Tuesday, December 9, 2008

BNET on business democracies

Geoffrey James at BNET has an interesting post on whether businesses should be democracies. An excerpt:

...if free market democracy is such a good idea, why are most businesses run like military dictatorships?

Think about it! Most companies:

  • Are controlled by a junta of corporate “officers.”
  • Strive for tight top-down financial controls.
  • Spy upon employee emails and activities.
  • Obsess endlessly about the chain of command.
  • Dictate rules and regulations from the top.

By contrast, I’ve seen very few companies that encourage internal competition beyond initial R&D efforts, and I’ve NEVER seen a company where the employees get to vote for the new President. Heck, even the stockholders don’t get to do that.

It seems to me that if CEOs really believed the Republican “talk”, they’d “walk the talk” and voluntarily set up their companies with internal free market economies and hold regular elections to determine who should manage each function.

However, since no CEO is willing to put his money where his mouth is, it’s logical to assume that most CEOs secretly believe, consciously or unconsciously, that organizations are better off when they’re run like military dictatorships.

With all due respect, I disagree. In my view, most corporations are successful in spite of top-down management, rather than because of it. In fact, I think that most businesses would benefit if the employees were running more of the show.

While I agree with most of his points, I think the emphasis of the solution needs to be free markets more than democracy. Silicon Valley is successful because it allows hundreds of startups to bloom and the market sorts out the winners from the losers - not because they hold some sort of big vote every year to pick the "best" startups. Companies need to shift their thinking from "managers" controlling departments to "internal venture capitalists" putting resources behind the best ideas, and they should be judged on the results of those investments. Talent needs the freedom to move to the most promising and best funded projects. (more on Organization 2.0 here)

To quote Hamel:
“Market-based economies outperform those that are centrally planned. …markets are better than hierarchies at getting the right resources behind the right opportunities at the right time. The average company, though, operates more like a socialist state than an unfettered market. A hierarchy may be an effective mechanism for applying resources, but it is an imperfect device for allocating resources.”

–“The Quest for Resilience” by Gary Hamel and Liisa Välikangas, Harvard Business Review, Sept. 2003
We designed OpenTeams to act as that self-organizing ideas+talent+$ marketplace for projects.

I'd love to hear your thoughts in the comments.


Geoffrey James said...

Oh, I don't know. I'm not sure that free markets operate when it comes to selecting managers. I think that having some sort of "which manager do we vote off the island" kind of democracy might clear out a lot of lousy leaders.

Tory Gattis said...

That's a pretty interesting idea. But a similar effect can happen in the free market: lousy "internal venture capitalists" would have a hard time finding talent willing to take their money if they have any other options, and their returns are likely to be poor (since they can't attract the best ideas, projects, or talent to take their funds), so they should naturally be weeded out over time.