BASIC DESIGN RULES OF A PEER-BASED ORGANIZATION

In the peer-based Strategy Diamond model, with its clear separation of reporting lines and decision-making authority, three basic rules apply:

• All decisions are made and conflicts resolved at the lowest possible level.

• The senior executives organize and mentor the peer councils.

• The peer councils organize the company's work at each particular level by chartering cross-functional task forces to perform the necessary work.

Decision Making and Conflict Resolution

Decisions should be made as close as possible to where the work is being done. Rank-based organizations are instead set up to remove decision making to the farthest point possible from the work locus, resulting in a growing gap between decision makers and reality. It is the sharing of decision making, not the abdication of power or responsibility, that results in empowering employees and makes centralization and decentralization happen at the same time.

In the peer-based organization, people are trusted to know what will work best at their level of the Strategy Diamond and they are empowered to organize the work there. In keeping with the increased freedom of decision making, these councils are responsible for deciding purchasing and pricing issues, for hiring and firing, for salary and compensation matters, and for establishing and monitoring team work rules and procedures. Access to information is crucial.

Senior Executives' Role

Senior executives charter the peer councils as decision-making bodies at key levels of the Strategy Diamond. Now, rather than making distant , top-down decisions, the executives move through the councils as mentors, consultants , and co-strategists, while each council makes the decisions within its purview. This allows information to be shared horizontally between councils and task forces and not be slowed, or perhaps even lost, in the climb up and then down a corporate hierarchy.

This distribution of information and control greatly enhances innovation and creative responsiveness to customer needs because decisions are made quickly by the people most knowledgeable about customer needs and desires. Further, recent research in neural networks by Efraim Turban and Jay Aronson (1997) shows that such distributed decision making is much more effective and, I believe, produces increasing returns where the marginal product grows faster than marginal costs. This approach does not create anarchy because the councils themselves are linked together through the sharing of some common members (the "link-pin" concept).

Peer Councils' Role

In practical terms, councils are responsible for setting up, teaching, and mentoring task forces, while the task forces do the real work. You could say that at the most basic level, decision making is done at the task force level with the support and mentoring of the respective councils. Leading through councils increasingly decentralizes decision making and satisfies the work motivators by giving employees greater control over their work. Such distributed decision making gives great incentive to innovate at all levels of the organization, thus increasing productivity and reducing costs. Councils are circular feedback systems of distributed decision making, and they are exceptionally creative and responsive to changes in business conditions in these turbulent times.

In his Harvard Business Review article, Drucker (1998) also describes the relationship between traditional departments and what I call peer councils and task forces:

Finally a good deal of work will be done differently in the information-based [peer-based] organization. Traditional departments will serve as guardians of standards, as centers for training and the assignment of specialists; they won't be where the work gets done. That will happen largely in task-focused teams . (6)

In the peer-based organization, peer councils should have decision-making authority over

• Hiring, training, and retaining individuals with the right skill portfolios needed for the company

• Their own project teams

• Their own product/service lines

• The business units directed toward specific customers or geographies with the responsibility to allocate resources to the different business groups and units

• The business groups