MicroStory – Efficiency of decentralized organizations

We all gathered in the office to see Eric interview on one of the leading TV stations. Eric, one of the kid’s shoe entity members was selected to represent the company and to discuss how we are operating in the last three years. Eric was the perfect choice to explain how our decentralized organization that distributes decision making and provide autonomy to each group and person helped us as a company to reach the highest level of creativity and execution that put us back as leaders in our industry.

So with a lot of pride, we all crowded in the auditorium to watch the live interview. The smugged host just finished a discussion with a known comedian when he presents Eric to the crowd. “Our next guest is a member of a shoe company that we all know. A company that manages to beat not just the competition, they also beat themselves as well as the complexity of the business environment. Against all the odds, they manage to reinvent themselves and dominate the market. Our guest is not the CEO of the company or any executive or manager since they don’t have managers. Our next guest is a member of their kid’s shoe group. Please welcome Eric Vee. “

To the sound fack handclapping, Eric did his way to the seat beside the host. Everyone that knows him could see that he is stressed and tensioned, but Eric kept his smile, set down and with confidence replayed “Thank you for having me here.”

The host looked at Eric and with a smile on his face asked him “Usually when we are inviting companies to speak about themselves they send the founder or the CEO. You are not the founder or the CEO, can you explain to me why they send you?” Eric smiled and replied immediately. We measure people expertise and competencies as this data is essential for the way we are operating. Before I joined this company, I used to be a comedian as well. Not as famous as the one that seats beside me, but I perform regularly. I guess that based on my experience I was elected to represent the company, I’m sure that they didn’t select me because of my look or the role that I’m playing in our company. We all laughed (as well as the crowd in the TV studio) as Eric is an incredibly handsome guy.

“You mentioned the way that we are working.” The host said. From our previous discussion I know that you are operating in a nonconventional way, can you elaborate?

Eric gave one of his big smiles and started talking. It began three years ago when we first introduced to the concept of #NoHierarchy. Our CEO at that time looked for a long time how to change our company to be able to deal with the future. One day he collected us all and introduced the concept of the decentralized organization where each group and person has autonomy to make decisions in areas that they responsible for. Decentralization came with the distribution of decision making and with the dismissal of managerial positions in the company. Autonomy still enables groups to run themselves as they want, so we had leaders for a long time. Decentralization also came with a new conflict resolution process that is based on merit people have in different expertise and competencies. In one day each one of us was accountable, no more management to hide behind. I think the most profound changes were first, the elimination of classical departments and the introduction of hybrid expertise groups, needed to reach our company purpose. And last but not least changes in the compensation model that created clear cause and effect between the company performance and our compensation.

Sounds very chaotic, replied the host. “And you don’t even imagine how much chaos was in the beginning”, said Eric. It’s a significant change and although a lot of thinking was put in place to make it easier, and the business condition of our company didn’t give us any other choice. It was “survived or die” game three years ago. It wasn’t an easy change! But very slowly chaos was replaced by order. Order that hardly changed until today, despite all the ups and downs we went through.

Sound to me much more complicated than the hierarchy I’m getting used to here in the station, said the host. Yes, I know what you are talking about, replied Eric. But, the paradox is that this system is all around us: the economy, our brain, and many other systems in nature are working in a decentralized way without any central control. Can you tell me which cell control the brain or which agent in the market control the market? Every new system is more complex than the one it replaces, and people don’t like changes one way or another. But with the difficulties of implementing a new system, there are also benefits that the system is introducing as it resolving existing problems.

Can you give me an example? The host asks. Let me give you a perfect and real example Eric said. I’m part of the Kid’s group which has many subgroups. Every group and subgroup has all the expertise needed to help the group to reach its purpose. I’m filling function in the kid’s shoe entity, but I’m also filling other roles in the kid’s entity subgroups such as product development, distribution, R&D, manufacturing and several others. I’m not an exception majority of the people in the kid’s shoe group filling three to five different functions in different subgroups.

A new idea started to emerge in the R&D group a year ago. Since kids are growing fast between the age thirteen and eighteen, we develop the concept of printing shoes for kids that will be much cheaper, with a shelf life of two years and with the ability to choose for many designs and get the selection to your home within 48 hours. Yeah, that what took us from the bottom to became the leader in this industry again.

This move required a change in each and any subgroup of the kid’s shoe entity. We manage to make this change in six months! As you know the effort was worth it. We could do this change for several reasons:
1) Thanks to the fact that people are in many roles in different groups the idea starts to spread between subgroups way before we made a formal decision to move this direction. The innovation and the vetting process wasn’t done in a silo. Almost five thousand people were involved in the process, although the decision was taken by one lady. That enable everyone related to the change to add his comments and be prepared. I know exactly how much it took us to make a simple change, like adding a new model, before this change.
2) If we would have the classical department, it will take ages to convince and then prioritize implementation of new ideas for kid’s shoe for departments that also support men’s and women’s shoes. especially when women shoes were the main many makers.
3) I’m one hundred percent sure that such innovation will NOT happen in the culture that we had when we operate as a hierarchy with management. The willingness to take a risk and to make long term investment wasn’t the guiding principles for management. Moving high the ladder by minimizing risks and mistakes was the standard way of operation.
4) People understand that the new compensation model will enable them to enjoy the success of this new product. They knew that their effort is going to pay them back, not just the executive as it used to be before the change.

In a nutshell in a short time, we managed to introduce a change that we couldn’t even do a fifth of it before the change. Other entities start to do the same, and the entire company manages to reach new heights that we never manage to achieve before.

Still too good to be true, said the host. Eric smiled and replay, you should visit us and see it with your own eyes. Maybe you’ll find that you have a passion for shoes and for making people safe and special, and you’ll join us.

I would ask you many other questions, but our time is over as we need to move to our next guest, said the host. Thank you for coming, and I’ll take your offer and visit you one day when I’ll need a new pair of shoes. “Thank you” replied Eric as he moved to another chair.

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