, as the example above illustrates, not all of them do. Rules are often designed to address a specific issue, and their purpose and requirements are intended to remain constant for years to come. Further, when managers approach rule-making from a traditional, top-down perspective, they generally don’t consider the impact of those requirements on the people who must follow them. This greatly limits their ability to refine or improve business practices to meet new demands as conditions change. Hence, rules that were once effective can become dysfunctional, often lingering for many years and becoming entrenched in organizations’ ways of doing things.

In order to function effectively in the new, more dynamic normal, organizations must change how they design, implement, and monitor their policies and procedures. In this article, we provide a road map for creating dynamic rules — defined here as rules that are built to change through collaboration, experimentation, and learning.

Dynamic Rules Begin With the Right Mindset

The prerequisite for organizations to move from an organizational culture that favors traditional rules to one that embraces dynamic ones is a shift in mindset. Without this change in mindset, the other steps necessary for the creation of dynamic rules — increasing employee involvement in their design, embracing experimentation, and enacting rule audits — either will not happen or will not go well.

There are two critical differences between the mindsets needed for traditional and dynamic rules: who is involved in making and changing them, and what is taken into account when determining their success.

First, a traditional rules mindset focuses on control: Managers tell employees what to do, monitor employees to make sure they obey the rules, and impose sanctions on people who fail to follow them. The traditional mindset views those in upper management as rule makers, acting independently from those who must follow the rules.

In the dynamic rules mindset, those in upper management are collaborative facilitators, working together with employees to create and modify work requirements. Managers recognize that employees are subject-matter experts, with hands-on, practical knowledge that managers often do not possess. Employees are invited into the rule-making process.

For instance, leaders at Valve Corp., a billion-dollar software company with headquarters in Bellevue, Washington, were concerned about the work-life balance of their employees, so they considered implementing an overtime ban. Had they adhered to a traditional mindset, they would have simply enacted the ban and ensured that it was adhered to. Instead, they consulted with employees first and discovered that the ban would have unintended and negative consequences. (More on this below.)

The second difference between traditional and dynamic rules mindsets is that rule makers with a traditional mindset are frequently unaware of or even unconcerned with the entirety of the impact their rules have on those who have to follow them. Instead, there is a narrowed focus on the behavior that a rule’s requirements are meant to effect. As long as that behavior is shaped in desired ways, the policy is perceived to be a success. A traditional mindset in effect assumes that whatever problems traditional rules cause are outweighed by their benefits to the organization. In contrast, a dynamic rules mindset includes a genuine intent to understand the full impact of policies, including their potential detrimental consequences.

This intent is what led Valve managers to consult with employees before they implemented their new rule banning overtime. Employees reported back that working overtime is sometimes necessary to meet important deadlines, so in those instances, they would still feel obligated to continue working. However, if the new rule was put in place, they would have to hide what they were doing. The organization’s leaders realized that the ban wouldn’t have prevented overtime; it would only cause the experience to be even more stressful because employees would have to covertly break the rule.

Instead of imposing the new ban, Valve’s leaders collaborated with employees to monitor how much overtime was being worked. Both parties agreed that some overtime would be functional, but too much would be an indication of a fundamental failure in planning that needed to be addressed. This collaborative approach to rule-making helped prevent a problem before it even started. Continuing to engage with their front-line workers will help organizations such as Valve to be more responsive in dynamic times.

Like canaries in coal mines, employees will be the first to notice the effects of rapid environmental changes, especially when their work is negatively affected. Further, employees may be able to anticipate problems with newly imagined rules even before they are put into practice. When employees are invited into the rule-making process, their feedback can lead to the creation of new policies, or to the modification or even removal of old ones.

In order to transition to dynamic rules, leaders must help spread the correct mindset throughout their organizations. However, changing mindsets is difficult, especially in large, bureaucratic companies. We’ve identified three specific steps that leaders should take to facilitate that shift: (1) Increase employee involvement in rule-making, (2) embrace rapid experimentation, and (3) enact rule audits.

Increase Employee Involvement in Rule-Making

Many companies have benefited from employees’ greater involvement in organizational strategies and actions. One famous example involves Amazon software engineer Charlie Ward, who, through a suggestion-box feature on Amazon’s internal communication system, proposed the idea of a free-shipping service that later became Amazon Prime. It is now widely accepted that employee involvement is an essential aspect of organizational innovation and new product development initiatives. The same is true of organizational rule design and management.

Transparency and communication are essential for workers to join managers in a collaborative effort. Rules involve a purpose (the reason the rule exists) and requirements (what must be done to comply with the rule). Too often, organizations offer employees only a cursory explanation, if any, about the purpose of rules and instead focus on the requirements that they must follow.

To create dynamic rules, leaders need to do more to explain their purpose. Put another way, leaders should share the big-picture goal with employees. Leaders can explain why a rule is being created, what its proposed requirements will be, and how those requirements serve the purpose of the rule. By opening a dialogue with employees about the entire situation, leaders can express empathy for any extra effort that will be involved in policy compliance and achieve a higher level of commitment.2

Another critical aspect of this process involves enabling employees to share their thoughts about rules without fear of penalty. Many employees care a great deal about rules because their work is shaped by them on a day-to-day basis. They may already talk a lot about policies and processes and their ideas on how to improve them. However, in a traditional setting, these conversations often take place in informal ways — in break rooms with colleagues, at home, online, or in the pub.

Managers should invite workers to share their thoughts about rules. Recognizing the relevance of the employees’ expertise and involving them in rule management can lead to a virtuous cycle where employees and managers create better and better policies. When employees see their ideas being considered and used, they become more engaged and more likely to support dynamic rules in the future.

Google’s research on the critical role of psychological safety in its teams is pertinent to these issues. When team members feel that they can take risks without feeling insecure or embarrassed, they are more likely to speak up in ways that enable their team to achieve high performance. Similarly, if employees feel comfortable sharing their thoughts and concerns about rules with organizational leaders, they are more likely to share their perspectives honestly and openly. This sense of psychological safety is also fundamentally important to leaders’ ability to incorporate new, diverse voices that reflect different levels, positions, locations, and backgrounds in an organization. By doing so, organizations will get immediate feedback from the front lines, which is critical for adaptation in dynamic times.

Embrace Rapid Rule Experimentation

Organizations often need to move quickly when implementing new rules in a dynamic environment. Rather than spending months crafting the “perfect” rule, organizations need to develop one that is “good enough” and roll it out with the full understanding that it will be updated and improved over time, based in part on the feedback from employees. Such an approach builds on the successes of rapid prototyping — or rapid application development, in software engineering — that places less emphasis on planning and more emphasis on an adaptive process. A similar process can start in one department, for instance, to test and build an infrastructure for rule experimentation across the organization.3

To illustrate the importance of rapid rule experimentation to the effective creation of dynamic rules, consider the negative example of Yahoo’s approach to policies around working from home. Before 2013, Yahoo, like many other technology companies, permitted its employees to work remotely. Marissa Mayer, who served as Yahoo’s CEO from July 2012 to June 2017, is perhaps best known for the infamous rule change that prohibited employees from remote work, ostensibly because having everyone working in the office would increase communication and collaboration. Many employees felt betrayed by that rule change, arguing that they had joined the company with the expectation that they could work from home. What has transpired since then has been a disaster for the company, culminating in Mayer being named one of Fortune magazine’s most disappointing leaders in 2016, and her resignation as CEO in 2017. It seems likely that if Yahoo had experimented with its rules around working remotely, it could have learned how they were really affecting the challenges around collaboration and autonomy that had plagued the company for years.

Enact Rule Audits

Companies trying to shift to a more dynamic way of operating should conduct a formal rule audit. Similar to a financial audit, which involves an intensive examination of the financial state of an organization, a rule audit evaluates a company’s existing policies. The goal is to assess whether existing rules need to be updated to fit the organization’s current environment.

Since most organizations have numerous rules, we do not recommend that leaders examine every rule on the books. Instead, the first step is to identify rules that are the most disruptive for individuals and the organization. Ideally, an organization will be able to assess this at both the systems level and the individual level.

At the systems level, organizations may have access to objective assessments of compliance burdens, such as the amount of time spent filling out paperwork. At the individual level, such objective assessments could be complemented by more subjective ones, such as surveys and interviews. For example, managers could ask employees which three rules cause the most disruption to their work. Rules that are identified as disruptive by multiple employees could then be subject to additional investigation.

Once disruptive rules have been identified, managers should scrutinize each one’s purpose and requirements. A rule’s purpose should be both clear and useful. Sometimes it will be explicitly stated in writing, whereas at other times it may be inferred by other rules within a document, web page, or handbook. Sometimes managers may have difficulty identifying a clear purpose. Alternatively, managers may uncover the purpose but conclude that it is no longer useful to the organization, which can happen when rules stay unchanged and unexamined for many years. When managers learn that a rule’s purpose is either vague or not useful, in many cases they should discontinue it. On occasion, they may decide that it is still useful and opt to clarify the purpose instead.

Next, managers should uncover all the behavioral requirements for complying with rules. This should include both explicit requirements and tacit ones that may not be formally specified but are enacted in practice. Managers and employees should then consider the degree to which the requirements actually support the rule’s purpose. For example, many of the rules implemented by the Transportation Security Administration following the 9/11 attacks have been derided as “security theater” because they are disruptive to travelers and to airport operations but do not actually make air travel safer.4 A policy that is disruptive and serves no useful purpose should be discontinued.

If a rule has disruptive requirements but serves a useful purpose, then the focus should shift to reducing the disruptiveness of those requirements through the process of rapid experimentation. Managers should explain to employees both the purpose of the rule and how the requirements are intended to serve that purpose. They should then listen to the feedback employees provide and experiment with changes. Managers may decide to eliminate some of the requirements or change them to make them less disruptive or more useful. They should continually assess the benefits and costs associated with those decisions, even if they decide to remove a rule entirely. During these changes, leaders must always ensure that they are engaging with employees who are affected by and knowledgeable about the policies and their impact.

Throughout the entire rule audit, leaders and managers should emphasize the mindset that is essential to dynamic rules: the mindset of learning. Rather than telling employees that they must follow certain practices and that they will be monitored to ensure compliance, managers should explain what they hope to accomplish and ask employees to help them understand if those goals are being met. Encouraging employees to share feedback about the consequences of policies and emphasizing the collaborative nature of the process should lead to a more functional set of organizational rules.

Rule audits could be enacted on a regular basis within organizations, but a particularly good time to conduct one is in response to or in anticipation of a major organizational transition or environmental shift. For example, the automotive giant Daimler recently initiated a complete overhaul of its culture to support the transition to highly automated operations using advanced digital technologies. A major goal of this change initiative is to develop a new mindset that builds agility through employee involvement and collaboration. In particular, this change streamlined policies and processes, revised the personnel system, and established new working methods, all geared toward increasing transparency, flexibility, openness, and involvement. Of course, this type of culture change takes years to implement, but by embedding changes in revised policies and processes, Daimler is prepared for ongoing change. As one change leader within Daimler noted, “The industry is undergoing a transformation, and Daimler is in the process of redefining itself. … We are co-designing the future ourselves.”5

Organizations will be better positioned to succeed in dynamic times when they embrace a mindset where leaders and employees work together to understand the purpose, requirements, and full impact of rules. By emphasizing experimentation and learning, managers and employees can collaborate to anticipate and identify disruptive policies and change them to be less problematic and more effective. For example, many organizations are currently struggling with rules about remote work. While some companies, such as Reddit, are encouraging workers to move anywhere they want with no pay cut, others, such as Microsoft, and Twitter, have said they will permit such moves but reduce compensation to reflect the corresponding reduction in cost of living. Needless to say, this is an ideal time for management to experiment with their rules and incorporate feedback from employees.

A dynamic rules mindset will have benefits beyond helping to create a more functional set of rules. Relationships between managers and employees may improve as they move from being adversaries in policy compliance to partners seeking to create effective rules. Leaders may find that the time they had spent monitoring and enforcing rules can be better spent elsewhere, and in their conversations with employees they may arrive at an improved understanding of how work is actually carried out. Employees may feel more valued and appreciated as they contribute to the development and revision of policies. They will be more likely to buy into and adhere to rules, experience less disruptiveness from them, and be more satisfied and committed to the organization.

Finally, we expect that dynamic rules enhance an organization’s ability to anticipate and cope with environmental changes. When managers and employees embrace experimentation and learning in the creation and reformulation of rules, they build plasticity into the organization’s structure, processes, and practices. This type of flexibility is essential in the turbulent times that seem to be the norm now. Because change is only becoming more substantial and unpredictable, organizations that build dynamic rules will be better prepared for what lies ahead, whatever it may be.