The competitive advantage of the most successful organisations
Is decentralisation the answer?
CODEC’s research projects are based on Victor Papanek’s thought: “The only important thing about design is how it relates to people.”
Whilst examining the field of design in relation to society, the newly established design collaborative CODEC recognised the following topics as an important subject for research: new management models, collaborative networks, new financial and business models, new knowledge exchange models, and new education models.
Section One (the brief) presents the backbone to the study of new management models, followed by the key question of the whole report: Is decentralisation the answer?
Background
CODEC, Co-Design Collaborative, is a design driven interdisciplinary network working across Europe to help businesses and organisations explore growth opportunities and find solutions that match real needs and that are socially and environmentally just. Based on Victor Papanek’s principle, ‘the only important thing about design is how it relates to people’, CODEC uses its varied expertise, extensive research, and in-depth know-how to work on positive impact projects with social purpose. Open to new projects with individuals, organisations and businesses, as well as to new members who wish to share their skills, CODEC concentrates not only doing things right, but doing the right things. For being a new initiative it is crucial to find the right management model that will support our mission. This research will introduce some theories that will serve us, as a starting point to develop our own management model.
Problem statement and research topic
Today we live in a world that is far more connected and unpredictable than ever before. Today’s most successful organisations have developed a new way of working in order to thrive in dynamic conditions, a new way of managing work. As the report will show, their competitive advantage and key ability, is the ability to change. What else is included in their approach to organisational, leadership and management issues? This is the question that this research aims to answer. As well as the question: Is decentralisation the answer?
A brief history of management
Prior to the industrial revolution we can hardly talk about “management”. Organisations basically came into being to produce things. Producing simple goods required simple organisations. People were paid to follow instructions, make things and sell them to customers. Information flowed from top to bottom and money flowed back up to the top. This was and still is a simple model with inputs, added value and outputs. The owner of the company was usually responsible for coordination, planning, rewarding, and resource allocation. The first signs of possible management as such, we can find in the work of thinkers such as Adam Smith (1776), with his insight that the division of labour would increase productivity. (Gunther McGrath, 2014)
With the aforementioned industrial revolution, the scale of production increased. As a consequence, the size of organisations grew and with it the need for ever more professional coordination. This is the time when the profession of “manager” started to evolve in order to help owners with the increased organisational demand. The primary task of the manager was the execution of mass production: process standardisation, workflow planning, quality control, maximising efficiency of inputs and outputs. Besides Adam Smith’s theory, other theories emphasised efficiency, consistency of production and predictability, from Frederick Winslow Taylor (one of the first management consultants), Frank and Lillian Gilbreth (advocates of scientific management and pioneers of time and motion studies), Herbert R. Townes (known as early systematiser of management), and Henry L. Gantt (management consultant, best known for his work in the development of scientific management).
The next giant leap in the history of new challenges in management brings us to what is to become the post-industrial era. Two inventions from the late 1940s that transformed the world and brought a new age of information technology (IT) to life. Claude Shannon, the eccentric and genius mathematician, founded communication theory, which shortly became commonly known as information theory. Almost at the same time the first working transistor was built by John Bardeen and Walter Brattain with support from colleague William Shockley at Bell Labs. This is significant due to the fact that the transistor later made it possible for information theory to became the practice of information technology. (Gertner, 2012 and Ganapati 2009)
With this change, we can observe history in the making. Prior to this, companies mainly focused on producing products, but now shifted their agenda to providing services as well. The rise of the so-called “knowledge economy” rose, the term popularized by Peter F. Drucker (1969). He understood that value is not created solely by producing goods, but also by using information. Managing employees of information and knowledge was a challenging task, since it was different from managing workers on production lines. The “source” of the added value in a knowledge company literally walked out the door each evening. It was clear that a different managerial style was required, due to the fact that the command and control style was not relevant anymore.
As a consequence, new management theories, the ones that emphasised motivation and engagement of workers, arose. One of them was the “Theory X and Y” by Douglas McGregor (1960). Theory X is an authoritarian style where the emphasis is on productivity. Theory Y is a participative style, which “assumes that people will exercise self-direction and self-control in the achievement of organisational objectives to the degree that they are committed to those objectives”. It is management’s main task in such a system to maximise that commitment. (Theories X and Y, 2008).
As the production of goods and services increased (in developed countries) we entered the era where supply exceeded demand and thus all these products and services competed on the market for customers. Customers also changed, and started to seek products and services they could relate to. This combination gave birth to brands. Brands started to “speak” the language of customers all over the world. Brands were suddenly eager to know what they customers thought, felt, wanted, valued. Feedback from the customers became more important each day. Technological progress on the other hand, was able to meet the needs and desires of moody customers in shorter cycles. Due to this, the development became less predictable and companies needed to develop a responding mechanism to handle rapid changes. Those who failed slowly disappeared. Rapid change and constant innovations in IT enabled teams to start making decisions on the spot, without managerial intervention. These decisions were more responsive in conditions of rapid change, and became a great advantage in the global economy. Efforts to understand this so called “emotional intelligence” factor in management is today led by writers such as Daniel Goleman (2011).
The next era of management
In 2014 Frederic Laloux, a former consultant of the the management consulting company McKinsey, published a book called Reinventing Organizations. He argues that if we start treating people as adults and allow them to express their whole selves, they will be able to realise much more of their potential. Their contribution to the company through their work will be far bigger than it would be otherwise. Also, Laloux argues, we should stop looking at companies as machines that we can build part by part and tweak to every smallest detail. Instead we should look at companies as living beings and let them grow and evolve naturally by themselves.
These ideas sound like a recipe for chaos and anarchy. But it turns out that when both responsibility and control are well distributed, fluid and self-adaptive order is created. Many examples in his book show that companies led with this approach are performing better than traditionally managed companies. They also have more positive effects on their employees, customers, collaborators and the wider communities they operate in. Despite the mystic and spiritual tone, the book is an important contribution to the management trends evolving today.
Two years later, in 2016, Deloitte conducted Global Human Capital Trends. The new organization: Different by design. They asked more than 7,000 business leaders what their main concerns were. The top concern was organisational development, the second was leadership, while workforce management was last in the list of ten. (Deloitte, 2016) This brings us to another change. Currently we are in the middle of another shift of what organizations are and for what purpose they exist.
If organizations existed in the execution era to create scale and in the expertise era to provide advanced services, today many organisations exist to create complete and meaningful experiences.
And these meaningful experiences are demanded not only by future users, but also by employees. Organisations with numerous employees are increasingly under pressure to provide a stimulating environment for working. The ability to do this has become much more difficult due to the aforementioned rapid changes of hyper-complexity. The main problem is that the mechanisms needed to sense these changes and the ability to respond to them starts to fail, and as a consequence the role of leadership changes again. The command and control style leadership based on predictable inputs and outputs is rapidly fading away.
The challenge for any organisation today is to narrow the gap between where the information is and where the power is.
Some early organisational development trends show that distributed leadership, responsible and autonomous or semi-autonomous teams and networks, self-management, collaborative governance and co-ownership are the answers to these challenges. The role of leadership is shifting towards the facilitation of autonomous and semi-autonomous teams. Factors like sense of purpose, shared sets of values and success definitions are prevailing over the role of command and control. Even more, every member working in an organisation can instantly check every decision and see when decisions are supporting or detracting set values.
The factors mentioned above help in recruitment. Increasingly, individuals are seeking their own ‘purpose’ and are starting to seek out organisations that align with their own.
Aligning individual purpose with organisational purpose will become the ‘next big thing’ in order to attract talent in the near future.
This claim is supported by multi-year research by Google, code-named Project Aristotle, led by Julia Rozovsky. During the research they studied hundreds of Google’s teams to figure out why some of them were more efficient and successful than others. After the first year the researchers concluded that influencing group norms is the key to improve teams. But they needed more time to figure out which norms mattered most. They found out that there are five key dynamics that set successful teams apart from other teams at Google:
- Psychological safety: Can we take risks on this team without feeling insecure or embarrassed?
- Dependability: Can we count on each other to do high quality work on time?
- Structure and clarity: Are goals, roles, and execution plans on our team clear?
- Meaning of work: Are we working on something that is personally important for each of us?
- Impact of work: Do we fundamentally believe that the work we’re doing matters? (Rozovsky, 2015)
In summary, management has evolved and thrived in predictable environments where the processes can be at first reduced to their simplest parts and then optimised. As we’ve shown, this is no longer the case. In a complex, unpredictable world we are in search of organisations that align around a common purpose. Leading in these kind of environments requires an enhanced level of awareness and emotional intelligence in order to create the culture, which is able to continuously sustain the sense of change ahead of us and an ability to respond to it in given time.
Management models
During the past 10 years, several management models were developed to help autonomous teams and networks to organise their work. Two of the most well known ones will be introduced here: holacracy and sociocracy.
Holacracy
www.holacracy.org
Holacracy is a specific social technology or system of organizational governance developed by HolacracyOne LLC in which authority and decision-making are distributed throughout a holarchy of self-organizing teams rather than being vested in a management hierarchy.
Holacracy is an alternative way of organizing people to do work. It is still hierarchical, and leadership shifts from omnipotent managers to distributing authority more evenly. Individuals capture the roles they fill along with each role’s on-going accountabilities into a system of record. A facilitated process, called governance, exists to then allow anybody to propose a change to the organizational structure. Roles that work together on similar work are arranged into circles. Circles function as a team to more efficiently execute related work.
In traditional organizations, each employee has one manager and one title. But the lines often get blurry. We all know that job descriptions often don’t reflect the actual day-to-day work people do. Employees may serve multiple bosses — either implicitly or by carrying an explicit “dotted line” reporting relationship to another manager. Also, as mentioned several times already, traditional organizations struggle to adapt to changing market conditions. Reorganizations are often dramatic and expensive and as a consequence methodically planned. The rigidity of the organisational chart often causes employees to feel trapped without a sense of agency or clear path for progression, feeling as though they have to wait for a superior to leave the organization, or resign themselves, in order to do the sort of work they want to do or to receive the recognition they believe they deserve or to make more money, or all of the above.
Holacracy on the other hand offers “social technology.” It fundamentally provides two suites of “features” to address common organizational challenges: technology providing structural adaptivity and conventions for new ways of working. To put it differently, holacracy fundamentally changes the way workers organize their work. It is known as an explicit distinction between Roles and Souls: a description of the work to be done and the people who do it. An individual worker may hold many Roles. Roles working together on related work are grouped together into teams called Circles. Circles are arranged hierarchically. Each Circle has a leader (manager) called the Lead Link. The Lead Links fill Roles with individuals and appoints Leaders of Sub-Circles. The topmost Circle in an organization fully adopting Holacracy is roughly equivalent to a board of directors. These terms belong to a shared language used to describe an organization’s structure. The structure is captured in Holacracy’s digital system of record, a web application called Glassfrog.
Terminology aside, this doesn’t sound like a radical change from how things are arranged in a traditional organization. And it is not. Employees in legacy organizations are already familiar with performing work not captured in their job description or holding so-called “dotted-line” reports to more than one manager. Holacracy makes it all explicit and gets it written down. This is where things differ: once the structure is captured, it can be changed; and everybody has the power to change it. Holacracy explicitly records roles and accountabilities, and provides a process for changing them.
Each month, members of a Circle hold a Governance Meeting Updating Circles’ roles to operate more effectively according to a set of rules. Circle members bring issues (called Tensions) which are shaped by the meeting process into proposals for structural changes. New jobs can be created, old ones can go away. Roles which have grown too complex can be expanded into a Sub-Circle. After the meeting, the Lead Link chooses to fill these roles, including the heads of any new Circles, with anybody from the organization they like.
Organizational change in a Holacracy is hard to stop. The system is biased toward action. Holacracy uses a facilitated process during its Governance Meetings called Integrative Decision Making, which contains an ingenious set of rules to test and collaboratively integrate opposing viewpoints. The integration process encourages a reduction of the degree of change until everyone agrees the proposal is safe to try. It produces change through consent, rather than consensus.
The gateway drug to Holacracy is the Tactical Meeting. The Tactical Meeting breezes through team metrics, project updates (no discussion, just changes from the last meeting), and brings a process for breaking down the work of a Circle into a set of assigned actions to carry the team forward. All this happens in under 30 minutes.
In Holacracy, everyone keeps an open to-do list and must share it with anybody who asks. This radical transparency allows for rapid adjustment of the business. If important actions aren’t being completed by an employee it’s possible that:
1) the Role performing work isn’t a priority to the business;
2) the individual might need that work reassigned to someone else;
3) the Role may need to be augmented with additional resources;
4) the individual may not be effective filling their Role.
Holacracy isn’t perfect, but mature organizations with an established culture and defined processes tend to take well to it. However, young organizations and start-ups, who are likely moving implicitly with speed and agility often feel like Holacracy only slows them down. Holacracy presents some challenges. It is difficult to coordinate efforts at scale. In the purest expression of Holacracy, every team has a goal and works autonomously to deliver the best path to serve that goal. But for larger initiatives, which require coordination across functions, it can be time-consuming and divisive to gain alignment. Or as Felix Velarde wrote: “There’s no obvious way to structure salary scales. The current alternative looks at a person’s contributions instead of more established and quantifiable metrics like how many people they manage. The traditional career ladder may be more attractive to, say, growing families with higher salary requirements, or to someone who prefers predictability. Until there are more employers who employ Holacracy, there is no easy way for people to move around the job market.” (Velarde, 2016)
Holacracy also requires a deep commitment to record-keeping and governance. Every job to be done requires a role, and every role requires a set of responsibilities. While this provides helpful transparency, it takes time and discussion. More importantly, the act of codifying responsibilities in explicit detail hindered a proactive attitude and sense of communal ownership.
Holacracy has become fraught with misconceptions that make it hard to separate the actual system from the imagined one. In recruiting, this became a problem — particularly among more experienced candidates, who worried that they were being hired as “bosses” in a boss less company.
Many of the Holacracy principles can be embedded in an organization through how it approaches work, collaborates, and instigates change without following the Holacracy system word by word. The system can exert a small but persistent tax on both effectiveness, and sense of connection to each other.
Sociocracy
http://sociocracy30.org
Sociocracy as a form of governance has been referred to since 1851. Sociocracy is a system of governance using consent decision making and an organizational structure based on cybernetic principles (a system with closed feedback mechanisms).
Modern sociocracy was developed by Gerard Endenburg as a method for use in governing an electrical engineering company, and is applicable to any organization. Sociocracy has been advocated as a management system that distributes leadership and power throughout the organization. Subsequently it has been developed and adapted by many different groups and organizations, including Gerard Endenburg, The Sociocracy Group (TSG) and Brian Robertson (HolacracyOne). (Bockelbrink and Priest)
Today we are already talking about the third edition of sociocracy. Sociocracy 3.0 is an open framework for evolving agile and resilient organizations of any size, from small start-ups to large international networks and nationwide, multi-agency collaboration.
Sociocracy 3.0 provides a coherent collection of principles based patterns for collaboration, to navigate complexity, adapt and evolve. It also incrementally processes available information into continuous improvement of the value stream, products, services and skills. It helps organizations making the best use of the talent already present, and to grow flexible organizational structures to align the flow of information and influence to the flow of value. Sociocracy 3.0 provides an organic, iterative approach to change that meets organizations where they are and helps them move forward at their own pace and according to their unique context and needs. It draws on the collective intelligence of the group, facilitates the development of strategies that are “good enough for now” and “safe enough to try” and fosters accountability and a sense of engagement. It is a transformational mechanism for both individuals and the whole organization.
Sociocracy is based on seven main principles:
● Consent: Do things in the absence of reasons not to.
● Equivalence: People affected by decisions influence and change them on the basis of reasons to do so.
● Accountability: Respond when something is needed, do what you agreed to and take ownership for the course of the organization.
● Continuous Improvement: Change incrementally to accommodate steady empirical learning.
● Transparency: All information is available to everyone in an organization, unless there is a reason for confidentiality.
● Effectiveness: Devote time only to what brings you closer towards achieving your objectives.
● Empiricism: Test all assumptions through experiments, continuous revision and falsification.
Look ahead
The research shows that as far as CODEC is concerned, there is life after the hierarchical, control and command type of management. We see an ever growing ecosystem of different self-management, autonomous and semi-autonomous team and network approaches. And our bet is, that every organisation needs a slightly different approach to managing itself. This is our path. We are at the beginning of our journey and through practice we are keen to find out what works for us and what doesn’t.
References
Aftab, O., Cheung, P., Kim, A., Thakknar, S., and Yeddanapudi, N. (2001): Information Theory: Information Theory and the Digital Age, http://web.mit.edu/6.933/www/Fall2001/Shannon2.pdf (July 26, 2017).
Bockelbrink, Bernhard; Priest, James: “History of Sociocracy 3.0”, Sociocracy 3.0, http://sociocracy30.org/the-details/history/ (June 1, 2017).
Deloitte (2016): Global Human Capital Trends. The new organization: Different by design, Deloitte University Press, www2.deloitte.com/content/dam/Deloitte/global/Documents/HumanCapital/gx-dup-global-human-capital-trends-2016.pdf (July 2, 2017).
Drucker, Peter F. (1969): The Age of Discontinuity. Guidelines to Our Changing Society, Butterworth-Heinemann.
Ganapati, Priya (2009): “DEC. 23, 1947: TRANSISTOR OPENS DOOR TO DIGITAL FUTURE”, Wired, www.wired.com/2009/12/1223shockley-bardeen-brattain-transistor/ (July 27, 2017).
Gertner, Jon (2012): The idea factory: Bell Labs and the great age of American innovation. Penguin Press.
Goleman, Daniel (2011): Leadership: The Power of Emotional Intelligence — Selected Writings, More Than Sound.
Gunther McGrath, Rita (2014): “Management’s Three Eras: A Brief History”, Harvard Business Review, July 30, 2014, https://hbr.org/2014/07/managements-three-eras-a-brief-history (July 26, 2017).
Laloux, Frederic (2014): Reinventing Organizations, Nelson Parker
McGregor, Douglas (1960): The Human Side of Enterprise, New York, McGraw-Hill.
Milward, H. Brinton; Provan, Keith G. (2006): “A Manager’s Guide to Choosing and Using Collaborative Networks Networks and Partnerships Series”, IBM Center for the Business of Government, 6–28.
Rozovsky, Julia (2015): “The five keys to a successful Google team”, reWork, November 17, 2015, https://rework.withgoogle.com/blog/five-keys-to-a-successful-google-team/ (July 5, 2017).
Schumpeter (2014): “The holes in holacracy” The Economist, July 5, 2014, p. 56 (US), www.economist.com/news/business/21606267-latest-big-idea-management-deserves-some-scepticism-holes-holacracy (February 2, 2017).
Smith, Adam (1776): An Inquiry into the Nature and Causes of the Wealth of Nations, Vol. 2, https://doi.org/10.2307/2221259 (July 1, 2017).
Velarde, Felix (2016): “Is Holacracy finally dead?”, Quartz, May 16, 2016, https://qz.com/677130/is-holacracy-finally-dead/ (May 15, 2017).
“Theories X and Y”, The Economist, October 6, 2008, www.economist.com/node/12370445 (July 15, 2017).
Research author and CODEC’s founding members
Maxim Dedushkov, principal Investigator and CODEC founding member
Maxim is a design expert and strategic designer. Maxim has been part of the design scene since 2008. He is the co-founder of Hello Wood, an international wood workshop and festival, founder of HOLIS, a holistic design summer university, founder of MOME line, the design agency of the Moholy-Nagy University of Art and Design, founder of MOME ID, a digital product course and the driving force behind the Budapest Design Meetup. He runs a small design agency called Dedushkov.
CODEC’s founding members
Michala Lipková, founding member
Designer working along boundaries of UX, product and communication design, currently co-founding a hardware startup Benjamin Button. Michala leads commissioned research projects at the Institute of Design at the Slovak University of Technology in Bratislava. Since 2013 she is a managing director of collaborative platform Flowers for Slovakia, focused on promotion of Slovak design abroad.
Barbara Predan, founding member
Assistant professor, theoretician, designer and author. Co-founder and leader of the department of design theory at the Pekinpah Association (pekinpah.com), and director of the Ljubljana Institute of Design, an academic research organisation. She has published several professional and scholarly articles and is the author or coauthor of four books. She has edited ten books and curated ten exhibitions. She regularly lectures at international academic and professional conferences, and, with Petra Černe Oven, leads a number of workshops in the field of service and information design.
Kate Spacek, founding member
Kate has lived and worked in the Czech Republic since 2011, and has been part of CZECHDESIGN.CZ for almost as long. Her role as international projects coordinator covers working with multi-national teams on projects, grants and exhibitions. She studied BA Photography and MA Landscape Architecture in the UK, and she works a landscape designer and program manager for international student study trips, as well as a copy writer for Czech design firms.
Henryk Stawicki, founding member
Henryk offers a unique perspective as both designer and strategist and is capable of designing measurable, unique scenarios for the future. Leading a strategic-creative agency, Change Pilots (changepilots.pl), he helps organisations build strategies for services, brands and products using design mindset and process. Henryk consults and runs trainings in the field of design strategies and management tailored both for entrepreneurs and designers. He teaches Design Management and Design Thinking at the School of Form in Poland. Member of the Advisory Board at Gdynia Design Days and co-founder of CODEC. Always working in transdisciplinary teams, he offers a multicultural perspective thanks to his years of practice in New York City, Poland and London, in organisations such as Parsons School of Form, Replay Creative and studio student work at IDEO.
About CODEC
CODEC, the Co-Design Collaborative is a design driven interdisciplinary network of highly skilled and experienced individuals, companies, associations and research institutes in Europe. We co-innovate with our users by combining rigorous research, vast practical experience and in-depth know-how. We are driven by a common social purpose: to not only do things right, but do the right things.
Published by: CODEC, http://codec.network
Author: Maxim Dedushkov
Edited by: Barbara Predan
Copyediting by: Kate Spacek
Design: Dániel Kozma
Funded by the Visegrad Fund
Bratislava, Budapest, Ljubljana, London, Prague, Warsaw 2017
