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Flat is the new up: Why are companies using organizational structures that are thousands of years old?

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While most of us focus our attention on the technology and product innovation coming out of Silicon Valley, one of the most significant innovations of our time will come not from digital technology, but from the development of new ways of organizing ourselves to work together.

Despite radical advances in almost every aspect of technology and business over the past century, nearly every company in the Western world, from fledgling startup to global enterprise, still uses an organizational governance structure that was invented in the Industrial Age (and was a vestige of the Military Age before that). That is, a hierarchical, command-and-control structure with human “resources” expected to act as increasingly specialized, efficient cogs in a machine designed to do roughly the same thing over and over again.

A few pioneering companies are starting to experiment with abandoning these rigid old governing structures in favor of more dynamic ones that foster increased individual creativity, autonomy and flexibility among team members,  while also helping companies to more quickly and effectively adapt to changes in the external environment.

While working with technology company executives as CEO coach and culture development consultant for Unleashed for the past 5 years, I’ve been struck by the difference it makes when leaders can challenge old paradigms. Here are three new operating systems forward-thinking leaders have adopted that are showing signs of success:


Managing by “pod”

Hiten Shah, founder of KISSMetrics, is an expert in the lean startup methodology. But he didn’t stop at thinking through how to guide KISSMetrics to build-measure-learn its way to a successful product. He began experimenting with the organizational structure itself. Rather than the traditional vertical groups (marketing, product, engineering), he created autonomous pods with at least one person from each discipline. Each pod is essentially a startup unto itself, with its own scope of product and its own set of metrics and goals. Pods have rotating leaders, so there’s no one person with the title of manager.

After their first experiment with pods, workers gathered feedback about how well the pods were working as an organizing structure, and then tweaked and re-configured the pods – both in the mix of roles and product scope — to ensure that teams were not duplicating efforts. KISSMetrics continues to experiment with different configurations.

Welcome to “Holacracy”

At the recent Wisdom 2.0 Conference, Twitter and Obvious Corp founder Ev Williams talked about how Obvious is using Holacracy to design and “dynamically steer” the organization. Holacracy is a new social technology that changes how an organization is structured, how decisions are made and how power is distributed throughout the company (it has its roots in the Agile Programming movement  and was invented by Brian Robertson, an agile software programmer).  Instead of top-down authority, a Holacracy places the organizational power in a set of explicit processes and structures designed to achieve the company’s purpose.

In a Holacracy, every role in the organization has an explicit, documented purpose and set of accountabilities, and roles exist separately from the individuals who happen to be filling them at the time. The core operating processes include two distinct meetings that occur on a regular (typically weekly) basis: Tactical (actions) and Governance (structure), each with a clear set of procedures. The Governance meeting is what most distinguishes Holacracy: it allows for explicitly changing the organizational structure on a weekly basis!

If a project or set of tasks is proposed that does not clearly fit into the explicit accountabilities of any current role in the organization, then the Governance meeting will resolve the ambiguity by assigning it to a particular role. This leads to much more clarity throughout the organization around who owns what, and who makes which decisions. Moreover, it is a dynamic process that allows the team to continue to evolve as the external world demands new projects and tasks that were not previously envisioned.

Zero governance

Valve is game development company with more thanb 300 employees and a string of successful, groundbreaking releases. It also has a per employee profitability that the company claims tops Google, Microsoft and many other high-flying tech companies. And yet the company literally has no formal management or hierarchy at all. Last year, Valve’s employee handbook was leaked, giving us a view into the unique way that the organization is run.

At Valve, no one tells employees what to do (or what not to do) and there are no reviews, no job titles or promotions. Leadership of any project is determined in an organic way by whoever steps up. Raises and bonuses are based on peer reviews. If a team member decides one day to do something different, he or she simply moves their stuff and gets going. The company proudly proclaims that it has been boss free since 1996.

Upon joining Valve, industry veteran Michael Abrash wrote a blog post about his experience, which gives us insight into founder Gabe Newell’s reasoning behind Valve’s structure: “What matters is being first and bootstrapping your product into a positive feedback spiral with a constant stream of creative innovation. Hierarchical management doesn’t help with that, because it bottlenecks innovation through the people at the top of the hierarchy, and there’s no reason to expect that those people would be particularly creative about coming up with new products that are dramatically different from existing ones – quite the opposite, in fact.”

Dave Kashen is co-founder of Unleashed, a leadership and culture development firm for startups. He also writes the awesome culture blog. Follow Dave on Twitter @awesomeculture.

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10 Responses to “Flat is the new up: Why are companies using organizational structures that are thousands of years old?”

  1. Olivier Compagne

    horton, that’s a legitimate concern that calls for a balance between authority and accountability. Since you talk about tech, I’d be interested to hear what the folks at Medium think about that issue. They’ve been using Holacracy for a 6+ months now, they must have had the time to think about it.

    I can’t speak for Valve and KISSMetrics, but it’s actually not accurate to describe Holacracy as a flat structure. The organizational structure is “holarchic” – it’s a hierarchy, but where each layer has a lot of autonomy. For example, a team defines the purpose and accountabilities of a sub-team, and the sub-team then has full autonomy as to how it organizes and what projects it takes to achieve that purpose.

    We’re used to think binarily about hierarchical vs. flat structures; Holacracy integrates the benefit of both and compensates the downside of each with elements of the other one.

  2. hortron

    I am skeptical about non hierarchical organizations, mostly because of the large number of non-motivated individuals in the workforce. A team of people who are excited to create something, feel like peers at some points, and respect others’ experience and intelligence at other points can act as an amazing organism. Usually they are focused on building something well.

    But somewhere around half of the population (and I’ll just say in tech ) is motivated by having a secure job that pays the bills. These people succeed and do great things for business too, but I get a sense that their drive wouldn’t be motivated and realized in such an amorphous organization.

    There are even other workers who will do great work, but they just want to be given tasks, and they want explicit direction. They might even perform more optimally in a rigid structure.

  3. The architectures of business change rapidly when ‘economies-of-scale-as-a-service’ drive business. The Aaron Levie-coined term is highly appropriate when we think of what will replace the military-like hierarchy of business today. We wrote about it here:

    The idea that anyone with an idea can use cloud technologies to scale up by renting scalability as needed changes the industrial age paradigm. Fascinating to see what’s happening. Governance changes as well as the reporting structures of companies that rent what’s needed and forgo the traditional structures.

  4. eridani99

    I’ve been thinking about this a lot lately. I’m in a typical hierarchical command structure. My team just changed directors and it’s incredible to me the impact one person can have in such a setup. The old guy wanted zero drama and was all business. The new guy wants endless jockeying for position and all the drama you can imagine. The same group of 60 people that worked beautifully together for 3 years under one person is now tearing itself to shreds under another. We went from a no-nonsense, efficient and effective organization to full-on Lord of the Flies in about 3 months. It’s crazy that this is the impact of just one personnel change.

    I love my work. I love my boss. It’s a shame to leave, but I’m getting off the island before I end up like Piggy.

  5. love this article….this way of thinking is also being used in education—students learning in groups, competition, changing leaders etc. This is the way of the future. Corporations
    must stop thinking about profits only and the uinstead use ideas to save money and increase creativity and worker input. JAN

  6. futu[re]dux

    Interesting, I wrote about Valve’s “Cabal” structure for the original Half-Life development back in 2010 and 2011.

    I asked Gabe Newell directly about it.

    “The simple answer is that hierarchy is good for repeatability and measurability, whereas self-organizing networks are better at invention,” Gabe said, “There are a lot of side effects and consequences. The lack of titles (roles) is primarily an internal signaling tool.”

    “The alternate answer is that organizations that think they are hierarchical actually don’t gain advantage by it (they actually have hidden networks), and that the hierarchical appearance is the result of rent-seeking.”

  7. Hi Dave, I work with HolacracyOne and I’ve rarely read such an accurate description of Holacracy from someone who hasn’t experienced it directly, nicely done. If I was to nitpick, I’d clarify that the frequency of tactical & governance meetings in Holacracy is not set in stone, it entirely depends on needs. Usually, governance are less frequent — it is often not preferable to change the organization structure every week, but again it is need-based.