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Debunking The Myth Of Why Workers Need Managers

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Frederic Laloux’s Reinventing Organizations(Nelson Parker, Mar 2014) recounts the success story of energy company AES in its early decades as a shining example of self-managing organizations. Dennis Bakke and Roger Sant started consulting firm Applied Energy Services (AES) in 1981, in Arlington, Virginia, in a very classic and heavily industrial line of business. AES built and operated thermal and hydroelectric power generation systems, as well as electrical grids. Within ten years, the company had built power plants in 29 countries, joined the Fortune 200, and grown their employee base from 1400 to 50,000. From the very beginning, the founders conceived of a different model from what they experienced in their prior jobs working in the US federal government. Mr. Bakke related his personal frustration with hierarchies:

I experienced the debilitating effects of “serving” central staff groups. It seemed as if I had 15 bosses. Each one of the offices was responsible for something I thought was essential to operating my program… As the executive of the program, I was not really trusted to operate it or speak freely about it. It was almost as if I didn’t have a job. At best, my “line” job was about coordinating all the “staff” people who drifted in and out of my program.”

With AES, they decided to limit employees teams of 15 to 20 people and set them to manage themselves. Each work site was in turn limited to 15 to 20 teams, totaling up to 400 people at max per location. They considered this a natural limit that still allowed people to recognize and know each other well. Per the book, the degree of self-management was quite granular.

“Teams at AES were responsible for decisions relating to all aspects of day-to-day operations: budgets, workload, safety, schedules, maintenance, hiring and firing, working hours, training, evaluations, compensation, capital expenditures, purchasing, and quality control, as well as long-term strategy, charitable giving, and community relations.

AES had no central maintenance or safety departments, no purchasing, no HR, and no internal audit departments.”

Instead they set an 80-20-rule, where people spent 80% of the time on their primary role activities, and 20% on task forces across teams within sites. This was no light task; consider that the budget for operating plants went up to $300 million a year. Yet, only a few people from headquarters with specialized experience would advise in the operations, leaving the decision mostly to the local teams. Similar voluntary task forces in each work site would decide on for example, performance compensation, environmental work, and community service.

This degree of decentralization of authority seems difficult to accept; isn’t this just pushing the bureaucracy down to a lower level? Yet, the success of AES is in part proof. Bakke was at the time considered one of the most successful CEOs in the business world at the time because, primarily due to the culture and the collective achievements of the self-managed organization itself.

He refutes common myths about the work ethos of workers (a subset from Laloux’s book):

  • Workers are lazy. If they are not watched, they will not work diligently.
  • Workers need to be told what to do, when to do it, and how to do it. Bosses need to hold them accountable.
  • Workers put their own interest ahead of what is best for the organization. They are selfish.
  • Workers work primarily for money. They will do what it takes to make as much money as possible.
  • Workers are like interchangeable parts of machines. One “good” worker is pretty much the same as any other “good” worker.
  • Workers are not capable of making good decisions about important matters that affect the economic performance of the company. Bosses are good at making these decisions.
  • Workers do not want to be responsible for their actions or for decisions that affect the performance of the organization.

[I would also add to this list: Workers come and go. You have to rely on managers to maintain continuity of the business.]

These myths sit in place because most organizations fail to test the alternative possibilities, relegating them to risky propositions of employees running amuck. What we have needed for a while is continuing evidence that left to manage themselves, they can not only survive but also thrive as our classic organizational models are hitting their limits to move at the pace of business today.

Self-managing and shared value organizations have been mantra of various business thought leaders such as Gary Hamel, Don Tapscott, Michael Porter, and even the late Peter Drucker. Think of an organization that is for all intents entirely decentralized, with ad hoc or self-assembling teams that work on all functions we associate with a business or non-commercial activity. No central administrative body, and few formal leaders. Novel performance reviews and management approaches. And most of all, no hierarchy of jobs. These radical concepts demand successful real examples of how such organizations operate.

Self-management has been around for years; W.L. Gore, the maker of material products like Gore-Tex, first started exploring self-management principles in the 1950s. Yet, they are still radically different from how the vast majority of businesses operate. They are rarely taught in schools, yet are the fascination of many a business school professor. Even during the recent Global Peter Drucker Forum 2014, the need for management innovation concepts  such as this were mentioned by Roger L. Martin of the Univ. of Toronto, Dan Pontefract of TELUS, John Hagel of Deloitte Center for the Edge, Dov Seidman of LRN, and of course, Gary Hamel of London Business School.

There is a great divide between the ideal of self-management, and practical applications. Many advocates for new management models stop at just describing the need, or highlight the success only within a single organization. What we need are reusable and widely applicable approaches. I have read books on the subject and countless articles on the topic, but Laloux’s Reinventing Organizations is a rare, exceptional book with both the detail and the volume of examples on self-managing organizations in multiples industries and across geographies.

This book gives me confidence that such a model can work broadly worldwide. It shares the practices of organizations that have made the successful transformation. He details this on a grand concept level, a case study level, and at the detail operational level covering: decision-making, coordination, conflict resolution, governance, performance management & compensation, purchasing & capital investment, external contracts & partnerships, and much more.

Laloux gives examples across various industries: energy production (AES in the US), healthcare (Buurtzorg in the Netherlands), IT consulting (BSO/Origin Consulting in the Netherlands), education (ESBZ in Berlin), industrial products (FAVI in France and Sun Hydraulics in the US), food processing (Morning Star in the US), clothing manufacturing (Patagonia in the US), video games (Valve in the US), social services (Resources for Human Development in the US) and media (Sounds True in the US). These range in size from 90 employees to over 50,000, showing that it isn’t something limited by scale—a common criticism about self-managing organizations.

It is difficult to discuss the book without first explaining the background framework that Laloux uses to classify and categorize management approaches. The author takes an evolutionary view to the operational modality of organizations, starting from simple yet strongly autocratic models that only permit single leaders to decide what is important, to new models where this responsibility is spread outwards across the workforce. As his model evolves across his categories of Red, Amber, Orange, Green and finally towards Teal organizations, the locus of who decides what is important moves from a centralized core to a shared perspective across the entire workforce. It moves common principles of operations, ethics and targets from a command-and-control viewpoint to one shared by the full workforce.

This categorization framework is important throughout the book, and the author provides numerous comparison tables that describe how the operational aspects or the working philosophies change across these color-names. For example, in one section he describes the how specific operational processes of work or task allocation, performance evaluation, compensation and dismissal, evolve between Orange model organizations (most companies today) and Teal organizations (his key case studies). Elsewhere he places this framework to highlight how organizations structure projects, carry out meetings, manage crises, share information (or not), etc.

This framework becomes the lens through how we can picture the world of organizational management, per this book. While the categories do not seem forced or trite, at times they do feel fairly broad in definition. While the cases in the book come from different backgrounds, most share some of the common properties per their place in the framework, typically, Teal organizations.

I often come across roadmaps to organizational transformation that seem a series of apparently straightforward steps, that to me makes me feel such authors often oversimplify details or did not do enough research. I sometimes find the poorest examples in the classic b-school trick of making an acronym out of their principles. That is not so in this book.

If you are looking for a short cut with low-risk and rapid payoff, then this book is not for you. The ideas within do not come without sacrifices. It will take some collective soul searching, by many people across an organization to decide if they can actually work this way. The sum of it is that people who work in Laloux’s Teal organizations exhibit a high degree of trust, transparency and accountability in each other, to the point these are self-reinforcing in the organization. A leader who wants to overcome the oppressive weight of bureaucracy may find solace in the ideas of self-management, but must also face the brutal reality of honest transparency. If they can stand the flame, the may join the ranks of the new class of organizations that both perform well and satisfy all involved.

[As I indicated, this book is too complex to explain in a single article, so I hope to publish future pieces that look at specific topics and strategies described within. You can download an excerpt of the book directly from his website. ]

Rawn Shah is an independent analyst and consultant focused on collaboration, culture and management. You can follow him on Forbes, Facebook, LinkedIn or Twitter.