You might wonder sometimes, perhaps after an especially inane quarterly job review, what it would be like not to have a boss. Or, after that same job review, not to be a boss. What if we were all workplace equals, with everyone possessing the same privileges and the same authority?
The truth is, there are all sorts of drawbacks to employing managers. (Note to my editor: Not you! You’re perfect! Never change!) More layers of management means paying more workers, and generally at higher salaries. It means introducing inefficiency, as each decision gets slowly passed up the chain for approval. In a hierarchical organization, decisions get made at the top of that chain by the people with the least connection to the facts on the ground. Meanwhile, the folks at the bottom, in the heart of the action, feel no agency over their work. In short: mo' bosses, mo' problems. So why not get rid of the management structure altogether?
A few workplaces have done exactly that. The California-based Morning Star Co.—the world's largest tomato processor—has no titles, no promotions, and yes, no managers. As detailed in a 2011 case study by management guru Gary Hamel in the Harvard Business Review, Morning Star relies mainly on contract-style agreements between its workers. These agreements are called Colleague Letters of Understanding (CLOUs, pronounced “clues”), and each one is renegotiated annually. There are about 3,000 total CLOUs in effect at any given time, connecting workers in a web of shared responsibilities and expectations.
If you need an expensive new piece of manufacturing equipment to fulfill your CLOU, you go ahead and buy it without needing permission. If you need an additional worker to make good on your division’s promised output, you go ahead and hire her. This doesn’t mean you’re operating in a vacuum: You are still expected to consult widely with your colleagues to get their input before making any major moves. At the end of the year, each unit must defend its performance to its peers. And compensation is determined by a panel of co-workers that will carefully assess your worth to the firm.
Almost impossible to imagine this working smoothly at a company with any more than, say, 25 workers, right? And yet as of 2010, Morning Star had 400 full-time employees and $700 million in annual revenue, had grown its profits at a double-digit pace over the past two decades, and dealt with 25 to 30 percent of all tomatoes processed in the United States. Who needs hierarchies?
Of course, self-managed workplaces don’t always operate quite this smoothly. Consider the story of Oticon, a Danish hearing-aid maker that got left behind in the 1980s when the industry began to shift from behind-the-ear to in-ear models. In need of a radical shake-up, the company switched its structure in 1991 to become what it dubbed a “spaghetti organization”—flexible but coherent. Everything became project-based, with individual employees free to launch their own initiatives and to lure their co-workers to leap on board.
At first, the company benefited, with improved product innovation and, soon after, a boost to financial performance. But by 1996, Oticon was beginning to retreat to a more traditional corporate structure. What went wrong? In large part, the company didn't fully commit to self-management, and selective intervention by higher-ups (the fact that there were still higher-ups reveals that Oticon hadn’t gone entirely bossless) undermined confidence in the system. But to the extent that there were problems with the spaghetti structure itself, they mostly stemmed from the fact that employees were hopping around too much between different projects, glomming onto the sexiest tasks at the expense of more worthy ones, or overextending themselves by signing on to too many responsibilities at once. (Similar problems crop up in descriptions of self-managed workplaces in this New York article from 2013.)
One of the major reasons to form a company in the first place is to eliminate this sort of mercenary, market-style chaos—instead of letting the engineers work for one company and the designers work for a different company, you put them both under the roof of a single firm and let someone tell them all what to do, eliminating negotiations. “Scholars generally have always assumed that the organizational principle that governs firms is hierarchy,” says Gastón de los Reyes, who will be joining the faculty at the George Washington University School of Business this fall. “The CEO is like a general, issuing orders through a chain of command that is not subject to market forces.” When employees are their own masters, and protect their own self-interests as they negotiate with co-workers, they may produce new collective achievements. But they may introduce new inefficiencies, as well. “Does production inside of these sorts of companies become subject to other kinds of internal transaction costs that put them at a disadvantage compared to a hierarchy?” asks de los Reyes. “If not, why not? The great hope is that these companies might perfect an organizational principle that can achieve the generic transaction cost advantages of firms in a way that avoids the dehumanizing dimensions of hierarchy.”
As for the difference between Morning Star and Oticon: It may be in their origins. Oticon attempted to reform itself into a spaghetti organization. Morning Star was nonhierarchical from the start—the brainchild of its CEO, a business school graduate with a strong vision of a flat firm. (Incidentally, once in a while he does have to step in and make an executive decision. But he tries to avoid it.)
While truly self-managed workplaces are rare, many modern companies have gotten flatter. Hierarchies are less rigid, roles more fluid. Which raises another complication, according to J.R. Keller, a doctoral candidate at the Wharton School: Fuzzier job descriptions and self-selecting, assignment-based teams mean the paths of advancement are less clearly defined. “It’s unclear how workers should think about projects as building blocks in their careers,” says Keller. Everyone becomes less sure what the next rung on the ladder should be, or who should be next in line for it. This is even more complicated when workers want to leave—people at other companies can’t easily suss out this potential new hire’s qualifications or what level to slot her in at.
But perhaps the biggest obstacle to eliminating managers is the obvious one: the managers themselves. They see no reason to doubt their own value, and, at least for now, they’re in charge. Good luck convincing them to fire themselves.
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