Reinventing Organizations Illustrated PDF

F R E D E R I C L A L O U X FREDERIC LALOUX...

F R E D E R I C L A L O U X FREDERIC LALOUX ILLUSTRATIONS BY ETIENNE APPER T Join the conversation on next-stage organizations The uplifting message of Reinvent- The book resonates widely, but not everyone ing Organizations has resonated has time to devote to a dense 360-page man- with readers all over the world. agement book. This illustrated version conveys They have turned it, one conver- the main ideas of the original book and shares sation at a time, into a true word- many of its real-life stories in a lively, engag- of-mouth phenomenon. The book ing way. Don’t be surprised if you find it hard has helped shift the conversation to put down and end up reading it almost in from what’s broken with manage- one sitting. Welcome to the conversation on ment today to what’s possible. It next-stage organizations! is inspiring thousands of organi- zations—corporations and non- profits, schools and hospitals—to e d I n v i t a t i o n adopt radically more powerful, An I l l u st r a t o n v e r s a t i o n on to Join the C soulful, and purposeful practices. St a g e On iz at i o n s r ga N ex t - Praise for Reinventing Organizations “This book is a world changer!” “A stimulating and inspiring read!” — Jenny Wade, Ph.D. — Robert Kegan, Harvard University author of Changes of Mind “This is truly pioneering work.” — Ken Wilber, author of A Brief History of Everything Reinventing Organizations An Illustrated Invitation to Join the Conversation on Next-Stage Organizations  Copyright © 2016 by Frederic Laloux. First edition. Published by Nelson Parker. All rights reserved. No parts of this book may be used, reproduced, stored in or introduced into a retrieval system, or transmitted, in any forms, or by any means (electronic, mechanical, photocopying, recording, or otherwise) without written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses. Cover design: Véronique Geubelle. Praise for the original edition of Reinventing Organizations “A stimulating and inspiring read!” Robert Kegan, Harvard Universwity’s Meehan Professor of Adult Learning and author of In Over Our Heads “Everything you need to know about building a new paradigm organization!” Richard Barrett, chairman and founder of the Barrett Values Centre “Congratulations on a spectacular treatise.” Ken Wilber, author of A Brief History of Everything “Ground-breaker! Game-changer! Brilliant!” Jenny Wade, Ph.D., author of Changes of Mind “Frederic Laloux has done business people and professionals everywhere a signal service.” Bill Torbert, author of Action Inquiry “The most important and inspiring business book I’ve ever read.” Tony Schwartz, author of The Way We're Working Isn't Working “A book like Reinventing Organizations only comes along once in a decade.” Norman Wolfe, author of The Living Organization “Frederic Laloux is one of the few management leaders exploring what comes next. It's deeply different.” Bill Drayton, founder, Ashoka: Innovators for the Public If you purchased this book, or chose the pay-what feels-right option The organizations I write about in this book believe in trust—they start with the premise that their employees are trustworthy and want to do the right thing. In the same spirit, I decided not to protect this book with DRM, which so often proves annoying when you decide to read the book on a different screen than the one from which you bought it. I trust that you value this as your personal copy. You can point people interested in this book to www.reinventingorganizations.com. There they can buy the book or download it in “pay what feels right” mode, so there is no need for sending them your copy. Please don’t forward it. If this book was somehow forwarded to you I invite you to take a moment, once you’ve read it, to sense what amount you would like to give back to me and Etienne. You can do so on www.reinventingor- ganizations.com. One thing I've heard from many readers: if you choose to gift back an amount that feels right to you, you are also likely to feel good about it! Your gift will be a beautiful reward for the long, long hours we put into creating this book. I enjoy the "gift economy" for another reason too: I I feel it creates a bond between us, even if we never meet, in a way a paid transaction doesn’t. And more broadly, I believe that practicing trust in such simple ways can invisibly but powerfully nurture a broader culture of trust in the world. Try it out! :-)  7 INTRODUCTION This doesn’t quite look like a management book 13 PART 1 Could we be about to invent a whole new management paradigm? 41 PART 2 How do these new organizations work, then? 57 Self-management 81 Wholeness 111 Evolutionary purpose 133 PART 3 So… how do we get there?  INTRODUCTION 7 This doesn’t quite look like a management book Introduction Many people seem truly inspired to hear that a whole new kind of organization is emerging … but not everyone has time to read a 360-page management book about it.  9 Reinventing Organizations is one of those rare books A great number among us yearn for something that has become a true word-of-mouth phenomenon. more and resonate with the hopeful mes- Its hopeful message that we can build radically more sage that a better way to run businesses and powerful, soulful, and purposeful organizations has nonprofits, schools and hospitals is emerging. resonated with readers all around the world. But—can you believe it?—I’ve been told The most amazing things have started happening. not everyone wants to read a whole mana- Readers in many countries spontaneously reached out gement book about it. A reader suggested to publishers to insist on a translation. Two readers in that I add illustrations to my book, and she Chile decided not to wait and paid for a translation introduced me to Etienne, a wonderfully gif- themselves, and so did a reader in Ukraine for a Russian ted illustrator who has become a friend. That’s translation. Someone in the US bought himself a home when the idea emerged not just to add a studio to record an audio version. Other readers are few illustrations to the existing book, but busy creating a computer game from the book, and to create a new one—an illustrated, an increasing number of university professors have introductory version to the ideas integrated the book into the curriculum of their of Reinventing Organizations! business schools. As a result of all this momentum, I’m hearing from lots and lots of organizations, large and small, that have committed to fundamentally reinvent themselves. That so many people resonate with the book has to do, I believe, with the fact that almost everyone today feels that something is broken in our organizations. We can all tell sad stories of how management, as we practice it today, drains life and energy out of the workplace: organizations where bureaucracy has taken over; workplaces fraught with ego trips and power games, infighting, and silos; organizations where people at the top make decisions that leave people below scratching their heads in bewilderment, if not outright frustration …  Introduction What this book is A lively introduction to the main ideas of Reinventing Organizations that you can read almost in one sitting. It’s a book you can easily share with other people. A book that helps shift the conversation from what’s broken to what’s possible. A book that shares how some companies have found ways to be truly powerful, soulful, and purposeful … and that invites you to imagine a new future for your own organization. What this book is not An exhaustive handbook of new management practices. This book highlights a few of the critical elements of the new organizational model that is emerging, just enough, I believe, for you to get a really good sense of what it’s all about. It is a shorter but not a dumbed-down version of the original. Just like the original, it might well shake some deep-held assumptions you have about life, about people, and about work. Be prepared for some real food for thought!  11 A few words about the research The insights of the book Reinventing Organizations are based on three years of research into pioneering organizations. I’ve screened and studied around fifty organizations in many different sectors and geographies. When it came to selecting a number of these organizations for research in greater depth, I found that quite stringent selection criteria were needed if I wanted the findings to be meaningful. I decided that I would research organizations in depth √ whatever their geography, whether for profit or nonprofit, whatever their industry, ! but only if they had been operating for at least five years, with a minimum of one hundred employees, and with a significant number of management practices that were consistent with the Teal level of consciousness (more about "Teal" soon). At first I was afraid I wouldn’t find any organizations satisfying these criteria. After all, I was looking at a field that is still very much emerging. Could it be that the most interesting companies would be too small or too recent to draw any meaningful insights? I was relieved that my concerns proved unfounded. Twelve organizations made the cut, and they often far exceeded the criteria. Many have been operating on breakthrough principles for a long time, sometimes thirty years or more, and not just with a few hundred, but sometimes several thousand employees or even tens of thousands of employees. Research questions and data-gathering methods The research methodology for these twelve organizations involved studying forty-five fundamental organizational structures and practices (For instance: How does this organization make decisions? How does information flow? How are people evaluated? How do they go about budgeting? Targets? … Readers interested in the full list of research questions can refer to Appendix 1 in the book Reinventing Organizations.) The data-gathering process involved studying all publicly available material, obtaining internal documents, and interviewing organizational founders and leaders through Skype, by phone, or in person, as well as making on-site observations whenever relevant and possible.  PART 1 13 The way we run organizations today is broken Could we be about to invent a whole new way?  Part 1 Something is broken in today’s organizations Somehow, almost everyone senses that the way we run organizations today no longer works for us, that the system has been stretched beyond its limits. It feels sometimes as if everyone is drawing the short straw. Survey after survey shows that the vast majority of employees are disengaged at work. A 2013 Gallup poll, for instance, found that only 13 percent of employees worldwide are engaged at work (63 percent are not engaged and 24 percent are actively disengaged). Management guru Gary Hamel rightly calls this “the shame of management.” Leaders in large organizations seem all-powerful, and, like all of us, they want to look like their life is in control, like they are winners in the game of success. But anyone who has had a chance to have intimate conversations with organizational leaders knows that behind the façade, almost all of them are tired—tired of the rat race and the pressure, the never-ending stream of emails, meetings, and PowerPoint documents. Tired of trying to make people happy, to motivate employees and achieve results. And perhaps most of all, tired of suppressing the nagging questions …... Is this really what I wanted? Sure I’m successful, but what’s the meaning of it all? Is it worth all the sacrifices I've had to make? Customers’ trust in businesses is at an all- time low, and so is their brand loyalty. In many countries, the health care system feels profoundly broken. Children in schools are churned through a fixed curriculum like 15 widgets in a factory, in batches of twenty or thirty at a time, with a shocking proportion discarded by the system along the way. Perhaps more fundamental than all this is the harm we do to the planet that hosts us: to varying degrees, all of our orga- nizations are participating in a system that is polluting the atmosphere, water, and land; destroying invaluable ecosys- tems and species at a frightening rate; and exhausting raw materials that might never be available again to the children of our children. It’s not just the "corporate" world that is broken Corporations get much of the blame these days for their greed and their remorseless quest for more profits and growth. But the managerial breakdown affects all types of organizations. From all we know, despite their noble purpose, nonprofits don’t make better employers. Nor do government agencies. Nurses leave hospitals in droves because we’ve turned hospitals into soulless factories. And teachers desert their field of vocation in massive numbers because we have come to worship a cold, mechanical approach to teaching that fails to nourish the souls of either teachers or students. That even people who have chosen their work out of a deep sense of vocation walk out disillusioned has much to say about how deeply dispiriting our management approaches have become.  Part 1 This might sound surprising, but I think there is reason to be deeply hopeful. The pain we feel is the pain of something old that is dying...  17 … while something new is waiting to be born.  Part 1 Humanity evolves by sudden leaps The historians, philosophers, and psychologists who have studied human evolution all pretty much agree: for some reason, humanity evolves not continuously, but by sudden leaps. And they roughly agree on the major leaps we have had in the course of history.1 We have been through the tribal age, the age of agriculture, the scientific/industrial age, and so forth. Ken Wilber, a philosopher of human consciousness, refers to these stages using colors, which makes things easy to remember, and I borrowed his color scheme for the book Reinventing Organizations. At every stage, everything changes! Every stage has brought a breakthrough in terms of technology and the means of subsis- tence, the power structures that rule society, the religious or spiritual outlook, and many other factors. One aspect has been mostly overlooked: at every stage, we have also had a breakthrough in the ways we collaborate; with every leap, we have invented a dramatically more powerful “organizational model.” A lot of evidence suggests that we are about to make a new leap...... A leap to a stage that Wilber gives the color “Teal” and that I sometimes call “Evolutionary.” If there is much pain in the world today, it’s in part because our current ways of being in the world feel increasingly outdated and incapable of dealing with the challenges we are facing. We happen to be in one of these transition periods where the old is starting to break down, but the new hasn’t taken shape yet. In these confusing times, some people double down on their existing perspectives and beliefs, trying to apply outdated solutions ever more frantically. Others, in increasing numbers, make the leap to a new perspective that allows them to seek solutions that were previously unavailable. Viewed in this light, it’s not extraordinary to think that we might be about to invent a whole new management paradigm To say that a whole new organizational model might be emerging right now might sound audacious. Is it really possible to invent a whole new management paradigm? And yet, from 19 a historical perspective, this wouldn’t be extraordinary at all. It would simply be one more step on the evolutionary staircase. I believe it’s important that we spend just a bit of time with this historical perspective. If you are one of the people who feels that it must be possible, somehow, to run organizations in radically more powerful, soulful, purposeful ways, then you’re going to encounter many people who will dismiss this as wishful thinking. They’ll try to convince you that what you have in mind is naïve and can’t be done. Well, it turns out that it absolutely can be done—there are a number of truly outstanding organizations that already operate from the next stage. But many people, even when they are told about these organizations, are still tempted to dismiss them because they make little sense from today’s mainstream perspective. This is what happens at every historical juncture. Imagine what it must have been like three hundred years ago when some people started claiming that a country could be governed with elected representatives instead of a king and a ruling class of aristocrats. They saw what would emerge with clarity, and yet they certainly faced much disbelief.  Part 1 RED (impulsive) worldview Let’s go on a whirlwind tour of the history of societies and organizations! For tens of thousands of years, people lived in clans of a few dozen or a few hundred people at most. These clans had respected elders, but there was no chief, no hierarchy, and no meaningful division of labor. And thus, no ”organizations” to speak of. And then, starting about ten thousand years ago, we entered a new stage (Impulsive-Red).2 Societies with several thousand people appeared. To deal with this whole new level of complexity, the role of the chief emerged to enforce social order, through brutal force if needed. We know from research that people at this stage operate in a pretty impulsive and egocentric manner. They haven’t internalized rules yet, and it is critical for someone to enforce order from the top. In this worldview, everything is seen through the lens of power. Either you are more powerful, and you subject the other person to your authority— —or you are less powerful, and you show allegiance to the boss, who now has some obligation to take care of you. Today we are easily appalled at Red’s crude use of power, and we may overlook the heroic, initiatory, pioneering quality this stage brought to the human jour- ney. Tribes broke out of their usual habitats, exploring new territory. Younger people could shake off the stifling perspective of the elders when a situation called for something new. There is no ambitious taking of initiative, no entre- preneurship without the willful energy that emerged with the Red stage.  Red organizations are like wolf packs The glue of Red organizations is the loyalty and the fear the chief inspires to keep the foot soldiers in line. If he shows signs of weakness, 21 or if he becomes too greedy and neglects his duty to take care of his underlings, chances are someone will try to topple him, just like young wolves are said to topple an aging alpha-male.3 These organizations tend to be unstable and don’t scale well, but they are highly entrepreneurial and reactive in chaotic environments. Archetype: Mafia, Street gang Historically, the first Red “organizations” emerged when tribes organized to attack and subdue neighboring tribes. Today’s archetypical Red organizations are the Mafia or a drug-dealing street gang. More ordinary examples are the many small enterprises where founder-bosses do whatever it takes to succeed and get involved in everything, heedless of structures or processes that would constrain their ability to get things done. Two key breakthroughs Red organizations came with two extraordi- nary breakthroughs: the division of labor and top-down authority. These breakthoughs can leave us with a bit of a bad taste today. But historically speaking, they were major innova- tions that allowed groups working together to division of labor top-down authority deal with unprecedented levels of complexity.  Part 1 AMBER (conformist) worldview Play by the rules, and you are "saved" and become part of the group. Flout the rules, and you are forever rejected, Starting around 4000 BC in Mesopotamia, a more complex excommunicated. worldview arose.4 It facilitated the leap from a world of proto-empires to the age of agriculture, states and empires, bureaucracies and organized religions. Agrarian societies are highly stratified in social classes or castes. They are all based on some founding mythology, with God-given, immutable rules of what is right and what is wrong. People at this stage have learned to control Red’s impulsive- ness—they have internalized rules and exercise self-discipline in service of a common belief. Guilt and shame are the glue of society, and people spend much energy trying to fit in, wearing the right clothes, doing what’s expected, thinking the right thoughts. Surveys show that large parts of the adult population today operate from this stage, although they do so within many belief systems: a right-wing Christian fundamentalist and a left-wing trade union leader might come to opposite conclusions on almost every issue, and yet they could both operate from the me Conformist-Amber world of certainties. An archetype of an Amber organization? The army or the Catholic Church Amber organizations have clear ranks that stack up in a hierarchical pyramid. The foot soldier, the sergeant, the lieutenant, the colonel, the general. The humble priests below the bishops, the archbishops, the cardinals, and, alone at the very top, the pope. Amber organizations live in a world of stability and certainty. Everyone knows what is expected in their role. Stable rituals and processes make life predictable for everyone. Breakthrough 1: Replicable processes Amber organizations, like agrarian societies, rely on stable and replicable processes. Next year’s harvest will be based on the same template as 23 this year’s and last year’s. With stable processes in place, critical knowledge no longer depends on a particular person; it is embedded in the organization. Any person can be replaced—even the pope—and the organization will continue operating seamlessly. Breakthrough 2: Stable organization chart Amber organizations have invented formal job titles, job descriptions, and reporting lines. Thinking happens at the top, execution at the bot- tom. People at all levels identify with their role, with their “box” in the organization chart. A priest no longer secretly schemes to backstab the bishop to take his place. This has allowed Amber organizations to reach previously unthinkable scales (sending missionaries to the other side of the globe, for instance) and achieve unprecedented results. (Amber organizations built irrigation systems, pyramids, and cathedrals that could never have been contemplated in the previous stage.) Current examples Many armies, religious institutions, govern- ment agencies, public school systems, and universities are still run today along the lines of Amber organizations. They often operate on the hidden assumption that there is one right way of doing things, that the world is (or should be) immutable, and that lifelong employment should be the norm. When the world changes, they find it hard to accept the need to change and adapt. Part 1 ORANGE (achievement) worldview This is the worldview of the scientific and industrial revolutions.5 At this stage, the world is no longer seen as a fixed universe governed by immutable rules of right and wrong. Instead, it is seen as a complex clockwork, whose inner workings and natural laws can be investigated and understood. If I’m faster, smarter, more innovative than others in understanding and manipulating the world, I’ll achieve more success, wealth, profits, market share, or whatever else I desire. A defining mantra of this perspective states that you can be anyone you want to be, you can achieve anything you set your mind to. Piaget, the child psycholo- color. People that operate with Amber cognition or at previous gist, has given us a defining stages will simply start mixing the liquids together haphazardly. experiment for Orange cogni- Adolescents who have reached the Orange stage will first form tive thinking: A person is a general picture of the fact that you have to try glass A with given three glasses of trans- glass B, then A with C, then B with C and so on. They will try parent liquid and told that all the various combinations one at a time. The implication is they can be mixed in a way huge: the person in Orange begins to imagine different possible that will produce a yellow worlds, to question existing dogmas and social contracts. This worldview has profoundly transformed humanity in the last two centuries, bestowing upon us unprecedented levels of prosperity and life expectancy. The possibility to imagine “what if” has also freed us from the oppression of caste systems and religions and replaced feudal governance with the rule of law and democracy. This worldview dominates management thinking today; it is the (often unconscious) perspective that permeates what is taught in business schools across the world.  WHAT IF? 25 PROSPERITY DEMOCRACY SCIENCE INDUSTRY PROGRESS Part 1 Orange Organizations? Think publicly listed corporations, think Wall Street banks The Achievement-Orange worldview profoundly shapes today’s management practices. Most business leaders think along these lines, most MBA programs are based on Orange assumptions, most corporations rely on Orange management thinking. Take any global brand— Walmart, Nike, Coca-Cola, GE—and you are likely to find an Orange organization. Wall Street banks are perhaps the most striking examples: ruthlessly innovative and efficient machines in the pursuit of profits. The dominant metaphor: organizations as machines Achievement-Orange thinks of organizations as machines. The engineering jargon we use to talk about organizations reveals how deeply (albeit often unconsciously) we hold this meta- phor. We talk about units and layers, inputs and outputs, efficiency and effectiveness, pulling the lever and moving the needle, information flows and bottlenecks, re-engineering and downsizing. Leaders and consultants design organizations; humans are resources that must be carefully aligned on the chart, rather like cogs in a machine; changes must be planned and mapped out in blueprints, then carefully implemented according to plan. If some of the machinery functions below the expected rhythm, it’s probably time to inject some oil to grease the wheel with a “soft” intervention, like a team-building exercise. The metaphor of the machine reveals how much Orange orga- nizations can brim with energy and motion, but also how lifeless and soulless they can come to feel. Breakthrough 1: Innovation Amber organizations rest on the assumption that the world is unchanging (or should be). With Orange comes the breakthrough of innovation: if you keep innovating and optimizing, and do so faster than the competition, profits and market share will come your way. This led Orange organizations to create 27 departments such as R&D, marketing, and product management and to give birth to project teams and cross-functional initiatives—note how these are all absent in the Catholic Church or the public school systems, for instance. Breakthrough 2: Accountability To innovate more and faster than others, it becomes a competitive advantage to tap into the intelligence and creativity of many brains in the organization. The answer comes in the form of management by objectives. Top management defines an overall direction and cascades targets downward. People below are then given some freedom to find the best way to reach those targets. A host of management practices was devised to support management by objectives, such as strategic planning, yearly budgets, key performance indicators, balanced scorecards, performance appraisals, bonus schemes, and stock options. Where Amber relied only on sticks, Orange came up with carrots and invented human resources in the process. (Again, notice how, for good or bad, these practices are almost absent, for instance, in public school systems or the Catholic Church—priests aren’t assigned KPIs, as far as I know.) Breakthrough 3: Meritocracy From a historical perspective, meritocracy was a radical idea and a huge liberation. Not so long ago, it seemed natural that priests were recruited among the peasantry while bishops and cardinals came from noble families. The idea that a humble priest could become a pope wouldn’t have occurred to anyone. Orange changed the narrative. In principle, anybody can move up the ladder. The smartest should lead the pack. The mailroom boy can become the CEO, even if that boy happens to be a girl or he has a minority background (in practice, of course, the playing field hasn't been entirely leveled). Resource planning, talent management, mentoring and coaching, leadership training, and succession planning are all Orange inventions. Job mobility is the norm; people are expected to change jobs every few years, and life employment is no longer seen as an ideal. Part 1 Orange’s shadow The scientific and industrial revolutions have brought us enormous freedom and prosperity. Increasingly, we also witness the massive shadow they cast on 29 our future. One shadow is “innovation gone mad.” With most of our basic needs taken care of, businesses increasingly try to create needs, feeding the illusion that more stuff we don’t really need—more possessions, the latest fashions, a more youthful body—will make us happy and whole. We have reached a stage where we often pursue growth for growth’s sake, a condition that in medical terminology is called cancer. It results in a predatory economy that is depleting the world’s natural resources and killing off the very ecosystems upon which our survival depends. Another shadow appears when success is measured solely in terms of money and recognition. When the only successful life is the one that reaches the top, we are bound to experience a sense of emptiness in our lives. The midlife cri- sis is an emblematic disease of life in Orange organizations: for twenty years, we played the game of success and ran the rat race. And now we realize we won’t make it to the top, or that the top isn’t all it’s made out to be. When all boils down to targets and numbers, milestones, and deadlines and yet ano- ther change program and cross-functional initiative, some people can’t help but wonder about the meaning of it all and yearn for something more. The Orange worldview is solidly materialistic—there is nothing beyond what we can touch—and our longing for meaning, for being in touch with something bigger than ourselves, has nowhere to turn.  Part 1 GREEN (pluralistic) worldview People at this stage6 are keenly aware of Orange’s shadows: the materialistic obsession, the social inequality, the loss of community, the harm inflicted to nature. They strive to belong, to foster close and harmonious bonds with everyone. They insist that all people are fundamentally of equal worth, that every voice be heard. In the late eighteenth and nineteenth centuries, a small circle of people operating from Pluralistic-Green started championing the abolition of slavery, women’s liberation, and freedom of religion. This worldview really came to the fore when it powered the counterculture of the ’60s and ’70s. Today, while Orange is predominant in business and politics, Green is very present in postmodern academic thinking, in nonprofits, and among social workers and community activists. A new metaphor: organizations as families Leaders of Green organizations insist that people are more than cogs in the organizational machinery. Listen to these leaders, and it is striking how consistently they refer to their organi- zation as a family, or a community, where everyone has a place, where colleagues look after one another, where the happiness of every member is important to the organization’s overall success.  Breakthrough 1: Empowerment People operating at this stage have a natural dislike for hierar- chies. Green organizations therefore try to downplay hierarchy and to empower employees, to push decisions down to the lowest level. One image often used in Green organizations is the inverted pyramid: front-line employees are on top, and the senior executives and the CEO at the very bottom are 31 servant leaders in service to the employees. Middle managers are trained to be coaches to their teams, to lead from behind and inspire, instead of directing from above. Breakthrough 2: Values-driven culture In Green organizations, shared values aren’t simply a fig leaf hiding a basic pursuit of profit or market share. They truly inspire employees, they provide guidance to empowered employees to make the right decisions, and they often replace some of the thick books of rules and policies most organiza- tions feel are needed to keep people in line. Getting the culture right is often the primary focus of CEOs in these organizations. Breakthrough 3: Stakeholder value Green organizations question the concept of “shareholder value,” where a company’s primary obligation is to maximize profits for shareholders. They insist that businesses have a responsibility not only to investors, but also to employees, customers, suppliers, local communities, society at large, and the environment and that they must balance all these interests. Southwest Airlines, Ben & Jerry’s … Green perspective on management can often be found in nonprofits, NGOs, and social ventures. But it is also found increasingly in the corporate world, where people have come to realize the importance of “soft” aspects of management. Green organizations often strive to inspire their employees to great things, leading them to outperform more traditional command-and-control organizations.7 Southwest Airlines, Ben & Jerry’s, and The Container Store are well-known examples of organizations whose founders have championed Green organizational practices.  Part 1 The contradictions of Green organizations There are some wonderfully vibrant values- and culture-driven organizations, so we know it works. And yet, making decentralization and empowerment work on a large scale is no easy feat! There is an inherent contra- diction in the Green organizational model: it aspires to be egalitarian and consensus seeking, but it retains the hierarchical, pyramidal structure of Orange. There is often a disturbing disconnect between espoused values and reality, which causes disappointment and confusion. How do we make decisions here? Is it by consensus, or is it the boss who ultimately decides? In practice it’s often a murky combination of the two. In many smaller organizations, in particular in nonprofits or social ventures, the emphasis lies with consensus seeking. More often than not it leads to organizational paralysis. To get things moving again, unsavory power games break out in the shadows. Large, successful Green organizations seem to focus on empowerment more than strict consensus seeking. Deep down, they would love to function without the pyramid, without the need for bosses. But they haven’t found a way to do it in practice. So they make do with a traditional, hierarchical structure but ask top and middle managers to give up some control and empower their subordinates. To most people, this doesn’t come easily (especially when they are still responsible for delivering the numbers). Successful Green companies have found that they need to invest and keep investing a lot of time, energy, and money to train and remind managers to be empowering, servant leaders. Effectively, they aim to create a culture that is so vibrant and empowering that it more than compensates for the problems that inevitably come with the hierarchical structure.  Progress is only smoke and Let’s clarifiy a mirrors! We You are not few things. 33 Hey, you! The need to go back seriously suggesting You want to put whole stage thing to rules and that this hippie is us into boxes? I’m sounds pretty traditions. more evolved than I not "better" than insulting to me. am, are you? anyone else! Care to repeat it again? Some people love frameworks, others not so much Some people are ill at ease with the idea that people and organizations develop in stages. They don’t like the idea that some people would somehow be “better” than others, more “evolved” than others. I very much understand the source of their concern. In the course of history, people have done much harm to one another in the name of some people being superior to others—take slavery, colonialism, racism, or sexism. And yet, there is no wishing away the huge evidence that humanity and human beings evolve, and do so in leaps. Here might be a more helpful way to think about it: people at later stages are not “better,” but they can hold more complex perspectives.  Part 1 A framework is a useful simplification. But no organization is 100% “Orange” or “Green.” This developmental framework helps us make sense of different worldviews. And yet, let’s be careful not to oversimplify! I cringe when I hear people say that someone “is” Amber or Orange. We know that things are far more complex. People can operate in one part of their lives from, say, an Orange perspective, and in others, from an Amber one. So what do I mean when I talk about, for instance, an “Amber” organization? I refer to the organizational processes, struc- tures, and culture, not to the people. An Amber organization is one where the majority (but not all! No organization is ever a pure breed) of the management practices are informed by Conformist-Amber thinking. In other words: the way the orga- nization recruits, manages performance, makes budgets, sets targets, formulates strategy, etc., are mostly done in ways consistent with Conformist-Amber thinking. Let’s take an example: How do the different types of organizations handle compensation and incentives? 35 Sharing the spoils In Red, the boss decides how to share the spoils, choosing to increase or reduce pay however he likes (think Mafia or drug lord). There are no formal processes for negotiating pay, nor any formal incentive processes. Same work, same pay In Amber organizations, salaries are typically fixed and deter- mined by a person’s level in the hierarchy (or other fixed status marker, such as the person’s diploma or degree). There are no individual salary negotiations, no incentives. Individual incentives Orange believes strongly in individual targets and incentives. If people reach predetermined targets (that ideally are part of a budget or a cascaded system of targets), they deserve a sizable bonus. Large pay differences are deemed acceptable, if they reflect people’s merits and contributions. Team bonuses Because the Green paradigm stresses cooperation over com- petition, individual incentives make way for team bonuses in Green organizations. Leaders aim to reduce excessive wage disparities that would undermine a sense of fairness and com- munity (for instance, through a maximum multiple between the CEO’s pay and the median pay).  Part 1 Here is a summary of the four organizational models that exist today IMPULSIVE TRADITIONAL ACHIEVEMENT Innovation Division of labor Replicable processes Accountability Top-down authority Stable organization chart Meritocracy  What might the next one look like? 37 PLURALIST EVOLUTIONARY Empowerment Values-driven culture ? Stakeholder value Part 1 TEAL (evolutionary) worldview A new stage of consciousness is currently coming to the fore that Ken Wilber gives the color Teal and that I sometimes call Evolutionary.8 Because it is still very much emerging, it’s too early to say how this will end up shaping the world. But quite a few scholars (Maslow, Graves, Kegan, and others) have studied how people who make the leap to Teal look at the world. And they report that, once more, it is a profoundly new worldview, one that opens radical new possibilities. So what are some markers of this worldview? The world as a place for individual and collective unfolding The world in Teal is no longer seen as fixed and God-given (Amber), nor, say, like an intricate, soulless mechanism (Orange). Instead, the world is seen as a place where we are called to discover and journey towards our true self, to unfold to our unique potential, to unlock our birthright gifts. This is like a Copernican revolution in an age that tells us we should strive to succeed, that we can become anything we want, if we only put our mind to it. People who embrace a Teal perspective learn to let go of pre-conceived ideas of what they should be and learn to listen within to go where life calls them. Taming the ego The ability to listen to inner voices comes from an important psychological development: in Teal, we start to disidentify from ego. We learn to look at our ego from a distance and often realize how our ego’s fears, ambitions, and desires have been secretly running our lives. We can learn to minimize our need to control, to look good, to fit in. Many scholars note that this results in a profound shift that increases our capacity to trust others and to trust life. It echoes wisdom traditions that have long affirmed that we can live from fear and scarcity, or from trust and abundance. In Teal, setbacks and mistakes no longer need to be met with fear, anger, or shame; we can truly see them as opportunities to learn about who we are and grow into more of our selfhood.  Inner rightness as compass When we are fused with our ego, we are driven to make decisions informed by external factors—what others will think or what outcomes can be achieved. In Evolutionary-Teal, we shift from external to internal yardsticks in our decision- 39 making. We are now concerned with the question of inner rightness: Does this decision seem right? Am I being true to myself? Is this in line with who I sense I’m called to become? Am I being of service to the world? Yearning for wholeness Many people who shift to a Teal perspective start to keenly sense the pain and emptiness in modern life, where we have separated from much of our true nature. We have let our busy egos trump the quiet voice of our soul; we are part of a culture that celebrates the mind and neglects the body; we so value the masculine that we neglect in us the feminine; we have lost community and our innate connection with nature. This realization often triggers a deep yearning for wholeness, for reuniting with all of who we are, with others around us and all forms of life and nature. It is not driven by a moral imperative (we should care for nature!) but by a deep realization that we are all deeply interconnected, deeply one. What could this mean for organizations? When people shift perspective in such profound ways, it is easy to speculate that they will structure and run organizations very differently. But really, there is no need to speculate. As we will discuss in the next part of the book, there are organizations out there that already operate along Teal principles and practices. And by now there are enough of them for us to have quite a good understanding of how Teal organizations can be structured and run.  PART 2 41 How do these new organizations work, then? Part 2 To make sense of something new, it’s always good to start with a story Here is the story of neighborhood nursing in the Netherlands and of a pioneering organization called Buurtzorg. Since at least the eighteenth century, every neighborhood in the Netherlands has had one or more nurses that worked outside of hospitals, visiting the sick and the elderly in their homes. During the twentieth century, the social security system increasingly took over the costs of the system.  43 In the 1980s, the Dutch government had an idea that made a lot of sense, seen from an “Orange” scientific/industrial perspective: if all the nurses could be grouped into large organizations, economies of scale would kick in, generating savings for the taxpayer. Nurses were pushed to affiliate with large organi- zations that started implementing modern (Orange) management practices step by step. Quickly, these organizations decided it was inefficient that the client would always be seen by the same nurse. A different nurse was now dispatched to clients every day, based on availability. Higher flexibility meant less potential downtime for nurses between two clients. Call centers were set up in head- quarters, now that clients could no longer call “their” nurse directly. Then, it was decided to have the nurses specialize. More experienced nurses must be paid more, so they were sent to do only the more difficult, technical interventions. All the rest—simpler things like shots and bandages—was now pushed to less expensive nurses, resulting in further cost savings. Part 2 Step by step, the Orange machine logic took over Managers noticed that some nurses worked much faster than others, so time norms were established. Two- and-a-half minutes to change a compression stocking, ten minutes for a shot. Everything was specified down to the minute. With time norms defined, planning departments were set up in headquarters. Every evening, each nurse now receives a sheet of paper with a detailed plan for the next day, prepared by someone in the planning department she most likely will never meet. From 8:00 to 8:05, I’m expected at this address. I have five minutes to come in, say hi, change two compression stockings, and be out again. 45 The planner’s program calculated that it will take me three minutes to drive to my next client … … where I’ll have ten minutes to give a shot … And, predictably, these corporations started merging The care providers started merging in pursuit of further economies of scale. To “manage” the nurses in these big companies, layers of hierarchy were added. A district manager overseeing a few dozen nurses reports to a regional manager, who reports to a national manager.The managers today often have no nursing experience. Their role is simply to monitor and improve the nurses’ performance. They have lots of data they can slice and dice because nurses are asked to peg a small barcode sticker to the front door of all clients, scan that code when they go in to provide care, and scan it again when they leave. With all this data, managers can make continuous improvement; they can tell nurses for which kind of interventions they are slower than their peers. Every one of these changes—specialization, flexibility, economies of scale, continuous improvement—has resulted in efficiency gains, arguably a good thing for the Dutch health care system.  Part 2 But there is a dark side to the system Patients hate it Ok, I read here That’s what it says on the For older, sometimes that you need paper, but it’s a bit more confused clients, having a shot. complicated. Let me explain … an unknown face come into the intimacy of their home every day is difficult. They have to share their story and their medical condition with a total—and hurried—stranger. I’m sorry, I have no time. Let me quickly give you the shot and I’ll be out again. Nurses hate it The way they are asked to This work operate hurts their vocation was my calling … and integrity. They realize that they often give bad or insufficient care. But the system prevents them from doing what they know is called for. … And now I’ve been turned into a robot. A nurse named Jos de Blok created Buurtzorg in 2006 … Jos had been working as a nurse for ten years and experienced firsthand the changes forced onto his profession. Disgusted, he quit his job and created Buurtzorg. It would operate entirely differently. Quickly, he found that a self- organizing team of ten to twelve nurses with no manager and no team leader was perfect to provide great care—and a great work place. We will simply distribute the management tasks among us. Each patient will see always the Who wants to take care 47 With ten people, same one or two nurses. of the holiday planning? we will have all the economies of scale. With a whole different Our purpose is not perspective on health care to give shots or change stockings! Care, at its best, is a small miracle that hap- pens, or not, in the relationship of a patient and a nurse. That miracle never shows up when a mechanical perspective is applied Our purpose is to care. The best care will happen, de Blok to help patients lead lives that is convinced, when nurses are seen as pro- are as rich and fessionals, when they are trusted. Give them autonomous as freedom, and they will offer truly great care. possible.  Part 2 The first thing a nurse from Buurtzorg does with a new patient is to sit down and drink coffee Tell me—what are you still able to do? And what can’t you do any more? Do you have children who could help you? Oh, you haven’t spoken with them in a while? Why don’t we call them and ask them to come by? I’m happy to be there with you. Nurses often assist the patients in creating a network of support, to feel less alone and less dependent. For instance, they often help older patients and their children learn how to be there for one another during illness. Say, your mother doesn’t I can call a hairdresser invite her friends over anymore to come by. because she doesn’t feel very presentable … Could you maybe buy her a new dress?  Oh I see there is a young family next door. Do you know them? “Hello. I am a nurse working with the old lady next door. Would you be willing to meet her and help her out, in case she needs a helping hand?” It’s not unusual that nurses help their patients get to know neighbors to tie a network of support. The degree of care and intimacy between the nurses and the patients can be quite 49 extraordinary. Often they journey together for years, sometimes until the very last moment, helping the patient depart in peace. Buurtzorg has become a spectacular success story Patients and nurses love Buurtzorg so much the Netherlands! The nine thousand nurses all that nurses have been deserting traditional work in small teams of ten to twelve nurses, nursing companies in droves. Every month, without a leader in the team and with no Buurtzorg receives hundreds of applications manager above them. No one times the nurses’ from nurses wanting to jump ship. Buurtzorg interventions with patients. The whole nine now employs more than nine thousand nurses, thousand-strong company is managed with or two-thirds of all neighborhood nurses in a headquarters of just twenty-eight people.  Part 2 Oh, that’s just WON-derful. A nurse that takes time to sit down and have a cup of coffee … But we live in a world Well, that’s what you would think. But where there is no time here is the extraordinary news: Buurtzorg’s for that! Time is money!! financial and medical outcomes are off the We can’t afford this! chart—in the good way of off the chart. A few years ago, a study from Ernst & Young9 found that Buurtzorg uses less than 40 percent of the hours prescribed by the doctor. Because instead of just working off a crazy schedule, we now help patients become autonomous as much as possible Thirty percent of all emergency hospital intakes are avoided. 51 We know the patients so well that we can detect problems early on. Buurtzorg saves the Dutch social security system hundreds of millions of euros every year. We have colleagues who are now trying to apply the same principles in psychiatric care, youth care, and other fields. And nurses from all over the world are setting up similar organizations in their countries.  Part 2 Buurtzorg is just one of several extraordinary pioneers that are reinventing management Buurtzorg RHD Sun Hydraulics Home care nonprofit Human services nonprofit, Manufacturing of hydraulic in the Netherlands, United States, valves and manifolds, global, 9,000 employees 4,000 employees 900 employees, for profit Heiligenfeld Morning Star Holacracy Network of mental health Tomato harvesting, Organizational “operating hospitals, Germany, transport, and processing, system” adopted by many 600 employees, for profit California, 400-2,400 organizations throughout employees, for profit the world FAVI ESBZ Patagonia Brass foundry, Publicly financed grade 7-13 Outdoor apparel maker automotive supplier, school in Berlin, Germany, and retailer, United States, France, 500 employees, 1,500 teachers, students, 1,350 employees, for profit and parents, nonprofit for profit AES BSO/Origin Sounds True Global producer and IT services, 10,000 Multimedia publishing distributor of electricity, employees worldwide company, United States, 40,000 employees (1996), for profit 90 employees and worldwide (2001), for profit 20 dogs, for profit  MANUFACTURING HEALTH CARE RETAIL FOR PROFIT NON PROFIT EDUCATION 53 Many different industries, many different geographies... but not your usual suspects The previous page gives an overview of twelve processing to health care and education. It organizations that I researched in depth and seems that this new paradigm can operate that already operate to a significant degree in all sectors. It's also noteworthy that some based on Teal principles and practices. They organizations were founded with Teal ideas are not your usual suspects—these days we from the beginning, while others operated often read about management at Google, with traditional management practices before Apple, or Facebook. The organizations I a new leadership transformed them. researched don’t have ping-pong tables or I often get asked the question, “I wonder if sushi bars, but their management practices this could work in my country?” Some of the are in a different league. companies I researched are based in Europe, I find it quite remarkable that among these others in the US, and some are truly global. twelve organizations there are nonprofits I’ve come to believe that these management as well as for profits, blue- and white-collar practices can operate in every type of culture environments, and industries ranging from because they tap into fundamental human manufacturing, power generation, and food needs, longings, and capabilities.  Part 2 A new metaphor: organizations as living systems Orange speaks of organizations as machines. Green beauty, ever evolving toward more wholeness, uses the metaphor of families. Several of the founders complexity, and consciousness. Change in nature of the Teal organizations researched for this book happens everywhere, all the time, in a self-organizing explicitly talk about the need for a new metaphor. urge that comes from every cell and every organism, Clearly, looking at organizations as machines feels with no need for central command and control. soulless and clunky. People are more than cogs to The metaphor opens up new horizons. Imagine what be aligned on an organization chart. From a Teal organizations would be like if we stopped designing perspective, the metaphor of the family can feel them like soulless machines. What could organizations awkward too. Families, as we all know, can be mildly achieve, and what would work feel like, if we treated or wildly dysfunctional. And let’s take the metaphor them like living beings, if we let them be fueled by seriously: if I’m your boss and you are reporting to the evolutionary power of life itself? me, does it imply that I’m a father and you are a child? The founders of Teal organizations use a different metaphor: with surprising frequency, they talk about their organization as a living organism or living system. Life, in all its evolutionary wisdom, manages ecosystems of unfathomable Teal organizations come with three breakthroughs that fundamentally challenge management as we know it Self-management Teal organizations have found the key to upgrading their structures from hierarchical, bureaucratic pyramids to powerful and fluid systems of dis- tributed authority and collective intelligence. 55 Wholeness Organizations have always been places that encourage people to show up with a narrow “professional” self. Teal organizations have developed a consistent set of practices that invite us to drop the mask, reclaim our inner wholeness, and bring all of who we are to work. Evolutionary purpose Teal organizations are seen as having a life and a sense of direction of their own. Instead of trying to predict and control the future, members of the organization are invited to listen and understand what the organization is drawn to become, where it naturally wants to go. The three breakthroughs reinforce each other...... but companies don’t necessarily have to embrace all three. Of the twelve organizations I researched, Buurtzorg is probably the most advanced across the board. On the other hand, a company like Morning Star, that we’ll soon meet, has pushed and refined the breakthrough of self-management to an extraordinary degree but has given less thought to wholeness and evolutionary purpose. In many ways, this is good news: it makes the task less daunting for leaders inspired to transform their organizations. I hear from many companies and nonpro- fits that are currently making the transition, and they generally focus, at least at first, on the breakthrough that to colleagues feels the most important.  Breakthrough 1 Self-management 57 _____________________ We thought we needed hierarchy and pyramids We now know how to create much more powerful and fluid systems of distributed authority  Part 2 / Self-management Get ready for this: at Buurtzorg with its 9,000 people, no one is the boss of anyone else And it’s not only Buurtzorg. Other large and very successful organizations operate entirely without the familiar pyramid, For a team to work without managers. I know this might sound well, you need to We’ve tried to get outrageous. Can it be true? We have a hard have a boss, someone rid of bosses … and to call the shots! frankly, it doesn't time wrapping our heads around this. I’ll work. Really? be honest: I wasn’t expecting this when I started my research. I thought I would find “empowered” organizations with very few layers of management. But no layers of management? I thought that was impossible. This is because I’ve grown up, like most of us, believing that it’s possible, perhaps, for a team of four or five people to operate without a boss. But any group larger than that—at least I once thought—needs a structure, needs a boss, needs someone to call the shots! The truth, I now understand, is that large groups need structure and coordinating mechanisms, but can operate more powerfully without bosses! Our world is becoming too complex for us to continue operating with the pyramid we inherited a few thousand years ago. In environments where complexity is low, pyramidal structures Low complexity with layers of hierarchy can work well. The few people at the top can make sense of all the complexity and make good decisions. When complexity increases, the pyramid breaks down. The few High complexity people at the top, however smart they are, don’t have enough bandwidth to grasp and deal with all the complexity. Hierarchy cannot cope with complexity It’s almost become a rule today: CEOs and top leaders get made. Other decisions made at the top turn out are hopelessly overworked. Any decision that requires to be poor, even disastrous, because of politics or some coordination, some broad perspective, has to because people at the top simply don’t have time to pass by them, because in pyramidal organizations it’s really understand what’s going on in the field. In a only at the top that reporting lines converge. They complex world, the pyramid turns into a bottleneck. often feel uneasy, nervous about making decisions Even if people at the top throw in more hours, it’s a with only a few facts and arguments presented to structural problem that more hours won’t solve. So them. But like workers on an assembly line, a decision what’s the alternative? must be made, one way or another, and it’s off to the The alternative, funnily enough, is all around us. All next decision … or the company grinds to a halt. the complex systems that exist in the world—and there Time at the top is so precious that people below are many!—operate based on structures of distributed often spend weeks preparing for a thirty-minute slot authority. Not a single complex system works with a they are given with the executive committee. Many pyramidal hierarchy, because such hierarchy always important decisions actually never get a slot, never breaks down in the face of complexity. … and then we’ll all pretend you understand the implications Since you only have three minutes of your decision. to make this critical decision, 59 I’ll just share a few sound bites …  Part 2 / Self-management The global economy? Too complex for a central planning committee! The global economy is a hugely complex system—millions of companies, billions of consumers, making trillions of choices every day. It operates with structure and coordinating mechanisms, but there is no boss. The idea that we need a Soviet-style central planning committee to try to control the complexity has been completely discredited. And yet, we still cling to the idea that we need such central committees in organizations (where we call them the executive committee or the management team). The human brain: 85 billion cells, and no executive committee, no middle managers Take another example: the brain we have in our head. It has 85 billion cells, and many more connections. There is a structure, there are coordinating mechanisms, but not bosses. Imagine one cell saying, “I’m the CEO. Any important thought has to pass by me for approval and by these six cells that I’ve chosen to be my executive committee.” The brain is much too complex to be operated in a pyramidal fashion. It would stop functioning immediately if we tried. Birds in a flock don’t knock each other out There can be hundreds of thousands of bird in a flock, flying at high speeds. And in the blink of an eye, when a predator appears, this whole dense cloud changes direction. How do the birds avoid mass collisions? It’s almost a miracle. Hierarchy and centralized decision-making could never master this level of speed and complexity. Coordination is embedded in three rules that all birds play by.10 Coordination mechanisms, rather than hierarchy, keep the flock agile and safe. Take an ecosystem such as a forest and imagine running it with layers of hierarchy Let’s take another example: a forest is a hugely complex system. There are billions of living beings ranging from microscopic organisms to massive trees. The whole system cooperates in extraordinary powerful ways. Let’s imagine the winter sets in early. The whole ecosystem will adapt at once in a wonderfully complex interplay of the species. Now imagine trying to handle that with a traditional pyramidal structure. The largest tree—the CEO—would tell everyone to hold it until he and his buddy trees from the executive committee have come up with a plan. That plan, when it’s ready, get’s communicated in a cascaded way until the instructions reach the last worm, insect, and bacterium. But by that time, it’s likely that spring will have set in! Everyone! Winter came in much You all freeze until earlier that expected. But don’t we tell you what to do. worry: the executive committee will come up with a plan. 61  Part 2 / Self-management Here is the good news : we now know how to operate large organizations without power hierarchy Buurtzorg has more than nine thousand people today, and there are no managers, no bosses. Other organizations operate in similar ways. They have found ways to import the principles that fuel truly complex systems in nature into the workplace. We now know how this works. I’ve noticed that as soon as I talk about self-management, all sorts of misunderstandings arise. We often try to make sense of something new by projecting old thoughts onto it. So let’s try to get some misunderstandings out of the way before we go any further. Please! Self management If you like to spend your This is all still very can never work. In real life days in endless meetings, experimental. you need some structure! be my guest! Misperception #1 Misperception #2 Misperception #3 Many people assume that self- The common assumption here Another misconception: that self- management means that there is: "self-management = consen- management is still somehow is no structure, that everything sus decision making = endless experimental and unproven. The is informal, chaotic. The mistaken meetings.” Be reassured: that’s not reality is that there are organi- assumption here is that “no the case. Self-managing organiza- zations out there, such as W. L. bosses = anybody can do want tions work with decision-making Gore, the maker of Gore-Tex; they want.” That’s not the case. mechanisms that are both simpler Morning Star, a tomato processing In self-management, just like and more powerful than consen- company; and others that have in nature, there are structures sus. Actually, in self- managing operated in self-managing fashion and coordination mechanisms. organizations, there tend to be for decades. They have gone People work in defined roles and many fewer meetings than in through economic booms and there are processes for how to today’s workplaces. busts and have been shown to be make decisions, how to deal with remarkably resilient—like ecosys- conflict, and so forth. tems. More resilient, in fact, than most traditional organizations. Self-management requires that we upgrade almost all of the basic practices of management Early attempts at self-management have often need concrete answers. The good news is that failed because people took a shortcut. They there are enough successful self-managing simply decreed: let’s get rid of hierarchy and organizations out there for us to know how bosses. The company’s backbone was ripped each of these topics can be addressed. We out without putting a new structure in place. pretty much have all the answers to these The result: power vacuum and chaos. For questions. Here is a list of the most impor- self-management to work, it’s not enough to tant management structures and practices that take hierarchy out. We need to grow a system need upgrading. of distributed authority, which requires that we upgrade almost all existing management practices and structures. This brings up lots of questions. What struc- ORGANIZATIONAL ture should replace the pyramid? Who can make BUDGETS STRUCTURE what decisions and how? Who decides who 63 deserves a pay raise? Do we still need budgets and targets? Who gets to see what informa- STAFF TARGETS FUNCTIONS tion? These are very practical questions that INFORMATION PERFORMANCE The next few pages illustrate FLOWS MANAGEMENT a few of these practices DECISION- COMPENSATION MAKING AND INCENTIVES MEETING CONFLICT ARCHITECTURE MANAGEMENT PROJECT CRISIS MANAGEMENT MANAGEMENT INVESTMENTS DISMISSALS  Part 2 / Self-management Organizational structure For the longest time, we thought we needed a pyramid to organize human activity Layers of hierarchy bring order and stability to large problem. The coach has no power over the team. Nor organizations. But everywhere around us we see signs does she have any targets to reach or profit-and-loss that the pyramid finds it hard to cope with the com- responsibility. She is just there to help. Her role is plexity of the world today. We need to upgrade to significant nevertheless. Self-management is no walk structures of distributed authority. in the park, and when teams get stuck, they are happy So what’s the structure of a place like Buurtzorg, to be able to draw on the help of the coach. then? The core unit is a self-managing team of ten to And the headquarters? There are only twenty-eight twelve nurses. Today there are eight hundred such people working in headquarters, mostly involved in teams throughout the Netherlands. In the teams, administrative tasks such as interfacing with the Dutch there is no team leader; the management tasks are social security system. They are truly “support func- spread out among the nurses. One person, for instance, tions”; they cannot impose procedures or guidelines deals with weekend planning, another takes the lead from the top in the way staff functions usually do. in recruitment, a third is the contact person with the Beyond that, there is no executive committee, no local hospital, and so on. “head of” HR, finance, sales, or marketing that you Above the teams, there are no managers. For every would normally expect. The overall structure is really forty to fifty teams in a region, there is a regional coach extraordinarily simple. that teams can call when they need help to sort out a Teams of self-managing nurses Support from coaches and HQ Here is another example: an automotive supplier structured almost exactly like Buurtzorg 65 Self-management has proven itself in many industries. foundry team, the mold repair team) and support teams There are, for instance, a number of very successful (the engineering team, the sales support team, etc.). factories that operate in this way. One of them is FAVI, Above the teams, there is no layer of management, a five hundred-person brass foundry in the north of no executive committee, other than the “CEO” (more France that produces gearbox forks for the automotive on the role of the “CEO”— the quotation marks are industry, among others. It was founded in the 1950s deliberate—in Part 3 of this book). and was run for decades in traditional ways: there FAVI’s results are quite extraordinary. All its competi- was a CEO, an executive committee (sales, HR, finance, tors have moved to China to enjoy cheaper labor costs, engineering, maintenance …), and in the factory, a chef yet FAVI is not only the one producer left standing in de production commanding the chefs de services, who Europe; it commands a 50 percent market share for its commanded the chefs d’ateliers who commanded the product. Its quality is legendary, and its on-time deli- chefs d’équipes who commanded the workers! very close to mythical: not a single order has shipped Then in 1983, a new CEO was appointed: Jean- late in over twenty-five years. FAVI’s profit margins are François Zobrist, a maverick and charismatic former so high that most years, despite Chinese competition, paratrooper who turned FAVI upside down. Today, workers make sixteen or seventeen months of salary, FAVI operates on lines very similar to Buurtzorg. thanks to profit sharing. There is virtually no employee There are thirteen self-managing “mini-factories.” turnover; workers who have tasted FAVI’s ways of wor- Most mini-factories serve a specific client: there is the king can’t see themselves going back to traditionally Volvo team, the Volkswagen team, the Audi team … run factories. and there are a few upstream production teams (the  Part 2 / Self-management How an order gets processed perhaps best illustrates how self-management transformed FAVI This is how it used to work when FAVI was still run traditionally. The planning department gave The day before production, A sales manager who received sales an estimated shipping date the scheduling department made a client order instructed someone and allocated the necessary the detailed planning of what in sales support to enter the order machine time in the master would be produced on which into the system. planning. machine. Workers simply needed to show This fragmented process was up and do what they were told. a black box, for sales account They had no idea if the order book managers as much as for workers. Based on the schedule, HR then was full or empty, or what client If an order was late, it was hard to allocated workers to machines. they were producing for. explain what had gone wrong. Today the process at FAVI is much simpler Once a week, the sales account person from, say, the Audi mini-factory meets with his team- mates to share the order for the week. Everyone joins in the joy if the order is large or the disappointment if the order is small. Planning happens on the spot, and the team jointly agrees on a shipping date. Sometimes, the sales account person has bad news to share: Chinese competition quoted a very low price. Can we match it? People knock their heads together and figure out if they feel they can shave another few minutes off the machining process. The teammates don’t have—and don’t need—targets or bosses. They face their clients and competitors directly and know that their jobs depend on doing a good job and making wise decisions. They are proud of the work they do and their capacity to self-organize. 67  Part 2 / Self-management Decision-making We’ve grown up believing there are basically three ways to make decisions. Unfortunately, none of them works particularly well in organizations. … or I can Guys, please listen, this is my area I decide … delegate, if I It took sixteen hours, of expertise! It's a terrible idea. feel like it. but I think we now all agree on the agenda of Perhaps … but we In any case, the meeting, right? are asked to vote, I have the not to listen. last word. TOP-DOWN (HIERARCHICAL) CONSENSUS VOTE (MAJORITY RULE) The advice process: the critical innovation underpinning self-management I find this fascinating: several organizations will be meaningfully affected, that will have independently discovered a better deci- to live with the decision. sion-making mechanism. One company called The decision-maker must consider all it the Advice Process, a name that captures its advice seriously. But the goal is not to make essence well.11 The principle is that anyone a watered-down compromise. After careful can make any decision, including spending consideration, the decision-maker chooses company money. But first, that person has to what he sees as the best course of action, even seek advice from 1) people who have exper- if that means going aga