Archive for the ‘Decentralized Organization’ Category

Paradox: Embracing Decentralization while Hailing the CEO as Corporate Savior

December 31, 2007

Some companies claim to embrace decentralization and bottom-up mechanisms and yet they then turn around and treat their CEO as superheroes and as the “corporate savior.”

CEOs are given massive salaries and are hyped as the one person who will lead the company to prosperity.

The problem is that people actually believe the hype, taking it on faith that putting the right individual at the top is the key to corporate success.

What’s perplexing about this faith is how little evidence there is that a single individual can consistently make superior forecasts or strategic decisions in the face of a genuine uncertainty.

If companies were to truly embrace the virtues of decentralization then the CEO would have a much smaller role (and paid much less) and there would be more emphasis on collective decision-making.

— Extracted from The Wisdom of Crowds by James Suroweicki

Survival requires finding the sweet spot between centralization and decentralization

November 9, 2007

The success of an organization depends on its ability to find the “sweet spot” between centralization and decentralization.

eBay is an example of an organization that has landed on the sweet spot. It has centralization: eBay requires people to log on, and buyers and sellers must identify themselves. It has decentralization: users can auction items to each other directly, buyers and sellers rate each other. This combination creates both trust and security.

Consider what would happen if eBay were to become more decentralized. For example, suppose eBay didn’t verify users’ e-mail addresses and allowed anybody and everybody to post anonymously. There wouldn’t be much accountability. Less accountability would translate into diminished trust, and eBay would loose customers.

Likewise, if eBay were to become more centralized — say, by verifying the quality of the goods sold — commissions would become higher, and it would no longer be economical to sell on eBay. Again, this would drive away customers and reduce revenues.

eBay would lose market share if it moved further toward centralization or decentralization.

Note that just because a company is on a sweet spot now (as General Motors was in the 1940s) doesn’t mean the sweet spot won’t shift in the future. In some cases, like the online auction industry, the sweet spot seems to be fairly stable. In other cases, however, it is much more volatile and must continually be pursued. It’s almost like a tug-of-war: the forces of centralization and decentralization pull the sweet spot to and fro.

Of course, understanding that the sweet spot can move and predicting these shifts are two very different things.

The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom

Want to Control a Loose-Knit Collection of People?

October 10, 2007

Want to alter the basic structure of an organization? For example, want to make a decentralized organization into a centralized organization? Here’s one strategy.

Concentrate the power and a hierarchy will form – making the organization more centralized and easier to control.

If you really want to centralize an organization, hand property rights to the catalyst (the person who is very vocal and good at connecting people) and tell him to distribute resources as he sees fit. With power over property rights, the catalyst turns into a CEO and a hierarchy forms.

Wikipedia faces danger if it raises too much money. Ironically, the system works because it is underfunded and because almost everyone is a volunteer. If coveted paid positions are introduced, turf battles and a hierarchical system might result. With concentrated power, Wikipedia would become more centralized and begin to lose its collaborative environment.

The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom

Meet People Where They Are: Avoid Advice-Giver Power Hierarchies

September 14, 2007

Scenario: your friend is unhappy in his job.  You are assertive in your suggestions to him, you tell him: “You need to talk to your boss” or “I want you to interview for this new job.”

Psychologist Carl Rogers warns that this kind of expert advice-giving, though intended to help, actually has the opposite effect.  When confronted with an aggressive push, most people shut down and become even less likely to change.

Rogers practices a different approach.  Rather than suggesting ways for his client to change, he would acknowledge their experiece: “So, you’re unhappy with your job.  That must be difficult.”

Rogers assumes a peer relationship and listens intently.

As Rogers focused on listening and acknowledging his client’s experience, something amazing would happen.  The client would find his own solutions to the problem.  “You know, I don’t like being trapped.  I think I’ll look for a new job.”

When we give advice to someone, we automatically create a power hierarchy.  The advice-giver is superior to the reciepient.  In a decentralized organization this kind of hierarchy is detrimental.

— Extracted from The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom

What economic incentive is there to form decentralized organizations?

August 20, 2007

Adam Smith wrote a seminal book in 1776 called The Wealth of Nations. It is a classic, laying the foundations for most of today’s economic ideas. Smith’s ideas are deeply ingrained into western societies.

Division of labor is central to Smith’s thesis. Division of labor leads to high productivity. By focusing one’s efforts on a single task, one develops a talent for that task and become very productive. The greater the productivity, the greater one’s wealth.

Division of labor is consistent with one’s self-interest.

Conversely, when a person attempts to perform many tasks he masters none, is inefficient, has low productivity, and is unable to attain wealth. This is not consistent with one’s self-interest.

Division of labor results in a society that does lots of trading (if a person produces only one thing, he must trade for the other things he desires or needs). This creates a highly interconnected, interdependent society.

Today there is much excitement about decentralization. In a decentralized organization there is no one in charge, everyone is independent.

“Units of a decentralized organization are by definition completely autonomous … In decentralized organizations, anyone can do anything … Any and every activity is within anyone’s job description.” [1]

In a decentralized organization each person is not focused on a single task; rather, each person is a jack-of-all-trades. Smith would argue that this leads to low productivity, which leads to low wealth, which is not consistent with one’s self-interest.

So I wonder: what economic incentive is there to form decentralized organizations?

[1] The Starfish and the Spider by Ori Brafman and Rod A. Beckstrom