Self-organizing models of governance, like holacracy, are comprehensive approaches to structuring and running businesses. They replace the top-down hegemonic system most enterprises still use, replacing the traditional schema with a new way of distributing real authority that instills adaptiveness and employee engagement in the fabric of an organization. Leaders have always delegated, but what makes holacracy different is that it delivers real control and responsibility. This is not delegation but actually a far more interesting and human activity of giving up power, distributing trust among an organization’s workers.
Though still a small sub-culture in the business world, decentralization of power has become increasingly prevalent, especially among the world’s fastest growing, customer-centric companies. These initial experiments allow workers at the lower rungs of the totem pole to make decisions that have significant impact on customer experience.
We have seen successes and failures, trials and tribulations. However, the rampant successes make self-organizing modes of governance extremely attractive, such as with companies like Zappos/Amazon, Red Hat, W.L. Gore and Associates, and even as far back as Lockheed Aircraft Corporation’s “Skunk Works” project during the second World War. These are not only services companies; they are some of the world’s fastest growing, innovative enterprises, which leads me (and many others) to wonder if there is a correlation between decentralization and agility.
After all, Agile Project Management is itself a localized form of decentralized governance, which has gained increasing popularity and applications across industries. What is absolutely clear: in the service of innovation, productivity, and competitiveness, there is no bureaucracy on this good, green Earth that can match a sprint or a scrum wall. Wherever substantial value is at stake, and speed-to-delivery is a must, we see self-organizing units take precedence over traditional business models. The success of Agile, and the key players who have achieved decentralized governance, suggest that when authority, responsibility and accountability is shared among more individuals, more can be accomplished.
If the C-Suite is committed to customer experience, then it will want to create one or more entities with the greatest capacity for innovation, so holacracy becomes an intriguing object of study. The following research is intended to help provide some examples to help figure out how to structure these entities to maximize productivity while reducing risk.
Self-Governance Is Larger than Customer Experience, Much Larger
Before I jump into this topic, it is important to mention the long history, and the multi-faceted nature of self-organizing entities. From Lockheed Aircraft Corporation’s “Skunk Works” project in 1943, to Agile Product Management, to Zappos’ holacracy, to cross-functional innovation centers in the United States, we have seen a clear long-term trend in the direction of self-organizing, operational units.
A number of pundits, both within and outside of customer experience, see self-organization as a response to pressures of the contemporary business world. Red Hat CEO, Jim Whitehurst, writes:
“The conventional approach to business management was not designed to foster innovation, address the needs and expectations of the current workforce that demands more of jobs (hello, Millennials), or operate at the accelerated speed of business. I came to realize, in other words, that the conventional way of running companies had major limitations that are now becoming more acute.” (The Open Organization, 2015)
Keep in mind that Mr. Whitehurst led his company from $500 million annual revenue in 2008 to almost $3 billion, a 500% gain, in less than ten years. Even more remarkable is the fact that Red Hat is an open-source software company; they give away their products for free and earn those revenues entirely in service contracts. If anyone feels the limitations of traditional management, it would be Red Hat.
That said, almost any company feels the limitations of traditional management, particularly in the area of customer experience. The need to innovate, to maintain an engaged, productive workforce, and to adapt constantly, are very real. If they were not, then traditional businesses would have no reason to consider transformation in the first place!
Decentralized Control to Counter Increasing Prevalence of Strategic Business Risks | Ritz Carlton
Once the C-Suite begins to consider self-governance as a potential solution, immediately, the lack of control over decision-making raises an armada of red flags. If we deliver greater autonomy to our workers and decision-making becomes decentralized, then we lose control, and we take on greater risk. Sure, the rewards could potentially be greater, but we might never reap those rewards if we stumble.
To this I would object on the basis that decentralization is actually a far more efficient way to manage risk, given the contemporary business environment. We have seen a number of companies lose over 40% of their value due to errors of mid-level managers and customer-facing employees. In many of these cases, the “error” was due to antiquated rules and processes, and was therefore not even the employee’s responsibility.
As business leaders, we must admit the possibility that the world is now too complicated, too diverse to control for every possible scenario. Perhaps, since they already carry the risk whether we want them to or not, employees also deserve the autonomy and education to take responsibility themselves.
But a complete transformation of the business is not necessarily the only way to guard against strategic risks. And though there are some examples (I will get to them below) of complete overhauls, most businesses can at least experiment with more moderate approaches to the risk problem.
Ritz Carlton is an incredible example of how simple, and yet effective, these customer experience policies can be. The company allows any employee whatsoever to discount a guest’s bill by up to $2,000 with no questions asked and no repercussions to the employee. Why would they do something like this? The risk of a dissatisfied customer is greater than the the risk of a $2,000 disbursement. This policy accepts financial risk in exchange for mitigating reputational risk.
What does this have to do with holacracy? Quite a lot. Although this is one, admittedly superficial change, it is an incredibly practical approach, one that is also worth studying for its application of best practices, which are consistent not only among successful customer experience initiatives but also share commonalities with many decentralized modes of governance.
The first of these is, front-and-center to our purpose, delegation of authority. The policy elevates all employees to the same level with respect to the customer. Even if this delegation occurs in only one arena, it communicates very clearly that anyone can make a mistake, and it is equally important to be able to apologize when necessary and in a way that carries real meaning to the customer.
Two: There is a support structure in place, so that employees understand they can use that authority as they see fit and without repercussions. There are plenty of good-on-paper policies that no one uses for the reason that exercising the authority could result in retribution. If we plan on giving authority to everyone, then we must also anticipate a certain paranoia among employees with less power within the organization. So we need to proactively demonstrate our desire to deliver that authority, and our assurance that exercising that power will in no way jeopardize their position.
Three: There is a feedback mechanism to document how/when the authority is used, as well as outcomes. At Ritz Carlton, discounts that are made under this rule are investigated after the fact. The employee is interviewed regarding the circumstances of the discount. The interview is then analyzed, so that the company can determine, confidentially, whether it agrees with the employee or not, and there is a process to incorporate the data into ongoing customer experience training. This helps to mitigate the acute risk of an incident, while also safeguarding against repeated incidents in the future.
Ritz Carlton’s example illustrates one policy-centered way to delegate authority, but as business leaders, we need more information, more examples of how decentralization is working, so that we can learn where and how we might create real, impactful change.
Exploring Holacracy and Self-Governance
Applying an holistic practice like customer experience to a traditional business, even just discussing the matter, feels like we are trying to fit a square peg into a round hole. That is where customer experience will take us, so that we can practice one specialization across the entire organization. Either everyone needs to be involved, or no one can be involved. But exactly how we involve everyone, and under what relations and rules, is a matter for creative interpretation.
There is no single recipe, no single structure that will work for everyone. There are, however, many, many different models, which have worked for businesses large, mid-sized and small, government entities, and nonprofits in every industry you can imagine. Holacracy has become more widely known in our industry since it was adopted by Zappos, with both beneficial and some deleterious effect. W.L. Gore has been a lattice organization for years, using a non-hierarchical mode of governance to organize projects across the business. This structure helps them to be productive and innovative. There are many more forms of decentralized governance to consider, as well.
Learning about self-organizing models, where they work and where they do not, will help to further the discussion for your business. Cases will help your team envision ways to enact customer experience transformation safely, effectively, and in a way that best suits your business environment.
Also front-and-center in that discussion will be those vulnerabilities that are quickly becoming too complex for any central authority to control. In the case of Ritz Carlton, the $2,000 discount solution is much more superficial than any deep structural change, and yet it guards against what they consider their most significant customer service risk by delivering autonomy to the workers who have the largest responsibility in terms of customer satisfaction. In cases like Red Hat’s, where services and products are intrinsically linked, superior service requires a deeper level of collaboration across the enterprise.
But in all cases, decentralized authority is driving faster, better decisions to be made by the people who are most affected by them, who know the ins and outs of the stakeholders they directly impact. Pushing authority downward, as close to the customer as possible, changes the corporate interface from that of automatic exchange to a human-to-human, empathic journey, ultimately forming stronger, long-term bonds.
There is no doubt in my mind that businesses are at the very beginning of a broad transformation, which will enable them to evolve more quickly, so that they can continually and increasingly satisfy their customers.
CEB. “Reducing Risk Management’s Organizational Drag.” Gartner: Stamford, CT, Q3 2014. Accessed Mar. 26, 2018.
Dignan, Aaron. “How to Choose a Model of Self-Organization That Works For You.” Medium, November 20, 2015. Accessed March 26, 2018.
Erik Roelofsen and Tao Yue. “Case Study: Is Holacracy for Us?” Harvard Business Review. March-April 2017. Accessed March 26, 2018.
Yue, T, Beuken, M., & Roelofsen, E. (2017). Autonomy and Control: The Collapse of Royal Imtech. RSM Case Development Centre.