Phase 1: Management for Operational Control

The expression of the principles of Whistler’s design for railroad administration took the form of management for operational control of industrial businesses. We can highlight three early prophets who documented this new drive for control.

Frederick Winslow Taylor (1856–1915) was one of the first to employ the positivist view of business – that business managers can engineer maximum efficiency through carefully applied scientific principles – to attempt to establish a discipline of business management, to be studied and applied with methodical precision. In this context, he was “one of the individuals who had the greatest influence on the 20^th century” (Alexander, Reference Alexander2020). He aimed at a monopoly for managers of knowledge about work tasks and processes in order to rigidly control them.

His high purpose was “greater national efficiency” (Taylor, Reference Taylor1911), and his method was to dehumanize the work process: “In the past the man has been first; in the future the system must be the first.” The remedy for human inefficiency was to be found in the principles of scientific management: “management is a true science, resting on clearly defined laws, rules and principles as a foundation.” He claimed that this science would double the output of each man and each machine, mostly by eliminating the practice of “loafing or soldiering … the natural instinct and tendency of men to take it easy.”

Taylor’s book, The Principles of Scientific Management, set out to demolish the old idea that each workman can best regulate his own way of doing the work. The new science of management placed the entire responsibility on management, who were to analyze and standardize work steps and ensure that they were carried out in a predefined sequence at a predefined pace. Workers could be viewed by managers as a kind of machine to be monitored and controlled.

Taylor wrote that “Taylor wrote that “the fundamental principles of scientific management are applicable to all kinds of human activities, from our simplest individual acts to the work of our great corporations. The fundamental principles of scientific management are applicable to all kinds of human activities, from our simplest individual acts to the work of our great corporations.”

As he had hoped, Taylor’s approach became a standard. It was widely adopted in industry (e.g., by Ford Motor Company in assembly line manufacturing), in World War I military logistics, and in business schools, where courses in scientific management drew heavily on Taylor’s work. The Progressive era saw an Efficiency Movement, lauded by leaders such as Andrew Carnegie and John D Rockefeller, and even by President Theodore Roosevelt, whose call for national efficiency was cited as a driver by Taylor in the introduction to The Principles of Scientific Management.

Henri Fayol (1841–1925) was a contemporary of Taylor who developed Administrative Management Theory. While Taylor focused on the shop floor and task efficiency, Fayol addressed a different dimension – the overall structure and function of management at the organizational level. He identified five functions of management: planning, organizing, commanding, coordinating, and control (Fayol, Reference Fayol1917). Within the five functions, he found fourteen principles, including Authority and Responsibility, Discipline, Unity of Command, and Subordination (of individual interest to general interest). He also included Esprit de Corps as the last item in the list of fourteen principles! He set out a theory of management based on the fourteen principles and proposed that administrative management could be taught on this basis.

Fayol’s management principles led to him being called the father of modern management (Wren, 2002). It has been suggested that Fayol’s fourteen principles metamorphosed into present-day management and the burgeoning administrative formation that exhibits itself all across the globe (Uzuegbu, Reference Uzuegbu2015).

Elton Mayo (1880–1949) was a leader in – some say the founder of – the human relations movement within management theory, specifically applying his attention to the behavior of people in groups. Some of his source material came from The Hawthorne Studies, a series of observations and interviews in the 1920s and 1930s in the context of factory assembly of electrical components. The Hawthorne Studies were interpreted through the lenses of the productivity benefits of social dynamics and team cohesion. Mayo saw work as a profoundly social activity, and identified workers’ social and psychological needs that management must attend to. Mayo’s integration of psychology into his interpretation of motivational and productivity variables emphasized communication, collaboration, and the management of feelings and emotions to encourage compatible relationships in social groups within companies. This more human-centered, psychology-informed approach, emphasizing the importance of interpersonal relationships and group dynamics, can be viewed as an extension of Taylor’s and Fayol’s focus on the measurement and organization of behavior. It expanded the management paradigm into psychology and informal networks, and supported concepts such as employee engagement. Nevertheless, the goal remained the increase in efficiency and the elimination of variance in performance compared to benchmarks.

We can group (see Table 1) the Taylor, Fayol, and Mayo views of management into a grouping that represents the first phase of the development of the original management paradigm; management for operational control, with the goal of extracting productivity from the workforce.

Phase 2: Elevation of Management to Leadership

As management began to evolve into a profession, practiced as a form of control within a context of hierarchical authority, it was allocated social prestige. The concept of management as leadership emerged (see Table 2).

Mary Parker Follett (1863–1933) was one of the most important early influences in establishing leadership as a management concept. She did not recommend eliminating hierarchy, but saw leadership as a management skill that could be exercised as a lateral process in a traditionally vertically organized company. Importantly, leadership power emanated from authority of expertise in addition to position in a hierarchy. In this context, management power could be less coercive and more facilitating, integrating and collaborative (“power with” rather than “power over”), without losing sight of the purpose of “getting things done” (Peek, Reference Peek2024). In other words, she saw leadership as another form of power to control others. We may think of the concept of leadership in business as a very contemporary idea in the twenty-first century, but Warren Bennis asserted that “Just about everything written today about leadership and organizations comes from Mary Parker Follett’s writings and lectures” (Bennis, Reference Bennis and Graham2003).

Alfred Chandler (1918–2007) viewed management through the lens of organizational strategy and corporate structure. He was a business historian who documented the path to scale – he referred to mass production, mass distribution and mass marketing – and plainly admired the achievement of not only the great industrialists who built the large corporations of the late nineteenth and early twentieth centuries, but equally of the appointed executives who took over from the founding entrepreneurs and administered and managed their burgeoning creations. His book titles included Strategy and Structure and Scale and Scope, and, most tellingly, The Visible Hand: The Managerial Revolution in American Business. Chandler defined management as the complex administrative system required to bring cohesion to industrial scale corporations, via the control that could be exerted through organizational design, including hierarchy, top-down systems, integration achieved through divisionalization and departmentalization, process documentation, and detailed job descriptions. He proposed a managerial revolution (the positivist visible hand replacing Adam Smith’s subjectivist invisible hand) and the consolidation of a managerial class. While Chandler did not write much about “how to manage,” he did a lot to further elevate the profession of management to the highest levels of aspiration. It was a practice of the largest, and therefore best, corporations, to be admired and emulated.

Peter Drucker (1909–2005) elevated the profession of management to an even higher level of vocation and philosophy. He was dubbed a “management guru” who shaped management practices. One of his biographers elevated him to the position of “champion of management as a serious discipline” (Beatty, Reference Beatty1998). He introduced the term “knowledge worker” (Drucker, Reference Drucker1959), highlighting the intellectual capabilities required for management, and designated management as a “liberal art” (Drucker, Reference Drucker2006), integrating perspectives from philosophy, culture, and sociology. He emphasized the ethical responsibilities of management, as well as execution. This was not a departure from control. His concept of management by objectives established accountability and performance measurement for specific, measurable goals set by the authority levels in the firm. He saw control over resource allocation as crucial for achieving strategic objectives. Cultural alignment was an aspect of “soft” control – Drucker’s management cultures were strong in employing norms and shared beliefs to guide employee behavior.

Phase 3: Management by Technocrats

As data and technology became resources to management, the processes and practices of management adopted and integrated them into the scientific method (see Table 3).

W. Edwards Deming (1900–1993) added another dimension to the managerial control spectrum, that of statistical control. Encapsulated in a theory of Total Quality Management (TQM), Deming’s approach was to emphasize a characteristic he called “quality,” defined as consistent production without error on a track of continuous improvement measured by systematic data collection and analysis, which together defined a practice known as quality management. He specifically preferred management by numbers to management by objectives (Deming, Reference Deming1982). Statistical process control became established as a benchmark source for efficiency and productivity assessments.

Herbert Simon (1916–2001) was one of the most influential management scholars. He studied at the University of Chicago, and recalled that, amongst his professional colleagues, “Logical positivism was the dominant, perhaps exclusive religion in this group” (Simon, Reference Simon1996). Simon’s book, Administrative Behavior, published in 1945, became the seminal textbook for teaching business administration, now the focus of the MBA. It proposed a fundamentally scientific approach to business management, whereby management scholars can develop tools and proven techniques for managers to apply to engineer better performance and efficiency. He proposed scientific principles of design so that even innovation could be engineered rather than left to the creative whims of entrepreneurs. Administration was everything for Simon, and his influence remains strong and pervasive throughout the business schools of today, where students learn Simonian administration and the tools, techniques, factors, methods, and processes to implement it. These students are then sent out to replicate these tools and methods in the business firms they join.

Michael Porter (1947–) introduced a greater focus on external market forces extending beyond internal managerial control. Managers should not only aim at controlling internal variables, but also analyze external forces and respond to them, and ideally shape them, in their strategic processes. Competitive strategy and strategic positioning became the new expressions of acute management insight and superior capability. Paralleling Chandler’s use of corporate structure as a design tool for management organizations, Porter used industrial structure as an analytical tool for the establishment of what he called competitive advantage, an ideal of insulation, albeit partial and temporary, from the negative impacts of market forces, including competitive actions. Following Porter, managers could, like William F. Buckley in the political arena, stand athwart history yelling “Stop!” Strategic planning became the iconic vocation of MBA graduates.

Michael Hammer (1948–2008) added process control to the management control portfolio via the methods of business process reengineering, which quickly became identified by the acronym BPR. The core of the method was to identify all the processes at work in a company’s operations, define the current state of these business processes in step-by-step detail, identify issues at that level of detail, and address them through micro-level re-design (or “change management”) tools, which eventually took their own names, such as Lean and Six Sigma. One of the consequences of the reengineering movement was the use of mass layoffs from the workforce to cut costs in inefficient companies, giving this form of management practice a bad name in PR. Nevertheless, BPR and the concept of reengineering remain prominent in the management lexicon, suggesting the imagery of business firms as machines to be tuned and then run at high throughput levels under the control and direction of an engineer cohort.

John P. Kotter (1947–) proposed that leadership was the tool for change management (Kotter, Reference Kotter2012). In this context, management leadership is presented as a process rather than an exceptional attribute or characteristic, and anyone following the eight-step process can claim leadership. These managers establish the vision for change, set direction for action, and organize implementation. “Transformation” was a frequently used term for the results sought, implying great power for the managers who adopted the process.

The Management Paradigm in Practice

Paradigms solidify when they are associated with success. What we can identify today as the negative consequences of scientific management were disguised by the mid twentieth-century success of some iconic firms. The 1950s–1990s provided a unique economic context of industrial expansion and global dominance of American companies, despite any management inefficiencies. The United States had few global competitors immediately after World War II, when Germany and Japan were recovering and China had not yet industrialized. American corporations benefited from low global competition, rapid urbanization, and mass-market consumer demand, and not necessarily from superior management science.

Some firms used scientific management science effectively – for a time. General Electric, under both Reginald Jones and Jack Welch, applied rigorous efficiency-driven restructuring to boost short-term performance, but ultimately over-optimized and struggled in the long run.

GE CEO Jack Welch was lauded by Harvard Business Review as the greatest leader of his era (Fernandez-Araoz, Reference Fernandez-Araoz2020). One of the reasons he was praised was the reign of GE as the number one company in the world for five years, starting in 1993. In the world of management by objectives, the number one objective for CEOs of public companies was the stock price, total market value, and return to shareholders, and Jack Welch met his objectives. One of the tools was “earnings management”: the consistent delivery on quarterly earnings growth targets and dividend payments. Welch assembled GE as a conglomerate through acquisitions, and built a division of GE, GE Capital, into a collection of financial assets (such as insurance companies) that held liquid assets that could be used, by moving and transferring them appropriately, to smooth quarterly earnings and confidently meet the expectations of the financial sector and so maintain stock prices (Hastings, Reference Hastings2024a). This practice was a form of “financial engineering,” one example of the many levers of detailed control that were developed by the twentieth century’s managerial specialists.

Similarly, IBM in its mainframe era benefited from scale efficiencies and appeared to master Porter’s five forces, but only until new technologies undermined its monopolistic market conditions and exposed its rigid structure. Sears was an effective pioneer of structured retail operations but failed to adapt to the introduction of e-commerce.

Eventually, the management science icons toppled. GE suffered from overmanagement, bureaucracy, and a failure to innovate. The company’s decline can be linked to rigid adherence to hierarchical structures and an overemphasis on efficiency metrics, hallmarks of scientific management (Schrager, Reference Schrager2019). The scientific method adopted by Jack Welch favored aggressive cost-cutting and divestitures of businesses that were not number one or number two in their industries. While initially successful, it eventually resulted in under-innovation and failure to respond to market change. The company’s bureaucracy, installed to develop a special expertise in designing and enforcing scientific methods, hindered the company’s adaptiveness and contributed to its downturn.

IBM nearly collapsed in the 1990s due to its slow response to the PC revolution. Inflexibility led to substantial losses. IBM required a cultural change, rather than a scientific one, in order to adopt a more decentralized and customer-focused approach and to eventually recover.

Scientific management worked in predictable, stable environments but collapsed in the face of technological change and competitive disruption. Scientific management appeared to be effective in a special economic era, but the constraints of lowered engagement and motivation, bureaucratic inefficiencies, frustrated creativity, and stifled adaptiveness led to the decline of once-dominant firms.

A Philosophical Problem

Hannah Arendt pondered the threat to humanism of the increasing drive to redesign and control the world through transformative science and technology (Arendt, Reference Arendt1958). For her, the main culprit is an idea – the idea that the world is objective. It’s an alienating idea because it disengages us from reality, and creates an artificial world, stripped of humanistic concerns. With the objective approach, our businesses become objects like any other, reduced to data points to be managed, and they lose their civilizational potential. We engineer and transform them, and they lose their human value. The loss of agency and autonomy that are consequences of managerial control, and the devaluation of human qualities such as spontaneity, creativity, and judgment that is implied, are the inevitable outcomes of what Chandler called the managerial revolution.

But in business management, the mode of thinking we call positivism won the day. Business philosophy became associated with positivist ideas of identifying causality through scientific observation. There was an immense optimism that science would soon solve all business problems and that business technocrats would engineer a new and better world. It was not to be.

Segmented Organizational Structure

The paradigmatic organization is divided into siloed units – departments, functions, regions, or business units – for control and specialization. Each segment operates with defined roles, budgets, and objectives, often competing internally for resources. Segmentation is a structural enabler of control, but significantly influences inefficiency and disconnection by increasing the organizational cost of cross-functional collaboration. Consequences include misaligned priorities and duplicated efforts.

In dynamic markets, silos struggle to integrate knowledge or respond holistically to customer needs, as we see with traditional automotive firms lagging in electric vehicle integration because siloed R&D and marketing functions struggle to align, delaying product innovation.

Organizational initiatives seek to address the silo problem through horizontal collaboration, flexible role descriptions and distributed functionality. But a full shift to a self-organizing network is prevented by the fundamentals of the hierarchical control orientation.

Interactions Orchestrated by Constraints

In a firm that is a complex adaptive system, the interactions must find unity, a coordination pattern that constitutes a coherent systemwide dynamic and a distinctive interactional type. This coherence is realized through constraints – a term that systems scientists use to indicate not restriction or limitation, but channeling, guiding, and facilitating the energy in a system. Constraints can be cultural norms, ethical values, protocols mental models, conceptual frameworks, feedback loops, algorithms, and many more. Constraints can coexist in a variety of forms and dimensions; Alicia Juarrero introduced the idea of a constraint regime (Juarrero, Reference Juarrero2023), a distinctive combination of constraints that can result in the emergence of novel properties. Every firm has a distinctive constraint regime.

Importantly, constraints are not causes, and they are not deterministic. But they do give shape to the possibility space of what can happen, what’s likely to happen, and when it can happen. And they also shape the view of individuals located in that space – what they can see as possibilities. A system’s events play out differently when constraints are different.

Therefore, in the new paradigm, it’s important for a firm to be thoughtful about constraints. They can be classified into three types:

Constitutive Constraints: These define the essence and identity of the organization. They are foundational principles that give the organization its unique character and purpose and shape what it can become. They might include:

• Core Values and Mission: These give contours to the fundamental purpose and ethical foundation of the organization. They are guiding principles for the emergence of a company’s culture, and they influence its strategic direction.

• Organizational Framework: Choosing a flat structure with defined departments and roles over a flat network shapes the interactions within the framework and is constitutive of how the company operates and its interaction capital.

• Brand Identity: A company’s brand is not just a marketing artifact. It carries distinct characteristics including reputation, trust, image, and positioning in the market. These aspects are fundamental to how the company is perceived both internally and externally. These perceptions are important constraints affecting the firm’s possibility space.

Strategic consistency, cultural integrity, and long-term vision stem from constitutive constraints, helping a firm stay true to its purpose while navigating changes and uncertainties.

Governing Constraints: These are the rules, norms, and limitations that stabilize the overall behavior of a system. In a business context, they are the regulatory, financial, and organizational policies that define the boundaries of the system within which a company operates. They maintain stability and ensure compliance. They might include budget limitations or rigid strategic objectives. Governing constraints ensure that a company adheres to legal standards, stays financially viable, and moves in a direction aligned with its long-term goals, but they can be stifling of innovation and adaptability.

Enabling Constraints: These are the facilitators of flexibility, innovation, and adaptation within the system. They can empower individuals and teams to explore new ideas and approaches, adjusting the explore–exploit balance. They can encourage creativity while maintaining coherence with the firm’s overall purpose.

They can include degrees of decentralization, relaxed role descriptions, qualitative rather than quantitative assessments, innovation incubation, experimentation, and relaxation of risk management. Departments and teams can set their own project goals and respond to market changes and the results of experiments rapidly without bureaucratic reporting and approval requirements. Enabling constraints establish a safe environment for exploration, including acceptance of failure and error in the context of eventual success. Under the right enabling constraints, established processes can be modified, and new challenges or opportunities or newly identified customer needs can be addressed with new responses. The culture becomes one of enthusiasm for adaptability and continuous improvement.

The key is to establish a dynamic interplay – a constraint regime – where constitutive constraints provide foundational solidity and clarity of shared purpose, governing constraints provide dynamic stability for adaptive exploitation, and enabling constraints foster innovation.

W. L. Gore: Management System Pioneers from Founding

The W.L. Gore corporation is a good embarkation point for a survey of some the innovators in organization. W.L. Gore was founded in 1958 by Bill and Vieve Gore, and has remained privately held. This is an important influence – the scrutiny of the public stock markets is often stifling for nonmainstream thinking about management and organization. From this position of freedom, W.L. Gore sought to challenge the prevailing paradigm of corporate bureaucracy and hierarchy by embracing a model of management that prioritizes autonomy (i.e., a release from control), trust (a release from command), and decentralization (a relaxation of the centralization of power). Over the decades, the company has become an exemplar of how a commitment to flat structures, small teams, and leadership through influence can foster creativity, employee satisfaction, and sustained innovation.

The Lattice Structure: A Departure from Hierarchy

W.L. Gore’s lattice organizational structure is one of the company’s most significant contributions to management theory. Rather than adhering to a traditional top-down hierarchy where authority flows from the top levels of management, Gore designed its organization to be flat and interconnected. In the lattice system, relationships are based on trust and mutual commitment rather than rigid authority, and communication flows freely across all levels of the organization. There are no fixed titles, no chains of command, and no formal ranks – employees, or “associates,” are empowered to engage directly with one another and pursue projects and initiatives that align with their passions and expertise.

This structure encourages collaboration and autonomy, enabling associates to form fluid teams based on shared goals. Decision-making is decentralized, and authority is earned through influence and expertise rather than positional power. Leaders at Gore are often “chosen” by their peers, rising to positions of influence based on their ability to inspire and lead others rather than through traditional managerial promotion.

Small Teams, Big Innovation

W.L. Gore also pioneered “team science,” with an emphasis on small teams. By keeping teams small and nimble, Gore creates environments where associates can form close bonds, innovate quickly, and adapt to changing conditions. Small teams foster a sense of ownership and accountability, as associates have a direct impact on the projects they work on and can see the tangible results of their efforts.

The company’s commitment to small teams also supports its culture of continuous innovation. With fewer layers of bureaucracy to navigate and a strong emphasis on empowerment, associates are free to experiment, take risks, and develop new ideas. This freedom has led to breakthrough innovations, such as the invention of GORE-TEX, which transformed outdoor apparel and continues to set the standard for high-performance fabrics.

Leadership through Influence

Leadership has proven to be one of the most misbegotten concepts of traditional management science. The concept has been used to confirm and consolidate hierarchies of authority by claiming special attributes of character and charisma for those with power over others. At Gore, so-called leadership is not a position; it is a role that emerges based on an individual’s ability to inspire and influence others in a specific context and based on a specific set of functional information applicable to that context. Associates at Gore do not have formal leadership positions, titles, or direct authority over others; instead, they lead by example, through collaboration, and by guiding teams toward common goals. This approach stands in deliberate contrast to the conventional management model, where authority and power are often expressed through rank and hierarchy.

The emphasis on leadership through influence cultivates a culture of shared responsibility and accountability. Associates are encouraged to take the initiative, make decisions, and drive projects forward, with the understanding that leadership is not confined to a few but can be practiced by anyone within the organization.

A Culture of Trust and Commitment

One of the most remarkable aspects of W.L. Gore’s management philosophy is its deep commitment to fostering a culture of trust. The company’s founders believed that people perform their best when they are trusted to do the right thing and given the freedom to act on their instincts. As a result, associates at Gore enjoy a high degree of autonomy in their work, supported by the belief that they will take responsibility for the outcomes of their actions.

This culture of trust has fostered loyalty and commitment among associates, many of whom spend decades at the company. They go the extra mile for the company. Success in retaining talent is a testament to the strength of a culture of valuing individuals for their contributions rather than their positions in a hierarchy. The lack of bureaucracy – meaning unnecessary layers of management and redundant roles – further enhances the sense of purpose and fulfilment that associates experience, knowing that their work is directly contributing to the company’s success.

Avoidance of Corporate Bloat

The evidence seems to suggest that bureaucracy can creep up on corporations without explicit intent. W.L. Gore refers to this as “corporate bloat.” In line with its philosophy of lean management, W.L. Gore has actively avoided the bureaucratic expansion that often plagues large corporations. By resisting the temptation to add layers of middle management, the company tries to remain agile and responsive to changing market conditions. Associates are empowered to self-organize around opportunities and challenges, without the need for approval from multiple layers of hierarchy.

The lean and flat lattice structure not only keeps operational costs low but also ensures that innovation remains at the heart of the organization. With fewer administrative burdens, associates can focus on what matters most – creating groundbreaking products and solutions that meet the needs of customers worldwide.

Legacy and Impact

W.L. Gore stands as a pioneering example in the post-managerial era of capitalism, demonstrating that a nontraditional approach to management and a decentralized nonhierarchical organizational design can be powerful drivers of innovation, employee satisfaction, and business success. The company’s lattice structure, small teams, and leadership through influence have helped it maintain a culture of creativity and trust, even as it has grown into a global enterprise. Gore’s success challenges the conventional wisdom that large organizations require hierarchies of authority and bureaucracy to function effectively. Instead, Gore’s model demonstrates that autonomy, trust, and empowerment can lead to sustained innovation, agility, and long-term success.

Semco: Management System Innovation through Radical Transformation

W. L. Gore’s founders determined on their pathway of innovation from scratch. Ricardo Semler inherited a family-owned manufacturing business, structured in the traditional hierarchical manner, with rigid rules, and top-down control. Semler approached management model innovation via the pathway of transformation. As with W.L. Gore, Semco’s private ownership structure provided the new CEO with freedom to implement concepts that might meet with disapproval from stock market investors and financial institutions.

Solving the Problem That Traditional Management Created

Ricardo Semler started the journey of transformation from the perspective of a problem-solver:

“I was particularly distressed by the malaise that was all too apparent in our factories. Workers just didn’t seem to care.” (Maddux, 2014).

Observing a Kuhnian anomaly, Semler found workers unmotivated, disaffected, and disengaged. He felt a lifelessness and total lack of enthusiasm. Making matters worse, there were two philosophical camps in the corporation and, in one of them, managers were proponents of classical authoritarian solutions such as rigid controls and long, grueling hours. They felt that a controlling culture was necessary to get people to do their work. Workers were not to be trusted. Semler realized that the autocratic management style was wreaking havoc on the employees and the company.

The Vision to Break from Tradition

Semler had a radically different vision for the company than his predecessors, inspired by his belief in human potential. People must be trusted. Control must be relinquished. Trusting means sharing power and information, encouraging dissent, and celebrating what Semler thought of as workplace democracy.

One of his first actions was to dismantle the traditional hierarchy. He believed that most management structures were not only unnecessary to the success of the business, they also stifled creativity and innovation and so limited the business’ potential. To relieve the bottleneck of concentrating decision-making power at the top, Semler introduced a model where authority and responsibility were pushed down to the workers themselves. Employees were encouraged to take ownership of their roles and empowered to make decisions that would traditionally fall to managers. This flattened structure challenged the prevailing norms of corporate governance and marked a shift in the direction of self-management.

Radical Innovations: Flexibility, Transparency, and Trust

Semler thought his goal of “workplace democracy” could be achieved through employee autonomy. Semco employees were given the power to set their own salaries, a policy that proved remarkably effective at fostering transparency and responsibility. Workers determined their compensation based on market rates, their contributions to the company, and the financial health of the business. Semler trusted that employees would set fair and reasonable salaries, and this trust was repaid with a culture of accountability.

Beyond compensation, Semco offered flexible work hours and workplace autonomy, allowing employees to set their own schedules and decide how and when they would complete their work. This flexibility was rooted in Semler’s belief that employees were fully capable of managing their own time and responsibilities. As long as the work was done, when and where it happened was left to the discretion of the individual. This approach fostered increased job satisfaction, which in turn led to higher productivity and innovation.

A complementary cultural aspect of the model is radical transparency. All company financials are made available to employees, who are encouraged to understand the financial realities of the business and contribute from an informed perspective to decision-making processes. This level of transparency created a deep sense of trust and shared responsibility, which reinforced the democratic ethos of the organization.

Self-Organizing and Collective Responsibility

The most significant of Semler’s innovations was to commit to principles of self-organization by moving in in the direction of what we will later call self-management. He empowered teams to make decisions collectively, without the need for managerial oversight. Employees selected their own leaders, evaluated one another, and were responsible for setting the direction of their work. This approach required a high degree of trust and communication and proved to be highly effective in fostering a sense of psychic ownership and commitment among employees.

One of the departments that were eliminated was Human Resources, reduced from ninety people to two. In its place, a new worker-led hiring system sprang up. Workers started to recruit new members for their own teams and fire those who did not measure up. Employees were encouraged to change teams, assignments, and departments regularly to broaden their experience and make themselves more valuable to the company.

Self-management at Semco was not simply a theoretical concept – it was deeply embedded in the day-to-day operations of the company. Workers took responsibility for their own tasks, but they also had a say in broader company strategies. Employee committees handled critical decisions such as hiring and budgeting, and workers were given a voice in the strategic direction of the company. This approach led to an organizational culture that was agile (before that term was fashionable), adaptive, and highly innovative. With decision-making power spread throughout the organization, Semco was able to respond quickly to changes in the market, new opportunities, and internal challenges.

Success through Trust and Empowerment

Semler was able to point to the company’s results to support his organizational strategy. During Semler’s tenure, Semco grew exponentially, expanding from a traditional manufacturing firm into a diverse company with interests in services, consulting, and technology. The company’s workforce expanded, as did its revenues. More importantly, Semco became a model of a nonhierarchical approach to drive organizational success, creativity, and resilience.

Semco’s success was a direct result of its decentralized, open style, which resulted in employees feeling genuinely invested in the company’s success. Workers at Semco were not just cogs in a machine – they were active participants in the company’s growth and innovation. This sense of ownership fostered loyalty, engagement, and a culture of continuous improvement.

Legacy and Influence

Semco’s management innovations under Ricardo Semler have been shared via many books (including his own), journal articles, and case studies. Semco is a symbol of what is possible when businesses break away from the rigid, hierarchical structures of the past and embrace flexibility, trust, and employee empowerment.

Semler’s legacy endures as a pioneer of post-managerial thinking, proving that organizations can succeed without the traditional command and control structure and methods. He has successfully transferred his concepts to businesses in hospitality, education, and financial services, as well as an NGO and a business association. “The principles I’ve used in education and hotels could only be identical to those used at Semco, because they relate to the manner in which people interact to make an organization move forward” (Maddux, 2024).

Haier: System Change through Destructuring and Entrepreneurship

One of the most direct challenges to the traditional command-and-control hierarchy of managerial layers is the case of Haier, originally a Chinese manufacturer of household appliances and now a multilayered global assembly of end-user experience ecosystems.

The HBS Haier Case Study (#9–318–1040) quotes the CEO, Zhang Ruimin, as saying:

Zhang set out to break structure. His Rendanheyi model is a platform rather than a structure. The first element of his vision is user experience, and he specifically refers to users (the “dan” in Rendanheyi) as distinct from customers. A customer may be viewed in the context of a transaction, whereas a user is seen through the lenses of continuous interaction and participation in the experience design and experience improvement process. Customers are lifelong friends who are close partners of all platform participants.

The second element of the vision is the micro-enterprise, a small and autonomous unit following market rules and, according to Zhang, “satisfying their desires by relying on their own efforts, instead of expecting the company to satisfy them.”

The third element was the employee-turned-entrepreneur. Employees have the autonomy to know who their users are and to create value for them. Haier demonstrates belief in liberating the entrepreneurial talents of individuals as the driving force of company success.

The interaction capital in the Rendanheyi model is focused on user relationships, in that the ecosystem is intended to be interconnected through continuous interaction with user communities. Micro-enterprises engage with users throughout the entire value creation process, from product design, through production and delivery to the in-use experience. Through continuous interaction, micro-enterprises can encourage a population of lifetime users. As an example, one of the Haier micro-enterprises introduced the concept of the ’networked appliance,” connecting its users to hundreds of food suppliers, giving those users an enhanced experience, and itself the opportunity for revenue sharing with the food suppliers. Product development is accelerated with user participation.

Haier provides initial start-up funding to micro-enterprises, as well as other resources (such as R&D services, purchasing, distribution, and the service network). In traditional business lines, Haier is often the largest shareholder of the micro-enterprises. The micro-enterprises can raise funds from outside VCs. Haier approves “user value creation” targets.

Platform owners (there were twenty platforms in five industries in 2018) set goals of market position and strategic pathways for their micro-enterprises, and provide incubation and growth driver services such as the Haier brand umbrella and distribution. They set the percentage of profits that the micro-enterprise owners can retain. Micro-enterprises aim to be the leading player in their industry with high value, high market share, and high profitability. They cultivate their user community in order to develop lifetime relationships and develop new revenue sources through new products and services.

Haier represents a complete repudiation of the tradition of building a structure of layers of employees working in divided functions to achieve objectives set for them by those higher up in the hierarchy. Instead of a structure, Haier aims for an ecosystem of shared knowledge, shared resources, and shared relationships. Instead of vertical layers, Haier aims for a decentralized network of small autonomous teams. Instead of employees, Haier aims to develop entrepreneurs. Instead of a linear management structure of orders passed from the top down, Haier adapts to nonlinear processes in which employee/entrepreneurs respond adaptively to changes in the market. Haier nurtures this entrepreneurship, and aims to empower everyone in the enterprise to function entrepreneurially. Instead of transacting with customers, Haier cultivates ‘zero distance” to customers, meaning that they are an equal partner in innovation, service development and quality control, as well as a lifelong economic subscriber. And instead of paying employees for work, Haier cultivates the idea of pay-by-user – that compensation comes from customer value creation and user satisfaction.

Haier is an enterprise without boundaries. Its ecosystem approach replaces traditional value chains with communities of micro-enterprises that might include both Haier entrepreneurial micro-companies and third parties. All recognize they can create more value for customers working together rather than as competing individual entities. Smart contracts keep them bound together while also enabling bidding for new tasks when the value to end users can be raised to a higher standard.

One of the results of Haier’s approach is the busting of bureaucracy. When there is an inter-enterprise service to be provided, a micro-enterprise comes into being to provide it, and is judged by partner microenterprises on the level of value that is provided. There is never a bureaucratic burden.

Valve: An Emerging Industry Nurtures Organizational Innovation

Organizational innovation has a long and successful track record in the video game industry.

A lot of new economic value has been generated in the video game industry in a short period of time. As evidence, video games surpass the global movie industry and global recorded music industry combined in revenue (Arora, Reference Arora2023). Without a long history of corporate hierarchies and bureaucracy to shed, firms in this rapidly expanding industry embraced the organizational innovations of open source software, including anonymous collaboration among highly distributed self-organized teams, peer review systems, and agile processes.

In addition, the industry created its own laboratory for testing revolutionary organizational theories in virtual economies set in virtual worlds.

Valve is a company in the video game industry that pursued a value-generation logic to take organizational innovation to its logical conclusion: the end of hierarchy. The organizational design vision has been described as “a company that would attract the sort of people capable of doing the initial creative step, leave them free to do creative work and make them want to stay” (McCaffrey, Reference McCaffrey2021).

The design logic chain is as follows:

• Creativity is our core resource – the most important skill in game development.

• Creative employees are key to our capabilities.

• Creative people are most productive when left to express their own creativity in their own way.

• Hierarchy blocks creativity, as do planning and routine.

• How do we design a company to attract and retain the sort of people who are able to take the boldest creative steps?

The answer? Let employees decide what to work on. Let them exercise entrepreneurial judgment. Let them, in effect, do both strategy and implementation. Give them all the decision rights. Let them identify customer preferences – since they know the customer best; let them decide how best to address those preferences; let them decide how to achieve competitive differentiation; let them allocate resources, choose costs, and manage profitability; let them control quality and decide when software is ready to ship.

Employees at Valve work in self-organizing teams, and are free to migrate from team to team, and free to change their roles. There are no fixed job descriptions.

In place of command-and-control, a few simple rules or constraints have emerged for the exercise of governance. F.A. Hayek wrote about norms that emerge in social groups to shape behavior. These are not legislation, that is, written formal restrictions. They are what he called rules, constraints that everyone accepts in the shared commitment to collaboration and the pursuit of the most favorable outcomes.

The most significant of these rules at Valve is the “Rule of Three,” a simple agreement that at least three individuals must agree on the initiation of a new project, or on other major decision points. The emergent standard was that this is just enough to prevent maverick behavior, and a low enough number to facilitate agile action that’s not bureaucratically constrained.

Another rule or constraint goes by the name of Social Proof. This is a broader and looser peer review standard. If the original team wishes to recruit more members, they must persuade others of the value generating potential of the project (in competition with other projects in the firm); successfully doing so constitutes “social proof” of value.

Rules-Based Peer Review Process Replaces Management Structure

Conventional approaches to organizational design that we have reviewed so far often focus on structure. This might be command-and-control hierarchy, or structured networks, or strategic business units or functional departments. Valve abandoned structural thinking and replaced it with flow analysis. How can we attract the most creative people to our venture? How can we encourage the most productive flows of bold creative thinking? How can teams best assemble and collaborate for the most productive output? How can we integrate with the user community in the best way? How can the most value-generative projects attract the best resources?

These are all questions about flow. Economists in the tradition of the Austrian school are distinctive in viewing capital as a flow rather than a structure, and this view holds true for human capital just as much as physical capital. Emergent rules for self-organizing human systems can perform all the managerial functions that were historically left to control structures.

The new organizational insights emerging from Valve were (1) design organizations for flow not structure; (2) design to attract the most entrepreneurial people in the most entrepreneurial roles (self-selection); (3) let them self-organize; (4) let rules and value codes emerge; (5) treat teams as business units; (6) eliminate the boundaries between the firm and customers and other partners.

Unleashing Entrepreneurship within the Corporation

Valve’s organizational innovation institutionalizes entrepreneurship and eschews hierarchical management. There is a particular focus not just on entrepreneurship as creative thinking and generating new business ideas, but on entrepreneurship as taking action. Entrepreneurship is an action-dominant logic. Valve grants employees the right to allocate company resources to their projects, and even to ship new games and features without consulting management or seeking approval.

While the ownership structure of Valve does not provide the employees with a full ownership share, the reward system encourages the entrepreneurial mindset. There is a peer review system in which every employee ranks every other employee from the projects in which they are involved together. The review covers skill, productivity, contribution to the product, and contribution to the team. Salaries and bonuses are adjusted by rank on the company-wide peer-review scale.

While Valve’s revenue and profit information is not publicly available, it’s reported to generate over $6 billion in revenues at high margin rates. The company’s design for unleashing entrepreneurship is successful.

Buurtzorg: Self-Governing Nursing Teams

One of the most visible and most celebrated challenges to the traditional management model is Buurtzorg, a Dutch home healthcare company. It represents a pure form of what Haier refers to as zero distance to the customer. Customers, in Buurtzorg’s case, are individuals who are at-home patients, often with complex conditions and multiple medical needs. Some of these needs require highly trained and certified nurses, and some can be provided by lesser trained personnel. The standard of care is often for multiple service providers to visit the home at different times to provide the different services, which can result in a loss of continuity of care and a disruption for the patient. Buurtzorg starts from the innovative proposition that one trained nurse can provide all the services for a single patient.

The operating unit is the self-governing nurse team. A recent report estimated that the Buurtzorg organization had around 15,000 nurses in teams of 10 – 12, with each team focused on a small neighborhood. Individuals in the team coordinate their own work schedules and loads, and teams confer with each other on experience sharing and emerging new knowledge. Teams exhibit minimal use of standard processes, allowing responsiveness to patients’ unique situations in a context of holistic care.

There is no middle management layer. There is an IT system for online scheduling and documentation of nursing assessments, services, and billing. Coaches (not managers) are available to help problem solve for each team. A small back office handles administration. The mantra is: “How do you manage professionals? You don’t!” (Gray & Sarnak, Reference Gray and Sarnak2015).

Buurtzorg’s performance has been highly audited by both government and private analysts. Patient-reported experiences are among the best of all home care agencies and its total costs are relatively low, even though its personnel costs (payments to nurses) are higher than average for the industry. Nurses report joy in their work, and turnover and burnout are relatively low (KPMG, 2015). Buurtzorg has experienced significant organic growth since its founding in 2006, driven by the effectiveness of its model of self-management and high-quality patient care and its positive reputation among patients and healthcare professionals. Buurtzorg continues to attract nurses and clients alike. Buurtzorg is expanding its influence in healthcare through consulting and helping other organizations to adopt similar principles.

FAVI and the Liberated Corporation

Terminology, or what some complex adaptive systems thinkers call languaging (i.e., an ongoing negotiating of meaning), is a difficult challenge for advocates of new organizational paradigms, because the old language is intransigent and consensus new language has not yet emerged. One initiative is to identify the adopters of the kind of radical de-management of the firm that we have been highlighting in this section as liberated firms (Gilbert, Teglborg, & Raulet-Croset, Reference Gilbert, Teglborg and Raulet-Croset2018). A liberated firm, or freedom-form firm, is “a company in which employees have complete freedom and responsibility to take the actions that they decide are best” (Getz, Reference Getz2009).

Favi is a successful, growing French brass foundry. Its proprietary know-how in casting and machining of copper alloys was the basis for establishing its role as a supplier of automobile parts to car assembly and manufacturing plants in Europe and China. Favi is often cited as an exemplar of the liberated firm or F-form model. Favi actively eliminated hierarchical management levels and hierarchical control. The organizational unit is the self-managing team – called a mini-factory or mini-foundry in Favi’s own terminology – in a leaderless environment where individuals take responsibilities for all their actions, from those that might be categorized as planning and budgeting (although there are no formal plans or budgets, and no planning department and no purchasing department) to design, manufacturing, delivery and customer service. All employees share four values: good sense, good faith (honesty), good humor and goodwill (Gilbert, Raulet-Croset, & Teglborg, Reference Gilbert, Raulet-Croset, Teglborg and von Kimakowitz2021).

Teams consist of 15–35 people, and they operate independently; each has a customer, and individuals in teams act with complete freedom and responsibility to establish and maintain relationships, solve problems and keep commitments including on-time delivery and product excellence. Operators’ autonomy and freedom are the cornerstone of the Favi system, to ensure that the worker makes real-time decisions to deliver the best quality to the customer on time: “the right part at the right time in the right place at the right price.” Mini-factory teams know they don’t work for a boss but for a customer.

The team can elect a “leader” if they choose to do so, but the leader remains an operative and returns to a production station. A 2009 paper stated that Favi had not missed a deadline in two decades and delivered millions of units per year without a single quality reject. The company successfully grows share in its markets, and achieves high margins and free cash flow.

Hierarchical control is replaced by empowerment and trust at Favi. Individual employees are trusted to set their own schedules, control quality and introduce innovation, meet customer needs and achieve the firm’s mission. There are no job descriptions, no HR department, and virtually no rules or procedures other than those the teams agree upon among themselves. The shared mission is focused on customer satisfaction: “To be loved by all our clients.” Individual employees identify what’s right. Everybody is invited to contribute to the whole.

In a 2023 survey, the Scandinavian Journal of Management found that the term “liberated firm” was indicative of a movement toward the nonhierarchical self-management model. Under the umbrella of liberation, they included management models that have been called sociocracy, holocracy, spaghetti organizations, management 3.0, and teal organizations (El khoury, Jaouen, & Sammut, 2023). Empowerment, transparency, and autonomy for small teams are shared attributes of all these models, which are operated by hundreds of companies (El khoury, Jaouen, & Sammut, 2023). Oticon, SOL, IDEO, Quad Graphics, and Helios Technologies are among those often highlighted, in addition to Favi.

Summary: The Pioneers

The clear trend from W.L. Gore to the liberated corporation is the pioneering abandonment of the traditional methods and structures of command-and-control and the exploration of the new frontier of autonomy, freedom, cohesion, and flow. We will see that another independent vector, the evolution of technology, supports and amplifies the trend and opens up new possibilities.

The End of Planning, Budgeting, and Structure

Management is often an exercise in comparative statics. A starting point is identified, such as an annual plan. The metrics of this static point are defined in a snapshot of a current state, with all the line items and numbers of sales units and revenues, cost items, and derivative calculations of ratios and margins. The resources required to maintain and grow the state are identified, inventoried, and ordered. Departments are given their starting marching orders. A new, projected future static state is established in the form of the end-of-year targets. The required or desired progress is mapped proportionately from the opening state to the closing state, resulting in monthly budgets and targets and tracking.

Similarly, knowledge can become static, when it is tied up in departmental silos and not easily or quickly shared. Decision making can become a series of static points as proposals for decisions are handed up the hierarchy to higher and higher authority levels, where they are logged, shared horizontally, debated, and eventually, when resolved, handed back down layer by layer.

Budgeting and planning at The Morning Star Company are fluid and dynamic, and never static. There is no fixed budget. It’s replaced by a dynamic cash flow model. The company has history of its revenues and costs, and they are expressed on a columnar spreadsheet. Interpolation of business history enables the projection of anticipated cash in and anticipated cash out by categories, and this cash flow is kept dynamically. There are none of the traditional variance analyses of why there’s an expenditure in one category that’s “over budget” or another that’s “under budget.” The dynamic cash flow model enables simulations of increases or decreases in costs or price or demand. Cash flow is a simulation tool rather than a control tool. Rigor is achieved by detailed monthly tracking over all the company’s history from its founding, and projecting in detail up to five years, following every possible “what if” scenario.

Every month as the actuals come in they replace the projections and illuminate both the current position and future influences – for example, which costs got pushed into the future, which costs got eliminated, which new revenue streams popped up. Budgeting is redundant with this form of dynamic cash modeling.

Cash flow modeling is the apposite measurement for value creation. In the value cycle, customers express their value preferences in market exchanges when they pay cash to receive the benefits they desire from the supplier firm’s value proposition. Cash is the mechanism of converting experience value into exchange value. Cash flow is the reward from the market for a value proposition that is well-designed, well-presented, and well-executed. Profit follows when the entrepreneurial firm chooses the right cost structure.

The unobstructed web of commitments created by CLOUs and the principle of no force releases even more flows. Knowledge flows freely from those who create it and process it to those who can use and it apply it. Decision-making flows freely because decisions can be based on the free-flowing knowledge by those with pre-negotiated and fully agreed decision rights. Bureaucracy, as we have noted, is replaced by commitments. Self-management eliminates the wastes and tensions and diversions of traditional management.

Summary

Self-management now has a 55-year track record at The Morning Star Company. The maturing of the digital age has integrated self-management into a new set of advanced organizational experiments.

1. Branding and Marketing

Branding and marketing become the primary functions of the customer-led company simply because the first requirement is to accurately identify, deeply understand, listen to, reach, message, and persuade customers of the firm’s value proposition. Without branding and marketing, there’s no flow of information (and no flow of cash since marketing induces willingness to pay). Branding and marketing incorporate the firm’s value proposition into customers’ daily thought culture, aligning with and complementing their mindset and their perspectives, and shaping the firm’s hyper-personalization capability. This marketing capacity is becoming hyper-automated since it is fueled by digital information flow, instantaneously processed for insights and driving the rapid reaction to generate the high-response relationship the customer seeks and, ultimately, the capacity to anticipate customer desires.

Branding and marketing are feedback-looped activities and the feedback loop lends itself to full automation without marketing management. AI can identify a wide range of human responses to marketing messages, from clicks on websites to pupil dilation when viewing video, and utilize these as triggers for the next round of adaptive and adjusted communications. Not much management intervention is required.

2. On-Demand Response Replaces Sales and Commerce

Conventional commerce, including e-commerce, will disappear as a management discipline as digital assistants become the power behind purchasing and daily life choices. They become dominant sales and commerce engines, to the digitally enabled firm’s advantage in the case where they interact well with customers and integrate into customers’ own systems and lifestyles. The result will be valued on-demand buying and delivery experiences and frictionless repeat purchases.

3. Order Fulfillment and Operations.

Real-time operational data and analytics will enable risk and error avoidance, predictive planning, and the scalable infrastructure required for frictionless operation. Fulfillment and operations provide the means to keep promises and meet expectations, two vitally important commitments in the consumer-led relationship. Amazon, for example, refers to its expertise in supply chain automation, balancing the demand for goods with the ability of manufacturers to produce them. Hundreds of millions of dollars in purchase decisions are made every week by machine intelligence in an ecosystem of automated decision-making. Machine intelligence is able to predict what human needs are going to be, make a delivery promise, and then intelligently adjust real-time variables to meet those needs with the best, fastest, lowest cost delivery experience for the customer. The machine intelligence is capable of “second-guessing” itself in reacting to circumstances – such as weather-affected delays – as they unfold. In the past, management would be appropriate for planning this process, but machine intelligence is superior in rapidly adapting it to new data.

4. Customer Experience Design

The customer’s experience-in-use is the critical key to value creation, and the digitally enabled firm will be integrated into this experience, thereby opening up the opportunity for continuous addition of new and supplemental value and ever-strengthening sticky relationships. Continuing engagement after a purchase and after a usage experience is important. Some brands have created digital online spaces and experiences where customers can participate and engage, such as Gucci’s Vault on Discord (Roy, Reference Roy2023). Even when they are not buying or consuming, customers can be digitally engaged with their brands, without a management-directed active engagement process.

The critical capacity is to be able to design the customer experience. This requires a highly evolved empathy for the customer, not just in the context of their usage of the product or service, but across their entire life system.

5. Service Delivery Management

Process automation ensures delivery excellence and consistency, and customer transparency generates confidence and trust across all channels. Digital integration enables continuous improvement of processes whenever feedback indicates an opportunity. Digitally enabled firms exhibit excellent governance of the service experience. As digital service provision gets better and better, it will become a subject of monitoring but not management.

Dynamic Coherence

Whereas the traditional managerial structure aims at stability and persistence, the new context of business in the age of informational abundance is adaptability to a rapidly changing external environment of new technologies, new markets, and new customer preferences. Dynamic cohesion is a term to represent an organization’s ability to remain in continuous motion, constantly adapting and evolving in response to internal and external stimuli. Dynamic cohesion ensures that organizations do not remain static or rigid but instead can pivot, evolve, and grow as market changes, customer needs, and technologies shift.

The concept of cohesion is essential to maintaining the dynamism needed for success in the twenty-first century because it governs an organization’s capacity for change – not just reactive but evolving. Dynamically coherent organizations are designed to anticipate change, and maintain forward direction whatever the buffetings of the environment; they “hang together” in a unique way.

Dynamic design borrows significantly from biology. Just as a biological system adapts and evolves to survive in fluctuating conditions, a dynamically coherent organization constantly adjusts to new realities. Organizational evolution can embrace innovating new products or services, reshaping internal processes, or adopting cutting-edge technologies, with a combination of foresight and experimentation, utilizing real-time data and feedback loops rather than simply reacting to shifts in the marketplace. Innovation, creativity, and resilience are not only possible but expected. This approach enables organizations to stay competitive, consistently evolving, and maintaining long-term success despite external challenges and disruptions.

Netflix’s content recommendation algorithm provides an example of organizational dynamics in action. It provides an adaptive intelligence system that continuously absorbs customer behavior data and refines Netflix’s engagement strategies in real time. Rather than relying on static categories or pre-set preferences, the algorithm interprets each viewer’s evolving interactions – what they watch, pause, skip, or rewatch – to predict and surface content that aligns with their shifting interests. This responsiveness mirrors the agility of a business that thrives on fluidity, rapidly recalibrating its communications to sustain engagement. By dynamically reshaping the customer experience at speed, Netflix demonstrates a core principle of dynamic coherence: a company’s ability to learn, adapt, and respond in the moment rather than adhering to rigid programming or top-down planning.

Founder’s Intent

All firms originate from founder’s intent. This intent provides the birthing energy and imparts growth momentum. Vision and mission are wrapped in founder’s intent. There’s an emotional drive and commitment to succeed and the hardened realism of capital at risk, which guarantees that decisions will be rapid and precise in response to market data. The entrepreneurial ethic of serving others to improve their lives reaches its highest development in founders. There is pragmatic management of costs to provide service efficiently and profitably – no fluff. The colleagues and followers of the founder are steeped in the same vision and mission and totally united in their joint valuation creation efforts.

Even after founders have departed as a result of retirement or exit, firms in entrepreneurial mode are able to maintain founder’s intent. It’s a critical continuity to preserve and sustain the unique market relevance of the firm. The next generation of the firm’s leaders and managers can recite the original mission with the same urgency and hunger as the original founders. There is no loss of veracity or authenticity.

Airbnb CEO Brian Chesky expands the concept of founder’s intent into a system of management he calls founder mode (Graham, Reference Graham2024). According to Chesky, an experienced and successful CEO, the conventional wisdom about how to run larger companies – which he calls manager mode – is mistaken. Founder mode carries the influence of founder’s intent all the way to the details of implementation. In fact, Chesky advises that CEOs “live in the details” (Chesky, Gordon, Reference Gordon2025). Chesky added by way of advice to CEOs: stay small, stay flat, stay functional, have as few layers as possible, hire your own people, review all work, lean into a crisis, rethink everything. Founder mode – also called venture mode – is the opposite of management mode. CEOs should spend their time on design, not executive function, and Chesky provides a perspective on a completely different way of managing.

Value Flow

The foundation for all entrepreneurial firms is their concept of value. The key insight of value flow is that revenue follows as a consequence of value creation, and the firm can then establish a cost structure to deliver customer value at a profit, which is necessary in order to sustain the business. There is no “cost-cutting.” Cost is a strategic choice to support value creation.

The value mindset – to create customer value as a first priority with the confidence that revenue and profits will follow – is foundational for the entrepreneurial mode. It is not captured in strategy or planning or business administration. It is captured in empathy.

In entrepreneurial mode, firms internalize the mindset that customers draw value from the firm to themselves. Entrepreneurs humbly submit to the decisions of the consumer.

The Entrepreneurial Ethic

The value mindset and the empathic approach to customers combine to produce a distinct entrepreneurial ethic. The reason for being in business in the first place is to make customers feel better about their own circumstances. Businesses can do this if they have a good understanding why customers will feel better and empathizing with their motivation. Those two characteristics – understanding and empathizing – are the foundations of the business ethic. There is no room for exploitation or insincerity or over-promising or under-delivery. The service ethic is the entrepreneurial business driver. The service is always an offering, or what is sometimes called a value proposition. The decision to accept it is always with the customer, and the evaluation of the experience after the offer is accepted is also entirely in the customer’s domain. The entrepreneurial mode is characterized by humility. It’s a process of learning from customers and markets rather than one of setting strategy and making plans.

The entrepreneurial ethic can change attitudes to business at multiple levels. The teams within the firm can take inspiration and meaning from the work of improving customers’ lives. Business partners can be motivated by participating in the customer value pie and earning their piece. And outside observers, especially young people who sometimes question the ethics of business and corporations, can be persuaded to rethink their negativity. Service to others as the purpose of business activity is an elevating idea.

Differentiation through Fitting In

In the old management paradigm, differentiation is viewed as a strategic weapon for advantage in beating competition. But with the service ethic as their standard, entrepreneurially minded businesses seek to fit in rather than stand out, by finding the part of the ecosystem where they can create superior value in customers’ eyes. This differentiation is based on two complementary components of entrepreneurship. The first is knowing and understanding a specific group of customers really well, and better than any other firm. Knowledge and understanding go deeper than demographics and survey research, or purchase records and response to email campaigns and digital marketing metrics. Entrepreneurial mode relies on understanding customers’ lives. The relationship with customers is a whole-life relationship. Life is a system with multiple interconnecting channels and strands of behaviors and interactions and cross-dependencies. This is as true of the life of a household as it is of the life of an office or the life of a factory. Entrepreneur mode maps out the complete system.

The second component is to creatively contribute something new to make the system work even better without disrupting it. Improving customers’ lives includes making their life systems work better. This is systems thinking at a highly refined level – thinking of the future system and how it will evolve. Entrepreneurial mode embraces an evolving purpose of continuously enhancing already complex systems. When a customer can discern that a particular firm has the improvement of their system in mind as its purpose, and has the unmatched idiosyncratic know-how and understanding to bring about that purpose, then high differentiation results.

Qualitative, Not Quantitative

Business thinking and business education are dominated by quantification. To “make the numbers” is the highest accolade for management. Everything must be measured, and what gets measured gets done. Both financialization and digitization have strongly influenced this mindset. Financialization imposes quantitative targets from third-party analysts: quarterly earnings, returns on capital, operating ratios, subscriber growth targets, profit margins, free cash flow targets, and many, many more. These metrics are increasingly shortsighted, as metric horizons shrink from quarterly to monthly to weekly to daily.

The obsession with quantification is related to the increasing dominance of left-brain thinking in society highlighted by Dr. Iain McGilchrist (McGilchrist, The Matter With Things: Our brains, Our Delusions, and the Unmaking of the World, Reference McGilchrist2021). It is the analytical, reductionist, and detail-focused preferences of the brain’s left-hemisphere that results in the focus on utility and measurement of explicit phenomena, suppressing intuitive thought and underweighting qualitative factors like trust, intuition, and narrative.

Digitization has made the obsession with numbers even more intense, since many more business activities and results are measurable: page views, click-throughs, conversion ratios, lifetime customer value, cost of customer acquisition, advertising performance by channel, platform and individual website, by hour, minute, and second. Digital marketing has been especially destructive of the emotional connection between companies, their brands, and their consumers. How much love is the customer feeling? It’s not deemed relevant by today’s marketers since they can place a numerical value on the number of clicks.

In entrepreneurial mode, the fixation with numbers, while never completely relinquished, is tempered by a deeper understanding of the role of qualitative measures such as customer insights, emotional engagement, levels of empathy, personal values, social ties, perceptions, preferences, and expectations. Qualities that can’t be measured are the ones that are most important to building strong customer relationships, engaging and enthusing employees, and forging strong business partnerships. Entrepreneurial businesses are at their best when they demonstrate a shared confidence in the application of qualitative measures in navigating toward the generation of subjective value.

Discovering cohesion includes rebalancing qualitative insights and the quantitative resources of data and metrics.

Networks, Not Hierarchies

Perhaps the greatest impediment for firms to creatively and adaptively navigate markets is the hierarchical structure of authority in traditional management models. Every idea and action must be cleared by the level above. The result is slowness and delay, loss of customer and market insights, and dampened enthusiasm for initiative-taking.

Dynamic cohesion is an outcome of networks, not hierarchies. Networks can put every role on the same level, to a great extent, and can maximize the information flow from the customer and the market, and between nodes. Entrepreneurial mode networks span the firm horizontally without divisional or departmental or functional demarcations, and vertically insofar as there are any levels at all. The network is the organizational structure of entrepreneurial firms, without boxes on org charts, differentiated titles, or power authority. Flow of knowledge and value is the driver of decision-making rather than the power or authority of position.

Action over Strategy

Strategy has long been one of the most prized elements of intellectual property in management science, and a business school with a reputation for excellence in the field of strategy gathers disproportionate prestige. But strategy is not so important in entrepreneurial mode, for the simple reason that strategy is an attempt to predict and control, or at least influence the future. The entrepreneurial mindset embraces the truth that the future is unpredictable, the result of billions and trillions of micro-interactions between individuals, firms, markets, and institutions that can’t be monitored, let alone controlled.

The entrepreneurial mode prioritizes action over strategy. Entrepreneurship is a process of exploration and discovery. Exploration can be guided by purpose – that is, for these specific customers, to enhance this specific benefit area – but is primarily experimental. Try this, try that. Tech companies often use the term A/B test, where A and B are alternative actions to achieve the benefit result, and their respective performances are experimentally compared so that a decision can be made regarding which action to take. There is no preference or judgment in favor of one versus the other. Strategy is replaced by A/B testing, creating new knowledge rather than trying to centralize what is already known.

The feedback loop is integral to the action paradigm. Action is in the market, with the customer’s approval and selection in mind. The feedback loop is the customer’s communication of their evaluation of an experience. It can be transmitted through repeat purchase and loyalty, or through choosing a competitive offering next time around. It can be comments or ratings or word of mouth. It can come in the form of a strengthening or weakening perception or brand image, or increased or decreased attention to advertising. The action-minded entrepreneurial firm is more comfortable with action data, actual behaviors regarding purchase and usage or even clicks, rather than opinions expressed in surveys. The empathic entrepreneurial mind can deduce attitudes from behavior; casually expressed opinions are less reliable.

Bureaucracy Busting

Bureaucracy is the enemy of entrepreneurial value creation. Bureaucracy exists in business firms for two reasons. First to standardize practices and processes; and second, to enable executive and managerial control over the actions of subordinate roles in the firm. Entrepreneurial mode rejects both reasons.

Standardization, while potentially a pathway to efficiency, represses creativity and innovation. Efficiency is a benefit to the firm in the form of greater output for the same or less input, but not necessarily for the customer. The entrepreneurial employee who is closest to the customer may spot some nonstandard opportunity to adjust a service for better fit with the customer system, yet be prevented from implementing it as a violation of a bureaucratic standard. Entrepreneurial mode prefers adaptiveness and responsiveness, without first seeking permission.

The bureaucracy of control is induced by the existence of hierarchical layers. Top executives and “chiefs” decide on policies, and communicate them to senior, intermediate, and junior managers, so that they eventually reach the lower levels or front lines as instructions to follow. This requires not only written communications in the form of handbooks and policy manuals but also digital administration in the form of templates and data fields to fill out. And, most of all, it requires meetings. Many executive and managerial days are spent in back-to-back meetings. Meetings are the primary weapon of the bureaucratic forces. Meetings take place to selectively filter, package, and repackage information so that its transmission can be coordinated across departments and divisions and functions, and vertically between levels.

Entrepreneurial mode obviates the need for bureaucracy and its meetings by eliminating layers and organizing functions as horizontal fields rather than divisionalized silos. Layers can be replaced by self-managing teams pursuing purpose-directed goals with coordinated team actions. Information is processed at the team level, and meetings are fewer in number and kept short (such as the daily “standup” meeting of agile software teams, so named because sitting down would be characteristic of an unnecessarily long meeting).

Previously siloed functions can be reframed as shared tasks with a singular purpose, as captured, for example, in the expression “everyone does marketing.” This means that the goal of marketing, customer satisfaction, is one that everyone in the firm shares and for which they accept responsibility, and the function of marketing is the integration of all those individual marketing acts that take place all over the company into a unified relationship that can be encapsulated as a trusting relationship or, more simply, a brand. Meetings don’t accomplish this integration; aligned actions do.

Entrepreneurial mode avoids bureaucracy and meetings whenever possible. Bureaucracy is defined as action and associated allocated time where the primary purpose is not value creation for the customer but internal coordination. Actions with a low customer value score are abandoned or reduced to a minimum.

Individualism and Autonomy

The entrepreneurial tradition is born of individual freedom. Popular literature often portrays “the entrepreneur” as the brave and creative loner, fighting for market acceptance of his or her brilliantly innovative but not-yet-fully-appreciated new product. There is a business role for individual creativity of course, but it is more important for the growth and progress of the economy that whole team and business units and firms and corporations are entrepreneurial.

The entrepreneurial mode is the intentional pursuit of new economic value. This definition pulls together multiple interdependent concepts. Intentionality is the energizing long-term disposition to create value. There may be twists and turns along the way, surges of growth and periods of setbacks, learning through error correction and negative feedback, but through it all, the intention remains firm. Pursuit confirms that value creation is a process, both dynamic and time consuming, and requiring the acceptance of uncertainty, because a pursuit is not guaranteed to capture the prize. Entrepreneurship proceeds in spite of uncertainty in the confidence that adaptive creativity will eventually lead to a good outcome. New economic value refers to innovation and the improvement in customer lives through the innovation of new goods and services that customers deem useful and valuable. All of these are inherent in entrepreneurial mode, and the mode can be adopted at any organizational level.

Yet still, the ultimate source of entrepreneurial energy is the free minded and creatively resourceful individual. Entrepreneurial mode is defined by action, and all actions are ultimately individual actions. Whether working in teams or units, or advancing coordinated projects, or contributing to group goals by working on shared tasks, the autonomy and freedom of the individual is always critical. Individuals are the source of ideas, and individuals in collaboration improve total productivity.

Generative Business Models

A typical result from these entrepreneurial mode principles is a systematic value creation business model designed to produce and sustain continuous innovation, growth, or value over time, often by leveraging the network effects and feedback loops inherent in the digital economy. These models are discovered more than designed.

There are a few key aspects of generative business models that entrepreneurial mode highlights:

User-driven Value Creation: Since entrepreneurial mode focuses tightly on the end user, and specifically on understanding their most urgent needs and wants, entrepreneurs structure business models in such a way that users, customers, or participants contribute to generating new value. They do this by interacting with the business platform, especially to get things done. This way, users purposefully share data with the business, from which entrepreneurial mode deduction draws insights and recognizes patterns. Entrepreneurial mode emphasizes marketplaces and ecosystems where user participation drives further engagement and accelerates and multiplies value creation.

Network Effects: Entrepreneurial mode is especially attuned to the power of networks since creative entrepreneurs seek to combine and recombine assets and resources that they don’t necessarily own or command. As they engage more users with their expanding service network, its value increases, leading to exponential growth. Generative models are often built to scale rapidly as network effects amplify their impact, as seen in platforms like Airbnb or Uber, both started by under-resourced entrepreneurs aiming to assemble a network of similarly under-resourced collaborators to create value together.

AI and Automation: Entrepreneurial mode eagerly seeks ways to increase capacity without adding fixed assets, and AI and automation are a perfect fit. More and more AI tools are emerging for entrepreneurs to use and explore, resulting in new outputs, services, or innovations with minimal additional human input.

Open-ended Innovation: Entrepreneurs love models that are not limited to a single product or service offering but are designed to enable ongoing innovation. They prefer unbounded opportunity spaces with the chance to explore without necessarily having a fixed destination in mind. They are not afraid of experimentation, comfortable in the knowledge that markets will select those experiments that work for them and meet their needs, sending the feedback to the entrepreneur about where to expand their efforts and which dead-end paths to abandon.

Identify and Monitor the Ecosystem

A firm is a contributor to a bigger ecosystem, and, reciprocally, the ecosystem is the location for both unmet customer needs and new technological developments. A firm in free-flowing cohesion mode will identify the relevant ecosystem precisely and monitor the trends and changes that open up new opportunities in the form of a potential future.

Identification of the ecosystem is facilitated by empathy, because the ecosystem must be viewed from the customer’s point of view. To contribute to the automobile transportation ecosystem, a firm views it through the customer’s eyes. The relevant ecosystem is family life. A family may draw from this ecosystem for educational purposes (driving the kids to school), for nutrition (driving to the grocery store), for earning a living (driving to work or to a customer’s location), and for recreation (driving to the beach). Each of these subjectively valued purposes is facilitated by different attributes: space, comfort, reliability, carrying capacity, safety. In-use characteristics are also ecosystem related: ease of accessing fuel, efficient use of fuel, maintenance costs, onboard technology for everything from entertainment to navigation software to performance monitoring, and outboard technology like Apple Car Play and external cameras and tires. The user’s ecosystem includes many interconnecting relationships that may be hard to uncover and understand. Assembling a guidebook to the ecosystem through knowledge creation and knowledge flow facilitates the creation of future value by illuminating new areas to fit in and contribute.

Within the ecosystem, many players are pursuing their own opportunities, and their activities can modify the ecosystem. Expect continuous change and monitor it.

Configuring the Subsystem to Interact

Ecosystems accept and welcome subsystems that are configured to fit in and contribute new or additional value. The automobile ecosystem embraced digital navigation tools like Google Maps because users were already engaged in navigation, and GPS systems made navigation easier, especially when fully integrated into the driving cockpit and the driving experience. Android Auto is Google’s way of integrating the entire phone interface with the automobile experience, an example of hyper-personalization via fitting the subsystem into the larger ecosystem to facilitate new value.

As a B2B service, Android Auto also must fit in to the business system of supplier relationships and provide sales and business development interfaces where the knowledge flow includes an intimate understanding of the automobile manufacturers’ needs.

In general, the firm is a value subsystem that can grow and succeed when it is optimally configured to contribute to a larger ecosystem. The process of configuration to fit in is generally thought of as design – the shape and structure and look and feel and experience of good fit.

Identifying Flows

As has been emphasized, the primary value-creation flow is knowledge. There is a wide range of knowledge flow and a high volume. The most useful knowledge for value creation is the knowledge that comes from the customer, whether it is quantitative behavioral data or qualitative data about preferences and opinions and their subjective evaluation of experiences. Business model designers can increase the flow of customer is via direct connection. In this case, flow is a business model. Businesses like Handu and the amazon.com online retail site have established just such a direct connection, so that knowledge flow (especially buying or not buying, but also reviews, preferred methods of payment, choice of delivery options, general trends and pattern changes in buyer preferences and behaviors over time) is rapidly channeled through networks at high volume to analysts (whether machine learning or artificial intelligence or human) who can transform it into new value propositions that flow back to customers and partners.

Other knowledge flows include knowledge of emerging new technologies, knowledge about the know-how and skills of the employee base (and enhancing that know-how through knowledge sharing such as training), and institutional knowledge that might range from regulations to the best schools for recruiting graduates.

Degrees of Freedom

Once the system and its flows are defined, the freeing and facilitating process begins with adding one degree of freedom at a time. Degrees of freedom are features that can be changed freely. The freeing process is to study how the changes to one feature facilitate an increase in the flows that are identified as most important in the system. Then the process frees a second feature and studies the effects, and then a third and so on. Freeing and facilitating is a dynamic approach that may never end. Those individuals who were formerly managers can take on new roles with this function, exploring different configurations before the optimum level of degrees of freedom is established.

Harmony through Alignment and Engagement

The degrees of freedom in the system require internal alignment, and management can be replaced by the internal development of mental models to replace direction and control with harmonization. The goal is an unburdened harmony both of the firm interacting with its external environment (markets, customers, suppliers) and harmony within the firm between producer teams.

Teams harmonized with a shared entrepreneurial intent develop a self-organized capacity to act as a network of people, things and narrative (shared meaning). They are characterized by fluidity of interaction and exchange. Individuals on a team are interdependent, and multiple teams can be interdependent with each other in the team of teams. Interdependency can cross boundaries (e.g., the marketing team might embrace both finance and operations) and between levels (e.g., combining planning and execution) because it is the quality of interactions that matter, not the structural arrangement of resources.

Individual Flow

In addition to the system flow achieved as result of removing barriers within the firm’s business activities, adding degrees of freedom can be the catalyst for individual flow – Mihalyi Csikszentmihalyi’s concept of a state of deep focus and immersion in an activity, where individuals experience a high degree of satisfaction, creativity, and productivity. Applied in business, flow can amplify autonomy, meaning, and commitment by encouraging employees to freely engage in challenging, yet achievable, tasks that align with their skills and interests. When teams experience flow, they are fully absorbed in their work, leading to heightened innovation and a stronger connection to business goals. It fosters intrinsic motivation, making work more fulfilling and purpose-driven. Csikszentmihalyi himself made the link between flow and “good business” (Csikszentmihalyi, Reference Csikszentmihalyi2003). Former managers can become flow catalysts.

1 Ecosystemic Orientation

Organizations view themselves as nodes within dynamic ecosystems, cocreating value with customers, partners, communities, and even competitors. Rather than competing for market share in fixed industries, they foster interdependent networks that amplify collective impact and resilience. Purpose changes from dominating a market to enabling a thriving ecosystem, as Tesla does in electric vehicles and power systems.

2 Emergent Strategy and Sensemaking

Strategic planning is replaced by iterative learning through experimentation, feedback, and collective sensemaking. Organizations navigate uncertainty by testing hypotheses, learning from outcomes, and adapting in real time, guided by a shared purpose rather than fixed plans. Rigid, top-down planning is an anomaly, replaced by the complex systems theory’s full embrace of complexity and uncertainty.

3 Distributed Agency and Fluid Roles

Authority and responsibility are distributed across self-organizing teams, with roles defined by context, skills, and needs rather than fixed titles or hierarchies. Employees shift fluidly between tasks, projects, and teams, enabled by trust and transparent information flows. This characteristic dismantles the old paradigm’s centralized hierarchy and static roles, addressing anomalies like decision bottlenecks and suppressed innovation. It requires cultural shifts toward trust and accountability.

4 Value Cocreation with Customers

Customers are active participants in the value creation process, contributing ideas, feedback, and even content to shape products and services. Organizations design for cocreation, using platforms, communities, and real-time data to align offerings with evolving needs. This shifts the mechanistic production model to a participatory, outside-in approach, where value is relational, not transactional.

5 Purpose-Driven Culture and Pluralistic Voices

The shared purpose that characterizes the organization transcends profit, inspiring employees and stakeholders to align around greater shared impact. Diverse perspectives and constructive dissent are encouraged to fuel creativity and challenge assumptions, countering the old paradigm’s suppression of dissent and short-term financial focus.

6 Adaptive Governance and Dismantling of Structures

Governance is lightweight, adaptive, and participative, using simple emergent protocols, aided by autonomous digital tools to coordinate action without rigid hierarchies or silos. Structures dissolve away as the organization evolves organically in response to needs and context.

7 Continuous Learning and Knowledge Flows

Organizations persist by prioritizing continuous learning, with knowledge shared freely across boundaries via communities of practice, wikis, or AI-driven insights. Employees are encouraged to experiment, reflect, and upskill, viewing failure as a learning opportunity. This runs counter to the old paradigm’s reactive monitoring and coercive management, addressing anomalies like outdated metrics and demotivated workers. The focus is on dynamic, evolving states.

8 Long-Term Resilience and Regenerative Impact

Organizations prioritize long-term resilience over short-term gains, designing operations to regenerate resources, communities, and ecosystems. Metrics balance financial, social, and environmental outcomes, aligning with stakeholder expectations. Cohesion brings reality to the integration of exploration and exploitation, replacing old concepts of ambidextrousness (i.e., balancing both priorities) with the new recognition of dynamic flow that involves both without difference or distinction.

These characteristics taken together reflect a shift from a mechanistic, linear worldview to one of organic, flowing, relational cohesion. Thomas Kuhn argued the need for a new worldview as a pre-requisite for the emergence of a new paradigm.

This post-managerial paradigm provides the new worldview: business organizations as complex living value-creation systems, not machines.