Organizational Debt

Continuing one of my favorite themes in this blog, of using technical metaphors to explain organizational issues, I happily came across one of Steve Blank‘s recent posts:

Organizational Debt is like Technical Debt, but worse

Steve’s definition of Organizational Debt is short and simple: “all the people/culture compromises made to “just get it done” in the early stages of a startup. ”

Just like technical debt can hinder your ability to scale your product, organizational debt hinders your ability to scale your company.  Accruing these debts is sometimes the right business decision to make. But you need to be aware that you’re taking them on, and have a well defined trigger for identifying when you should stop whatever else you’re doing, and invest the time and focus in refactoring them.

Onboarding, training, culture and compensations, are a few examples of organizational systems that are likely to accrue organizational debt at the early stages of a startup.

A secondary theme that Steve calls out in his piece, is also worth noting: VCs tend to be not particularly good at helping their companies identify organizational debt and refactoring it. Fred Wilson also tangentially acknowledges that challenge in his “What VC can learn from PE” piece.




Organizational Debt

Holacracy or Humacracy? (Book Review)

Holacracy has been on my radar for the last couple of years as an organizational paradigm that’s worth further exploration. I’ve covered some pieces of it on this blog as well.

I was thrilled to learn that Brian Robertson, Holacracy’s creator, has finally written a book about it, and was really looking forward to reading it:

Holacracy: The New Management System for a Rapidly Changing World

If you have no idea what Holacracy is, I won’t suggest jumping straight to the book, but starting with this short article instead:

Here’s Why You Should Care About Holacracy

The book provides the most holistic, yet still readable, description of what Holacracy is really all about (pun intended). Though it still leaves much to be desired (which we’ll get to in a second), it does a great job illustrating how governance and tactical meetings work and touching on some of the less known aspects of Holacracy such as its approach to strategy and to deadlines, both strongly resonating with me. The aspect that would have probably benefited the most from further exploration is the circle-based org structure. It doesn’t address some of the key org design challenges that exist in traditional hierarchical structures, like the need to alternate organization and focus by function, product/service and customer/region. It also enacts a meaningful organizational constraints that doesn’t get acknowledged: if each sub-circle is represented in governance and tactical meetings by both a lead-link and a rep-link, it puts the limit on the number of sub-circles within a circle at about 4-5. Otherwise the number of people attending the meeting quickly jumps to over 10 people, which makes them exponentially more challenging to run.

Sadly, my high level takeaway is that Holacracy is an exciting but incomplete paradigm. And there’s some reason for pessimism since this omission was made by design. Let me explain:

Many of the principles and concepts that Holacracy is based on and consists of strongly resonate with me: roles as living and evolving entities, the radical distribution of authority through the circles-based org structure, the unique and highly effective governance and tactical meeting structure, even thinking about strategy as a set of heuristics rather than a high-level, executable plan.

The one principle that Holacracy takes too far, in my opinion, is the decoupling of “role from soul”. Holacracy accurately observes that under the traditional paradigm, four “spaces” are too tightly coupled:  the person space, the role space, the tribe space and the organization space. A good example is the traditional manager’s job being simultaneously responsible for both for the business outcomes accomplished by her employee (role space) and her employee’s professional growth and development (person space). The solution that Holacracy prescribes is radical decoupling, ignoring the fact that in cases of extreme decoupling, misalignment will lead to chaos. Holacracy explicitly takes the “human spaces” (left column, person+tribe) out of scope:


Or, to use a more familiar diagram to the readers of this blog:


Dealing with “human spaces” problems such as hiring/firing, compensation, growth, etc. is not part of the Holacracy “operating systems” but mere “add-ons/apps” that each business should figure out on its own, once they adopt Holacracy. Yet at the same time, it’s been acknowledged that Holacracy is at odds with traditional “human spaces” solutions, and the friction between the two is a key cause for some companies attempting to adopt Holacracy but failing to successfully do so. To go back to our manager example, Holacracy offers clear guidance on what to do with half of her traditional responsibilities, but leaves practitioners completely on their own about the other half. To me, that sounds like a classic case of mistaking a bug for a feature.

A fix for this bug, would require viewing the organization as a sociotechnical system, acknowledging that it has a human component that cannot be fully decoupled. The human systems that align with the process components of Holacracy have to be an integral part of the Holacracy “operating system” rather than an add-on “app”.

Note that none of this invalidates any other principles and concepts that are already an integral part of Holacracy. I am confident that Holacracy is a superior organizational paradigm compared to the traditional one. I’m just disappointed that its creators decided to “call it done” and draw the operating system/apps line where they did. I fear that only addressing half of the problem space will have a substantial negative impact on its adoption (and success) rate. To use another software metaphor, they seem to be building the right product, I’m just not sure they have a Minimum Viable Product. Yet.

Holacracy or Humacracy? (Book Review)

Corporate policy and Reg 2.0

The real boon in coming across Nick Grossman‘s blog, is discovering all the work he’s done around “Regulation 2.0”, which he recently summarized in a whitepaper:

Regulation, The Internet Way

Nick’s main thesis is that large scale internet platforms (eBay, AirBnB, Uber, etc.) are utilizing a different paradigm in regulating user behavior on their platforms, compared to the paradigm used by “traditional” governing institutions. And now, it’s time for the traditional governing institutions to start adopting the new paradigm as well.

Under the old paradigm, trust, safety and security risks are managed using a permission-based model: who can act and how are being defined in detail and upfront; permission to operate needs to be granted explicitly, typically using a certification/licensing scheme. But once permission is granted, accountability/compliance is only weakly enforced, typically using periodic inspections.

Under the new paradigm, trust, safety and security risks are managed using an accountability-based model: accountability/compliance is strictly and continuously enforced using data on the player’s behavior. Open-access is the norm, and no explicit permission to operate is required, as long as the data to monitor behavior is being provided. Essentially, a higher up-front risk is accepted, as long as the cumulative risk exposure can be reduced through the data-driven learning.

reg20Nick points out that some of the regulatory friction around permission-to-operate that these internet platforms encountered in recent years (Uber, AirBnb) is an outcome of this paradigm clash.

A similar push towards an open-access data-driven regulation, is brewing up in slightly less-sexy domains of the regulatory space such as Energy Efficiency. In recent months, several thought leaders in the space (1, 2, 3, 4) have advocated for a move away from traditional “deemed savings” approaches, based primarily on statistical sampling, to more progressive M&V approaches based on real-time data coming from Smart Meters. Similar to the web platforms, it’s the technological innovation, Smart Meters in this case, which unlocks the ability to switch to the new paradigm.

Personally however, I am much more interested in considering the applicability of this new paradigm in shaping internal policy inside corporations. You can think of internal policy as an effort to try and regulate employee behavior and promote the same trust, safety and security objectives. The upside is that the change management effort required to drive this paradigm shift inside a company is orders of magnitude easier, compared to changing policy at the city, state or federal level. The downside is that the amount of available data, may not reach the critical mass  necessary to enable the new paradigm. But I agree with Nick that this is not a good enough reason to simply default to the old one.

Encouraging evidence already exists. Consider Facebook’s Release Management policy. It’s a pretty good example, of a data-driven open-access/high-accountability policy. The release engineering team (aka “the governing institution”), structured a system in which the responsibility to shepherding the code changes out to the world remains on the shoulders of the software engineer who introduced the change. Data from past-performance (some variation of mean-time-between-failures and mean-time-to-restore-service) on each engineer is collected and factored into a “push karma” score. Only if the score drops below a certain threshold, does the release management team intervene and put constraints on the developer’s ability to push code. The concept of “targeted transparency” applies as well: developers are aware of their “push karma” score and can take action to improve it. Is it a perfect policy? Probably not. But it’s sure a big step in the right direction.

The next frontier, in my mind, are more broadly applicable corporate policies. Consider a company’s expense policy, for example, where transactions are rather frequent and data is abundant. It seems like a prime candidate for a policy re-design under the new paradigm. Other corporate policies, like the ones meant to prevent sexual-harassment and discrimination or the ones meant to drive effective hiring/firing, seem like tougher nuts to crack, since data is scarce and the stakes around each transaction are much higher. Yet this shouldn’t discourage us from continuously pushing the envelope in that direction until we find solutions that work.




Corporate policy and Reg 2.0

Benchmarks and Guardrails

“Act in the company’s best interest”
“Exercise good judgement”
“Spend company’s money like it’s your own”

These fuzzy guidelines are the typical aggressive course-corrections to old school corporate policies around budgeting (enforcing a rigid spending cap).
As Dan Ruch argues in:
The worst business mantra is “spend the company’s money like it’s your own”
They can easily backfire.

Traditional “max-spend” policies, whether on travel, meals, office supplies or time-off, often come across as tyrannical and bureaucratic. But most importantly, the encourage a “use it or lose it” mentality that’s at odds with everyone’s best interest.

But the alternative, judgement-driven policies are also not without fault:

  1. Ambiguity– the ambiguity in such policies leads to people constantly questioning their choices. Fear, indecision and abuse, are additional likely side effects. When you can’t tell what’s reasonable, choice becomes a burden, and fearing the consequences of every decision that you make is not real freedom. Choices have a biological cost in the form of “decision fatigue” – a negative impact to the quality of decision making, and overall productivity that we would all rather avoid.
  2. Counter-productive under-spending – Whether as an attempt to minimize the chance of unintentionally over-spending (and suffering the consequences as a result),  or due to some people’s natural tendency to frugality, and other psychological biases (like a misguided hero syndrome), counter-productive under-spending in not unlikely. Under-spending on a client dinner, taking a 3-connections flight, or not taking enough time-off can all result in negative implications to the business.

Is there a way to avoid the short-comings of both “max-spend” and “judgement-based” policies?

Dan argues that the answer is “yes”, through designing policies that adhere to these two principles:

  1. Provide benchmarks – use historical data to provide a relevant guideline for “what’s reasonable”. For example: “on average, employees spend $xxx/night, when booking hotels in city X”. Providing an anchoring point for “what’s reasonable” reduces fear and decision fatigue while leaving the door open for varying from the average for a good reason.
  2.  Set minimum guardrails – a “minimum-spend” guideline, can reduce the risk of counter-productive under-spending, without encouraging a “use it or lose it” mentality.
Benchmarks and Guardrails

Getting to Yes

A really nice piece by Steve Blank about dealing with the friction between “innovation” and “corporate”:

Getting to Yes for Corporate Innovation

The problem:

A massive (+5,000 employees) corporation have set up a corporate incubator for horizon 3 innovations.  Despite executive support (including the CEO) the innovation team kept running into organization roadblocks, primarily in the form of policy constraints and lack of cooperation from corporate functions (HR, Legal, Finance, etc.).

The solution:

  • Every innovation team that wanted a policy/procedure changes can submit a “Getting to Yes” 1-pager to the department that owns the policy/procedure, outlining the requested change, the rationale and impact/risks to the core business.
  • The department has one week to ask questions, gather information and meet with the innovation team.
  • The department then could either approve / propose changes that the innovation team agreed with, or reject the proposal.
  • Rejected proposal were automatically escalated to the Chief Innovation Officer either overrule or ratify them.

What’s awesome about this solution:

  • The innovation teams are the ones proposing the new process, procedure, metric, etc. – they can’t just complain/argue that it’s someone else’s problem
  • There is a hard 1-week response time for the relevant department
  • “Yes” is the default answer, “No” required a detailed explanation
  • Appeals went straight to the Chief Innovation Officer to be acted on the next week. If no agreement was found it became a management team issue.

What’s really compelling about this approach, in my mind, that it can be applied beyond the realm of innovation. Everyone should be able to take part in continuous improvement of policies and processes, not just the departments who own them.


Getting to Yes