Although traditional hierarchies and processes – which together form a company’s ‘operating system’ – are optimized for day-to-day business, they can’t handle the challenges of mounting complexity and rapid change. (Kotter, 2012)
Why we need to let go of hierarchies to create real acceleration
Businesses need to accelerate to keep up with the rapidly emerging changes in society. In this chapter, we explore what this means for workers and the companies in which they work.
We start with an exploration of the present needs of employees and the changing nature of their work within the context of the emergence of knowmadic workers. We then discuss a few examples of enterprises that are organized according to knowmadic principles, and look at what we can learn from them.
The knowmadic worker
The “knowmadic worker” is knowledgeable, is willing to share their knowledge, and is able to work together with a variety of people at varying locations. Technological progress enables him (or her) to work at any time, anywhere, and transform this knowledge into something you can use at anytime and anywhere. The number of knowmadic workers is increasing steadily, and this puts different demands on organizations. Knowmadic workers look for personal and professional development, autonomy and responsibility, optimal technological facilitation, and flexibility in work hours, to name a few. Traditional, hierarchical organizations do not seem to match these demands.
More and more people prefer a different kind of labor relationship to the traditional contract, including freelance employment, sometimes organized in a network structure, and small companies with a clear identity. It seems to be the result of an ever-growing need for self-actualization, autonomy, and emotional fulfillment. Big companies with a clear identity, who create a community of followers, are successful as well (i.e., Apple, Ikea, and Google). They tell an appealing story that people can relate to. It makes us want to be part of “the team,” an important need for the human species.
The idea is not new. In the early 1980s, Peters and Waterman (1982) published an analysis of successful organizations. Companies that spend a lot of time, energy, and money on the “soft” aspects of business proved to deliver the best “hard” results. The authors categorized eight aspects of success that today are still very relevant: an excellent enterprise is biased for action, close to the customer, stimulates autonomy and entrepreneurship, values its people, is value-driven, stays with the core business, and keeps its staff lean, and combines centralized values with decentralized autonomy. The question is, if their book, In search of excellence, was written thirty years ago; how is it possible that not every enterprise has followed its conclusions? Apparently, the sense of urgency to adapt these views is low. Our presumption is that in Knowmad Society this sense of urgency will grow. The tension between the needs and wants of the laborer and the conditions that traditional organizations offer will increase.
This chapter first takes a look at the evolution, biology, and neurology of human interaction, and the implications for leading and following. What are the patterns in our social exchanges? We place these patterns in the perspective of Knowmad Society. Is the knowmadic paradigm of working and learning aligned with our biology? What does it mean for existing hierarchical organizations and institutions? How can they make the transition toward becoming knowmadic organizations?
Search for “spreeuwen Utrecht” on YouTube.com, and you’ll find a beautiful video of a flock of starlings over Utrecht, The Netherlands. The flock moves as one dancing cloud, seemingly connected through an invisible magnetic field. A peregrine attacks, and the flock apparently decides as one mind to split up and move out of the way, after which the separate clouds melt into unison as soon as the peregrine is gone. What moves them? Which laws are they obeying? How can they fly so close and not fly into each other? The same questions apply to a school of fish or a pack of wolves on the hunt. These processes and questions are amply researched. For example, a pack of wolves hunts following two principles:
- Get as close to the prey as is possible without risking bodily harm; and,
- Stay as far away from the other wolves as possible
This way, the prey can be exhausted without escaping, and the wolves are not in any danger. Whether birds, insects, or fish, these kinds of rules are researched or discovered for each of these species. Craig Reynolds (2001) developed a program in the 1980’s that simulated the movement of fish and birds in a school or flock. He called the moving triangles in his simulation “boids,” and came up with three rules they have to obey in order to function in what he called the swarm:
- Keep enough distance as not to get in another’s way, and change direction to avoid collision;
- Move in the same direction as your nearby swarm members; and,
- Make sure there is cohesion, and stay near to your nearest swarm mates.
This is sometimes called swarm intelligence (SI) and is based on the collective behaviors of decentralized, self-organizing systems, natural or artificial. This rules-based system is used for computer games, solving traffic dilemmas, and in the production of animation films. Another way of looking at SI is provided by Krause et al (2009, p. 29). They state that SI is, “a mechanism that individuals use to overcome some of their own cognitive limitations,” and that, “not all collective behavior should be regarded as evidence of SI.”
These principles of biology have enjoyed a renewed interest in the past decade within the management and organizational development literature, which concern our social organization patterns. Social neuroscience is a relatively new field that combines biology, psychology, and neurology to gain more knowledge on how we, as humans, interact. Evolution contributes to this knowledge by addressing the function of specific behaviors. The basic idea is that only those behaviors are passed on genetically which play a role in the survival of the species.
Can rules be formulated for the self-organization of people? What basic principles would we have to obey to come to an efficient and successful cooperation? You can get a glimpse of this on YouTube as well. Look for almost any video on crossing the road in urban India; the video will resemble that of the birds and fish. No traffic lights, no pedestrian crossings, no apparent rules: a multitude of people finds their way to the other side of the road, and usually without incident. However, we are intelligent creatures, aren’t we? We have the capability to reflect on our own behavior. Undoubtedly, humans don’t follow a few simple biological rules when it comes to their interaction, right?
It’s not news to anybody that humans are animals. We eat, mate, defecate, sleep, breathe, and procreate. We like to compare ourselves to animals: we are as sick as a dog, as hungry as a horse, or as gentle as a lamb. We have butterflies in our stomach, and a memory like an elephant. It gets more interesting when we look at our social interactions from a biological viewpoint as well. We like to think of ourselves as a higher order creature, and not as a simple animal. After all, because of our prefrontal cortex (the part of our frontal lobe that is responsible for much of our rational processes) we are capable of metacognition, and reflection on the interaction between our “me” and “our surroundings.” Because of that, we should be able to control ourselves and put things into perspective, wouldn’t you say?
What does separate us from the other animals? Frankly, science hasn’t come up with a clear answer to the question. Going from monocellular to multicellular structures, there probably were some accidental cell divisions that lead to more complex brain structures. About 200 million years ago, these developed into the first mammals, already equipped with a small cerebral cortex. This enabled them to perform more complex movements. They were mainly nocturnal. The brain areas for touch and smell developed first, according to fossil findings. Following the extinction of dinosaurs approximately 65 million years ago, some mammals expanded their territory to the trees. They were the ancestors of primates. Relying more on their sight while moving through the trees, the visual cortex became more important. In addition, since they lived in strong social structures, the volume of the frontal cortex increased as well. Social interaction is intensive in energy consumption, and the brain needed complex structures to do it well.
The brain is an efficient organ. However, the more impulses it receives, the more it starts looking for underlying patterns to speed up information processing. This might explain the presence of our subconscious and our incredibly fast ability to analyze and react. From this point on, the development of the brain was probably an interrelated string of events, leading from more-refined motor functioning to provide better food, to continued brain growth, to better living conditions, and so on. Finally, 200,000 years ago, the first humans began walking on African soil (Robson, 2011).
In short, during the time that we walked around on two legs, our neurological structures have formed and adjusted to help our biological system (body) survive as best it could. This applies not only to our interactions with the surrounding flora and fauna, but also to our interactions with other people. Our knowledge on social interactions, on the feelings of another person, and on safety and threat has become part of our hardware. What we see, hear, smell, taste or feel is crucial in our functioning. It is fascinating to think how all these structures in our bodies have developed in a trial and error fashion, stemming from interaction with, and adjustment to, our surroundings – survival of the fittest.
Followership and leadership
People have always lived in communities. From an evolutionary point of view, that is the wisest choice. We are not the largest, not the strongest, and not the fastest species alive. It takes a long time before our offspring can take care of themselves. Together, we are much stronger. In case of sickness or physical threat, the members of our groups can protect and take care of each other. Being part of a group, we stand a much better chance to survive and therefore pass on our genes to the next generation.
The small, nomadic groups that long ago lived on the savanna knew that a system of leaders and followers helped them deal with social issues like the collection and preparation of food and creating a place to spend the night (see van Vugt & Ahuja, 2011). The benefit for the leader was that it led to increased status, more rewards like access to the best food and bed, and more sex. For the follower, it meant the benefit of protection by the leader and the group. This was a mutual agreement that leads to satisfactory results for both.
Leadership and followership appear to have developed into the “natural order of things,” and have become part of our hardware in the millennia that followed. The group member who was good at following had a better survival rate and passed on the “follower genes.” The genes of the group leader who was followed best were also best passed on. These processes created a genetic programs for “follower” and for “leader” (van Vugt & Ahuja, 2011). Leadership exists, according to van Vugt and Ahuja (2011), as a result of followership. The leader is the one who is best suited for the specific task at hand (i.e. the best hunter or the strongest warrior), and is followed because of that. Leadership is not necessarily limited to one person, but can be divided over different people, depending on the division of tasks. The followers determine the leadership. There is a great example of this on YouTube as well, search for a video called, “Leadership from a dancing guy.”
So, followership pays off, and creates a better survival rate for the follower genes. Solitary behavior has a harder time surviving. Not only is the loner at a greater risk to run into personal danger, he also cannot learn about more effective behavior to deal with his surroundings by looking at the actions of other group members. Followership is therefore widespread. There are more followers than leaders; and, in times of uncertainty and crisis, there is a cry for leadership and direction in business as well as in other areas of society.
Followership-enabled leadership could be interpreted as traditional organizational structures being the best suited for our biology. It connects with a human need to be lead, and every echelon gets its leader. It’s true that this traditional structure offers a context that appeals to the biological need for leadership and followership. However, this structure turns a fluid need into a solid solution; leadership for a vast range of tasks is attributed to one person instead of being divided among the most suited people per task. An organization that is truly aligned according to “bio-logic” does not deny the need for leadership and followership, but stimulates the distribution of leadership in line with the capacities of people.
In the framework of Knowmad Society, and with the idea that behavior develops in adjustment to surroundings, this leads to the following question: can we design the context or structure of an organization in a way that encourages every individual to take on leadership and followership, depending on which is best for the situation and task at hand?
With evolution and group behavior in mind, it doesn’t make sense to study a human being by itself. Our brain develops in constant interaction with its (social) surroundings. If we really want to understand how the brain works, then it has to be researched not as a solitary phenomenon, but as a social organ, part of and coherent with other brains. In the same way, our individual body is a coherent system of billions of cells which we do not normally research from the perspective of a single cell. This idea is the basis of social neuroscience.
As stated earlier, we aim to be as effective as possible in handling our context so that we have a better chance at survival. We constantly scan our surroundings for that purpose. Every second, thousands of impulses enter through our senses. We register, process, and interpret these impulses, and, if necessary, turn them into action. Many of these impulses come from people around us. Emotions are an important factor in this interpersonal exchange. Fear we read on another person’s face can point out the danger somewhere near us. Repulsion can warn us not to eat a specific food. In a social setting, emotions and facial expressions also communicate information on our social status (Schutter & den Boer, 2008). We especially judge all impulses on their level of possible threat or possible reward. In many cases, we are not even aware that this judgment takes place, but our physiological signals give us away (Williams et al., 2006). The higher the level of threat or reward, the higher is the need for action. Both have to do with survival. We need to act when we fear harm, but we also need to act when we have a chance, for instance, to obtain great, nourishing food, social satisfaction, or sex.
To motivate us to act, our brain mainly uses two important systems. The brain reward system (BRS) motivates us to move towards a stimulus and to action. The most important neurotransmitter in the BRS is dopamine. When we are doing something that is good for our survival, like eating or having sex, dopamine is released. It gives us a sensation of pleasure, it helps us focus our attention, and it motivates us to repeat this behavior (Nuytten, 2011). However, we tend to get used to dopamine, so the BRS needs more and more stimulation to achieve the same level of pleasure.
When we experience a potential threat to our existence, the amygdala (an almond shaped organ in the middle of our brain) starts up a stress response that includes the release of cortisol. This neurotransmitter prepares our body for action and motivates us to create distance between the threat and ourselves. First, it sharpens our judgment of the threat, second it prepares us to handle the threat if necessary: fight or flight. Third, cortisol helps us to remember the situation. That way, we can prevent it from happening again, by noticing it sooner or avoiding it altogether. This does not happen when the threat is too overwhelming, however. The experiences that we memorize eventually lead to wisdom and intuition (Ratey, 2008).
It’s not only the physical stimuli like sex, food, spiders or snakes that lead to a release of dopamine or cortisol. There are aspects of social interaction that result in the same neural experience of pleasure or pain. Through these systems of reward or distress, our brain can encourage us to move toward or away from another person or a situation, or to engage in different kinds of behavior.
The model we will use to describe pain and reward in social interaction is the SCARF-model by David Rock (2008), founder of the NeuroLeadership Institute. In the SCARF model, Rock categorized five factors of social interaction to which the brain reacts in a similar way as to primary physical threats or possible reward:
Status concerns the relative position of an individual in a group. It is the way the individual perceives the position that matters. The question, “am I higher or lower in status than the others?” is important. The more positive the perception of our rank is, the more pleasurable the situation. From an evolutionary point of view, when we are making a positive contribution to the group, we can be more at ease about our survival because we are part of that group. A negative ranking, however, is threatening, and leads to stress. It is the weakest link that is most attacked in a herd. So, it’s not so much about hierarchy, but about perception of our status.
We estimate our added value in groups by assessing our knowledge and experience, our ideas and input, and our feeling of being a “better” person than someone else. It is easy to feel threatened by our status, and it is easy to threaten someone else, even if we do not want to. We can do it by sounding intimidating, when we explain something that did not need an explanation, or when we tell someone how to do his or her job. We can even threaten status just by asking, “may I give you some feedback?”
The good news is we can also enhance a person’s perception of status quite easily by acknowledging their improvement at a task and sharing compliments, preferably when others are present. An organization where it is clear for every individual what his or her added value is, where focus is on strength, and where possible weaknesses are discussed openly and constructively, has the best chance to maintain involved, happy, and responsible people.
What does the future look like? Most people like a certain degree of predictability in that respect. We look for familiar patterns to make sense of our surroundings and to understand what is happening. Certainty leads to predictability, and it leads to a feeling of ease. Not knowing what will happen next leads to stress. In an unpredictable environment, we need to stay alert constantly to assess our chances of survival. Our brain never gets and gives the “all clear” signal in such an environment, and because of this, it cannot relax. In a secure, stable environment, it can.
Change is constant in today’s society, as it is in the emerging Knowmad Society. Each day might bring a different workspace, different people, and different experiences. These dynamics put a great demand on people. Our hardware is not fully aligned with these developments. In traditional organizations, a lot of time is spent on planning, organizing, policies, structures, budgets, and forecasts. Working in these areas leads to a sense of security and control. However, they do not fit in knowmadic organizations where uncertainty and lack of predictability is the norm. What does it mean for the knowmadic worker? Can uncertainty be a certainty? Is it possible to relax in the certainty that things will be different in the morning? The next aspect, autonomy, might help us address these questions.
A sense of control over our circumstances leads to a release of dopamine. Autonomy is all about the ability to act, chose, and influence the situation. When we have a greater sense of autonomy, we are better able to deal with stressful situations. When there is little sense of autonomy, we feel like things are done to us, and not by us. In a knowmadic organization, the responsibility for decisions and outcomes lies with the worker, his- or herself. The knowmadic worker longs to create as much freedom of choice and as much influence as possible. In this respect, the knowmadic organization seems to encourage the release of dopamine. It’s a better match to human biology than traditional organizations, where responsibility and freedom of choice often seem to get lost in a maze of rules and regulations that aim to create certainty.
Imagine three people in a virtual ball-tossing game. Only one of them, the subject, is actually playing the game, the other two are generated and controlled by the software of the game. The subject does not know this and thinks he is playing with two other people. Suddenly, the other two stop throwing the ball at the subject. They only toss the ball to each other and don’t seem to notice the subject. The neural alarm system goes off, and just like in situations involving physical pain, disgusting odors or too much noise, the dorsal anterior cingulate cortex (dACC) is activated (Eisenberger et al, 2003). We like to be part of a group, and cooperation makes us feel good.
From an evolutionary point of view, the function of the alarm system is obvious: being part of the group drastically improves our chances for survival. Knowmadic workers are not devoted to traditional group membership; their definition of the group is a different one than in traditional organizations. They relate to each other on shared values, areas of interest, and the exchange of knowledge. Face to face contact is combined with virtual contact. Geographic or organizational boundaries disappear. The group is not limited to a department, an organization, a city, or a country. The same goes for the boundary between work life and personal life. Friends and family are part of the network the knowmadic worker uses to “get things done.”
Getting a fair share of whatever there is to divide among group members leads to a release of dopamine. As should be clear by what we have written before, every signal that shows that we are a well-respected part of the group does the same. When we don’t get a fair share, but we can explain it away as a function of effort or experience, we might still perceive an unequal share as fair. The more transparency about rewards, results, and arguments for both parties, the better we can assess whether our share is fair.
The sense of fairness is not only important when we, ourselves, are the subjects. Our brain also reacts when we experience unfairness in the world we live in. This might be an explanation for our sense of pleasure when we “do good” by doing volunteer work or fighting injustice in any way.
So, the stress and reward system in our brain motivates us to take some kind of action. By experiencing hunger, we start looking for food. By burning ourselves, we step away from the fire. By experiencing the cold, we look for shelter. We see the same causality in social interaction. Feeling the pain of social exclusion can motivate us to start looking for a group to relate to. Because we experience grief over losing someone, we are eager to look after our loved ones; by working together we improve the position of the group.
Besides being a motivator for action, the stress and reward system might also work as a distraction. When we feel stressed because we experience a low status, are uncertain about the future, lack autonomy to change things, feel suspicious about our “fair share” and/or we feel excluded from the group, our main attention will be focused on survival. This may not necessarily lead to trying to be a better group member, but could lead to getting set in our ways (creating predictability), defending our territory (holding on to autonomy), political games (enhancing status), gossiping (checking our suspicions, working on relatedness), etc. By creating a respectful, safe, empowering, challenging-but-not-threatening environment, there will be a lot of energy and attention available for creating instead of surviving.
It seems obvious what this means for a work environment. How do the five factors of social interaction, to which the brain responds with stress or reward, influence the way we organize ourselves in Knowmad Society?
In the previous part, we posed three questions:
- Can rules be formulated for the self-organization of people? What basic principles would we have to obey to come to an efficient and successful cooperation?
- Can we design the context or structure of an organization in a way that every individual is encouraged to take on leadership and followership, depending on which is best for the situation and task at hand?
- How do the factors of social interaction to which the brain responds with stress or reward (SCARF) influence the way we organize ourselves in Knowmad Society?
The next part of this chapter describes several examples of organizations that have successfully introduced new ways of organization (as a verb, not a noun). We look at what they do differently, how they do it and at the impact on the people who work there. At the end of this chapter, we will revisit the above-mentioned questions and give our answers from a theoretical and practical perspective.
Humans organize themselves to co-exist, co-create, and achieve goals. This does not just apply to social environments. In order to survive, companies need to organize, too. During the last 100 years, the scientific management philosophy of Frederick Taylor became the leading viewpoint in the design of the operating systems of companies. The focus of his approach was on analyzing workflows and improving efficiency. Attention to the human element grew over the years and changed the perspective on an employee’s contribution to the company. However, the hierarchical way of thinking mainly remained intact. Due to the challenges of mounting complexity and rapid change, as Kotter (2012) reveals in his article Accelerate!, there is now a need to let go of this hierarchical way of thinking. Enablers became disablers.
By using examples and experiences, we will show you the way to non-hierarchical modes of organization. We apply one credo: Let the non-believers step aside of the way of the ones who have already adapted to it.
In our line of work, we often meet managers and entrepreneurs who think it is impossible to change a hierarchical organization into a self-organizing network. It is generally accepted that approximately 75% of all change projects fail. Cultural and behavioral aspects seem to play a significant part in causing these failures. When asked, these leaders tell us that it has to do with difficulties they have experienced in the past with change management projects and with what they have read about others’ experiences. Other times, leaders are critical of self-organizing because it might mean they lose their position of power. Thirdly, they point out their past experiences and how self-organizing has been tried and failed to succeed, like with Volvo in Sweden in the 1970s. Change seems difficult, and self-organization is, for most of them, a completely new perspective on organizing from which they might therefore shy away.
Context determines behavior
A relatively new Dutch home care organization was formed, called Buurtzorg Nederland. The company consists of self-organized teams of about 12 employees. Customer satisfaction is significantly higher than in similar organizations, and they report a growth in their efficiency rate of 30% in comparison to other home care companies. In 2011, their employee satisfaction was the highest amongst all large Dutch companies. In 2012, they received the “Best Employer Award” out of 269 participating companies, awarded by Effectory.
In the last 15 years, Buurtzorg Nederland has grown into an organization with 5,000 employees (Kuiken, 2010). Many of these workers came from traditional organizations, where change is considered difficult, and where bureaucracy and hierarchical structures were thought to be necessary to properly organize the business. One day, they quit their jobs and joined Buurtzorg Nederland! When they started at the company, those same people proved to be able to manage themselves successfully. How is this possible if human behavior is so difficult to change? Is Jos de Blok, the founder of Buurtzorg Nederland, just a lucky guy? On the other hand, does he have a very strict employee selection policy? Considering the number of employees, how has he reached this success?
We can answer those questions by looking at another, similar transition. This occurs when people move from being an employee to establishing him- or herself as an independent professional. Entrepreneurship triggers these individuals to instantly change their attitudes and behaviors. The returning theme in both examples is that the context in which people work largely determines their behavior. Culture (collective behavior) follows structure. It makes tinkering with people –a billion dollar industry– a hopeless exercise. Especially when the context in which these people work remains unchanged. Different behavior and a new culture require a fundamentally different context. Let us explore some patterns.
Organizing is a tool
The main reason why transitions in organizations do not work is that tools get confused with goals. Organizations, and especially hierarchical organizations, are often seen as the main goal itself. Institutions, whether being a department or a team within an organization or an organization as a whole, often pursue primarily one goal: the survival of the institution itself. The fallacy here, in our opinion, is that organizations are perceived as a static object, while, in fact, they are snapshots of a dynamic process called organizing. Organizations are solidified moments of organizing. When we elevate maintaining a temporary solidification of organizing to a goal itself, we are using our energy the wrong way. We deny the dynamic nature of reality. In this phenomenon, many organizations lose a lot of money, time, and energy.
This can easily be overcome. First, we need to become aware that every organization is solidified organizing. The present form of any organization is chosen in the past to co-exist, co-learn, and pursue certain goals. Only when we have a clear idea of how we like to co-exist and co-create, and which goals we wish to pursue, can we evaluate the current method of organizing for effectiveness. Second, we need to dare ask the “why” question when confronted with organizational aspects that are perceived as common sense. Why do we organize? Which goals do we pursue through our organizing? More importantly, we need to dare answer this question in all honesty and refuse to accept answers like, “that’s just the way we do things around here,” or, “we’ve tried everything and this is the best way by far.”
The bottom line: It is always about cultivating behavior
By structuring, we want to cultivate behavior. Why? The right behavior of employees leads to success. It is that simple. Therefore, it is important for organizations to be very specific in the kind of behavior that they need from employees to be successful. Once this is clear, it is important to discover what structures cultivate that behavior. Looking at job advertisements, it seems in almost every organization innovative, entrepreneurial, involved, hands-on, pro-active, and socially skillful behavior is the desired behavior. However, the structures of those organizations usually do not cultivate it. On the contrary, they usually provoke standardized, bureaucratic, and solitary behavior.
New perspective, new perception
Another condition for a successful transition to a non-hierarchical organization is to become aware of, and reconsider, the implicit assumptions driving organizational choices. Fundamental organizational change will only succeed if the basic assumptions driving organizing actually change. Change programs often fail because they start from the same, basic assumptions that have contributed to the need for change. That is doomed to fail! As Einstein is attributed to have said, “the significant problems we have cannot be solved at the same level of thinking with which we have created them.”
The mainstream, commonly accepted view on organizing stems from the Newtonian worldview. That is, he world is made up of separate parts (i.e. molecules) that can be connected and used as building blocks. We call this a linear-mechanical approach to organizing. So, organizations are machines that can be built, rebuilt, used, traded, and repaired as such. Social Darwinism added the idea that these loose particles are in a constant battle – or fear of battle – with each other. This battle is the basis of and justification for our short-term profit maximization strategies in corporations (Coolpolitics, 2012).
The combination of both phenomena, separate building blocks in a constant battle for survival, is the basis of the prosperity that we are all experiencing. “The increasing dynamics and complexities, however, expose the Achilles heel of these systems,” said Herman Wijffels, former director of the World Bank and former CEO of Rabobank. “The systems that previously guaranteed our success are the cause of the different crises we are currently experiencing. The need to fundamentally organize our organizations differently knocks hard at our doors” (Coolpolitics, 2012).
Fortunately, the “new” physics offer a new perspective. By analogy, Einsteinian and quantum physics teaches us that molecules are not the basic building blocks of our existence, but that we are all components of, and connected by, communication. Adopting that notion leads to a totally different way of looking at companies. They are complex systems instead of a linear production line of services or goods. Again, combined with the notion of “the survival of the fittest” (as in “best fitted for the circumstances”) by Charles Darwin, an entirely new perspective on organizing arises. This fundamentally different way of organizing starts from the idea that organizations and their environments are interdependent and that system processes are cyclical rather than linear. This means that we can only evaluate organizations as a whole within their context and that it is useless to look at any separate part.
This sounds abstract. but we must begin with abstraction to ensure that we start from the correct principles and assumptions. When we do not, there is a risk that we are what the English say, “rearranging the deck chairs on the Titanic.” That is, we are busy with cosmetic issues while the company sinks. For the last 150 years, under the influence of the industrial revolution, we have perceived and treated businesses as mechanical systems. As previously mentioned, hierarchical organizations contributed a lot to the prosperity we have built, but they no longer deliver the desired results in the complex 21st century. In fact, as we will explain later, the systems that guaranteed success in the 20th century are counter-productive today.
A fundamentally different way
Besides Buurtzorg Nederland, there are more very interesting examples of businesses that organize themselves in a fundamentally different way. Take Finext, a financial services provider that is growing in times of financial crises. Finext shows extraordinary profit figures and is a magnet for talent. In May 2011, 85% of the employees joined in buying out all shares of Finext from its parent company, Ordina. This is the first employee buyout in The Netherlands.
Another company, WDM, also defies the norms of the hierarchical organization. WDM rents, maintains, and repairs trucks. The company went bankrupt late 2010. They restarted with new shareholders in early 2011. WDM ended the year of 2011 with a modest profit. For 2012, it looks like WDM will report a profitable year. In fact, the expected profit is higher than ever before. And, this will be achieved with one-third of the previous workforce. Moreover, the company does not have any managers – the employees lead the organization jointly.
First, we will examine the patterns behind the success of WDM, Finext and Buurtzorg Nederland. Then we will explore the specific situations of the three companies. Finally, we will discuss the transition process of letting go of hierarchies in formal organizations.
Separation of form and function creates space.
An important first step in the de-hierarching process is to disconnect function and form. When we use the word “organization,” nearly everyone thinks about organizations as a matrix or hierarchy. Remember, organization is solidified organizing. Organizing is a process of structuring work to realize efficiency and effectiveness. As stated earlier, organizing is a tool and not a goal in itself. It is essential to put function before form. Legitimate functional questions that lie at the basis of the organizational choices are:
- What behaviors of employees are needed to excel in achieving our organizational goals?
- What structures support these behaviors the best? And, to break the barriers of the existing organization:
- How would we structure our organization if we founded it today?
A practical example is the recurring discussion about trust and control. Advocates of trust-based organizing, experience the command and control structure of the hierarchical organization as oppressive, bureaucratic, and ineffective. Opponents state that it is naïve to organize based on trust. There are countless examples where employees abuse trust, and it leads to chaos, theft, and inefficiency.
When we transcend the polarity and look at the functions of control and trust, it is conceivable that a structure can be created in which the starting point is trust. By applying transparency, a corrective environment may be created so the naïve aspect is covered without spiraling into in a bureaucratic-hierarchical reflex.
This is illustrated in a real life example. At Finext, employees hand their expense statement declarations to the back office, and, without control, the declared amount is credited directly to their bank account. The only condition is that the statement is visible for everyone on the company intranet.
It is good to realize that any form of organizing is a tool to achieve goals. What purpose is served with a hierarchical organization? Or, what is its function? Hierarchical organization is a tool to create efficient manufacturing processes. It is a tool to utilize resources efficiently and to make output manageable. However, organizing hierarchically has a number of unintended side effects. The most common side effects are:
- It averages 50-60% utilization of the potential of employees (see Managers Online, 2011) – well-organized mediocrity.
- Lack of innovative strength, adaptability, and agility.
- Takes responsibility away from people and encouragies docility. This cultivates learned helplessness – organized irresponsibility.
- Focus on separated (partial) interest, and lost sight of the importance of the bigger picture and their own influence on it – an “us vs. them” culture.
These side effects are acceptable if the work is simple and repetitive and the business functions in a predictable, stable environment. In a complex and dynamic environment, though, the influence of the unintended consequences of organizing hierarchically is unacceptably high. It is good to become aware that hierarchical organization is a form of organizing. The separation of function and form provides space. Space to find and apply other better working alternatives, given the setting.
How context determines behavior
So, if innovative, entrepreneurial, involved, hands-on, pro-active, and socially skilful behavior is the right approach in most organizations, and the employees of Buurtzorg Nederland, Finext, and WDM do behave that way, what can we learn from their organizational choices? What are the common denominators? In medication, we talk about “active ingredients.” They are the substances that cause the desired effect of the drug. What are the active ingredients in de-hierarchization? Here’s a summary:
1 Values driven. Value based principles provide a foundation and compass in the process of de-hierarchization. Hierarchical organizations are rule-based. The advantage of principle-based organizing is that principles give direction for behavioral choices in every situation. Rules are rigid and blind to reality. Principles allow for using one’s own brain. Rules enforce docility. Principles spur people to take responsibility. Employees who take responsibility help organizations excel. Examples of Finext’s values are: Doing the work you love; Trust the ones you work with; And, no rules or politics.
2 Value networks. De-hierarchic organizations structure themselves as value networks. They see and organize themselves as an interdependent system that is inextricably linked and mutually dependent on their environment. They seek synergy with all stakeholders and mutual value creation beyond short-term profit maximization. They think and act in a way that serves value creation for all stakeholders. With each choice, the impact on all stakeholders is considered. This focus on value creation and interconnectivity appeals to the need for meaning among employees. Talented individuals like to work in value networks (van den Hoff, 2011).
3 Organically structured as small in large, and small and agile entrepreneurial elements in a connected network. This combines the advantages of being small with the advantages of the larger organization (Wintzen, 2007). Key ingredients for this type of network organization are:
- The system and environment is complex;
- Rapid interaction between the components of the system (communication);
- Learning based on feedback (local information);
- Delegation of processes that can be regulated better at lower levels; and,
- Timely escalation of issues that must be solved “higher” in the system, after which they are delegated.
As mentioned above, Buurtzorg Nederland works in small teams of 12 people. Finext works with teams called Business Projects, which also comprise 12 people. The teams are profit and loss responsible, and they make their own strategic, tactical, and operational choices.
4 Passion and talent go before structure. Structure is the stage on which talent & passion excel. Structure is serving and will be updated if it does not have added value anymore. In network organizations, committed employees work with passion and talents on projects. The “chore” tasks the group members divide among themselves are based on a deep understanding that these also need to be done. The big advantage is that intrinsic motivation is the driving force for employees. Second, it keeps everyone aware of the necessity of those tasks. If they are no longer needed, they are no longer done, instead of maintaining them out of habit, or because someone was hired to do them and wants to hang on to the job. The self-determination theory by Deci & Ryan (2000) identifies three innate needs that, if satisfied, allow optimal functioning and growth:
Network organizations provide an environment that meets these needs. Thus, the potential of employees can be reached. Talented people like to work in an environment in which they can excel.
5 Shard leadership. In all three organizations, there is no imposed hierarchy. Power is decentralized explicitly. Leadership is a task for everyone. Leaders in a network are leaders by the grace of their followers. The best person, given the present issue, is taking the lead. Shared leadership departs from equivalence and allows, where necessary, hierarchy to occur naturally. This creates servant leadership and discards it of all its frills, ego, and status, which is a lot more functional. Thus, craftsmanship becomes the focus again. And, you avoid the Peter Principle: “In a hierarchy, every employee tends to rise to his level of incompetence” (Peter, L. L. & Hull, 1969).
6 Transparency. In a network, information is shared. So, fast-paced information exchange is encouraged. Information is generated and used locally. Thus, organizations are closely related to their customers, and they can respond to change quickly. Transparency of information is a prerequisite for:
- Local entrepreneurship: Having the correct information to be able to adequately respond to situations and opportunities that arise in support of the larger picture.
- A corrective environment: Visibility contributes to a moral compass for employees. In the possible absence of self-discipline, or when possibly erroneous decisions occur, the environment through transparency can quickly adjust matters. This creates short and powerful learning loops.
7 Cyclical processes. The command and control structure is typical for hierarchical systems. Input leads are set via a structured and manageable process to a predictable output. Growth is linear and something which one can manufacture. Need a new budget? Last year + 5%.
A network organization starts from cyclical processes. Often, budgets are serving instead of leading because there is not much predictability when it comes to a dynamic environment. It is important to be alert and well informed in order to respond to developments. Ambitions and expectations are aligned and regularly validated and/or adjusted. With a keen eye on reality, the highest achievable objective is pursued. In hierarchical systems, the objective is often elevated as being a goal in itself instead of reaching as high as possible. Time and energy is spent on keeping goals “realistic,” and on justifying why targets are not met.
In addition, there is continuous attention to the impact of the organization on its environment. Cyclical processes are much more sustainable and don’t produce large heaps of waste.
8 Democratization. Hierarchies are centralized and autocratic. This leads to a lack of agility and capacity for change. De-hierarchization brings decentralization of authority and responsibility. De-hierarchization leads to democratization, which organizes authority and responsibility as close to the customer as possible. Therefore, employees can respond in an adequate and entrepreneurial way to customer demands and change.
De-hierarchization in practice
So far, we have described the changing expectations and needs in today’s work life, we have looked at human behavior in social processes, and we have described some of the common denominators of businesses that are well adjusted to Knowmadic Society. Now, let’s have a closer look at those organizations to give an idea of their organizational form at this time.
Buurtzorg Nederland revisited
Buurtzorg Nederland, as described earlier, is a home care organization with 5,000 employees. The organization was founded in 2006 by Jos de Blok, a former manager at a “normal” home care organization. Buurtzorg delivers the prescribed care in 37.75 percent of the indicated hours where comparable organizations need 70 percent of the indicated hours. Their client satisfaction rate is 8.7 on a scale from 0 to 10 (Nivel figures) and is the highest in the sector. Their overhead costs are 10% (average in Home care is about 30%). In 2011, Buurtzorg had the highest employee satisfaction of large businesses in The Netherlands. In 2009, they realized a growth of 3,684%. It is an impressive performance record, right?
By letting teams of 12 highly skilled nurses provide care, and organizing nurses in small autonomous care teams, the resolving power and professionalism of staff is fully used. Supported by coaches of the national organization, the teams are profit and loss responsible. The coaches have no power, and so they can only advise and coach.
These neighborhood care teams are supported by a national organization. It uses modern ICT applications, thus reducing administrative costs to a minimum. The cost of management and overhead is kept as limited as possible. In short: better care at a lower cost is an attractive proposition for clients, professionals, and insurers.
Jos de Blok came up with this structure by asking himself what home care is about. He came to the conclusion that home care is about helping clients, as quickly as possible, to take care of themselves (what you do not use, you lose), and that clients want to be helped as much as possible by the same professional. Due to the small, smartly organized overhead cost, autonomy for professionals, and the appeal that the organization is doing on the organizational ability and common sense of employees, professionals like to work for the company. As mentioned earlier, it is striking that employees who come from mainstream organizations perform much better, with much more pleasure, and with more satisfaction while working for Buurtzorg Nederland. People do what they love and they were trained for, instead of spending most of their time tending to bureaucratic procedures.
Finext unburdens the CFOs of the 500 largest Dutch companies or foreign businesses headquartered in The Netherlands of many business services. The company has about 120 employees. The employee satisfaction rate was in three consecutive years, 8.1, 8.3 and 8.5. (on a scale from 0 to 10) where similar companies score an average of 7.0. The staff involvement is 80% versus 20% at comparable companies. The employee absentee rate has been below 2% for years now. They were, by far, the best performing child company of the Ordina Group, and their customer satisfaction is significantly higher than in similar organizations.
Finext originated in the Vision Web, a network organization with two activities: change management and ICT services. The Vision Web has quickly grown into an organization with 600 employees. In 2003, the Ordina bought the Vision Web. Until 2011, Finext operated autonomously under as an Ordina holding, but in May of that year, 85% of the employees bought the shares of Finext. This was the first successful employee buyout in The Netherlands.
What brings success?
Finext’s success stems from the way it is organized. The company is a network of profit and loss responsible business projects. The projects are built around a specific service instance, a geographic location, or another common denominator. Employees, now intrapreneurs, commit themselves, based on passion and talent, to one or more projects. All information is shared transparently, from knowledge, insights, and leads, as well as salary and customer data. This makes Finext a dynamic and entrepreneurial breeding ground where everyone feels responsible for the success of the company.
There are no job titles within Finext. This literally means that there are no managers or staff officers. Everyone works on billable projects for clients. In addition, the employees all take part in the organizational tasks to manage the company, based on their competence and interest. These include recruitment, organizing client events, internal auditing, strategic choices, etc. Decisions are taken at the level of impact of the decision, preferably as close as possible to the customer. Anyone who may be impacted by the decision has the opportunity to be part of the decision making process. Sometimes this way of decision making takes more time than autocratic decision making. Nevertheless, as Fokke Wijnstra, one of the founders of Vision Web, and still closely involved in Finext says, “sometimes you have to take the time to speed up.”
The “extra” time that is spent on the decision-making process, is dwarfed by the time saved in the implementation of those resolutions. If you consider the “implementation time” in autocratic decision-making regimes, it is the complete process of having the discussion about the decision and implementing it that takes far more time. This makes the internal organization of Finext up to 30% less costly and more efficient than similar companies. Let us take their administration as an example. It employs 2.4 FTE, and provides the overall administration plus the payroll in house. In addition, they earn back their salary costs because they also engage in project work for other companies. That is what we call real intrapreneurship!
Adaptability: A matter of survival
“Well,” we hear entrepreneurs often object when we talk with them about the de-hierarchization of their companies: “If I could start again, I would like to build a network company, but I already have an existing organization and changing it into a network organization will never succeed.”
Adaptability is the most valuable skill that exists. Charles Darwin made it clear with his “survival of the fittest” theory. Companies which are not able to adapt to the changing environment will not survive. It is that simple. Right, change sometimes hurts. But, that is nothing compared to the “pain” which occurs when companies structurally fail to adapt.
For the transition process of de-hierarchization, we see two basic strategies.
First, start your company next door
“Large, hierarchical companies are often destined for the same fate as the dinosaur: extinction by a chronic lack of adaptability.” These are the words of the late Eckart Winzten, the entrepreneur behind BSO, now known as Atos Origin. During his career, he built BSO from 10 to 10,000 employees. It was his strategy to split up his company in two separate organizations when it reached the size of 50 employees. What can you learn from Winzten’s strategy when your company grows bigger then 50 employees, and changing the company becomes very difficult? Do not beat a dead horse, but just restart next door. Keep working hierarchically in the existing company. Invent and build a new company parallel to it with a number of crazy pioneers.
Second, shift radically from the existing organization to a new context
Build, with a core team, a new de-hierarchical organizational context for a business or organization in a short period –up to two months. Pick a start date, and run your company in the new context from day one. We applied this kind of organizational transition and found out that it works both in production environments as well in knowledge-intensive companies. Examples we worked on include the car rental company, WDM, and a section of a medium-sized engineering company. Employees, apart from a few exceptions, soon picked up their new roles and behaviors. We now literally see that creating a new context develops new behavior, just as what happened with nurses from a regular company migrating to Buurtzorg Nederland. If the context is correct, the desired behavior follows.
Finally, back to the practical dilemmas. Earlier, we have posed three questions. Now it is time for some answers, based on the practical and theoretical information we shared in this chapter.
Can rules be formulated for the self-organization of people? What basic principles would we have to obey to come to an efficient and successful cooperation?
If we summarize this chapter in a few simple rules for self-organization, then these would most likely be:
- Agree on/review what you want to achieve by coming together as a group of individuals;
- Agree on/review what value system you want to maintain getting there and how this translates to behavior;
- Create transparency in information that is vital to the achievement of goals and to the maintenance of the value system so that all members have access to this information at all times;
- Stay away from solidified organization and positions, hierarchical or otherwise;
- Always question or allow questions on why things are done a certain way;
- Check regularly whether what you are doing makes you happy and act upon it; and,
- Check regularly whether you would rather do something else and act upon it.
Can we design the context or structure of an organization in a way that every individual is encouraged to take on leadership and followership, depending on which is best for the situation and task at hand?
The enablers of the 20th century are the disablers of the 21st century. John Kotter (2012) wrote, “although traditional hierarchies and processes – which together form a company’s ‘operating system’ – are optimized for day-to-day business, they can’t handle the challenges of mounting complexity and rapid change.” Why? The patterns and operating systems of hierarchical organizations preach mediocrity, obedience, and docility. This behavior was necessary to optimize day-to-day business in the industrial era. The mounting complexity and rapid change explains the necessity to design structures that encourages workers to take the responsibility to lead in their field of expertise and level of competence. Organic structures decentralize power. The democratization of organizations leads to safe environments where workers feel ownership for the companies’ interests.
This leads to adaptive behavior; the best-qualified person for the current task takes the lead, and the others follow. Biologically, it satisfies basic needs such as status and safety. And, it enhances status because workers are a valued part of the team. It is safer because, on topics where workers are less competent, others can take the lead.
How do the factors of social interaction to which the brain responses with stress or reward (SCARF) influence the way we organize ourselves in Knowmad Society?
We argue self-organizing environments satisfy the basic biological needs to which the brain responses far better than hierarchical environments. The lack of hierarchy influences the sense of status in a positive way, as does the appreciation of different talents and passions. There is no more or no less certainty as in a traditional organization, and no effort is put in pretending to be able to create it. Workers are very autonomous, they can act and influence any situation, although that doesn’t mean they will always get their way! Relationships pose the same challenge as in traditional organizations. However, since there is no leader, there is no person designated to deal with differences and conflict. If people want to work on their relationships, it is up to them. When it comes to relatedness, the feeling of belonging to a group, self-organizing environments show potential for great cohesion. This has to do with the common values that bind people together within an organization. Workers are usually very committed and very connected in these companies. And, for the element of fairness: because all information is readily available, it is easy for people to check whether they got their fair share. If they did not, all they have to do is change it –and explain why to their colleagues.
We will not pretend the sun always shines in these companies. It is hard work to have honest and open discussions about values, about behavior, and about decisions. It is not always easy to take total responsibility for one’s behavior and results. And, one person is better than the other at vocalizing his or her needs and troubles. But, observing the behavior of workers in a self-organizing environment drives our conclusions. The goals workers achieve, the commitment they show, and, above all, the fun they have, leaves no other conclusion.
Do you want to adapt to Knowmad Society? Do not change people; change the companies they work for.
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