Self-Managed Organizations: Self-Delusional or the Future of Business?

Digitalist Magazine
The new work movement is gaining momentum, that is for certain. But is this the right way to go, or are we just fooling ourselves?


Based on a joint study we recently conducted with SAP, Guenter Pecht-Seibert, who leads the SAP Future of Work team, explains which work methods are outdated, and presents seven rules self-managed organizations of the future will need to abide by.

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By Guenter Pecht-Seibert

If you have ever attended a stand-up meeting, you know people do just that—they stand. Why? Because standing reminds them to keep their comments short and to the point. Software development teams use scrum-style daily stand-ups to keep team members connected, share information quickly, and identify issues before they turn into problems. They know something other teams don’t: Their work is complex, no single individual has all the answers, and hierarchies can get in the way of innovation. So, methods that create more connected, self-managed work—like daily stand-ups—are key to creating innovative software.

Scalable efficiency just doesn’t cut it anymore

Today, businesses are waking up to the realities of this increasing complexity and warp-speed innovation. Whether they like it or not, the pressure to innovate and to re-invent themselves again and again is high. Looking back into the 1950s makes this apparent. In 1958, a Standard &Poor’s 500 company could hope to be around for an average of 61 years. Today, most survive only about 18 years on average. And 52% of all Fortune 500 companies have either experienced bankruptcy, been acquired, or gone out of business entirely between 2000 and 2014.

So increasingly, business leaders are seeing their industrial age organizational structures are failing them. Why? Because industrial age command and control management practices were established during the early 20th century. At that time, a low degree of automation, a poorly educated workforce doing manual tasks, and ill-informed customers in stable mass markets were the norm. The main goal of companies was scalable efficiency. Hierarchical management practices were necessary so that a few educated people—called managers— could instruct less educated people on how to complete tasks.

Today, we have a highly educated workforce. This trend will continue; the latest numbers tell us that by 2025, almost two-thirds of the U.S. labor force will likely need some education beyond high school. We also have highly informed customers, who are social media-savvy and who can’t be fooled with insincere marketing. And most importantly, we are experiencing a degree of automation like never before. Companies can no longer differentiate themselves through scalable efficiency—their goal now is to become innovative and agile.

Command and control goes the way of the dinosaur

It’s obvious that we can’t respond to these new challenges with traditional management approaches. More creative work done by diverse workgroups require more flexible, collaborative and open structures. And while routine tasks increasingly become automated, creative work is also expanding and evolving. Traditional command and control attitudes, and the hierarchies that maintain them, will be replaced by networks of self-directed teams doing work that extends beyond the boundaries of individual organizations. Finding new ways of coordinating work across organizational silos is no longer a luxury, it’s an imperative.

Seven things self-managed organizations of the future will need to do differently

Are business leaders turning to management gurus or consulting companies or science for new ways to structure work? Increasingly, they are turning to leaders in software development—not only for software solutions—but also for insights into how to “do” work in the future. The driving assumption is that businesses will need to radically redesign work environments to move from top-down “machines” to self-managing organisms driven by a higher purpose beyond increasing revenue.

Here are seven things I believe self-managed organizations of the future will need to learn to do differently so they can move from scalable efficiency towards innovation and agility:

1. Find and follow a higher purpose. Define the “why” behind the endeavor.

In the absence of control, purpose keeps people focused. It provides direction. Purpose addresses a basic human need for meaning and defines the reason why a company exists—beyond pure profit. It includes a responsibility for society and the environment. But to be serious about a purpose, every element of the business needs to align around it: culture, strategy, and brand.

2. Understand that mutual trust is the glue that binds people together.

Employees must trust in their leaders, but equally important is that leaders trust their employees to act in the interest of the company.

3. Create a culture where leaders empower people to take more responsibility for success—and just as importantly, for failure.

The leader can no longer be seen as a scapegoat for failure. Team members have more opportunities to take personal responsibility for results. This has implications for how we set up teams, conduct performance evaluations, and incentivize success.

4. Consider the team setup carefully to foster more accountability and autonomy

Not only who is on a team, but how they got there is important. Provide opportunities for people to choose their project assignments. Enable some self-assignment to tasks and responsibilities, recognizing that people are more motivated when they decide where they can best contribute their unique talents. Ensure the team setup is as diverse as possible, recognizing that innovation depends on a diversity of thought and experiences. Include all the roles in the team that are necessary for it to succeed, and set them up to ensure end-to-end responsibility for the outcome.

5. Change the way you incentivize people.

Incentivize for innovation: Experiment with an “Innovation Account.” Recognize that people need time to innovate. Allocating just a couple of hours each week to innovation won’t lead to the next breakthrough innovation. Enable employees to “bank” their hours and then step away from their current role for a larger chunk of time to accomplish something truly innovative. Consider that bonuses and other forms of variable pay make most sense when people feel they can have a direct impact. Instead of linking variable pay to company-wide performance measures, map them to the things people can actually impact or contribute to.

6. Understand that peer group competition and team pressure are powerful motivators.

In self-managed teams, the onus on “doing the right” thing for the team is high because members have a lot more information. For example, the temptation for members to blow the budget on that first-class plane trip is low, since the team has transparency into the budget spending too So replace today’s typical management controls with mechanisms that promote more information-sharing within the team. Also, people tend to compare their own group’s performance with the performance of other teams. So, healthy competition among peer groups keeps people focused on helping each other succeed on their team’s mission.

7. Empower distributed decision intelligence to increase decision quality and foster ownership and autonomy.

Decision power should go to the people who are affected by the decisions. Empower employees, put them into charge, give them more freedom, but also ask for more self-responsibility in return.

Click here to find out more about the study IXDS conducted together with SAP about how businesses can redesign work environments to support radically new work practices.