The Innovation Age

What gives a company the right to exist?  In 2018, Jamie Heywood walked past a wall of furious protestors into a London courtroom. As Uber’s newly appointed head of UK & Northern Europe, he faced a brutal mandate: convince a sceptical public and a hostile regulator that the disgraced company deserved a second chance.

The source of Uber’s rot, Heywood argues, was a toxic concentration of control: both with the company’s monomaniacal founder, Travis Kalanick, and with its shareholders. These flaws are not, however, unique to Uber. They are baked into every modern corporation, and they are quietly crippling businesses everywhere.  Our obsession with visionary leaders and with share prices has triggered a silent disaster: a fifty year slowdown in productivity that, had it not happened, would have doubled the size of the US economy.

Blending his own experience with cutting-edge social science research, Heywood argues that every CEO should be forced to answer the question addressed to him in that courtroom: Why is your company's continued existence good for society?

The Innovation Age is a manifesto for any leader who wants to ensure their company solves humanity's hardest and most pressing problems.

Working in a Chinese joint venture in the 1990s, Heywood witnessed the deep tensions between his own ‘western’ conception of the company and the beliefs of his colleagues.  Companies, he concluded from this experience, are not immutable with structures dictated by rigid laws of economics.  Instead, they are social institutions that must shape-shift to adapt to changes in the communities they serve.

Throughout history, from the territorial expansion of the Charter Companies in the 16th century to the capital-hungry corporations that built the railroads and factories in the 19th century, new corporate species have emerged, not by top-down design, but as bottom-up responses to help communities solve their most pressing problems.

Today, the shift from the capital-heavy "Machine Age" to the information-rich "Innovation Age" necessitates a new species of company. 

Capitalism’s double-act of markets and companies has stalled due to our outdated obsession with efficiency and profits.  Society faces a choice. Does its future prosperity depend on being more efficient or on being more innovative? Should it focus resources on solving its current problems, or on making its existing solutions more affordable? To accelerate the innovative problem-solving that we desperately need, Heywood argues, we must fundamentally reconfigure our companies.

Form follows function. A lion’s claw shows that it evolved to hunt. A company’s three legal attributes of incorporation, perpetual life, and limited liability show that it evolved to enable long-term, cooperative, expensive, and risky problem-solving.

Yet today, the company’s evolutionary DNA is being used by shareholders to extract short-term profits, resulting in slowed corporate innovation and broken public trust. How has the company, a social institution that evolved to facilitate multi-generational problem-solving, been transformed into a hyper-efficient machine for shareholder enrichment?

Tracing the company’s two thousand year history from Rome’s public utilities to the Silicon Valley boardroom, Heywood argues that three historical milestones enabled this transition, giving rise to the modern corporation: William Gladstone's decision in the 1850s to decouple the right to the ‘corporate trinity’ from the duty to contribute to the common good; Henry Ford's decision in the 1920s to prioritise efficiency above all else; and Milton Friedman's belief in the 1960s that the only purpose of the company is to maximise returns to shareholders.

Friedman was wrong, Ford’s obsession with efficiency has run its course, and Gladstone’s compact now needs to be revisited.  We, therefore, need a new species of company.

Innovation is a collective, evolutionary process. It is not isolated geniuses thinking great thoughts.  “Genius”, according to Brian Eno, “is the brilliance of an individual.  ‘Scenius’ is the fertility of a whole scene of people”.  New ideas are born at the social nexus where isolated ideas combine within a community's ‘collective brain.’  To accelerate innovation, companies must abandon Ford and Taylor’s rigid, hierarchical organisational structures, which help efficiency but hurt innovation.

In his search for the organisational design that will unlock innovation, Heywood draws on insights from anthropology, history, and systems theory.  He identifies four levers that companies can use to accelerate innovation:

• Sociality: Increase internal connectivity by eroding silos and growing "bridging" ties across teams, mirroring how Europe’s clans fractured and reassociated under pressure from the Church.

• Transmission Fidelity: Ensure ideas are accurately shared across the organisation, inspired by the Enlightenment's transnational Republic of Letters.

• Cultural Diversity: Embrace the cognitive friction of heterogeneous teams and foster "loose" cultural norms that tolerate deviation.

• Selection: Let the market determine a product’s fitness through a systematic process of rapid experimentation.

Companies that master these four levers can transition from efficiency-obsessed machines into adaptive “collective brains” capable of solving humanity's hardest problems.

While the employees of a company get less innovative as it scales, the residents of a city grow more innovative. For every doubling of a city's size, its creative output increases by fifteen to thirty percent per person. Cities achieve this remarkable feat not because their inhabitants are smarter, but because their open, distributed social structures increase connectivity and diversity, where the rigid, centralised structures of companies suffocate them.

Designing an innovation ecosystem is hard: well-intentioned decisions are quickly swamped by their unintended consequences. For example, the US research and development ecosystem has experienced a staggering 92% decline in the disruptiveness of its scientific output since 1945. This silent crisis was triggered by the misguided privatisation of ‘open science’. Dense ‘patent thickets’ now block multi-disciplinary collaboration and corporate managerialism has left researchers drowning in paperwork.

To reverse the global innovation slowdown, corporate leaders must look to cities for inspiration. But in doing so, they must steer clear of the top-down urban blueprints of Le Corbusier and must instead adopt the organic, bottom-up philosophy of Jane Jacobs.  CEOs must act less like authoritarian commanders and more like city mayors by cultivating the spontaneous "sidewalk ballets" from which innovation arises.

To navigate a shifting economic landscape, companies must abandon the old Fordist metaphor of the ‘company as a machine’ and embrace the metaphor of the ‘company as a collective brain’. Metaphors provide powerful mental models that unconsciously structure the way we think about the world.  Where the ‘company as machine’ metaphor encourages standardisation, hierarchy, and top-down control, the metaphor of the ‘collective brain’ encourages connection, cooperation and an appreciation of difference.  A community that sees itself as ‘collective brain’ unlocks an intelligence that is different to - and often greater than - the intelligence of the individuals of which it is composed.

Drawing on recent evidence from cultural evolution, psychology, and neuroscience, Heywood shows how both brains and communities can increase their computational capacity - and thereby their ability to solve hard problems - by promoting hyper- connectivity, cultural diversity, and accurate information exchange.

To power-up their company’s ‘collective brain’, leaders must reframe their roles from commanders to organisational architects. They must radically reshape their organisational vocabulary, they must destroy information bottlenecks, and they must cultivate the high-trust cultural norms that enable autonomous, cross-disciplinary teams to innovate and self-organise. description

How can a large organisation avoid bureaucracy and stagnation? How can a company increase its rate of innovation? The answer to both questions is to unlock the magic of modularity.

W. Ross Ashby, the British cyberneticist, argued in the 1950s that “when the complexity of the environment exceeds the capacity of a system, the environment will ultimately destroy that system”. Bureaucracies stagnate because while centralisation and standardisation increases efficiency, they also inadvertently reduce a system’s capacity to innovate and to respond.  A modular organisation composed of many small, autonomous, interdisciplinary teams is better able to:

• Manage Complexity: By utilising simple common building blocks connected via standardised interfaces.

• Adapt Rapidly: By allowing the recombination of modular units without having to do a total system redesign.

• Build Resilience: By isolating faults so a single failure doesn’t lead to the collapse of the system.

• Expand Its Computational Capacity: By investing its scarce cognitive resources in its most important connections.

Modularity is being pioneered by organisations like Amazon through ‘two-pizza teams’ and ‘API mandates’, and by Spotify through matrixed teams of ‘squads’ and ‘chapters’.  This chapter gives leaders the tools they need to unlock the magic of modularity and make their organisations more innovative and more responsive.

How can a company scale without drowning in bureaucracy or fracturing into chaos? The answer lies in generating alignment through cooperation, not coordination. While coordination relies on top-down managerial instruction, cooperation relies on impersonal trust that enables autonomous teams to self-organise around a shared goal.

This chapter compares the intricate social structures of Amazon and the Ilahita tribe in Papua New Guinea.  Both communities evolved remarkably similar ways to grow well beyond the size of their competitors without becoming bureaucratic.  They achieved this by fostering:

• Diffused Leadership: Power is impersonal, based on a person’s prestige not their position, and is shackled to the needs of the community.

• Internal Cohesion: Alignment is sustained by fostering loyalty to the whole, and by constructing a balance of power between the community’s constituent parts.

• Constructive Conflict: Structural mechanisms enable disputes to be safely harnessed for the benefit of the whole.

By implementing these social structures, business leaders can foster a high-trust culture that minimises bureaucracy and accelerates innovation.

How must the role of a leader change when a company transitions from being a ‘machine’ to being a ‘collective brain’?  Leaders must stop acting as the ‘decider-in-chief’ and instead operate as the Chief Ecosystem Architect who creates a company-wide ‘operating system’.

Using real-world examples from Haier, Virgin, Microsoft and Amazon, this chapter outlines the six behaviours required for leaders to decentralise without descending into chaos.

• The leader as strategic experimenter: who sees strategy as a collection of hypotheses to be tested through a process of systematic experimentation.

• The leader as organisational designer: who implements a few non-negotiable rules to enable autonomous teams to cooperate at scale.

• The leader as role-model: who leads through a learning mindset, openly sharing their mistakes to demonstrate the behaviours they want all teams should copy.

• The leader as connector: who weaves networks across internal boundaries, brokers talent, and connects the people who have knowledge with those who need it.

• The leader as gardener: Who finds and mentors talent, cultivates psychological safety, and clears away the bureaucratic obstacles that slow teams down.

• The leader as politician: Who forges unity without uniformity by balancing stakeholder interests and mediating conflict.

To put purpose above profit, companies must discard the taken-for-granted ideology of shareholder primacy and adopt the principle of company primacy, which requires them to prioritise their purpose over the demands of any stakeholder.  In the capital-heavy Machine Age it made sense to give control over companies to shareholders. But this no longer holds in today’s Information Age, where the scarcest capitals are human, social, and natural.

We need a new compact between the state and the corporation, which enforces:

• Company Primacy: Granting boards the independence to run the firm as an  independent entity with the goal of creating value through the pursuit of its purpose in perpetuity.

• Expanded Public Disclosure: Requiring companies to provide annual updates on their progress in delivering their purpose and on their impact on all the capitals that matter to society.

• Dynamic Control Rights: Migrating the power to nominate board members to those stakeholder(s) that provides the scarcest capital.

• Higher Corporate Penalties: Raising the penalties imposed on companies that do not contribute to the common good.

• Corporate Diversity: Ensuring employee- and customer-owned companies can compete on a level playing-field with their shareholder-owned cousins.

In short, the purpose of governance must be the governance of purpose. 

Will Artificial Intelligence become a centralised utility that controls us or a distributed tool that augments human flourishing? The answer depends on who controls companies. The boardroom coup at OpenAI in 2023 shows that our current corporate governance mechanisms are inadequate, particularly when the future of humanity is at stake.

AI will fundamentally change the way that companies work. Companies can choose to deploy AI in one of two ways:

• To automate: By using AI to replace fallible humans and to drive corporate efficiency and shareholder returns.

• To augment: By using AI to enhance human connectivity, creativity, and problem-solving capacity.

Companies that see themselves as efficiency-driven machines will unthinkingly use AI to automate, while those that see themselves as innovative collective brains will use AI to augment.

AI is likely to accelerate corporate innovation and modularity.  But AI agents’ hyper-rationality makes them terrible cooperators. To sustain cooperation in a world populated by AI agents, companies must construct ‘synthetic institutions’, such as digital constitutions and public reputation ledgers.

AI is the first general purpose technology whose rollout is entirely controlled by private corporations.  We must democratise control of all companies before it is too late.