Power to the people: The benefits and limits of employee self-selection in organizations

What is a bossless organization? These are companies where employees do not report to managers on a daily basis and instead can autonomously choose the projects and people that they work with. Maciej Workiewicz (ESSEC Business School) and Harsh Ketkar (Bocconi University) explored why those forms exist - in other words, the reason we see those types of companies in the real world. There are many companies that have implemented this form either on a full time basis, like Valve or Morningstar, but there are also some companies that allow employees to work part-time without managerial supervision, like Alphabet (formerly Google) or Preferred Networks, a Japanese AI company, which allow employees to spend part of their time pursuing anything they want.

Why bossless organizations?

The inspiration for this research project was a company called GitHub. I've come across this company in my previous research: it is a place for companies and individuals to store, manage, and share computer code. This company, currently owned by Microsoft, used to operate as a bossless organization. Initially, they could pick the project they wanted to work on and as long as they found another engineer willing to join them, they were free to initiate this project and to work on it full time. The company was very proud of this approach, and it has advertised the bossless model at many conferences, blog posts, and videos online. Their headquarters in San Francisco reflected the company’s values. The main entrance to the office, where the secretaries sat, was modeled after the Oval Office in the White House. The purpose was clearly to show the visitors that hierarchy didn’t exist at GitHub and only meritocracy ruled. However, the company then very abruptly changed its operating structure under the new CEO and switched to a traditional hierarchy with project managers and other traditional rules. This made us wonder: why did this happen? If the format was so great and nothing really changed substantially in the company's environment, why did this company decide to abandon something that they long cherished? That became the prime motivation to more formally explore the potential limits of bossless organizations, and the reasons why it might be difficult to scale up.

The challenges of bossless organizations

We focused on one specific mechanism, namely an organization’s ability to manage the allocation of its employees, its talent, to available opportunities. For a successful allocation, one needs to do at least two things well. First, someone needs to evaluate the value of each opportunity as accurately as possible. Would the company make money by exploiting it, and how much if so? Second, the company then needs to classify available opportunities from the best to the worst, and allocate resources in a way that maximizes the benefits from pursuing the best opportunities first. Companies can do this either by giving the right to allocate employees to a manager who identifies and evaluates the opportunities and allocates employees to them, or it can give the authority to the employees themselves. We decided to examine the conditions that favor the first approach or the second approach. We focused on one key variable, namely the amount of resources that the company possesses relative to the opportunities that are available for it to pursue. This was because we wanted to see how the effectiveness of each approach changes as the company grows and the available resources multiply, which is usually what happens when the company scales up following its initial success. What we have found in our analysis is that initially when a company has very few resources relative to opportunities available to it, think of a promising startup, the bossless approach is the best. In other words, when there are very few employees in the organization, it is best to give them the authority to initiate and develop new products and services. However, as the organization grows and acquires more resources, or perhaps because of the maturity of the industry and a shrinking number of new opportunities, the hierarchy with a traditional manager performs better.

Computational modeling: an innovative approach

To explore this, we used a computational model that allowed us to model an organization with its employees in a digital laboratory. This is a common method in situations where it is difficult to collect data that precisely captures the structure of the organization among many possible company sizes and environments. In research on the role of organizational design, this is very often the case. Researchers struggle to collect enough high quality data to run strong analyses that can produce generalizable (widely applicable) findings. We can either find very detailed information on one or a small number of organizations which are willing to cooperate with the researchers, or we can find information on many organizations that is very general and does not allow us to really see inside of the organizations to identify their organizational structures. Computational models allow researchers to bridge this gap and examine mechanisms that would otherwise be difficult to identify and evaluate.

Takeaways for managers

This work alerts managers to the importance of seeing the balance between available resources and available opportunities as an important factor in determining which organizational structure the company should implement.
It also shows the importance of constantly evaluating the fit between organizational structure and the environment in which the organization operates, including the number of resources at the disposal of the organization. The approach that may work early on in a company’s history may be the source of its failure later on.
We also reviewed several popular policies that companies implement to manage resource allocation. We looked at a policy that allows employees to abandon a current project and join a new one, imposing a minimum profit threshold on the project, requesting a minimum number of employees that need to support a project proposal, giving a manager veto rights over projects proposed by employees, and giving managers additional incentives to carefully evaluate projects. We found that the effectiveness of these policies depends on the balance between the available resources and opportunities. Again, the balance between resources and opportunities is key.

Is the bossless company the future? What does the future hold for bossless companies?

The mechanisms we identified are not the only ones that play a role in the successful operation of a company, so it is difficult to give a definitive answer. However, these findings suggest that with the increasing importance of knowledge work, many organizations should consider implementing this format at least in parts of the organization where many promising opportunities exist and where there are only few resources to pursue them. Other research that I am currently working on suggests that organizations may see increased use in the future with the proliferation of remote work. We are likely to see flatter and less hierarchical organizations in the companies in the future, and this is a very promising area for research.

Reference

Ketkar, H., & Workiewicz, M. (2021). Power to the people: The benefits and limits of employee self‐selection in organizations. Strategic Management Journal.