In a refreshingly provocative article in this month’s Harvard Business Review, celebrated business writer Gary Hamel describes the condition of management in most large organizations (costly and inefficient) and how one company did away with all their managers and still manage to run a $700 million company with revenues and profits that leave competitors in the dust.
Hamel says “management is the least efficient activity in your organization.” He says direct management costs in most organizations account for about one-third of the payroll and that “management is expensive.”
He also says that “the typical management hierarchy increases the risk of large, calamitous decisions. As decisions get bigger, the ranks of those able to challenge he decision gets smaller . . . Give someone monarchlike authority, and sooner or later there will be a royal screwup.” He continues, saying “a multitiered management structure means more approval layers and slower responses. In their eagerness to exercise authority, managers often impede, rather than expedite, decision making.”
Finally, he says there is “the cost of tyranny. . . as a consumer you have the freedom to spend $20,000 or more on a new car, but as an employee you probably don’t have the authority to requisition a $500 office chair. Narrow an individual’s scope of authority, and you shrink the incentive to dream, imagine, and contribute.”
But management isn’t all bad. Hamel notes that the use of market incentives work well when needs are simple and easy to define, but they are not effective when interactions are complex. In fact, “That’s why we need corporations and managers. Managers do what markets cannot; they amalgamate thousands of disparate contributions into a single product or service.”
But then Hamel raises a question: “Wouldn’t it be great if we could achieve high levels of coordination without a supervisory superstructure? . . . If only we could manage without managers.” So he went out and found that just such a company exists.
Have you ever seen the Morning Star brand of tomatoes in the store? The company, founded in 1970, is the world’s largest tomato processor and is headquartered in California. It is a place where:
- No one has a boss.
- Employees negotiate responsibilities with their peers.
- Everyone can spend the company’s money.
- Each individual is responsible for acquiring the tools needed to do his or her work.
- There are no titles or promotions.
- Compensation decisions are peer-based.
In his article, Hamel describes each of these elements in detail, but he also offers some advice on how to begin moving a traditional bureaucracy toward the “self-management” model. He cautions “self-management doesn’t mean no management and that radical decentralization isn’t anarchy.” But here’s his advice:
- Ask everyone on your team to write a personal mission statement, focusing on benefits delivered to others rather than activities performed.
- Find small ways to expand the scope of autonomy for each employee (starting with the annoying controls, such as sign-in sheets).
- Equip every team with its own “profit and loss” statement and provide that information widely across the organization. Hamel says “The road to self-management is paved with information. . . employees must be able to calculate the impact of their decisions.”
- Erase the distinctions between those who manage and those who are managed.”
Hamel’s observations and advice are similar to those championed by former Vice President Al Gore’s reinventing government effort. While that effort may not have reached every corner of the government, it did shine a light on ways “self-management” could be adapted in a public organization.
Did any of you have the experience of working in one of the Reinvention Labs? Do any of these principles raised by Hamel remind you of any of those efforts? Can you eat leaderless tomatoes?
Graphic credit: Morning Star