Kill the Hierarchy! - Decentralised Decision-Making
Transitioning People Through Constant Change
In my last post (in the series “Kill the Hierarchy) I explored how rapid decision-making is enabled by a flatter organisation structure. This post will explore the need for decentralised decision-making.
For an organisation to survive and thrive in a world of constant and uncertain change, the organisation has to be one in which leadership is important, but MORE important is a collaborative workplace in which transparency and creative freedom reign over hierarchical boundaries. This enables innovation, creativity, experimentation, rapid decision-making, agility and employee ownership, engagement and influence. There is widespread autonomy and everyone leads.
No one ever did anything awesome or great just because they were told to!
The ‘Kill the Hierarchy’ model shown the diagram below, illustrates the changes needed to move to a flatter structure, and it is these changes that we shall be exploring in this series of posts.
Decentralised decision making
The flat organisational model promotes employee involvement through decentralised decision-making. It elevates the level of responsibility of front-line employees and eliminates unnecessary layers of management, resulting in comments and feedback reaching all of the personnel involved in decision-making more quickly.
The cat is out of the bag
A good example of the benefits of decentralised decision-making comes from the industrial equipment manufacturer Caterpillar. In the 1980s Caterpillar, fondly known as Cat, began to suffer from its highly centralised decision-making structure. It had a hierarchical bureaucracy, was inward facing and out of touch with the marketplace.
At this time, all the pricing decisions were made in the corporate headquarters in Peoria, Illinois. If a sales representative in South Africa wanted to give a customer discount on a product, they had to check with headquarters first.
To add even more misery, headquarters did not always have accurate or timely information about the subsidiary markets to make an effective decision. As a result, Cat was at the mercy of the competition.
Cat’s formerly comfortable position in the market place was turned into opportunities for competitors such as the Japanese firm Komatsu. In 1982, Cat posted its first annual loss of its 50 year history.
In order to overcome this centralised paralysis, Cat underwent a number of dramatic rounds of reorganisation through the 1990s and 2000s. It reorganised into a flatter structure and recaptured its market share. The organisation moved accountability downward in the organisation and dramatically decentralised decision rights.
After posting a $2.4 billion loss in 1992, Cat returned to profitability in 1993 and has increased its earnings every since. It made record profits of $2 billion in 2004.
You can read more about the Caterpillar decision-making decentralisation in “The Cat That Came Back”.
As Peter F. Drucker said:
“Knowledge workers themselves are best placed to make decisions about how to perform their work”.
Increased competiveness means organisations have to deliver value in the shortest possible time. This requires decentralised decision-making. Decisions that have to go up the chain-of-command introduce a delay. Decisions that go up the chain-of-command can decrease in quality as they have a lack of local context. Add to this the fact that during the delay, change can happen which renders the decision superfluous.
Not all decision-making is decentralised. Decisions of a strategic nature, that could have far reaching impact, will be considered the remit of (centralised) leadership who have the market, financial and business knowledge to lead the organisation in the right direction.
Everything else can be decentralised. Participation of people in making decisions that matter to them increases employee engagement and productivity whilst also increasing the agility of the organisation to respond to change.
Go with your gut!
Ricardo Semler, CEO of Semco, a Brazilian conglomerate, urges employees to “go with your guts” in regards to their decision-making.
Semco doesn’t have a mission statement, written polices, job titles or an organisational chart. Decision-making is in the hands of the employees. Semler summarised his position when he said:
“We’ll send our sons anywhere in the world to die for democracy, but don’t seem to apply the concept to the workplace.”
When Semler became the CEO of Semco in 1982 at the age of 24, he started to slowly change the organisation from an autocracy to a corporate democracy.
He cut the bureaucracy from twelve layers of management to four and devised a new structure based on concentric circles to replace the traditional, and confining, corporate pyramid.
The centre circle comprises the top 5 managers called Counsellors. The second circle consists of Partners, who are in charge of the small business units. Coordinators, whose job is to supervise, represent the third circle. The rest are called Associates.
Semler devolved and distributed power. Company revenue, profit margins and salaries are totally transparent with all employees having access. Employees set their own salaries. It is all about accountability and performance over hours worked. Employees set their own working hours. Employees choose their managers and evaluate them twice a year. There are no receptionists, secretaries or personal assistants – what they would do is ‘your’ job.
Semco’s core values are:
- Democracy – gives employees control of their work
- Profit sharing – gives employees a reason to do work better
- Information – tells employees what is working and what is not
Semler said, “The key to management is to get rid of the managers”.
“Employees can paint the walls any color they like. They can come to work whenever they decide. They can wear whatever clothing makes them comfortable. They can do whatever the hell they want. It’s up to them to see the connection between productivity and profit and to act on it”.
Under Semler’s leadership, Semco grew from $4 million in revenue to over $160 million in about 20 years.
Decentralised decision-making encourages motivation and creativity; it allows many minds to work simultaneously on the same problem; and it accommodates flexibility and individualisation.
Allowing more people to be involved in the decision-making process, increases input for solutions and innovative ideas.
Decision-making is accelerated as it is handled where it needs to be. Power is placed directly into lower areas of the organisation, best suited to make a decision. Upper management doesn’t get involved and a response can be reached much faster. Unnecessary escalation to management is just a needles delay. Quality of decisions also diminishes if the decision does not have local context.
Upcoming posts in this series entitled ‘Kill the Hierarchy’ will continue to explore how we flatten the hierarchy in order to achieve rapid and decentralised decision-making, employee engagement, high levels of collaboration, widespread autonomy, trust and respect, and an environment in which everyone leads.
More posts on their way over the coming weeks and months, exploring how we need to take a fresh and radical look at organisational change management, and the changes we need to make if we are to thrive.
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