December 27, 2012
Did A California Company Just Prove Marx Right?

Morning Star is a California company that is responsible for processing 40% of California’s tomato crop.  They also have no management. (Via Reason.tv):

Morning Star has many of the usual positions that one would expect at an ordinary company: there are floor workers, payroll personnel, folks that handle the mail and outside communications, and so on.  The difference is that, from a bird’s eye view,  no single person at Morning Star is anybody else’s boss.  The entire operation appears to thrive on the power of collective expectations, and by giving workers a direct stake in the success of the company.  Workers at Morning Star make their own decisions about how to perform their job, what tools they need to keep the machines running, and how to structure their work day to keep production running smoothly.  As one employee put it, there is no bureaucracy that he has to fight through if he needs something for his lab.  He just goes out and purchases it.

To some, this may seem like a frightfully inefficient way to run a business.  If employees can make instantaneous discretionary purchases of lab equipment on the company dime, then where is the cost control?  Such a system seems doomed to failure without a hierarchy of some sort to check potentially unwise exercises of indiscretion.

The answer is that these checks are built into the system of collective expectations.  As another Morning Star employee put it, Morning Star’s business model presumes that employees who are closest to a particular business process are the most qualified to make decisions about how to keep that process running efficiently.  Thus, one would expect an unwise purchase to be met with scrutiny by one’s peers on the factory floor.  Morning Star’s firm model thrives by ensuring that one individual is never and uncontested decision-maker solely responsible for decisions related to a business process at the company.  Every worker has a stake in the outcome of everybody else’s labor.  The threat of discipline from management is unnecessary to achieve desired outcomes.

Morning Star is not the first company to adopt this business model.  Valve Corp., a wildly successful Video Game company that currently dominates the Video Game industry through it’s Steam platform, also has no formal management.  Gore Inc., the makers of Gore-Tex, are an 8,500 strong company that has no company organization chart.  Though Gore does retain a few corporate officer titles for various purposes within the company, those officials have little direct power over other employees in the corporation.  Those same officers are also not unilaterally chosen by the Board of Directors, but rather, in a more democratic fashion:

In Gore’s self-regulating system, all the normal management rules are reversed.  In this back-to-front world, leaders aren’t appointed: they emerge when they accumulate enough followers to qualify as such.  So when the previous group CEO retired three years ago, there was no shortlist of preferred candidates.  Alongside board discussions, a wide range of associates were invited to nominate to the post someone they would be willing to follow.  ‘We weren’t given a list of names – we were free to choose anyone in the company,’ Kelly says.  ‘To my surprise, it was me.’

Other firms have shown that “non-management management” approach is feasible.  At IDEO Corp., a Palo Alto engineering company responsible for such ubiquitous inventions as squeezable toothpaste tubes, or the mouse you are using to point & click things on your computers, there are no bosses, and no management structure.  Sun Hydraulics is a $170 million dollar manufacturing firm with no job titles, no organization chart, and even lacks job performance criteria for its employees.  There is a Plant Manager, but their job is not to supervise employees: it’s to water the company’s plants.

How are so many companies, in areas as diverse as tomato farming, hydraulics production, and video game production, running successful businesses without traditional management?  In a society built on Capitalism, the common wisdom is that productive firms require managers with coercive authority to motivate people to do their jobs.  Most ordinary people are shocked when they learn that there are companies who stay profitable with no bosses.  How can this be an efficient way to run a company?

As it turns out, there’s a lot of evidence that top-down management is an inefficient form of firm organization.  Gary Hamel, writing for the Harvard Business Review, noted several reasons to abandon traditional management hierarchies, one of which is the fact that managers add both personnel costs and unnecessary complexity to a firm:

A small organization may have one manager and 10 employees; one with 100,000 employees and the same 1:10 span of control will have 11,111 managers. That’s because an additional 1,111 managers will be needed to manage the managers. In addition, there will be hundreds of employees in management-related functions, such as finance, human resources, and planning. Their job is to keep the organization from collapsing under the weight of its own complexity. Assuming that each manager earns three times the average salary of a first-level employee, direct management costs would account for 33% of the payroll.

Top-down management also centralizes risk-taking in the hands of fewer decision-makers, which increases the likelihood of a disastrous event:

… As decisions get bigger, the ranks of those able to challenge the decision maker get smaller. Hubris, myopia, and naïveté can lead to bad judgment at any level, but the danger is greatest when the decision maker’s power is, for all purposes, uncontestable. Give someone monarchlike authority, and sooner or later there will be a royal screwup. A related problem is that the most powerful managers are the ones furthest from frontline realities. All too often, decisions made on an Olympian peak prove to be unworkable on the ground.

The personal whims of managers can also kill or disincentivize ideas that are good for the company, especially when ideas have to be filtered through multiple levels of management:

…[A] multitiered management structure means more approval layers and slower responses. In their eagerness to exercise authority, managers often impede, rather than expedite, decision making. Bias is another sort of tax. In a hierarchy the power to kill or modify a new idea is often vested in a single person, whose parochial interests may skew decisions.

Then there’s “the cost of tyranny:”

The problem isn’t the occasional control freak; it’s the hierarchical structure that systematically disempowers lower-level employees. For example, as a consumer you have the freedom to spend $20,000 or more on a new car, but as an employee you probably don’t have the authority to requisition a $500 office chair. Narrow an individual’s scope of authority, and you shrink the incentive to dream, imagine, and contribute.

The success of these business models demonstrate one of the fundamental criticisms of traditional Capitalist modes of production that Marx attempted to illustrate when he was writing Das Kapital.  While Marx was wrong (in my opinion) about quite a few things, the success of the companies above demonstrates that Marx was correct to point out that divorcing employees from management decisions related to their own labor is an inherently inefficient means of production.  Divorcing employees from the product of their labor separates them from one of the primary motivating forces to perform that labor.  This process of alienation itself is what creates the necessity for “bosses”—employees whose primary purpose is to oversee & discipline other employees in their assigned tasks.  

Thus, what we really see in Marx’s Theory of Labor Alienation was, inter alia, an argument about firm management: the need for “bosses” in the workplace only arises when employees are completely divorced from the means of production.  When workers have a direct stake in the final product of their labor, they no longer need the threat of coercion from superiors to do their job.  An employee’s direct interest in the outcome, combined with the power of collective expectations of their peers in the workplace, replaces the threat of, and need for, discipline from above.

With all this being said: I am not attempting to argue here that the success of non-managed firms proves that stateless socialism is viable, or validates Marxism writ large.  Indeed, I’m sure that the folks at Reason have a much different view on Morning Star’s success than I do—and moreover, I remain, as I have always been, a fan of mixed economies.  

What I think is clear, however, is that Marxist theorists are right to point out that there is nothing inherently “natural” or “necessary” about the way the workplace is organized in most Western societies today.  There is plenty of evidence to suggest that top-down hierarchies in the workplace are neither necessary for profitability, nor an extension of natural human activities.  Indeed, if Gary Hamel’s observations about the inefficiency of management are true, we appear to have been doing it wrong for quite some time.  Though perhaps we could have come to the same conclusion more easily by just reading Dilbert comics:

  1. lyriael reblogged this from letterstomycountry
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    Alternatives ftw.
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    I need this to help show just how.flawed capitalism is and how “alternative” businesses can survive.
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