Archive for the ‘Decentralized Organizations’ Category

To have good decision-making, give people closest to the problem decision-making power

December 8, 2007

I think that these can safely be considered to be “laws”:

  1. Individuals closest to a problem have the most accurate and complete information about the problem.
  2. The further removed an individual is from a problem — by time, space, rank — the less information and the less accurate information he has about the problem.
  3. Good decision-making requires accurate and complete information.


  • To have good decision-making, give people closest to the problem the power to make decisions. For example, give decision-making power to those people on the factory floor.
  • Avoid centralizing decision-making power to a few individuals at the top of a hierarchy.

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

Are you a traditional leader or a catalyst?

September 2, 2007

“In chemistry a catalyst is any element or compound that initiates a reaction without fusing into that reaction.  For example, take nitrogen and hydrogen, two of the most common elements on earth, put them in a container, close the lid, come back a day later, and … nothing will have happened. But add ordinary iron to the equation and you’ll get ammonia, an important ingredient in fertilizers, polymers, and glass cleaners. The thing is, ammonia doesn’t have any iron in it — it’s made solely of hydrogen and nitrogen. The iron in this equation remains unchanged, it just facilitates the bonding of hydrogen and nitrogen.”

“In an organization a catalyst is a person who initiates an activity and then fades away into the background. In a decentralized organization a catalyst gets the decentralized organization going and then cedes control over to the members. For example, Jimmy Wales started Wikipedia and then allowed the members to take over – content and administration. Another example: Craig Newark started craigslist, and now the users of craigslist decide which categories to list on the site.”

“In letting go of the leadership role, the catalyst transfers ownership and responsibility to the group. A catalyst isn’t usually in it for praise and accolades. When his or her job is done, a catalyst knows it’s time to move on.”

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