Strategy #9

Loose Hierarchies

• Characterized by greater delegation– Information flows up– Executives make decisions that govern

subordinates– If you are in a hierarchical organization,

you implicitly agree to abide by your superiors’ decisions

– Rewards are based on pleasing superiors

Loose Hierarchy Examples

• Linux• Wikipedia• AES Corporation

Loose Hierarchy Lessons

Strengths• Minimal communication for coordinating

large-scale projects• Conflict of interest resolutionWeaknesses• Information overload as you go up• Narrow perspective • Decisions can be vetoed at any level• Lack of autonomy, motivation, and what

goes with them

Democracies

• Networked information sharing• Decisions are made by voting –

simple majority, consensus, other voting regimes

• You must abide by decisions made by the group you belong to

• Vote for you interests or your group’s interests

Democracy Examples

• WL Gore– Corporate Culture

• “Our founder, Bill Gore created a flat lattice organization. There are no chains of command nor pre-determined channels of communication. Instead, we communicate directly with each other and are accountable to fellow members of our multi-disciplined teams.”

– Guiding Principles• Fairness to each other and everyone with whom we come in

contact• Freedom to encourage, help, and allow other associates to

grow in knowledge, skill, and scope of responsibility• The ability to make one's own commitments and keep them• Consultation with other associates before undertaking

actions that could impact the reputation of the company

Democracy Examples

Mondragon Cooperative• "Nothing differentiates people as much as

their respective attitudes to the circumstances in which they live. Those who opt to make history and change the course of events themselves have an advantage over those who decide to wait passively for the results of the change".

• Father Don José María ArizmendiarrietaConceptual Creator of the Mondragon Cooperative System

• http://www.sfworlds.com/linkworld/mondragon.html

Democracy Lessons

Strengths• Individuals are insured participation• Group decisions force people to do

things for overall goodWeaknesses• High communication overhead to

insure knowledgeable decision making• Everyone’s opinions count equally

even when some are more qualified

Markets

• Networked communication• Decisions made via mutual

agreement between parties involved in an environment of competitive alternatives

• Incentives come from profit maximization

Market Examples

• eLancing• Guilds• Quasi Markets for ad hoc projects• Idea futures

Market Lessons

Strengths• Markets are efficient• Markets are flexible• Markets are motivatingWeaknesses• High communication overhead• For some situations, overall good may not

be achieved because agreement is not in a key party’s self interest

Trust

• Willingness to be vulnerable (Dynamic-RT)• Dependability – to have faith or confidence • Static versus dynamic understanding of

trust – a state of trusting in contrast to the process of developing of trust or evolving trust

Trust Model

Ability

Benevolence

Integrity

RTRsTrust

Trust Model

• Three trust components– Ability: a group of skills, competencies, and

characteristics.– Benevolence: the extent to which a trustee is

believed to want to do good to the trustor.– Integrity: the trustor’s perception that the

trustee adheres to a set of principles that the trustor finds acceptable.

• Risk taking dynamic (Risk taking in relationship)

Decision-making Structure Comparison

Decision Making

Structure

Communication Cost

Individualization and Synergy

Potential

Conflict Resolution

Autonomy, Motivation,

and Creativity

Centralized Hierarchy

Low Low High Low

Loose Hierarchy Medium Medium Medium Medium

Democracy High Medium Medium Medium

Market High High Low High

Problem – Efficient Decisions

• Loose Hierarchies – Managers force decisions on occasion

• Democracies – Voting for some decisions, election of managers for others

• Market – People participate only when there is mutual agreement, everyone follows the rules

Problem – Quality and Catastrophic Loss

• Loose Hierarchies – Managers control of people and results (e.g. via standards), but not actions directly

• Democracies – May employ standards, voting, elected managers

• Market – Reputation systems, insurance, performance bonds

Problem – Economies of Scale

• Loose Hierarchies – Managers may force people to take advantage of economies of scale

• Democracies – Voting and managers may force people to take advantage of economies of scale

• Market – Rules encourage buyers and sellers to take advantage of sconomies of scale

Problem – Knowledge Sharing

• Loose Hierarchies – Managers provide channels and incentives

• Democracies – Same as loose hierarchies. Incentives may be set by voting

• Market – Rules provide means for protecting, pricing, and selling knowledge