True communism? True capitalism? The K2K approach to business.

I just returned from Lisbon, where I attended a workshop run by K2K Emocionando, a company based in the Basque region of Spain. Over the last 12 years K2K has, they claim, transformed 50 businesses in the region into more collaborative, self-managing and profitable organisations. In the workshop, K2K shared their thinking and their methodology.

It is natural, when hearing about such things, to be sceptical. The world is full of consultants claiming to have found some new, brilliant formula for changing the way companies work and making them more profitable. On closer examination they usually turn out to have achieved only a temporary improvement — once the consultants leave, things revert to their previous state.

But there is much more to K2K than talk. The results they have produced over time are extremely impressive. The businesses they have taken over have increased their profits very significantly —by at least, on average, 10% of turnover. And none of the businesses has closed, despite many of them originally making losses.

What I found equally impressive was the passion of the K2K representatives for their work, and also their humility. They made it clear they haven’t found “the answer” but rather an approach that so far has worked for them and that they are constantly learning and seeking to improve their methods.

Here’s my take on what they are doing and why they are so successful.

Their starting point is that people are most productive, happy and fulfilled when working in a team without bosses or managers. This is not such a radical idea but it runs counter to 100 years of “scientific management” which has seen the huge growth of the “management class” — professional people who manage others. Their approach also runs counter to a much deeper-rooted mindset that pervades our society and that assumes that people can be divided up into:

• rulers and ruled,
• owners and owned,
• managers and managed,
• decision-makers and decision-receivers,
• teachers and taught.

K2K, by contrast, assume that everyone has something to contribute to the success of the enterprise, and that collaboration not division, enablement not control, is the way to maximise the success of the enterprise. Their role is to provide structures, processes and systems that inform and enable all to contribute to that success.

Because the idea of a manager-less organisation is still so radical to many, K2K take a strict, all-or-nothing approach. They do this to avoid hierarchy creeping back into the habits and structures of the business. They start by obtaining the consent of the business owners and of at least 85% of the staff. Without this, they say, their work is too difficult to implement. Then, at the outset, they implement a number of fundamental structural changes to the company. These include:

- total transparency (all information affecting the company is made available to everyone in the company — including salaries);

- raising the salaries of the lowest paid, to reduce the differential between highest paid and lowest paid, and abolishing all special privileges for individuals (such as bonuses);

- at least 30% of profits are shared with all staff each year;

- no managers! — they abolish all managerial roles and re-distribute the former managers to more productive roles in the company (such as customer relations);

- organise everyone into self-managing teams of no fewer than 3 people;

- replace the CEO’s role with a General Co-ordinator who co-ordinates but has no executive authority;

- all major decisions affecting the business are made collectively by a “pilot team” representing each team across the business.

They also insist on making no lay-offs, in line with their belief that the people and the business are intimately connected — without the people, there is no business.

Some of the measures K2K take may be seen as extreme. Notably, they aim for a very low differential between highest paid and lowest paid workers — they adopt simple pay scales where the highest level is only 2.3x the lowest. For comparison, British retailer John Lewis has rules that permit a differential of up to 70x. Most companies, of course, don’t even set a cap, and in extreme cases, such as Walt Disney, this differential can be as high as 10,000x or more.

Someone who attended the lecture said afterwards that what K2K are doing is “true communism”. I know what he meant. After all, the “communism” of Lenin, Stalin and Mao Tse Tung was a long way from the original concept articulated by Karl Marx, who was driven (in part at least) by compassion for the exploited workers that he had seen when visiting factories in Victorian England, in the midst of the Industrial Revolution.

Yet you might equally say that the K2K approach is “true capitalism”. The version of capitalism we have today is as extreme, in its way, as the communism of Lenin and Stalin. If there was such thing as true capitalism, I like to think it would include a spirit of sharing, fairness and equality such as that embedded in the K2K approach.

What we most need, it seems to me, is a new approach that transcends both communism and capitalism. We need an approach that balances the “I” ( the individuality of each person) with the “we”(the health and prosperity of the group as a whole).

Perhaps K2K have found a way of achieving this balance. Their structural changes are designed to encourage solidarity — a feeling of togetherness and teamwork — yet they don’t seek to squash individuality. They emphasize freedom and also responsibility. Somehow they seem to have found a way of satisfying the needs and aspirations of staff, investors and customers.

There’s something else. They acknowledge a responsibility to others outside the company. Members of the NER group (a network of companies made up of 23 of the companies that have undergone transformation by K2K) commit to giving 3% of their profits, and 2% of their staff time, each year to good causes in the community.

Pioneering work of the sort that K2K are doing will always be controversial. It shakes people’s basic understanding of how society works. They may be called communist or worse. Personally I am convinced they are on to something, and I look forward to seeing and participating in the expansion of their work outside the Basque region.