10 Components That Successfully Abolished Hierarchy (In 70+ Companies)
I recently flew to Lisbon to participate in a two-day talk and workshop led by Pablo Aretxabala and Jabi Salcedo from K2K Emocionado. K2K has successfully transformed 70 organisations (many of them industrial companies) in the Basque Country from traditional hierarchies to flourishing, self-managing organisations.
Sketch by Andy de Vale.
That they have successfully transformed and improved results (profitability, productivity, absenteeism, salaries) in so many companies with such consistency piqued my interest. So how do they do it?
People who believe in people
At the core of their approach is the former CEO’s concept of “nuevo estilo de relaciones” or “new relationship styles.” K2K supports companies — usually for a period of three years — to radically change their organisational structure, eliminating managers, controls, and privileges, and implementing transparency, shared responsibility, and profit-sharing. Before they even start the process, employees have to choose it. As Jabi says: “Do nothing unless you have asked people first and involved them…” (you can learn more about that in this previous Corporate Rebels post).
This company has successfully transformed 70 organisations from traditional hierarchies to flourishing, self-managing organisations.
There are 10 essential components of the K2K method of transformation. The government approached them at one point and said, “You’ve transformed nearly 70 organisations in the Basque Country and we have 22,000. Could you do some more? Maybe if you took out some of the more radical steps, more companies would be interested?” The team went back and had meetings for several days to explore if this was possible. In the end, they decided that each of these 10 components was important — without all 10, you simply won’t get the benefits. So here they are:
1. Total transparency
Trust is a key factor and so one of the first steps is to open up all information and create accessible financial reports for everyone. K2K helps the company set up monthly and quarterly meetings to inform and train people about how to understand the financial information.
2. No hierarchy
K2K spends two months interviewing people in the company and analysing its current form and what people want, after which they call a General Assembly and present the new, proposed structure. They eliminate the whole middle management layer, but never layoff anyone (more on that in a moment).
The CEO becomes General Coordinator and no longer has decision-making power over anyone. Instead, they now devote their time to caring for people and making their work easier. Jabi joked that one company they worked with had 70 people and nine levels of hierarchy and even more salary levels — and they wondered why people didn’t work as a team!
3. Self-managing teams
Companies give K2K the authority to propose the team structure (rather than create it themselves) because they have lots of experience and expertise in doing this. Decision-making is established as a shared responsibility and every decision involves the people who are impacted. To streamline this, they create a Pilot Team which contains a representative of every team and has monthly meetings.
Teams also have Commitment Meetings every two to three weeks to discuss commitments against team objectives. Each team elects a ‘leader’ as a representative, however they have no power or extra salary. This person serves for only one or two years because after that, Jabi says, “people start to be a boss.” Teams can share this role across two or more people, and replace the leader at any time.
4. No privileges
From day one, all privileges are eliminated: closed offices, executive dining rooms, reserved parking spaces, any bonuses or incentives for individuals’ performance, and no special access to information.
5. A fair salary balance
When K2K reveals the new organisational structure to the team, they also share the new salary levels. Overtime pay is scrapped and the lowest salaries are lifted to minimise the gap between salaries. Nobody’s salaries are lowered (for example the former middle managers), however one rule is that the highest earning 10% can earn no more than 2.3 times the salary of the lowest earning 10%. On occasion, this has resulted in an agreement that the CEO lower their salary.
6. No controls
In factories, the clocking in and out system vanishes. “We move by goals and commitments, not by hours,” explained Pablo. The team is in charge of resolving any instances of inappropriate behaviour when they occur. It’s also essential that people are allowed to make mistakes. In the first six months, it is almost always total chaos and frustration. But what first-time manager hasn’t made mistakes? Making mistakes is key to learning and must not be punished or discouraged. As Pablo put it: “Sometimes you succeed, sometimes you learn.”
7. Measure and track everything
The measuring and tracking here isn’t to control, but so that teams have real-time information about how they are doing. The K2K approach also involves measuring teams only, and never individuals.
8. Shared decision-making
To begin with, K2K helps facilitate decision-making discussions as it’s very new for teams to be making decisions without a boss. To know if they’re making a good decision, K2K suggests people ask four questions:
- Will it be better than before? (Think long-term)
- Can we explain it to everyone? (Is it transparent or not?)
- Has everyone who’ll be affected by the decision and who has relevant, important knowledge been involved or consulted?
- If we put ourselves in the shoes of those who’ll be impacted, would we make the same decision?
Most decisions can be made in teams, however decisions that impact a larger number of people are agreed in General Assemblies.
9. No layoffs
Remarkably, K2K has never laid off a single person in their transformation processes. Middle managers are supported to find new roles. This contributes to offsetting the increased cost of increasing many of the salaries because, as Jabi explained, 15% of the workforce that was previously controlling others is now dedicated to improving efficiency. And the large percentage of the workforce that was being controlled is now highly effective because they’ve been set free to concentrate on the things that matter!
10. Sharing profits with all
In any K2K transformation, this is a non-negotiable: 30% of the profits must be shared with all employees. “Without this, everything else is just smoke,” Pablo told us.
10 essentials for a self-management transformation; (1) transparency, (2) no hierarchy, (3) teams, (4) no privileges, (5) salary balance, (6) no controls, (7) measure & track, (8) shared decision-making, (9) no layoffs, (10) profit share
So, where do you start?
If, like the participants in our workshop, you’re excited and itching to start a K2K-style transformation of your own, here are a few suggested starting points from Pablo:
- What do you feel? — many times Pablo told us the results and the ‘how’ are less important than how you feel. In fact, K2K’s tagline is “Feel, think, do.” Having read this piece, how do you feel? Inspired? Scared? Sceptical? Activated? Challenged? Get present to that.
- Get informed — geek up on new relationship styles in organisations: read, watch videos, visit progressive companies, have conversations, contrast with your own situation.
- Really, really want it — a transformation like this takes grit and commitment and will never work if you don’t truly want it. If you’re doing it for the results or because it’s the latest trend, you can harm others and yourself.
- Share and decide — share your vision with others and decide to change by involving everyone that will be part of the transformation. Pablo said it’s important to make this decision formal. As humans, the power of declarations (“I now pronounce you man and wife”) and rituals profoundly influences our commitment and personal transformation.
- Enjoy the road because there is no finish line — there’s no end-point to a transformation. Jabi said there isn’t a single company that’s working 100% as they’d like it to in their portfolio, just as there isn’t a single traditional company out there in the world performing 100% as we’d like it to. To start this process is to embark on a lifelong journey of learning.
And finally, find your fellow rebels. If you embark on this journey as an organisation, you’ll be in the minority and sometimes it will feel lonely and frustrating. Connect with other radical people and organisations for support. K2K founded Ner Group in 2009 for this reason, a network that organisations they have helped transform can join to offer each other support, knowledge, and even pool resources.
What’s next for K2K?
K2K continues to evolve. They’re discovering that they could offer a lot more training to people in the companies they transform to help them adapt to this new way of working less painfully. They’re also exploring bringing in psychologists and coaches to support the softer side of transformation and foster the skills needed for self-managing teams to thrive. Their story is certainly starting to garner attention and interest and I suspect they’ll be expanding across Europe and beyond soon.
This guest blog is written by Lisa Gill. Lisa is a consultant with Tuff Leadership Training, which trains managers in a style of leadership that produces responsible employees and self-reliant teams, and the founder of Reimaginaire. She also hosts a podcast about self-management and leadership called Leadermorphosis.
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This is such a great discussion and I fully concur with your points Lisa - that hierarchies are simply a technology and in themselves not good nor bad - it's the implementation of them and the cultural norms and practices that matter most. That said there is something around language and meaning that plays out here - give someone the title of "manager" and watch how control starts to be exerted. History is littered with evidence of hierarchies across every civilisation that gives power and authority to those at the top of the hierarchy. So the fact most people hold mental models in support of that is no surprise. I think what really great organisations are doing is realising the incredible benefit of liberating cultures - where it is well recognised, valued and practiced to give people autonomy and independence - not necessarily free of hierarchy, but within a hierarchy that supports that way of working. Patagonia are a great example of this - they have managers and a hierarchy but operate within a culture that rewards and values independent mind sets and autonomy. I used to think structure was the problem but through my research and reflection I am seeing more evidence that culture is the critical factor in all of this.
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If we could tag one apocalyptic rider for adaptive organizations, it would be "traditional performance management." It is old-fashioned performance management that keeps us in a world of humans as resources, as command-and-control takers, with rigid top-down planning, and solid prevention of curious and exploratively-minded cooperation. Its logic is plan – do – check – act.