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Beyond Hierarchy: Rethinking the Manager-Subordinate Relationship

I believe that researchers and business managers should talk to each other way more. As a startup entrepreneur working with corporations and a PhD candidate, I hope to bridge the divide with articles like this one.

In this article, I would like to review the paper “Selective intervention and internal hybrids: Interpreting and learning from the rise and decline of the Oticon spaghetti organization” by Foss (2003) and reflect how some conclusions from this article apply to the research on Self-Managing Organizations. The paper by Foss (2003) is exploring hierarchies with elements of market control and the limits of such ‘hybrids’ and personally I found it very enlightening.

A Self-Managing Organization (SMO) was defined quite recently in the paper by Lee and Edmondson (2017) as a model of organization that has (1) a radically decentralized authority (2) across the whole organization, which (3) is accomplished through a formal system. In its essence, SMO theory is about the organization and going beyond the hierarchy. That is why the paper by Foss (2003) is of special interest to me. The author explored the hierarchy and its alternatives. Authors' views thus, although expressed 17 years earlier, seem important for me to understand and incorporate into my own views.

The paper by Foss (2003) is exploring hierarchies with elements of market control and the limits of such ‘hybrids’. The author pays special attention to the problem of establishing the incentive structure which will create managerial commitments not to selectively intervene. The case study of the Oticon company is presented where frequent managerial meddling with delegated rights led to a severe loss of motivation.

There are two highlights that were of special interest to me in this paper (Foss, 2003). The first one was the problem of managers committing to not selectively intervene in the market and hierarchy hybrid organization. This challenge is somewhat similar to what the managers experience in SMOs. In his influential book, Laloux (2014) describes 12 SMO case studies and one of the key challenges for SMOs is managerial commitment. SMOs are striving to abolish the manager and subordinate relationship, which can be threatening for the managers (Lee & Edmondson, 2017). The managers always can ‘pull the plug’ and it is tempting. The mechanisms to prevent this, which SMOs and market-hierarchy hybrid organizations use, are quite different though.

One of the approaches to the problem that Foss (2003) describes is rational ignorance. In this scenario, managers are purposefully avoiding being informed about certain projects or processes and thus can’t intervene. Interestingly, this goes in complete opposition with SMO principles and processes (Laloux, 2014). Laloux describes that the fundamental value of SMOs is trust in their people, akin to McGregor’s (McGregor & Cutcher-Gershenfeld, 1960) theory Y. SMOs also want to enable decision-making driven by the employee (Laloux, 2014; Lee & Edmondson, 2017; Martela, 2019). The value of trust and the desire to enable employees in decision-making thus make it imperative to establish the policy of full transparency in the organization.

The second approach in Foss’ (2003) paper is managers making it harmful to themselves to selectively intervene. This tool is more widely used by SMO leaders. One example is the holacracy form of organizing introduced by Robertson (2015). In holacracy, the ultimate power is perceived to be in the constitution of the organization. In that way, it’s almost like a democracy-inspired organization (Collins, 1995). Often, the company owner can still decide to revert to a hierarchy, but the constitution makes it hard for him or her to intervene selectively.

Another highlight in this paper (Foss, 2003) for me was exploring the notion of complementarity. Complementarities between elements of an organizational form exist when improving one element of the organization increases the marginal return from improving the rest of the elements (Milgrom and Roberts, 1990; Hemmer, 1995; Zenger, 2002). The author’s proposition is that complementarity is strong between the elements of the hierarchy-market hybrid organization. The reason behind this is the fact that organizations are influenced by environmental conditions and strategies and need to align their processes with those conditions (Thompson, 1967; Meyer et al., 1993; Williamson 1996; Nickerson and Zenger, 2000).

This is especially interesting to me in the context of SMOs. A number of practitioners (Laloux, 2014; Robertson, 2015) claim that complementarity is also high in the adoption of SMO processes and that adopting some of the structure and processes without the whole package won’t work. At least one argument, though, is pointing in the opposite direction: it is the existence of a wide-spread phenomenon of self-managing teams (Barker, 1993), which could be claimed as only one element of a self-managing organization which is supposed to be organization-wide. Nonetheless, the studies on the topic have not yet been done.


References
Barker, J. R. (1993). "Tightening the iron cage: Concertive control in self-managing teams." Administrative science quarterly, 408-437.

Collins, D. (1995). "A socio-political theory of workplace democracy: Class conflict, constituent reactions and organizational outcomes at a gainsharing facility." Organization Science, 6(6), 628-644.

Foss, N. J. (2003). "Selective intervention and internal hybrids: Interpreting and learning from the rise and decline of the Oticon spaghetti organization." Organization Science, 14(3), 331-349.

Hemmer, T. (1995). "On the interrelation between production technology, job design, and incentives." / Accounting and Econom. 19 209-245.

Laloux, F. (2014). Reinventing organizations: A guide to creating organizations inspired by the next stage in human consciousness. Nelson Parker.

Lee, M. Y., & Edmondson, A. C. (2017). "Self-managing organizations: Exploring the limits of less-hierarchical organizing." Research in organizational behavior, 37, 35-58.

Martela, F. (2019). "What makes self-managing organizations novel? Comparing how Weberian bureaucracy, Mintzberg’s adhocracy, and self-organizing solve six fundamental problems of organizing." Journal of Organization Design, 8(1), 23.

McGregor, D., & Cutcher-Gershenfeld, J. (1960). The human side of enterprise (Vol. 21, pp. 166-171). New York: McGraw-Hill.

Meyer, Alan D., Anne S. Tsui, C.R. Hinings. "Configurational approaches to organizational analysis." Academy of Management Journal. 36 1175-1195.

Milgrom, Paul. (1988). "Employment contracts, influence activities and efficient organization design." Journal of Political Economy. 96 42-60.

Nickerson, Jackson, Todd Zenger. (2000). "Being efficiently fickle: A dynamic theory of organizational choice." Unpublished paper, David Eccles School of Business, University of Utah.

Robertson, B. J. (2015). Holacracy: The new management system for a rapidly changing world. Henry Holt and Company.

Thompson, James D. (1967). Organizations in Action. McGraw-Hill, New York.

Williamson, Oliver E. (1996). The Mechanisms of Governance. Oxford University Press, Oxford, U.K.

Zenger, Todd. (2002). "Crafting intemal hybrids: Complementarities, common change initiatives, and the team-based organization." International Journal of Economics and Business. Forthcoming.

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