Imagine you are 22 years old, just out of college, and starting a new job. Further imagine being a foodie and your new job is with Whole Foods—a company second to none on its impact on what Americans eat. After all, how many multibillion-dollar grocery companies refuse to sell popular products, such as Coke, that they view as unhealthy? How many build a national supply chain for natural foods such as pesticide-free produce and organic milk? How many have standards for "clean foods" that are far tougher than those of our government? None—other than Whole Foods. The company is also notable in being viewed by employees as a great place to work.¹ Whole Foods strives to create a friendly environment where its team members share ownership of the success of the business and, in turn, share the benefits when the business does well.² The company offers a broad range of worker-friendly programs, such as profit sharing, team performance bonuses, employee health and well-being incentives, and time-off sabbaticals. One program, for example, enrolls team members in a weeklong clinic that includes health seminars, medically supervised health testing, discussions with nutritionists, and cooking classes. Whole Foods, in short, is a purpose-driven company that takes very good care of its people.

The company, now with 450 stores and 86,000 employees, is built around small, highly focused, and cohesive teams. Each new hire becomes a member of a team within a store—such as produce, meat, seafood, bakery, or prepared foods. These teams range in size from 10 to 50 people, depending on the work to be done and the size of the store. Each team operates in many respects as an independent business, making a range of decisions, including what products to offer and how they are promoted. Approximately 10 percent of a store’s goods are ordered by headquarters staff in Austin, Texas, and another 30 percent come from the firm’s 12 regional offices; all other product decisions are made by the in-store teams.³ The degree of autonomy that these teams have in Whole Foods is exceptional in an industry where almost everything sold in a neighborhood grocery store is dictated by a few people sitting in a store’s central headquarters office.

The teams at Whole Foods also have a great deal of power in the management of people. Consider that store employees are largely responsible for hiring new people. Job candidates are interviewed by a small group of team members. The interviewers ask focused questions regarding the job candidate’s knowledge (“What are the advantages of locally grown produce?”), love of food (“Describe a meal you recently ate in as much detail as possible.”), customer orientation (“Describe a time when you disappointed a customer. How did you fix it?”), and level of personal awareness (“If you don’t get this job, why would that be the case?”). Gaining the approval of those on the interview panel is only the first hurdle that a job candidate must overcome. Each team, after working with a new hire for several months, votes as a group on who stays and who goes. In other words, the members of a produce team, not the team’s leader or the store manager, will decide if a new member remains on that team. A new hire is voted out if team members conclude that he or she lacks what is needed to contribute to the team’s success. The vetting of new members is treated seriously because teams are rewarded in Whole Foods based on team performance in areas such as overall sales and profit per labor hour. A team bonus is paid monthly, which can result in thousands of extra dollars each year for the members of a successful group.⁴ Whole Foods then goes one step further. It posts each team’s monthly results for everyone to see. A produce team, for example, will see how it stacks up on key performance metrics compared to the meat or seafood teams within its own store. Team leaders can also compare their team’s performance against other teams across a region. New team members who do not pull their weight pose two risks. First, poor performers can reduce the bonus pay of all team members if the team’s results suffer. That gets everyone’s attention. Second, weak members can damage a team’s reputation, as each team’s results are posted within each store. Reputation is no small matter in a company where ownership of results resides with each team.

New hires at Whole Foods need two-thirds of their team members to vote “yes” if they are to remain with the company. In the vast majority of cases, new hires are accepted by their team. But there are cases where individuals fail to gain the necessary team support. For instance, one team member was rejected after he repeatedly took an overly casual approach to working with customers (such as putting his hands in his pockets and sitting on counters). He was warned by his colleagues to change his demeanor, but he failed to realize that this feedback from his peers was important. A Whole Foods manager described the dynamic within the company’s teams: “There are people who are really good about working when the manager is on the floor . . . but as soon as the manager disappears, they lose control. . . . I’m not the one you need to impress. It’s your fellow team members. And they will be as tough as they can be, because ultimately [the hiring decision] will be a reflection on them.”⁵

Being “voted in” by one’s new team fosters an emotional investment in the team’s success and the overall success of Whole Foods. More generally, the company emphasizes the importance of team member happiness and a friendly work setting. Team meetings both in the stores and headquarters often end with what the company calls “appreciations.” Team members, each in turn, express thanks for the support that another team member provided as they worked together or, more generally, his or her contribution to the company. While this can seem somewhat “new age” to those joining the company or to outsiders, the practice demonstrates the value the company places on positive team member relationships. One person commented about the culture of the company, “I never thought in a million years I’d work at a grocery store and feel so at home. Showing up to work every day, I’m happy to be here. When I leave, even if I’m exhausted from working hard, I’m still happy.”⁶

Three guiding principles underlie the team environment at Whole Foods. First, the company believes that people are by nature social beings who feel most comfortable when part of a small group. From this perspective, building a company around teams is building a company based on human nature. Everyone in the company belongs to at least one team. The most basic are those working within each store. The leaders of these teams are members of the leadership group running a store. The leader of each store is also a member of a regional leadership team—and so it goes to the top of the company. But Whole Foods doesn’t use teams simply to provide its employees with a sense of community. The firm believes that teams, when designed and staffed properly, also maximize what people can contribute to the success of a business. John Mackey, one of the firm’s founders, set out to build a company that taps into each individual’s creativity and potential:

Working in teams creates familiarity and trust and comes naturally to people. Humans evolved over hundreds of thousands of years in small bands and tribes. It’s deeply fulfilling for people to be part of a team, where their contributions are valued and the team encourages them to be creative and make contributions. A well-designed team structure taps into otherwise dormant sources of synergy, so that the whole becomes greater than the sum of the parts. The team culture of sharing and collaboration is not only fundamentally fulfilling to basic human nature, it is also critical for creating excellence within the workplace.⁷

Whole Foods, in sum, thinks teams when most companies think individuals. This is a profound difference that influences its policies, practices, and, most importantly, the way people think and behave within the company—including their interactions with customers. An executive of Whole Foods suggests that the firm’s success is based on the experience of customers when they shop at its stores: “Customers experience the food and the space, but what they really experience is the work culture. The true hidden secret of the company is the work culture. That’s what delivers the stores to the customers.”⁸

A second management principle shapes how teams operate at Whole Foods. The company believes teams function best when they embrace a set of company-wide practices. Teams at Whole Foods have a great deal of autonomy to make decisions that benefit customers, team members, and the company. But they must follow a few standard procedures—for example, voting on retaining new hires or awarding bonuses based on company measures, such as team profit per labor hour. Whole Foods strives to keep its required practices to a minimum, believing that less is more when it comes to limiting what its teams can do at a store level. Whole Foods does, however, follow through on the practices it believes are essential—including a relentless focus on tracking and rewarding team performance. The company tracks a range of quality and service metrics.⁹ Reviews are conducted once a month by outside staff to assess a store’s performance in areas ranging from the presentation of its produce to the quality of its prepared foods. The results from these tours are reviewed with the store’s leadership group, with the goal of improving how the store operates. Whole Foods augments these monthly tours with additional surprise inspections by more senior company executives.¹⁰ Taking a full day, these reviews rate a store on more than 300 measures of quality, service, and morale—with the results posted each month for all stores to see. Whole Foods culture, then, has a surprisingly tough edge in forcing stores and teams to take full accountability for their performance. Whole Foods’s calls this approach, one that gives teams freedom to operate within a set of shared company practices and metrics, its “democratic discipline.”

A third guiding principle at Whole Foods is a belief in the benefits of being open and transparent as a company. The goal is to create a “no secrets” environment where information about its strategies and operations is available to all employees. The firm is designed to ensure that everyone is aware of how the company is performing and, in particular, how each team is performing. As noted, team results within a store are posted on a monthly basis. Also posted are in-depth financial reports for each store and for the company (which at the store level includes data such as sales, product costs, wages, and profits). The intent is to give people the information they need to operate at a high level—and foster a feeling of shared ownership among the company’s members.¹¹ Whole Foods’s belief in being as transparent as possible also extends to salary information. Team members can obtain the salaries of other employees, including the CEO. The firm believes that creating a high-trust culture requires sharing information that is concealed in most firms—and working with people to ensure that they understand the implications. For example, team members are encouraged to talk with their supervisors if they want to understand why someone else in the company makes more money or receives a promotion. The resulting feedback helps them understand how the company makes decisions and what they need to do to achieve their own career goals.

The company’s team practices, and culture, evolved over several decades of trial and error—with leadership keeping what worked and abandoning what failed or had unintended consequences. The company, for example, refined over time how new hires were selected and trained. It experimented with how to best measure and reward team performance. It tried different approaches to providing the right balance of peer and supervisor feedback (including the use of 360-degree surveys). These practices were not part of a grand plan that its leaders executed when the company was founded. They knew that they wanted to build a new type of company, but its principles and practices were a work in progress. One lesson from Whole Foods is that experimentation with new approaches to teamwork is essential—that they are constantly evolving based on what a company and its teams learn based on experience. In fact, Whole Foods’s CEO noted with a perverse pride that “We’ve been making it up as we’ve gone along.”¹²

Most companies view teams and teamwork as a good thing. As a result, the use of teams is on the rise across all companies, with collaborative activities increasing by more than 50 percent over the past two decades.¹³ Teams, without question, provide a competitive advantage when they operate well. The problem is that designing and managing teams is a complicated undertaking requiring a level of creativity and commitment that many firms, and their leaders, lack. The most basic, and common, mistake is to use a team when a team is not needed—that is, the work is better done by individuals not working as a team.¹⁴ For instance, a group of leaders who are responsible for sales in different regions within a company can form a team. They develop a common set of goals and meet periodically to coordinate their efforts. The question to ask, however, is the value of this team in comparison to allowing the regional leaders to operate independently with little or no coordination other than reporting to the same supervisor. Since there is little overlap in how the regions in this company operate and no common work to be done, the value of a team is minimal if not negative (in consuming members’ time that could be better spent elsewhere, such as interacting with customers). One way to express this is that the return on the investment of having a team needs to be greater than the benefit of not having a team at all. In some situations, the critical work to be done can be achieved more effectively by individuals or smaller subgroups. Consider the company whose strategy to promote growth is flawed. The leader needs to determine what role, if any, his or her leadership team will play in addressing this deficiency. Strategy development can involve an entire team or can be driven by a smaller, more specialized group from within the company or in partnership with an external consulting group. The decision of which approach to use is influenced by a variety of factors, including the skill of team members to think strategically and their ability to see beyond the firm’s current business model. While it is logical to involve one’s team, that may not be the best approach. A leader is sometimes better served by crafting the strategy outside of the team and then engaging the members in determining how to best execute it. My experience as a management consultant, perhaps surprising for someone writing a book about teams, is that teams are used far too often. In some cases, the best decision in regard to using teams is not to use one at all. Richard Hackman, a respected researcher of small groups, liked to remind those in love with teams that they inevitably create problems of coordination (determining how to work together to achieve a goal) and motivation (ensuring that everyone is engaged and contributing to the group’s performance).¹⁵

A second mistake is failing to provide the support a team needs to be successful (such as group-level rewards). Even when the use of teams is warranted, many firms incorrectly believe that simply putting a group of bright people together will result in a positive outcome. How can a group of smart people not produce something worthwhile? Unfortunately, often too little thought is given to how a team is designed and managed. Even the most basic issues are ignored—such as careful consideration of who needs to be a member of a team and how it will define success. Companies often embrace teams, or at least the concept of teams, without providing attention to what is needed for them to be successful.

A failure to consider what a team needs to be successful extends beyond the team itself. To promote teams, organizations and their leaders need to carefully design the context in which they operate. Effective teamwork is often elusive because an organization’s formal and informal systems contradict what a team needs. A common example is a reward system that works against teamwork. Microsoft, for example, required for years that its employees be ranked each year on a performance curve. On each team, only a particular number of people could be in each performance category, with the goal of identifying those who were underperforming and those who were stars. The result was that even in a team where everyone performed well, only the best of the best were rated in the highest category (which enhanced the pay and future opportunities of those individuals. As a result, some of the most talented people in the company did not want to become members of a team they knew would be staffed with other highly talented people—fearing that they could easily be rated lower when competing with such individuals. Those who did join the team knew that they were operating in what some call a zero-sum environment, competing with each other to receive the top ratings, which would be distributed across the curve. It is easy to see how such a performance rating procedure, designed to motivate higher levels of performance, would have the unintended consequence of undermining teamwork. This rating process, which was eventually discontinued within Microsoft, indicates that even actions implemented with the right intent can make teamwork more elusive within a company.

Let’s assume that a leader uses a team when it is truly needed and works diligently to design it properly. Let’s further assume that the organizational context in which the team operates also supports, or at least doesn’t hinder, the ability of the group to perform at a high level. These are two essential positives. But it is equally important to realize that teams always come with a downside. Firms that use teams wisely are not naive—they know that teams, by their very nature, have negative qualities. For instance, research shows that some people will work less diligently when part of a team, allowing others in their group to compensate for their lack of effort. Social scientists call this the “freeloader” or “social loafing” problem.¹⁶ In these situations, a few team members contribute less than others and yet benefit from being part of a team where others make up for their shortcomings. Whole Foods deals with this problem by having clear performance metrics and team-level rewards. These practices, along with other informal methods such as peer feedback, increase the likelihood that everyone will contribute to the success of his or her team. New hires at Whole Foods quickly learn that they are not simply employees of the company or accountable only to their managers—they are, above all else, working for each other with financial and reputational consequences if they don’t perform. Whole Foods, more than most firms, understands both what teams can contribute and where they can go wrong.

A final common misconception about teams, or at least high-performing teams, is that they are easygoing places to work. Some companies, including Whole Foods, contribute to this belief by emphasizing the benefits of a friendly work environment. Articles and books profiling these firms describe the fun side of how they operate—including a quirky work environment (colorful corporate offices, teambuilding events) and lavish benefits (free gourmet food, employee fitness centers, onsite massage). But what is often missing in the accounts of employee-friendly companies is the intensity of working in an environment where talented people, obsessed with their work, hold themselves and others accountable for producing results at a high level. Teams, when well designed, increase the pressure that their members feel to deliver for the group—to deliver for their peers. Realizing that your coworkers depend on you can be more stressful and messy than working in a conventional firm where people strive to gain their supervisors’ approval.

Consider Pixar. The well-regarded movie studio is known for producing blockbusters such as Toy Story and Finding Nemo. It is one of only a few studios that can attract an audience based on its reputation (that is, people will go see a Pixar film simply because it is a Pixar film). Those seeking to explain the extraordinary success of Pixar typically point to the role of its famous leaders—notably, Ed Catmull (cofounder and CEO), John Lasseter (cofounder and now chief creative officer, Walt Disney and Pixar Animation Studios), and Steve Jobs (who bought what became Pixar from Lucas Films and worked with Ed and John to build the Pixar we know today). These three individuals were clearly indispensable in Pixar’s success. But it is a rare success story, Pixar or otherwise, that doesn’t rest on the capabilities and performance of the teams within a company. Often unknown to people outside of a firm, they are the driving force behind a firm’s success. This is particularly true because large and complex firms require more than any leader can provide—no matter how talented or charismatic he or she may be. This is not to minimize the impact of visionary leaders—it is, however, to suggest that the key factor in a leader’s success, the area of his or her greatest leverage, is the ability to staff and support teams that a firm needs to grow.

Pixar’s film Toy Story 2 underscores this reality. The film, coproduced with Disney, was failing midproduction at an artistic level. The Pixar executives realized that a major overhaul of the film was needed, but it had to be done under a tight deadline. What followed was a nine-month race to create a film that met the release date but, more importantly, met Pixar’s very high creative standards. Many of those working on the film were at the office seven days a week, month after month. During the intense period of completing the film, one of its animators drove to work one morning, thinking only of the work he needed to do that day. He forgot that he was to drop off his infant child at the daycare center. More importantly, he forgot that his child was in the backseat of his car. It was only when his wife called three hours later that he realized his mistake. He raced to the parking lot and found his child in the car seat—fortunately with no lasting harm. Pixar saw this event, along with an increasing number of repetitive stress injuries, as a result of employees spending hour after hour on their computers, as a wakeup call.¹⁷ In particular, the firm’s leadership saw the need to temper the willingness of highly committed people to do whatever it takes to produce a great film—one, in their words, that “touches the world.”¹⁸ The problem at Pixar wasn’t that its people lacked motivation—the problem was that its people were too motivated.

What is sometimes overlooked in the Toy Story 2 “parking lot” story is the benefit of having people who are obsessed with their work. This may be obvious, but it is worth repeating—having people who are consumed with a shared goal is almost always required to produce something great. Pixar’s people care so much that they put themselves at risk of neglecting everything else in the pursuit of their shared goal. This can be a problem, as Pixar found out. Pixar’s leaders tell the parking lot story as a cautionary tale of what can happen when you push people—or, more accurately, they push themselves—too far. They learned that they need to beware of aggressive timelines and the potential downside of having a highly committed workforce. The subtext of the story, however, is the pride of having people who are always at risk of pushing themselves and their teammates too far.

Pixar believes that producing great films requires something beyond having highly talented and committed people. The CEO of Pixar, Ed Catmull, notes that the key to success is finding people who can work well together.¹⁹ This is particularly important on projects that can take three to four years to complete and literally require, over that time, thousands of decisions. Pixar believes, given the innovative and complex nature of its films, that success is unlikely if a team doesn’t “gel.” Or, stated in a more positive way, the making of a great film is dependent on a group of people bringing out the best in each team member and creating something beyond their individual capabilities. A common assumption is that people will naturally bond when they become members of a team. In fact, it is more likely that highly talented and driven people will have difficulty working together given the nature of their personalities. Passionate people are often demanding, stubborn, and idiosyncratic. Pixar, learning from experience, takes care to staff its teams with people who have complementary skills and personalities—people who can work in the intense and often ambiguous environment that comes with producing one of its films. Getting the chemistry right at Pixar is difficult—the company considers a range of factors, such as each person’s background, values, and personality, as well as more mundane considerations, such as each team member’s work habits. Pixar also wants a mix of people, some of whom have worked together and others who are new. The goal in striving to get people who can work well together is not to create a team of clones. In fact, having people who are too similar may make it easier for them to work together, but it will most likely undermine the team’s creativity. The goal is to find a group of people who can bring their unique talents and experiences to a project and then come together as a team to produce something beyond what they could do as individuals.

All of this makes sense, but what happens when a team fails to gel? After all, team chemistry is not an exact science. Pixar operates with the assumption that the key to making a great film is getting the story right. Everything else is secondary. The firm further believes that the way to get the story right is to get the team right. Great teams produce great stories—not the inverse. Pixar has a host of practices to maximize the likelihood of a team pulling together to produce a great story. For example, the firm gives its teams very direct and sometimes tough feedback during the making of a film. This feedback comes, in part, from what it calls its “brain trust,” a group of mostly senior leaders who have directed Pixar films themselves. This group, however, has no formal authority to mandate changes in a film. The goal is to provide feedback but not in a manner that takes accountability away from a director and his or her team for the quality of their film.

Pixar believes that a well-functioning team, even one that is struggling and “wandering around in the wildness,” needs to be trusted and protected during the creative give and take of making a film. The job of senior leadership is to closely observe how a team is operating, with the belief that the quality of the team members’ interactions is key in producing a great film. A team that is working well together is given more time and protection, even if it appears to have lost its way. A team that is fragmented and failing as a group needs to be changed. What are the signs that a team is failing? An individual who worked on a number of Pixar films noted that trust in the film’s director is essential:

Once trust starts to erode, it creates problems on a film. The signs of low trust are numerous: people stop showing up for meetings, or spend more time on their phones in the meetings. They will also be more likely to ask the leader to show them what they want—to have the director explain once again his or her vision. You also see people being rude to others, particularly in other functional groups. They are frustrated that the film is drifting and they take it out on those around them. A loss of trust also results in people not wanting to work on a particular shot because they believe the story will not pan out and their shot will be cut. They may work on the project but don’t put their heart into it. The lack of commitment is clear in a creative culture like Pixar where emotional investment in a story is all important.²⁰

Over the past 10 years, a significant number of Pixar directors were removed midstream from their films. This includes the directors of Cars 2, Ratatouille, Monsters U, Brave, and, most recently, The Good Dinosaur. The senior leadership of Pixar removed them from their jobs, in large part, because the directors had lost the confidence of their teams.²¹ Pixar, of course, is not alone in being a studio that will replace directors midproduction. But it is important to note that Pixar views itself as being a different type of company—one that is “filmmaker led.” The company prides itself on being more supportive and trusting of its people than other movie studios. Moreover, the firm’s willingness to remove people is all the more remarkable given the close interpersonal relationships that exist within the company. Many of Pixar’s key hires, particularly in its early years, were friends of those already working there. Friends hired friends who shared a passion for films. One story told to me by a person who worked at Pixar involved John Lasseter, one of the top leaders in the company. A film the studio was making was having difficulty getting its storyline right. It simply wasn’t coming together. The film’s director decided to drive from San Francisco, where Pixar is located, to Los Angeles for a set of meetings with Disney staff. Lasseter volunteered to ride with the director—allowing the two of them to spend time in the car working on the film’s story. Lasseter, with no shortage of demands on his time, was willing to make the drive to fully support one of his people. This level of commitment was typical of the degree to which people in the firm cared about the films they were making and were willing to invest in the success of each other. John Lasseter noted that his company’s culture was one based on deep relationships:

The people at Pixar are my best friends. . . . Not only do I want to see them every day—I can’t wait to see them every day—but, when my wife, Nancy, and I make a list of whom we are going to take on vacation, the top group is Pixar. We just want to be together all the time.²²

Some firms don’t encourage close working relationships among their members and, instead, operate in a less personal or emotional manner. Such firms can more easily fire people with less angst than a company like Pixar. It’s not personal—it’s business. On the other extreme, there are firms that encourage close working relationships among their members but will not take action, or timely action, when people fail to deliver what is needed by their teams or companies. Business, in these cases, takes a back seat to personal loyalties. The bonds among people get in the way of making the tough decisions often needed to move the business or project forward. Pixar, then, is unique in being softer than most companies (“The people at Pixar are my best friends”) and also harder (“We will fire best friends when needed to make a great film”). One member of the company noted the dilemma this creates:

Pixar can struggle at times with being honest about how it operates. The company is very supportive and has an emotional culture. But it always puts story above people. If a director can’t develop a story that meets the firm’s very high standards, he or she is removed. They are typically offered other projects within the firm, or their old jobs back, but most don’t stay. It is too tough emotionally to go back when you were just removed from your role because of a loss of confidence in your ability. This happens primarily to directors but it can cascade into other, less elevated, positions as well.²³

A company like Pixar is both softer and harder than more conventional companies. One way that academics look at the “hard/soft” dynamic is to distinguish between communal and exchange relationships.²⁴ Communal relationships are those based on supporting others without expecting anything in return. In these relationships, people are bound together by emotional ties and mutual loyalty. Families operate based on communal relationships, where favors and support are provided to others without an expectation of immediate reciprocity. Exchange relationships, in contrast, are based on what others provide you and, in turn, what you provide them. They are based on a formal give and take—I provide you with something and you provide me with something in return. Most view businesses as being based on exchange relationships. Employees, for example, provide their ideas and effort, and, in return, a firm provides them with compensation, benefits, and career opportunities. These two types of relationships, communal and exchange, are viewed by most as mutually exclusive—that is, you exist in either a communal or exchange relationship but not both. This is the case because each operates with a different set of rules and expectations. From this viewpoint, a business that appears to be based, at least in part, on communal relationships is still, in reality, an exchange relationship (only with a softer edge).

The rigid distinction between exchange and communal relationships is a relatively modern concept. In the past, the two were closely intermingled in a wide variety of preindustrial businesses and families. For example, in Elizabethan England there were families that consisted not only of the husband, wife, and children but also those who joined the family as contracted apprentices and servants. This was particularly true for the households of master craftsmen (blacksmiths) and yeoman farmers (those who sold their crops in the marketplace). All of these people were thought of as members of the family and closely connected in the production of the family goods or agricultural products. An historian of the period describes these households as spheres of mutual interdependence, with the contributions of all required for the family, defined broadly, to be successful.²⁵ Still today, family businesses are found in great numbers in every part of the world, some of them growing to become massive companies. These firms range from small “mom and pop” shops to multibillion-dollar enterprises. They combine exchange and communal relationships in unique ways that address the specific challenges they face.

To say that cutting-edge firms and teams operate based primarily on the dynamics of exchange relationships is to miss the depth of communal bonds within these firms and, in particular, the importance that they place on relationships. These firms are hybrids—possessing both communal and exchange qualities. They blur in their own unique ways the distinction between exchange and communal relationships in a manner that combines the positive qualities of each. Patagonia, for example, was among the first companies in the United States to build an onsite daycare facility for its employees. The firm’s goal was to support employees with young children and enhance the family spirit within the company. The founders believe that bringing together employees and their children in an onsite childcare center results in a stronger company culture.²⁶ Sometimes the blending of exchange and communal relationships is done because a firm’s leader believes that it is the right thing to do—that a business must be more than a series of exchange relationships. But most of these firms also do so for more pragmatic reasons. Patagonia sees the business benefit of having a childcare center that helps attract and retain talented employees who want their children to be in a quality facility located where they work. That said, Patagonia did not spend the money to build and run the childcare center for its financial benefit—it did so because it was the right thing to do for its employee community.

Balancing exchange and communal relationships, however, is complicated. In particular, firms that treat employees as family run the risk that people will feel betrayed when the company treats them not as family but as employees. Research indicates that the greater the expectations of being treated as if they were in communal relationships, the greater the disappointment and even anger when that is not the case.²⁷ This means that firms that emphasize the importance of community and connectedness will be judged more harshly when they place other considerations above those relationships. For example, Pixar employees could believe their firm is being hypocritical in creating a warm corporate environment, a family where people care about each other, only to fire people when necessary. It would be much easier to simply create an environment that is formal and professional—one where there is no confusion regarding exchange and communal relationships. That, however, is not the way of cutting-edge firms. Pixar doesn’t support close personal bonds for the sake of community—it does so because making great films requires emotional connections among those making the films. They need both exchange and communal relationships—and are willing to suffer the consequences of striving for both simultaneously. They deliberately take the harder path.

Whole Foods and Pixar are different firms operating in different industries, each with its own history, culture, and challenges. But they are similar in how they view and use teams. Consider the following:

Both firms value teams and teamwork more than conventional firms, seeing teams as essential to their success. They view their companies as a collection of teams (versus a collection of individuals). These firms value teams because teams, as they use them, provide an advantage that competitors can’t easily replicate.

Both are deliberate in how they staff their teams, looking for people who are highly talented but also a good fit with their unique cultures. They want people who are passionate, even obsessed, about their work and also care deeply about their coworkers and their firms.

Both understand the importance of team chemistry and work hard to create a sense of community within their teams. Each has formal and informal practices that strengthen the interpersonal bonds within and across teams.

Both see the need for disciplined approaches to building effective teams, including the use of clear performance targets and rigorous work practices. People view Whole Foods and Pixar as “soft” cultures, but each has robust processes and practices where needed.

Both make changes in their teams if they fail to produce results. Teams are provided with ongoing feedback and are expected to address performance gaps. Leaders, in particular, are responsible for staffing and developing teams that perform at a high level. They are fired if they fail to do so.

Cutting-edge firms, such as those profiled in the following pages, are those that understand the potential power of teams and are willing to experiment with new approaches. I call the teams operating within these firms extreme teams because they embrace bold new approaches that go beyond what is found in conventional firms. The seven companies profiled in this book are Whole Foods, Pixar, Zappos, Airbnb, Patagonia, Netflix, and Alibaba. I selected these firms based on several criteria. I sought firms with a track record of significant growth and financial success. Each of these firms has demonstrated an ability to grow and prosper, even in the face of adversity. Each outmaneuvered much larger competitors to assume a leadership role in its respective industry. Whole Food is the leader in the natural foods movement in this country. Pixar created an entirely new category of computer-generated movies and overtook Disney as the premier animation company in the world.²⁸ Patagonia has become one of the most respected providers of high-quality outdoor clothing, taking customers from traditional outfitters such as L.L.Bean. Zappos did what people thought was impossible by selling shoes on the Internet and, in the process, fighting off larger and more well-funded competitors.²⁹ Airbnb created a whole new category of hospitality and now offers more rooms each night than any of America’s largest hotel chains. Netflix drove Blockbuster into bankruptcy and is now taking on media giants such as HBO in producing and streaming TV shows and movies. Alibaba outmaneuvered eBay in the emerging Chinese e-commerce market and is now one of the world’s largest companies based on market value.

Another factor was important in selecting the seven firms in this book. I looked for firms that were willing to experiment with new approaches to teams and teamwork. These firms are constantly striving to improve how they operate with little regard for common operating practices. Whole Foods is willing to share the salaries of all employees among team members. Most firms take the opposite approach and keep salary information secret. Whole Foods believes in transparency and challenges traditional thinking in sharing salary information. These seven companies are constantly experimenting with better ways of operating—and don’t simply replicate what others had done. In this regard, they are interesting firms with a level of energy and creativity often missing in more traditional groups.

Leo Tolstoy observed that “All happy families are alike; each unhappy family is unhappy in its own way.”³⁶ Teams appear to fit the Tolstoy mold in that the best teams have similar attributes while dysfunctional teams are unique in their ineffectiveness.³⁷ Many authors have examined the dynamics of dysfunctional teams, and there is certainly merit in understanding how these teams lose their way. The premise is that we can learn how teams can function better by studying those that fail—that by avoiding the “wrongs” of highly ineffective teams, we can build productive teams.³⁸ This assumption, however, is only half right. Avoiding the wrongs of troubled teams is necessary but insufficient. A truly high-performing team does much more than avoid common team mistakes—just as an extraordinary person does more than avoid the problems that fill the pages of an abnormal psychology textbook. I take a different approach in avoiding the discussion of team dysfunctions and instead concentrate on highly innovative teams. I am interested in the commonalities across these teams that make them successful, with a focus on the following practices:

1) Fostering a Shared Obsession: In extreme teams, members share a passionate belief in their work and the firm of which they are part. They often have a cult-like quality, seeing themselves as unique and destined to improve the world. These teams also have a deep faith in their ability to overcome adversity. Contrast this approach to conventional teams whose members often view their work as tasks to be done, even professionally, but with no shared passion for their work or the team’s larger reason for being.

2) Valuing Fit over Experience: Extreme teams value the personal traits needed for a group to achieve its goals. Each team develops a unique set of practices to ensure that members have the right mix of personal motives, values, and temperament. They hire and promote people who fit their culture. Those who have these traits are asked to join the team; those who don’t are asked to leave. Contrast this approach with conventional teams where members are often selected based on their past experience or functional skills.

3) Focusing More, then Less: Extreme teams fixate relentlessly on the vital few areas that are critical to their success. They dedicate the vast majority of their time to these priorities and go to great lengths to avoid distractions (including unnecessary processes and controls). These teams, however, also develop approaches that provide the time, resources, and autonomy needed to creatively explore new opportunities for growth beyond their firm’s current products and services. Contrast this approach to conventional teams whose members often focus on a wide range of priorities and are easily distracted by less critical demands.

4) Pushing Harder, Pushing Softer: Extreme teams are simultaneously harder and softer than conventional teams. The culture of these teams is tougher in driving for measureable results on a few highly visible targets. These teams are also willing to openly deal with their own weaknesses and take action on those who are underperforming. At the same time, these teams are softer in terms of being more supportive in creating environments that foster collaboration, trust, and loyalty. Contrast this approach to conventional teams that are more “beige” in how they operate—failing to push either the hard or soft sides of effective team life.

5) Taking Comfort in Discomfort: Extreme teams are biased in favor of conflict, even encouraging it among their members. These teams believe that fighting over the right issues, regardless of the discomfort it causes, results in better outcomes. Equally important is the ability of these teams to take on big challenges and the risks associated with innovation. Contrast this approach to what is often found in conventional teams where people view conflict as something to be avoided or a sign of failure.³⁹

Let me offer a few caveats before moving on, in the following chapters, to the core practices of extreme teams:

First, one can select different firms and teams as case studies using the same criteria I noted earlier (that is, selecting groups that are both successful and innovative in how they use teams). A host of well-known companies, such as Amazon, Apple, and Google, or smaller firms, such as Uber and Vice, are worthy of further examination in regard to their team practices. The firms included in this book are meant to be illustrative of new approaches to teamwork in a variety of settings, with the assumption that the team practices found in these firms are evident in other successful firms.

Second, there are clearly differences among the firms profiled in this book, even though I describe them, collectively, as extreme teams. My intent is not to treat these firms and teams as replicas of each other but, instead, to look at their commonalities and then explore their differences in order to better understand the tradeoffs each has made in successfully designing and deploying teams. For example, Netflix goes to great lengths to remind its people that they are part of a team and not part of a family. Families don’t fire their children (as much as some, at times, might like to do so). Netflix views professional sports teams as the best metaphor for what it wants to achieve—a group where individuals are replaced by others if they can’t provide what the group needs given the challenges it faces. In contrast, Zappos goes to great lengths to create a family-like ethos. It embraces a family metaphor in describing its culture. The Zappos website notes:

We are more than just a team though—we are a family. We watch out for each other, care for each other, and go above and beyond for each other because we believe in each other and we trust each other. We work together, but we also play together. Our bonds go far beyond the typical “co-worker” relationships found at most other companies.⁴⁰

Zappos wants its people to relate to each other at a deeper level than what is found in most conventional companies.⁴¹ Zappos even requires its managers to spend significant time with team members outside of work—at events, dinners, and bars—and will not hire those who find this part of the Zappos culture unnecessary or uncomfortable.

Third, the success of the companies in this book is due to a range of factors, not simply how they use teams. Teams are critically important to them, but other factors are as well. A flawed corporate strategy, for example, will doom a company even if its teams are operating in a highly effective manner. Whole Foods, for example, is one of the most innovative firms in the world in how it uses teams. But it is facing increased competition from larger organic stores such as Sprouts, as well as mainstream grocers such as Kroger and Walmart (who are now offering health-conscious customers lower-cost organic food). Amazon is also starting to sell food via its Amazon Fresh delivery service. Its mainstream competitors now threaten to undermine the Whole Foods business model and its ability to grow (at least at a rate comparable to the past). These threats will require effective strategic choices on the part of the firm’s senior leadership. Whole Foods is now opening lower-cost stores under the brand name 365. The impact of these new stores on the success of the firm is based on the premise that traditional Whole Foods and its new sibling can coexist, without cannibalizing the sales of each other. Teams at Whole Foods provide a competitive advantage, but they are not more important than this type of shift in the company’s offering, which will help determine its fate.

Fourth, some of these firms, while demonstrating innovative team practices, may not stand the test of time. The history of business is one of firms that are successful for a period of time and then succumb to competitive challenges or their own self-inflicted wounds. Zappos has recently introduced a bold self-management approach called holacracy that has the potential to take the firm to the next level of performance—or undermine the success it has had to date. None of the seven firms profiled here are without flaws, and each has made significant mistakes over time. Alibaba failed to act as quickly as needed to deal with counterfeiters using its sites to sell their goods. Airbnb failed to respond effectively to safety issues when they arose in the early years of the company. Netflix failed to meet its customer expectations when it separated its DVD and streaming businesses. There is no reason to believe that these firms, as great as they are, will not make more mistakes as they move forward.

A variety of external forces can also undermine a firm’s success. New technologies, for example, can overtake a firm. Netflix may see its business model eroded if augmented reality overtakes movies and TV as a dominant form of entertainment. At this point, we don’t know how that technology will evolve but it may be as disruptive as Netflix was to traditional media companies.⁴²

Finally, a risk in profiling a set of exemplary firms and teams is that others attempt to mimic them. That is, some will identify a highly visible team technique from an exemplary firm and then implement it in a very different setting without understanding what is needed to make it work. In these cases, those incorporating new approaches are seeking positive outcomes without fully understanding how to achieve them. The specific team techniques described in this book must be viewed in relation to a particular firm, its history and culture, as well as its aspirations. For example, Whole Foods is one of the most team-based companies in the world. Other firms, given Whole Foods’s success, might strive to broaden the use of teams in their own organizations. Teams should be used only when they add real value and can be supported effectively by their organizations. In some situations, teams shouldn’t be used. In these cases, a company is better served by structuring work around individual responsibilities or using more ad-hoc teams than what is found in Whole Foods. Or firms might decide to implement “after action” reviews based on the success of this technique at Pixar. These reviews look at what worked and what didn’t in a recently completed film project—with the goal of improving how the firm and its teams operate. However, the culture of the firm needs to be such that people will be honest in conducting these discussions—otherwise, the real issues are not surfaced and the reviews are largely a waste of time (or worse if the real problems are known but not surfaced). In looking at the teams in this book, a reader needs to understand the intent behind a particular cutting-edge practice and the broader environment that is needed to make it work—and then determine if and how to best use that technique in one’s own company or team.

The difficulty of designing and supporting extreme teams is the reason they are a competitive advantage. If managing these teams was easy, they would be less valuable because they could be copied easily. There needs to be a great deal of thought, and perhaps more importantly ongoing experimentation, to get the formula right. The caveats mentioned here do not minimize what we can learn from cutting-edge firms. These groups are a work in progress, each trying different team approaches to determine what works for them. In that regard, they are worthy of our attention both for their willingness to experiment and their successes in doing so. That they have cast aside conventional wisdom may be the most important lesson for those seeking to improve their own groups. In creating teams that win, fortune does favor the bold.

TAKEAWAYS