The economics, structure, and behavior of platform ecosystems and organizations

Before diving into Haier and Zhang Ruimin's RenDanHeYi vision, I'd like to examine a few network era experiments in rethinking organizational dynamics. I've selected a few well-publicized (if not actually well-understood) approaches, such as

  • Frederic Laloux's 'level of consciousness' ideas (as in Reinventing Organizations),
  • the cybernetics-inspired 'self-management' bureaucracy of Holacracy, and
  • the most promising and most widely adopted network era approach, the 'team of teams' model, where the traditional hierarchical model is displaced by a network of networks that emphasizes 'decentralized autonomy, meritocracy, and a sense of partnership'1. This approach has been adopted in a broad range of contexts, like the non-profit Asoka, General Stanley McChystal's response to asymmetrical warfare in Iraq, and scaling of agile organizations like Bosch, Amazon, Netflix, and USAA.

The emphasis of these approaches are quite dissimilar, as we will see in the sections below.

  • Laloux is principally concerned with taking change agents in business on a humanistic spiritual quest.
  • The advocates of Holacracy seem inspired to create a self-regulating distributed bureaucracy; however, it still suffers all the warts of bureaucracy.
  • The 'teams of teams' approach is highly entrepreneurial, and seek to make organizations more responsive, flexible, and agile in a time when those attributes are the only sustainable competitive advantage.

While each of these experiments offers lessons, they share a common inward focus, however, and fall short of what is needed for the era of the platform society.


Frederic Laloux: Reinventing Organizations as a Spiritual Quest

Frederic Laloux's most well-known work is Reinventing Organizations, a book that presents as its core thesis the notion that human society is engaged in a evolution of consciousness which Laloux has named after colors, ranging from 'Infrared' in prehistory, trending toward 'Teal'. This has some close parallels to the stages of Ronfeldt's social evolution model. For example, Laloux's Red organizations are more or less Ronfeldt's Tribes. However, Amber, Orange, and Green organizations reflect increasingly humanistic and cooperative leadership styles and organizational models. However, these don't apparently reflect the state of the outside world, but the spiritual or philosophical orientation of the companies leaders.

Tom Nixon wrote2 that Reinventing Organizations was 'the very best business book I’d ever read that I couldn’t quite bring myself to recommend to others', because 'the stories in the book didn’t seem to match the conclusions'. Nixon's concern with the book is one I share: Laloux is focused on the character of discrete, evolving organizations which are largely considered as Coase-like independent systems. However, businesses are increasingly a fusion of a core organization of managers and full-time employees and a sprawling periphery of freelancers, service organizations, supply-chain partners, and customers. Yes, Laloux acknowledges some of this complexity, but his emphasis is inward, and focused on core organizations to the detriment of the larger ecosystems.

Tom Nixon counters Laloux's vision, suggesting that 'a more comprehensive view is to consider all of humanity as one complex, interconnected network, not a collection of separate organisations'.

From another perspective, Laloux doesn't seem to reflect on impact of technology on the social fabric of organizations and society. Laloux talks a great deal about evolution of consciousness, but once an organization reaches the hypothetical Turquoise, the evolution seems to be done. This seems something like the organization equivalent of attaining enlightenment. However, in the social evolution of organization and society, people aren't primarily motivated by the goal of achieving some level of spiritual attainment, but rather greater levels of self-determination (for the individual or groups at every scale) through increased innovation in meeting the needs of customers.

Laloux seems to have missed the trends tending toward the platform organization as a response to the fourth industrial revolution and overemphasized the 'consciousness aspects' of ideas derived from social business, and ultimately casting organizational change as a spiritual quest.


Holacracy: Self-Organization on ‘Democratic’ Principles

Holacracy is based around the principle of holarchy, a form of hierarchical governance in which authority is vested to collective groups, called circles. Each circle is defined as a collection of roles, with individuals taking on one or more roles, and each circle is self-organized -- the specification of roles and their assignment is made by the members of the circle -- but the purpose of any circle is defined by the enclosing, parent circle.

Each sub-circle appoints a so-called 'rep' (representative) to serve on the parent, enclosing circle, and the parent circle designates a so-called 'lead' link to serve on the child sub-circle. The intent is for the lead link to carry the direction-setting of the enclosing circle into the team constituting the child, and for the rep link to surface the thinking and decisions of the child, while preserving the autonomy of the child.

Brian Robertson, the thinker behind Holacracy, explicitly viewed1 the double linking of parent and child circles as replacing the role of a conventional manager with two roles, the lead and the rep links:

Rather than managers trying to fulfill both needs and ending up stuck in the middle, Holacracy separates these roles and gives each a clear focus and voice in the organizational structure.

Robertson believes this separation leads to clearer focus than conventional managers can achieve, but it also doubles the number of individuals playing a managerial role: one managing down (the lead link) and one managing up (the rep link). A person acting as lead or rep also fills other roles: the rep link may also be a designer or accountant, depending on the circle.  However, when an enclosing circle, let's say something like a department  with ten child circles, meets to resolve over all direction and execution there would be at least twenty-two reps and links present: the lead and rep of the parent, and the lead and rep of all the children. And if there were other people in the department, the size of that meeting would increase even more.

The remaining complexities of Holacracy arise from its excruciatingly detailed constitution, explicit developed to resolve conflict through 'integrative decision-making'. This is not a consensus- or consent-based system, per se. But the decision-making process is intended to make sure that all viewpoints are heard. Except perhaps, the viewpoints of partners, suppliers, and -- wait for it -- customers.

Here's a schematic of how the process is supposed to work:

'Stuff Comes In' represents inputs from outside of a circle -- market changes, new directives from the enclosing parent circle, feedback from subordinate circles, whatever -- and this can disturb those in the circle doing their work. In Holacrcy terminology, people may 'sense tensions' and that can lead to either or both of 'tactical meetings' and 'governance meetings'. Tactical meetings are called to reassess the work being done, and perhaps reorder it inn various ways. But if the 'tensions' represent a need to change the roles in the circle -- or who is filling them -- then a governance meeting is necessary. And it goes without saying that the Holacracy constitution spells out in great detail how these meetings are to be conducted, and tensions resolved.

As Julia Cullen3 characterized it in her take down of the adoption of Holacracy at her consulting company,

If organizations were machines, Holacracy would work.

- Organizations can’t be designed – they need to be created, out of a new thinking, a different need and transformational insights.

- Holacracy was designed by engineers and being in it felt that way. I felt like being part of a code, operating a code, being operated by and within an algorithm that is optimized for machines but not for humans.  Instead of feeling more whole, self-organized and more powerful, I felt trapped. The circles I was part of did not feel empowering but rather took away my natural authenticity and feeling of aliveness. It was fully unnatural, and we were disciplined by rigorous protocols and procedures.

- Holacracy exclusively focuses on internal processes and keeps the organization busy with organizing itself.

We got completely caught up with implementing and learning how to function in/operate with Holacracy. The system is ridiculously complicated without reason, and very challenging to learn.

I increasingly felt that we had totally missed the point! Today, I would say that our operating model was not our root problem. As a result, even if Holacracy does work, it would not have helped us. A new operating model/organizational design/structures and procedures are not the only solutions to today’s most burning questions.

I felt more disempowered than ever, although I was the Lead Link of the Company Circle, one of the most central positions.  Holacracy implementation used up all of our energy that we should have used to work on our actual pain points, such as lack of innovation, unclear strategy, critical market feedback and declining internal morale. The worst thing was the fact that all of our dysfunctional behaviors, that had developed over decades, immediately found their way within and beyond Holacracy’s working formats. It was not the quick fix we had hoped for.

Holacracy was a perfect distraction from what we really should have talked about. As it mainly focuses on the operating model, not on beliefs, culture, strategy, behavior or anything else that really matters and could possibly have made a positive difference for our future, the old patterns survived.

Steve Denning -- in a post4 about the adoption of Holacracy at Zappos, at 1,500 employees the largest company to try it -- raises what I think is the right question: Where is the customer in Holacracy?

While the hue and cry in the media about holacracy is now “whatever happened to the managers?” the more pertinent question is: “whatever happened to the customer?”

[...]

In holacracy, the only explicit feedback mechanisms alluded to in the Holacracy Constitution are vertical. There are no explicit feedback mechanisms from the customer i.e. the people for whom the work is being done. This is not to say that members of any circle are formally excluded from sensing a “Tension” from failure to meet customer needs  of which they happen to become aware and then take action to resolve that “Tension”. But it is also true that the explicit focus of the Holacracy Constitution is entirely internal. The customer is simply not in the picture.

In a world in which the balance of power in the marketplace has shifted from seller to the customer, this issue is critical.

When so much time and effort is spent on the micro-details of the internal decision-making mechanisms and absolutely no attention given to any external feedback mechanisms, one could easily get the idea that the internal mechanisms are supremely important while the customer is irrelevant. Unless and until this “gap” is rectified, holacracy risks being a distraction from the central organizational challenge of our times, namely, how to make organizations more able to add value to customers through continuous transformational innovation.

Andy Doyle of Medium wrote5 about that company's experience with Holacracy, and why they decided to drop the system (emphasis mine):

Our experience was that it [Holacracy] was difficult to coordinate efforts at scale. In the purest expression of Holacracy, every team has a goal and works autonomously to deliver the best path to serve that goal. But for larger initiatives, which require coordination across functions, it can be time-consuming and divisive to gain alignment.

Holacracy also requires a deep commitment to record-keeping and governance. Every job to be done requires a role, and every role requires a set of responsibilities. While this provides helpful transparency, it takes time and discussion. More importantly, we found that the act of codifying responsibilities in explicit detail hindered a proactive attitude and sense of communal ownership.

My sense is Holacracy as currently formulated is an oppressively bureaucratic, and overly programmed 'operating system' for business governance that fails on several levels. While in principle individuals in the system have large degrees of autonomy to decide how to get their work done, circles (and circles of circles) do not. In order to avoid the negatives that can arise in the governance of organizations Holacracy imposes a one-size-fits-all approach to decision-making and the inherent conflict resolution that accompanies it. And aside from the inherent top-down enclosure of circles within circles, there is no well-defined approach for individuals within circles to connect with members of other circles outside of the hierarchy, which may be the root cause of the coordination problems that Andy Doyle described.

Note also that Doyle went on to describe a set of principles at Medium, post-Holacracy, that sound like a close relative of the team-of-teams approach discussed in the next chapter:

To move forward thoughtfully, we’ve established a set of principles to clarify how we want to organize and manage the company. We hope that these principles will persist over time, though the manner in which we apply them will necessarily evolve as we grow and the complexity of our business increases.

1. Individuals can always instigate change.

2. Authority is distributed, though not evenly or permanently.

3. Ownership is accountability, not control.

4. Good decision-making implies alignment, not consensus.

5. The system is designed to be adaptable.

6. Corporate transparency, driven by technology.

Reflecting on Holacracy I am reminded of the poet Rainer Maria Rilke, who wrote

If my devils are to leave me, I am afraid my angels will take flight as well.

I fear that Holacracy might scare off the angels for the sake of banishing our organizational devils.


Team of Teams: Going Horizontal In an Uncertain World

There seem to be a variety of very different paths that have been traveled to arrive at the management philosophy called 'team of teams'. Wildly different organizations have transitioned away from the conventional command-and-control regime that we associate with pre-industrial and early industrial era institutions like Napoleon's army or the organization chart of the Tabulating Machine Co. of 1917 (later, IBM).

Organization Chart of the Tabluating Machine Co. [source: Wkipedia]

Stanley McChrystal and The Joint Special Operations Task Force

One of the better known proponents of the team-of-teams approach is Stanley McChrystal, one of the authors of a book of the same name, based on his experience at the command of the Joint Special Operations Task Force in Iraq in 2004. He and his staff learned very quickly that Al Qaeda, the enemy they confronted, operated on a completely different set of principles than other enemies they had seen.

As McChrystal and his co-authors put it:

Our Task Force’s structure and culture of disciplined, stratified reductionism had its roots deep in military organizational history.

This organizational culture is not unique to the military; since the Industrial Revolution, most industries have subscribed to management doctrines informed by or similar to Frederick Taylor’s “ScientificManagement,” a system that is excellent for achieving highly efficient execution of known, repeatable processes at scale.

We were realizing in 2004 that despite the success of this approach throughout the twentieth century, it had its limits. Like the Maginot Line, it was insufficient for tackling a new generation of threats. Efficiency is no longer enough.

Confronted with an environment of increased complexity, accelerated change, and greater uncertainty, the Task Force was always a step behind in predicting what Al Qaeda was up to. They realized they had to adapt to this uncertainty and adopt greater reliance on resilience, agility, and flexibility rather than planning and prediction. Adaptability trumps efficiency in a world where you can't predict what is coming.

So, McChrystal worked to undo the structure of his command, dismantling the top-down dominance that defined it formerly. On the way to the team-of-teams approach his organization was structured for a time as a 'command-of-teams' model (see chart below7), but that hybrid approach still operated too slowly, even while being more adaptable than the 'command' form.

The final form disaggregated the silos of the command model almost totally, and shifted the focus toward making the various teams cooperate like team members do:

An organization within which the relationships between constituent teams resembled those between individuals on a single team: teams that had traditionally resided in separate silos would now have to become fused to one another via trust and purpose.

And, also connected through transparency of the system as a whole, technology-enabled information sharing, and developing a 'shared consciousness' -- a shared understanding of how the team-of-teams system works abstractly and in specific. This required reconsidering and rejiggering 'nearly every procedure in our operating culture'.

At the heart of this was the daily Operations and Intelligence (O&I) briefings:

The daily O&I briefing lay at the core of our transformation: this pumped information about the entire scope of our operations out to all members of the Task Force and partner agencies, and also offered everyone the chance to contribute.

The many teams found cross-coordination with others essential for success, but at the same time 'empowered execution' translated into localized action:

Individuals and teams closest to the problem, armed with unprecedented levels of insights from across the network, offer the best ability to decide and act decisively.

I am particularly impressed by the metaphor that McChrysal adopts to characterize the shift in leadership in the team of teams. In the command model, the leader operates as a chess master, controlling each move made across the organization, and considering its people as pieces to be played. But in the networked, team of teams world, the leader is no longer directing others actions. Instead, they act as a gardener, an 'eyes-on, hands-off' enabler who 'created and maintains an ecosystem in which the organization operates'.


Bill Drayton and Ashoka

McChrystal and his co-authors are not the only group to promote the concept of team of teams.

Bill Drayton founded the non-profit Ashoka in 1980 and spread the idea of social entrepreneurship, believing that tapping entrepreneurial energy was the key to that effort. Over the next decade he created the model he called team of teams. As William F. Meehan III and Kim Starkey Jonker relate 1,

Drayton calls the new model "team of teams." Instead of maintaining a traditional structure in which people work in hierarchies based on a function or a formal business unit, an organization operates as a constellation of teams that come together around specific goals.

At the center of this constellation is a coordinating executive team, but the composition of each project team shifts as needed over time. Teams and team members work together in fluid, constantly changing ways. The model emphasizes decentralized autonomy, meritocracy, and a sense of partnership.

Drayton vision was quite clear8

Value in this world comes not from providing the same thing over and over to a client, but from managing kaleidoscopic change processes that are busily bumping one another. Because one now needs to see and seize ever-changing opportunities, the new organizational model must be a fluid, open team of teams. That is precisely what one sees in the islands where the new world of change is already flourishing—for example, Silicon Valley and Bangalore. Here (and increasingly everywhere) the critical factor for success is determining what percentage of your people are changemakers, at what level—and how good a job you are doing in enabling them to work together in fluid, open teams of teams.

Ashoka wrote more specifics about the model9:

Features of Traditional Team Design:

- The team (and its members) is static, rigid, and fixed

- The team is primarily defined by its function and responsibility

- A few people in leadership roles manage the vast majority

- Individuals succeed by mastering a skill and repeating it

Features of Team-of-Teams Design:

- The team is evolving and fluid; members come and go as the nature of the problem changes

- The team is primarily defined by an objective that is bigger than any team could achieve single-handedly

- There is very little hierarchy; leadership, decision-making, and execution are decentralized but coordinated among team members

- Team members succeed by taking agency to enable change in any context. Successful team members are changemakers

Drayton is perhaps less well-known than McChrystal, but it's clear that his insights came a few years before McChrystal's: but they both responded to the challenge in the same form.


It's A Horizontal World, After All

In the final analysis, we owe a great deal to the journey of self-discovery that Drayton and McChrystal shared: one a major general and the other a social entrepreneur. Confronted with a world of non-linear and asymmetric complexity, they responded organically, rejecting the traditional, linear, vertical approach to organization, and went horizontal, pushing decision-making to the edge of a network of teams who make sense of an accelerated world and act on it, taking agency, while leaders act as gardeners, creating a context in which teams of teams can find their way.


The Limits of Networks, The Rise of Platforms

The team of teams approach is perhaps the high water mark of organizational philosophy in the era of networks. Both McChrystal and Ashoka -- and other companies that have adopted the team of teams organizational form -- have accepted the necessity of the most pervasive information and communication technology available to enable team of team networks to self-organize and coordinate in a distributed, decentralized, and discontinuous way.

However, the fourth industrial age is on us, and new economies, and new technologies are emerging. In particular, technology that enables multi-organizational ecosystems to build on, and extend the team of teams model into a network of networks, which is one way to define a work ecosystem.

We will return to these topics in section 4, The Future of Networks: Platforms and Ecosystems, but first we will look at the history of Haier using the lens of social evolution, and concisely recap Zhang Ruimin's vision for ecosystems of work in Haier, Rendanheyi, and Zhang Ruimin’s Vision.


Section 1, Social Evolution

Section 2, The Era of Networks

Section 3, Haier, Rendanheyi, and Zhang Ruimin’s Vision

Section 4, The Future of Networks: Platforms and Ecosystems

Section 5, On The Horizon


[1]    William F. Meehan III, Kim Starkey Jonker | Team Of Teams: An Emerging Organizational Model.

[2]    Tom Nixon | Resolving the awkward paradox in Frederic Laloux’s Reinventing Organisations

[3]    Julia Cullen | Holacracy: not safe enough to try

[4]    Steve Denning | Making Sense Of Zappos And Holacracy

[5]    Andy Doyle | Management and Organization at Medium

[6]    Tiffany McDowell, Dimple Agarwal, Don Miller, Tsutomu Okamoto, Trevor Page | Organizational models: A network of teams

[7]    Beau Gordon | Key takeaways from Team of Teams by General Stanley McChrystal

[8]    Bill Drayton | A Team of Teams World

[9]    Ashoka | Your Team Never Mattered So Much