1. Could you expand more on the practical details of how decision making by consensus worked? Eg if I want to buy a $1m machine, how many people and which people do I convince that this makes economic sense? Who can actually sign off on the purchase?
2. How did incentive based compensation work for employees whose work could not directly be tied to the bottom line? For example, legal and compliance staff sometimes prevent profit making activity that is deemed as risky - making these functions prime candidates for internal monopolies that drag down the performance of other groups. Or recruiters whose natural incentives revolve around number of people hired rather than efficiency.
3. How is economic decision making enforced? What stops a middle manager from acting out of self-interest and expanding his own headcount or project scope to increase his own importance at the expense of company economics? Even if there is some consensus required, it’s probably not hard to convince a few friends with fanciful projections. Is this mostly a camaraderie / honor system thing?
If you feel like these are the wrong questions and are somehow missing the point - let me know! Sounds like Creo pulled off something special and I’m sure there is lots to learn.
1. You were supposed to identify who the stakeholders were. Let's say you're a mechanical engineer and you need some $1m lathe. The economic decision making basically says you need to consider options like contracting the work to someone that has that machine and show some reasonable ROI period on actually buying that lathe vs. contracting it out or renting it or whatever other reasonable alternatives. People involved in this decision could be your team lead, if you're a mechanical engineer, and the project manager. If the amount is so large that it impacts the entire company maybe the CEO is also involved. You get everyone in the same room and talk about it. Anyone can sign off on the purchase. The project I was on built some large very expensive machines (multi-million dollar per machine) and we've done things like build clean rooms and buy pretty expensive equipment without a lot of friction. I worked on software so I wasn't personally in the loop for those purchases.
2. I guess it's no different than RSUs, stock options or a bonus plan or any other form of profit sharing. At the end of the day people are trusted to do their job. At least during my time with Creo it didn't seem to create a barrier to experimenting, if anything there were some projects that were maybe were too experimental.
3. Not enforced in any formal way. Peer review and just culture/peer pressure would do the job. I am aware of one case where someone abused the system and someone found out and they were fired. In terms of your example, the power was fundamentally less with the middle manager and more with the engineers in the first place, so there wasn't a lot to gain personally from empire building as in traditional companies. For the most part managers did not manage people, they managed projects. For example, as a software team lead I was under a project manager but I didn't report to him in the traditional sense of the word and they did not control my compensation (which would be mostly the outcome of the peer review process). The project manager's success was also measured by peer review.
I think the interesting thing about Creo, and what made it tick, was that the founders were in it not just to make money. They wanted to create a place they would want to work in, were passionate about this, and tried to hire people that fit into this vision. They have seen the things they didn't like and thought they can do better. It sort of happened in the right time and place where it managed to gain momentum.
These are great questions and match my conclusion after many years of big5 management consulting: (A) Organizations are not optimized towards efficiency or value, they are optimized to align power between the executives and their self interest. Any heterodox organization with virtuous claims of egalitarianism will quickly reset to the default (A).
1. Could you expand more on the practical details of how decision making by consensus worked? Eg if I want to buy a $1m machine, how many people and which people do I convince that this makes economic sense? Who can actually sign off on the purchase?
2. How did incentive based compensation work for employees whose work could not directly be tied to the bottom line? For example, legal and compliance staff sometimes prevent profit making activity that is deemed as risky - making these functions prime candidates for internal monopolies that drag down the performance of other groups. Or recruiters whose natural incentives revolve around number of people hired rather than efficiency.
3. How is economic decision making enforced? What stops a middle manager from acting out of self-interest and expanding his own headcount or project scope to increase his own importance at the expense of company economics? Even if there is some consensus required, it’s probably not hard to convince a few friends with fanciful projections. Is this mostly a camaraderie / honor system thing?
If you feel like these are the wrong questions and are somehow missing the point - let me know! Sounds like Creo pulled off something special and I’m sure there is lots to learn.