The critical core components of self-organized companies
If self-organized companies are so much more rewarding and successful, why are we not seeing more of them? Because they are bloody difficult to implement and maintain and there is no underlying coherent scaffolding to lean on. All we have is anecdotes and (partial) stories from companies that “made it”. Imitating these stories without understanding the underlying reasoning leads to cargo cult (at best) and leaves companies incapable of adapting practices to their own context. With this post, I am sharing my scaffolding for organizational design.
I adopted the concept of critical core components from Elinor Ostrom’s book Governing the Commons. In her Nobel-prize-awarded work, she researched the factors that allow some groups that formed around common-pool resources to defy the “tragedy of the Commons” without having change imposed on them from the outside. Common-pool resources are resources that the group collectively decides what to do with. In a company that is money, and people’s time and effort. It seems to me, the same critical core components apply to decentralized companies because the resources of these companies become by design common-pool resources.
Ostrom’s core design principles are
- Clearly defined user and resource boundaries. Who is in? Who is not? What is in? What is not? Defining the boundaries of what we are doing and specifying who is doing it is a prerequisite step for collective action.
- Proportional equivalence between benefits and costs. Who is getting how much for what? If I get more of the benefit, I should pay a higher fee. If I provide more value, I should get a higher reward.
- Collective choice arrangements. How do we make decisions? If I am affected by a rule, I should be able to participate in making and modifying that rule.
- Monitoring users and resources. How do we keep track of what we do? If we want to make informed decisions, we need to know where we stand. If we don’t want prosocial behavior to deteriorate, we need to ensure nobody is free-riding. If we want to distribute monitoring, we need to make it cheap — a by-product of the incentives in the system.
- Graduated sanctions. What happens when I violate an agreement? Who is holding me to account? The more serious the violation, the higher the consequences.
- Fast and fair conflict resolution. What do we do when we disagree? Acting on rules and agreements always requires interpretation and the judgment of the current situation. This leaves ambiguity and will invariably lead to conflict.
- Local autonomy. How do we collaborate in sub-groups? As long as we don’t violate other rules and agreements, we should be allowed to make our own rules and agreements.
- Polycentric governance. What do we do when the organization gets too complex to govern as a whole? If we want to govern the system without bureaucratic and expensive central control, we need to divide the organization into sub-groups that can make decisions autonomously while having more abstract rules at the higher level.
Rewording these core design principles for the context of a company, I named them
- Clearly defined company and goal boundaries
- Benefits correspond to provided value
- Collective decision-making
- Monitoring behavior, goals, and resources
- Graduated penalties
- Fast and fair conflict resolution
- Sub-group autonomy
- Distributed governance
Reappearing patterns of self-organization
In my work with companies that transition to more self-organization, some patterns keep reappearing, and a list of common practices emerged. It is my belief that if a group has co-designed and committed to all items on the following list, they have — comprehensively enough — defined how they intend to collaborate. That is not to say that these practices shouldn’t evolve, but the core of the group’s collaboration is feature-complete — they defined the critical core components of how they work together.
- Goal alignment: How do we agree on the direction we are heading?
- Code of conduct: How do we want to behave with each other?
- Hiring: How do we bring in more people?
- Performance evaluation: How do we evaluate each other’s contribution?
- Salary setting: How do we decide on compensation?
- Decision-making: How do we make decisions together?
- Leadership: How do we lead each other?
- Transparency: Which information is transparent to whom?
- Accountability: How do we hold each other to account for the promises we make?
- Performance deficit: How do we address deficits in performance?
- Group norm violation: How do we address violations of how we want to behave with each other?
- Mediation: How do we support each other in conflict?
- Org entities: What are the teams we collaborate in?
- Team autonomy: Which decisions are made in which teams?
- Fractal org structure: How do we collaborate beyond teams?
- Advice: How do we give each other advice on how to grow?
- Guidance: How do we guide each other in growing?
- Trust: How do we create trust with each other?
- Appreciation: How do we appreciate each other?
- Empathy: How do we want to relate with each other?
- Responsibility: What are we taking responsibility for as individuals?
- Channels: How do we communicate with each other?
I believe this is the minimal set of practices a group needs to gain clarity around in order to self-organize. This is why I call them the critical core components. Take away any one of them and the group will experience pain through the lack of clarity in that area.
This list of practices can be clustered to a big part in Ostrom’s core design principles. It feels to me like this backs up my thinking around caring network companies — to some extent — with proper research. Or at least, it doesn’t contradict it.
Some of the items on my list don’t neatly fit into any of Ostrom’s boxes. At the same time, I believe that non of the items can be left out without jeopardizing the intended overall result of a successful self-organized company. My explanation for this is that companies are different than the groups that Ostrom researched.
People in companies are more tightly coupled and have higher freedom to leave than people governing a Commons. This is not only so by necessity but also by expectation. People expect to join companies that they feel aligned with — companies that make them feel like they belong. I think caring network companies have three additional core design principles that contain the remaining critical core components on my list.
I understand my work of steering organizational development as a process of co-designing how we want to do each item on this list of practices in a way that is coherent with our company culture, product, and market while, at the same, challenging the ethics of these three aspects.
When every member of our company can confidently say “I know how we do X” for each item, I consider my work with this company done. Since companies and their members change continuously, this work may never be fully complete. However, with the practices of hiring (including onboarding) and decision-making in place, the company may well take care of the continuous change itself.
Motivation as the guiding concept
I find co-designing the critical core components fundamentally important because I want each of them to pay into people’s motivation. The reason I use motivation as the guiding concept for the critical core components is that I see it as
- the main driver of a company that is successful and
- the main indicator that it is humane.
Based on the work of Richard Ryan, Edward Deci, and Daniel Pink, my current conclusion is that motivation is fed by four contributors.
- Autonomy: I have a say in what I do, how I do it, when I do it, where I do it, and with whom I do it.
- Mastery: I am good at what I do and I am continuously getting better at it.
- Purpose: What I do is important and part of something bigger than myself.
- Belonging: I care about the people I work with and they care about me.
When designing a practice, I always have in mind how it pays into one or more of these contributors for motivation. Does the current design increase some contributors? Does it decrease others? What are the trade-offs? Though the mapping is not distinct, I see the practices on my list mainly pay into the motivation contributors like this.
More details, please
I want to publish an in-depth post for each of these items with the intention to allow interested companies to use them as a launchpad to co-design their own practices of collaboration. This is step 3 of my secret master plan of
- helping create a successful caring network organization others want to be like
- conceptualizing and describing its critical core components
- publishing critical core components for others to emulate
Because I want these posts to be rooted in a deep understanding and practice this is going to take a while — as in years, maybe decades. I consider this my life’s work.
- Goal alignment. How do we agree on the direction we are heading? What is it that we are trying to achieve together? How can we be aligned and autonomous at the same time?
- Code of conduct. How do we want to behave with each other? What is OK? What is not? If I behave in a way that we agreed is appropriate, I can be in. If not, I do not fit here. This is often implemented with company values.
- Hiring. How do we bring in more people? How do they find us? How do we make sure we are a fit? How do we integrate them?
- Performance evaluation. How do we evaluate each other’s contribution? How do we compare each other without promoting envy? How do we make sure we get the full picture?
- Salary setting. How do we decide on compensation? How do we ensure the distribution is fair? How do we ensure we can afford it?
- Decision-making. How do we make decisions together? How do we ensure everyone feels included? How do we avoid bottlenecks and deadlocks? How can we make well-informed decisions quickly?
- Leadership. How do we lead each other? How is it that we are self-organized and need leadership simultaneously? How can we be both effective and inclusive? What is a leader’s job? Can leaders tell others what to do? Do they need to? Should they? Who gets to pick who is a leader? How do we lead effectively and in line with self-organizing principles?
- Transparency. Which information is transparent to whom? How do we ensure everyone has the necessary information for the decisions they make? How do we ensure information cannot only be easily found but also easily understood?
- Accountability. How do we hold each other to account for the promises we make? What do we do when we fall short? Who enforces the consequences? How can we be comfortable being held to account? How can hold each other to account without blaming?
- Performance deficit. How do we address deficits in performance? How do we support each other in getting back on track? What happens when we can’t?
- Group norm violations. How do we address violations of how we want to behave with each other? What do we do when things don’t change for the better?
- Mediation. How do we support each other in conflict? What if conflicts weren’t something that we are trying to avoid? What if we experienced conflicts as a source of innovation and personal growth? What if getting support didn’t feel like admitting failure but like the obvious thing to do?
- Org entities. What are the teams we collaborate in? Where do we draw boundaries of org entities? What are the tasks of different types of teams? Who can be a member of which team? When do teams change and how does that happen?
- Team autonomy. Which decisions are made in which team? How do teams interact with other teams?
- Fractal org structure. How do we collaborate beyond teams? How do teams on different levels differ? How are they the same?
- Advice. How do we give each other advice on how to grow? How do we turn advice into action?
- Guidance. How do we guide each others’ growth? Who takes care of our development?
- Trust. How do we create trust with each other?
- Appreciation. How do we appreciate each other? How do we honor achievements? How do we celebrate success?
- Empathy. How do we want to relate with each other? How can we be more aware of our emotions and why we have them? How do we communicate them to each other without fear of being considered unprofessional? How do we harness emotions to better understand ourselves and the situation at hand? How do we consciously use them to inform our choices?
- Responsibility. What are we taking responsibility for as individuals? How do we avoid drama and acting from the perspective of a victim?
- Channels. How do we communicate with each other? Which channel do we use for which information? How quickly do we expect an answer to a message? When do we expect each other to be available?
Putting it into practice
Even if the above list of critical core components is correct and even if I manage to describe each component in a comprehensible way, implementing them in a new company will always remain a challenging endeavor. As Elinor Ostrom puts it: “getting the institutions right is a difficult, time-consuming, conflict-invoking process.” The best I can hope for is to make this process a little less difficult, time-consuming, and conflict-invoking, and hence more likely to succeed.
In order to decide which component to work on (next), I ask “What is the current bottleneck for the company to be more effective?” or “Where is the greatest pull from the organization?” To get an overview of the current status, I find it helpful to make a gut assessment for each component which I then challenge with others.
Caution
Just remember: The map is not the territory. Every map is by design a simplification of reality. The function of a map is to omit complexity to help us navigate. Some of the components on the map may be less important in your context, yet others may be missing. Use it as a starting point for your own exploration. When the map disagrees with the territory, trust the territory. This is the best map I currently have and future me will most certainly adjust it as he learns how it is wrong.
This — simplified — together with all other concepts on this blog is nicely bundled up with 88 visualizations, 37 videos, and 11 templates in my New Work by Design Transformation course. Helping you put New Work into practice for less than the price of a consulting day.
