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 foundedNer 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.
Download a free sample chapter of our book. Subscribe to the newsletter.
I am naturally interested in the democratisation of workplaces, so articles and stories like this i just love to read and learn from. But i am also cognisant that sometimes these approaches may not work, at least not work in terms of generating better business results (profit, customer satisfaction, output, engagement etc). I wonder what their success rate is in the process and what is the learning at a macro level - ie are some organisations not suited to this type of transformation and approach, and what can we learn from those failures, as well as successes listed? But great article and thanks for sharing!
Thanks for your comment, Pete. In terms of K2K, they shared the very impressive results with us at the start of the lecture (many listed at the end of this precious Corporate Rebels post https://corporate-rebels.com/ner-group/) - every company they've worked with has improved in terms of the results you mention. However, I did get the impression that this method works very well with factories but they've had a few more challenges with services companies, in IT for example.
In my own experience and from others I've spoken to about these kinds of transformations, one of the biggest obstacles is the leadership - people unwilling to let go of power and privilege, or unconsciously undermining the empowered, involving culture required. Also organisations often revert back to top down if the person holding the vision leaves - it can be quite delicate and sadly, can be quickly destroyed.
Pablo and Jabi say that if you're interested in the bottom line results only, this probably won't work. You have to really want it. And it will be a bit like a fever - it often gets worse before it gets better. So it takes grit and persistence and above all, a belief in people. Hope that answers your question?
There’s a danger this oversimplifies in just the way I know you guys don’t like.. I guess it’s always a danger of writing good copy! For example, no hierarchy? I quote another recent guest blog of yours: “these organizations are dynamic. Authority shifts based on who has the most knowledge and experience in a specific context”. The devil is always in the context and the detail with this stuff, as I know you know..
Great point, Tom. From my conversations with K2K, Francesca (the author of the "orgs with no hierarchy don't exist" blog) and others, I interpret "no hierarchy" to mean a system where no one has power over people. One person alone, or a few at the top, no longer has hiring or firing power, for instance. My friend Tom Nixon often says that in self-managing teams, it's helpful to acknowledge that there IS a creative hierarchy. I think what you and Francesca are talking about is this. People with knowledge or influence naturally emerge as leaders but the difference is while these individuals may have authority over ideas, they don't have total authority over other people.
I've been on a journey with hierarchy - from thinking it's evil, to now realising that it's a technology; neither good nor bad. It's the fact it's been abused that some are choosing to reject it. Sometimes organisations can go too far the other way when abolishing hierarchy. In my experience, successful self-management is all about more, not less, leadership, and having structure and clarity is important, otherwise you end up in creative entropy. What do you think?
Pete Swanson, to answer on one of your topics. I notice that the results (engagement, customer satisfaction) can even be better because more people get to share their knowledge, that way people in contact with customers can give feedback all the time to improve all kinds of processes.
I work in a similar way, with the framework of Sociocracy3.0 that gets effective collaboration at any scale going.
in September a business novell will be published with insider information about how a company transforms
Interesting article! Thanks for sharing.
Great Article! What K2K does is pretty radical. Just like the move to Holacracy is radical. Could there be a middle way, where "power over people" is still held by some persons, but those are doing are wielding this power in a benevolent, servant leader like fashion? Or is this just a fantasy, too unstable to maintain, as I deem Mr. Aretxabala and Brian Robertson think.
BTW: I really appreciate your Leadermorphosis pod cast. Keep it up!
Hi Frank, thanks! So glad you're enjoying the podcast. I absolutely think there can be. I believe hierarchy isn't inherently evil, it's just that so many organisations have abused it as a technology and there are many egotistical leaders doing harm. Having said that, there are plenty of examples of companies with great, empowering leaders. There's no one solution. I've come to realise that my hope is for companies to find a healthy, conscious version of whatever form they take - self-managing or hierarchical, and everything between. There are many leaders who are naturally empowering and have a positive influence, and for the others, it's a case of supporting them to develop and find their own version of leadership that brings out others' full potential.
So it is a benevolent leader holding the space, no matter whether it's a self-management or a hierarchical environment, right? As long as there are private ownership rights, this a given. Holding the space, that appears the central phrase for me. Systematic checks and balances against the idiosyncrasies of the person holding the space could be Holacracies constitution (which is like a moral check on power), a less active involvement in day to day issues (which is a de facto check on power) or even some legal checks, like employee representation in a companies board (which is common in Germany, for example, but with mixed results). Are there any other ways to keep the space open in spite of the wimps of the leader holding the space? What do you think?
Bags and accessories made of truck tarpaulins - that's what Freitag is known for. With headquarters in Zurich, around 250 employees work for the cult label which uses holacratic methods. They introduced a new salary model in early 2019. Pascal Dulex is responsible for Organizational Culture & Creative Direction. He spoke to us about their sometimes-painful path to a new compensation system.
We are super excited to launch the German edition of our "Corporate Rebels" book today. We can now reach even more people in their native language and share the stories of workplace pioneers from around the globe. The full title: Corporate Rebels - wie Pioniere die Arbeitswelt revolutionieren.