Creating Peer-Based Organizations:
Escaping The Inefficiencies Of Rank-Based,
Hierarchical Management

by Jeffrey Nielsen

When you talk about organizations, there are two principles that you can take to the bank. One, genuine communication will only occur between equals; and two, secrecy always breeds corruption and abuse of power.

Lack Of Genuine Communication

In rank-based-hierarchic organizations you never, by definition, have equality so you'll seldom have honest, open communication. You only tell those above you what you think they want to hear, and you only tell those beneath you what you think they need to know. This creates not only low levels of trust between individuals, but a growing gap between reality and the world of the top executives, which is endemic in every modern corporation today with few exceptions.

Obsession For Secrecy

Similarly, because leaders of rank-based organizations are so obsessive about controlling access to information, secrecy dominates corporate life, and with it come abuses of power by even good people who eventually become seduced by their position. Again, this is important to remember - even good, decent people will get caught in this dynamic. It's not a character problem as much as a context problem, the context of rank-based power and authority.

These two principles help Explain ENRON, GLOBAL CROSSINGS, TYCO, RITE-AID, and most recently WORLDCOM. So far corporate leaders have only talked about gimmicks or cosmetic changes in an attempt to win back the confidence of investors, but they are ignoring the root problem and cause.

Today's Environment

The root cause of the current situation in corporate America, as well as in modern organizations, is what I call the myth of leadership. It's the belief that those at the top of the hierarchy are somehow better, more intelligent, more worthy than those below them. They're heroic individuals and deserve to command and control everyone else and reap huge monetary rewards as well.

This was exemplified by what a newly promoted EVP said to me: "The cream always rises to the top." And by what a CFO said about employees beneath him: "They're just like light bulbs. You screw'em in, turn'em on, burn'em out, and then replace them." Recognizing the real problem would require that they share and distribute power and decision-making authority with employees at every level of their company. It is realizing that there is greater intelligence and ability in the body of the organization than at the top.

The root solution is to create peer-based as opposed to rank-based organizations. In rank-based companies a select few are raised and chosen above the majority. In a peer-based company, everyone is expected to share, participate, and contribute, and peer-based councils, not hierarchic positions have the main decision-making authority.

Leadership will manifest itself differently in peer-based companies than it presently does in rank-based ones. Peer-based organizations would be inclusive, equitable, open, and management positions would be rotated on a regular basis so that everyone would have a chance to participate in leadership, and no one would have the chance to be seduced into abuses of power and privilege. There would be genuine communication and no secrecy!

Contrasting Rank-Based and Peer-Based Organizations

In order to create peer-based organizations, we need to define them and distinguish them from today's predominant rank-based, hierarchic company. I find that the best way to define and contrast these two very different types of organizations is to explain the governing assumptions or principles that constitute the paradigm of individuals within the organization, along with the decision-making logic and core practices of each type. The expectation is that leadership and management will show up differently in peer-based as opposed to rank-based organization where the myth of leadership determines one's value and worth to the organization. Lets examine what that means by specifying the operating assumptions or principles along with the decision-making logic and practices of each type of organization.


Rank-Based Assumptions/Principles
The Myth of Leadership
Peer-Based Assumptions/Principles
Employees are by nature lazy and need external motivation. Employees tend to be productive and self-motivated.
Employees are by nature selfish and self-seeking and so need external force to control them and keep them in line. Employees tend to be caring and willing to cooperate.
Leaders are heroic individuals who have risen above the masses and so are better than those beneath them possessing either an innate or learned genius, thus having the right to control decision making in organizations and do the motivating and controlling. Leaders/managers are no different than employees with their own unique strengths and potentials.
The heroic leader can control a complex organization from the top-down and can accurately predict what is going to happen in the future and so should be making all the critical decisions. Leaders/managers cannot control a complex organization from the top-down, nor can they accurately predict what is going to happen in the future without input from everyone in the company.
Employees tend not to know what the best thing to do is, while the leaders do know. Individuals closest to where the work is done have a good grasp on what needs to happen.


Ranking Logic
Peer Logic

Scarcity Beliefs

Abundance Beliefs

Rank Logic vs. Peer Logic

Logic is to be understood as the explicit or implicit norms or rules with which we judge and make decisions.

Exclusive vs. Inclusive

Rank-based logic reserves power positions for the select few who climb to the top of the organization. It is an exclusive club. Your identity and value arbitrarily follow from your position in the hierarchy, and you only genuinely relate to those of the same rank. Peer-based logic invites everyone to be a mentor to others and a creator of value, to participate in decision-making, and share in the exercise of power. There is no mentality of "top" of the organization and no exclusive club to belong to, or protect. It is an inclusive, participatory style. In the absence of rank, everyone in the organization is your peer. Your identity is established by your own authentic life-choices.

Mechanistic vs. Organic

Rank-based logic takes a mechanistic view of organizations, where the whole is nothing but the sum of the individual parts. This reductionist view generates decreasing returns for the organization over time. Your identity is to be just another replaceable part related to other similar parts in the machinery of the organization. Peer-based logic views organizations as more than just the sum of its individual parts. It realizes and appreciates that what you do at one level of the organization, or to one part, will affect the whole organization. Just as living things cannot be understood as merely a collection of atoms, this understanding of organizations is an organic view. It can create increasing returns for the organization over time. Here again we witness the autopoietic paradox, the more autonomous you are, the more interdependent you become.

Commanding vs. Influencing

Rank-based logic understands power to be control over things and people. So it seeks to coerce cooperation. Yet commanding another only produces compliance, while influencing another creates commitment. Again, because of rank, the meaning and value of your life are falsely determined by how many people are above you, so can command you; versus how many people are below you, so you can command them. Peer-based logic views power to be influence on things and people. So it practices the power of subtle influence to evoke cooperation within the organization. The meaning and value of your life are intrinsically determined by the integrity of your choices that genuinely evokes respect and commitment from others.

Domineering vs. Participating

Rank-based logic believes that to get things done, you must dominate, intimidate, and use fear to motivate employees. Peer-based logic believes that getting things done is the natural path people move upon, and people are self-motivated. If things are not getting done, or people are not motivated, it is because something is blocking it. It believes that all problems and blocks are visible and solutions obvious to at least a few people in the organization. So it invites participation in problem solving.

Scarcity vs. Abundance

Rank-based logic sees people as basically selfish and unwilling to share, whether its resources, knowledge, or time. These three things all exist in scarce supply and so you must ruthlessly compete to get your fair share, before somebody else takes it from you. Peer-based logic understands people to be altruistic and eager to share resources, knowledge, and time to create more success for all. It believes there is enough for everyone, and more can be created though shared effort.

Individualistic vs. Community

Rank-based logic believes people see work as a burden and organizations as a necessary evil. We only grudgingly join up with organizations and then find life within them to be nasty, boring, and deadening to the spirit. When hardships are required, rank assumes that those below should be sacrificed to protect the privilege of those above. Peer-based logic understands that people are by nature social animals who seek and enjoy life with others in equitable work institutions. Because of the community orientation, sacrifice is shared by all, and perhaps a greater portion is shared by those who can afford it.

Inequity vs. Equity

Rank-based logic believes that the large and growing gap between the salaries of the top executives and that of the front line workers is natural and justified given the disparity in contributions a leader makes compared to everyone else. It believes that there is nothing you can do about the gross disparity in pay and compensation between the top and bottom of the organization-that's just the way the game is played, so take advantage of it when you get to the "top." Peer-based logic understands that those attitudes are a result of the myth of leadership and do not reflect reality. It understands the growing gap in salaries to be a serious threat to the long-term viability of organizations and the community they build.

Divisive vs. Holistic

Rank-based logic creates a dualistic world. It immediately creates a ranked division of people in ways that do not serve healthy organizational relationships. It also produces a privileged elite who, no matter how sincere they are, will eventually be seduced by their position. It produces a dichotomy, two categories: one of leaders - a select and privileged few; and the second of followers - the vast majority. There follows the implicit judgment that "leaders" are somehow superior or better than the "followers." So you get secrecy, distrust, overindulgence, and the inevitable sacrifice of those below for the benefit of those above. Peer-based logic does not create categories. It is a holistic notion. It is a logic where a diversity of talents and abilities can be recognized within the idea of equality of worth and value. When leaders are chosen, rotational leadership is practiced where the positions are moved around regularly to all organizational members. So with Peer-based organizations, we achieve unity in diversity and diversity in unity.


Rank-Based Practices Peer-Based Practices
Tight control and protection of information from those outside management-secrecy important. Sharing, if at all, on a "need to know" basis. Open flow & sharing of information including knowledge of business and financial conditions. No secrets.
Top-down, command and control managing and decision-making. The few are treated and rewarded as the leaders and the many are treated and rewarded as the followers. Chartering of councils and teams empowered to make the decisions affecting their work to create soft hierarchies.
Individuals rise to (and stay at) the level of their incompetence. Promotions occur according to personal relationships, where who you flatter is more important than what you know. Rotational leadership and implement the roles & responsibilities of managing through councils.
Do as you're told! Think Strategically!
Don't make any mistakes! Be Creative!
Tell those above what they want to hear, and those below you only what you think they need to know. Communicate! Speak, write, and listen honestly & persuasively.
Expediency Honesty & Truth

Obviously, an organization designed to be peer-based and so following the principles, logic, and practices of peerism will be very different from its rank-based counterpart. In my consulting practice, I have found each type of organization produces a set of common characteristics. I share them with you below. Of course, you should ask yourself as you review them, which do you experience most often in your organization.

Common Characteristrics of Personal & Interpersonal Relations in Rank-Based Organizations

  1. Victim mentality - Feelings of having no control by many of the employees.
  2. Feeling of Entitlement-You/the company owe(s) me.
  3. Cynicism lacking vision. Or seeing no connection between "my" work and the larger strategic goals of the organization.
  4. Tradition valued more than Innovation.
  5. Constant Crisis Management.
  6. Burn-out of many key employees.
  7. Low Trust between individuals and departments.
  8. Competitive "CYA" Attitude between interdependent groups or departments.
  9. A Flip/Flop type of inconsistency in the messages received from management.
  10. One Way Communication-top down.
  11. Silo Culture - Turf Protection/Turf Battles.
  12. Failure to Reward Creativity.
  13. Difficulty Managing Priorities & Projects.
  14. Bureaucratic Rules and Regulations that stifle creativity and innovation.
  15. Technology Failures where systems and processes are broken and not repaired.
  16. Loss of Customers, Suppliers, Vendors, etc.
  17. Loss of Key People/Brain Drain

All these produce decreased productivity and higher costs, which add up to LOWER PROFITABILITY!

Common Characteristrics of Personal & Interpersonal Relations in Peer-Based Organizations

  1. Proactive mentality - feelings of "I can make a difference."
  2. Expectations, not of entitlement, but of contribution.
  3. Vision! Everyone shares in strategic thinking.
  4. Healthy balance between innovation and tradition.
  5. Fewer crises and better work/life balance.
  6. Everyone thinks and acts like an owner.
  7. High levels of trust because there are no secrets.
  8. Willingness to admit "I don't know" because there are no privileged elites.
  9. Consistent, open, and honest communication.
  10. No communication barriers, everyone talks to everyone as needed.

All these produce greater productivity and lower costs, so generating HIGHER PROFITABILITY!


In conclusion, in order to create organizations that experience genuine communication and shun secrecy, we need to learn how to transform our current company into a peer-based organization. Not only will this create a company where people experience joy and dignity, but it will be more profitable than we ever thought possible.

Jeffrey Nielsen is the founder of Intellectual Capital Development. Jeff is passionate about working with organizations to develop robust strategic business models that help them be creative, solve problems, and optimally adapt to their environment to create success. He specializes in strategic consulting and training so that all individuals in an organization act strategically, acquire knowledge-based skills that will not become obsolete, and begin to think like owners. To this end, he has created strategy, training, and organizational design models that give organizations the ability to transform challenges and crises in the environment for their gain and growth.

Jeff began his consulting and training career working with the Franklin Covey Company where he presented both the Seven Habits of Highly Effective People and the First Things First Time Management workshops. He also taught interpersonal communication workshops for special clients of the former Covey Leadership Center as well as overviews of Principle Centered Leadership. In this capacity Jeff has traveled internationally consulting with many of the Fortune 100 companies. He has also worked extensively with health care companies, computer and information technology companies and has frequently visited Washington D.C. to work with a variety of groups within the Federal Government. Jeff is also visiting lecturer at Brigham Young University and formerly at Utah Valley State College. He can be reached at or .

Many more articles in Creative Leadership in The CEO Refresher Archives


Copyright 2002 by Jeffrey Nielsen. All rights reserved.

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