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The first and most important truth any leader must understand is that the human beings who work inside every kind of organization possess unlimited potential. They have the ability to solve any problem and the adaptability to respond to unforeseen circumstances. It may be the most overworked truism in the business world, but employees are indeed the most valuable resource and asset that any company has.

You’ve dished it out before, and you’ve taken it.

  • “Well, good morning. Nice of you to finally join us!”
  • “He’s always taking long lunches.”
  • “Wish I could leave at 4:30 every day...must be nice!”
  • “Is he ever at his desk?”
  • “Sure must be great to work from home every Friday.”
  • “Seems like she uses all her sick days to go shopping.”
  • “Oh, she’s home with a sick kid...again. I need to get myself a kid.”

Do any of these phrases sound familiar? We call this “Sludge.”

WATCH: Gary Hamel introduces the SAP Unlimited Human Potential Challenge

When it comes to building management and business models that are fit for the 21st century, one of the fundamental challenges is developing organizations that are capable of discovering, nurturing, aggregating, and appropriately rewarding contributions from employees, customers, suppliers, and other stakeholders across boundaries.

The five digital freedoms - the freedom to connect, contribute, create, challenge, and choose - portend change for all organizations regardless of industry or geography. There is no stopping people from expecting the same opportunities in their work life as they experience in the personal lives. These freedoms are in direct opposition of many currently-accepted management practices and will usher in a more humanized approach for getting work done—whether we like it or not.

So much of the conversation in business is about power: what you control (“I run a $200 million piece of the business”), who you control (“My 350 direct reports”), and how you control (org charts, pay grades, policy manuals). Of course, power and control are spectacularly subpar strategies for unleashing human imagination, initiative, and passion—all those qualities every organization needs in abundance in order to thrive in the Creative Economy.

For all of the billions organizations invest each year in “leadership development,” a criminal amount of human potential is left on the table. Training and development programs almost universally focus factory-like on inputs and outputs: absorb curriculum, check a box; learn a skill, advance a rung; submit an assessment, fix a problem. Flavor-of-the-month remedies, off-the-shelf programs, immersions, and excursions stuff people full of competencies and skills but produce astonishingly few great leaders.

Many of us who took natural science courses during our undergraduate work were exposed to the story of the boiled frog experiment. The experiment showed that a frog sitting in a beaker of water would not attempt to escape if the water was heated gradually enough. The lesson we are supposed to learn from that story is that is we do not pay attention to the gradual changes in our milieu, we may suffer dire consequences.

For too long the ruling ideology of too many organizations has been control: controlling people, controlling information, controlling deviations from the norm. The good news is that we already have a potent model of freedom as an organizing principle. It’s called the Internet.

Over the last decade, digital, social, and mobile technologies have greatly expanded the scope of personal freedom—the freedom to connect with anyone anywhere in the world; the freedom to contribute and to make a real impact on the basis of merit rather than position; the freedom to create and express oneself; the freedom to choose what to buy, what to join, what to work on; and the freedom to challenge, to speak up, to push back, to rise up.

Remember that classic New Yorker cartoon with Rover sitting in front of a computer? The caption read, “On the Internet, no one knows you’re a dog.”  Well, on the web, no one knows you’re a senior vice president either. That’s why every leader is going to have to learn how to get things done in a world where authority is the reciprocal of followership.

In 1973, Peter Drucker stated in his book Management: Tasks, Responsibilities, Practices, "Management is not culture-free, that is, part of the world of nature. It is a social function. It is, therefore, both socially accountable and culturally embedded." 

We live in a world where never before has leadership been so necessary but where so often leaders seem to come up short. Our sense is that this is not really a problem of individuals; this is a problem of organizational structures—those traditional pyramidal structures that demand too much of too few and not enough of everyone else.

Never before has leadership been so critical, and never before has it seemed in such short supply. That's why we're delighted to announce the Leaders Everywhere Challenge today. The second leg of the 2012-13 HBR/McKinsey M-Prize calls for real-world case studies and bold hacks that demonstrate how we can dramatically expand the leadership capacity of all of our organizations by both redistributing power in a way that gives many more individuals an opportunity to lead, and equipping and energizing people to lead even when they lack formal authority.

Today, we’re delighted to announce the ten winners of the Innovating Innovation Challenge, the first leg of this year’s HBR/McKinsey M-Prize for Management Innovation. But first, we’d like to acknowledge, again, the 24 finalists, whose superb stories and hacks made for some wrenching decision making. A huge thank you to all of the challengers with the imagination and daring to take on the status quo—and the generosity to share what they’ve learned in the process.