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

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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