Back in 2009, along with three partners, I had an idea for a new experiment. Frustrated with classic company management, we wanted to do something different. Inspired by the Agile Manifesto principle, “The best architectures, requirements, and designs emerge from self-organizing teams,” we asked ourselves whether we could extend the principle to the best products and services are delivered by self-organizing companies. Yes, we decided to use the Agile values and principles to manage not just a small team, but the entire company. To support self-organization throughout the whole company, we established a fully transparent information system, as we believe it is not possible to make good decisions without good information. If everyone in the company is going to participate in decisions, then everyone should have access to the same information. (The exceptions are apprentices and new hires, who must go through a trial period of three months before obtaining access to all information.)
A decade later, our small experiment had turned into a profitable company with more than 70 employees and clients worldwide. An external visitor could come by our office on any day, pick any random employee, and ask him or her for the salary of any other employee (regardless of the seniority of that employee or whether the employee was one of the founders), the profit margin of any client, or how much money was spent last month on any given purchase. That employee may not know the answer by heart, but it would take him or her less than 10 seconds to find the exact figure.
We strongly believe our self-organizing model based in full transparency has been key to our success. Let’s take a look at each of the main positive results our company has been able to achieve thanks to this model:
Low turnover. Our average turnover rate is four to five times lower than the industry average. This is a key feature for a knowledge-based organization, as our main asset is our intellectual resources: our people. When an employee leaves, our clients are affected, and our company loses value. Moreover, a low turnover rate has allowed us to maintain a higher level of technical quality than our competition. Our clients notice the advantages and, as a result, most of them stay with us over a long period of time.
Sustained profitability. Throughout all these years, there has not been a single quarter when we haven’t been profitable. Every employee understands profit margins and what affects them. All team members are aware of the profit margin of the project they are working on and are able to analyze variations when they happen. We also do not spend time or money on useless things. Moreover, HR directors do not decide on employee benefits; rather, employees can present an idea and, if it makes sense and the expense for the benefit is reasonable, then it is approved. As an example, an employee recently proposed an extension to paid paternity leave. The employee explained the reasons and how much money it would cost the company. It was a sound idea at a reasonable cost, so the change was approved. Everyone knows every cent not spent wisely will affect the annual bonus, so nobody throws money away carelessly.
Pay equality. Thanks to several recent movements (the most well-known of which may be #MeToo), many companies have started to pay attention to various inequalities within their organizations. At our company, not only is everyone’s salary disclosed to everyone else, but discussions of salary raises are open, and anyone can share an opinion about whether to raise someone else’s salary. This environment makes it very difficult, given a similar role, skills, and experience, for a man’s salary to be higher than a woman’s. There is still a long way to go to achieve equality in all areas, especially in the software industry where significant cultural barriers discourage women’s participation. Nevertheless, I truly believe open salaries are an important first step to solving the problem of inequality.
Strong commitment. One of the most common complaints I hear from managers and company owners is that employees are not “committed” to their work. “How to motivate your employees” is a must-have discussion in every management course I’ve seen. Our company does not feel the pain of that problem. We don’t have managers; instead, we have leaders (which is a role, not a position, that anyone can take in different situations). Therefore, we don’t have to pay managers to ensure that workers are doing their jobs. Our people always work to the best of their capabilities, without anyone having to prod them.
Transparency can create some side effects that might raise concerns and bring new challenges to many companies. In my experience, I have found the following challenges and accompanying solutions:
Loss of power and control. Knowledge is power. Therefore, distributing knowledge is the fastest way to distribute power. A good example is the invention of the printing machine, which enabled the massive distribution of books, and which remains one of the biggest revolutions in history. At the same time, by sharing power, you lose some control over other people. If I have a great idea and I want things to happen without being able to impose control, then I have to convince other people of the value of my idea. This requires more time and skills, including leadership and mentoring. For example, if I think we should hire a software developer to meet a specific client need and want to offer a higher-than-usual salary to convince that person to take the job, I first need to secure the consent of the rest of the organization. As everyone will immediately know about the offer, to make this move without that consent would create conflict and lead to an even bigger problem.
Slow decision-making process. Given that decisions are open and visible to scrutiny, they should be substantiated and communicated properly to avoid potential misunderstandings. This requires more time and preparation, which can slow down existing processes. The interest and level of participation in the decision-making process are very likely to increase. As everyone is aware of what is going on, more people want to get involved; it would be counterproductive to deny them the opportunity to share their thoughts and ideas. With this changed decision-making process, the time needed to make decisions increases and new practices, such as consent decision making or the advice process, need to be incorporated. The good news is that total time from the start of the decision process until decision execution may very likely not increase significantly or might even start to decrease. With more people informed and involved in decision making, there is greater alignment toward the goal and fewer misunderstandings down the road.
Frictional costs. A decline in the number of staff members is another potential consequence of introducing transparency and self-organization. For example, when everybody has access to salary information, then a group of interested people, rather than an HR specialist, can conduct salary negotiations with employees or new hires. Empowered teams start to make their own decisions and people start building new cross-functional teams to make things happen outside their everyday duties. A recent example at our company was the need to lease a new office space and refurbish it. A self-managed team of a few employees assumed the responsibility, inquired about prices, hired contractors, bought equipment, and took all the necessary steps, within the limits of a preapproved budget, to deliver the new office space ready for use.
The downside of this type of transparency is that the loss of specialized staff can introduce new frictional costs associated with learning and making mistakes. Depending on how tolerant the company culture is to errors and rework, and how good the organization is at sharing lessons learned and avoiding repeated mistakes, these costs may be minimal or could be much larger.
[For more from the author on this topic, see “Do We Need More Transparency?”]