This column is about the need to re-think 'how we organize organizations' and the ‘management role’ in these organizations, with an interesting example from practice to conclude. As students Organization Development and Human Resources Management (HRM) we were fascinated by two developments: ‘Labor self-management’ in former Yugoslavia and ‘Leaderless Groups’ in Sweden. Mid-seventies we went to study these systems and came back home with ambitious ideas ‘how to improve organizations’ in our practice.But, as often, reality was different. As reaction on the bad economic situation most HR experiments and projects were stopped; it was not about ‘empowerment and less management’ anymore, but all about more management. Do we now see a revival of the seventies of last century?  

Management is the least efficient activity in an organization (based on Hamel. G, 2011) 

Inefficiency comes from a top-heavy management model that is both bureaucratic and costly.

A hierarchy of managers puts a heavy tax on any organization. This comes in several forms: 

1. Managers add overhead

A small organization may have one manager and 10 employees; one with 100,000 employees and the same 1:10 span of control will have 11,111 managers. An additional 1,111 managers are needed to manage the managers. Average direct management costs in a company are ca. 33% of the payroll. 

2. The typical management hierarchy increases the risk of large, calamitous decisions

As decisions get bigger, the ability to influence the decision maker gets smaller, but the danger is greatest when the decision maker’s power is uncontestable. A related problem is that the most powerful managers are the ones furthest from frontline realities. Often, decisions made on an Olympian peak prove to be unworkable on the ground. 

3. A multitier management structure means more approval layers and slower response times

In their eagerness to exercise authority, managers often impede, rather than expedite decision making. And, in a hierarchy, the power to kill or modify a new idea is often vested in a single person, whose personal interests may skew decisions. 

4. There is the cost of tyranny

The hierarchical structure systematically disempowers lower-level employees.

As a consumer e.g. you have the freedom to spend 20,000€ on a new car but, that same consumer being your employee usually does not have the authority to buy a 50€ office chair. Narrow an individual’s scope of authority, and you shrink the incentive to dream, imagine, innovate and take initiative.

Reinventing the management function is necessary.

Prof. Gary Hamel paints a vivid picture what it means to build organizations that are fit for the future. His inspiring 15 minute video at: http://www.managementexchange.com/video/gary-hamel-reinventing-technology-human-accomplishment

Cooperation – Co-creation – Teamwork – Customer Service

Organisations can no longer maximize productivity and worker performance through traditional methods of work organization. Many of the work processes that served so well in the past are failing in today’s economic environment. In an effort to radically improve the quality of products and services and to facilitate improvement in customer service, companies have to eliminate blockades like e.g.:

• Disputes over functional boundaries within a company
• Irrational competition between departments
• Appraisal focused on individual and independent contribution
• Incentives that force dysfunctional internal competition

The characteristics of the successful companies in the future:

• High quality teamwork
• Cross-functional processes
• Interdepartmental cooperation
• Mutual support

There are many actions managers and supervisors can take in their organizations to improve cooperation and teamwork.

Managers and supervisors must learn how to cultivate more cooperation between workers and between departments. They must learn the ramifications of a competitive workplace and invent tactics to combat competitive practices.

In order to obtain a strong customer focus, they must improve the speed, reliability and quality performance of their teams and departments through people who are highly interdependent upon each other.

Effective teamwork fails most often, not because of individual difficulties, but because of the conditions of the work environment and lack of support from management that often benefit individual performance and promote win-lose confrontations.

Holacracy: will this become a New Trend?                

Many things were difficult to envision until we saw them concrete; so it is with organizations.

It is difficult to imagine a company where:

• No one has a boss
• Employees negotiate responsibilities with their peers
• Everyone can spend the company’s money
• Each individual is responsible for acquiring the tools needed to do his or her work
• There are no titles and no promotions
• Compensation decisions are peer-based

Does this sound impossible? It is not!

Self-Management at Morning Star Company

Morning Star’s plants devour hundreds of tons of raw materials every hour, where dozens of processes have to be kept within tight tolerances, and where 400 full-time employees produce over $700 million a year in revenues.

Morning Star is the world's largest tomato processor, global market leader and was built on the foundational philosophy of Self-Management.

Employees make all the decisions, from how they will do their job to with what resources they need to do it. This organization is flatter than a pancake; there are no managers, no directives from above, no promotions and no titles.

More than 40 years ago, Chris Rufer launched a trucking company to haul tomatoes to canneries.

The work did not lend itself to the management theories he had learned as an MBA student at UCLA.

‘How do you manage truck drivers, anyway?’ Rufer asks: ‘Put a supervisor in every truck?

It was just I do my thing; everyone else does your thing. That seemed to work.’

What worked then for a one-truck business works today for a company that swells to more than 2,400 employees in the tomato season. ‘Quite good, high-performing people love it here, and they flourish,’ says Rufer. ‘That is our competitive advantage.

Morning Star calls what it practices self-management, but it is also mutual management.’

Employees' decisions about what they will do are determined largely by their commitments to others. You know what you need from me to do your best possible work, and I know what I need from you to do mine. Those commitments are embedded in peer-to-peer contracts known as Colleague Letters Of Understanding (CLOU’s).

Autonomy extends beyond deliverables. Need equipment to do your job? Buy it. See a process that would benefit from different skills? Hire someone. Colleagues consult one another and then simply act. The ballast to autonomy is accountability, which can take many forms.

Perhaps most important, employees want to perform because reputation is the coin of the realm.

In a company with no promotions, people earn more by getting better at their jobs. Employee-elected compensation committees set pay levels after measuring colleagues' performance against their CLOU’s and other metrics.

Morning Star can pay 15 percent more in salaries and 35 percent more in benefits than the industry average because it is not paying managers and productivity is so high.

Morning Stars’ Mission Statement can be read at: http://morningstarco.com/index.cgi

Holacracy at Zappos

On-line seller Zappos is now a Unit of Amazon and has expanded its original shoes assortment into a.o. clothing, housewares, and cosmetics and has nearly 1,900 employees. Their core competence is ‘delivering maximum customer satisfaction’.

If all goes well, by the end of this year Tony Hsieh will not be the CEO of Zappos. In fact, he will not be anything there, just another employee without a title.

It may sound like a CEO's worst nightmare, but for Hsieh and Zappos, it is a bold new experiment in management and organization. Zappos will become the largest company at this moment to embrace Holacracy.

Zappos began phasing in the Holacracy framework in April 2013, today about 60% of the employees operate under that structure. By the end of 2014 Zappos plans to expand it to all employees. In this phase a small layer of team leaders will remain.

Zappos' embrace comes after Evan Williams' blogging platform ‘Medium’ also initiated a Holacratic structure. (Evan Williams is the co-founder of Twitter. JL)

‘Kind of the broad overarching theme why we are adopting this is to try to scale agility’ says John Bunch who works at Zappos.

‘The point where we are at as a company is that we have gotten past where we can be like a small family and really adapt our business to real-time environments. Divorcing the work that employees do from all the expectations bound up in a title will allow Zappos to be more agile’, Bunch says.

‘One of the big changes in a Holacracy is that the work that needs to be done and, how it is being fulfilled, is much more adaptable and quick changing. In a Holacracy those bits of work are defined as roles and the leaders of the teams can assign and reassign people into roles as they see fit.

In a traditional structure you have to go through a long process to get a new person into a new role.

At Zappos, that is happening a few times every week with the beta group.’

Bunch: ’How it is going? It is too soon to tell. It takes a long time to get and see the fruits of Holacracy.  However, we saw enough of the positives and enough of the vision of the positives, to determine that this is something we wanted to pursue for the entire company.’

"Holacracy is a beautiful way of structuring a workplace. Management is not nearly as necessary as they think it is." (Ben Cohen) 

Conclusion

Nobody can predict the future. What we see worldwide is that the traditional way of organizing and managing has no effective answers for today’s developments and tomorrows challenges anymore. The system gets stuck; it is a dead end street.

There are many initiatives and experiments around the globe in finding innovative organizational and managerial solutions. As always, some will fail, some will proof to be sustainable.

Holacracy is an innovative approach and now it seems to be sustainable also in larger companies.  

Is Holacracy a concept that could work in Croatian (profit, non-profit, governmental) organizations?

For questions and suggestions you can always contact me at:

info@balance-consultancy.com

www.balance-consultancy.com

John Lodder MA., MSc.