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Hello and welcome to The Virtual Frontier, the podcast about virtual teams created by Virtual Team. I'm Chris and I'm part of the team here flash. On today's episode we have Niels Spelling. Neel's is the co-founder of the Beta Codecs Network and president of his own consulting firm based in New York, Germany. This episode is back to being in English, but you can still head over to our blog for the transcript. So here's our conversation with Neales filing. Hello and welcome to our new episode here in front of you.
My name is Daniel and our guest today is News Friend Needs. Fehling is a founder and associate of the Bitter Codex Network and as president of consulting firm in Germany. In Spain. But, yeah, Neel's have. Thank you very much for joining us today. Nice to have you here. Please introduce yourself. Explain us a little bit. What is Peter Codecs and what is the network behind this? That is very interesting to me.
I don't know. Thanks for inviting me. Um, so, um, yeah, I'm happy to be talking about Beta and the Beta Codex network, but maybe maybe a good way to explain what Beta is is. Just to just say it is the alternative to management of social technology. It is the antidote. It's the kryptonite to management, the social technology pyramid organizations to come out of control. That is what it is. It is the antithesis. The opposite.
So. And this came.
Let's say it was discovered Peter was was not invented, it was discovered around 15, 20 years ago by a bunch of British guys from the beyond budgeting round table, of which I became associated, associated as well. And they wanted to find organizations that are successful and larger organizations that wouldn't do budgeting because they thought, OK, budgeting is a mess and your planning isn't worth it. It's shit, so to say. So let's figure out if there are organizations out there that can do without budgeting and planning.
And they found some very interesting companies, major companies, successful companies, most in Europe, some in the United States as well. And then they found that was in in the year nineteen ninety nine or two thousand, they found the Swedish bank spanking an organization that has had no had had no budgeting for about 30, 40 years already at the time.
It's it has been Europe's most successful bank for almost 50 years now.
And from observing these cases, they derived a model they wanted to to describe what makes organizations like Toyota, Handelsbanken or in Germany the impact the drugstore retail company. And they these guys want to describe what what, what, what this model was made of and made from. And they figured out the principles behind it. And that is what we today call beta or the beta cortex, the principles of running into running organizations that come out of control without centralized steering, without annual planning and an agile way, so to say, radically decentralized organizations, without heroes at the top of the pyramid shaped organizations.
But we call them Piech, like radically decentralized. That is based on spectacles. And the sad truth is that way too few organizations like that out here, out there, most organizations still rely on bullshit, command and control. And there's no question.
So while I understand the beta cortex, I understand that the muscle behind it, when I was doing my research for our podcast today, I'm I'm a fan of it. I like it. But I see very few companies of the organizations that maybe go in that direction somehow. But the vast majority isn't what we'll guess what is happening? Why?
Yes, I think that's the big question. And I want to I do not like to give easy answers to that question, because that's the big riddle. Let's say we know we know that command and control is a huge pile of dung, that it doesn't really work, that command control is. Inappropriate and complex times that it's not, you know, it's not it's not even humanly appropriate for human beings, we know that. But still, the world doesn't change.
The world of organizations doesn't change. So there are several forces at work there that inhibit the transformation, if you want to say so. I believe one of one of the main inhibitors is that we. Well, let's put it differently and make it turn it into a little riddle, why do you think? Others, so, so few imitators to the Toyota model we have known about Toyota and how great it is and clean and all that stuff for 40, 50 years.
Right. The company Toyota is doing has been doing it for 60 years, what they've been doing. But still German German manufacturers, for example, run out of control.
They totally do it at American companies in Detroit haven't changed either. And most of the Korean companies that come out of control as well. So why aren't we learning from the good example? It's a big riddle. So maybe because it still works for them. Somehow. I would say the destructive struggle is not big enough until now. How big can it be? It's good to know it works for them only. I think it only works for them because they think it's normal.
What they are doing is more. Yeah, and it's inevitable. So come on, control only survives, I think, because we believe it is normal. It is inevitable. Inevitable. There is no alternative. And of course, everybody's doing it, which is a lie. And that's not true. Like there was a drugstore company, a retail company very famous in your Schlieker doesn't exist anymore. It was Germany's and Europe's biggest retail drugstore chain imploded a couple of years ago.
Now D.M. a much better company, radically decentralized like they they rule because they not because they have better products, really. It's just that they don't have the much better organizational model. I mean, Toyota is not better because Toyota overwhelmingly employs Japanese. That's not the reason it doesn't make a difference. Know the difference is they believe in different principles, organizational principles. And I think one of the answers is that it's also one of the less obvious answers to the question, why do companies not move to that model more often?
Why do not more of them move to a decentralized, self organized model, more agile, more or less, based on planning and steering from the top? Why do so few companies do it? I think one of the reasons is that we don't think people can do it. We don't think that people are intrinsically motivated. We believe that other people do not like the work. We have to force them, bribe them, punish them a little bit.
And maybe sometimes it's the fact. But most likely it's not that they don't like their work, it's that they don't like the environment of like being controlled and forced to do something where they don't see any sense. Like what I'm wondering when you are talking about agile organizations, decentralized organizations, and you're talking about not planning, would you say that we should not plan anymore? Yes, absolutely.
OK, I think a luxury that no company can afford to do to to to to give itself. Planning is planning is great when the environment doesn't change. Yes, yes. Then you can plan because then it's safe to make a plan here. Nothing changes. You can execute. So planning in itself isn't bad. It's just bad. If the world is complex and full of surprises, then is back to the difference. It's really simple. It's really just that planning works well when there is no surprise, surprise planning works not well.
And the surprise happens when the environment and the assumptions that are part of the plan change.
And if they change more rapidly than the plan they get to, the more surprises the Dumb and Dumber is to plan. The dumbest thing, if you want to run an organization, is to plan the results that you want to have and then to turn them into targets.
Like strategic targets, fixed targets would connect them with incentives. It's the most stupid thing that you can do because then you have present people to execute on targets that have become irrelevant in the moment, right in the moment of plan. Or they will always be relevant because people can see what would be the target. They cannot. No, I mean, people who plan cannot know what would be the target so that the whole thing of planning and target setting and planning and systems, all this performance management crap, sorry, pardon the language, but it is bullshit.
I want to I want to understand a thing of the past on that because but I think we have we are not yet precisely enough talking about planning. So from my from my point of view, what I wear I see a huge value is in fact in planning because people try to deeply understand how things impact each other. So that is the value for me in planning. I'm not telling that when I create a plan, I have to stick to everything, because, as you say, that's simply not possible.
But I experienced what happens when we don't plan at all. We just run with close ties on autopilot to things how we are used to do it right. So somehow getting consciousness about something and measuring key drivers and understanding where you want to go, I'm not telling that, OK, we need to hit our exact target, but we need to understand the direction and the key drivers that move us. Yes, not said, no, well said, and in your private lives, you both can call it planning, if you like, or you can whether you can call it planning if you like.
But the real word, the right word for what you just described, you know, to understand the interconnections, to understand the results, you want to get to understand how to get there. There is another word, another conceptual. You know, it's important to to to use proper words for something. So how is that called? You want to run a marathon?
That is the point where I think we we are not yet aligned because I don't know this. For me, it's planning. What is it for you?
No, no, no. It's not planning for, you know, a better one. Everybody knows a better word if you want to run a marathon measurement.
All these are technocratic terms. And and the interesting thing is, I mean, I'm not I'm not criticizing here or anything. I just want I just want to make you aware that the the words that we use already are they are infested with command and control concepts. We have to measure people.
We have to incentivize them. We have to plan to do that. We have to technocratic mindset and language, a less technocratic mindset would say, OK, we want teams to be responsible. We want to we want to hold them accountable for results. Let's not even talk about key performance indicators. I would say that there are some things that we will always pay attention to. As a company, we must make a profit. Otherwise we will die, not because profit is great, it's just necessary.
It's like breathing is not great for us. It's necessary for us as humans. So honest, technocratic language. I mean, let's say it's what I tried to achieve here is to make you aware of the language that we're using and that there are alternative works. In this case, if you want to get fit for Marathon, you don't apply. What do you do? Train. You train. Yes, but training is not enough. You also must become smarter and understanding your body, your limitations.
The method we call that is a huge word for that. Preparation, preparation, preparation sounds very simple. So the opposite to planning is preparation. Sounds very simple, I know, but preparing is totally different because it's it's the preparer's responsibility to prepare to go into it. We have to get fit. And so this is one of the better principles. Preparation instead of plan sounds very simple, but there is a huge difference because usually we use the plans in organizations and companies and use that plan to steer us.
And when we compare it with a marathon, still I have a goal. I want to like run the marathon with like some I have a target time. Right. So and also not use. There is no. No. About a range. I want to be like, so when I run, I want to be like at five minutes per kilometre, for example. That is my cue. I want this. That was my goal.
We don't run a marathon. And if you are smart, you work differently. First, you want to reach the goal. So you have to distance yourself. You want to make the distance. But then you do not say I want to make it in two hours and 40 minutes and how the marathon works, how long it takes, but something like that. Right.
But you do not set targets like I want to make the first five kilometers in such and such minutes.
Nobody does. Nobody does it. I would bet on that, that they do. That's why they have to pay. The pay is exactly the KPI that you have that used markers oriented, you get orientation, some things that you don't just target, you just use the the first minute, the first five kilometers to be such and such time. Yet you said, but it's not a target because if the weather conditions, for example, or the physical conditions don't allow you, you'll have to adapt.
And that is what is. And I think that is that is exactly of making making performance indicators, which is, for example, the pace for a marathon runner. Right. To reflect. Am I on track on what I want to do? Nobody controls me. Nobody tells me to do this right. I am intrinsically motivated to to achieve that. I did I did, for example, sports for a very long time. Right. And I always wanted to to win like the national championship.
And I knew exactly what I need to do. And I wanted to win the world championship and I knew exactly what to do. And I trained. I prepared. And then during the competition, I always saw it's one to five against me. So now this is my KPI. I understand I need to have at least six to five for me. So now I need to adjust. Right. And Abberation helped me, but I still always see these numbers.
But the thing the big the big thing here is not I mean, we're discussing planning and targets and measuring now, but the other big element in what you just explained is that you owned your performance. Yes. I told you what to do. The big difference, and let's be very honest about the planning in organizations is done to steer others thought to appropriate them of their are mass graves and that it already happens when you tell them what the key performance indicators are.
Instead of telling them, you have to figure out what's important for your work. However, you must make profit. We must satisfy clients as well. Those are obvious. It's obvious stuff. You know, these obviously sometimes fall below the table if you don't make them in command and control.
But in a great organization, everybody would understand that we have to satisfy customers like at the end of the month. It's pretty obvious what the end result Livestrong satisfied customers will come again and again. We try new products. Who are happy with the products and with the environment and the company must make a profit there. I always like to say every 14 year old child or 60 year old can understand what a company needs to do to be successful. It's very simple.
Yeah, so come out of control, you force people to forget what's right because you have to force them to follow the plan. That's the that's why Soviet style planning, it's still it's still happening in big companies. We talked about folks back in the 70s. It's like Soviet evil, Soviet empire or fascism. And so that's one of the downsides of planning is not just that it's the wrong methodology and the preparation is better, but it's also that you take people's.
You take away people's capability of self organization, and that's OK. I want to I want to share one experience with with you. And I would really appreciate if you could tell me. What I did right and maybe what I did wrong, so because my experience expect too much, I usually criticize it and I want to understand your opinion so that you were till twenty eighteen. We were a hierarchical company. I did what I saw when I looked at other companies.
Right. They are all built hierarchically. There is like the honor that the CEO's second level management and then people that really deliver the value and do the work. I built my company in the same way it was. It's the service service company for software development. Yeah. How many people? Forty three. In twenty eighteen, and then it was always driven by command and control, so there were customers that hired us for doing a project. Then I told them, OK, you have this budget, you have to do this.
And I told them what to do, all the tactics I gave them. It was so exhausting for me. And at a certain point I thought, OK, I can't control this anymore. It's too much pressure. It's not possible. People also are not happy. So then there was a huge crash and I completely changed my company. I fired 20 people because I was so disappointed that it was an emotional thing and the company was at huge risk.
There is a TED talk if you want to see that. If you Google statistics, you will find it. So then what happened is I hired freelancers to save my company. That worked. I had a virtual team of twenty three people in a single day and they migrated eight thousand web pages in four days. That saved it. So then I saw that these people, they all came to me independent self determined and decided for themselves. Oh, that's a nice thing.
I want to do this. This is my hourly rate. I commit to whatever 14 hours every day working over the weekend. Nobody tells me I want to do that. And I, I love that because I saw that people they they simply help me and do this because they are motivated to do it. And that saved my company. And then I decided I want to rebuild my company in the same way to have the same experience with my full time employees.
So what I did is I told them exactly what you saw as basic KPI. We need to be profitable, otherwise we die. Normal rule of the economy. Then I told them, OK, so here's how it works. We we make everything transparent, salaries transparent, the balance sheet transparent and transparent. You can see everything. You get training to understand these numbers, how a balance sheet works, all these things. And you need to understand that.
You have to do projects. That's part of our engine of the company so that we earn money with that. Here is how the economics work. This is what a customer pays. This is your salary. You hire freelancers and the difference is the profit that pays your salary. A part of that will be put on the company account because we also need to earn 15 percent based on revenue. That's the money for the company. So this is how it works.
And I left. I let them do so. This is your KPI be profitable. And they were so exhausted and they were. Some canceled and some were almost about to burn out because what I experienced, what is wrong, they were all of a sudden in an environment that was completely different from what was before that. And they didn't have the skills to understand what these numbers really mean and what they can do to influence them. And that drove some of them really, really crazy.
And I want to understand now, should we protect our people from this radical transparency or is that normal and only the hardest? Survive that one to adapt and live in the system? There are others and this is this is the thing that excited me. Those that cancel their relationship with us. They went into large corporations where they have a clause that tells them what to do with the. Hey, everybody, Chris here again, we'll get back to the conversation in just a minute.
Real quick, I wanted to give a thank you and a shout out to everyone that has left to review on Apple podcast. We really appreciate it because reviews help people find our show and climb the charts higher and higher. So if you like what you're hearing, please head over to your favorite podcast app and leave us a review. You just might be featured right here in a future episode.
Now back to the conversation. OK, now I will show you how I worked with my clients. Yeah, perfect. Yes. Yeah, it's not pretty. That's good. Must not be treated just by you say something a little tough at the beginning, like a very slow learner.
Go for it.
You are a very slow learner or you didn't from the first experience that the company grew and became unbearable. And then. Fell apart in a way you didn't learn the right lesson, let's put it like that, because I think the right lesson is this. And an owner like you are founder of company founder, steering the organization and controlling it. It only gets you so far. It only works for a company of maybe 10 people, maybe 15, maybe 20.
But then it falls apart, of course, depending on how brilliant you are in your ways to communicate whatever. Maybe your company falls apart at a size of seven people or 30 people or 50 it a range. But in general terms, if you have a company of, let's say, 10 or more people, you should have two teams and three teams at a certain size, you know, a team.
And I think that's the secret sauce to self organization that most in the even in the agile movement have not yet understood. They get has to grasp this. That team is the most important thing in a large organization. So and you were still and I was a little harsh with you at the beginning now because. Even at the end of the story, you talked about individual performance individuals, do I at least I think I heard that. I'm not sure.
I don't know.
These are always two people have one performance KPI.
That's exactly. And what Peter suggests is always have teams, five people, maybe a team starts maybe with four people. But that's not very robust because when to win a second one is on vacation, then five is a good team, size six, seven, eight, and then not so much anymore. So the secret sauce to a better organization is teams. Let's talk about Toyota. They have teams on the shop floor. It's like a dream. It's like a pearl necklace of teams, you know, a string of teams working for each other with each other, as they say at the end of the month.
At the end of the impact, the branch is the team at Handelsbanken, the branch is the team. And a team can never be bigger than, you know, maybe 10 people or so. But then, you know, not in software engineering or software development, by the way, or services teams should be smaller than that for I think, obvious reasons.
But to maintain social density, like in a family, you know, the density, the let's say the commitment with each other for each other. So you need to to measure team performance, not individual performance. Don't give people targets, set team measures or have team else at a profit and loss statement have exactly this.
Then I described it. Every team has an on balance sheet and that's how they how they manage it.
And why, why, why the why? Towards the end of the story, I couldn't figure out exactly what went wrong in your company, so I would not want to analyze this during the process.
People left because they were not made for the system. Still, we operate exactly in that way. We have small squats. They are people of like two or three people on one team. They have little they have still a mistake. They don't believe in anything that I say. You don't have to believe in anything that I say. But a team is not two people. A team is not three people. Team begins with four and ends with eight.
Then we have three individuals because that's the thing we agreed to offer. We ignore that and companies in order to have a successful business, you must feel like you are in a mini company with others, correct? Absolutely. That's a team. When you feel like, oh, we run a business together, it's the five of us, the six of us. You cannot do that with two people and you cannot make it happen with fifty. It's impossible.
So this is not it has nothing to do with your you with your talent, your skills or with a company's business model or something. It's like organizations should be built on team spirit, not on department, not matrixes. They shouldn't have metrics such as buses. Plano buses are unimportant. If you have a team based organization where every team sells something to an external customer or an internal custom, that's how we do the reach model we call that center.
The center sells to the periphery at the periphery sells to the market and the periphery must be in charge. This is the most important, the periphery. Closer to the market, because it's like a peach, it has skin, and then there's the periphery of the flesh. They must be in charge, they must steer the center and the center serves the periphery so that this can serve. It's part of that. That's exactly how we do it. And we measure clearly the internal value proposition with numbers so that we understand how could they serve each other.
It's not that somebody tells them. It's just if you are sitting in your car and you see you are driving one hundred or one hundred and fifty, and then you can find out for yourself, what does it mean for your team? What would I experience if. I mean, I have I have teams that have five people, I have teams that are two people. What should I experience with these two people teams if that doesn't work? What you should experience, I'm not sure.
I mean, you say that a team cannot consist of two people and not enough teams of two people since two years.
And you don't have those. You have helpless, helpless people stuck with each other like double pairs. Let's call it a pair of pants that you can't. That's like from the like the pair is not a team. I'm trying to I don't know what's the difference, I'm just demonstrating how to approach this problem. I'm not judging. This is how I understand this. I just want to understand what what is the difference? I mean, when you say a team or another team, what are the attributes of a team then that I can't have with two people?
Team dynamics. You can not have team dynamics with yourself or with just one other person in it in a team. For example, let's say, see the two of us, we have deficiencies. I have deficiencies. I don't speak Turkish. I'm not good at. There are some things I'm not good at that's talking to clients or whatever. I'm not I dislike ringing people phone calls and I don't like them very much. And you like them and you speak Turkish as well, which is good, you know, or you use PowerPoint and I only use InDesign or whatever.
So our incompetencies, we can compensate them as only a team can do that in a team of five. You have so much diversity that you can really. Teams can be perfect. That is the key because you cannot be perfect, but a team can be perfect, not the individual, but you know, because together with five people or six, we can do everything. They can be perfect, but they must not be perfect. Right. They must find that perfection.
Of course. They must find their way and say their skills, their missing skills and tell them that I don't speak Turkish. Nobody in the team does. Still, there is no compensation. Right. Yeah, and then, of course, if you have a diverse team of five. If people are only criticizing each other and making each other's lives hard, then there's no advantage. So that can be productive interaction in terms of destructive interaction.
Of course, that's not there's no simple solution to that. It must it must be curated, so to say. That's why my teams must find themselves. And sometimes they take a few days to do that.
And they and of course, they have to fight about things. For example, fight about why isn't performance bad while making a profit while our clients are unsatisfied. Exactly. And then you have to fight about that's why don't we just ask you your little in your story in the case description, you said people couldn't bear the transparency or you doubt that transparency works. I say transparency works all the time. It's just not. I just know for everyone it's not clear.
No, it's not pleasant. No, I think it's for everyone. Not exactly. It's just not pleasant. People leave because they want a pleasant feeling in their job and they think this is not pleasant. I don't think so. I have people that told me that people opposed to that.
I don't want to care about all these numbers. Transparency. I don't care. I want to do coding. I have a great lesson for you. When people leave, they almost never tell the truth. Yeah, yeah. And there are good reasons, excellent reasons for that. And so even if I hate your guts, I would say no, no. It was the big pressure coming out. Yeah, that's all.
That's OK. You can't expect people to tell the truth. But, you know, I believe that and of course, that. Let's say in the world, in the world, assholes exists. It's a fact, and sometimes we are the assholes as well. But overall, I think people want to contribute. They want to. Feel the connection at work, they want to contribute something overall, they want to do that. So that's I think most people want to bring that.
There are other things that that must be aligned or that must work out and that thousand reasons why to overcome all your job. But I think to create the best system, that is a very attractive thing. And that's that's a powerful thing. That's what that's what we can do with you as an entrepreneur as well. Yes, we can.
I'm trying very hard to do that.
That's why I admire companies like Toyota or Aldi, because their businesses are vulgar. To me. It's vulgar. Know, I like Aldi Supermarket. I go there. But the business is terrible right now, selling consumer products, usually groceries that other companies produce. It's so simple, so repetitive, repetitive. Still, they are doing it in a way that's cooler than that of other companies and had faded away. And they don't have to, you know, at Aldi, they don't have to.
You know, drill and punish the employees all the time. They have a system that works for itself and that is very admirable to offer people a well-paid employment. They pay excellent salaries in retail and space in Germany at least. And I think Europe wide, they pay the best salaries. Trader Joe's in the United States and the company, they pay the best salaries in the sector and they employ the other people, you know. And that's just great.
I think that's a wonderful thing that companies have, you know, to to make people shine and grow and to create a sustainable business that runs over decades and to not treat people like should. I think that's that's why I'm in love with Peter so much, you know. Yeah. All about fulfilling humanity's potential through work, which often is very simple and repetitive and boring. Yeah, that is that is what I what I decided. I want to build a company that contribute something positive to the life of everyone working with us, but that requires that they understand everything and then take accountability about their things like profitability or customer satisfaction.
Yes. But for people to take that to be accountable, to behave like accountable human beings, you have to create the right system that I think absolutely the science or the art of creating well functioning, decentralized systems. It's very little understood. And that is what the beta cortex and the Codex network are about. And to to be to share the philosophy of self organized companies regardless of size, because you can have a company with three hundred thousand five hundred thousand people.
It works just as well as with twenty. Yeah. These the principle scale.
It's not at all like, you know, which are which are other successful examples of organizations working according to the rules of beta.
Oh OK. The usual suspects, Southwest Airlines, Al Gore. What of the recent examples? I mean in Germany we have a we have a we even have a magazine that features companies from Hamburg. They feature companies like that frequently. I think one of the later newest examples of a great company like that is both sides from both sides, from the Netherlands, the health organization. I heard about it.
Yeah, they do predominantly health care, but they are now doing having kindergartens and that kind of stuff. They are very diversified by now. Have OK, how many people do they have. Eleven thousand employees. Oh, they have only existed for a little more than a decade if I remember well and radically decentralized. They are very conscious of their principles, which is what I like. I strongly recommend everybody to watch. Used to block the founders stuff on YouTube, his interviews, his keynotes.
I think he's a brilliant speaker and explains very well how this works. OK, I lived in Brazil for a while in Brazil. We always had the company. Semco is a great example. Semco also very diversified and they have been growing and growing because they create companies and grow and then they sell them the growth overall. But the company is has these principles. And and Ricardo has written several books about this game. On our website. You find the list of companies.
Ricardo Semler. I didn't I wasn't aware of this person's name since somebody mentioned that I implemented exactly what he did on LinkedIn. It was like only a month ago. I didn't remember the name of this guy, but I remember exactly the video that I watched that inspired me two years ago to build my company, how it is today. And that was how to lead a company with almost no rules. That was so great and that was the initial thought, the initial emotion when I decided, OK, I want to say.
Yes, yeah, yeah, the the problem when I also admit I have a problem with cases we just mentioned, if you tried to send to you or fantastic companies. The problem is that cases do not work. Not for fathers to copy. Yeah, nobody I mean, cases of someone in some cases cases are like chocolate, you know, very sweet and you get a good feeling looking at them, but they do not convince you to do the same in some cases, despite what you just said, inspired a sample of the case.
Inspired, but inspiration is not enough. And I prefer the Yuda. Adarsh, do or do not. There is no try. If you want to have a company like that with full force full throttle or you or you better leave it at that. Absolutely. Because tough organization is the game of making self. Organization requires you big faith like our faith and democracy must be must be very strong to defend democracy. Otherwise you would say half our politicians are crap.
I'm not sure we can also have a dictator. I believe in democracy and we should also believe in self. Organization is very relevant for the Edgell movement. I think in the eternal movement, too few people are in love with self organization to too many of people in the movement are in love with tools and tools are just. They help you to do what you want to do may be more efficient, but you need to understand what you really want and have to do exactly.
We have to be in love with the philosophy, with the human, with the politics, let's say, of self organization values. And not the tools, the tools come last, you cannot put the philosophy into tools, doesn't work. He also said that famously, when we leave, when we when we crystallize thinking into tools that the thinking dies, we believe that everybody has to appropriate thinking so that self organization can sustain itself. That is what the critics movement is about.
It's not about tools. I mean, we need to inspire the tools. Not interesting. Yeah, absolutely. Yeah. So when when a company starts and then down the street, then you can continue with the question because I find it so exciting and engaging. I see. I see somebody creates a new company. Individual entrepreneur has huge goals. How would you? I mean, you don't give a recommendation and there is no do it like this blueprint, but which values or things concrete would you give this person to the to his or her hand so that he or she can build such a self organized company?
Well, I think you've got it wrong. We have very specific ideas about startups. OK, we say we like to see startups usually are naive. Bayti, as we call it. Batur, is the pitch for large organization at a startup. It's like a one. So. Organism, so you start with four people, five people, seven people. What about that? So you have a one cell. Organism, organization, organism, just as a metaphor.
So usually you have a naive kind of self organization and it works usually, you know, there is. There is. And one of the maybe the founder is an asshole and shouted everybody. But still, they have the social density that they really struggle with something. They go to the bar and get drunk and fight and then find a solution together. So there is social that we call this naive beta, but that doesn't sustain.
Forever. If you grow beyond 10, 20, 30 people, this naive density starts to erode and you have destructive, usually destructive patterns emerge.
That is why when an organization grows beyond 10 or 15 people, it starts, as we call it, to to do to differentiate between center that should serve the periphery, but not to do it. And the periphery, a subset, serves the external customers clients. If you do not that if you don't do that consciously, you fall into the trap of command of control. Once a startup grows beyond the super many size, it can only take the path of Périgord or Piech centralization or decentralization and most startups ups surprise, take the road to.
Yeah, but still it works. I mean, that's the thing, right? The pressure is high enough so that they need really decentralisation.
No Alpha organization works, maybe the survive, maybe they make a profit, but they do not work. Get this out of your head like fascism works anywhere autocratic regimes work. I do not believe so. I personally have no beef with Mr. Erdogan from Turkey. But he's an autocrat, a dictator of sorts. That Turkey, the country doesn't work, it doesn't function. You can say, oh, they survive and the economy grew for a while, which, by the way, has nothing to do with Mr.
Erdogan himself, but with previous politics, they did. And any time anyone living in Turkey can say that Mr. Erdogan is very it's great. And he's a very nice dictator. Still, it doesn't work as well as that as a democracy, it's obvious. I believe in democracy. I believe in self organization. Don't tell me that Volkswagen or any other control organization like Seamans Works doesn't work. It's barely enough to still attract.
So I believe that makes a company work. I mean, which measures or how do we see? If I look at a company, how can I see what works? Does not work. Relative performance. Compared to what if it's relative compared Toyota to Volkswagen, and you see that Volkswagen is not at all for four decades, yeah, they have been bigger sometimes than OK. So so you go to. Yeah, so compare comparing the performance of the company to other others and relative terms, that relative performance to compare actual performance of one of a team or a company to another team.
Yeah, yeah. And you compare the performance on what? Profitability or customer satisfaction or revenue growth. What is it?
Yeah, well, read our white paper. No, I think 10 or 11 about performance systems, performance systems at work. I think I would say yeah. For example, do not compare profit in euros or dollars with the other teams or companies profit in the eurozone because that would mean comparing large and small. It sometimes teams have more or less customers or size, for whatever reason, that size doesn't matter. So a size only mattered in the industrial age when markets were still monopolies, monopolies, oligopolies.
So if you want to make a good comparison about profit, do it relatively. For example, for a retail company, it might be retail and sales. OK, percentage, is it? Yeah, yeah, three percent, five percent aldehydes, maybe five little as 2.5, which is the better company.
And so relative target or relative performance means comparing actual real numbers with other real numbers. And without defining a fixed target, you should never say let's make three percent or 10 never and the Internet fixed and people will bribe the system or play the game, the system.
So I very much recommend this white paper will look at which one it is. The beta cortex white paper called I think it's called. Yes, making performance work better cortex, not white. The number ten. OK, now it's very highly recommended. It also tells you why policies are a crime against humanity and so on.
OK, yeah, we will post these links below the video so that we have it in show notes and I would definitely read it.
Daniel, it's you talking a lot about this, the struggle between those different structures. So we don't have always a whole peachy organization or a complete hierarchy of hierarchical organization, command and control. And it's small, like the informal part of the organization. Could you give a little bit more insight about this? About the structure itself between those different environments that are clashing with each other or sometimes interacting with each other, but we have them always present, but we don't have like pure PTA organizations or pure command and control organizations.
Yes, that is a I've been with this movement, the movement and the movement for almost 20 years. And this is always a big topic. But there are no pure beta, pure alpha companies these days. There's always this dynamic between informal, formal and whatever. And so we at some point we wanted to solve this riddle and we solved it in 2011. We solved this when we figured out that every organization has three structures, every organization in the world, Aldy, Toyota and and also what's the most terrifying come out of control organization in the world.
Folks like him or whatever, General Motors, Bank of America, or whatever it is, whatever it is, and of course, most organizations are uncontrolled private organizations. So each of every all these organizations have three structures. We call this concept art physics. There's also a bit of politics at work. White paper number 11. It's called art physics clinged. This is really. One of the best works, one of the best things that we have developed in the last couple of years, so all physics is every organization has formal structure, which is also some top people at the bottom.
We have to have a CEO at the top and we have to have an audit committee. We must have contracts and we must have an accounting system and bookkeeping. It's needed to be within the law. Usually what we do is we overexcite most organizations over, accentuate formal structure because they think it matters beyond compliance, which is a mistake. People think that because I'm the CEO, I can steer, I know more, I should steer the entire company like a bat, like I can, and that's the mistake.
The mistake is not to have a CEO. A CEO is necessary for legal reasons for many companies to comply, to do their. Due to law, so the problem is not having a CEO, having managers. The problem is when these people start to steer the organization because they think that's how an organization works, so that's the first formal structure. Usually we try to draw an auction to depicted second structure.
You just mentioned the informal structure. So that's we like each other or we dislike each other. It doesn't respect hierarchy at all. Very powerful. And that's present in every organization. So every organization has huge power games going on, an informal structure from solidarity to. Mobbing, as we call it, back stabbing people at work, pulling all of them at one quotidien swing, as we've seen so many thousands of phenomena and informal structure, that's very powerful.
So we have formed such a very powerful but only good for solving complex problems, informal structure, very powerful, and it's more beyond the coffee, coffee breaks and so on. And here's the thing. Those two structures are very well understood in most organizations. Sometimes people ignore informal structure, which is stupid to ignore it. But those structures are well understood from structured informal structure. We like or dislike each other. But here's the thing. The most important structure do the work is a third structure.
We call it value creation structure and value creation structure by nature. That's why we call it physics flows from the inside out from center to periphery to market. There's no way around it, but most organizations have never thought about this and they don't understand the dynamics or the physics of that of that. If markets are complex, the periphery must be in charge to steer the center and not the other way around. So this is the structure of what we call beta usually.
And here's the thing. If you do not understand or respect this value creation structure, the thought structure in which the real work and value creation is done in innovation is then the performance starts of the pyramid and this structure start to have an epic fight.
And that's bad. Formal structure should do what it does best, which is to generate compliance, to fulfill the law, and you should liberate value creation structure that that people with mastery and teams can be in charge. And it's very different to a boss and somebody with mastery.
They may be the same people, but usually it's not. So these two structures I'm in, in this epic struggle in most organizations. You said that are no organizations. Yes. Because there is this epic fight going on between the structures. For example, people with mastery want to do the work, but they can't because bosses are staring so hard and there's so much pain and allocations and budgeting and performance appraisal and all this bullshit. So there's a conflict and through informal structure in politics, you try to smooth it out.
Happens all the time, an organization extremely wasteful leads to Zipp performance, so the only solution, the only salvation for organization is to put a value creation structure first to the centralized right. That's what Toyota and Semco and Audi decentralisation and formal structure at the CEO of woman Terry Kennedy.
She says it's not my duty to know what's going on in the company, how people are doing the work, and just to see what my role is to attract people to the company and represented well, continue to sign the legal documents because she has to do it. Nobody else can do it. That's it. That's the CEO. The CEO is not the most powerful person, the hero at the top and just serving the company so that other people can run the business.
That's what somebody would say 20 years ago. And so this this idea of understanding the three structures of organization, understanding physics, is key to seeing better organizations emerge. It's not a this is not about revolution. That is this is just about putting value creation structure first, understanding the vocabulary, the vocabulary put. Would you put KPIs on this value proposition? To measure it, yes, Billy Crystal structure within the replacement structure, you have teams in the center, teams in the periphery, and you measure all of their performances.
And picture not two people, five to like that.
And then we have the same understanding now. Exactly. This is where our evolution from the initial crash through this change where people left and we just tested. Right, I, I didn't read your white papers. Maybe I should have done that before. I had no change manager or whatever. I just decided how it works won't work for me anymore. And I want to have people that work, self-motivated, self-determined, independent, etc.. And now there is I am here.
I want to be there the way between that, no ideas. And we just figure it out. And today, I never want to go back to the old system again. It's so much more efficient. And I have a team, we are, as we say in Germany, sitting in the same boat. Right. We share common interests and they are not my resources to earn money. How it must be for yeah, I want one big advantage.
We have broad solutions and fleshpots that and that, I can say without making commercials for ourselves. So we respect each other. Right. You know, our teams and our relations between the co-workers and colleagues, there's just a huge amount of respect which helps us through those times and helped us over the last two or three years to figure out all the stuff. And then hierarchical company does what might never happen. As we as we come slowly to the end of our show today, could you help us to understand a little bit more about the topic respect Nields, how important is it and how we get out of this toxic environments that we found so often in different companies?
As you mentioned, a lot of them on the show, because it seems to me as one of the key factors or key indicators, how could things go better in the future as we still don't see this vast majority changing to Bittar or something similar?
Not yet. Not yet. And I think we will see more companies changing because now we know how to do it and very, very little time in just a few months. One of the recent news from our network is that we figured finally after after for almost two decades, we figured out how to how any organization can transform in 90 days, which is a huge step because. You wouldn't want to do it with consultants, right, so a good method must be consulting free, fast, reliable self, self organized as the organization we what we want to create.
We call that open approach open space. It is open source. Anybody can read about it and anybody can do it without without asking me, for example.
So that's an interesting thing. But you asked about respect. What? Respect. Yeah, I'm not sure it's a tough it's a tough topic for me, respect, what is that? I think respect and trust and culture and that kind of stuff. The results. So. You cannot. I cannot say to my wife, trust me more, respect me more. Let's have a bit of family culture. I could do it, but it's nonsense. She would laugh because ultimately these things respect and trust and stuff.
They are the result of the conditions and the things that we create and so on. And of course, we want to have a respectful environment. I want to have respect within my family organization, my and our societies. Everybody wants respect and trust. However, you cannot create it. You cannot force it. You cannot you know, wanting it is not an option. We have to create conditions. And I can only tell you an alpha organization will always strive on fear and loathing and in a way of disrespect its disrespect because any command and control organization tolerates and creates learned helplessness.
So that's the antidote of something like respect and dealing with each other. I love them so.
So within command and control systems, we cannot expect things like trust or respect or social density or for fulfillment of people's potential. We cannot really expect it because those organizations are built against it. It's like authoritarianism in Turkey currently. Unfortunately, it's a setting we cannot expect trust to grow because people will, you know, as in fascism in Germany 70, 80 years ago, people were sniping, you know, talking, badmouthing each other. So I would badmouth you so that you would be thrown to prison or a concentration camp.
Authoritarianism, fascism, Stalinism always creates distrust and disrespect. It's a result of the system that we create. So what I can offer is only to say, OK, we know how better organizations work. We know how organizations like Central to your husband probably agree on Southwestern's how they work. We know the principles. We know that we know that decentralization is key. We know that teams are key. We know that we should not. We know that we should not make any plans and set fixed targets and should not have those systems.
And we know all all about how the both sides of this work world work. We know that our duty as entrepreneurs or people who aspire to improve the world should be to create such systems. And then I think we will see a lot more respect, more trust, not a lot more fulfillment of human potential, a lot more a lot more democracy.
I can 100 percent confirm that when I compare our culture before twenty eighteen to the culture that we have right now. Exactly. We see this phenomenon. Yeah.
And the culture is like the things that you do to the system that work well. They ripple through into the culture in some way of. One thing that you mess up today, if today to shout at an employee that may show up in your organization culture is something terrible two years later or one year later. So these things are not directly linked either. And then never forget, organizations are complex systems. The theory is very important for us.
It's very informative, has been very informative for improving the Codex model as well. This distinction between center and privacy and what it does to the organization to not steer internally, but to decentralize the steering to the market and have self organization, self organize, self organized self structure network to respond to market complexity. Great. I hope it was a decent answer to your question about respect. Yes, yes. Yes, of course. Of course. Thank you so much news.
I think we are way over time we want or your listeners too much. Thank you very much for for participating and sharing those inputs was very, very interesting, I think, for Emmanuel as well. I could see him on his chair weeping. And this is this is great news. How could people get in contact with you or with the bitter cold network news network if they want to know more about it, if they want to get involved, if they want to learn about the system and the codex itself?
Yes, the network is unbeatable. NextG Peter Codecs, AC X Stoddart, my my company or our new company is called Rete 42. That is read 40 letters and then the two as a number forty two dot com and I have a personal website as well. Needs faking dot com and so all of this is good. I also published two books that I have recommended a little bit during the session, organized for Complexity and Open Space Beta. And most of most of our work is free though.
And I recommend you to to to make use of the fact that the beta cortex is an open source, social technology, cell structure, design and open space data, also open source social technology. So you can use these these words to Google it and to find out where you are, where you find the concept of you open source licenses and so on. So they are pretty used. And then I think we need those social technologies to make the world a better place.
Starting point. Better codex. Great. That's good closing point, thank you very much again, thank you as well. Thank you as well to our listeners for joining today. And we see each other and our next episode here with Frontier. I'd like to thank our guest, Niels Fledgeling, for joining us today. You can find out more about Neales and the Beina Codecs Network using the links in the show notes. Remember that you can find the full transcript of this episode on our blog.
That is also link to the notes.
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