RANK-BASED VS. PEER-BASED PRACTICES

As in chaos theory, where an increase in the energy, freedom, and flexibility of the system brings great creativity and variety, in organizational theory, if you increase the information flow, freedom in decision making, and flexibility in relationships, you'll open the company up to greater creativity and innovation. This requires peer-based practices rather than rank-based practices, which can cause companies to squander so much of the competencies and skills of their people. To better understand how to unleash the great potential of all employees to capture the magic of the strange attractor, we now need to compare and contrast two different types of practices as outlined in table 4 and discussed in detail.

Table 4: RANK-VS. PEER-BASED PRACTICES

Rank-Based Practices	Peer-Based Practices
Controlling	Sharing
Mindless	Mindful
Top down	Freeing
Fearful	Creative
Bureaucratic	Flexible
Communicating deceptively	Communicating honestly

Controlling vs. Sharing

Controlling is not only a way of thinking, but also a practice influenced by rank-based logic.

Rank-Based Practice

Maintain tight control and protection of information from those outside management; secrecy is important; share information only on a need-to-know basis, if at all.

Peer-Based Practice

Promote open flow and sharing of information, including knowledge of business and financial conditions ”with no secrets and no surprises .

I have consulted with many companies where the senior executives hold on tight to information that would be in the best interest of the organization for everyone to know. In the absence of the free flow of information in rank-based organizations, the climate is often rife with damaging rumors. Information is, of course, power, and when it is held by the few, it creates high levels of distrust . In difficult times this rankbased practice destroys productivity in companies as the majority of employees engage in endless gossiping and cautious, self-protective behavior. That outcome contrasts sharply with what happens in an organization that employs peer-based practices. One of the best examples of this type of organization is SRC Holdings (see p. 65).

Mindless vs. Mindful

Another rank-based practice affects the stretching of the mind.

Rank-Based Practice

Demand that employees do as they're told.

SRC HOLDINGS

SRC Holdings Corporation of Springfield, Missouri, became well-known through its president and CEO, Jack Stack In his book with Bo Burlingame, The Great Game of Business (2002), Mr. Stack recounts how he and some partners instituted an organizational system to create a culture of ownership that came to be called "open-book management." In their culture they have a strict policy against secrets, and they open up all the company's financial statements to employees. Stack says of this business practice, "When you open your books ”really open them ”you also open your mind, and neither your mind nor your books will be closed again. Why? Because you'll keep discovering things about yourself and your company you wouldn't have known otherwise " (9).

Following this peer-based practice, their company has consistently grown 15 percent a year. They have seen their stock price climb from a low of 10 cents to over $80 per share. Each SRC employee thinks and acts like an owner and is constantly searching for ways to increase productivity and lower costs. Like the strange attractor that is endlessly creative, organizations that open the flow of information with this peer-based practice become endlessly innovative!

 

Peer-Based Practice

Encourage employees to think strategically.

When secrets are kept and information is scarce , most employees adopt self-protective behaviors. They don't act until told to do so and then drag their feet, complain about resources or lack of training, and grumble that what they have to do is pointless anyway. These are natural survival instincts that dominate in a rank-based organization. Rank-based managers find they have to resort to bribes and threats to get employees to do things. They gripe that employees lack initiative, but fail to see that they do not provide adequate information and are all too ready to cut off the neck of anyone who sticks it out too far. The outcome of managing work this way, where both the manager and the managed believe it's safer to just do what they're told, is gridlock and a stagnant business.

Peers, on the other hand, lead themselves and cooperate with others. You don't manage your peers, you collaborate with them. Jack Stack realized that by increasing the flow of information through the organization, all employees would begin to act like an owner and to think strategically. So instead of waiting until told what to do. employees begin to take responsibility for making things happen. They bring within themselves the passion, vision, and motivation to do the job.

Top Down vs. Freeing

Comparing rank-based and peer-based practices reveals an obvious fork in the road of decision making.

Rank-Based Practice

Employ top-down, command-and-control management and decision making, where the few are treated and rewarded as leaders and the many are treated and rewarded as followers.

Peer-Based Practice

Give all members of the organization the authority to make the decisions affecting their work ”expanding freedom and creating soft hierarchies.

W. L. GORE & ASSOCIATES

A peer-based organization knows that increasing degrees of freedom in the company and allowing greater participation in decision making will result in a more creative and energized work environment. One such company is W. L. Gore & Associates, Inc., based in Newark, Delaware. Since 1959, Gore has thrived within a work environment lacking a fixed hierarchy or formal leadership titles. Bill Gore, the founder, envisioned an organization with the following characteristics:

• No fixed or assigned authority

• Natural leadership defined by natural followership

• Objectives established by consensus

• Person-to-person communication encouraged

• Tasks and functions organized by commitments

Gore has been consistently profitable and innovative by increasing the freedom of communication and decision making for all employees. Any Gore associate (in the absence of formal titles, all employees are called associates) with a good idea is free to communicate it to anyone else in the company. If the associate can persuade enough people that the idea would be profitable ”and can attract a cross-functional team to design, manufacture, market, and sell the idea ”then it happens. By the way, in 2002 sales at Gore topped $1.4 billion.

 

A big mistake many organizations make with their people is thinking that only those individuals who desire leadership positions desire to participate in decision making, thereby ignoring those individuals who could be making wonderful contributions to the organization's decision making. The myth of leadership falsely leads us to think that decision making is the sole prerogative of leaders, and those who do not seek leadership positions are weak or lazy. This belief leads to a rank-based organizational practice of very little freedom and thus very little creativity.

Fearful vs. Creative

Fear of making mistakes reduces creativity in rank-based practices.

Rank-Based Practice

Warn employees not to make mistakes.

Peer-Based Practice

Encourage employees to be creative and learn constantly.

Rank-based organizations restrict freedom and hope that by doing so they can reduce mistakes. "Don't make mistakes!" is a key directive at such an organization, but instead of eliminating mistakes, it eliminates innovation. Another point that rank-based companies frequently overlook is that success misleads, whereas failure educates. Without the freedom to fail, employees and the organization will, paradoxically, keep making the same mistakes over and over again. I recall hearing about a very empowering manager. He brought all new hires into his office and told them, "You're ˜preforgiven for all the mistakes that I hope you'll make. However," he went on, "I do expect you to tell me when you fail and also to tell me what you learned from your failure." His peer-based department at this otherwise rank-based organization always outperformed the other departments, and it was the department that employees from the rest of the organization most wanted to transfer into.

W. L. GORE & ASSOCIATES

Freedom to be creative and constantly learning is a key peer-based practice. This freedom can also be risky, but W. L. Gore has created the right habits to make it work Associates are trained to consult with other associates on any major decision and to ask certain "waterline" questions to ensure that the decision reflects and supports the organization's strategic direction and well-being. The two questions they are taught to ask are these:

• If you do it and it works, will it improve our revenue or decrease our costs?

• If you do it and it fails, can we afford it?

Only if the answer to both questions is yes do they proceed. Such freedom unleashes incredible amounts of energy and enthusiasm within the organization to drive it to new heights of success.

 

Bureaucratic vs. Flexible

Rank-based practices follow the Peter Principle: Promote people to the level of their incompetence .

Rank-Based Practice

Promote individuals to leadership positions in a fixed bureaucratic hierarchy, where they stay until retirement or further promotion; who you know can be more important than what you know.

Peer-Based Practice

Rotate leadership and manage key organizational decisions by inviting participation by all members of the organization into the process.

My first independent consulting job was a disaster. I came in excited to help an Internet recruitment site improve both its strategy and employee morale . My first training event on building trust was fabulous. All the employees left feeling good about the company, and I was even feeling good about the participation of the CEO. He was known less for great competence and more for leaving half-way through the day to sit at a nearby park. He had been chosen as CEO through his close friendship with the owners . But at the training he had said all the right things to give the employees hope. At the training session, groups had agreed to plans that would immediately boost the sales of their services and lead to a promising growth in revenue. The sales force consisted of extremely talented and ambitious young people ”I thought this organization had a bright future, and that I would have a nice contract for some time to come. Of course, it didn't happen this way.

The very next day, when I went into his office, he acted as though the meeting and plans of the previous day had not even existed. He refused to even acknowledge there had been that conversation. I couldn't believe it. What was worse , his entire executive team acted the same way. Employee trust evaporated, and from that day forward very little work took place. Everyone had mentally checked out. The one person in a leadership position who tried to challenge the CEO's fixed and inflexible authority was slowly frozen out of leadership meetings and any decision making. Within a year the company went bankrupt, and I was out several thousand dollars. Perhaps that was a small price to pay for the lesson of learning the cost of the rank-based practice of fixed and hierarchical bureaucracy in organizations.

Peer-based organizations such as Orpheus, the "conductorless" orchestra, reject fixed, permanent hierarchical positions and the associated inflexible leadership authority in favor of rotational leadership, where key organizational decisions are made through peerbased leadership councils. Orpheus has pioneered the unique peer-based management practice of abolishing fixed and permanent leadership positions and instead shares and rotates leadership roles. This has given them an incredibly and flexible structure.

ORPHEUS CHAMBER ORCHESTRA

Certainly there are few more stressful and precise business projects than planning for, preparing for, and performing at Carnegie Hall, and the Orpheus Chamber Orchestra does it all without a formal, rank-based leader. They have found a process that better empowers the creativity, talent, passion, and productivity of each person in the organization. Leadership roles exist, but these are assigned to peers on a project-by-project basis, and with each project, core teams or councils are chartered to supervise the key decisions that must be made and communicated. Each person in the orchestra has the opportunity to take a turn at leading the collaboration and consensus decision-making process. The benefits to the organization are enormous . Harvey Seifter (Seifter and Economy 2001), an executive director at Orpheus, had this to say about the peer practice of rotational leadership:

As more and more businesses become information-based, using fewer employees to produce expanded results, organizations where everyone has the opportunity to lead will certainly be the most successful. Companies that can tap their employees' expertise, problem-solving skills, and self-direction enjoy a serious competitive advantage: motivated and satisfied workers who consistently hit company targets and meet unexpected challenges, even when formally appointed leaders are not available. (102)

 

The company-killing problems I encountered on my first consulting job ”the incompetent, but well-connected CEO, the fixed and unresponsive bureaucracy, the inability for anyone lower in the hierarchy to significantly influence those higher in the hierarchy ”all disappear in the peer-based practice of rotational leadership. In the future, this practice will undermine the myth of leadership and allow everyone in the organization to develop his or her potential to the fullest. It will also result in greater equality of salaries and prohibit the stupid excesses of executive pay that plague most organizations today. This will boost morale, trust, and productivity better than any leadership seminar or change initiative imposed on the organization.

Communicating Deceptively vs. Communicating Honestly

Honest communication does not exist in rank-based thinking.

Rank-Based Practice

Tell those above you what they want to hear and those below you only what they "need" to know.

Peer-Based Practice

Communicate throughout the organization honestly and truthfully.

When employees believe that lines of authority and decisionmaking power are fixed and inflexible, they will engage in the most common rank-based practice ”they will tell those above them only what they think they want to hear and those beneath them only what they think they need to know. This leads to serious communication problems. When I consult with organizations, I like to make this point by sharing a funny story that everyone in business understands. It captures the reality that people in rank-based organizations are more consistently rewarded for telling their-superiors pleasant lies than for telling the truth. This lightly adapted version of a fable dating back to the early 1960s illustrates the phenomenon of a progressive disconnection of decision makers from reality.

THE PLAN

In the beginning was the Plan.

And then came the Assumptions.

And the Assumptions were without form.

And the Plan was without substance.

And darkness was upon the face of the Workers.

And they spoke among themselves, saying, "It is a crock of crap, and it stinks."

And the Workers went unto their Supervisors and said, "It is a pail of dung, and we can't live with the smell."

And the Supervisors went unto their Managers, saying, "It is a container of excrement, and it is very strong, such that none may abide by it."

And the Managers went unto their Directors, saying, "It is a vessel of fertilizer, and none may abide its strength."

And the Directors spoke among themselves, saying to one another, "It contains that which aids plant growth, and it is very strong."

And the Directors went to the Vice Presidents, saying unto them, "It promotes growth, and it is very powerful."

And the Vice Presidents went to the President, saying unto him, "This new plan will actively promote the growth and vigor of the company with very powerful effects."

And the President looked upon the Plan and saw that it was good.

And the Plan became Policy.

And this is how shit happens.