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Bull Session

On Open Organizations

September 17, 2015          

Episode Summary

On this episode of The Digital Life, we discuss open organization culture in theory and in practice. As the creative economy continues to grow and evolve, knowledge workers are discovering and developing new ways of working together. In contrast with the closed, hierarchical structures of 20th century industrial enterprises, in the 21st century open organization, transparency, authenticity and access are foundational elements.

But how do these open source organizational principals really work in a business context? Join us as we examine the impact of the open organization, on companies small and large.

Resources
What is the Open Organization?
Here’s Why Whole Foods Lets Employees Look Up Each Other’s Salaries

Jon:
Welcome to episode 121 of the Digital Life, a show about our adventures in the world of design and technology. I’m your host, Jon Follett, and with me is founder and co-host, Dirk Knemeyer.

Dirk:
Greetings Jon, what’s new?

Jon:
For our topic this week, I’d like to explore a little bit the culture of the so called open organization. The open organization has its roots, or some of its roots, in Open Source software, where as we know, people collaborate for the good of the cause and contribute what they can and what they have time for. As we know, many companies have been built up around the foundations of Open Source. I’ve noticed as the creative class economy, the digital economy, the sort of science driven and software driven economy come to the fore, we’ve really got new types of organizations where creative class people are finding new ways to work together.

There are certain tenants or ethics or philosophies that help organize these kinds of workers, and kinds of people, together, that are slightly different from the 20th century counterparts. I entered the workforce being a part of these hierarchical organizations, are giving way to more open structures, more transparent sharing of information in these structures, and I think it’s beginning to really take hold, in terms of large organizations, adopting it, as well as smaller organizations, like our own Involution Studios, has some elements of the open organization. I thought that would be a good topic for the two of us to dig into today.

Dirk:
Sounds great.

Jon:
I wanted to start off with the idea of having transparency within the organization, so sharing of information and letting people know what might have been deemed sensitive info at one point, is hallmark of the so called open organization. That can extend to things like people’s salaries over at Whole Foods, for instance you can look up anybody’s salary, your boss’s salary, your boss’s boss. That creates a certain kind of environment that hopefully begets trust, or a greater trust, of the organization because that information is at your finger tips, or at least available for the asking.

When I joined Involution, one of the tenets that we talked about here was telling the truth, being transparent, both internally and externally to our clients. I know that for me, that was a slightly different approach because I’d always been a part of hierarchical, or more hierarchical organizations, where information was kept hidden at times, especially something sensitive like salary information wouldn’t have been shared amongst people at other organizations I was a part of. Dirk, when you and Juhan were sort of assessing out the level of openness and this idea of tell the truth, what were sort of the influences and the reasons you did that? How do you feel about that level of openness within our operations here?

Dirk:
Yeah, I think there’s a couple of aspects to it. I mean, one is, for Juhan, the idea of openness and transparency is something that goes back a long time, and is very core to him philosophically. That was something he brought in, just as an assumption. I think that he had tried to implement with past employers, but especially going back to the early and mid 2000’s, even the 1990’s, as you might imagine, that was not with limited success, depending on the place.

From my perspective, I was certainly accustomed to the more traditional, closed organization, but my personal philosophies outside of work are socialist, or even communist in nature, which is to say it’s not about power and control and top down, it’s about everybody’s in this together, creating healthy environments. For the whole history of Involution, that’s something that I have aggressively been doing in pretty unusual and progressive ways, but not to include the specific things of the radical transparency. Our sort of difference takes on it, we’re able to come together. For me, I can tell you the radical transparency initially was a little bit more uncomfortable, but the reality is different than the line.

Juhan will certainly position as pretty much radically transparent as anybody possibly could. I think while we live that in a realistic way, the reality is, radical transparency does not mean the financials are printed out and pasted on a bulletin board, and people are just meandering by and looking at them, or on a website. That information is closed. If an employee asked and said, “Hey, what are the sales like? What kind of revenues do we do here?” I’d be happy to open a report, bring them over, show it to them, and talk to them. It’s not like … There’s still some degree of editorial discretion in terms of, this is a chunk of info that we’re going to proactively make visible to everyone. This is info that if someone asks, even though we haven’t chosen to proactively make it visible, we will reveal it. We will share it and talk about it.

I think that’s really important. As someone who’s a proponent of transparency, I can tell you that there are positives to no transparency. When nobody knows what anybody makes, there aren’t the same opportunities for jealousy, for greed to come out, sort of for the weaknesses of human nature to infiltrate. You’re making what you’re making, and other people are making what they’re making. You don’t see it, and it’s an ignorance is bliss kind of thing.

Jon:
That’s right, yeah.

Dirk:
That manifests in very different ways in the corporation in particular. It’s definitely not all wine and roses. You’re opening yourself up in your information transparency to negative, unintended consequences. Real negative, unintended consequences, just depending on the sort of maturity and emotional stability of the people who are working for you. The philosophy of transparency in openness is something I’m fully on board with, and proud of part of what we do, but it’s also not exactly what it sounds like.

Off the top of my head, I can’t think of any information that if an employee asked about it, I wouldn’t show them, but we are proactively pushing out not that much more than random other company, I don’t think. At least here, the manifestation of it isn’t … When you hear radical transparency, and certainly when I was first introduced in thinking about those things, it was scary because of the chaos and the volume of it all, but that’s not really the way it works here.

Jon:
Yeah, I mean, in some ways it’s freedom of information, so the information is available, but it’s not a fire hose of open data that’s being thrust upon employees at any given time. It’s probably worth noting that it’s something that you work at. I imagine in larger organizations, there are more policies about openness that sort of describe and frame it, whereas, I think, we come at some of these things in a more ad hoc fashion as you said. If there’s a reasonable request around information that we have, then of course we want to share it internally. I do think, and I’ve noticed this from the creative team building aspects, that making that statement, that we’re committed to radical transparency.

Then trying our best to get there, does engender trust with new people who enter the organization, because it is so different from the way other organizations may be structured, and just the fact that we are saying to them, “We trust you, having just entered the organization,” sort of putting out that olive branch, I think that’s reciprocated more often than not. Taking that risk, I mean it is a risk to be transparent, does beget trust because you’re exposing yourself and that information to people that may not have “earned it” just yet. I think at that level, it’s very successful, and it’s also something that requires constant work and vigilance to make sure that we’re adhering to that as best we can.

Another aspect to the open organization is authenticity. Being what you say you are in the most simple of definitions, but having a culture that is, and this goes with the transparency part, is not deceptive but is geared towards the truth of what it is that we’re doing and striving for. On the authenticity part of the open organization, I think that we do that pretty well. We’re pretty honest with ourselves about what we are and what we want to do. I think that that trend is very deeply embedded in your own personality as well, Dirk. Am I correct?

Dirk:
Yeah, for sure. Going down the path of authenticity, I would actually change the culture, make it far more radical here than it is. Something that I proposed to Juhan a number of years ago, was that the employees on a project team determine amongst themselves how much of a proportion of the revenues we get should be split among them as their compensation. You have N people who are working on a project, and based on the revenue of the project, Y percentage of that revenue is allocated to team compensation. As payments come in, it’s the members of the team basically voting shares to each other, of how they should be compensated based on the work that they did. Each employee is bringing to bare, their own perception of what did Johnny do, what did Sue do, what did Kelly do, and deciding what that should look like, with an aspect that allows management to override parts of it, if you’re in a situation where there’s somebody who nobody likes, and that they’re getting stiffed.

Aside from that, having the total compensation be so transparent as you guys see this bucket of money coming in, this portion of that bucket is going straight to you, and now you figure out where it should go. To me, that’s how a company should be run. That’s how a company should be structured. Especially a service company like ours, where it’s all about the time and contributions. Philosophically, things I like about it, which I’m sure some of this runs afoul of HR law and all the legal bullshit that we deal with, is if there’s somebody who is constantly getting low shares, the organization is selecting them out, you know? The other people are saying, the work you’re doing isn’t having an impact, or you’re not putting enough effort, or culturally, you are a determent to what’s going on.

Whatever the specifics in that condition are, I think that employees should move around more, around fit. If you really fit somewhere, and are happy and contributing, you should be able to place there a long time. You should really dig in, but if that’s not happening, and you’re just kind of hanging on for the pay check, people should be moving around more. Maybe I’m starting to go a little bit-

Jon:
No, it’s very interesting and related to the open organization, I think. Just as sort of scaffolding around this, this is, maybe not all of these particular practices that we’re mentoring in the context of Involution Studios, but the idea of the open organization, the idea of structuring creative and digital organizations differently, because of the nature of either the products your produce or the innovation economy that we’re all a part of. There’s a wave of companies that are coming this way. We’ve mentioned Whole Foods, Pixar, Zappos, Red Hat, all have elements of this that are incorporated to their structure and culture.

I think as a small studio, we have an advantage in that we can experiment prototype things a lot more quickly. Perhaps there are fewer consequences to us pulling something back if it doesn’t work, but I think it’s very interesting to me that the nature of work, and the creative class finding a way to work together, is undergoing change. It just startles me every time I encounter it, because as a Gen Xer, I have one foot in the industrial age structures, and one foot in the digital age structures, they’re very incongruous with each other. I’m often surprised at the level of change that’s coming with this kind of organization.

Dirk:
I’ll be interested to see how manifest the change really is. I’m always very suspicious of big corporations doing stuff like this.

Jon:
Sure.

Dirk:
Using the employee compensation as an example, and I might be wrong here by the way, because I haven’t looked at the data myself, but I’m suspicious that they’re really doing an apple to apple, total compensation comparison. If a Whole Foods is doing that, I’m suspicious that the CEO’s total compensation of salary, stock options, private jet, all the bullshit, I doubt that’s wrapped in there. It’s again, sort of a false transparency. It’s an inauthentic transparency. I think if the reality was there, I don’t think people would be very happy. One of the things that we’ve always done at Invo is once someone’s a full time employee here, they’re going to make no less than 1/4th of what the highest paid person makes. Whereas in a typical corporation, the CEO is making, I don’t know, tens of thousands times more than the lowest paid employee.

For us, the top “CEO” will make no more than four times more. Somebody could argue that even four times more is too much in theory, or a bitter capitalist could argue it’s way too little. To us, it’s a number that feels right. It feels humane, it feels appropriate, and it’s something that we feel good about, and proud about. We could say we’re having some sort of scale, some sort of level of reasonableness to the life styles that we’re affording for everyone, from the most junior person, up to the people who own the organization. Corporations are so freaking far away from that, that to me, the whole thing just feels like a farce.

Jon:
Mm-hmm (affirmative). I love that critical view that you always bring to the analysis, Dirk. I think it’s really helpful. The last element of the open organization that I wanted to discuss with you today was the idea of access, the flat hierarchy. Once again, easier to do in a small shop, but the idea that anybody’s idea is worthy of consideration, and that there aren’t layers where certain things get vetted and then sort of pushed up into the management layer for approval. Having that flat hierarchy is actually quite conducive to an open design studio like ours.

I think that maybe it rubs the wrong way when there are organizations that require levels of approval for things to move forward, permissions to be given, what have you. For us, since the design process is really very much about bringing lots of different elements together and melding them together, I think access and that sort of flat hierarchy are quite advantageous for the design studio. What’s your take on the flat hierarchy?

Dirk:
Flat is good. I think it’s a bi-product of a correct solution though, and not the correct solution itself. I’m a big proponent of what I call human scale business. To me, for a services business like ours, the person who owns the company should be involved on a near daily basis with every employee in the company. A person who owns a services business like ours should be involved with every client in the company on a regular basis. There should be direct personal relationships and connections from the person at the top of the company to each of the employees, and to … We have big clients, so this is possible. It’s not as possible in a consumer’s company … to all of the customers as well. That’s where you’re going to get better results, and just a better quality of life for everyone involved, including the clients.

You might be working at some brain dead, major corporation, but in your dealings with us, in your dealings with a service provider, those should be human interactions. You should feel very important, because you are important. The people who are running the show are aware of you, have talked to you, care about you, and are invested in what’s going on with you. To me, a flatness, it should be a bi-product of being a small organization. Far be it for me to use terrorism as an analogy, but it’s like the terrorist cell idea where each group, each business, to me, should be a small, nimble, largely autonomous thing where the people who are involved are just deeply involved with one another and focused narrowly on shared goals, objectives, and ways of doing business.

Jon:
We’re focused, obviously on creating goodness rather than terrorism, but I take your point. The special cell, or the special group, that is highly involved with one another is, at least for us, the way to go.

Dirk:
Listen. The terrorists, they went to cells because what they do is life and death. It’s horrible, but it’s life and death. They’re trying to do these awful things. If they get caught doing it, they’re executed. They’re thrown in prison forever. It’s a huge deal, and the bureaucracy, the communication break downs, the defections and disloyalty of people in these bigger organizations lead to an understanding that the optimal way of operating is a more network of individual cells, loosely joined way of doing business, for what their business is.

We, in capitalist America, as we’re wealthy and our cars, our air conditioning, getting food flown in from all over the world, to places far and wide, we’re sedate. We’re comfortable, so we don’t need to really make the changes. It’s a much slower moving, more nonessential thing. For organizations for which it’s life and death, it’s been clearly identified that the top down command and control, large bureaucratic structure is crazy. Cells that are networked are the way to go.

Jon:
That’s a good way to wrap our conversation today on open organizations. Listeners, remember that while you’re listening to the show, you can follow along to the things that we’re mentioning here in real time. Just head over to thedigitalife.com. That’s just one L in The Digital Life, and go to the page for this episode. We’ve included links to pretty much everything mentioned by everybody. It’s a rich information resource to take advantage of while you’re listening, or afterward, if you’re trying to remember something that you liked. If you want to follow us outside of the show, you can follow me on Twitter @jonfollett. That’s J-O-N-F-O-L-L-E-T-T. Of course, the whole show is brought to you by Involution Studios, which you can check out at goinvo.com, that’s G-O-I-N-V-O.com. Dirk?

Dirk:
You can follow me on Twitter @dknemeyer, that’s D-K-N-E-M-E-Y-E-R, or email me, dirk@goinvo.com.

Jon:
That’s it for episode 121 of The Digital Life. I’m Jon Follett, for Dirk Knemeyer, we’ll see you next time.

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