Promoting Networking Within the Company With Strategic Design

Agile at Last? Ideas on Holacracy, Networks and Change

Image: Peter Kruse, Networks, Holacracy
In this blog post: Traditional organizational structures are too hierarchical and inflexible for today’s context. Experts have long been advocating for change and to replace them with network-based concepts such as the holacracy. But transformation can be painful, and many wish for an easy way out. We explore the hidden networks that exist in every company and ask how to leverage their potential. Design projects could play an interesting role in this.

Do We Need the Big Change Process?

How can I create a culture of innovation that enables my company to react quickly, to be agile, and to put ideas into practice? With the pressure to innovate today, many are asking themselves this question, and many supposed answers are being tossed around like they were simple. The vision of concepts such as the Teal organization or Holacracy paints a picture of autonomous teams that self-organize in networked cooperation, govern their processes autonomously and deliver results, largely divorced from job titles, hierarchy or the like. The organization as a living organism. Taken at face value, this vision has wonderful overall appeal.

However, we can’t just take this vision and run with it, as the reality of many companies deviates significantly from this. So how do we get there? Can we simply do away with departments and replace them with a completely different structure? This depends heavily on a company’s individual situation and is certainly also a question of culture. But as soon as terms like “culture” or “network” are bandied about, the gray clouds of transformation quickly pile up on the horizon outside.

That’s why it’s best to ask ourselves: Is change possible without an exhausting change process? I would like to outline some thoughts on how you can try out the ideas of Holacracy on a more limited and selective basis. This post might be a bit on the long side, but I think it’s worth your patience. So let’s get going.

Image: Traditional organization as pyramid. Inspiration: The Loop Approach
In the traditional organization, most decisions are made top-down. Strategy comes from a small circle of people at the top and is implemented by executing units. Many important signals from the organization’s environment cannot be picked up in this way. Can we change this structure?

From Pyramid to Network: How New Organizational Forms Increase Innovation Dynamics

Why Agile? The Pyramid and the Network

If you’re interested in transformation, you might be familiar with the Loop Approach. It is a compact book that maps out the evolution of companies into Teal organizations. Its authors get to the heart of the problem with traditional organizations: their hierarchical structures. They resemble a pyramid in which strategy is prescribed from the top and “distributed” downward in the form of tasks. In a cascade, specialized silos are created that (re)act according to prescribed on processes and paths; entrepreneurial initiative originates mainly from the top. But this does not meet today’s requirements, because a small group of people at the top cannot possibly navigate our complex world. The pyramid is not dynamic enough.

Peter Kruse, a late famous German organizational psychologist, once referred to Ashby’s Law when talking about this in an interview. It states that highly dynamic, complex problem systems require equally complex solution systems. With these thoughts in mind, he juxtaposed the pyramid with the network. He claimed that, as an organizational principle, the latter is much more strongly solution-oriented and lets information flow much more dynamically. Rigid hierarchy, on the other hand, even aims to prevent a network from emerging. It tries to squeeze people, motivation and expertise into silos and make them “manageable”. Networks, however, depend on the fact that they do not behave in a predictable manner. In Kruse’s view, however, many decision-makers do not want to admit that they do not have “everything under control,” and some are not prepared to accept the loss of power that comes with stronger networking. Therefore, they are opposed to this idea.

Image: Hidden networks in traditional organizations
In every hierarchical organization, there already exists an informal network of people, skills and knowledge that holds a great deal of potential. However, the use of this structure is inhibited or eliminated by silos and it can rarely be leveraged.


The Power of Networks

During his lifetime, Peter Kruse constantly emphasized that there are very different types of people in a company whose interaction will create a network even in the classic pyramid. This cannot be prevented. With their different skills and personality types, their cooperation or even mere conversations create a dynamic across departmental boundaries. However, this often ends in subjunctives. (“It would be really cool if we were allowed to implement [idea]. Too bad that’s not possible in our company…”).

Kruse argued that the different types of people together form a “supersummative intelligence” when they combine their various strengths. (The term makes more sense in German. It means that the whole will be stronger than its individual parts.) To ignite this dynamic, one needs to promote networking in the company instead of preventing it. Impulses for change are present everywhere in the pyramid, but they are held back by existing structures. The goal of concepts such as Holacracy is precisely to leverage the potential of this network.


Typical Roles in Networks According to Peter Kruse

Image: Peter Kruse, Owner as role in a network
Experts with a lot of knowledge, who concentrate on a special field and rarely disturb the existing system on their own.
Image: Peter Kruse, Broker as role in a network
Well-connected people who know many colleagues, mediate between them and know where to find information and expertise.

Image: Peter Kruse, Creator as role in a network
Creative nonconformists who don’t necessarily have deep knowledge, but constantly come up with unconventional ideas that challenge the status quo.


Networks Are More Dynamic Than Hierarchy

There is also an economic argument for working in a network. It can be derived from Yochai Benkler’s work. The Harvard professor deals with information economics and shows in The Wealth of Networks how the artificial curtailing of knowledge can hinder innovation. His argument: Knowledge as a resource is not scarce. The more people have more knowledge at their disposal, the more knowledge can be produced. He illustrates this with different non-market types of knowledge work, such as the development of free software, cultural goods or academic research. These systems have in common that cooperation in their networks is based on commons; these are common resources whose use is regulated by all for all jointly and equally. They are thus not subject to any management-like control.

In these networks, action is largely autonomous because guard rails exist for the use of resources. There is no need to constantly ask for permission and people can ask questions, try things out, discard them or move forward. This creates a strong innovative dynamic. The implications for pyramids are clear: Their silos and top-down organization artificially deplete resources and prevent them from coming together and being used. This is not just about specialized knowledge and the skills that are often hidden in departments, but also about the freedom to act and make decisions. This rigid structure cannot generate the kind of innovative dynamics that Kruse calls for. For that to happen, it must first be broken down.

It is the freedom to interact with resources and projects without seeking anyone’s permission that […] underlies the particular efficiencies of peer production.Yochai Benkler, The Wealth of Networks


Networks Are Stable and Predictable

Before we come to the question of how this potential can be leveraged, I would like to say a word about the supposed unpredictability of networks, which Kruse emphasizes. I think, networks may be difficult to survey, but their behavior can be prediction fairly reliable. The Hungarian mathematician Albert-László Barabási describes this very well in his book Linked. He illustrates the rules according to which so-called scale-free networks emerge; this is the type of complex network that we encounter most often in the world. For example, the Internet, the market economy or contacts in science are human organizational forms that show this structure.

Scale-free networks have a high degree of interconnectedness. The shares of links each of their individual nodes accumulates follows a Pareto distribution. Huh? Okay, in less mathematical terms, this means that about twenty percent of the network nodes are large hubs with many connections, while the rest are significantly less connected. The distribution is not random and follows a “rich-get richer” principle. This particular structure creates what is known as the small-world phenomenon, in which each point is only a few connections away from every other. (You’re probably familiar with this from the idea of Six Degrees of Separation.) Both of these principles make these networks extremely resilient, because they continue to remain intact even when individual nodes are disconnected. Collaborative networks are therefore predictable and robust systems – and we can use that to our advantage.

Network Organization in Practice: Example Holacracy, Its Strengths and Weaknesses

Holacracy: An Operating System for Network Organizations

Using Holacracy as an example, I want to show you how you can envision a network organization in practice. But also why transformation can be difficult. Holacracy aims to harness the many resources of an organization’s employees. To do this, it proposes replacing top-down control with a kind of operating system for the organization: Close to the idea of the commons the system wants to establish transparent and equal rules that enable the people in the company to act. For this, departments will be replaced with teams as the most important organizational element. In these teams, people collaborate not based on position and job title, but on the basis of specifically formulated roles. The teams overlap and interact freely, so that a network can emerge.

The shift to teams is designed to decentralize responsibility and decision-making authority as far as possible. Competencies, tasks and responsibilities are tied to roles that are assumed in the respective teams by the best-suited or motivated individual. The teams largely design the content of these roles themselves and optimize them continuously. (Taking care of this kind of “governance” can then be a role, too, for example). Consequently, Holacracy aims for teams that govern themselves and network with each other. In the sense of Kruse, it thus aims at an organization that is a complex “solution system” that can pick up and use signals of a complex world. This works because the competence to act no longer lies with a few decision-makers. Instead, many people with different strengths and perspectives are allowed act autonomously.

Bild: Holacracy als vereinfachtes Schema
Holacracy is a networked structure. Because teams overlap, impulses arrive more quickly where they can be used. Autonomous teams can then act without having to get the go-ahead first.


Sounds Great, so What’s the Catch?

In principle, I am convinced that Holacracy is a really good concept; simply by linking roles, people, rules and tasks visibly and explicitly in the first place, it creates clarity in collaboration and defuses many conditions that otherwise end up in “office politics”. (For example, waiting for a decision “from above,” passing on tasks, adorning oneself with borrowed plumes – all phenomena familiar from the day-to-day of many companies). Still, there are also some criticisms of Holacracy that you just can’t argue away. And the first is tied to a question you may have had in the back of your minds for a while:

How do we introduce Holacracy, actually?

And this is where it gets tricky. The introduction of Holacracy happens in a ceremonial act in which the company gives itself a constitution that governs how people work together. (This is no figure of speech, its for real.) By signing the constitution, management is supposed to cede its decision-making power in favor of the common rules. And this is where we are going in circles, because management might not voluntarily agree to what is the prerequisite for Holacracy in the first place. But even when it does agree to this radical transformation, there are even more problems that we have to discuss. In companies that have taken the plunge and are practicing holacracy, there are still a lot of challenges. Harvard Business Review once published an extensive analysis on this.


Holacracy: The Most Important Criticisms

Too Many Roles per Person

At the American online store Zappos, there were 7.4 roles per person with an average of 3.47 tasks. That’s 25 responsibilities per person! The result is a fragmented workday, lots of context switching, and (presumably) stress.

Unclear Salary Structure

How do you benchmark fair pay for people with very different portfolios of roles and responsibilities? And without making it a contentious issue? In the market, there are probably no comparison possibilities like there are for traditional professions.

Complicated Recruitment

Most applicants focus on job profiles, not role profiles. In contrast, very specific role descriptions and combinations can arise in any organization. So how do we find suitable personnel?

Hidden Hierarchy

Despite the constitution and formally equal rules, inequalities among employees do not disappear, whether this is a matter of status or personality. The mere existence of rules does not guarantee that everyone can or will contribute equally.


A Good Idea, But Better in Small Doses

Overall, the HBR authors conclude that individual elements of self-organization can be valuable tools for all companies. But introducing the approach “wholesale” is a major challenge that will not fit most companies. After all, organizations don’t exclusively need a degree of agility, decentralization, creativity and the like. What about reliability, security and commitment, for example? In some industries, these are very important. In addition, leadership in a company can also be an important ethical, inspirational or meaningful compass that strongly shapes the culture. So rolling out the whole Holacracy package overnight is going to involve the painful transformation for the vast majority of us that we didn’t want in the first place. But maybe we don’t have to be so radical.

If you want to generate creativity, you can ask yourself: what are systemic frameworks in which creativity appears? But you cannot “make” creativity.Peter Kruse


With Strategic Design to a More Dynamic Company

Changing Innovation Culture in Practice

Let’s go back to our classic organization. Perhaps an open-minded one that would like to work more innovatively and openly. As we discussed, we will look at an interplay between the pyramid and its silos as well as an informal network amongst people. We also know that this is a scale-free network with some hubs through which many interactions run. These hubs could be well-connected inviduals (Peter Kruse’s “brokers) or decision-makers of the company, but also important formal meetings or project teams that serve as a platform. In this network, we want to intensify the exchange of knowledge, creativity and innovative ideas by freeing our resources from the silos and making them usable. A simple way to do this would be to create a special type of hub where a new work culture and processes can be tried out to promote exactly this.

Design is well suited to function as a platform for this purpose, because it is highly compatible with ideas from Holacracy and Co. A strategic design process offers the opportunity to try out their concepts on a point by point basis, for example in an ongoing innovation project. In this way, one takes less risk and can take a fresh look at innovation in practice. In other words, you test the ideas in a controlled environment and at the same time increase the level of networking in the organization, make knowledge and skills available in a new way and promote a new culture of innovation out of the practice of a project. This works well because of the special nature of work in a design project.

Image: Strategic Design increases networking and agility
As a special hub in the network, a design team can try out a new innovation practice. Because thought and action converge in design and tangible results emerge quickly, those involved are often enthusiastic about it and spread the ideas throughout the company. The project thus unlocks transformative potential that can later be leveraged elsewhere.


Design Drives Holacracy Principles

Testing Holacracy principles via Strategic Design is a good fit, which starts with the methods utilized in design: They are always framed so that anyone, regardless of personal background, position, or area of expertise, can work with them. On this basis, it makes sense to hire a colorful bouquet of personalities from various departments, including Kruse’s Brokers, Owners and Creators. To promote genuine collaboration amongst the group, an atmosphere is created in which everyone is allowed to be creative and “disrupt” the status quo with new ideas. As a results, the innovative dynamic that Peter Kruse called for will arise. At the same time, the whole thing runs in a structured process, mostly in a sprint format, with methods from Agile, Lean and defined deliverables as the result. In this way, the design team becomes a hub that actively practices a new approach to innovation.

Last but not least, it is possible to test the role concept in the design process, which is so important for Holacracy. This starts with the role of the facilitator but can go much further. Essentially, you can consciously sort all recurring tasks in the project and formulate roles based on them. In addition, it could be an important role, for example, to engage in proactive stakeholder management and purposefully involve further people in the company, inform them about the project and carry its ideas back into the “silos”. In this way, a new innovation dynamic and mindset emerge bottom-up, but can be used specifically to find further advocacy or even application in the rest of the organization.


Bottom-up Transformation: Getting Started

Peter Kruse once said that culture is an “indirect variable” that cannot be created. You can only create conditions for culture and then observe the result. The idea behind Strategic Design is exactly that – but in a manageable framework without a large-scale change process. And maybe, just maybe, that’s also a more practical approach than introducing a constitution for the whole company.

If you are now interested in trying out this approach, you can of course do that, and we will help. (Yes, you are now in the ad-section of the post.) But you are also welcome to simply test a sprint yourself, as it is by no means a new format or arcane knowledge. Trying it out, however, will bring a new dynamic and a feeling into collaboration. Or, if you want to know more about Strategic Design in general, just ask our CEO. Felix would probably be our “Strategic Design Evangelist” if this role existed at Iconstorm. I also would like to recommend the training programs at M1ND, our new Strategic Design Academy.

And, finally, I hope you had a good time reading this novel and could take some inspiration from it!