Why Management still matters – even in organizations with flat hierarchies

Managers are characters that are pretty loathed. The term manager has an image that can be described as uninformed, ignorant and power driven. A Manager is not doing anything, except ruling and playing nice with superiors. Yet, here are the facts (#1):

  • The number of managers in the total workforce in the US has increased from 12,3% in 1998 to 15,4% in 2015
  • Between 1980 and 2012 more and more jobs became “Management-like”: The demand for routine skills decreased, and the demand for social skills (e.g. negotiation, coordination, persuasion and social perceptiveness) grew
  • Even in Silicon Valley’s most successful Companies, Middle Managers are still the norm and shape the “transmission belt of information” between the top and the working level

In fact, there is a huge case to be made for middle managers, even in the digital age:

  1. In an ever changing VUCA environment good middle managers help to make this complexity manageable for the top management: They “encapsulate” complexity (not unlike API’s do in modern IT architectures)
  2. Persuasion is what is needed to get results from all this data. Without getting your points across, no one will follow. Persuasive people attract followers and are – by definition – managers/leaders
  3. Collaboration needs encouragement. While people may collaborate naturally with one another, a manager gives the act of collaboration a particular purpose and keeps it on the target of an organization

Modern management systems are not blind to these advantages. Here is how those systems let Middle Managers (or people charged with management tasks) do their work more effectively.

(This is part 4 of a series on a comparison of the three Management Systems Liberated Companies, Holacracy and Management 3.0)

Management Actions

No matter if Managers are still called Managers or not, there are still a hell of a lot of management tasks to be done.

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Let’s start with decision making. In classical hierarchies, the superior is supposed to decide everything of importance, except those decisions explicitly delegated to coworkers. Delegation has been recognized as the critical to tool to keep an organization running smoothly and develop your coworkers at the same time. Good delegation is 80% of what good management is about.

In ever changing VUCA environments there is just one problem with it: You can only delegate those decisions that you expected. In a climate of constant exploration, experimentation, and adaptation the traditional form of delegation is to slow. As long as the “residual rights of control” (to borrow a term from the theory of Incomplete Contracts as described by 2016 Nobel prize winners Oliver D. Hart and Bengt Holström)  for every unexpected decision lies with a manager, decisions will automatically slow down, as a manager needs to find time to acquaint herself with the situation.

Therefore Liberated Companies and Holacracy takes a bold step: The “residual rights of control” for every decision shifts to the work level, as a default. Only if a worker does feel sufficiently informed to decide, she is able to escalate it to a superior. That superior can be a manager or a group (a “Circle” in Holacracy).

Management3.0 does not go so far of shifting the “residual rights of control” to work level. But it does change the nature of delegation, by using Mission type tactics in the delegation, as explained in the next chapter.

Here are my Orders!

“As long as everyone follows my orders, nothing can go wrong.”

Who hasn’t heard this sentence? I even heard that from the CEO of a Billion Euro Company. He claimed that if every business unit just performed according to the revenue and budget numbers he came up with all by himself, everything will be okay: “Everyone! Just focus on these orders!”

Attractively straightforward and easy to understand, this order. But an utterly flawed attempt by one mind to compress all the complexity of a business and the environment to a set of numbers. For sure, people acted on these figures. After all, the CEO provides them with a living. But as sure as hell people will play with these numbers. They will game the system, e.g. use creative accounting, shift burdens to the future, other business organizations or anything that is not measurable as for example quality and risk. This “fantastic” plan just got everyone to focus their energies on gaming the system instead of making the customer happy.

Still, there is nothing more efficient than giving good orders. It relieves people with all tedious work of getting to a decision themselves. It eliminates uncertainty and indecisiveness. It gets people to work on the spot. It is very efficient.

But it is rarely very effective: Given a complex and changing environment, where a superior can not possibly know all relevant details, the more detailed or exact an order is, the more it is likely to fail to bring about the intended consequences.

In a complex and changing environment a detailed Order is inferior to an Order expressed as a Mission. 

This style of command is known as “Mission Command.” Orders are expressed as Missions, i.e.

  • The intent of the Commander is stated clearly: “Why?”
  • The objective is described in the broadest possible terms: the expected actions to be taken, the “What,” the “Where” and the “When.”
  • The authority over resources that may be employed for the mission is specified

While this is still an order, this type of order delegates maximum authority to the subordinate. Not only the authority to vary means, but also the authority to alter ends – as long as the commanders intent, the receiver of the order has the leeway to do whatever is in her power to bring the situation nearer to the status intended

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Management 3.0 wants orders to be given in a Mission command style. It shares that preference for Mission Command with the Lean Movement. There is one precaution in this: Mission Command must be complemented by the competence level of the receiver of the order. It is no use making orders so broad and vague that people are just overwhelmed by all the decisions they need to make. In this case, it is better to make the order less general and more specific – and therefore more executable.

Within Holacracy or Liberated companies, there are no orders – on the surface. While there is no individual who has the authority to order anything, there are informal social groups (Liberated Companies) or  Circles (Teams in Holacracy) expecting individuals to do things. This hasn’t the hard look and feel of an order, but disobedience is full of consequences, too. In fact, decisions of informal social groups or organized circles that oblige individuals to do things are orders in all but name. These orders are just not given by individuals but by groups.

Holacracy’s “integrative decision-making process” is built on consensus and is a safeguard against the tyranny of the majority. However, this protection comes with a hefty price tag: Consensus.

Information: From Need to know to Right to know

The flat organizational structures of Liberated Companies, Holacracy and Management 3.0 need to be based on ubiquitous information that is available to every member of the organization. It is a sine qua non for everyone working in such organizations to be as transparent as possible.

There is a “right to know” that is in stark contrasts to the classic “Need to know” mantra, which is the norm in most organizations. Why should a worker know more than he needs to do his job? Well, there is no reason, if the job is precisely defined so that the “right” amount of information can be specified and the environment is stable.

In knowledge based organisations and in inherently unstable environments “Right to know” is therefore superior to “Need to know”.

But I have to insert a qualifier here: The amount of information and the usefulness of the information is essential. Information overload and echo chambers will undermine the success of any management model – and it will all but devastate modern, less hierarchical management systems. Any current management system has to rely on Social Network Theory (see Social Physics: The Revival of Science in Management) to engineer an effective information flow, e.g. a structure that will reign in echo-chambers.

Specialization: Go forth and specialize

Specialization – the separation of tasks within a system – is tremendously powerful. Everyone human being is being specialized during education and in work life –  so that this specialization becomes an important part of oneself. The specialization is internalized not only in the skills that we have, but in the values, we tend to have, and finally in the people we are. Accountants, lawyers, construction workers, salespeople, etc. – we all attribute certain values to these professional specializations.

For Adam Smith specialization (“the division of labor”) was one of the three cornerstones of an industrial society, along with the ability to act according to self-interest and free trade. Up to this day, people are not hired primarily for character traits, they are hired for their specialization. A job profile is defined predominantly by the tasks and skills that a person is supposed to bring into the new position. A suitable candidate for the job is selected and the position, the cog inside a machine, is in place and ready to work in the manner planned by the manager in charge.

The total opposite position is taken by liberated companies. Here persons are hired because primarily because of their character traits. The skills that a person has are not unimportant, but they are secondary. If a person has got the right “growth mindset” (read: expected capability for learning) is curious and has grit, the hire will be made. The predominance of character traits over current skill is something that is actively supported by Google (see Hiring like a Pro: Lessons from Google).

Once a person is hired, she is rotated from job to job to find her calling. The path is not pre-planned as in classical organizations, i.e. “you were recruited to fill this position – now do your job.” Instead, it is left to the personal interest of the new recruit to find her calling.

The mechanistic staffing of a person into a predefined slot in the organization is replaced by a series of explorations that enable the new recruit as well as the organization to find the place of long term maximum impact and value

Let’s face it: Nobody knows a new hire at the start. What is known is a CV. Interviews reveal next to nothing – just check the article on Google’s hiring experiments above. If people are the most valuable asset a company has, conducting a phase of controlled experiments by rotating to different positions is a wise and even – as Google has proven empirically – a scientifically sound strategy.

Holacracy approach to specialization is all about roles. Here the circle is defining the roles needed and is deciding on the question who should hold which roles at what point of time. Basically, the Circle’s need determines the degree of specialization.

Management 3.0 works with roles instead of job descriptions, too. Here the roles are defined (or sanctioned) by a superior manager instead of a circle.

What’s all this obsession with Roles instead of Job Descriptions?

  • A Job Descriptions implies some binding legal definition of all that an employee should do: The more detailed it is, the more difficult it is to change – which is wrong in the digital age
  • A Job Description is tied to a position which is held by a person in a 1:1 relationship.  This risks creating a single mindedness of the individual over time, due to a lack of other perspectives: With the locking in of a person in a position, world views get locked in to. This is very bad, as growth and innovation need impulses from the outside
  • Roles are not legally binding, they can be flexible invented and discarded
  • Roles are temporary: They are held only for a time, giving the employee a chance to grow with every change of perspective
  • Multiple Roles can be held by anyone at a particular point in time

The recommendation is: Keep Job Descriptions as general as legally feasible. Use roles instead and maintain those vigorously. Especially Holacracy is very adamant to formalize roles in written form.

Coordination

Now let’s talk about Specializations twin sister: Coordination.

The need for coordination increases with the number of employees and the degree of specialization. I would say the need increases exponentially, foremost because it’s trendy to be exponential. Linear is so 1980ish…isn’t it?

There are two game changers in the realm of coordination these days:

  1. Technology is there to connect everyone to everyone, across hierarchies and levels, instantly, e.g. Slack, Trello, Jira, Google Hangouts, etc. There technology crowds-out traditional coordination mechanisms like Meetings, Broadcasts (“Letter from the Manager”), or One on Ones. These traditional coordination mechanisms do not disappear, though
  2. Change is here to stay. The ever expanding rate of change requires a company to redirect resources time and again. Coordination is already required in stable environments to keep things running smoothly, but in unstable environments, it is much more necessary

All three modern Management Systems rely on a shared purpose, a clearly communicated “Raison de être” of the organization. This shapes the values and behaviors of everyone in the organizations giving it a “true north” as a base for any decision. An extreme, very successful example of this is Amazons “Day one Message“.

But a “true north” is not enough. It needs to be supplemented on the tactical level with free flowing real time information about hard facts (numbers) and soft facts (social relations and emotions). Not communicating openly, not in real time, and painfully long drawn out decision processes mean – as Jeff Bezos said in the clip above- Stasis followed by excruciating pain and death.

Liberated companies rely mostly on a shared mission and free info. This system does not give any other recommendation, but people are free to try anything else and check what works. In stark contrast to this is Holacracy. Its whole Operating System is basically about coordination. There are accurate and detailed descriptions how to achieve coordination in a nonpersonal, nonviolent, systematic process.

Management3.0 is openly embracing the concept of coordinating by shared purpose and free information flow.  But it does reserve a place for traditional coordination methods by managers. By expecting managers to regard their trade as a craft, which one should seek perfection in, it offers concrete, simple practices to do so. These practices are not just about coordination, but coordination is always involved as soon as more than one person is participating.

A couple of Management 3.0 practices center on supplementing the hierarchy with networks, e.g. forming of ever more self-governing communities of interests called “Huddles, Tribes or Guilds”.

 

Rules, Policies, and Processes

Rules are one of the arrows in the quiver of coordination.  They are usually made to regulate behavior.

This is obviously something that Liberated Companies are allergic to. Besides Kant’s categoric imperative in its second formulation (simply said “Nobody should act to do another one harm”), it actively discourages the use of any rules:

Rules are made to regulate the behaviours of the 3% of employees who may be misbehaving and are punishing the 97% with limitation and distrust.

 

Rules can never be perfect, especially not in ever changing complex environments. It follows that rules bred rules. The Proliferation of rules will kill companies, they will create, “stasis, followed by excruciating pain, followed by death” – to cite Jeff Bezos.

Please note that processes share a considerable overlap with rules, if they are very strict, formal, static and not applied in a reflected manner.

Holacracy shares this aversion of rules – with one ironic exception: The rules of Holacracy must be strictly adhered to. Do not temper with the Operating System! The Operating system is fixed, go innovate somewhere else, on top of the operating system.

Management 3.0 is averse to rules, too.  But it prefers a gradual reduction of the use of rules, as competence and trusts grow. I think there is an inherent conflict here: Rules proliferate over time. Yet, they should be reduced over time, which sets a high bar for the skill level of the manager in charge. Getting rid of established rules is empirically very hard. What is first: Granting trust to build competence or gaining trust by sticking to the rules? I do think the first.

Summary: The evolution of the craft of Management

 

Decision making, Getting people to do things, Communicating, Specializing, and Coordination remain critical activities of managers or people doing management tasks in any System of Management.

All these management activities require new tools, as the challenge of managing a knowledge based organization in a rapidly changing digital age has changed. Get a new tool-set you people doing management!

This is not the end of middle management but an evolution.

A final word about the presentation of the Management Systems:

Practical advice is very warmly presented on the Management 3.0 Site. Looks a bit like a children’s birthday party, though. In contrast to this, look at the core of Holacracy, the Constitution. This looks like “legalese” small print terms and conditions.

  • Holacracy wants to treat people as adults – who it obviously expects to be all lawyers.  

  • Management 3.0 wants people to “manage for happiness” – so we all got to be children again? 

  • Liberated Companies offers narratives but little guidance.

I think there is a space to be filled here.

We are not done with this series on Management Systems yet: 4 done, 2 more to go. The next weeks, I will be heading for the coasts of France. So posts will be shorter and smeared with a mixture of sun-cream and sand.

Enjoy Summer, ladies, and guys!

Here is the updated summary table:

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Sources

 

​Create a Strategy for your Unit

Stop making frameworks – start making guides!

This battle cry reached me yesterday via Twitter and Medium. It came from Jurgen Appelo, the author of Management 3.0. I think both, great frameworks and small, practical guides are important. As this blog tilts more towards long reads about frameworks, I thought it a good idea to come up with a small, step by step “work out” guide once in a while.

You can find more work out guides on ImpactSphere.

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What is the main quality that everyone wants from co-workers? It is that you care. You care about your customer, your job, your team, your organization. Inexperience and failure will be forgiven, if only you care.

And what kind of care is more important than taking care that your unit moves in the right direction, is doing the right things? There is always something to improve in the way things are done, but once in a while, it pays off nicely to raise heads and check whether the direction is still the right one.

1)  Identify the customer

The very nature of a business is: You are doing something valuable for somebody else. And even if you are hidden somewhere in an administrative department with no exposure to people outside the organization: Your unit has customers.

2) Determine the jobs your customer wants your unit to do

Ask some of your customers – the happy ones, the wary and the neutral. Bother them with open questions: Why? What? How? Ask them about measurable, material things but do not forget to ask them about their emotions, too. Write that down.

3) Watch your customers working

Do not rely on what you heard from your customers because sometimes they reveal something to you but really want something else. Sit next to them for a while. Do not be shy – most people like that somebody shows genuine interest.

4) Discuss your findings with your colleagues

In private one by one conversation in the cafeteria. In a small group to discuss your observations. The target is to add new perspectives, fill blind spots and come up with some hypothesis, too.

5) Write down the jobs to be done by your unit 

Combine everything you gathered from Steps 1 to 4 and write down your first hypothesis: The jobs that should be on the job to be done by your unit which is truly valuable to the client. This establishes the answer to the question why your unit is there.

6) Determine the things to improve

In determining what needs to change, think of the dimensions People, Organization, Process, and Systems. Create a holistic picture about everything that helps to get your unit there, from training to new software tools

7) Discuss with your manager

Ask for one hour of time and go through your short (5 to 10 page) document. Open up with a statement like: “I have been thinking a lot about what we can do to improve. I made some thoughts that I like your perspective on to help me understand your and our situation better”. Be humble and honest. Be disarming. It gets the conversation going.

8) Be open for what happens next

Maybe some actions will follow. Maybe a new project. Maybe nothing much actionable will happen. But you showed that you care to everyone involved and that you are prepared to make a difference. Everyone involved has gained insights. And with time comes opportunity.

Leadership and Structure: What has changed with the Digital Age

Quite a bit has happened since my last blog post. Due to a re-tweet of a popular writer, there have been about 600 views of Holacracy, Liberation and Management 3.0 – the first article in a series comparing those three Management Systems. Compared with the usual 50 views, that felt good!

What is more important: Comments came in, which highlighted some background of these Management Systems. That sent me into a frenzy of research about subjects like:

  • Sociocracy3.0, a system of governance which replaces hierarchy  – of which Holacracy basically is a popular application in a business environment
  • Prescriptions how to implement Agile Software Development in large, multi team environments like LeSS (Large Scale Scrum), SAFe (Scaled Agile Framework) and DaD (Disciplined Agile Delivery). Special thanks to Ralf Metz for pointing in this direction
  • The commonalities, overlap and supplementary nature of all those systems and their foundations like Lean, Scrum, eXtreme Programming,  KANBAN, etc.

The learnings?

  • It is the “principled anarchists” in Software Development who are pioneering a lot of new management techniques
  • People with other backgrounds, e.g. MBA’s or any other Person with a non-IT professional background, are overwhelmingly not involved or aware of new Management Models
  • There are a lot of good ideas which can be transferred from the realm of IT to other knowledge based work environments if only those Managers can be interested in understanding their trade as a craft, which they need to improve to prosper in the digital age

When I talk to interested managers, I find that they can see the advantages of Agile and its conflicts with traditional hierarchical management. But there is so much fragmented advice out there. A comprehensive but understandable management system would help them navigate.

So let’s continue exploring the differences of the three Management Models.

A. Leadership, aka: Heroically cleaning the office kitchen

As I said in The Foundations of Holacracy, Liberated Companies and Management 3.0: I do not care much about distinguishing Management and Leadership. It’s just semantics. Here are their definitions according to the dictionary:

  • Leadership: The action of leading a group of people
  • Management: The process of dealing with or controlling things or people

So once you are responsible for a group of individuals you are managing them, AND you are a Leader, too. There is no constellation in this where a Manager is not a Leader, and a Leader is not a manager. A “Leader” is a just a more grandiose name for someone who is a “Manager.” The act of leading by example by cleaning the office kitchen is as well an act of management as the multi Billion merger decision is.

Nevertheless, I use the term leadership as signifying the posturing of the Manager towards his group: The role that one adopts as a manager in relation to the group that is being led.

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The Gardener

In a hierarchical organization, the role of a manager is “Command and control,” i.e. clearly stating what someone is to do and checking if it has been done. That role shifts towards the Gardner role in Liberated Companies and Management 3.0. Why a Gardener?

A Gardner is supposed to grow an organization, not build it. If the central metaphor for an organization is the “Organism” (Liberated Companies) or the “City” (Management 3.0), it is impossible to impose the will of a Manager. A Manager must grow an Organization by planning, seeding, growing and maintaining the organization. Please note that “Seeding and Growing” is wording that is well known in the world of Lean Start-ups, as in “Seed Capital” and “Scaling” (from zero to one or from 1: N, whatever). A pleasing symmetry, as a Gardener, must build hypothesis before seeding and refine her beliefs while watching the seed grow.

The Gardener role is supplemented with the role of the explorer – i.e. introducing ideas from the outside, nudge and destabilize the company from time to time to do things in new ways. And it is supplemented with the role of the coach, to foster the growth of skills and discipline in employees. Please note that not every Manager is a good coach. So Jurgen Appelo (the author of Management3.0) suggests outsourcing this activity to a professional coach. But coaching remains an obligation of the manager nevertheless.

Holacracy is different. Management is done away with. There are just “link” roles assigned to individuals, who practically acts as the Referee inside Holacracies operating system.  There is only one manager left: the CEO acting as a benevolent dictator who wants the system of Holacracy for her company.

A decrease in the number of managers

Let’s look at the span of management: In traditional companies there usually is an average number of 1 Manager to 8 employees. Management 3.0 is not specifying any number, but it seeks to increase that number by decreasing the number of middle managers. Holacracy is doing away with managers altogether, but it is recommended that coaches support the organization at a ratio of 1 coach to 50 employees, in typical organizations that I spoke to or read about.

Who appoints managers?

In a hierarchy a manager is appointed by a higher level manager. This is no different in Management 3.0. But in Liberated Companies managers are elevated by the group by vote or just by the fact that people choose to follow them. In a Holacracy, there are no managers to be appointed, but there are roles to be assigned. These are assigned by a vote by the members of a circle, requiring consensus or at least no veto from any member of the circle.

What about the power base of a manager?

Who appoints managers explains the power base of a leader. Wherelse a hierarchy bestows a manager with powers ( e.g. may direct others, decides on bonus payments, work location, promotion, etc.) that are linked to the position assigned, there are no defined positions and no positional powers in Liberated companies or Holacracy. Leaders in such companies have to rely on their skill to attract and retain followers. A feat where credibility and trust are key. Lose your followers and cease to be a leader. Not unlike leadership of a Viking tribe, in a Multiplayer Online Game or any effort to attract followers in crowd platforms like Instagram, Pinterest, Blog sites, etc.

I like to make a small amendment for Management 3.0. Even so, a hierarchy is still in place, a leader is supposed to take on a servant position ( see The Foundations of Holacracy, Liberated Companies and Management 3.0). And Servant Leadership needs social capital, e.g. trust and credibility, to work. Again, an excellent bridge build by this system between today’s reality of hierarchical systems and a less hierarchical future. It is a step. It is Realpolitik.

Bismark

B. Structure, aka Silos and Networks

The first thing that a newly appointed manager usually does is to think about the structure of an organization in which to apply his skills. Which structure provides the best fit for the purpose of an organization at the current point of time?

The hierarchical organization answers this question with an organizational chart: Boxes of clearly defined responsibility, ordered by business function, geography, product or a matrix combination of these. The dominating belief is: There can be only one responsible for a box/ unit. Shared responsibility is a recipe for no one being responsible at all. For any kind of work and at any point of time, there must be someone who is in charge.

That belief does not change in any of the other management systems. What changes is how this responsibility is assigned.

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Assigning Responsibility

In Hierarchies responsibility is directly assigned by a superior: Do this, do that.

Management3.0 provides the employee with more negotiating power because the manager is supposed to sell and win over the employee and not to impose a responsibility. Although there may be cases that a manager might be forced to impose her will, in the awareness that this will be depleting her social capital.

In contrast to this, Holacracy and Liberated Companies rely on people to volunteer for responsibilities. Volunteering is facilitated by a shared Mission, shared values, shared the understanding of the situation and social pressure of the team to do so. This is crucial: Without these four elements in place, neither of these three management systems (including Management 3.0) will work.

Networked, horizontal relationships

In a hierarchy, the most important relationship is the vertical one, to a superior or to a subordinate.

This changes in the other three management systems, there the horizontal relationship to the co-workers is much more important. This has profound implications: No longer is the winning career strategy for people to cuddle with their superior. It is now much more important to be valued by your coworkers.

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The implications of Talleyrand’s dictum are immense:

  • Rebellious, nonconformist types of persons are able to rise in systems like Liberated Companies, Holacracy and Management 3.0
  • Subservient, some times devious types (“Courtiers”) of characters and behaviors aimed at pleasing the superior and gaining favors, that other do not enjoy, have less chance to succeed
  • People (“Demagogues”) being able to simplify matters and raise the emotions of coworkers have a better chance to rise to prominent positions because they are evaluated by their co-workers

Creativity will increase in networked, horizontal organizations. But tumult and change will increase, too.

Demagogues at work. What would you prefer to be:  A Courtier or a Demogoge?

Main source of contribution

The individual is the smallest unit of an organization where work is actually happening. That is the unit that the classical system of management is addressing. Give everyone something to do and coordinate all individuals.

But science has advanced since the days of Frederick Winslow Taylor. The phenomenon of Emergence has been discovered in System and Organizational theory:

Emergence is a phenomenon whereby larger entities arise through interactions among smaller or simpler entities such that the larger entities exhibit properties the smaller/simpler entities do not exhibit.

In other words: A team is able to perform better than the sum of the contributions of its individual members. The easy explanation is that people bouncing ideas on one another and complementing their skills lead to better solutions than anyone would be able to come up with on their own. The complex explanation can be found in Social Physics: The Revival of Science in Management.

The other three management systems recognize this scientific advance and focus more on the team as the main source of the contribution.

Maximum size of autonomous units

Ok, a team might be the most important unit for delivering performance within an organization. So an organization should be organized in teams (Liberated Companies or Management 3.0) or Circles (Holacracy). But at what size does an organization, that is made up of a number of teams, become inefficient?

For once, Liberated Companies delivers hard facts: 150 people – as a rule of thumb. If an organization grows beyond that number, split up and form a separate legal entity. If organizations fail to split up, coordination efforts will increase disproportionately leading to a reinstatement of the hierarchy or to chaos.

Holacracy does not impose any limits. The Online Shoe Retailer Zappos has 1500 Employees working under Holacraciy in one legal, organizational unit. The Operating System is supposed to scale to any number – just like classical hierarchies can be scaled to any number (e.g. Walmart with its 2,1 Mio employees).

Management 3.0 – true to its “complex” world view – does not give any exact number but recommends to keep organizational units small.

By the way: Wondering about the optimal size of teams? It is 5 plus or minus 2.  This is invariant to any management system and a result of the biologically given number of meaningful social connections that an individual is able to have.

(I love to give truly amazing, critical facts and just quickly move on…)

Attitude towards Uncertainty

This one is easy:

Hierarchies seek to analyze, reduce and mitigate uncertainty. Uncertainty is a disturbing factor that needs to be reined in.

Liberated Companies are embracing uncertainty as a chance to learn and grow. They refrain from fixing structure so that the organization is sufficiently flexible whatever the future brings.

Holcracy accepts uncertainty and sees an opportunity to learn. A Holacracy is flexible to change according to whatever the future brings, except for changes to the operating system of Holcracy itself. Uncertainty is just another of the things that the Operating system of Holacracy is build to deal with.

Yes, I am playing with words here; Holacracy is accepting change, Liberated Companies are embracing change.  The difference is subtle but important.

Management 3.0, as so often, takes the middle ground. The optimal way to react to uncertainty depends on the specifics of the situation. Sometimes it might be easier to just analyze and mitigate risks to achieve optimal execution in stable environments. And in other cases, it might be wise to act like a swarm of birds and flexible, nimbly navigating your way through adversity.

Main Mode of Thinking

All these structural elements listed above impact the things that are in the primary focus of the mind of an organization. In a hierarchy, thinking is all about Analysis. Understanding the situation and coming up with the “one best way” to do things (see F.W. Taylor above).

Within Liberated companies, it is really about Exploration. The structural elements are fragile. There are no barriers to exploration, except those of social control and personal ambition. The absence of barriers…

  • allow people to express themselves fully.
  • allow teams to assemble themselves in a way that they deem best
  • allows organizations to evolve through try,  error, and learning

In Holacracies the primary mode of thinking is Synthesis. To come up with a shared point of view to problems and how to tackle them. Synthesis is what is dictated by Holcracies operation system, that is expecting compliance to the rules and the consensus decision by the circle.

It is all about Complexity in Management 3.0. In fact, Jurgen Appelo starts and ends his book with excursions into complexity and general systems theory, stating that everything is conditional and there is no one best way. It is all situational, and the best solution can not be known.

Where do I stand on this? I favor thinking about Complexity. It’s the right mindset for a curious, learning mind. Yes, doubts can be discomforting, but they prevent complacency and lead to insights that feed the curious mind.

What’s next?

We are half way through this blog series that compares the classical and modern management systems. I guess I will need two to three more posts to finish this job.

I hope you find this work helps to understand your options on how to manage in the digital age better. If so and if not, let me know by commenting, linking, forwarding or re-tweeting this post. Let’s form an emergent team 😉

Last, not least: This week’s updated comparison summary table

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The Foundations of Holacracy, Liberated Companies and Management 3.0

As Managers, we try to anticipate environments and built organizations that fulfill a certain purpose.  So what happens if we can not predict the environment to a meaningful precision?  And what if on top of that we know that the environment will change again and again, faster and faster anyway? What is the purpose of organizing when what we are optimizing for remains elusive?

Modern Business is the realm of uncertainty: three quarters of the factors on which the success of business depend is based is wrapped in a fog of greater or lesser uncertainty. A sensitive and discriminating judgment is called for; a skilled intelligence to scent out the truth

Do you agree with these two sentences above? Keep them in mind, I will get back to them.

We need to grow a system of management, that is adapting itself to rapid, uncertain changes with greater speed than traditional hierarchical management systems are able to deliver. So let me give you a puzzle:

What is the organizational system best known to man that is able to bring about rapid decisions, timely execution in ever changing, immensely uncertain environments?  

There is such as system. This system has seen never-ending evolutionary refinement. It brought out the absolute best and worst of man. It has shaped nations and created heroes. It is still a part of every society, all around the world.

What is this system?

Foundation 1: Complexity and Autonomy

This system has been shaped in wartime and has is called: The Military Organization.  I stole the blockquote above from Carl von Clausewitz, one of the world’s most influential thinkers on military theory, and just replaced “War” with “Business”:

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Ain’t this ironic? One of mankind’s least idolized organizations, known for its rigidity and inefficiency, its steep multilevel hierarchy is the best organizational type humans came up with to organize in uncertain times. This is difficult to believe. Yet in the life and death situations of war, in a time of great danger, desperation, and need, in cases of maximum uncertainty and change, humankind invented and sharpened, reinvented and sharpened this organization, the Military, again and again. Failure not to evolve the military system meant death to war bands, tribes, and nations.

Yet business is not war. Business is not a life and death struggle as War is. After all, in business, the individual can just quit and do something else. The element of coercion in the military organization makes a stark difference to the fundamentally voluntary nature of businesses, even with all the material needs that need to be satisfied.

Nevertheless, there is a lot to learn about agility from military organizations, e.g.:

  • Napoleons field armies that decentralized into many columns marched divided and strike together in 1802-1815 through superior coordination by multiple staff organizations
  • German “Storm Troops” bringing the French Front Line close to defeat at the end of World War I 1917/1918.  These were basically empowered teams with a clear mission and a lot of autonomy how to carry out their only broadly defined mission
  • German mechanized “Panzer” units devasting all opponents through superior information technology (radio) and decentralized coordination of combined arms in World War II from 1940-1943,  despite inferior numbers and often inferior Tanks
  • American troops fighting in asymmetrical warfare campaigns through a maximum use of empowered teams augmented by real-time information systems in Stanley McChrystals Campaigns in Afghanistan and Iraq from 2003 to 2010 (see his 2015 book “Team of Teams)

The story of the evolvement of military organizations is a story moving towards ever more decentralization, local autonomy, individual empowerment in the face of ever greater complexity and uncertainty.

It is ironic: To stay in control, you need to let go and decentralize control.

And this is highlighting the way for businesses, too: Handling complexity by decentralizing in a fluid environment: Welcome to Liberated Companies, Holacracy and Management 3.0.

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Foundation 2: Very little Hierarchy

Military organizations need the hierarchy to achieve the level of coercion of soldiers necessary to make them expose themselves to destructive power. While some businesses rely on coercion by “nondeadly means” aka Jobs and Money- coercion won’t achieve much in settings where…

  • knowledge workers need to be managed. These enjoy, by definition an immense informational advantage over their managers
  • individual and organizational learning and innovation is important
  • motivation of people is necessary to achieve organizational performance

This is why Liberated Companies and Holacracy abolish the traditional hierarchy.

Management 3.0 attitude towards Hierarchy is similar, but it acknowledges hierarchies substantial role in legally authorizing people to do things. Thereby, it connects the business organization to the legal sphere – a very sensible thing to do, won’t you say?

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Foundation 3: Servant Leadership

Managers do not produce anything themselves. All they are doing is providing direction and coordination. They are there to ensure that others get things done. Traditionally they do that by assigning jobs and checking that these jobs are done.

The modern three management ideologies discussed in this post rely on Servant Leadership, the notion that a Manager is there to enable others to put in their best performance for the common goal. Servant Leadership has been first described by Robert K. Greenleaf, an American early management theorist, in 1958. It has been since picked up in many styles and flavors like Jim Collins “Level 5 Leadership” in his all time classic book “From Good to Great.”

Each of the three Management Models is based on Servant Leadership, but there are special flavors:

  • Within Liberated Companies, everyone can be a leader, as long as others are willing to follow. Leaders do not coerce others to follow, but they attract them to do so. They are not promoted to be a leader, they are natural leaders at certain times for certain topics, elevated by followers.
  • Holacracy embraces Servant Leadership only implicitly. Indeed, the new Operating Models (i.e. Holacracy)  job is to do away with the role of a Managers for good. Everyone is free to lead within the framework of the “Constitution” (a set of rules) of a Company. As with Liberated companies, Leaders need to attract willing followers – within the checks and balances of the operating system.
  • Management 3.0 recognizes the need for Managers. It wants managers to see their trade as a craft which needs to be honed and perfected every day to achieve excellence. Again, I see this a very sensible demand: Managing (or its elder brother Leadership) requires skill. And skill comes from hours of deliberate practice (see Malcolm Gladwell, “Outliers“)

By the way: I do not care much about distinguishing Management and Leadership. It’s just semantics.

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Foundation 4: A jolly good Metaphor

The leading Metaphors of each model are useful to illustrate their workings. And they are so telling about the values of the authors…

The traditional metaphor for hierarchical organizations is the machine: Specialization, interchangeability of parts, the smooth, predictable relation of In- to Outputs which is easy to control.

For liberated companies, the leading metaphor is the organism: All the liveness, the interdependencies of all parts based on the nervous system and the metabolism, the specializations of organs and the adaptability of the body and mind. Although there is no firm reference to this metaphor in Isaac Getz “Freedom Inc”, that is the metaphor I find most fitting. Plus: This Metaphor is often used in the Agile Software Movement.

This stands in sharp contrast to Holacracies technocratic view of the organization as an Operating System:

  • Messaging Bus & Clock Speed: The flow of information from one individual to another through the organization is organized in meetings of circles with strict timing and rules
  • API – Application Programmable Interfaces: Individual people may have a “link” role in representing their home circle in other circles
  • I/O Units, Periphery, Hard Drives, Screens: All circles in the organization have specialized roles
  • Message types and Interrupts: Organizational problems are defined as “tensions,” like error messages that are to be  logged and resolved through standard ways by the operating system
  • The Operating System must be installed as the whole. There can be no other operating system. Full stop. But once the operating system has been installed, you are free to install additional “Apps” (i.e. other management processes) on top

I think this sounds rather frightening, as it degrades people to programs existing on a computer.

Isn’t a business more like a city? This is the view that Management 3.0 is taking. Very diverse people are living in a city. They all have their own agenda, but the city connects  them into a whole, e.g.

  • Public transports or telecom infrastructure connect people to other people
  • Open Spaces are where people can explore and interconnect to the people
  • Offices, factories, and workspaces let people produce
  • Universities, Libraries, and Schools let people learn
  • Public services for Water, Power, Waste, Security, etc. provide the basic needs
  • There is a mayor taking care of the people, but he can not rule by coercion alone without threatening his prospect of reelection, and he is reined in by the legal system, anyway

Wow: Sim City!

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Jurgen Appelo attacks the Organism metaphor by questioning its validity: If people are cells, who has ever heard of a Cell that is able to leave the organism and join another organism? Which cell is able to voluntarily transform itself from a Hair cell into a heart cell (i.e. transfer from one department to another)? In short:

The organism metaphor is not taking into account the amount of freedom people have to decide themselves what and what not to do.

The same can be said for the Machine Metaphor: People are independent actors, with their own minds, beliefs, and motives. They will never be a dumb and passive cog in a machine. They will play the system to their advantage, dummy.

But I disagree with the City metaphor, too. A city is not an as purposeful system as a company is. It is a place to live and exist – everyone according to her tastes. But it is not a very purposeful system, which a company certainly is. A company is threatened by bankruptcy.  A daily fight for survival. A city might go bankrupt, but will not cease to exist: Hej, even Detroit is still (kind of) alive!

So what is my metaphor for an organization? A city under siege by a hostile enemy? That would make a city a more purposeful system, but it’s such a negative way of thinking: To see business as a struggle for life and death is plainly wrong. The struggle is mainly about material wealth and often about psychological health. Business is not War.

I do not know the best metaphor. Do you?

Foundation 4

Foundation 5: Benevolent dictators

NONE of these three Management Systems would work if the person with legal authority over an organization does support it: Someone in an organization must provide shelter for the new system, where Hierarchy takes a back seat and Management takes on a serving and not a ruling perspective.

That someone acts -de-facto- as a benevolent dictator: She has got the power to do as she pleases but chooses to be a servant leader and expects the same patterns of behavior from others in the organization.

Does this make Liberation, Holacracy, and Management 3.0 unstable? After all, the succession of a dictator is often a bloody affair and the successor is free to act as she chooses. So these Management Systems can never be stable: Once the shelter provided by a benevolent dictator is removed, the systems will break down over time. How long that takes is just a function of how deeply engrained the management system is in the culture of the company. How deeply it is engrained into the individual beliefs and behaviors of its people.

But: The Classic Hierarchy has the same instability problem. By Succession or by willingly changing her behavior any leader can break an existing system. So the stability problem is NOT a weakness of these new Management Systems. It is inherent in any organization.

The transfer of power is dangerous. There is no such as thing an organizational model without power. Even in the most basic democratic organizations like Wikipedia or Linux, there are people with more, and there are people with less power: What distinguishes Management Models is not the existence or nonexistence of power. Instead, it is the arrangement of the checks and balances that separate Management Systems.

By the way: I do not care much about distinguishing Management Systems and Organizational Systems. It’s just semantics…

Where to Start?

The benevolent dictator does not need to be the CEO, it can be any middle manager in a strong enough position to organize her part of the organization along these less authoritarian ways.

That’s it for now. More on the intricacies of the “craft of management” in the digital age next time, when I will explore some other dimensions of these modern Management Systems.

I am really interested in your opinions on Management Systems – share them with me and give others – including me – a chance to learn.

Summary Table: The Foundations of Liberated Companies, Holacracy and Management 3.0

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