Let’s face it: Traditional companies, with purely hierarchical, command and control based organizations have lost. They have lost in market evaluation, they are bleeding market share and have lost the initiative to their digital, less hierarchical competitors. So what do they do: Either they remain shell-shocked or they are “going digital.”
Going Digital – the superficial way
But what does “going digital” mean? Usually…
- some investments in start-ups
- founding a digital laboratory charged with breeding innovations which should somehow find their way into the rest of the organization
- experimenting with Scrum in IT projects
- experimenting with lean start-up techniques in product innovations
But they are just scratching the surface. Over time those companies run into trouble with the way they are managing things. Traditional management is based on the premise that
- a manager finds the “one best way” to do things
- commands things to be done in that “best” way
- controls the execution
This formula turns out to be a bad one in everchanging, data-rich, technologically complex times. Innovation and Change is a weak point of the traditional management system. All those digital initiatives are torpedoed again and again by the hierarchy, like an immune system attacking the virus of change spread by start-ups, digital labs and agile practices. These attacks may not even be made with malicious intent. These attacks originate in a firm belief in rules and processes – which are just incompatible with innovation and change.
Going Digital – the right way
Going genuinely digital means changing management systems. It means …
- making the hierarchy more irrelevant
- listening to the wisdom of crowds, last not least employees
- embracing uncertainty and experiments
- building an environment, that ensures that all signals of the markets are reflected in the day to day decisions that employees do
Today there are about three significant templates of management systems available:
- Traditional Management, based on hierarchy
- Liberation, based on self-management
- Management3.0, based on agile practices
All other Management Systems of any size (such as Holacracy), are contained within these three major systems.
In the last series of posts, I have explored Liberation, Holacracy, and Management3.0 versus Traditional Management in great details (see Holacracy, Liberation and Management 3.0). Let me explain why I think there are only these three systems out there:
- Traditional Management, i.e., Frederick Laloux’s “Orange” state of human collaboration (have a look at Moving an Organisation to Self Management for a quick view of Laloux’s model), is the status quo system still used nearly universally around the globe
- Liberation, i.e., Fredrick Laloux’s “Teal” state of human collaboration, is all about self-management. The Abolishment of hierarchy changes everything. Holacracy and Sociocracy are subsets of Liberation
- Management 3.0, is a set of agile practices promoted by Jurgen Appelo. It straddles the middle ground between Hierarchy and self-management. While Management 3.0 is not yet universally known in Management circles, it nevertheless describes all the attempts to soften up the hierarchy with agile practices quite well. It is therefore implicitly practiced by a lot of companies, that are not even aware of Management3.0 existence
The Lean Start-up Method is limited to – well – Start-ups. It is not a universal Management Model but a set of prescriptions who to come up with new products through structured experimentation and learning. While this thinking model is excellent for continuous improvement, too, it is still rooted deeply in the core problem of getting new products to the market, not in running all aspects of an established company.
For the sake of completeness, I have included team-centric frameworks such as Scrum, Prince2. PMI in the graphic. These are not holistic management frameworks, as they are limited to the management of projects and teams. Some companies think that scaling agile team practices such as Scrum to all sorts of teams will result in overall organizational transformation. But finally, even with templates for doing this scaling, such as SAFe, LeSS and Nexus being available, it’s always about projects and teams. Not Organizations. These attempts are like attempts to use a hammer for an all sorts of purposes at home, e.g. like cleaning the dishes.
All these Management Systems have been described by practitioners. Academic research is used as a foundation for these models, but the complexity of organizations prevents researchers from holistic, stringent definitions. So you got to live with my attempt of categorizing. It’s only my view – so contrarians forward and tell me what you think!
Which companies use which Management Model?
Let’s position some companies in this matrix. This positioning is just my subjective guesswork, which is inspired by all the sources that I happened to read (see Sources). It is tough to put something as multidimensional as a Management System in a two-dimensional matrix, but here it is my hunch:
What strikes me in that graphic are three points:
- The VOID: There are no hierarchical companies which are innovative, i.e., score high in the Start-up Y axis.
- The Sweet Spot: The most successful, poster children of silicon valley are located on the border between hierarchy and self-management
- The drive for Purpose: All Companies with an inner purpose beyond pure profit-seeking are located more to the left of the matrix. While an overarching purpose is a prerequisite of self-managed Organizations, the Organizations in the “Sweet Spot” appear to need an overarching purpose as a necessary condition to maximize innovation
Each placement is, of course, an oversimplification. Look at Amazon. The famous “two pizza team size” so often cited as one of Amazons cultural ingredients, is alive and kicking in the product divisions. The worker in the distribution centers couldn’t care less about this rule, except for the occasional continuous improvement exercise. Different units of companies can be in different locations in the matrix. For more on the topic of how to differentiate different ways of managing various parts of organizations, check out You are playing the wrong game! Learn to zone.
Where is the Momentum?
Next, let’s take on a dynamic perspective: What do companies aspire to be? To which organizational and management model do they move towards?
Established companies are moving from the lower right to the upper middle by introducing more and more of Agile and Lean Start-up practices into their organizations. In no small part, managers in those organizations rarely think about moving to self-management, but that is precisely what they are doing.
The earlier and the more managers accept that more self-management is the new reality of effective management, the more successful their digitalization efforts will be.
In the upper left corner are the start-ups. These have a slightly unique organizational model that can be best described by Eric Rees book “The Lean Start-up”. As they are maturing and face the need to scale, those companies are moving to the lower right of the matrix. They are getting more like established companies with “adult supervision.” Only time will tell which companies will be able to pull off the feat to remain in the sweet spot and not become the next Yahoo, eBay or Nokia.
This is what I am thinking. What are you thinking?