We continue with the fifth in our series of excerpts from Barry Carter’s book Infinite Wealth. See: 1) The Rise of a Win Win Civilization 2) A Personal Journey of Discovery 3) Why Corporations Don’t Work and 4) The Emancipation of Capitalism
“Our thinking creates problems that the same level of thinking can’t solve.”
Mass Privatization: Organizing in the Information Age
The company needs a complete metamorphosis in order to have the intelligence and motivation required to accommodate the demands of individual customers in a Mass Customization Era. The changes are massive and comprehensive; so complete that, by any reasonable definition the company will no longer be a company once it has changed enough to meet the customer’s demands. There will be no company left, and definitely not a controlled economy, once we:
Σ Have changed compensation to have it flow from customer to supplier.
Σ Are truly customer-driven and not management-driven.
Σ Are true partners networked together in win/win arrangements.
Σ Truly have self-directed teams and horizontal flat and networked organizations.
Σ Truly operate on chaos theory.
There will be no company left because bureaucracy, employees, management, wages, salaries and central control are what define a company. There are two core components to the Mass Privatization enterprise that differentiates it from a control economy—the compensation system and organizing structure. People are compensated directly based upon the value they add for others, as opposed to receiving standardized compensation for their time, in the form of salaries and wages. In regards to structure, people work in personal partnered relationships as opposed to impersonal and subordinate relationships.
There are limitless ways in which compensation is being structured within Mass Privatization, including much of what is being tried today in companies—gain sharing, at-risk-pay, employee product royalties, bonuses systems, network marketing, team-based pay, variable pay, pinpointing and much more. However, there are two key components that all Mass Privatization compensation systems have:
Σ Individuals or small teams, in one form or another, receive compensation in direct proportion to the value they add or wealth they create for customers and partners.
Σ Individuals get to keep a percent of the income that they produce or accept losses incurred.
Thus Mass Privatization is a win/win system where the more value individuals and teams add for customers and partners the more compensation they directly receive.
By definition, the company or controlled economy is public work and public work is bureaucracy. A two-person bureaucracy with one person reporting to another is a bureaucracy and carries the same negative traits as the 5,000-person bureaucracy. As Tom Peters has said, “Any organization with more than four people is a hopeless bureaucracy.” When we analyze a bureaucracy by taking it apart, as seen in the following figure, we find an authoritarian relationship based upon domination and subordination. The reason that the subordinate or “inferior” must report to the “superior,” and be controlled, is because she lacks ownership in the specific work she performs. Without ownership there must be some means of accountability, and in the representative bureaucracy accountability comes through subordination.
On the other hand, at the core of the Mass Privatization organization (the neural net structure) are teamnets or networks of teams. These are virtual groups of partners who are overlapped and interconnected with other partners and teams. They come together, work on projects, disband and reformulate as needed. The relationship that we find at the core of the teamnet is partnership.
Teamnets have the intelligence and flexibility of a “mom and pop shop” but with the size power and momentum of a traditional bureaucracy. When we synthesize the subordinate relationship we get a full-blown bureaucracy and when we synthesize the partner relationship we get a teamnet or Starburst organization.
With the teamnet, there is a structure partner who partners with a core group of individuals to form the core team of the organization. Each core team member is partnered with its own team of partners, with each of these partners in turn partnered with its own team of partners. The starburst structure continues to expand until it reaches some natural limits.
The teamnet has us moving toward a new, more powerful means of organizing work away from the “division of labor.” I’ve labeled it the “Synthesis of Whole Work.” Applied Computer of Anaheim, California is a virtual enterprise. The virtual enterprise is a new organizational type based upon extreme flexibility, core competencies, outsourcing, partnering and constantly changing relationships (Davidow, Malone, 1992). Ted Diab, owner and founder of Applied Computer, has completely reversed the division of labor and made work whole again. He is the only worker in his own corporation: marketing representative, salesperson, president, CEO, accountant, janitor, production line operator, test technician, programmer, field service representative, quality inspector and friend all in one. In 1994, the fastest growing segment of the economy was the one-person enterprise like Applied Computer.
With Ted’s system of whole work, he gets to interact with all of the aspects of the wealth-creation process. With the divided work of controlled economies all employees interact with mere fragments of the whole wealth-creation process. This is what Margaret Wheatley says in Leadership and the New Science regarding quantum physics, perspective and employee interactions with work:
In quantum logic it is impossible to expect any idea to be real to employees if they do not have the opportunity to interact with it. Reality emerges from our process of observation, from decisions we the observers make about what we will see. It does not exist independently of those activities. Therefore, we cannot talk people into reality because there truly is no reality to describe if they haven’t been there. People can only become aware of the reality of the plan by interacting with it, by creating different possibilities through their personal processes of observation.
Individuals within companies create wealth through their work. Since the whole process, including the details, is not within the perspective of any of the employees, including management, the resultant decisions and actions are far less than optimal. I have worked in manufacturing environments where the improper electrical assembly by the production person could kill a customer. When I’ve mentioned this fact to production workers responsible for assembly, they’ve been shocked (no pun intended). After many years building the product they simply weren’t aware of the gravity of their work. Likewise, managers have little idea of the real-world details of front line workers, though most think they do. Instead they live in a vague abstract world of numbers, graphs and charts which poorly represent reality. Then there are the segmented bureaus of specialty whose employees continually debate their individual perspectives—engineering, production, quality, marketing, accounting, etc.
Ted’s whole work is powerful because from his perspective he gets to see and experience the whole wealth-creation process. Because of Ted’s perspective, he is in a position to be truly and deeply intelligently customer-focused. It allows Ted and I to have a long-term relationship which I classify as a partnership, based upon Chip Bell’s definition in Customers as Partners. Bell says real partnerships must be based on abundance, trust, dreams, truth, balance and grace.
Σ A customer partnership is a living demonstration of an attitude or orientation. Powerful partnerships are anchored in an attitude of generosity, a “giver” perspective that finds pleasure in extending the relationship beyond just meeting a need or requirement.
Σ Powerful partnerships are grounded in trust. Partners don’t spend energy looking over their shoulder, but instead take a leap of faith and rely on the relationship.
Σ Powerful partnerships are bolstered by a joint purpose. While this purpose is rarely written down, each partner is enfolded in a vision or dream of what the association could be and a commitment to take the relationship to a higher plane.
Σ Powerful partnerships are coalitions laced with honesty. Truth and honesty are seen as tools for growth rather than devices for disdain. Partners serve each other straight talk mixed with compassion and care.
Σ Powerful partnerships are based upon balance. Their pursuit of equality, however, is one that seeks stability over time rather than absolute encounter-to-encounter equilibrium.
Σ Powerful partnerships are grounded in grace. The spirit of partnership has an artistic flow that gives participants a sense of familiarity and ease.
Bell shows the kind of partnerships we must have in our wealth-creation relationships. I can trust Ted’s advice 100%. The value Ted adds above what any controlled economy could ever produce comes from trust, honesty and integrity—the wealth-creation norms for the new era. Ted’s whole work is the foundation for the substantive laws of the farm in the new organizing system. There is no whitewashing of performance results, with phony “laws of the school” activity, at the end of the week as employees and managers do. Either there is a profit or a loss. There is also good reason not to kill the goose, long term, merely to get the golden eggs, short term, as many employees do. This is because Ted is very concerned about the very long-term health of his business.
Ted certifies his suppliers, as any large corporation would. He assembles, tests and services his own computers. He qualifies components. His logo and PC’s, in my opinion, look as handsome as Apple’s, IBM’s or anyone else’s. Without even knowing it Ted is on the leading edge of organizational change. His performance would make the most progressive companies appear decades behind. Ted has the ultimate flat, horizontal and virtual organization. He has the ultimate gain sharing system. He has the ultimate one piece flow process using lean manufacturing and just in time principles. With nearly zero inventory he takes an order for a customized computer builds and ships it within 24 hours. He sees customers as partners, lives the seven habits of highly effective people and works beneath the surface.
Without reading any fad business books, attending any seminars or paying any consultants, Ted is doing the things larger organizations are paying consultants millions to teach them one fragmented piece at a time. Most companies struggle years and decades to make minor gains in the areas defined above. Ted, however, has done these things near their maximum potential because these things are natural to whole and private work.
Ted has unlimited flexibility, being a one-person “virtual corporation.” There is no way any fragmented organization can match Ted’s service, quality, trust or partnering. As the mammoth IBM’s in the computer industry have downsized or gone belly up, thousands of Ted’s have sprung up. Most towns have at least one. Prior to the personal computer, the computer industry was vertically integrated like most others.
Presently, the tens of thousands of independent Ted’s are collectively mass customizing hundreds of thousands of computers and producing billions of dollars in income. Each outlet custom builds and ships one ordered unit at a time. Collectively, they are likely shipping more than some of the largest computer makers. At some point, these thousands of virtual corporations will begin to network with one another, through the Information Superhighway for leverage and synergy producing Mass Privatization. Presently Ted’s only disadvantage is price and name brand recognition.
As Ted links with thousands of others into a single Mass Privatization community, he and the partners could agree to purchase “X” thousand of motherboards, hard drives, monitors per year on blanket purchase orders, they would then be able to match the prices of the large controlled economies. Likewise there would be global name brand recognition. They would be able to match price and brand equity with the big boys and would be far superior in all other aspects of business. This includes partnering and intra-organizational collaboration, customization, speed (lead times and response times), service, organizational intelligence, diversity, flexibility, perspective, wholeness, passion, trust and ownership and far more.
As Mass Privatization organizations arise made of thousands of individual Ted’s formed into teams, business units and global communities, we move away from the Newtonian-based division of labor. We shift to the “Synthesis of Whole Work.” This is where whole businesses come together to form larger whole businesses and then these wholes form even larger wholes. This is a quantum physics worldview. Division is about fragmentation and synthesis is about wholeness.
As we view the situation with Applied Computer and the thousands of others like Ted we see that today we are very close to having the Mass Privatization enterprise. In the computer industry we mostly lack the vision to pull the organization together.
If the Mass Privatization enterprise is so powerful, why has no organization gone all the way with it? There are many organizations performing bits and pieces and some performing entire chunks of Mass Privatization as documented in hundred of book. There are a few that are very close to Mass Privatization. There are also network marketing organizations who are all of the way there, however, only in sales and marketing.
The question, however, still remains if Mass Privatization is such a great deal for everyone then why isn’t there a mad rush to Mass Privatization? Well, why did plantation owners stay with plantations when industry was far more profitable and humane? In short, momentum, inertia, paradigms, complacency, low self-esteem, a strong analysis bias, the desire to control from fear, lack of vision and limited technology all restrain us. However, as information technology reaches a critical breakpoint we all will be thrust into the new system at the speed of light. As one organization in one industry either converts to or starts up as a Mass Privatization community the entire industry will fall like dominoes one company at a time. Either they will be forced out of business or forced to privatize. We see this type precedent with the shift to virtual organizations such as Amazon.com, the world’s largest bookstore. Barnes and Nobles, Borders and the entire industry is now rapidly going virtual.
Information technology, in specific the Information Superhighway, is the primary Mass Privatization enabler. It has not reached the point where it makes face to face communication human enough to compel Mass Privatization. We humans need real person-to-person communications to effectively work together from various distant locations. Communication by telephone only uses one of our five senses—hearing. With Internet we only have the written word with extremely limited use of hearing and sight through teleconferencing.
At some point in the near future Ted will have access to the tens of thousands of other Ted’s with direct face-to-face communications through the highly publicized Information Superhighway. Internet and teleconferencing technology will be integrated and more widely used. However, the Information Superhighway will also include the highly humanizing virtual reality and holographic technologies. These two integrated technologies will move us away from talking to one another through two-dimensional computer monitors, to almost complete, person-to-person three-dimensional communications, where we fully use our senses of sight and hearing. Though Mass Privatization is today possible, virtual reality and holographic technologies, combined with others, will compel Mass Privatization.
The Information Superhighway will be a synthesis of a vast array of information technologies including: Internet, the World Wide Web, fiber optics, wireless technology, voice recognition, computer technology, virtual reality, language translation software, holographic technologies, telephone, television, interactive television, VCR, fax and digital technology and many more.
Ted and his partners will NOT be sitting in front of monitors talking to each other through a computer and computer screen. They will be having real person-to-person contact through holographic virtual reality networked computer systems. Like Star Trek’s “holodeck,” people will literally see and talk to others, as though they were sitting in the same room, though they were thousands of miles away. The partners will appear to each other to be in the same location, having a person-to-person conversation. Information technology is, in effect, collapsing time and space—allowing individuals to travel anywhere in the world and meet with anyone desired at the speed of light and at virtually no cost.
In addition, the superhighway will have the ability to translate the speech of Ted’s partners from all over the world so that many people from many countries can communicate. Your partner in Tokyo speaks to you in Japanese but what you hear is English.
Imagine it’s the year 2020. One of Ted’s partners, Jane, has a great idea regarding customizing their products for customers. At 7:30AM she posts a meeting notice for the seven partners on her self-directed team and fifteen more from her broader business unit. She calls the meeting for 9:00 that morning and selects a secluded beachfront conference room on the Hawaiian Island of Maui.
Eight of the twenty partners show up. With waves crashing all around they are literally on the beach in a conference room, with Jane standing and presenting data on a screen in front of the room. She passionately explains how the idea has already improved her customer satisfaction and increased sales for her. They openly brainstorm with a free flow dialogue. Since each partner is eager to improve his or her own customer satisfaction and increase profits, the partners are very open to new ideas—there is alignment. They “seek first to understand,” listening intently to one another. As the idea is presented, people add variations to the original idea, which may improve it even more. With synergy, the ideas build on one another. They are truly connected, synthesizing, synergizing
After a short, informal fifteen-minute meeting, people sign off and are instantaneously back in their homes and offices. Ten minutes later some of the partners have already begun implementing the concept with variations. Some variations work and most fail. These eight partners have virtual meetings of their own with other partners who again try other variations. Within twenty-four hours, through parallel processing, nearly all ten thousand partners have heard about it, with eight thousand having tried it. By the end of the twenty-four-hour period, through the order found in chaos theory and the interconnectedness of quantum physics, the idea has evolved through several variations.
Jane, as well as the eight thousand partners, has implemented some version of Jane’s original idea. Like a school of fish or flock of birds the entire synergy-based organization turns and moves in new directions with synchronous beauty and lighting speed, as through guided by one brain. Without the rigid standardization of control and variation reduction of the controlled economy, we have a highly ordered economy based upon broad variation, diversity, creativity and individual liberty.
Ted’s network is designed with a Knowledge Leveraging Compensation system, where an individual’s income increases as other partners’ incomes increase. Knowledge Leveraging Compensation pools a small portion of each partner’s income and equally divides it back out, highly motivating partners to communicate successes and failures to other partners. This pooling is done at several levels—the team, the business unit and globally. Because of passionate communications, gross income for the organization increases, as individual partner’s income increases and customers are made happier. Everyone has won. In addition to Knowledge Leveraging Compensation, there are many other reasons why partners want to share information with others. Trust, bonding, partnership, love, caring, friendship, strength of the network and real teamwork, are all driving forces behind information flow in Mass Privatization. In addition, to this people have become aware of the win/win world that this behavior supports as our norms and values have changed.
Eight thousand partners plus tens of thousands of customers have won with one idea due to the win/win nature of knowledge power and the Mass Privatization system. In addition, Jane has won more by sharing the idea than withholding it. This is because others were allowed to synergize and synthesize their ideas with hers—thus building something that none of them could have developed alone.
Although the above may sound far-off to some people, the fact is that the most practical part of this scenario already exists. By adding up the sales of the thousands of individual Ted’s, who presently already exist, we already have an organization with billions in real sales through thousands of private workers, real growth, profits, customers and real products. All of this exists and is real, without any division of labor, central control, operating procedures, petty rules, bureaucracies, managers, unions or employees. All that is left is the alignment of these communities—the synthesizing of these constituents of whole work.
Ted’s 2020 Mass Privatization community operates like the brain itself, with each person operating more or less like an individual neuron, and information technology working as neural connections and memory. Synergy and parallel processing are the core building blocks of the Mass Privatization paradigm.
As Mass Privatization expands and interconnects thousands of organizations, producing a system of Decentralized Wealth Creation, the global neural connections on Planet Earth are about to expand exponentially in the coming years. With this degree of connectability, it is easy to see the growth and intelligence potential ahead through the Mass Privatization paradigm.
At this point you may be saying, “Perhaps I can see Mass Privatization working in service industries or assembly manufacturing, but how about heavy industry?” Heavy industry is already headed towards Mass Privatization as discussed earlier, with the long-term shift from vertical to horizontal integration. We have come from a past where the entire wealth-creation process was defined and controlled. We have seen a gradual shift over time towards the worker controlling her specific work. We’ve gone from dictators such as Ford and Rockefeller, who had total control and ownership over entire supply chains (theory X management) to micro management, to theory Y management, to employee involvement, to empowerment, business units, core competencies, profit centers and self-directed teams.
Leading edge organizations such as ABB (Asea Brown Boveri) are at the forefront of today’s continued decentralization, just as decades ago there were the first big manufacturers to go public. ABB manufactures products for power plants, power distribution, power transmission, transportation, and environmental controls. In transportation, for example, ABB manufactures locomotives. Manufacturing does not get much heavier than locomotives. In 1991, ABB restructured the entire $28.9 billion company and 215,000 employees into 5,000 profit centers, each owning its assets. As power was shifted to the profit centers, the 3,000-person central controlling office was reduced to 150 people within a couple of months. ABB CEO Percy Barnevik said he would have incorporated each one of the 5,000 profit centers if it were not for the paperwork. The 5,000 profit centers make up 1,300 independently incorporated companies, averaging 200 people per company. The average profit center of 50 people has its own profit and loss statement and each is broken into high-performance teams averaging ten people per team while serving customers directly. (Peters, 1992, p9, 45.)
We are seeing market forces pushing us away from centralized control of wealth-creation to individual control of wealth-creation. Through natural selection, society slowly shifts in this direction. As we observe the trends towards localizing the control of work in heavy industry, one of the next logical steps is the company as a holding company. This is an arrangement where “the company” invests money in ventures based upon a prospectus or past track record but with no say in how the day-to-day business operates. This is nothing new. Investors invest billions each day into organizations where they have no say in the day-to-day operations. The holding company is the ultimate flattening of the organization, where managers are squashed out of existence, leaving only value-adding work and workers as business owners. Let’s theoretically look at ABB, as a holding company, a few years into the future.
Similar to former Soviet bloc countries, ABB two years ago offered employees a privatization plan. The 5,000 profit centers were broken into 21,000 profit centers with each team being a profit center. They have also gone from 1,300 companies to 8,500 independent businesses or business units. Each business unit is comprised of several self-directed teams (averaging three to four teams). Power Products is one of the businesses. As part of the privatization package ABB traded 60% of ownership of Power Products to the former employees, now partners. Employees are not merely being called partners and associates but are real partners. In return for the ownership, ABB receives a percent of the profit produced from each business in the form of a quarterly dividend payment, based upon an agreed upon percentage of the profits produced.
As part of the privatization agreement ABB and Power Products partners agreed that Power Products would accept and ABB would provide “high directive” support until Power Products partners develop the expertise to operate as a high performing team. Part of team theory say that one cannot merely go from being passive employees to being empowered owners without going through four stages of team development—forming, storming, norming and performing. So that the ABB partner businesses are not thrown into a sink or swim situation, like most upstart businesses which fail, there is a period where the business contractually must follow the directives of an ABB representative. So that the representative’s interests are properly aligned, she is compensated based upon a percentage of Power Products profits.
ABB has zero labor costs, zero management costs, zero overhead costs, no union headaches, zero benefit costs, zero utilities or facilitates costs and a lot less government regulation. There are no managers or employees. Power Products partners receive no standardized salaries, wages or benefits. There is precedence for this in heavy industry. Lincoln Electric workers presently receive no salaries, wages, vacation days or holiday pay because of their ownership-based compensation systems (Posner, 1988 p95). As partners making far more money than employees, Power Products partners are no longer dependent on entitlements from the bureaucracy. Through networks the partners leverage their purchasing power, and purchase these services customized for themselves directly from suppliers.
Power Products produces power transformers for the utility industry. There are 33 people working in the Power Products business unit in three self-directed teams. Power Products has the option of leasing its production equipment and space from ABB or from another supplier. When offered the privatization package, Power Products moved its production equipment and people out of the larger factory of 500 employees. They found a small building where the lease on floor space was 45% less than the quote from ABB. They did, however, lease the production equipment from ABB.
Power Products sells its transformers through an ABB networked enterprise of sales representatives focused on the utility industry. Customers purchase products from Power Products and pay Power Products directly, not some corporate accounting department. Power Products in turn pays its suppliers. One of these suppliers is ABB who receives a monthly payment for leased equipment.
The 33 Power Product partners perform most of the organization’s work, from building the product, to customer service, to much of the equipment maintenance, to much of product and process design. However, some work is vendored out to former ABB managers who work as external suppliers. The pyramid has truly been inverted and management has become true suppliers. However, since it is a free market, Power Products partners have the option of using other suppliers. Likewise, these former managers consult with other Mass Privatization enterprises.
Power products also contracts with former engineers, accountants and others as needed. You see no Industrial Engineers out doing formal time studies, dividing work and dictating rigid work standards, as well as talking down to the people doing the work, as in the old days. You also do not see former managers dictating to Power Products partners or taking disciplinary action with them. Managers and engineers who remain dictators, who cannot adapt to being customer-focused suppliers are not profitable and quickly go out of business.
The thirty-three team members share the work of the business. There is little division of labor and no division between the front office and factory floor, since there is no front office. Customer calls come directly onto the factory floor and are answered by the Scheduling Team Leader. There are many other team leaders, including preventive maintenance, process consistency, materials, purchasing and quality. These are people with more expertise or passion in given areas that lead facilitation efforts in these areas.
Of the three teams in the business unit, two are suppliers to the third team, the “Customer Team.” The customer team is the one that receives the income from external customers and it in turn places orders with and pays the other two teams as suppliers. Within the ten members on the Customer Team, profit is split relatively equally. There is, however, an adjustment made based upon a peer evaluation done each month. In addition, a Knowledge Leveraging Compensation system is used which pools 15% of the three teams profits and equally splits it back out to the teams. It also pools 10% of Power Products profits with all other ABB business units and equally divides it back out. This provides incentive for interconnectedness, communication and generosity in helping one another.
Why did ABB trade away part of its ownership? Because ABB could make far more money as investors investing in partners than managers managing employees could—more profit from human liberation than human control. Passionate, engaged learning owners are far more efficient and effective at meeting customer needs, adding value and creating wealth than ownerless representative employees. Workers now receive far more income and it comes from a win/win system where the more partners make the more the holding company makes. ABB’s profits are up and ABB is growing faster than before because of the privatization package. Customers are getting better quality, service and more customized products faster. Everybody has won!
The above is intended only to show that Mass Privatization can exist today using practical and proven concepts, systems and technology. It is not intended to show all of the realistic detail of Mass Privatization in heavy industry. There are too many variables to predict the details of Mass Privatization. In addition, these details will be handled differently for each organization.
There are many other ways Mass Privatization will evolve in industry. In 1993, I ran across a virtual molding company. Envision an injection plastic molding company with 1,000 molding machines. Undoubtedly it would be the largest molding business in the world. But the surprise is that there is no factory. Each of the molding machines is owned and operated out of individual partner’s garages. This was a networked organization where private workers in their homes did the manufacturing work.
In addition to the privatization of manufacturing we must consider the impact of automation on manufacturing. Over time we can expect to see automation turn mass produced products into commodities with little human involvement in production. We have the precedent from the Agricultural Age, where we went from 70% of the people working in agriculture to less than 1% today. From 1960 to the early 1990’s we saw the number of people working in manufacturing drop by 32%. We can expect this trend to continue. With Ted’s whole work we see manufacturing being integrated seamlessly into the overall wealth-creation process, as opposed to being a separate island unto itself. The bottom line is that manufacturing will become a non-issue for workers, since few people will be working in an isolated fragment of the wealth-creation process known as “manufacturing.”
Today the Mass Privatization system is slowly replacing the company and other controlled economies as the primary wealth-creation institution in society. We see the foundation and core building blocks for the Mass Privatization enterprise being developed all around us within controlled economies. We merely need to synthesize the various activities in business and society, then extend the trends out a few years in order to clearly see where we are headed: towards win/win free-market-based wealth-creation institutions, with unlimited economic freedom for the individual.
Copyright 2000 by Barry Carter
About Barry Carter.