Time to get real. After six long posts comparing three advanced management systems and the traditional, hierarchical management, it is time to look at their performance. Which system is better?
The first nomination of the world’s next top organizational model happens right here – right now! You have the opportunity to cast your vote now or at the end of this post.
What are advanced Management Systems useful for?
All advanced management systems are focused on releasing the inert creative potential of individuals and teams in an organization. To use the wisdom of everyone in the organization to come up with much more ingenious solutions to whatever problems the business faces.
All advanced management systems agree that hierarchical management systems do a bad job fostering learning. And all three are out to rectify that by toppling the hierarchy and pushing down control to the individual, to the point where work is done, and the best info is available to make a decision.
Liberation and Holacracy take on a very decisive approach to that devolution of control. They abolish the hierarchy for all intents and purposes. This is subject to the goodwill of the benevolent dictator at the top, whose primary missions becomes shielding the organization from hierarchical interference from within.
This is not a starting point for Management 3.0, though. Management3.0 aims to work with the hierarchy through slowly growing the maturity level of the organization so that more and more authority, control and decisions can be pushed down to work level. The ideal state does not have to be a total abolishment of the hierarchy. For some organizations with particular business models, lower complexity, and lower degrees of change, maintaining a strong hierarchical model can still be the optimal strategy. Management 3.0 practices can help here and there, but the hierarchy may still remain the dominant factor in an organization. Therefore the focus of Management3.0 is more on sustainable excellence by whatever means, not only by pushing authority down to work level. Still, devolution of control remains its main driver for change.
Wherelse Holacracy is a rather rigid system of management, Liberation and Management 3.0 are more sets of beliefs and worldviews which leave a lot of room for interpretation. Holacracy is built on the premise that one system fits all. Wherelse the other two systems recognize the complexities of businesses and refrain from rigid advice. Instead, they are just pointing in directions.
What premise is better? Holacracy’s premise of “one size fits all” sounds ridiculous at first, but if you understand that Holacracy’s core is actually limited to a very general mechanism of a company, i.e., to make operational and governance decisions as a group, it is really quite reasonable from a logical standpoint.
My pick for outcome focus: All three advanced systems. I believe in emancipating people. I have been proven dumb as a Nut so many times by supposedly less educated, know-nothings. In this more and more digital world, I wouldn’t dare to run a company in an “I know it all!” way.
The metaphor for a classical organization is a centrally planned machine made of hierarchies and reporting lines that creates outcomes reliably and efficiently. From this intention alone one can derive that hierarchies will underperform…
- If the results cannot be exactly planned
- If planning is very hard, because of unpredictable changes in the environment
- If the creator of the machine (the “CEO”) has made unwise design decisions
By moving control away from managers and towards work level, the utilization rate of the intelligence of all the members of an organization will be maximized. The result is that time to market and costs decrease while revenue, quality, productivity, flexibility, and resilience go up.
My pick: All three advanced systems. I have worked shaping and optimizing management systems in my career and believe that hierarchies are great for routine work, but not for the modern, digital, knowledge-driven economy.
Initiative, Experimentation, and Learning
These three factors – initiative, experimentation, and learning are beautiful:
- They are linked to the future
- They imply that something is transformed from an inferior state to a superior state
- They are dynamic, permanently forward-looking
- They suggest a bias for action, to go out and explore
If these factors are left to the manager – as they systematically are in hierarchies- my stomach turns sour. If anything should be clear from the last six posts, is that hierarchies are simply not built for initiative, experimentation, and learning.
So with no further ado:
My pick: All three advanced systems.
Can advanced management systems be adopted by big or growing organizations? The Agile movement is centered on the team. The Lean Startup Movement is focused on small start-ups, which are seldom more than a couple of teams. Is there any proof that Advanced Management Systems can be scaled to companies with thousand or ten’s of thousands of employees?
Let us see what the greatest references are:
- Liberation: Michelin, ca. 112.000 Employees, but the transformation has just started in 2016 so only a minority of those are impacted, and the final scale is unclear yet
- Holacracy: Zappos, ca. 2000 Employees
- Management 3.0: Small companies or teams
More References for companies that have adopted these models can be found in the appendix of this post.
There is no clear evidence yet that the advanced management systems scale. As of now, smaller companies and teams use these organizational models, and some major cooperations are experimenting. Even Silicon Valley, with companies like Amazon and Tesla, restrict the use of flat hierarchies to their inner organizations and continue to rely on hierarchies for scaling their outer organizations, e.g., Logistics, Manufacturing, Sales.
My pick: The classical hierarchy. It seems to be that pure execution in low uncertainty environments is still best done in a hierarchy that enforces standards.
Advanced Management Systems are best to handle complex situations, but in predictable environments, the hierarchy is superior, as it allows quick and decisive scaling of operations.
Are Advanced Management Systems just good for Knowledge-driven Businesses?
The closing sentence of the last paragraph can be interpreted as meaning “keep advanced, nonhierarchical management systems limited to business areas where knowledge work is done.” There is truth in that statement, but you need to have a proper definition of knowledge work:
- Nurses do knowledge work. They have the maximum amount of info on their clients, they are where their patients are. This is knowledge work, too. See for example the war story of Buutzorg, which employs 14.000 people
- Manufacturing of Automotive Parts is knowledge work, see FAVI S.A.
- Designing, Selling and Producing clothing is knowledge work, see Patagonia
So why is running one of Amazon’s Distribution Centers not knowledge work, too? As variations are to be minimized and the work-force is ever-shifting, standardization is what is needed in a Distribution center. Still, feedback from work-level is appreciated and actively thought after. But this feedback remains just one input besides a whole array of other measurements that are used for the “scientific” design of warehouse layouts, automation, and processes. This is classical management with a small, data and business savvy team optimizing operations through Lean Start-up experimentation techniques. But control is definitely not pushed towards workers.
Maintenance of the Management Model
Every Management Model is a logical construct that humans superimpose over reality. An abstraction that must be carefully tended to, or it will degenerate. That is correct for classical hierarchies, too. There is no need for the organizational artifact “hierarchy,” if no one ever is enforcing hierarchical power and orders things to be done. A hierarchy where hierarchical power isn’t used is leaderless and will descend into chaos.
An abstraction that must be carefully tended to, or it will degenerate. That is correct for classical hierarchies, too. There is no need for the organizational artifact “hierarchy,” if no one ever is enforcing any hierarchical power and orders things to be done. A hierarchical organization where hierarchical power isn’t used is leaderless and will descend into chaos. So there have to be rituals enforcing the standards of these systems.
So there have to be rituals to enforce standards in order for any system to exist:
- In hierarchies, these rituals are called “Status Meetings,” “Annual reviews,” “Kick-offs,” “Reporting” etc.
- In Holacracy these are called “Governance Meetings,” “Operational Meetings,” “Tribes”.etc.
- In Management 3.0 supplements rituals of more or less hierarchical Organizations with a growing range of workouts called “Delegation Poker”, “Merit box”, “Value Poker”, “Guilds” etc.
- In keeping true to its fluid nature, Liberated Companies hasn’t got a list of standard rituals. Instead, war stories are used to describe motives, values, and behaviors. Any attempt of standardization runs against the grain of liberation
As it turns out, Holacracies rituals appear to be quite painful. Some Companies tried Holacracy and returned to the hierarchy. Even the poster child of Holacracy, the e-commerce company Zappos, had attrition jump to over 30% for two years (that is the ratio of people that left the company to the total number of employees). This quote from Andy Doyle, Head of Operation of Medium (a well-known publishing platform that tried and moved away from Holacracy) tells a lot:
…the system had begun to exert a small but persistent tax on our both effectiveness and our sense of connection to each other. For us, Holacracy was getting in the way of the work.
A similar pain of adjustment is to be born by management and employees in Liberated Companies. But Holacracies maintenance problems appears to be more severe. I suspect that…
- looking at an organization as an operating system and
- expecting people to be operating in that operating system and
- installing new organizational routines “just like apps on an organization system”
are fundamentally flawed metaphors. Ok, these are just metaphors, put words matter, and the number of people quitting is telling.
My pick: Management3.0. With Management3.0 an organization is able to remain firmly grounded in the socially known area of the hierarchy but is able to mature step by step, practice by practice, unit by unit to a more empowered work culture.
Spoiler alert: There is no empirical proof of any management system being superior. So far the complexity of separating the influence of the organizational model on a companies performance has eluded even the best of scientists. There are simply too many factors that determine a companies success.
But some studies come close to making this correlation between organizational model and a companies performance. Here are two of those.
From Good to Great
One of the best empirical studies on the impact of the organization and leadership of a company on performance is Jim Collins et al., “From Good to Great”, 2001. In this book, which is built on exhaustive empirical studies, Collins names 7 Factors for well organized (“Great”) Organizations.
You can find huge parts of the ingredients of Liberation, Holacracy and Management3.0 in each of those 7 factors. Collins did not go so far as defining a Management System out of those three factors. But if he did, I guess he would end up with a system which looks quite similar to these three advanced Management Systems discussed here, don’t you think?
Corporate Culture and Performance
In 1992, HBS Professor James Heskett and John Kotter, both professors at Harvard Business School, completed an extensive research project detailing the corporate cultures of 200 companies and how each company’s culture affected its long-term economic performance.
They found that those cultures highly value employees, customers, and owners and that those cultures encourage leadership from everyone in the firm. So if Customer needs change, a firm’s culture almost forces people to change their practices to meet the new needs. And anyone, not just a few people, is empowered to do just that.
One standout exhibit in that book highlights the difference in results over an eleven year period between twelve companies that did and twenty companies that did not have this sort of culture.
That study suffers from some biases. But the impact of culture on organizational performance is a theme that John Kotter is working on to this day, validating the findings at large in later studies.
My pick: All three advanced systems. I think all factors point into the direction that the three advanced Management Systems are beneficial for companies. Clear, academic evidence is elusive, though. But the proxies that we have, from the clear superiority of agile team level models (like Scrum) to Jim Collins or John Kotter’s holistic study of enterprise-level performance, point in the direction that hierarchy will often produce inferior results compared to advanced, emancipating Management Models.
Ladies and Gentlemen,
The votes for the nomination of the world next top organizational design have been received and counted. My verdict is:
3rd place: Hierarchy
One vote, albeit with an honorary mention for the ability to scale and its efficiency in low change, low complexity situations.
2nd place: Liberation and Holacracy
Four votes – with Liberation winning the sympathy prize, as there are lots of amazing companies running it. The bad thing for me as – I guess – technocrat is, these are just case studies, but no proof. Liberation might be nonprescriptive by design, but by being so, it means different things to different people. I can see beautiful things in it, but other people will see different things.
Holacracy is bolder because it makes those strict prescriptions that Liberated Companies refrain from. In doing so, it opens itself up to attack. I like that boldness, but it feels like too much technocratic engineering for me (..says a self-proclaimed technocrat…)
1st place: Management 3.0
The one vote that has tilted the balance in favor of Management 3.0 is the factor I called “Maintenance.” It is much easier and less risky for a company to gain the benefits of empowered Management Systems by following the gradual, maturity model-driven approach of Management3.0.
Management 3.0 is more prescriptive than Liberated Companies and less descriptive than Holacracy. This balance, works for me, as there is both, guidance and flexibility.
That concludes part 7 of the series. Are we done? Nope, one more to go. The subject of the next post will be on the different paths to adopting the three advanced management systems and some apps, tools, and suggestions that you might want to try on the road to devolving control.
Appendix: I need names, now!
Liberation References: There are businesses and persons listed here, who follow the creed of Liberation – at least in the mind of the two Dutch consultants maintaining this list. As there are no strict criteria of what liberation is, this list can be much more exhaustive than Holacracies list.
Management3.0 Site: There are very few references given on the site, as it basically started 2016 as an official trademark. Management3.0 does market itself as a set of agile practices, not as a system. So I expect there will be lots of company names in the future.
Holacracy does everything it does with missionary zeal and rigor. That’s analytically great, but it does complicate marketing quite a bit. The barriers to qualify as a “Holacracy-driven” company are quite high. Liberation has a much easier job to marketing itself, as it is hard to accurately pinpoint what exactly a “Liberated company” is. Management 3.0 is a marketers dream, as it just promotes practices and will find it easy to gather references along the way.
Last, not least: The updated Comparision Table
- Louis, David Marquet, “Turn the ship around”, 2012
- Frederick Laloux, “Reinventing Organizations”, 2015
- J. Collins et al, “From Good to Great”, 2001
- Issac Getz et al. “Freedom 2.0”, 2017
- J. Appelo, “Management 3.0”, 2010
- B.J. Robertson, “Holacracy”, 2015
- J. Haskett and J. Kotter, “Corporate Culture and Performance”, 1992
- J. Collins, “Great by Choice”, 2011
All sources and a short review can be found on ManagementDigital.net/Sources