Situationally Adaptive Organizations (“SAOs”)
(New Organizational and Governance Structures for the 21st Century)
The challenges and rapidly changing social, political and economic landscape of the 21st century require significant transformation in how business is done. This includes transforming the purpose, structure, governance, culture and behavior of organizations. In order to thrive in the 21st century, organizations must evolve from hierarchical, siloed and competitive bureaucracies to a new generation of whole-systems organizations that are agile, adaptable, resilient, innovative, collaborative, and eco-socially responsible. This includes balancing the demand of shareholders to maximize profits with the needs of other Ecosystemic Stakeholders, including their customers, employees, business relationships, community, society and the planet. To serve organizational flourishing and all of its Ecosystemic Stakeholders, an effective and ethical governance structure dedicated to the quadruple bottom line of people, planet, purpose, and profits is critical.
There is a significant consensus that the industrial age hierarchical-bureaucratic, profit-at-all-costs corporate model does not effectively address the business and economic challenges of the 21st century. Even economic pragmatists understand that climate change, environmental destruction, and dwindling resources are bad for business. As well, an increasing number of consumers want to purchase products and services from ethical companies with commitments to environmental, social and governance (“ESG”) improvements. Fostering ESG not only improves the value and appeal of a company’s brand but also generally enhances the quality of human life, employee morale, top-line growth and the health of our biosphere. Clearly, new models for organizational structures, governance and business that are holistic, adaptable, cooperative and regenerative are needed to thrive in a world concurrently transitioning from an industrial society to a regenerative society.
There is a groundswell of adoption and investment in ESG companies with assets under management (“AUM”) totaling over $40.5 trillion USD globally and projected to reach $53 trillion USD by 2025. Also, green, social and sustainable (“GSSS”) bond investment grew to $600 billion USD in 2020 — nearly double the $326 billion USD invested in GSSS bonds in 2019. In support of the multi-trillion opportunities in ESG, Larry Fink, CEO of BlackRock, the largest asset manager in the world with AUM over $10 trillion, stated, in his 2020 letter to CEOs, that his firm would make investment decisions with environmental sustainability as a core goal:
“Over the course of 2020, we have seen how purposeful companies, with better environmental, social, and governance (ESG) profiles, have outperformed their peers. During 2020 81% of a globally-representative selection of sustainable indexes outperformed their parent benchmarks.”
“From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. I believe that this is the beginning of a long but rapidly accelerating transition — one that will unfold over many years and reshape asset prices of every type. We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
While commitment to ESG should be applauded as a step in the right direction, much of the $40.5 trillion of ESG investment has gone into large public companies that continue to perpetuate the centralized supply chain, fossil fuel burning, greenhouse gas emissions, extraction, and exploitative practices. The ESG commitments and the massive investment into ESG are just not enough to address the urgent transformation we require. The way corporations do business also requires significant transformation.
Although there has been significant exploration into organizational change, many of the organizational change models have not integrated a whole systems and flexible approach where form (e.g., structure and governance) follows function (e.g., purpose, vision, mission, objectives, goals, and increasing the quality of life). Instead of making real change, most large and entrenched organizations have adopted “organizational change models” that leave the hierarchical structure, form and system in place while just addressing the symptoms of organizational dysfunction. Occasionally, a “new” structure is implemented but often is as form-based, myopic, inflexible, bureaucratic, disempowering and inefficient as the structure it was meant to replace.
Having a single organizational structure is like trying to use a single tool for every situation. As the saying goes, “If our only tool is a hammer, every problem looks like a nail.” When presented with a tomato, we hit it with our hammer; when presented with a nut and bolt, we hit it with our hammer; when presented with a screw, we hit it with our hammer. If only we had a knife for the tomato, a wrench for the nut and bolt, and a screwdriver for the screw, the outcome of our actions could be considerably more effective and elegant.
So rather than having a singular, one-size-fits-all organizational structure that frequently fails to effectively address the rapidly changing landscape of the 21st century, “Situationally Adaptive Organizations” (“SAOs”) (discussed below) can provide a tool chest of highly effective, flexible, agile and multi-structured organizational protocols. SAOs respond to circumstances with a tool chest of adaptable forms and protocols that enlist the most effective people and resources and apply the most responsive tools and processes to optimally address each situation as it arises.
This article examines the history of corporations and different organizational structures and seeks to demonstrate that SAOs provide greater effectiveness and function, resulting in increased profits, executing organizational change, fulfilling ESG commitments, and greater Ecosystemic Thriving.
The Impact and Influence of Corporations
Just 150 years ago, the business corporation was a relatively insignificant institution. Today, corporations have become the dominant institution of business and influence. Corporations impact practically everything on this planet, from people, animals, plants and the environment to foreign relations, trade, money and just about every resource imaginable (e.g., water, air, metals, food, gems, oil and chemicals).
A “corporation” is defined by Stewart Kyd, the author of the first treatise on corporate law in English, “as having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.”
Ambrose Bierce’s Devil’s Dictionary defines the “corporation” as “an ingenious device for obtaining profit without individual responsibility.”
The corporation, as a form and structure, is relatively benign and provides a method for a collection of individuals to unify their efforts and capital to achieve a mission. Like a pot of stew, corporations are analogous to a container of boiling water — it has no flavor or character but takes on the characteristics of the ingredients thrown into the pot. The corporate stew consists of such ingredients as the vision, mission, purpose, organizational structure, leadership, employees, policies, protocols, regulations, facilities and culture of an organization. If a corporation (1) is led by ethical, equitable, socially responsible and environmentally conscious management, (2) has a highly functional governance structure, and (3) is supported by like-minded shareholders and customers, a corporation can do great good in the world while generating extraordinary profits. However, when a corporation, with the rights and powers of an immortal person, is controlled by greedy, corrupt and power-hungry sociopaths, whose management and shareholders abandon qualitative and ethical considerations for profit and turn a blind eye to the destruction, toxicity, injustice and suffering they cause, a corporation can become a dangerous and powerful enemy to humankind and the planet.
Before the 17th century, the first corporations were created in Europe as not-for-profit entities to build institutions for the public good, such as hospitals and universities. They had constitutions detailing their duties overseen by the government. Straying outside these was punishable by law.
It wasn’t until the 17th century that making money became a major focus for corporations. Corporations were used by the imperial powers to maintain draconian control of trade, resources and territory in Asia, Africa, and the Americas. The world’s first commercial corporation was the East India Company, set up by British merchant adventurers and granted the Royal Charter of Queen Elizabeth I in 1600. It shipped out gold and silver to Asia in return for spices, textiles and luxury goods. The East India Company expanded into a vast enterprise, conquering India with a total monopoly on trade and all the territorial powers of a government. At its height, it ruled over a fifth of the world’s population with a private army of a quarter of a million.
Early American corporations, like British corporations, were chartered to perform specific public functions (e.g., building hospitals, bridges, universities and infrastructure). Their charters lasted between 10 and 40 years, often setting limits on commercial interests, prohibiting any corporate participation in the political process and requiring the corporation’s termination within a specific time or upon completion of a specific task.
In 1844, British Parliament passed The Joint Stock Companies Act of 1844, allowing broad access to incorporation and companies to define their own purpose. In 1855, shareholders were awarded limited liability, which protected them personally from the consequences of their corporate behavior.
In the 1886 case of Santa Clara County v. Southern Pac. R. Co., 118 U.S. 394 (1886), the U.S. Supreme Court recognized the corporation as a “natural person” under the law without argument on the point. The “ruling that has been relied upon to support “corporate personhood” occurred in the case headnote entered by the Court Reporter, which stated as follows:
“One of the points made and discussed at length in the brief of counsel for defendants in error was that ‘corporations are persons within the meaning of the Fourteenth Amendment to the Constitution of the United States.’ Before argument, Mr. Chief Justice Waite said: The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment of the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does.”
Following the example of The East India Trading Company, corporations have conquered territories and brought in resources for the state, manipulated lawmakers and broke laws put in place to constrain them, all the while gaining in power and privilege. History shows a repetitive cycle of corporations causing social and environmental destruction and violence. In the past, the state was forced to reign them back through regulation. However, the gritty underbelly of regulation today generally benefits those with the resources (e.g., money, political influence, lobbyists and an army of lawyers) to sponsor legislation and comply with the regulatory overhead. Thus, much of today’s regulatory environment perpetuates unfair competitive practices with impunity and/or provides incumbent corporate interests with subsidies, government contracts, and other “pork barrel” rewards that negatively impact individuals, entrepreneurs, small businesses, innovation and society.
While deemed “persons” under the law, Corporations are non-living fictitious legal entities that don’t breathe air, drink water, eat food or experience love and beauty. They have ed their enormous money, power and influence to create a world that serves their interests: “A World for the Non-Living.”
This World for the Non-Living often rationalizes the destruction of life, health, beauty, and nature in the name of increased profits and growth. If the people managing these non-living entities care about human and planetary thriving and the long-term success of their businesses, they need to transform their organizations. This transformation includes embracing conscious organizational governance and a quadruple bottom line that serves people, planet, purpose and profits.
Our government, monetary system and resources are now largely controlled and influenced by corporate interests. Although corporations are managed by people, corporate leadership has historically adopted a profit-at-all-costs culture, which largely disrespects the environment, social justice, human life and happiness.
However, we are seeing the emergence of a transformative corporate culture that is beginning to embrace the triple bottom line (profits, people, planet) and ESG. A good percentage of corporate leadership and shareholders are starting to understand that doing good for people and planet can increase profits, productivity, efficiency and brand equity.
As we evolve beyond the bureaucratic and hierarchical structures that served the industrial age and military-industrial complex, we are seeing a movement toward more open and natural organizational structures and governance that support a quadruple bottom line (profits, people, planet, and purpose).
Most government and corporate organizational structures today consist of bureaucracies with hierarchical structures. Hierarchical bureaucracies generally seek predictability, standardization, control and security. Their influence on our society has resulted in a global culture that often promotes scarcity, fear, disempowerment, extraction and competition over innovation, health, love, abundance, beauty and thriving. Also, the rigid structures and processes inherent in today’s bureaucratic organizations promote standardization and mechanical systems, much like a McDonald’s franchise. While McDonald’s has created a system for standardized fast food, their food is considered mediocre and unhealthy, and their reputation and brand have suffered for contributing to obesity and mistreatment of their employees. This same mechanical approach to standardization has been applied to our lives, education, relationships, business practices, organizational structures, and healthcare, contributing to a society that is also largely mediocre and unhealthy.
The bureaucratic hierarchical organizational structure has become significantly obsolete, expensive and ineffective. Despite the inefficiencies and expense of many bureaucratic hierarchies, leadership continues to perpetuate this model because the leaders generally obtain greater control, power and remuneration at the expense of shareholders and employees in these bureaucratic organizations. In fact, Forbes states that “CEOs earn 331 times as much as average workers and 774 times as much as minimum wage earners.” So, if you’re the CEO of a large organization that pays you 774 times that of minimum wage earners, why change a model that rewards you so well?
Although many large company CEOs have been reaping disproportionate rewards for years, the inequitable, socially irresponsible, unsustainable, unethical, and destructive “industrial age profit-at-all costs corporate dinosaurs” are being rendered obsolete. They will either evolve into environmentally and socially responsible organizations or likely become extinct.
In this fast-paced world of multi-national transactions, global online information, outsourcing, automated processes, on-demand technological efficiencies, real-time budgeting, whole systems applications, social and environmental responsibility and the need for transparent and effective communication flows, organizations can no longer hide their unethical and harmful behavior in the shadows. Organizations are being called to a new code of conduct that includes integrity, equitability, ethical conduct, transparency and ESG. Also, adaptability, agility, collaboration, innovation and quality are required for companies to thrive in the 21st century.
While bureaucracies can be effective for certain situations, the inefficiencies, rigidity, blame, expense, risk-averse culture, quarterly short-sightedness, and myopic profit-at-all-cost thinking are causing significant detriment to the organizations and their Ecosystemic Stakeholders. To better understand why bureaucratic organizations are largely inefficient in today’s quickly changing world, a closer look at what bureaucracy entails may help to provide clarity.
“Bureaucracy” is the combined organizational structure, procedures, protocols, and regulations to manage and standardize activity, usually in large organizations. Bureaucratic organizations are most often hierarchical and possess the following characteristics:
- Standardized procedures and rules that direct the execution of most or all processes within the organization
- Formal division of powers with authority largely residing in the non-productive executives and general administration as opposed to residing with specialized and productive divisions (e.g., manufacturing, sales and R&D)
- Hierarchical organizational structure and vertical power relationships
- Form and standardization are elevated over function and excellence
- Information is typically siloed and held in secret
- Indirect and opaque communication often prevail
- People are generally given responsibility without authority
- There is typically a culture of competition, finger-pointing and blame rather than collaboration and problem solving
The purpose, function and mission of most corporations are not to destroy the biosphere and cause pollution; subjugate and demean employees; destroy communities, small businesses and indigenous cultures; and promote war, injustice and poverty. However, when a rigid and sociopathic profit-at-all cost culture is elevated over an ethical, purpose-driven, multi-benefit culture, the results can be appalling, especially when the organization’s governance is controlled by unscrupulous, power-hungry and greedy individuals.
There have been several organizational and management-change concepts applied to bureaucratic structure and governance in the latter half of the 20th century. These include the following:
Employees within a functional organization tend to perform a specialized set of tasks. For instance, a software company engineering division would be staffed only with software engineers. This structure leads to operational efficiencies when the company produces standardized goods and services with large volume and low cost. This structure can work well for OEM producers and outsourced providers that sell products to brands that maintain sales and distribution channels. However, this structure does not work well for a market-driven business that sells customized or rapidly evolving consumer-centric products or services that require interface between sales and marketing, engineering and production.
In the divisional structure, each division contains all the necessary resources and functions within it (e.g., general administration, engineering, manufacturing, sales and marketing). Divisions can be geographically based (e.g., a US division and an EU division) or product/service based (e.g., an automobile company might have separate divisions for SUVs, compact cars, sedans and hybrids). Divisional structures can provide a more focused and efficient organizational structure than a centralized structure but too often lead to siloed information, redundancy and duplicative expenses unless integrated and holistic communications, knowledge transfer and management are implemented.
Matrix organizations are often set up to make organizations more flexible, to break down the old bureaucratic functions, divisional redundancies, information “silos,” and geographic divisiveness to encourage more cooperation across the business groups. In matrix organizations, employees are often grouped by cross-sector specialization, geography and product. A matrix organization frequently uses multi-disciplinary teams of employees to take advantage of innovation, fresh perspectives, and holistic approaches that centralized and siloed structures don’t provide. For example, sales, customer service, accounting, engineering and manufacturing may be grouped so that sales and customer service can work with engineering and manufacturing to focus their efforts on making products that more effectively meet the needs of the company’s customers while accounting ensures that such products can be made on time, in budget and that capacity and inventory levels meet demand. These cross-sector groups may collaborate on multiple products or geographies. Among many large organizations using the Matrix structure, Starbucks has successfully used the Matrix structure by combining functional and product-based divisions that empower employees to make their own decisions rather than requiring layers of bureaucracy and management to make decisions. This has allowed Starbucks to increase its efficiency and achieve high levels of customer service. Other companies that have successfully used Matrix structure and multi-national design include IBM, Procter & Gamble, Toyota and Unilever.
Total Quality Management and Six Sigma
Total Quality Management (TQM) is a management concept coined by W. Edwards Deming. The basis of TQM is to reduce the errors produced during the manufacturing or service processes, increase customer satisfaction, streamline supply chain, aim for equipment modernization and ensure workers have the highest level of training. One of the principal aims of TQM is to limit errors to one per one million units produced. TQM is often associated with the development, deployment, and maintenance of organizational systems that are required for various business processes. The main difference between TQM and Six Sigma is that TQM tries to improve quality by ensuring conformance to internal requirements. In comparison, Six Sigma focuses on improving quality by reducing the number of defects. TQM and Si Sigma adopt a number of management principles that can be used by upper management to guide their organizations towards improved performance. The principles cover:
- Customer focus
- Involvement of people
- Process approach
- System approach to management
- Continual improvement
- Factual approach to decision-making
- Mutually beneficial supplier relationships
Although improved efficiency and higher performance have generally resulted by applying the preceding process-improvement and “organization-change” structures, very few have created a new paradigm that transformed the core inefficiencies or improved the endemic inequities of bureaucratic structures. For example, hierarchical organizations generally reward title and authority rather than genuine value, performance, responsibility and productivity. Those at the top of the hierarchy often contribute the least to the enterprise’s productivity, sales, and profitability while making exponentially more than those who create, produce, provide and sell the products and services. Furthermore, due to the layers of hierarchy generally characteristic of bureaucracies, organizational communication is often slowed, blocked, manipulated and contorted. Moreover, budgets and resources in bureaucratic organizations tend to be divisionalized and allocated without a real-time whole systems view of the corporate strategy and best use of resources. For example, rather than divisions contributing unneeded budget allocations back to the organization, they are misused and abused to set a precedent upon which to base the subsequent year’s budgets.
By the 1980s, it had become exceedingly clear that the structure of hierarchical bureaucratic organizations was too often failing in a fast-paced, technological and highly competitive global marketplace. This resulted in experimenting with new structural, governance, economic, and cultural models to replace the bureaucratic model.
- Flat Organizations are based upon the belief that well-trained workers will be more productive when they are more directly involved in the decision-making process. The Flat Organization is based on a structure that has the least amount of intervening management levels between staff and managers. The flat structure is common in entrepreneurial start-ups, university spin-offs or small companies. Employees often act as management and wear many hats. As the company grows, however, there is a tendency to become more complex and hierarchical, which leads to a structure with more levels, departments and rules. In general, over the last decade, it has become increasingly clear that through the forces of globalization, competition and more demanding customers, the structure of many companies has become flatter, less hierarchical, more fluid and even virtual.
- Team Organizations can be both horizontal and vertical. The overarching character is the combination of individual competencies to achieve synergistic outcomes. Thus, the total performance of the team defines the quality of the organization. Although team structures are often used in smaller organizations, larger bureaucratic organizations can also benefit from the flexibility of teams. For example, each Whole Foods Market store is an autonomous profit center composed of an average of ten self-managed teams, while team leaders in each store and each region are also a team.
- Network Organizations overcome expense, inefficiency and internal incompetence by outsourcing any business function that can be done better or more cheaply. In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means. For example, H&M outsources its clothing manufacturing to a network of 700 suppliers, more than two-thirds of which are based in low-cost Asian countries. Not owning any factories, H&M can be more flexible than many other retailers in lowering its costs, which aligns with its low-cost strategy. Aside from outsourcing production, shipping, storage, fulfillment, distribution and customer service, many larger companies also outsource product design, development and even management.
- Virtual Organizations work in a network of external alliances, primarily using the Internet, telecommunications, video conferencing and collaborative software to connect the organization. This means the organization can maintain a small core but operate globally as a market leader in its niche.
- Consensus Organizations are based upon a collaborative community model developed by Charles Heckscher. The organization is a network rather than a hierarchy in which decisions are based on horizontal decision-making (e.g., dialogue and consensus) rather than vertical control (e.g., authority and command). Heckscher’s “Ideal Type” model states, “The master concept is an organization in which everyone takes responsibility for the success of the whole.” This model also links individual contributions to the company’s mission and focuses on widespread information sharing. This overcomes and replaces traditional bureaucratic boundaries (e.g., rigid job descriptions and segmentation) with principled action, greater trust, openness, creativity and collaboration. This model is often used in housing cooperatives, non-profit organizations and community organizations. It is also used to encourage participation and empower people who typically experience oppression in groups. While consensus models have merit in certain applications, such as collecting group wisdom and non-urgent problem solving, it can create inefficiencies and delays in the decision-making and execution processes. By applying SAO strategies to consensus organizations, consensus can be designated as the standard operating system, with situational exceptions. Thus, a modified consensus can allow for openness and horizontal decision-making but puts time limits on such decision-making depending upon the urgency and complexity of a critical decision. If the decision is not made within the designated time, either a democratic or hierarchical process can be employed to avoid inefficiencies while still benefiting from collective wisdom.
Complex Adaptive Systems Organizations
Complex Adaptive Systems Organizations (“CASOs”) are based upon the application of natural systems to organizational management. CASOs are differentiated from ordered and chaotic systems by the relationship between the system and the agents that act within it. In an ordered system, all agent behavior is constrained and limited by the rules of the system. In a chaotic system, the agents are unconstrained, which can lead to disorganization and lack of cohesion, but potentially more independence and creativity. In CASOs, the system and the agents co-evolve, and the ordered and chaotic applications are balanced. The system lightly constrains agent behavior, but the agents modify the system by interacting with it.
CASOs utilize whole systems dynamics, evolutionary approaches, and natural applications to organizational creation, functioning and interaction. Characteristics of CASOs include the following:
- Highly organic structure;
- Minimal formalization of behavior, roles, and standardization of procedures;
- Job specialization and authority based on experience and abilities;
- Cross-sector teams, communication and participation;
- Responsibility, problem-solving, and teamwork rather than blame, competition, and ostracism;
- Organizational structure follows function rather than form with selective decentralization;
- Power shifts to specialized teams and individuals and away from general administration (e.g., production, sales, R&D) for fluidity and focus on production, rather than layers of intervening non-productive middle management;
- Networked, open, and transparent communication; and
- Members are given authority equal to responsibility subject to specialization, skills and purpose.
CASOs seek to understand the nature of system constraints and agent interaction. They generally take an evolutionary or naturalistic approach to strategy. CASOs include Adhocractic, Biomimetic, Chaordic, Fractal and Holocratic models.
- “Adhocracies,” first popularized in 1970 by Alvin Toffler, are a type of organization that seeks flexibility and adaptability by focusing on opportunities and individual initiative rather than bureaucratic rules, policies and procedures. World-renowned author and expert on management practices, Robert H. Waterman, Jr., defined “adhocracy” as “any form of organization that cuts across normal bureaucratic lines to capture opportunities, solve problems, and get results.” For Henry Mintzberg, an internationally renowned academic and author on business and management, adhocracy is a complex and dynamic organizational form. Mintzberg considers bureaucracy a thing of the past and adhocracy one of the future. Adhocracies tend to be excellent for problem-solving, innovation, and flourishing in a rapidly changing environment. Adhocracies require sophisticated and often automated technical systems to develop excellence and cohesion.
- “Biomimetic Organizations” apply biological methods and natural systems applications that have evolved over 4.5 billion years of the planet’s evolutionary systems design. The pressure to evolve in order to survive typically forces living organisms, including flora and fauna, to become highly optimized and efficient. As influences such as environment, culture and access to resources change, living organisms are forced to adapt or become extinct. Thus, by learning from and mimicking nature, there is a greater likelihood of developing systems that optimally function and allow businesses to evolve and thrive.
- “Chaordic Organizations” was a term coined by Dee Hock, the founder and former CEO of the Visa credit card association. Chaordic Organizations refer to a system of governance that harmoniously blends characteristics of chaos and order, with neither behavior dominating the other. Nature is largely organized in such a manner. Living organisms and evolutionary processes are often described as chaordic. The chaordic principles have also been used in influencing and creating hybrid businesses, non-profits, and governments that are neither centralized nor anarchistic.
- “Fractal Organizations” are based upon a hybrid model that integrates Chaos and Complexity Theory; Quantum Mechanics and Quantum Biology; with Fractal Geometry and Cosmology to inspire “Biomimetic Natural Hierarchies.” Fractal organizations also rely heavily on biomimicry due to nature’s ability to create, innovate, adapt, evolve and cleanse. Fractal organizations also share knowledge and decision-making in a collaborative and iterative manner allowing for experimentation and discovery through trial and error. According to Janna Raye, founder of Strategems and a leading proponent of fractal organizations, “Fractal organizations are complex, adaptive systems that self-organize and succeed by cohering group efforts with shared vision and purpose.” When asked what differentiates the Biomimetic Natural Hierarchies of Fractal Organizations from bureaucratic hierarchies, Janna Raye said, “The primary differentiator is that people are led, empowered and evolve naturally. Processes, such as the production of products, are managed, people are not. This allows leadership to value and interrelate with people as complex living beings, not things, helping them improve and evolve. Leaders in Fractal Organizations provide the managers of processes with resources, information and support that enable the collective intelligence of the group to drive change and innovation. Top-down hierarchies increase entropy (disorder) through managerial attempts to control staff and the internal competition that emerges through perceived limited room for advancement.”
- “Holocratic Organizations” apply whole systems approaches, largely in the form of “nested wholes,” to create greater interaction, connection and transparency. In a Holocratic organization, authority is distributed into self-organizing teams that can be created, expanded or contracted as required for the purposeful functioning of the organization. The vision is for employees to hold multiple roles and move fluidly in and out of circles, increasing the flexibility and adaptability of people and the organization. Holocracies are often mistakenly thought to be non-hierarchical or flat when, in actuality, they create a new hierarchy around work rather than titles and authority. Zappos is one of the largest holocratic organizations and was recognized six years in a row by Fortune as one of the “100 Best Companies to Work For.”
Just as hierarchies and relationships between living systems can be seen in nature (e.g., commensalism, mutualism, parasitism, competition and predation), various governance systems and organizations result in cultures and relationships (i) of mutualism where mutual benefit to all stakeholders is received, (ii) of commensalism where a class of stakeholders benefit while not harming or providing some lesser benefit to others, (iii) that are competitive where stakeholders compete for resources, attention, validation and incentives at the expense of others, but can sometimes result in improvement for the whole, (iv) that are predatory where stakeholders prey on others often at the expense of the prey and the whole, and (v) that are parasitic where stakeholders feed off the energy, knowledge, expertise and ingenuity of others while often taking credit for such benefits or receiving credit through association.
CASOs consciously create a culture and governance structure that supports mutualism as the standard operating culture. CASOs provide a continuum for personal progress and growth through various stages of responsibility in an atmosphere of cooperation and support for each individual’s contributions but may add enlightened commensalism and competition that benefits the whole and rewards those that are the most productive, passionate, committed and high performing. Dedication to self-management and coherence to shared purpose helps make these organizations resilient to changing market forces.
CASOs endeavor to approach organizational structure and development, utilizing natural organizational systems rather than contrived mechanical systems. Natural organizational systems imitate nature’s regenerative, abundant, adaptable, resilient and cooperative characteristics. In contrast, contrived/mechanical systems often result in scarcity, adversity, rigidity, inefficiency, and competition, as well as increased entropy, energy output and expense. Because CASOs imitate and align with natural systems, rather than attempting to “paddle upstream,” there is less force, energy and artificial organization required to maintain, evolve and grow. The contrived/mechanical systems typically result in entropy and mediocrity, whereas natural systems generally lead to syntropy, innovation and excellence.
Many examples of regenerative, abundant, adaptable, and cooperative characteristics are found in nature. For example, when an acorn grows into an oak tree, the oak tree generates thousands of acorns, which serve an abundant ecosystemic role as a reproductive function for the oak, a nutrient for the forest and a food source for humans and animals. When a magnet is cut into pieces, each piece contains an entire field. When the fields are combined, they become stronger, and no piece is weakened by the presence of the other pieces. Even human sperm form cooperative groups to increase their swimming velocity and thereby provide greater success in procreation.
While it appears from our anthropocentric view and reductionist theories that Nature is competitive, in the 150 years since Darwin published Origin of a Species, biological and social research is now supporting that cooperation is a more important factor than competition in the flourishing of a species. Peter Kropotkin published Mutual Aid: A Factor of Evolution in 1902, which, contrary to Darwin, supported that cooperation increased the success of a species, not competition:
“If we . . .ask Nature: ‘who are the fittest: those who are continually at war with each other, or those who support one another?’ we at once see that those animals which acquire habits of mutual aid are undoubtedly the fittest. They have more chances to survive, and they attain, in their respective classes, the highest development of intelligence and bodily organization.”
The Darwinistic, competitive and mechanical approach historically found in organizational structure and governance is largely devoid of the regenerative, abundant, cooperative, adaptable and life-enhancing qualities of nature. The man-made systems governing modern society largely arose from man’s arrogant and mistaken assumptions that 1) humans are separate from and superior to nature, and 2) that our nature is Darwinistic and competitive, whereby the strongest, the swiftest, and the cunningest live to fight another day. Based upon these two flawed assumptions, humankind created a mechanical society that has been significantly harmful to life, nature, beauty, trust and the well-being of humanity.
There are, however, situations that arise where rigid adherence to biomimetic approaches is not optimal. For example, a natural system would allow a fire to burn freely through a forest until it was naturally extinguished. Although fires are excellent for regenerating nature by bringing new nutrients and life to a forest, we most likely wouldn’t sit idly by while a fire ravages our cities, homes and offices. Thus, even though CASOs tend to provide a more effective operating system, any myopic adoption of a single system, even if the system is highly adaptable, can create rigidity and limitation. Thus, it is important to be able to situationally change systems to optimally adapt to numerous circumstances as they arise. This is fulfilled by pan-systemic, integrated, and adaptable approaches offered by SAOs.
Situationally Adaptive Organizations (“SAOs”)
Thriving in the 21st century requires a new generation of organizations and leaders that are situationally adaptive, integrated, pan-systemic, evolutionary and resilient. Moreover, a core mission and overarching profit motive of SAOs is creating value and thriving for its Ecosystemic Stakeholders. The new generation of conscious, evolved, and courageous leaders understand the critical importance of applying living systems approaches that balance the demands of shareholders for profit with conscious choices that promote the flourishing of their Ecosystemic Stakeholders.
SAOs provide a flexible, adaptable and resilient multi-structure model. Rather than a single tool, SAOs are analogous to a tool chest that contains many different tools, structures and forms of governance that can be used to effectively respond to any given circumstance. SAOs can use any of the previously discussed forms and structures, including hierarchies, if such form, or a combination of forms, optimally addresses a given situation. Rather than serving a monolithic, inefficient and dysfunctional form and requiring all circumstances to be handled within the constraints of that form, SAOs shift form to optimize solutions and effectiveness. Unlike single-structure organizational models, in SAOs, the situation and function dictate form to achieve optimal results in a majority of situations with the least amount of time, effort, resources and energy.
By utilizing a multiplicity of tools and an integrated/pan-systemic approach to governance, SAOs gain greater adaptability, agility and ability to optimally address a wide variety of situations. For example, a dictatorship may provide for rapid decision-making and handling of emergencies. However, dictatorship (or other single point of command and control) may result in narrow, self-centered, and corrupt decision-making resulting in hardship, disempowerment and inequity in the organization. Democracy, on the other hand, provides greater representation and engagement than a dictatorship but may have a slower decision-making and implementation process and can be subject to manipulation, influence-mongering and secret agendas. Consensus- sed organizations tend to have increased social benefits with a more engaged and egalitarian culture, but decision-making is often mired in over-processing and bottlenecks. Consensus Organizations also tend to disincentivize individual performance, merit and innovation. If any of the foregoing systems are used exclusively, the outcome is often rigidity and an inability to optimally address changing conditions.
For example, in an SAO, if there is a fire, the most qualified person to fight fires would be designated as the commander-in-chief until the fire is put out. In this example, the organization changes from its standard daily operating policy (e.g., a holocratic and biomimetic flat nuclear organization) to a dictatorship. If the janitor is the person with the most experience in fighting fires, then he becomes the commander-in-chief, not the CEO, until the fire is out. Holding a democratic vote or obtaining consensus to determine who wants to get the hose, the pale and shovel while the headquarters burn down would not be optimally responsive to the fire. When the emergency from the fire has been resolved, the janitor’s elevated leadership status returns to his role as the janitor, and the organization returns to its standard nuclear and flat operating structure. When an issue arises regarding how best to clean and maintain the company’s facilities, the janitor makes the decisions, not the CEO, or even the facilities supervisor.
The characteristics of SAOs are as follows:
- A multi-structure organization that serves function rather than form;
- Function is driven by purpose, vision, mission, goals and objectives;
- Structures are adaptable and primarily based upon biomimetic and living systems principles;
- Applied whole systems strategies are used to predefine and optimally respond to situational, organizational shifts;
- Principles, values and agreements are elevated over rules;
- Authority is equal to responsibility;
- People are led and empowered, whereas processes are managed;
- Collaborative meritocracy that rewards innovation, productivity and achievement of goals;
- Individual contributions are respected with minimal formalization of behavior;
- Work assignments and leadership are based on expertise, abilities and performance rather than title;
- Cross-sector teams, communication and participation are used to ensure greater cohesion and productivity;
- Roles are defined but can shift anytime with a minimum of hierarchical involvement upon agreement of the team members;
- Conflict resolution is compassionate (e.g., non-positional and non-adversarial), as well as exploratory, equanimous, open-minded and solution-oriented;
- Culture is based on respect, integrity, collaboration, productivity, innovation, and individual empowerment rather than layers of non-productive bureaucracy, authority, competition, blame, and disempowerment;
- Objectively defined milestones and commitments with great flexibility as to the style and method by which they are achieved;
- Transparent, direct, integral, inquiring and compassionate communication with decentralized and open information sharing, knowledge transfers and exchange;
- Leverages networked and virtual efficiencies;
- Consistent evolution allows for gaining wisdom by making mistakes, taking risks, and improving systems; and
- Flexibility, resilience, agility and adaptability.
Although structure, process, personnel and responsibility can change at any time to most effectively address situations as they arise, clear, objective and flexible Standard Operating Structure and Procedures (“SOSPs”) are also recommended. It is critical that an SAO develop (1) SOSPs to optimally handle about 70% of normal daily operations, and (2) Extraordinary Operating Structures and Procedures (“EOSPs”) that define and address the other 30% of extraordinary, urgent and critical situations that may arise. Both SOSPs and EOSPs can be evolved and changed as required to best fulfill the company’s mission and goals.
The following represents an example of a summary of effective SOSPs and EOSPs:
SOSPs provide the default day-to-day organizational structure with a clear articulation of the interactions, responsibilities, roles, authorities, and participation of the organization’s personnel. The SOSPs also provide the principles governing how various individuals, teams, and/or management relate to each other, the organization and the company’s Ecosystemic Stakeholders. The SOSP articulates the structure that optimizes leadership’s abilities to best serve the organizational mission, goals, objectives and success.
For example, leaders lead people. Managers manage processes and resources. An exemplary servant leadership culture is prevalent in SAOs. General administration and IT serve, support and empower the members of the organization to achieve their highest and most inspired performance. A significant percentage of the efforts and resources of general administration and IT go to support the team members that add the most significant value to the organization (e.g., innovation, product development, manufacturing, marketing and sales). General administration and IT take a global organizational and supportive approach to resource allocation with the provision of open and transparent communication regarding the allocation of resources. However, general administration and IT rarely interfere with the authority of teams and individuals regarding their expertise and responsibility in managing processes (e.g., supply chain, scheduling, manufacturing, processes) and resources (e.g., supplies, money, equipment).
Additional considerations may include:
- Automated systems and procedures that 1) foster transparency and trust, 2) maximize flexibility and performance of required tasks through an opt-in process, 3) support real-time resource and budget allocation to holistically fulfill the organization’s needs, 4) real-time knowledge transfers, and 5) transparent and decentralized recordation of transactions, exchanges, resource flows and results of budgetary investment.
- A clear statement of culture and governance. For example, the organization may want to consider the adoption of transparent, direct and compassionate communication, collective intelligence gathering, and general participation with a democratic voting mechanism after the expiration of the time limit for gathering collective wisdom and input.
- Clear articulation of incentive plans and policies, including a detailed statement of how rewards (e.g., cash, stock, privileges) are earned and distributed. For example, the SAO may choose a meritocratic reward structure that is first weighted to organizational performance, then to team performance and finally to individual performance. While it is recommended that clear and objective milestones and key performance indicators be communicated, the evolution and changing of milestones and metrics are encouraged. When incentives evolve and change, it is critical that such changes be immediately communicated to the team. The awards can be done through peer-reviewed internal credit rating. The credit rating not only supports quantitative criteria (e.g., productivity and revenue generation) but also accounts for qualitative value, including integrity, emotional intelligence, leadership, cultural enhancement, promotion of the organization’s values, and being a good corporate citizen.
ESOPs take into account such factors as importance, urgency, situational ramifications, and expertise required to most optimally handle an extraordinary situation. EOSPs provide a thorough and detailed description of possible extraordinary scenarios that might arise that require a departure from the SOSPs, and what structure and authority are needed to optimally address such situations (e.g., decisions made by committee, the board, or a situational commander-in-chief).
EOSPs can be developed using the following process:
1. Submit hypothetical extraordinary scenarios, (including various extraordinary circumstances, such as force majeure; supply chain issues; market and competitive conditions; defects in manufacturing; and organizational, financial, legal and technology issues);
2. Rank the hypothetical scenarios by urgency, importance and material impact;
3. Examine the organizational structure(s) and person(s) that need to be implement to optimally handle each scenario;
4. Develop and prepare the organizational structure(s), person(s) and process(es) to optimally deal with each of the extraordinary scenarios;
5. Publish the situationally adaptive structures, personnel and processes to the organization. The published EOSPs should be made accessible in the company’s intranet and in a location where it can be easily obtained in the event of an emergency or extraordinary situation.
By completing the ESOP planning, the organization will be prepared to handle most situations when they arise.
Making the Change
Even though many organizations know their structures aren’t working in the 21st century, change and evolution can be challenging, time-consuming, and expensive, especially when the structure and governance of an organization have become intertwined with its DNA, culture, and historical success.
Sometimes an old building needs to be demolished and rebuilt. Other times, serious structural work and remodeling are required. If there is a lack of will and resources to engage in such work, the building will eventually become uninhabitable and no longer serve its purpose. Similarly, the corporations that don’t want to do the hard work of demolition and rebuilding or engaging in serious restructuring will become obsolete. In the 21st century, rapid and significant change is being forced upon just about every business and is likely to continue into the foreseeable future. Those that intend to thrive must change and put in place organizational and governance structures that will allow them to be nimble, agile and adaptable to continual rapid change.
I hope this article has been helpful to corporate leaders and entrepreneurs in considering optimal organizational structures and governance so that they may thrive and help make the world a better place.
Mark Chasan is a lawyer, entrepreneur with a public exit and two M&As, a financial innovator who has participated in over $500 million in financing, and a change agent that supports living-systems innovation and eco-social entrepreneurs to foster the Regenerative Economy.
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