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Shadow Organizations

Two Fundamentally Different Ways to Design New Organizations 

  • Stefan Kühl
  • Thursday, 2. May 2024

What makes holacratic organizations so interesting to researchers studying new forms of organization? 

If you look at the discussion about new forms of organization, you first have to wade through semantic garbage, both as a researcher and as a practitioner. Attempts to define post-bureaucratic organizations via the fashionable word of agility are often nothing more than a collection of decent-sounding lists of values. For a company, agility, according to just one swaggering example, means the ability to operate profitably in a competitive environment characterized by constant as well as unpredictable, changing customer demands (​Bottani 2010​). The idea of agile management describes—in another case study of how to string together meaningless words—a flexible and lean, innovative as well as customer-oriented, employee-competence-based organization relying on new technologies, which recognizes market developments at an early stage and adapts quickly in terms of structures and processes as well as people and culture (​Gunasekaran 1998​). 

As with all lists of values, an accumulation of sonorous vocabulary creates an effect of high-consensus certainty ​(Luhmann 2018, 196)​. Who does not want their company to have the ability to operate profitably in a competitive environment? Who doesn’t want to have an organization that is flexible and lean, innovative and customer-focused, employee-competence-oriented and based on new technologies, that recognizes market developments early on and adapts quickly in terms of structures and processes as well as people and culture? This string of discursive ringtones is therefore suitable for the approval-seeking Sunday speeches of a CEO or managing director, but they don’t really offer any clues about what exactly is taking place in organizations. 

In the process, the semantic flotsam and jetsam in management discourse produces a devastating effect. The celebration of euphonious catalogs of values overlooks the fact that—and this idea is essential—two fundamentally different conceptions of organizations have developed in the shadows with abstract terms such as agility and flexibility. One notion seeks to achieve efficiency, effectiveness, and innovation through maximum formality, while the other relies on maximum informality to achieve these goals.1 If we adopt the preference in management literature for single-letter model names—“Model X,” “Model Y,” or “Model J” – we can take a look at a “Model F” and a “Model I.”  

In “Model F”—the Formality Model—the goal is to formally fix the highest possible number of behavioral expectations for organizational members via precise role definitions. The formula for success entails an ever further detailing and perfecting of formal role expectations. The existence of informal expectations in organizations tied to people is noted, but efforts are made to translate as many of these as possible into formal role expectations. People, to borrow from a traditional metaphor, are expected to function like cogs in the organization’s machinery. The metaphors used for this organizational model are then also mechanistic in character: machine, mechanism, apparatus, or operating system (see ​Morgan 1986, 19ff.​). 

In contrast, “Model I”—the Informality Model—relies on the fact that as many expectations as possible are formed informally in organizations on the basis of trust in persons (see for example ​Toffler 1971​; ​Mintzberg and McHugh 1985​; ​Tom Peters 1993​; ​Ciborra 1996​). The formula for success consists in resisting the urge to formalize behavioral expectations ever further in ever more detailed role descriptions. The necessity of formal role expectations is not negated, but these should only provide a framework for informal expectations based on personal trust. People are supposed to be at the center of the organization. The metaphors used for this organizational model are organism, community, lifeworld, or culture (see ​Morgan 1986, 39ff.​).  

Ever since scholars have examined organizations, the emphasis has been on either the potentials of formality or the potentials of informality (see ​Krell 1991, 149​ and much later ​P. S. Adler 2003, 353ff.​). Although it may be an exaggeration to say so, the history of management concepts can be described as a back-and-forth shift not only between the dismantling and reduction of hierarchies or between the differentiation or dissolution of departmental boundaries, but also between formality and informality. 

In this context, Taylorism at the beginning of the twentieth century was certainly the first prominent attempt to achieve efficiency advantages by extensively formalizing organizational roles with if-then rules, which are also called conditional programs.2 The post-World War II models of leadership in the employee relationship, or leadership via goal agreements, then broke away from the idea that organizational members should be led by conditional programs that were as precise as possible. However, these systems continued to rely on the possibilities of formalization, in this case by defining precise goal programs for all roles in the organization.  

Organizational concepts based on the formation of informal expectations have repeatedly emerged as a reaction to attempts at far-reaching formalization (on community concepts, see ​P. S. Adler and Heckscher 2006​). At the beginning of the twentieth century, the idea of a factory community emerged, in which the emphasis was placed on the formation of collegial expectations tied to specific people in the completion of tasks (on radicalization in the form of National Socialist factory communities, see also ​Eden and Möbius 2020​). Then, in the second half of the twentieth century, models of “communalizing personnel policy” emerged, in which the importance of the person was placed at the center of the formation of expectations ​(Krell 1994, 12ff.)​. These received considerable attention first in Japan, then in the USA, and finally in Europe under the concept of organizational culture.  

Although many initially suppose that post-bureaucratic organizations have a low degree of bureaucratization, any discussion of new organizational forms seems to include concepts that focus either more on formality or more on informality. On the one hand, there are models that seek to reduce hierarchies and soften departmental boundaries by emphasizing informal expectation formation tied to people. The agile manifesto summarizes these ideas succinctly as “individuals and interactions are more important than processes and tools” (​Beck et al. 2001​). Such an approach focuses on human resources, in the hope that personnel can cooperate with each other, unencumbered by formal rules (for radical models, see ​Hastings and E. Meyer 2020​ or ​Hamel and Zanini 2020​). On the other hand, however—contrary to what the term post-bureaucratic organizations might suggest—there are also approaches here that aim to reduce hierarchies and soften departmental boundaries by formalizing role expectations to a greater extent. Holacratic organizations are only the most radical variant, in which a kind of “agilization” is sought through a detailed definition of formal roles (for other models, see for example ​M. Y. Lee and Edmondson 2017​; ​Kates, Kesler, and DiMartino 2021​).  

Both in research and in practice, we know a great deal about organizations that attempt to reduce their hierarchies, soften their departmental boundaries and downgrade their formal requirements under the label of post-bureaucracy.3 However, findings remain slim in both research and practice regarding organizations that attempt to flatten hierarchies and loosen up departmental boundaries while at the same time hyperformalizing the organization. Understanding the process of hyperformalization more precisely is the central concern of this book. 

Prof. Stefan Kühl

links in his observations the latest results from research with the current challenges of the corporate world.

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