The Strategy of Peer-Based Organizations: Restoring Confidence in Capitalism &
Equity in Business

by Jeffrey Nielsen

Corporate Vices

I am feeling a bit out of sorts lately. On the one hand, I see many companies that do an incredible amount of harm to people and to our planet, thus adversely affecting future generations. In almost every organization, be it social, corporate, religious, or governmental, we observe those with financial or political rank - the organizational elites - taking advantage of their power and position to benefit themselves at the expense of those beneath them in the hierarchy. Recently, I have also read studies by the organization, Transparency International, showing a growth in corruption in many countries, and large corporations from developed countries are frequently fueling it. This corruption keeps underdeveloped countries in poverty and in continuous cycles of violence.

Corporate Virtues

The corollary to this is, however, if global corporations can influence corrupt governments, then they can influence them to abandon corruption. Further, in spite of the disparity between the wealth of a few at the top and that of the majority, there has been an increase in the quality of life for most individuals in capitalistic societies. So, on the other hand, I believe that business is still our best avenue for creating global prosperity and peace. Yet, how do we reconcile these two contrasting beliefs; namely, global corporations are at one and the same time the great threat to and the great hope for future global prosperity? Which happens, corruption and abuse of power or global peace and prosperity, I believe, will depend upon the context we create to govern our organizations.

Corporate Governance

Unfortunately, the way most companies are governed today, decision-making power rests with a select few corporate elite - the CEO's executive team and the corporate board. These corporate elites all tend to see the world in the same way and to share in a sense of entitlement over the organization's resources. History and current events show us that their interests do not always serve the best interests of the majority of people who have a stake in the well-being of their company. This gap is, I have come to believe, a function of the context of rank-based organizations. It is not generally attributable to evil dispositions of corporate leaders. In other words, what happens has less to do with character and is really a result of the context and environment of rank-based corporate governance. This rank-based context is supported by what I call the myth of leadership. It is the belief that those at the top of the hierarchy are somehow better, more intelligent, more worthy than those below them. They are heroic individuals and deserve to command and control everyone else and reap huge monetary rewards as well.

Unfortunately, this myth creates an environment of low trust and even lower morale. In fact, I have observed two principles operating in organizations that determine these results. One, genuine communication will only occur between equals and two, secrecy breeds corruption and abuse of power. In other words, sincere communication and genuine relationships are only possible between equals and in the absence of secrets. In any organization where inequality and secrecy dominate the organizational life, lack of trust will be endemic and even good people, eventually seduced by their rank privileges, will abuse power.

These two principles hold in any organization, whether it is a church, government, or corporation. The key is to know how to design organizations that recognize these two principles in order to create companies of equals where there are no secrets. In a previous issue of The CEO Refresher, I introduced the concept of a peer-based organization in contrast to rank-based one and the problem posed by the myth of leadership. In that essay, I clearly identified the difference in the principles, decision-making logic, and practices of both types of organizations. Now, I would like to show how to design a peer-based organization. To adequately understand this concept involves understanding organizational design, organizational governance, and organizational strategy.

Peer-Based Organizations

Creating a peer-based organization does not mean you do not have management positions or management structure, work still needs to be managed. However, the governing, leadership choices in the four key decision-making areas of strategy, tactics, operations, and functional departments will be made, not by the self-similar elites, but by councils of peers drawn from every level and function. Indeed, today a higher consciousness is emerging in organizational thought that rejects rank as the chief way of organizing relationships. It is arising on the periphery, which has been the pattern for all evolutionary progress. It will be successful and out compete traditional rank-based, hierarchic companies. The future belongs to peer-based organizations for within peer-based organizations, individuals behave more responsibly, more intelligently, more strategically, and more cooperatively, than the same individuals would in traditional rank-based organizations.

The new peer-based organization will only emerge on the periphery and eventually take over the center because corporate leaders at the center generally lack the courage and strength to dismantle their rank-based privileges. It could happen at the center, if the majority of organizational members demanded it, but we lack sufficient historical precedent where this has occurred. Popular culture tends to anesthetize the majority into an entertainment induced stupor that makes us too lazy to either think outside the box or demand that our leaders do. In this cultural context, it is much easier to think about your next big purchase, or about what the currently "hot" celebrities are wearing, than to think deeply about organizational architecture. However, those who do think and reshape their organizational lives will find it much more rewarding.

Management of Work & Organizatonal Governance

It will be important in the beginning clearly to separate the management of work by the traditional hierarchy - if that is the design - from the critical leadership decisions that need to be made affecting strategy, tactics, operations, and people. These leadership decisions will be made through councils of peers. It is a simple and powerful idea. Corporate governance needs to be reformed so that it does not rest upon the same old aristocratic class, whether corporate boards or the executive team, but with the employees of the company. I believe that if corporate governance rests with the employees of an organization in the context of peer-based leadership councils, then that company will not only be more prosperous because more creative, more flexible, and more dynamic, but it will also be more internally and externally equitable and hence more socially responsible.

In my consulting practice helping develop peer-based leadership councils, I realized that issues of organizational governance cannot be separated from a model of organizational strategy and design. So, I presented my model of organizational strategy in the October issue of The CEO Refresher, and I will assume the reader has familiarity with it - (see Executive Summary of Business Strategy.) In my executive summary, I identified the three key areas of corporate governance and decision-making as the business horizon, or strategic direction, business focus, or tactics, and business performance, or operational effectiveness. When you add people, you get the fourth key area of functional departments.

These four key areas provide a natural opening to envision how to create peer-based organizations through chartering peer-based leadership councils. In order to link organizational governance through peer councils with organizational design and strategy, I developed a model I call, The Strategy Diamond.

Business Strategy - The Strategy Diamond

The facets of my strategy diamond are nine in number. Identifying and understanding the nine facets of organizations, allows us to correlate organizational design and governance with organizational strategy. The first facet is Basic Values. I believe that all human beings share the same basic values. They are the value of self worth, the value of connection, and the value of contribution. Ultimately organizations exist to enable individuals to realize these values. The enduring organizations are those that accomplish this over the long-term.

The second facet is Basic Desires. Just as we all share the same basic values, we also have in common across cultural and national boundaries the same basic desires. They are the desire for freedom and the desire for security - more specifically, economic security. Enduring organizations are those who fulfill these basic desires and values, not so much for their customers as for their own employees.

The next facet is an Organization's Governing Values, which includes its vision, mission, and core practices. A company must be clear on its sense of passionate purpose and the core practices it will allow to accomplish that purpose.

The next facet is perhaps the least understood, namely, an organization's Strategic Capabilities. These are determined by answering the question: What is your competitive advantage in markets that gives you a sustainable edge over rivals? Or:

  1. What do you do better than any rival,
  2. Is hard to imitate, and
  3. Doing it adds value to customers?

Following this analysis, a business must explore customer needs and wants, as well as non-customers, and how they line up with its own sense of purpose and strategic capabilities. So we have the next two facets of the strategy diamond, Customer Needs & Wants and the Portfolio of Products & Services. When customer desires are matched up against the company's strategic capabilities, then the decision of what portfolio of products and services the company should deliver can be made.

Logically following upon this decision comes the creation of Beginning to End Delivery Systems for each product and service, or the next facet. This would include research and development, product design, product manufacturing, assembly, processing, branding, marketing, and selling, physical distribution, delivery to customers, and after sales service. Within each delivery system are key tasks and projects.

This brings us to the next facet of the strategy diamond; namely, the level of Crucial Tasks & Projects within each delivery system. Finally, we come to the final facet of the diamond, the Individual Skill Sets - the competencies needed for achieving results.

Peer-Based Strategy

I believe the strategy diamond gives us a great way to think about business that clearly allows us to separate organizational structure and work management from governance and decision making authority in a way that allows us to envision peer-based organizations. It also allows us to organize businesses strategically around customers and company competencies, not around static functions and hierarchical rank making. Putting it all together we can create a peer-based strategy. The left side of the strategy diamond is for organizational design and managing work through traditional management positions. The right side is for organizational governance through the peer-based leadership councils.

Organization Design/Management Structure Strategy Diamond Organizational Governance/Peer-based Leadership Councils

COO

EVP's

VP's & Directors

Managers Team

Leaders Team

Members

Basic Values

Basic Desires

Governing Values

Strategic Capabilities

Customer Needs & Wants

Portfolio of Products & Services

Delivery Systems

Crucial Tasks

Individual Skill Sets

Strategy Council

Tactical Council

Operational Council

Functional Council

An organization should feel free to experiment with organizational design on the left side of the strategy diamond; for instance, in deciding whether to structure the work of the company around geographical areas, customers, or products. In fact, by trying out different arrangements, and restructuring occasionally, the organization creates deeper internal networks among the employees that serve to improve communication and flexibility. I do not suggest making major, catastrophic changes to management structure in order to create a peer-based organization.

Chartering the four peer-based leadership councils with appropriate training and coaching and allowing the traditional management structure to stay in place, reduces the amount of resistance and confusion. With time, actually rather quickly, the organization will open up and begin to take on the characteristics of a peer-based organization. Any major reengineering projects should be introduced and lead by the employees through the peer councils. The only major management change required is that the CEO choose a competent and committed COO to run the "left-side" work of the business, while the CEO should focus on being the mentor and coach to the peer leadership councils on the "right-side."

Diamond Strength & the Role of the Councils

I chose the diamond as the metaphor because diamonds, a mineral, a natural crystalline substance, the transparent form of pure carbon, are the hardest surface known. The quality of diamonds is evaluated with the four "C's." They are cut, color, clarity, and carat. The cut of a diamond is the most important quality. It is the physical shape given the diamond by the angle of the cuts. The rarer diamonds are cut in a proportion where light bouncing off and reflecting allows all of the diamond's facets to be displayed. Cut allows the true beauty of the diamond to shine. Color is best in diamonds if absent. The higher quality diamonds are transparent so nearly colorless. Clarity refers to the presence of external blemishes or internal inclusions of the diamond. The fewer blemishes or inclusions found in the diamond, the greater the clarity and higher the quality of the diamond. Finally, carat is the measuring unit that expresses the weight and size of the diamond. We can understand the strength of an organization's strategy and the roles and responsibilities of the leadership councils by analogy to these characteristics of diamonds.

The 4 C's of Diamond Strength The 4 Aspects of Organizational Strength Peer-Based Leadership Councils
Cut Strategic Alignment Strategy Council
Color Strategic Transparency Tactical Council
Clarity Strategic Openness Operational Council
Carat Strategic Competence Functional Councils

Strategic alignment occurs when the organization's strategic capabilities, the wants and desires of the organization's customers, and the actual portfolio of products and services provided by the organization are all aligned. Strategic transparency occurs when every member of the organization is informed and understands the strategy and how what they do serves the customer and fits in with the organization's strategic direction. Strategic openness occurs when feedback and communication around strategy, tactics, and operations is allowed to flow in every direction, with few if any roadblocks, and anyone is free to communicate with anyone else in the organization. Strategic competence occurs when every member of the organization is allowed to develop his or her own unique expertise, to practice the skills of strategic thinking, and to act like an owner.

Overseeing these four crucial dimensions of organizational strength is the responsibility of the peer-based leadership councils. The strategy council keeps reviewing the organization's strategic capabilities and present along with present and future customer needs and wants in order to determine which products and services to offer to which customers. The tactical council keeps reviewing how best to engage both customers and competitors - how best to deliver products and services to customers and successfully execute business strategy. The operational council keeps reviewing how to do this more profitably. It also stays watchful for high-level dumb, where reality and the opinions of senior management grow apart. The functional councils keep reviewing how best to develop, reward, and compensate the organization’s people.

I will offer more on the membership and function of these councils later. For now, I will say that these peer-based councils bring people from all over the organization together. They get out of their hierarchically imposed roles to meet new people and see things from a different perspective. The councils allow everyone in the organization to contribute to strategic thinking, and so they begin to think and act like “owners.” Over time, these councils will begin to replace traditional leadership and management positions to create true leaderless organizations.

I have been discussing this from a rather abstract level, but what can people at different levels of a company do to turn their organization into more of a peer-based organization? Whatever your level of responsibility, you can view your work from the perspective of the four key areas: strategy, tactics, operations, and people. You can then charter within your own team, department, division, or shop the four councils made up of your direct reports and begin to operate your own area of concern like a peer-based organization in miniature. Each of these peer-based leadership councils will have the responsibility described above, but instead of the entire company being their concern, they will guide the strategy, tactics, operations, and people development of your small department.

Conclusion

In my previous essay on peer-based organizations, I carefully compared the operating principles, logic, and practices of both rank-based and peer-based companies. I have not revisited those key concepts in this essay, but what I have discussed presumes the reader become familiar with those ideas. Particularly with what I called in that essay, The Myth of Leadership. In this essay, I have tried to show how one can strategically design an organization that is not limited in its success by that myth. I believe that each of us has within ourselves extraordinary resources of knowledge, wisdom, and creativity. The workplace needs to accommodate this understanding, but most organizations do not. So, they fail to take advantage of their most valuable resource, namely, their people. I do not have all the answers, in fact, I do not even know all the questions about creating and sustaining peer-based organizations. So, I invite everyone who is interested in creating peer-based organizations to contact me and participate in the coming organizational revolution!

Jeffrey Nielsen can be contacted at icdmethod@netscape.net.


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 icdmethod@netscape.net or mythofleadership@hotmail.com .

Many more articles in Creative Leadership in The CEO Refresher Archives

   


Copyright 2002 by Jeffrey Nielsen. All rights reserved.

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