Hack:
Why Business Professors Can't Sleep At Night

By Matt Shlosberg - Managing Director at Hanna Concern

September 6, 2010 at 6:26pm

crowdsourcing

Moonshots

Embed the ethos of community and citizenship

Increase trust, reduce fear

Reinvent the means of control

Summary

Business professors think I am out of my mind, but I think business professors are out of their mind if they think that models they teach in business school really work. The business model I am proposing redefines the organization as we know it.

Problem

Traditional business models rely heavily on a number of orthodoxies that create competitive disadvantages. Some of them are as follows:

1. Having employees. Having employees carries costs, liabilities, legal burden, and a number of side effects (e.g. costs of hiring, firing, and things managers would rather do instead of hiring people). This concept also relies on scarce [human] resources. These resources are in abundance on the planet but are scarce because of costs.

2. Having the wrong employees. Having employees is bad enough. Having the wrong employees is even worse. The problem is that sometimes we hire employees who want the job in order to get paid, and not because they will enjoy doing it. Sure, there're many people who want to do a good job. But most of people do it for money and will never accept the job if it pays nothing. These people are only marginally passionate (if any) about their jobs.

2. Traditional management structures. This web site and numerous other articles talked a lot about disadvantages of traditional management. That's why the moonshots have been developed.

3. Poor management of competitive disadvantages. Many firms have disadvantages they don't know how to manage. Some of them are related to products. Others are related to competencies. For example, if you have a weak sales team, you aren't able to sell, no matter how good your product is.

4. The innovation constipation. Many firms don't know how to innovate. This may be related to people, culture, organizational controls, the system of rewards and punishments, management, and other deceases.

5. The entrepreneur's dilemma. Most entrepreneurs lack the skills needed to run the entire business. For example, engineers can't sell and salespeople can't engineer. As a result, many entrepreneurs fail in functions they can't handle and their businesses fold.

6. Many other problems. Organizations have many problems they aren't aware of. They hire incompetent people. These people make mistakes and then spend time learning about those mistakes. While this concept seems somewhat reasonable, it makes the organization highly inefficient.

Solution

I propose an operating model that changes the way the organization functions. Here's how it works:

This organization has no employees. It does, however, have a number of its normal functions, such as marketing, sales, engineering, accounting, etc. In order to bring talent onboard, this organization will use a process similar to that of open source software, such as Linux. It will allow anyone with any skill to join the organization and allow people to contribute in any way they are passionate about. The open source model recruits software engineers.

I simply propose to do the same for every single function in the organization and manage the organization as a network of crowdsourced communities of passion.

A web based social networking software will be used to power the organization.

When people join, they will see a number of communities that rotate around lines of business or core competencies. When they select one, they will see communities that rotate around functions (e.g. sales or marketing). When they select a function, they will see subcommunities that rotate around specific projects (e.g. advertising, enterprise sales, etc).

People can apply to join each community and/or subcommunity. They will then be voted in or out by current members. Once they join, they will work in a team of other people with a chosen passion. As a result, software engineers will join the engineering community and sales folks will join a sales community.

Each subcommunity is self-managed. Teams can vote members out at any time. Because firms must be profitable, each community must become a profit center, generating money for its members. As a result, these communities will create an internal market for products, services, and ideas and trade with each other. Most will probably trade by using stock that carries dividends made from sales.

For example, let's say the firm is in the software business. There're five communities of engineers making five different products. When the product is ready, the engineering community joins the sales community, the marketing community, the accounting community, and any other relevant parties and create a relationship whereby each member gets stock in the venture. They work together and receive profit distribution based on stock ownership.

Practical Impact

This model has a number of practical advantages:

1. No more employees. This means there's no cost (no salary), and no burden that normally comes with having employees.

2. Better people. The types of people to join this organization will be passionate and entrepreneurial. People won't be interested in careers and promotions. They will be interested in doing the very best job they can and doing it better than anyone else. Their pay will depend on their ability to execute!

3. This structure will solve a number of management moonshots. You will have a different management hierarchy (a collection of communities of passion consisting of teams [potentially without] leaders. People will be in control of their own communities, so they will trust communities more. There will be no fear or any reason to fear anything! There will be the ethos of community and citizenship. The work of leadership will be very different. The means of control will be different as well. Because people will be entrepreneurial and leadership is different, people will be allowed to experiment more and come up with better, more innovative ideas. There will be no excuses no to do it! There will be an internal market for ideas, cash, and talent. This organization will run as a collection of communities of passion. Because passionate people often blend work and play, the two concepts will be merged into one. In fact, for some people this may not be much more than play (think open source software!).

First Steps

This is easier to setup in a new organization. There are several keys to success:

1. Create a software that encourages effective communications between parties.

2. Bring A LOT of people to the organization. The more people you bring, the more effective you will be.

3. Let people free. Crowdsource every single function in your organization without any exceptions.

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September 8, 2010 at 1:06am

Aaron Anderson

Matt,

Thanks for dusting this off and getting it into the open. I've been debating whether to open source the Master Strategic Plan for my educational operation for a long while. The intent would be to have folks chime in just in the way you are suggesting to see if we can leverage the global village to help us improve our operation here. Perhaps this Spring will be the year I crack that nut open. Right now it's on a closed loop, but to open up is a risk - and that risk hinges on the notion that knowledge or strategies are proprietary. Companies are legendary in protecting their secret sauce, making sure that no one has the source code for the kernel, or the recipe for their special cola.

Open sourcing these things would bust that model to pieces, and I like it. Wouldn’t society benefit if there were no business trade secrets? If I could make your favorite cola locally and more cheaply, we all win. Trouble is the capitalistic system rewards secrecy. How do you get around that? In my view, knowledge is best spread wide like manure on a field. In a pile, locked up in a secure barn so that the neighbors can’t get at is all well and good as it keeps the steaming pile for you, but it does much better spread about and shared.

As some one who works in a business school, I’m not loosing much sleep over your proposal, I hate to say. I like it because in the courses I teach, we set about to debunk the models as well as test them to see what really works and is applicable. I may share this model with my class at some point this term and see what they think. Well, shoot. I’m going to do it right now by linking to your hack on our course web site and see if they have an opinion about it. Why not?

Above all, the one element missing from your model is how to monetize the operation. If there are no employees, and it’s all crowd-sourced by those sitting at terminals, it’s not clear on how the social welfare of the whole is protected. In other words, how do I make money if I’m no longer employed so that I can support my family?

And another point - how do you bridge the digital divide? There are large swaths of the global village that are not yet dialed into the Internets, and their voice will be lost in the development of new organizations. I don’t think you are suggesting we lose those voices, but I”m wondering how one would include them. In my role as PTA President for my sons school, we always wrestle with getting people looped in who are homeless, or come from single parent families and they don’t have the time or money to spend getting looped in. Their voices are important, and may actually help the organization, but if they are disallowed to participate by the nature, might we risk forgetting them at best, and at worst, trampling all over their non-first-world-value-set?

September 8, 2010 at 1:15am

Philip Ngemegwai

I find this proposition very attractive. However, as I have always opined, management styles and models are with respect to the type of functions to be exhibited. As a creative person, I agreed that its going to be fun. But I cannot hardly imagine how the accounting and financial people are going to feel about it.

Even when you take away the profit mindset, the aspect of financial reward that is dependable will definitely be an issue. Unless, you are directing your model to those who are have no reason to worry about finance. I like to be involved in anything I am passionate about and I do not like thinking in terms of money for such things. But I still have to find a way a living the kind of life I want.

This picture takes in the whole structure of the organization into play, now how these communities are organized might pose another challenge. Sometimes without an oversight, the disadvantages of group thinking might begin to limit the effectiveness of the communities.

In starting or applying this model I am wondering what criteria will be used to establish the communities and the manner the pioneers for these communities will be selected. A lot of structuring are required to get the model on ground, however, after commencing it most likely should become easy to implement.

September 8, 2010 at 1:31am

Matt Shlosberg

Aaron,

Thank you for your comments.

I'd be interested to hear what your students think about this model.

There are definitely a lot of unanswered questions, but it's a start. I actually have the monetization question answered. I think the financial model works, I just haven't yet figured out how to describe it in less in three sentences. But here's a way to look at it. Imagine an open source project that actually sells the software and distributes profits back to software engineers.

There's one more thing I didn't mention. This organization will need a CEO. But his job will be very different from those of other CEOs. His job will be that of a Chief Organization Architect. He will be a psychologist who will need to masterfully manage a system of rewards and punishments in order to get the organization to function properly. It's a full-time job. This organization may need to change every month or every year. In fact, I'd expect it to look totally different a year or five years from now. He will also have to fix the problem of the digital divide and get the message out to the poor billion that lives below the poverty line. This may in fact become a great opportunity for them. A $100 laptop project may be a good start.

September 8, 2010 at 9:23am

David Sims

Matt,

I'm drawn to this idea immediately, particularly since I'm recently returned from the ranks of corporate employ to the world of independent, self-employed, freelance consultants. I'm reveling in the freedom that I missed while I toiled inside organizations for 15 years and bringing a new level of energy to the projects I work on -- since it's more clear than ever that I'm choosing them.

So which organizations would this be right for? The spontaneous response would be, "All of them." But then I start to think of plenty of organizations where it really might not work. My wife, for example, works as a labor-and-delivery nurse at a small hospital. There, it's a matter of safety for the manager to ensure there is a steady supply of nurses on hand to deal with whatever comes. And this supply has to be willing to work evenings, weekends, holidays -- babies don't make appointments. So a certain of authority seems necessary to make sure the unit is staffed. Do all emergency services fall into this category? Police departments, for example, have no profit motive (when they're run properly!) so a salary rather than profit-sharing seems necessary there.

It occurs to me the model is most suited for the realm where it already exists: creative enterprises. Software development, advertising, web design, consulting -- these are all efforts that need to draw the best from a wide variety of talented people. But they're largely project based; it's an advantage for the organization to be only lightly connected to these talented players, drawing them in when their passion is ignited, letting them wander off when they would rather be doing something else.

So with those two extremes in mind, I wonder how widely the model would work across the spectrum.

September 8, 2010 at 11:27am

Matt Shlosberg

David,

Thanks for the comment.

You are right! This model won't work in every type of business. My original thought was to apply this to software and professional services organizations. That being said, I went through an exercise where I took businesses for which I thought the model won't work and I tried to come up with a way it may work for them anyway. Surprisingly, I was able to come up with an answer almost every single time.

Here's something to remember: this model doesn't depend on profit distribution; it depends on communities of passion. Think about open source. There's no profit motive, but a similar model works. Going back to your example - many fire departments use similar models. They get volunteers who don't get paid but do beautiful work because they are passionate.

One of the reasons this model works is because you allow people to be who they want to be. When people get regular jobs, they look for something that pays money. Enjoyment is important but is secondary to income. As a result, you have many people who hate their jobs. This hatred carries a lot of side effects. The model I am proposing eliminates this problem. People will only join if they are passionate. They will only stay on the team if their team mates (who are also passionate) will vote for the person to stay.

This is a philosophical conversation, of course. It's hard to tell which types of businesses this model will work for without trying and seeing results. But I am very tempted to try to launch this model in the software world...

September 10, 2010 at 7:20am

Matt Shlosberg

Harvey -

Thank you for your message. Your comments are very helpful.

You are right. This model is not full proof nor is it meant to be. It's ability to perform isn't any stronger or weaker than other models. Every model has pros and cons. One of the jobs of a manager is to deal with those pros and cons. If anyone were to start a company using this model, he would definitely face lots of challenges, but it would be his job to figure them out and make the company work. But I am not sure this task will be any more challenging than that of running a traditional firm.

When it comes to empirical evidence, there are two things to consider. First, this is an innovative model. If people were to innovate based on empirical evidence, we would never have cell phones, cars, and Coke. Models like this are proven in action, not through research. Second, traditional models aren't really proven through empirical evidence either. If they were, companies would exist forever. I am yet to see a model taught in business school that helps the company sustain itself for an extended period of time.

I am not sure my model offers enough advantages over traditional models in order to be considered, but I think it'd be worth trying.

September 10, 2010 at 12:39pm

Harvey Summers

As a "business professor" (adjunct - which means I have a day job) who teaches Org Theory, this isn't keeping me up at all. Some thoughts: You have asserted all sort of unproven advantages with no downsides or tradeoffs, and can offer no examples of companies that have succeeded. You are assuming that virtual non-employees will offer attributes that employees lack, and that there is no cost to replacing poor performers or gaining new talent. At minimum, this will require an infrastructure with which to facilitate the exchange of new talent. And you have not addressed the barriers that this creates for participants, specifically that it will disadvantage those who need benefits or who are marginal but reliable employees. While Ayn Rand might approve, and this might work for some areas such as creative endevors, , I'm not sure that it brings value to socity as a whole.

September 13, 2010 at 2:52am

Neil G. Reay

This model is based on the concepts of Wikipedia, crowdsourcing, and other examples of participatory systems, EXCEPT that these systems are what people do in their spare time WHILE THEY HAVE A JOB THAT PAYS THE BILLS. Maslow’s Higherarchy of Need model says that until a person’s needs for safety and security are met, the individual cannot move on to be creative or self-actualized. If a person does not have a salary or other payment system in place, along with a means to cover medical care and other benefits, they are in “survival mode,” not creative mode. They are also without a sense of meaning without some sort of continuing relationship to the organization and other members of the group. I have done consulting for over ten years spread over a couple of periods, and know that it takes time to establish trust, understanding and cooperation in a team. Continuity is good with the right people and skills. And without a payment system to replace salary, people would look for earnings rather than fulfillment.

A second issue is that there are useful things like organizational memory and understanding, that keep a company from repeating errors and mistakes, undertaking projects for which they are not capable, and continuingly “reinventing the wheel” in terms of process. Assume you went out each day and rounded up people off the street and asked them to run the company for a day, and continually rotated a large percent of new people in each day. Chaos would result, and specific skill sets would likely be incomplete and out of balance. The model assumes that people are choosing to join the group and would have purpose, background and personal interest in the outcome, but there still needs to be an overriding mission and vision, as well as resource management system in place.

What the model does is provide an extreme example as a counterpart to the broken and obsolete old model of management. The true answer lies somewhat in the middle. Apply the principles of flexibility, open innovation, delegated authority and the like to a current organization. The old organization model is too rigid, but crowds are just unruly groups of people. Find ways to release the energy, drive and passions of employees who share a vision and commitment. Then things can really move forward.

September 13, 2010 at 3:43am

Matt Shlosberg

Neil -

Thank you for your comments. You have a lot of good points.

You are absolutely right. People will want to have jobs before they join an organization like this. There are two exceptions though: (1) really, really good salespeople who can earn a living on commission only and (2) the unemployed who are desperately looking for jobs and can't find anything at all. Consider real estate agencies. They essentially follow this business model. Agents join because they can either sell very well or because they are unemployed and they have nothing else they can think of that will make them money. Also, I think this model could work well for certain types of staffing companies. You would only need two types of people to join - the salespeople and the unemployed. Salespeople would be in charge of selling the unemployed group.

You are right about organizational memory, although somehow this hasn't been a problem in the open source industry. Maybe the process of retaining organizational memory has to be reinvented... Why does it reside in people and not the brand?

Thoughts?

July 18, 2011 at 10:17am

Alexander Polonsky

Hi Matt,

Here is a Hack that I've just written that is quite similar to your idea, but I think it takes it a bit further in terms of an implementation plan: http://www.managementexchange.com/hack/community-enterprise . I think it's a super important and interesting topic!

Best regards,
Alexander