Red Hat, which showed the world it could reap billions of dollars of revenue from free software, has a management system that’s as innovative as its revenue model.
That’s the basic tenet of “The Open Organization: Igniting Passion and Performance,” a new book by Red Hat CEO Jim Whitehurst from Harvard Business Review Press. The book’s official publication date is Tuesday.
At Raleigh-based Red Hat, which Whitehurst has led since the beginning of 2008, “openness, transparency, participation, and collaboration” are core management principles.
“Our people expect – actually, they demand – to have a voice in how we run the company, ranging from the mission statement to the travel policy,” Whitehurst writes in the 202-page book. “As CEO, I can’t simply send orders down the ranks and expect everyone to jump on board. In order to drive engagement and collaboration to the roots of an organization, you need to get people involved in the decision-making process.”
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“And you know what? It works. Red Hat is a faster, leaner, and more innovative company as a result.”
Certainly Red Hat’s performance has been compelling. The company’s annual revenue has risen from $523 million when Whitehurst came aboard to $1.79 billion in the latest fiscal year that ended in February. The company’s stock has nearly quadrupled under Whitehurst’s leadership.
To be sure, Red Hat, which has more than 7,300 employees worldwide and nearly 1,100 in Raleigh, isn’t the only company with an “open organization.” Whitehurst cites a host of successful companies — Whole Foods, Pixar, Zappos and Starbucks among them – that follow a similar path.
Whitehurst, who has an MBA from Harvard Business School, was chief operating officer at Delta Airlines and a partner at The Boston Consulting Group prior to joining Red Hat. He discussed his book recently with News & Observer reporter David Ranii. The following excerpts from his interview have been edited for space and clarity.
Q. What’s the take-away message that you hope will stick with readers of “The Open Organization?”
A. I think the key take-away is that there is a different way to run an organization that is superior in this day and age.
The open organization … starts off with the assumption that the best people can get jobs anywhere. And so why are they going to work for you? Obviously, you’ve got to be competitive in terms of pay, but you need to create meaning. … I think everyone wants to be part of something that has meaning.
We spend a lot more time thinking about how do I attract and inspire the best people and engage them to make the right decisions? If I do that, then the right strategies emerge and we ultimately can be effective.
So, as a leader, it’s less about how do I make people do what I want them to do and more about how do I create an environment where the best people want to be here? Then we just assume if we have the best people and they are motivated correctly and they’re given the right tools, they’ll make the right decisions.
Q. You write about being a “quintessential top-down kind of leader” before joining Red Hat and that, rather than changing the company, the company changed you. How difficult was that transition?
A. It wasn’t as difficult as you would think. The difficult part was, the first few months I was at Red Hat, I thought, this place is chaos and I’m here to clean it up. … But, luckily, I was so busy learning the industry and out talking to customers and associates and getting up to speed on strategy and partners that, over the first few months, I just wasn’t here to change much.
And then I started to realize that during the same period we made some great decisions and all of a sudden things would just happen. And I would be like, well, I didn’t have to be involved in that. And people were like, of course not, we just do it. And I realized, hmm, this isn’t complete chaos. It is actually an interesting way that a company can run.
For me to come into an organization like this and be able to learn first-hand, it’s an extraordinary gift. That’s one of the reasons I wrote the book is to share that.
Q. In your early days at Red Hat, you ordered up some research. A few days later, when you asked for a progress report, you were told: “Oh, we decided it was a bad idea, so we scrapped it.” Explain why defying the CEO at Red Hat isn’t a fireable offense.
A. (laughs) Because the CEO isn’t always right!
In all seriousness, I can make decisions where I say, no, we’re going to do this, period, full stop. But what I have learned is, just because I said it, people don’t assume it’s right.
I think that’s actually healthy. The problem most companies have is, they make decisions quickly and then change is really hard. There are whole consulting firms built on change management. There are studies that show that the majority of large change efforts at companies fail. And that’s because the decision is made quickly and the organization disagrees with it.
Then CEOs complain, my organization is resistant to change. Well, maybe if you involved (employees) in the decision, first off, even if the decision’s the same, people feel much better if they’re involved in making it and they know that their opinions were at least heard. Second, you may actually make a slightly different decision, or the change agenda might be slightly different.
A lot of people will look at me and say, that sounds painful and slow and inefficient to get a decision made. And the simple answer is, yes, but once we’ve made a decision, execution happens really, really fast. And so I think we both get better decisions and much better execution.
Q. You make it clear that Red Hat was an open organization before you joined it. Do you think that being an open-source software company influenced the way company management evolved?
A. Red Hat actually took the structure that was developed around open source and applied it to the company as it grew.
To back up on that a little bit, open source really started with Linux and the Linux movement. That was a bunch of people around the world who all opted in – they weren’t getting paid, they volunteered – to write an operating system. An operating system ultimately is tens of millions of lines of code that have to work together perfectly. Well you have a group of people who are dispersed and there is no formal leader … and different people earned the right to make decisions.
Q. Explain what you mean when you describe Red Hat’s culture as a “meritocracy.”
A. I think a lot of people, when they think about an organization being open and participative, immediately go to the idea that it’s somehow a democracy.
Really, what’s happened at Red Hat … everybody has an equal opportunity to say whatever they want, but some people are listened to a lot more than others. And that’s what a meritocracy is.
People who have built a reputation as having great ideas and selflessly contributing are listened to more than others. … Those are the leaders people follow and it doesn’t have to do with hierarchy.
It’s not necessarily everybody-holding-hands-kumbaya friendly. … It’s a little more abrasive. When you’re going to allow people to make decisions and work together, they have to have constructive conflict. You have to have frank dialogue. When an idea is a bad idea at Red Hat, people will say that’s a bad idea, versus saying, oh, that’s interesting.
Jim Whitehurst opens up
Here are a few observations Red Hat CEO Jim Whitehurst makes in his new book, “The Open Organization.”
▪ “You may not have heard of Red Hat, but you’re likely using its technology every day. Its products power airline systems, banking networks, and underlies the majority of stock market equity trades. It counts more than 90 percent of the Fortune 500 as customers.”
▪ “At Red Hat, we have at least three associates who are so passionate about the company’s role in changing the world through open source technology that they have gotten tattoos of Shadowman, the elusive icon wearing the red fedora in our company logo.”
▪ “I make the effort to personally answer every e-mail I receive from Red Hat associates, though I warn folks that it could take me a couple of days to respond. As a leader, your role isn’t to tell people what to do but to tell people how they are important and how they fit in.”
▪ “A key theme throughout this book is that leaders must often foster and encourage debate. If you don’t debate things and solicit feedback, that’s a problem.”
▪ “Long before I joined Red Hat, I made my mark as a quintessential top-down kind of leader. This company changed me and taught me how to be a better leader.”
▪ “One of the worst sins I can commit, as a leader at Red Hat, is to surprise the organization with a decision I make.”
Meet the author
Red Hat CEO Jim Whitehurst is scheduled to talk about his new book, “The Open Organization: Igniting Passion and Performance, ” on Tuesday at Quail Ridge Books & Music.
When: 11 a.m. Tuesday
Where: Quail Ridge Books & Music, 3522 Wade Avenue in Raleigh.