What “Boss-less” Firms Can Teach Us

Phanish Puranam, The Roland Berger Chaired Professor of Strategy & Organisation Design at INSEAD |

A handful of “flat” firms are inspiring industry leaders to rethink the organisational hierarchy. But what’s so special about these firms, and why now?

Today, “hierarchical” and “authoritarian” are terms describing companies no one wants to work for anymore. Look beyond the rhetoric, however, and you’ll find that most firms basically look the same at the structural level, relying primarily on authority hierarchies.

So it’s no surprise that in recent years a handful of startling exceptions to the hierarchical norm have garnered media coverage and incited conversation among business leaders worldwide. You may already be familiar with Valve Corporation, the Seattle-based software maker behind such popular games as Half-Life and Counter Strike, and its famous “desk voting” method of task allocation. Valve employees have effectively no boss to report to; instead, they collaborate as they see fit, with wheeled desks allowing unfettered flow of talent between projects. If not enough colleagues sidle up to a proposed project, it won’t move forward. Bonuses and raises are tied to peer-conducted employee performance reviews. Software companies Menlo Innovations and GitHub similarly rely on employee initiative to form self-managed teams that work on projects of their own choice. 

Examples can also be found outside the forward-thinking technology fields. W.L. Gore, maker of Gore-Tex fabrics and many other products, has for many decades eschewed formal hierarchy in managing its nearly 10,000 employees –or “associates”, as everyone but the CEO is called – spread over dozens of countries. Instead, the associates themselves negotiate roles within their teams, and team leaders emerge organically from the ranks as they gather loyal followers. Gore takes its anti-hierarchical principles so seriously that it splits up units that grow beyond 250 or so people, lest each individual’s stake in the team become too small, and agreement harder to reach.

California-based Morning Star, the world’s largest tomato processor, bases its organisation on a sort of mission statement that is negotiated peer-to-peer rather than imposed by a boss, laying out each employee’s tasks and organisational affiliations. These are called the “Colleague Letter of Understanding” or CLOU. CLOUs for all 400 personnel are made accessible (and can be updated) via the company intranet, enabling colleagues to review each other’s performance.

What can the establishment learn?

These are diverse organisations within vastly different industries, but there are important commonalities. In its own way, each of these experiments in organising has replaced the conventional corporate hierarchy with self-organised teams, i.e. teams that are formed through individuals selecting what to work on, with whom, how and when. Because these team members have a greater hand in shaping their own work conditions and expectations, they require less hand-holding, training, inducement and discipline from managers compared to employees motivated purely by desire for a pay rise or the threat of termination. This is the mouth-watering promise held forth by these attempts at radical decentralisation - a dramatic reduction in the traditional costs of management.

Organising around the principle of self-selection is certainly a contender for inclusion in a list of “Organisation 2.0” practices.  I use this term to describe a variety of innovations in organising, which are united by a shared difference from conventional organisation design thinking. The traditional or “1.0” approach to design attempts to anticipate the interactions necessary for an organisation to thrive, and create the arrangements necessary to sustain those interactions. The Organisation 2.0 approach is to assume those interactions can’t be known in advance, and the role of the organisation’s designer is therefore to create the framework for employees to develop them spontaneously. This is what the organisational architects of Valve and Gore and indeed of Wikipedia and open source software development projects like Linux appear to have created. 

An organisation doesn’t have to be strictly either 1.0 or 2.0. Virtually every company accommodates non-hierarchical interactions (for example, email exchanges and instant messaging among employees) to some extent, and technological advances have made such interactions easier than ever before. But the question that today’s established firms are wrestling with is: Can self-selection and self-governance really work on a large scale as organisational principles? That will be the topic of my next post.

Phanish Puranam is the Roland Berger Chair Professor of Strategy & Organisation Design at INSEAD.

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Comment
Chuck Blakeman,

I'm a big fan of decisions being made by those who will have to live with them - it's a corner stone of what many are calling Participation Age companies.

This takes many layers out of hierarchy but it by no means makes hierarchy irrelevant. It's actually more relevant. Every company mentioned here has very clear hierarchy, it simply isn't the emphasis and it exists to serve the company and the people in the company, not itself.

Valve has a CEO, Gabe Newell. It also has a Business Developmet Chief, an economist, and many other speciality leadership functions. Those positions were not voted on - they were appointed by other leaders. W.L. Gore has six CEOs and that idea was not voted on. The first guy decided all by himself to invited the second guy, then the two of them decided to bring on the others. The company had no say in the matter. And Gore has a very clear and formal hierarchy laid out in Bill Gore's "Lattice Organization" paper. Semco is lead by Ricardo Semler - an even more apparently democratic workplace than any of the above - yet it has clear hierarchy.

We shouldn't confuse a lack of emphasis on hierarchy with lack of hierarchy. What all these companies have achieved is an hierarchy that is not focused on itself, but focused on using its authority solely for the benefit of the company and in support of the people who work there. It took great leadership and significant commitment to a clear hierarchy for each of them to create an environment where decisions are now made by those who have to carry them out. And if anyone came along and tried to destroy that, the hierarchy would pull rank and drum them out quickly.

Every successful business that is claiming a bossless and democratic structure is ironically led by a benevolent dictactor who is committed to using their authority to distribute the decision-making and to getting out of the way (Newell, Gore, Semler, etc.)

What we're witnessing is not the abolition of hierarchy, but the abolition of management in favor of leadership. Managers crave hierarchy and use it to empower themselves. Leaders USE hierarchy to empower others and get out of the way. The art of management is to ensure decisions all go through the manager (creates power for them). The art of leadership is to know how few decisions the leader needs to make.

Managers boss people. Leaders empower them. Leadership is critical to creating a "bossless" structure, and hierarchy, while de-emphasized and nearly invisible, is necessary to ensure decisions are made where they will be carried out.

Employees need to become Stakeholders (people who own their responsibility and can make decisions they have to carry out). And managers need to become Leaders. It takes exponentially fewer leaders than managers to run a company.

In the Participation Age, we get rid of the Factory System model; we stop managing people and simply lead them.

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