If self-organized companies are so much more rewarding and successful, why are we not seeing more of them? Because they are bloody difficult to implement and maintain and there is no underlying coherent scaffolding to lean on. All we have is anecdotes and (partial) stories from companies that “made it”. Imitating these stories without understanding the underlying reasoning leads to cargo cult (at best) and leaves companies incapable of adapting practices to their own context. With this post, I am sharing my scaffolding for organizational design.
I adopted the concept of critical core components from Elinor Ostrom’s book Governing the Commons. In her Nobel-prize-awarded work, she researched the factors that allow some groups that formed around common-pool resources to defy the “tragedy of the Commons” without having change imposed on them from the outside. Common-pool resources are resources that the group collectively decides what to do with. In a company that is money, and people’s time and effort. It seems to me, the same critical core components apply to decentralized companies because the resources of these companies become by design common-pool resources.
Ostrom’s core design principles are
Clearly defined user and resource boundaries. Who is in? Who is not? What is in? What is not? Defining the boundaries of what we are doing and specifying who is doing it is a prerequisite step for collective action.
Proportional equivalence between benefits and costs. Who is getting how much for what? If I get more of the benefit, I should pay a higher fee. If I provide more value, I should get a higher reward.
Collective choice arrangements. How do we make decisions? If I am affected by a rule, I should be able to participate in making and modifying that rule.
Monitoring users and resources. How do we keep track of what we do? If we want to make informed decisions, we need to know where we stand. If we don’t want prosocial behavior to deteriorate, we need to ensure nobody is free-riding. If we want to distribute monitoring, we need to make it cheap — a by-product of the incentives in the system.
Graduated sanctions. What happens when I violate an agreement? Who is holding me to account? The more serious the violation, the higher the consequences.
Fast and fair conflict resolution. What do we do when we disagree? Acting on rules and agreements always requires interpretation and the judgment of the current situation. This leaves ambiguity and will invariably lead to conflict.
Local autonomy. How do we collaborate in sub-groups? As long as we don’t violate other rules and agreements, we should be allowed to make our own rules and agreements.
Polycentric governance. What do we do when the organization gets too complex to govern as a whole? If we want to govern the system without bureaucratic and expensive central control, we need to divide the organization into sub-groups that can make decisions autonomously while having more abstract rules at the higher level.
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