Flat and managerless organizations were all the rage a few years ago when ideas such as Holocracy were all the rage.  The hype has died down a bit in recent years, but support for managerless structures nonetheless endures.  Research from Bocconi University explores the pros and cons of such an approach.

The researchers develop a model that aims to show when a managerless organization would work better than a more hierarchical one, and then when it would not.  The key appears to be the balance between the human resources available to the organization and the available opportunities.

For instance, a more decentralized approach can work when organizations have few resources but plenty of opportunities, whereas hierarchies work better when the opposite is true and opportunities are scarce and resources plentiful.

“A bossless company is good when the organization has to aggressively search in all directions not to miss the next big thing,” the authors explain.

The right mix

The authors explain that when companies grow, the human resources available to them often grows faster than the opportunities to exploit them.  During this time, autonomy can be harder to maintain.

Similarly, the evolution of industries can play a key role in the feasibility of autonomous structures, as the early periods of an industry can be ripe with plenty of opportunities to explore.  These can dry up as the market matures, however.

Where things go wrong is not typically the growing span of control or communication difficulties, as is often stated, but rather the compounding of evaluators’ errors.  This leads employees to overcrowd some projects despite minimal evidence that they’re likely to be the most profitable.

“Our results don’t mean we must dismiss the bossless company,” the researchers suggest. “We highlight pathologies of both self-selection and hierarchies and conclude that self-selection performs better when a company is understaffed with respect to the projects it can pursue. Centralized allocation, on the other hand, allows organizations to avoid overcrowding on opportunities when opportunities are few.”

Self-selection

The researchers also examine five distinct levers often used by companies to try and mitigate this weakness in self-selection.  For instance, profit thresholds could be introduced to help select projects, or a greater ease of movement for employees between projects.  There might be a minimum threshold for employees required to initiate any project, or a specific mid-level manager could be deployed to approve (or reject) projects proposed by workers, with this manager also incentivized to review projects in as accurate a way as possible..

The analyse found that all of these approaches can be useful, but generally only up to a point, after which their effectiveness was heavily dependent on the distinct ratio between resources and opportunities.

The study suggests that managerless organizations can, therefore, be useful, but it’s important to understand the conditions under which the approach tends to be most effective.