Story:
The keys to self-management. A coherent set of structures and practices to get rid of bosses, hierarchy and the pyramid.

Key innovations

More and more people sense that very notion of hierarchy and the resulting pyramid shape of today’s organizations are out of date. By definition, a pyramid restricts initiative taking and decision making to just a few people at the top. It fails to ignite the creativity, energy and passion of the vast majority of employees. And often the few people at the top who have real power to shape a better future dissipate most of their energy in power games and infighting. The world is becoming increasingly complex and change is increasingly fast-paced. Pyramid-shaped organizations prove to be increasingly unable to operate in such a world.

Many leading thinkers argue that the answer must be empowerment: a culture where leaders are trained to share their power with their subordinates, where decisions are pushed down the pyramid. This solution still rests on the notion that power is a currency in limited supply, and that power power given to people below is taken away at the top. Who likes to give something away? No wonder these types of organizations must constantly invest in training and culture to push leaders and managers to share some of their power. Why not go a step further, and create organizations on entirely different foundations, where everyone is powerful by design, because there is no more pyramid? 

All around us, we can see that truly complex systems thrive without hierarchy. Market economies, traffic systems, the human brain, and natural eco-systems are all highly complex, non-linear, adaptive systems that operate without hierarchy. An increasing number of truly exceptional organizations take inspiration from these systems to build large organizations that transcend the need for hierarchy. 

Some people mistakingly think that self-management simply consists in taking out hierarchy and creating a “flat” organization. This quickly leads to a power vacuum that creates major uncertainty. People look at each other and wonder who can take what decision. In the absence of agreed upon processes, covert or overt power games emerge to try and get things done. Regularly articles appear in the press reporting on organizations that have gone down this path, suggesting that self-management cannot work in practice.

In reality, organizations can’t take out one form of managerial coherence without putting another (more powerful) one in its place. The pioneering self-managing organizations in this research have reinvented almost all organizational structures, practices, and processes to adapt them to the organic, adaptative world of self-management. They show that self-management is not only possible, but is vastly more productive and more fun. 

So what do self-managing structures look like, if not a pyramid? The research reveals three different types of self-managing structures. Which one is most appropriate for an organization depends on the length and depths of its value chain. In some cases, the organization can be structured in a series of parallel teams, for instance, while in other cases, a structure of nested teams is required. 

But it is not only the structure that changes. Almost all of the basic organizational processes need to be adapted to a world without a boss. In today's model, a boss calls the shots when it comes to decisions such as setting targets, evaluating, compensating, making purchases or investments, etc. Pioneering organizations have upgraded all these processes to adapt them to a world of peer-based relationships. Politics is almost completely drained out of organization. Much better and faster decisions are made, fueled by a group's collective intelligence and passion. 

Here is a list of the key structures and processes that have to be upgraded for an organization to operate in self-managing fashion:

• The basic structure of the organization
• How staff-type functions are structured and provided
• How projects are managed
• How decisions get made and who can make them
• How investments and purchases are made
• How information flows
• How knowledge gets managed
• How teams coordinate actions
• How colleagues are recruited
• How targets are set and followed up
• How colleagues are evaluated
• How colleagues are compensated
• How roles gets defined and assigned
• How colleagues are dismissed
• How conflicts are resolved
• How crises are dealt with
• How strategies are defined
• How innovation is managed
• How targets are set
• How budgets are created and followed up

Each of these “hacks” is described in detail in a document attached with this entry (“A detailed description of structures and practices of self-managing organizations”).

Decision making―an illustration

Here is one illustration: how are decisions made in self-managing organizations, and who can make what decision? Can anybody just make any decision? That sounds like a recipe for chaos. Are decisions then made by consensus? That sounds exhausting and impractical, certainly for organizations with hundreds or thousands of employees. 

These organizations found the key to operate effectively, even at very large scales, entirely without hierachy, without pyramid and without boss subordinate relationships. The key is not consensus. It is to take inspiration from the corodination mechanisms that underlie all truly complex and nonlinear systems found, for instance, in nature. 

Almost all organizations in the research use, in one form or another, a practice that one of them called the “advice process.” In principle, any person in the organization can make any decision, including spending company funds. But before doing so, that person must seek advice from all affected parties and people with expertise on the matter. The person is under no obligation to integrate every piece of advice; the point is not to achieve a watered-down compromise that accommodates everybody’s wishes (and satisfies no one). But advice must be sought and taken into serious consideration. The bigger the decision, the wider the net must be cast―including, when necessary, the “CEO” (for lack of a better word) or the board of directors. Usually, the decision maker is the person who noticed the issue or the opportunity or the person most affected by it.

Dennis Bakke, the founder of AES, an electricity generation company of 40,000 people, recounts a story that exemplifies the advice process in action. One day Shazad Qasim, a recently hired financial analyst at AES, consulted with Bakke. He was intending to leave his role to go back to his native Pakistan and research the opportunity for electricity-generating capacity there on behalf of AES. Bakke remembers his reaction: 

I told him I was skeptical. Several years earlier, Agency for International Development (AID) representatives from the U.S. Department of State had encouraged us to expand into Pakistan. We had told them that we hardly knew what we were doing in the United States, let alone a place like Pakistan. Besides, it ranked as one of the most corrupt countries in the world for doing business. The ethical standards at AES probably ensured that we would never get any business there. 

Despite the CEO’s recommendation, the advice process meant the decision was Shazad’s. He decided to go to Pakistan, effectively creating a new position for himself as business developer, retaining his previous salary. Six months later, the former financial analyst invited Bakke to Pakistan to meet the prime minister. Two and a half years later, a $700 million power plant was running. In line with AES’s principles, the decision that AES would invest $200 million of its equity wasn’t made by Bakke or the board, but by Shazad and people with less seniority (who of course, given the amounts at stake, asked Bakke and the board for advice).

We often think that decisions can be made in only two general ways: either through hierarchical authority (someone calls the shots; many people might be frustrated, but at least things get done) or through consensus (everyone gets a say, but it’s often frustratingly slow and sometimes things get bogged down because no consensus can be reached).

The advice process transcends this opposition beautifully: the agony of putting all decisions to consensus is avoided, and yet everybody with a stake has been given a voice; people have the freedom to seize opportunities and make decisions and yet must take into account other people’s voices. The process is key to making self-management work on a large scale. It is actually so critical that, at AES and other self-managing organizations, colleagues know that forgetting to uphold the advice process is one of the few things that can get them fired (how someone can be dismissed in the absence of hierarchy is another process these organizations had to reinvent). 

It’s interesting to hear Bakke elaborate on the many benefits of the advice practice: in his experience, it creates community, humility, learning, better decisions, and fun:

• First, it draws people whose advice is sought into the question at hand. They learn about the issues and become knowledgeable critics or cheerleaders. The sharing of information reinforces the feeling of community. Each person whose advice is sought feels honored and needed. 
• Second, asking for advice is an act of humility, which is one of the most important characteristics of a fun workplace. The act alone says, “I need you.” The decision maker and the adviser are pushed into a closer relationship. In my experience, this makes it nearly impossible for the decision maker to simply ignore advice.
• Third, making decisions is on-the-job education. Advice comes from people who have an understanding of the situation and care about the outcome. No other form of education or training can match this real-time experience. 
• Fourth, chances of reaching the best decision are greater than under conventional top-down approaches. The decision maker has the advantage of being closer to the issue and … usually has to live with the consequences of the decision. 
• Fifth, the process is just plain fun for the decision maker because it mirrors the joy found in playing team sports. … The advice process stimulates initiative and creativity, which are enhanced by wisdom from knowledgeable people elsewhere in the organization. 

Avoid jumping to any hasty conclusions. The CEOs and other leaders of self-managing companies are anything but weak, hands-off leaders. Arguably, these CEOs and senior leaders are better informed and more influential than leaders invested with the powers of hierarchy. With the advice process, they are continually consulted regarding decisions by people from all corners of the organization. Information and decisions that reach them are not vetted and filtered many times over as they climb up the chain of command. In traditional organizations, senior leaders must do the hard work of integrating conflicting perspectives into a decision; because this process takes time, senior leaders become bottlenecks for decision-making. With the advice process, they can ask tough questions and give their opinions forcefully, but then move on to the next question; meanwhile, someone else will do the work of integrating different perspectives and advice. 

There is no prescribed format for seeking advice. People might reach out to colleagues in one-on-one discussion, or convene the relevant group for a meeting. When large groups are affected by a decision, email or the intranet is often the best way to collect input. 

For some reason, many people naturally assume that in the absence of bosses, decisions in self-management organizations will be made by consensus. And because they have been scarred by the paralysis and endless discussions that often come when people seek consensus, they are quick to dismiss self-management as a viable way to run organizations. So let’s be clear: self-management works because organizations have found ways to make decisions that transcend both hierarchy and decision-making.

In principle, consensus sounds appealing: give everyone an equal voice. In practice, it often degenerates into a collective tyranny of the ego. Anybody has the power to block the group if his whims and wishes are not incorporated; now it’s not only the boss, but everybody, who has power over others (albeit only the power to paralyze). Attempting to accommodate everyone’s wishes, however trivial, often turns into an agonizing pursuit; in the end, it’s not rare that most people stop caring, pleading for someone to please make a decision, whatever it turns out to be. With the advice process, no one has power over anybody else. The process transcends the need for consensus by giving everyone affected a voice (the appropriate voice, not an equal voice), but not the power to block progress. 

Consensus comes with another flaw. It dilutes responsibility. In many cases, nobody feels responsible for the final decision. The original proposer is often frustrated that the group watered down her idea beyond recognition; she might well be the last one to champion the decision made by the group. For that reason, many decisions never get implemented, or are done so only half-heartedly. If things don’t work out as planned, it’s unclear who is responsible for stepping in.

With the advice process, the ownership for the decision stays clearly with one person: the decision maker. Convinced that she made the best possible decision, she sees things through with great enthusiasm, trying to prove to advice givers that their trust was well placed or their objections immaterial. While consensus drains energy out of organizations, the advice process boosts motivation and initiative to unprecedented levels.

(See the attached document “A detailed description of structures and practices of self-managing organizations” for the full set of descriptions of the structures and practices necessary for organizations to operate in self-managing fashion)