Decentralizing Organizations to Deal with Complexity

| by Ben Linders Follow 23 Followers on Dec 16, 2014. Estimated reading time: 5 minutes |

Niels Pflaeging, founder of the BetaCodex Network, did the opening talk organize for complexity - how to get life back into work on the second day of the Dare Festival Antwerp 2014. He explained how decentralizing organizations is paramount to increase their performance and agility.

According to complexity theory, we have a thinking problem and a model problem in organizations, not a people problem said Niels. We have moved from complicated to complex problems in organizations, which means that the current ways of managing organizations are not suitable anymore.

In his book Organize for Complexity and in his white paper on organizing for complexity Niels outlines the notion that organizations don´t have tops and bottoms, but instead a center and periphery. The periphery has contact with the market, it is in touch with customers. The center is not, because it is isolated from the market by the periphery.

In traditionally managed organizations a client has contact with somebody in the periphery who supplies information to the center. People in the center are in charge, they will usually decide and command the person in the periphery what to do and how to react to the client. Once market stimuli and value creation become more dynamic, central steering collapses.

We consequently need to create more decentralized organizations said Niels. The periphery already learns and gets smarter, but the center does not. This leads to a decentralization imperative: To support organizational decentralization decision-taking needs to be decentralized, giving more power to people in the periphery.

Niels did an exercise with the attendants based upon theory X and Y motivation theory from Douglas McGregor. He asked people to write down if they consider themselves to be X or Y; everyone considered themselves to be Y. Then he asked which percentage of the people they consider to be X in their organization. Only few attendants said that it was 0%. This short exercise showed that we often perceive other people to be X, while we all perceive ourselves as Y, which is conflicting. Most management systems in organizations today are still, just as in McGregor´s time, designed on the assumption that some or most people in organizations would be of type X, while actually people working in them consider themselves to be of type Y. The fundamental mismatch between the way organizations are managed and the motivation of people working there remains until this very day

InfoQ interviewed Niels about dealing with dynamic problems, decentralization, and increasing agility.

InfoQ: You mentioned that there is a dynamic part of value creation and a formal part of value creation. Can you explain what you mean with this?

Niels: The traditional way of describing organizations through their line structure and processes, by looking at formal organization design as shown in the org chart, or by figuring out their “7S” has become ineffective Those tools may have been appropriate until the 1970s, but when markets and value creation became more dynamic and complex, these approaches stopped to be appropriate to understand organizational problems. In complexity, we need different, appropriate thinking tools. Some of the thinking tools that we need are distinctions, such as the distinction between center and periphery. Or the distinction between the formal and dynamic parts of value creation.

The formal part of value creation can be dealt with by machines, in principle. We can deal with it through standardization and even automatization. The dynamic part of value creation defies these approaches: The only “thing” capable of dealing with dynamic problems is humans. Because of this pressing need to solve dynamic problems, organizations have to devolve thinking and decision-making to the periphery. It is not an option. It is a question of survival in competitive, complex markets.

InfoQ: At #darefest you stated that we cannot afford centralized coordination anymore. Can you elaborate why?

Niels: Central steering and coordination are often depicted as a mere nuisance or as a necessary evil. That is a misconception: Centralized coordination is a luxury that organizations in dynamic markets cannot afford anymore. It is a misunderstanding turned management practice: Resource allocations, budgeting, resource committees, centralized investment planning, negotiated targets and MbO, through management decisions and highly controlled levels of authorization have had their role in the industrial age. Now they have become barriers to performance, because they hinder teams in the periphery of doing the work, and they obscure how value creation actually flows from the inside out.

In a certain way, the Soviet Union way of governance lives on in most companies today. Which is somewhat ironic. What organizations need, however, is decentralized, market-like coordination between teams, not centralized steering. Some pioneers have created this kind of org model, of course. But they still remain the exception. 

InfoQ: In your opinion which kinds of changes are needed in organizations to better serve their markets?

Niels: First and foremost, we must stop working in the traditional model of command-and-control, of management as we know it. Ultimately, we have to let go of that social technology called management  – a concept that served its purpose in the industrial age, but that is hopelessly out of tune with today´s knowledge-age markets and value creation. So we as knowledge workers and leaders have to start working on the organizational model, not just optimize the old one.

This requires “beyond command-and-control thinking”, of course. Just as we had to find a way out of the waterfall and project management mess of the past, we also have to find a way out of the management and command-and-control mess. The alternative is already there. And we also know how to create the necessary organizational transformation. We must turn our companies outside-in and also move towards different performance practices. This becomes possible only if we upgrade our thinking about other people at work, of course.

InfoQ: Do you have some suggestions how organizations can increase their agility?

Niels: There are literally hundreds of things that have to change in most companies, in order to move them from the traditional “Alpha” model of organization to the new “Beta” model. This affects practices, rituals, structure, and usually even performance systems such as the pay system. Transformation is complex, but it is neither utopian, nor does it take forever. The BetaCodex Network, an open source community focused on transforming organizations, can help organizations that want to go Beta by providing answers and solutions.

What we have clearly learned, though, since the Beyond Budgeting Round Table research collaborative was founded more than a fifteen years ago, is that transformation must be coherent: Just changing a few practices, or tweaking a few processes will never get you there, but leads to perpetuating the old model. So beware of cute little improvements, best practices and fun workarounds. We have been tweaking the old model for way too long already. Now is the time to step up to the challenge and work on the organizational model, consistently. We know from the agile movement what´s at stake, we know the alternative org model, we know the way change works – now we must put that knowledge to work.

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Life is a broccoli by Martien van Steenbergen

Organizations are a broccoli, too. There is central en distributed stuff. Aligned autonomy is the key. Autonomy is the decentralized part. Alignment is the central part that bounds our behavior. You need both to steer a swarm. Find the serious game rules that educe swarming behavior with a purpose. It is chaordic, as Dee Hock puts it. Read the US Marine Corps Doctrinal Publication on Tactics and Warfare. Battlefield-tested agile.

Re: Life is a broccoli by NIels Pflaeging

Hi Martien,

thanks for posting here - it´s good to know that the article is being read and that it has resonated with you.
I am a big fan of metaphors, so I enjoy your suggestion that organizations might be peaches AND broccolis at the same time... ;-)

I also believe that language and the words we use matter. You are using the terms "alginment", "steering" and "rules" in context with decentralization of decision-making (a.k.a. autonomy): But these three words are all quite realted to command-and-control, I believe. So I would recommend not to use them in the context we are talking about, independent if we call it "Beta", "Chaordic", "Agile" or whatever.
- Instead of "alignment", I would use vocabulary like "social density" or "peer pressure".
- Instead of "steering" (which in Beta only markets can do effectively) I would use terms like "clarifying principles", "market pull/decentralization", etc. There are many aspects to this.
- And instead of "rules" (to be followed), we should of course talk about "principles" ("to be interpreted collectively").

I hope this makes sense to you!

Re: Life is a broccoli by Martien van Steenbergen

Hi Niels,

Thanks for your reply and all your work on distributed organizations.

For me, words like “alignment”, “steering” and “rules” do not associate with command and control at all. Please get me right, I dislike command and control probably as much as you do.

To quote US MCDP 1 Warfighting:

Philosophy Of Command

It is essential that our philosophy of command support the way we fight. First and foremost, in order to generate the tempo of operations we desire and to best cope with the uncertainty, disorder, and fluidity of combat, command and control must be decentralized.

Replace “fight” with “work’, or even “live”.

I also used “serious game rules” on purpose, not just “rules”. Just using “rules’ pulls it out of context. For me, life is a broccoli of serious games, work is too. For me, games in general are characterized by players, a goal, artifacts and game rules. The game rules provide the membrane or semi-permeable boundaries that educe complex behavior (when proper).

Indeed, “rules” are only about the what and more often than not result in mindless, unaware, and unconscious behavior. Principles on the other hand include the ‘why’, the rationale, to be interpreted collectively. So, for me, principles = rules + ‘why’. Both values and principles should be co-created by the community itself, tmo.

The term “social density” is new to me and I experience it as rather abstract and vague (so I may have to learn up on that). For some reason, I dislike the term “peer pressure”. I gravitate more towards terms like “sociogram”, “social discipline”, “social interlock”, “social balance”, or, better still, “swarm”.

BTW, Have you read the US Marine Corps Doctrinal Publication on Warfare and Tactics. Agile avant la lettre. They have been perfecting agile, lean, and maneuverability for centuries. It seems to work…

Make love, not war, Martien.

Re: Life is a broccoli by Martien van Steenbergen

Confused. I replied to Niels’ reply but it does not show. I reply again, and it's there twice. Baffled. InfoQ engine troubles?

Re: Life is a broccoli by NIels Pflaeging

Hi Martien,
I am happy about your response.

However: We are somewhat stuck. Because as long as you don´t accept certain decisions, not much dialog will be possible:
You say principles equal rules. What I can tell you is that they are as much the same as tables and chairs are the same. Let me detail:

- Rules: follow a "what... if" logic, thus the problem must be known, are to be followed, come from superior authority. Example: 10 commandments
- Principles: the problem does not have to be known; to be interpreted by a social group; come from the group itself. Example: Articles of the US constitution.

I can go on and on and on about this: These are difference that make a difference!
The same goes for concepts such as steering and alignment. If you want to understand the distinctions that matter to any organization in complexity (also the US military), take a look at my free Organize for Complexity white paper or the Organize for Complexity book!

I think you will like it.

Re: Life is a broccoli by Martien van Steenbergen

Hi Niels,

Interesting. You say that as long as someone (I, in this case) does not accept certain decisions, not much dialogue is possible. That almost sounds like these things which have been decided (by whom, anyway?) are definitive and any other view is taboo. This blocks its evolution, which I perceive as anti-agile. I cherish the lean “question everything” principle. I love “ritual dissent” and “trashing sessions”.

Seems like the rule “Thou shalt obey and not question the existing decisions” is being imposed on me. This immediately prompts me to act like the Wise Fool, since I live by the principle “Educe rather than compel behavior to the maximum possible degree.

However, we are still in dialogue, given this conversation. Let’s keep it up.

Re: Life is a broccoli by Martien van Steenbergen

…on rules
Also, I don’t feel understood. You say, “You say principles equal rules.” Can you please point me to where exactly I said this? I have done my utmost best to explicitly avoid “principles are rules”, and use “serious game rules” and principles = rules + ‘why’. Yet you continue to claim that I equal rules to principles, which I do not! Can you please reread what I’ve written and try and see it from another perspective?

A nice example of the difference on Common Craft » Why This Bathroom Sign Is a Great Explanation.

Talking about rules. From your work, I get the impression that rules always come from the top and are pushed down on the lower layers. In my world, values, principles, and rules come from anywhere. They emerge and evolve. Management should facilitate this and lead by example.

Talking about rules some more. We thrive by good (elegant) rules. For instance, we need traffic rules to make getting from A to B more predictable and safe. These traffic rules evolve over time. Their public manifestation is just the rules: the signs, icons, symbols. However, the reasoning behind it—the why—is also documented and has emerged by having a number of wise people proposing and questioning and honing the various contexts, goals, and resulting steps to reach those goals.

When the rules get detached or unhinged from the values and principles, we’re lost. They just become dumb rules. So, I live by “values > principles“ and “principles > rules”.

I use the term ‘rules’ rather relaxed, as serious game rules. Rules for me are a form of working agreements that emerge and evolve as we work together. So rules are in flux, as we discover better ways to work together.

It sounds like you are very preoccupied with the term ‘rules’, even allergic to it. An allergy is a hypersensitivity disorder, says Wikipedia. I kindly request you to reconsider and reevaluate the term ‘rules’, and put it in another perspective.

You mention the “10 commandments” as an example of rules of the “what if” form. You fail to include its foundational principles: foster an exalted, open, and fair community. You also fail to include the principles’ underlying value: love (the verb, not the romantic version). This is what almost always happens: the values and principles are left out, and the only thing you’ve got are the rules—the question “why does this make sense?” remains unanswered. People don’t understand why the rules are what they are, and they start bending and breaking them, and disobeying them. Lawyers prosper by this.

Re: Life is a broccoli by Martien van Steenbergen

…on align
You are very much into the field of self-organization and emergence. Well, take a look at how magnets are created. Magnets are made of magnetizable material. Every molecule has a magnetic field, however small. By striking the material repeatedly with a magnet, you align the individual molecules and the individual magnetic fields add up and reinforce each other, creating a stronger magnet, aligning yet more molecules.

So, I do not have negative associations with the term align in general. Align, to me, means that the majority of forces have a similar direction, are directed. It’s a bit like the ‘rectifier’ in electronic circuits. The process of facilitating the creation of this shared direction is the responsibility of the leadership in an organization, at any and all levels, not just top down. Its very cocreation should be facilitated and allowed, based on a couple of principles.

If I understand you correctly, you want principles to come from the people themselves. I fully agree. Management and leadership should catalyze and facilitate this. If a team evolves from stroming through norming to performing, they make principles, working agreements, explicit policies, classes of service. They evolve their own set of serious game rules, given their values, principles, and vision, yet within those of the next level up.

Wish you a prosperous 2015.

Succes en plezier,


Re: Life is a broccoli by NIels Pflaeging

Let me correct a mistake I made above: In the third line, I wrote "decisions" - but I actually meant "distinctions". Sorry for that. InfoQ is cruel in that it doesn´t let me correct this error anymore... it will be there forever! ;-)
What I wanted to say is that as long as we don´t agree on certain DISTINCTIONS, not much dialog will be possible.

Regards, Niels

Re: Life is a broccoli by NIels Pflaeging

Hi Martien,
I understand your reaction to my post. but it is based on a misunderstanding. I wrote "decisions", but what I meant was "distinctions", of course. This tiny word gave the whole conversation an unfortunate twist. Sorry for that. As we see here, lifre totally IS a broccoli! :-)
Regards, Niels

Re: Life is a broccoli by Martien van Steenbergen

Wauw, the impact of a small word. Thanks for clearing it up.

Yet, I'm still curious about your perspective on mine.

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