Circular Organizing as New Organizational Form

1. Circular Organizing as New Organizational Form Georges Romme Tilburg University

2. First, Describe the development of circular organizations against background of several dilemmas, in particular how … employment and partnership as different contractual notions, and top down governance and self-organization as different methods to control workers and managers are combined and synthesized My Goal in This Session:

3. Second, show why many conventional organization and management methods undermine participation of several key stakeholders My Goal in This Session:

4. Employment:Economic and legal relationship (transaction) between employee and employer, as the ultimate authority; employee sells labor power to employer Applied in large (industrial) firms characterized by labor division Dilemma 1:Employment versus Partnership • Partnership:Economic and legal relationship between two or more individuals who share ownership as well as leadership of their business • Applied in professional service firms (e.g. architecture, consulting, accounting, health care)

5. First observation: “employees” are difficult to (internally) motivate; most employees respond to participation programs – e.g. work councils, quality circles – by non-participation Second observation: “partners” typically have a high degree of commitment to and ownership of their work Question: is it possible to create a new form of employment that generates entrepreneurial partnership-like behavior? Dilemma 1:Employment versus Partnership

6. Authoritarian control Vertical communication Hierarchical structure (unity of command) Permanent constellations of people Example: direct supervision and action control by manager of departments and work units Self-organization Lateral communication Heterarchical structure Temporary constellations of people Example: performance control and supervision by peers in self-managing teams Dilemma 2:Control

7. Authoritarian control Many corporations have great difficulties in ensuring that vital information reaches senior management promptly and accurately: for example … ThyssenKrupp has recently started a world-wide program designed to bring top managers face to face with shopfloor operators top management of ABB (Swiss-Swedish engineering company) recently found out they had been misled by “wishful thinking” from middle managers, who had put a rosy gloss on their units’ financial position Dilemma 2:Control

8. Self-organization Most attempts to introduce self-managing teams at the operational level have failed, because teams became frustrated and demovitated as a result of interventions by top and middle management Dilemma 2:Control

9. The dilemma of authoritarian and self-organizing control is based on two concepts of power: Domination: capacity of one actor to get other people to do things they would otherwise not do (despite any resistance or objections) Self-determination: capacity to act autonomously by negotiating, deciding and acting together voluntarily Dilemma 2:Control

10. Solution to These Dilemmas:Circularity of Power? Notion of “circularity of power” has been developed in USA (by Ackoff) as well as Netherlands (by Endenburg): • ultimate authority is absent • each member can participate directly and/or via representation in decision-making • ability to make and implement decisions that affect no one other than the decision-makers

11. Solution to These Dilemmas:Circularity of Power? For the American version, see: Ackoff, The Democratic Corporation, Oxford University Press, 1994. Focus is here on the Dutch approach that has been applied in about 30 organizations in Netherlands, Brazil, USA and Canada

12. Circular Organizing in NL Pioneered by Gerard Endenburg, an engineer who took over his parents’ business in the 1960s His father had been interned in concentration camp during WW II; after WW II, Endenburg senior and his wife decided to contribute to a more participative society from the “business owners” side

13. Circular Organizing: Four Ground Rules • Decision making by consent • Consent = no argued objection • Consent (“no one is saying no”) is NOT the same as consensus (= full agreement) • Only decisions about policy are made by consent; other decisions are made by managers, supervisors, etc. • Illustrate with assignment to draw a picture (in pairs)

14. Circular Organizing: Four Ground Rules • Organizing into circles • Circle = unit of people with shared objective • Each member of the organization participates in (at least one) circle • Policy decisions are made in circle meetings

15. Circular Organizing: Four Ground Rules • Double linking between circles • Functional leader of each circle is appointed by next higher circle • Each circle appoints representative (rep) in next higher circle • Election of persons by consent, after open discussion • This is implication of the previous rules • Important to emphasize open discussion, because this contrasts the anonymous nature of majority vote

16. Overview of Ground Rules: • Decision making by consent • Organizing into circles • Double linking between circles • Election of persons by consent

17. Overview of a Circular Structure Non-executive directors Top circle Generalmanager Rep General management circle Unit managers Reps Unit circles Reps Teamleaders Teams

18. Key Innovation = Double Linking Manager/leader is appointed “top down” (cf. Likert’s linking pin) Representative is chosen “bottom up”

19. Key Innovation = Double Linking Via double linking between circles and policy making by consent in circle meetings … collaboration, feedback and dialogue become the key organizing processes

20. Example: In a crisis situation in a medium-sized corporation, involving the ‘apparent need’ to lay-off 40 % of all employees, a worker in one of the operational teams came up with a proposal to re-train all redundant production workers into (temp.) sales personnel. This proposal was discussed in his team, and subsequently also in the unit circle and general circle. Within several weeks, the “new” sales people had acquired enough new customers to prevent any lay-offs. General circle Unit circle

21. Example: In another firm, a sales team faced the uncomfortable situation of having to decouple JB from the team. JB was invited to a team meeting where his performance in the last 12 months was discussed. After this discussion the chairperson asked JB to leave the meeting, and subsequently the participants decided to remove JB from their team. Via the unit manager, the general manager was informed about JB’s situation. After discussing this with another unit manager, the general manager then placed JB in a unit that appeared to fit his skills better. General circle Unit circle

22. Employment and Partnership? • All employees and managers in circular organizations have an employment contract; this contract also provides (the right to) participation in a circle • Policy domain of each circle includes the attraction/inclusion of new people and untying of current members in the circle • People in these organizations talk about “participant” or “member” rather than “employee”, “boss” or “partner”. General circle Unit circle

23. These and other examples show that circular organizing is essentially about:creating a learning and communication infrastructure

24. In fact,the management consulting industry has been thriving as a result of most (business) organizations having no permanent infrastructure for learning and communicating across hierarchical and departmental boundaries

25. Thus, about 80 % of the work of management consultants involves:building a personal network in the client-organization, and gathering and combining information and knowledge available in different units or departments and at different hierarchical levels

26. The circular model also serves as a diagnostic system to define managerial and organizational problems in any organizationEinstein once said:“you can not solve a problem from the same awareness that created it”

27. Invitationto analyze any specific organization you are familiar with from the perspective of circular organizing: • First, draw picture of the current organizational structure • Second, design a circular structure for policy making in this organization • Third, what are the main differences between the first and second structure?

28. Circular organizing has been … • developed initially in the private sector • applied later also by not-for-profit organizations (e.g. health care, education) • Profit and not-for-profit involve different organizational objectives; the circular organizing approach requires a sharedobjective, but not a certain kind of (e.g. profit or not-for-profit) objective

29. How About the Public Sector? • Circular organizing is a synthesis between governance and democracy • Can the public sector, consisting of two loosely coupled systems – public administration and parliamentary/party politics – be organized by way of circular principles?

30. Circular Re-design of Public Sector • Public choice via circular organizing is possible only if a population of individuals shares at least one explicit objective/interest O, and as such is interdependent • Public choice is governed by the rule of consent; this does not imply all decisions have to be taken by consent, but that other decision methods are only possible if adopted by consent • In other words, decisions about “constitutional” (or key policy) issues should be taken by consent; see Buchanan & Tullock’s The Calculus of Consent

31. Circular Re-design of Public Sector • Public choice by a population of N individuals is organized into a system of circles, with each circle having a maximum of Cmax members. Each individual of the population of N individuals is member of at least one circle. • Important condition for public choice in each circle is that its members share a set of objectives/interests– for example, as members of a local community (e.g. Oi , Oia and so forth)

32. Circular Re-design of Public Sector • Circles are double linkedto the next higher circle:both the functional leaders and representatives are chosen by consent (in the higher circle resp. the lower circle) • Thus, at all levels public administrators (local community, city, state, nation) collaborate closely with chosen reps

33. Implications for Social Sciences • Human race has been profoundly changing the parameters of the evolutionary process … • particularly as a result of the collaboration between the natural sciences and the design and engineering disciplines • The social sciences, unlike natural sciences and technology, have been positioning (organizational) design as a minor discipline that is “best left to practitioners and consultants”

34. Implications for Social Sciences • However, our capacity for learning as well as for designing and organizing complex systems has an extraordinary, although often unintended, impact on societal evolution

35. Implications for Social Sciences • Key question for students and scholars therefore is: for what purposes are we going to use our ability to learn, design and create? • This capacity can be used to guide human beings in the process of (re)designing and developing their organizations toward more humane, participative and productive futures!