The Moral Molecule

Neuroscience and economic behavior

Democracy at Work

Why self-management works

“Responsible management,” Peter Drucker once wrote, “is the alternative to tyranny.”

Employee self-management, in which each individual chooses how (and sometimes even when) he or she will complete a project, might well be seen as taking Drucker’s anti-tyranny approach to its fully democratic extreme.

Indeed, in some self-managed companies, employees are not assigned work at all, but offer up their services and know-how to meet a particular objective. I discussed one of these companies, Morning Star Tomato, in an earlier post. Another company in which employees self-manage is the gaming software developer Valve Corp.

But in truth, most companies don’t encourage self-management in the slightest—and they’re losing out as a result.

A recent survey of 36,000 employees in 18 countries, by the consulting firm LRN, shows that only 3% of companies can be described as substantially self-governing. (In the United States, the figure is even more pathetic—2%.)

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But these exceptions are prospering. LRN found that self-governing companies are about one-third more innovative, have stronger employee loyalty and report greater customer satisfaction than the non-self-managed companies in the survey. These conditions, in turn, translate into better financial performance compared with traditionally managed companies in the same industry.

The benefits of self-management come, in part, from eliminating organizational layers. This empowers employees and increases accountability—two factors that are mutually reinforcing (and very Drucker-like). At the same time, having fewer managers means that those who are directly producing output can be paid more. This provides an opportunity to select employees who are highly motivated and will thrive in a self-managed environment.

The elephant in the room, of course, is how to move your company toward self-management. LRN’s survey, along with emerging research at the Center for Neuroeconomics Studies (which I run), shows that self-managed companies have a high degree of transparency that engenders trust and commitment.

As I’ve noted, revealing financials and organizational plans is an excellent trust-building approach that successful companies such as Trader Joe’s have used to engage employees in the process of making the organization successful.

Trust, a potent stimulus for the brain to produce the connection-and-care molecule oxytocin, encourages us to treat workmates like family. Flat, rather than hierarchical organizations, appear to reinforce this effect. In addition to trust, employees must have a clear sense of purpose, both in the short term and for the larger mission of the organization. Knowing where the organization is going gets everyone moving together.

If these three ingredients—transparency, trust and purpose—can be established within an organization, then self-management is a real possibility.

You might not be able to get rid of all the managers, but creating a more democratic culture at work is an effective way to improve the bottom line.

This post originally appeared in The Dx blog from the Drucker Institute.

Paul Zak is the director of the Center for Neuroeconomics Studies at Claremont Graduate University and the author of The Moral Molecule.

Paul J. Zak is a neuroeconomist at Claremont Graduate University in Claremont, CA.  His book The Moral Molecule will be published in 2012.

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