Company Culture: Hierarchical organization versus self-organizing teams

Since company culture seems to be an essential part of success, I wanted to get some more input regarding a specific possibility: "self-organizing teams" (as used by Valve and described by Frederic Laloux in Reinventing Organizations).

The idea of not micro-managing people and let the company organically evolve by intrinsic motivation of the individual seems very intriguing to me. Yet I have some reservations as to whether it actually works with critical topics such as defining one's own income and handling difficult individuals. For a startup there are also other considerations, like opinion of possible investors and partners.

So my question is: in what situations does it work? In what situations does it not work? And is it generally recommendable and does it work as good as it sounds?

Edit: I wanted to make clear that the question is not about whether to start without defined roles and responsibilities, but rather how much control and leadership people need in order to minimize friction at work and how much it irritates outsiders (i.e. investors).

In my experience, "self-organizing teams" are very effective in small specialized organizations. If your startup is small and everyone knows each other its easy to rely a sense of belonging to the whole to keep your coworkers motivated. In addition if your members are specialized then it doesn't even really make sense for them to accept leadership. For example, if your startup consists of a marketing person, a programmer, and a graphic designer, self-organization works well because each individual in the startup is the most knowledgeable in their field in the startup. You wouldn't want the programmer telling the marketer how to market the startups products and you wouldn't want the marketer telling the programmer how to code. In this instance, self-organization would provide very little friction between teams because day-to-day issues would be dealt with by team designated to deal with problems in that field. Of course, friction would be present when larger company-wide decisions needed to be made (i.e. accepting investors, budgeting out resources, etc.), but friction such as that is unavoidable no matter what your startups organization is.

For many of the same reasons I can see this methodology working for small organizations, I can see it falling apart with larger ones. The larger your group is the less likely it is that people will feel as connected. If the members of your startup don't feel like they really are the driving force behind the company then motivation will inevitably fall. There also will be more finger pointing between teams if the community is less tightly-knit (its a lot easier to blame all your problems on someone you don't know than on someone you do) and, with no accepted authority present to moderate, I can certainly see something like that spiraling out of control.

As for investors, I can't speak from first-hand knowledge. However, it seems to me, if I were investing in a startup, I would be far more concerned with the growth, ideas, and products that the startup had managed to produced then I would with the inner management of its members. If self-organization works with that group to produce wonders, then I don't see how any investors should, or even could be irritated by it.

The problem of the "self-organizing team" is that, to work well, it requires that all members feel comfortable in such approach (not all people can "organize themselves") and that they accept their responsibility.

It's a huge topic but I would synthesize it in this way:

Pros

  • it motivates creative people
  • it prevent the frustration usually caused by the rigid hierarchy
  • it works well when the business is doing well
  • it can create a healthy competition between teams in the company

Cons

  • not all people are comfortable in such situation
  • shy people can feel themselves excluded as often a more extraverted team member takes "logically" the leadership
  • it can create an unhealthy competition between teams in the company
  • it is dangerous for the people that are not comfortable with the responsibility
  • in a crisis, it can be a disaster (no one "want to take the difficult decision", it can create disputes...)

Conclusion:
I would advise this approach for homogeneous teams of creative people who don't fear the personal responsibility.

To avoid in companies with heterogeneous jobs, in teams of "executors" (e.g. back-offices) and in the companies that are supposed to face difficult environment and that needs a clear role distinction to act in fast and efficient way.