Thursday, January 20, 2011

The Starfish and the Spider (Summary, All Chapters)

The Starfish and the Spider:
The Unstoppable Power of Leaderless Organizations

by Ori Brafman and Rod A. Beckstrom


When researchers studied how the brain forms memories, rather than a top-down structure, they found "a mess." Memories triggered neuron activity in multiple areas of the brain without apparent rhyme or reason. To wipe out one's first memory of grandma, one cannot simply go and eliminate the so-called "grandma" cell. Memories, even individual memories, of grandma are distributed throughout the brain structure.

This book is the story of what happens in an organization "when no one's in charge."

Napster, al Qaeda, Craigslist and Wikipedia are just a few of the decentralized organizations to be examined in this book.

Chapter One: MGM's Mistake and the Apache Mystery

A college student invented a music-swapping protocol that allowed people to download music and share it with each other. Unfortunately for the music business, they were doing this without paying any royalties. They were, in effect, stealing the music. The music industry took them to court and won. Napster was destroyed. But then other groups started file-sharing and the music industry went after them and the music industry again took them to court time after time and won. The industry attacked those downloading the music as well as those who enabled the thefts. But despite winning case after case, the problem of music piracy increased. It was almost as if the more they were attacked, the stronger they became.

As the authors were investigating this, they came across Tom Nevins, a cultural anthropologist. Nevin described Cortez's victory over the Aztecs, in which he completely took over the vast Inca civilization in a period of about two years by taking over their capital city and killing (and replacing with there own puppet) Montezuma, the leader of the Aztecs. Pizarro accomplished the same feat with the Incas, again completely subjugating an ancient and vast civilization in about two years.

He then compared the experiences of the Aztecs and the Incas with the Apaches. The Apaches had no pyramids, highways or gold. The Spanish tried to turn them into farmers and while some took up that life, many resisted. The Apaches, unlike the Aztecs and the Incas, held off the Spanish for the next two centuries.

The difference, per Nevin, was that the Apaches were a decentralized society. They had no big chief, no headquarters, no hierarchy. Leaders who did emerge led by example rather than by any type of coercive power. In the Apache tribes they were the Nan'tan: spiritual and cultural leaders.

In this type of "open system," power and information and resources and decision-making are distributed throughout the elements of the tribe. It's not that there are no norms or sanctions, it is that such norms and sanctions are taught and enforced organically within the tribe rather than as a directive from "the top."

The Spanish found, as the music industry found, that when you attacked a decentralized organization you, in fact, made them stronger. The Spanish destroyed the Apache villages – the Apaches responded by developing a nomadic existence. The villages were simply not essential to the Apache way of life.

This leads to the first principle of decentralization: [Italics] "when attacked, a decentralized organization tends to become more open and decentralized." [/Italics] (p. 21)

If one looks at the music industry "pirates," one sees a similar pattern.

Napster (which was broken by the legal system) gave way to even more decentralized players such as Kazaa (which was forced to take legal sanctuary somewhere in the South Pacific), Grokster, Napster II, and eDonkey with each one becoming more and more decentralized, becoming a tougher target to hit legally. The final and possibly ultimate level of decentralized music sharing is eMule – an ubiquitous program so obscure that no one even knows who wrote it.

An entity such as eMule is beyond the reach of any corporate lawyer. Who do you sue?

Chapter Two: The Starfish, the Spider and the President of the Internet

In 1995 Dave Garrison, CEO of Netcom (an early ISP) attempted to get backing from French investors. He hit a stonewall when he couldn't respond to their question, "who is the president of the internet?" (Exasperated, he finally told them he was.)

The problem with the French is they didn't understand the difference between a spider and a starfish.

This leads to the second principle of decentralized organizations: [italics] it is easy to mistake starfish for spiders. [/italics]

A spider is a centralized creature. Cut off it's head and you kill it.

A starfish is a very decentralized creature. Cut it in half and you'll end up with two starfish. Cut off its legs and each leg will become a starfish.

Another example is the Labor Day hurricane of 1935. Ed Sheeran attempted to evacuate his crew because he knew, based on his personal experience, that the storm was coming. But he had to clear everything through his Jacksonville, FL headquarters. The resulting "drag" on information-sharing and decision-making caused many of Sheeran's men to die.

This brings us to the third principle of decentralization: [italics] "an open system doesn't have central intelligence; the intelligence is spread throughout the system." [/italics]. (pp. 39 - 40)

Another decentralized organization is Alcoholics Anonymous. In Alcoholics Anonymous, no one is in charge. Yet everyone is in charge.

Decentralized organizations, unlike centralized organizations grow and adapt very quickly. So the fourth principle of decentralization is that [italics] "open systems can easily mutate." [/italics] (p. 40)

The fifth principle of decentralization is [italics] the decentralized organization sneaks up on you. [/italics] (p. 41)

If you look at the music industry over the last 100+ years you see a transition from individual musicians, to recorded music, to small independent labels, to large labels and then – with the internet and file swapping – to more and more decentralized structures: from Starfish to Spider to Starfish.

Looking at this economically, the sixth principle of decentralization is [italics] as industries decentralize, overall profits decrease. [/italics] (p.45)

How do you tell if you're looking at a starfish or a spider? By asking these questions:

1."Is there a person in charge?" (p.46)
2."Are there headquarters?" (p.46)
3."If you thump it on the head, will it die?" (p.47)
4."Is there a clear division of roles?" (p.48)
5."If you take out a unit, is the organization harmed?" (p.48)
6."Are knowledge and power concentrated or distributed?" (p.46)
7."Is the organization flexible or rigid?" (p.50)
8."Can you count the employees or participants?" (p.50)
9."Are working groups funded by the organization or are they self-funding?" (p.51)
10."Do working groups communicate directly or through intermediaries?" (p.52)

Chapter Three: A Sea of Starfish

This chapter examines a number of successful decentralized organizations already out there including Skype, Craigslist, Apache, Wikipedia and the Burning Man festival. These all provide the data for the rest of the book.

But the immediate lesson from all these decentralized organizations is the seventh principle of decentralized organizations: [italics] ...put people into an open system and they'll automatically want to contribute.[/italics] (p.74)

Chapter Four: Standing on Five Legs

Granville Sharp was a musician and lawyer in the second half of the 18th century in England. He spent much of his life as an abolitionist and the decentralized movement to which he belonged demonstrated the five foundations of decentralized organizations:

1.Circles (p. 88): Successful decentralized organizations have many circles of volunteers who work with each other in non-hierarchical ways

2.The Catalyst (p. 91): Successful decentralized organizations usually have people who function as catalysts or facilitators or spiritual leaders rather than as top-down, authoritarian bosses.

3.Ideology (p. 94): Successful decentralized organizations are defined by their ideologies: ideologies that are freely embraced by their participants

4.The Pre-existing network (p. 96): Successful decentralized organizations often piggy-back off pre-existing networks. In Sharp's case, it was the Quakers. Today, the internet often fulfills that function.

5.The Champion (p. 98): Successful decentralized organizations often have a "front man" who champions the cause to the public. This person balances off the more low-key, behind-the-scenes catalyst. With the English abolitionists, that champion became Thomas Clarkson and the political face of the movement was represented by William Wilburforce, a member of Parliament.

Chapter Five: The Hidden Power of the Catalyst

Catalysts generally work by letting go and trusting the community. They often work behind-the-scenes. They generally have some or all of the following tools:

1.Genuine interest in others
2.Loose connections with a wide circle of people
3.Mapping – the ability to connect people
4.A desire to help
5.An ability to meet people where they are
6.Emotional intelligence
8.Ability to inspire
9.Tolerance for ambiguity
10.A hands-off approach to leadership
11.Receding – catalysts know when it's time to get themselves out of the way

Chapter Six: Taking on Decentralization

A young man known only as, "Sky" travels to a new town and recruits a circle of people to go into the woods on hunting days, track the hunters and make enough noise to scare the game. They wear orange jackets so that if an enraged hunter shoots them, it's obviously a homicide. Sky's various circles were loosely connected with a larger group of loosely connected circles known as the ALF (Animal Liberation Front), one of the largest animal rights group in America and Europe.

The ALF formed in the early '80s and made a name for itself by breaking into animal research labs and "liberating" the animals. They would take pictures of abused animals and circulated them to the press causing immense public relations problems for the lab. Increasingly the raids became more destructive and activists began burning labs to the ground. The FBI investigated and even penetrated some circles with informants. The results were minimal. A few ALF folks went to jail which largely served to make them folks heroes within the movement and attract even more new recruits.

The labs responded to the threat by changing the design and security procedures of their labs, in essence turning them into large underground bunkers with security cameras and other layers of security.

As with the Apaches, this demonstrates the eighth principle of decentralization: [italics] when attacked, centralized organizations tend to become even more centralized. [/italics] (p. 139).

A similar pattern of decentralized attack and centralized defense can be seen with Al Qaeda which almost precisely parallels the ALF situation.

Still, starfish organizations are not invincible and there are more effective countermeasures than reflexive centralization.

STRATEGY 1: Changing Ideology

The first example of changing the ideology takes place in Kenya where Ingrid Munro, a Swedish UN worker repeatedly put herself at risk to help the people in her slum. When she announced her retirement, the locals despaired. So Munro determined to help them become self-sufficient.

She told the women in the slum that for every unit of money they could save on their own, she'd loan them two units. The circle of women who did this guaranteed each others' loans and then used the money to start small businesses and so Ingrid Munro was an early pioneer in micro loans. Basically, she created a bank for poor people and folks for the first time in their lives had access to credit.

By enabling the women to build a better standard of living she slowly changed the ideology of the slum from, "my life has no future so I may as well join Al Qaeda," to "if I apply myself, I can create a better life for myself and my family."

A second example is in Afghanistan where a local catalyst named Abdullah, working for an organization called Future Generations started the "Poggel Party." "Poggel," in the local language means, "crazy." Abdullah told folks in his assigned village that if they were "poggel" enough to believe a better life was possible, join the party. Membership in the party cost 200 mud bricks.

They then used the vast amount of bricks they collected to begin a building program of schools and even hospitals. Again, with the prospect of a better life, Abdullah gradually changed the ideology of the village.

The third example was in Pakistan following the Kashmir earthquake of 2005. American Chinook helicopters brought relieve to isolated villages. The people, originally distrustful of Americans, began to consider the Chinook helicopters as America's best ambassadors.

None of these efforts are easy or quick. But with effort, the ideology that upholds a decentralized organization (in these examples, terrorist organizations) can be changed which undermines the group.

STRATEGY 2: Centralize Them (The Cow Approach)

As we saw, the Apaches resisted the efforts of the Spanish and later the Americans to change their culture for hundreds of years. Per cultural anthropologist Tom Nevins, the Apaches were a problem until 1914. Then the military came up with a startling solution.

They gave the Nant'ans cattle. By giving them a valuable and limited resource they changed the source of their power from the spiritual to the material. They now could either give or withhold this to individual members of the tribe as they saw fit.

The Nant'ans centralized power to protect their property and, once having done so, they became manageable just as the Aztecs and Incas before them.

A second example is AA (Alcoholics Anonymous). Bill W, the founder, wisely decided to let go of the reigns of power. When he finished, "The Big Book" he determined that all proceeds would go to the organization. At that time, there were probably only about a hundred people in the movement and he probably determined that such small amount of money as might be raised from book sales could be used to purchase chairs or stationary or whatever.

The book became a worldwide bestseller and suddenly a huge amount of money pored into the organization. They began fighting over what to do with it and even sued members to protect their copyright on the book.

As with the Nant'ans, with a valuable resource (whether cows or book royalties) comes the desire to centralize to protect and control the resource.

Give a catalyst control over the valuable resource and they become a CEO and their circles become competitive rather than cooperative.

STRATEGY 3: Decentralize Yourself (If You Can't Beat 'Em... Join 'Em)

One country having spent enormous financial and personnel resources attempting to fight Al Qaeda came up with an effective and cheap – if brutal – alternative.

During the day, their police functioned as normal police involved in normal, counter-insurgency procedures. At night they'd return in disguise, be given plenty of ammunition, and be sent out to hunt Al Qaeda as if they were prey. The police didn't even know which other police were involved and which were not. The program was devastating to Al Qaeda because the police knew their neighborhoods and knew who was a bad guy and who was a good guy.

Chapter 7: The Combo Special: The Hybrid Organization

eClass229 is an online store where, through its eBay store, one can get quality clothing at a fraction of the price you'd pay at a "brick and mortar" store.

The roots of eClass229 go back to 1995 and an online company called Onsale. Onsale knew that a critical element of buying online is trusting the vendor. So Onsale used only trusted manufacturers and pledged to stand behind the products they sold.

Along comes a person named Pierre Omidiar. He creates a similar company which soon became eBay. He added an additional twist to the Onsale concept: instead of a store, eBay would run online auctions in which buyers and sellers interacted directly with each other. So eBay never had possession of the inventory.

As with Onsale, Omidiar realized trust would be the central component to the system. To build trust into the system he empowered both buyers and sellers to rate each other on the trustworthiness of their transactions and to post those "trust" results to the web. Research has shown that those sellers with the highest trust rating earn significantly higher than lower trust sellers selling identical items. Trust is a commodity for which people will pay.

Despite all this, eBay is not a decentralized organization. It has a corporate headquarters, a CEO and a large physical plant employing many people. It is a hybrid organization: a centralized organization that has decentralized its customer service operation.

A key part of eBay's continuing success is due to its acquisition of PayPal. While people are willing to trust anonymous vendors with good trust ratings, they DO NOT trust them to the point of giving them their banking information. This is where PayPal comes in. PayPal is a centralized organization that guarantees the financial security of your credit card or other banking information.

Seeing eBay's success, Yahoo and Amazon attempted to duplicate that success with their own online auctions. And to lure customers from eBay, they eliminated eBay's listing fees.

One would think this would have worked: all other things being equal, lower price should win.

Their ventures, however, led to only limited success. The reason? Because eBay already had a vast number of "vetted" vendors. Buyers were unwilling to switch because the vendors at Yahoo and Amazon weren't vetted and Sellers were unwilling to switch because they were already established as vetted on eBay and saw no reason to start over again on a new network.

This situation demonstrates, "the network effect." Imagine the first person to have a phone. It is useless. But once the SECOND person acquires a phone, the value of the first phone goes up because you now have someone to call.

As each new phone is added to the network the value of ALL phones on the network go up. User ratings on eBay had the same, "network effect." One user recommendation is not very helpful. But millions of user recommendations are.

Despite its failure as a whole to steal away eBay's success in decentralized marketing, it HAS had limited success with low cost items such as books, CDs and DVDs and it allows third-party vendors to list their wares right alongside Amazon products.

Amazon has also introduced a new twist: user reviews of the products themselves. This is initially baffling. Unlike eBay "trust" ratings, product reviews are not essential to the system as a whole so the motive for writing such reviews is not to ensure the system's survival. Writers don't get paid to write reviews and, in fact, they don't even own the reviews they write – the right of ownership passes over to Amazon. So why do they do it?

They do it because that is the nature of open systems – people who use the system want to contribute to the system.

Another hybrid example is Oprah's book club. She has a centralized company. She recommended her first book. Sales went through the roof, far beyond what could be explained by her mere endorsement.

It turns out, a central aspect of Oprah's book club was for circles of women to get together to take time for themselves and to read quality novels. The 'bounce' occurred through the many decentralized circles of her club. Without intending to do so, and without making any money in the sales of the books, Oprah Winfrey became a powerhouse in the publishing world.

The creator of TurboTax and Quicken, the owner of Intuit (Scott Cook), found a similar result when he set up discussion boards on his various pieces of software. People would ask questions and they'd be answered at lightning speed. And the answers were good – so good that he incorporated some of them into the official documentation and even made product changes based on recommendations.

The sites sell no products – not even his own. And he made no attempt to "brand" the sites with the Intuit name. He simply found out that the entire user community was smarter than any one designer and he leveraged that fact to his company's advantage.

A next step is taken by companies like Google, Mozilla (Firefox), Apache and Sun Systems which utilizes their user communities to actually create the open source products. IBM even belatedly entered the game once it starting losing significant market share to open source Linux, assigning about 600 of its engineers to study and help build Linux and then centering ITS efforts on building computers that would run the operating system.

Beyond this, Sun and its competetor IBM tout the fact that applications created by either company will run on either machine. This is the opposite of the earlier strategy of trying to lock customers in to a proprietary system. Now, if customers try one package and are unsatisfied, they can painless switch to their competitor's. Sun has seen a rebound effect from those who abandoned their product, were unhappy with the IBM alternative and came back – grateful to Sun for allowing them an easy out.

Another example of hybrid decentralization is GE under Jack Welch. He made each operating segment completely independent – independent to the point that if they purchased resources from another segment they needed to pay full market price!

While this seems counter-intuitive (to say the least) it fit in with Welch's strategy: reduce operating inefficiencies, be number one or two in a market or get out and, if a business unit can't do that, sell it.

Another example of a centralized organization successfully using decentralization strategies is venture capitalist Tim Draper. While most venture capital firms are like fortresses where the only way your proposal is even seen is if it is promoted by someone trusted by the firm, Drapers firm opened offices all over the world and examines ever proposal on the idea that local markets (e.g., in foreign countries) know best what will work in their market.

The final form of hybrid organization looked at is economics Professor David Cooperrider of Case Western who developed a planning tool known as "appreciative inquiry" in which individuals at all levels of the organization are paired with each other across hierarchical lines and then interview each other using questions Cooperrider developed to encourage people to open up with each other. They then come back to a large meeting in which each contributor shares their vision for the company. While sounding touchy-feely, it captures information from the very boundaries of the work environment and has been used successfully by trucking companies, the US Navy and other industries.

Chapter 8: In Search of the Sweet Spot

In hybrid companies, one must find the best possible balance – the sweet spot – between centralization and decentralization.

This chapter reviews the various hybrids discussed in the previous chapter and talks about how they swung back and forth until they found the proper mix, the sweet spot, between centralization and decentralization.

Generally, information-oriented operations (e.g., the bidding and trust rating processes on eBay) or operations where something illegal (e.g. the Animal Liberation Front) or embarrassing is involved (e.g., AA) will tend to swing towards decentralization while operations requiring security and accountability (e.g., Paypal) will tend to swing towards centralization.

Chapter 9: The New World

When the world is changing rapidly, it is easy to be left behind. While the rest of the world was investing in telephone networks in 1917, the Soviet Union – fearing the decentralized nature of phone networks – opted instead for a nation-wide system of loudspeakers allowing the government to talk to the people while inhibiting the people's ability to speak to each other. Their poor strategic decision preventing efficient collaboration between workers certainly hindered their economic growth.

At times like that (and times like now) one discovers the rules are changing and new rules apply.

RULE 1: Diseconomies of Scale
It used to be the big dogs had the clout. Not necessarily anymore. Being small allows one to leverage the lowers costs of fewer employees and infrastructure. Think ATT and Skype.

RULE 2: The Network Effect
Each node added to the network increases the value of each node and the network as a whole.

RULE 3: The Power of Chaos
Whereas the old economy advantaged "command and control" the new economy increasingly values creativity. And creativity requires a certain capacity for chaos.

RULE 4: Knowledge at the Edge
There are ways in which the line worker at a car assembly plant knows more than the CEO. Smart companies will harvest this "knowledge at the edge" and increasingly learn to decentralize knowledge throughout the organization.

RULE 5: Everyone Wants to Contribute
The "Burning Man" festival, Wikipedia, Amazon user reviews, etc. demonstrate a fundamental trait of decentralized, open systems: the people who use the system will want to contribute and add value to the system.

RULE 6: Beware the Hydra Response
There are ways of battling a decentralized organization – but DON'T try to cut off its head or you'll discover what the music industry found out when it attempted to take on the music pirates.

RULE 7: Catalysts Rule
Catalysts are essential to decentralized organizations but not because they "command and control" but because they inspire, empower and know when to let go.

RULE 8: The Values ARE the Organization
A decentralized organization without an identifiable boss, staff or structure IS its ideology. Take away or change the ideology and the organization dies.

RULE 9: Measure, Monitor and Manage
The metrics change. "What matters more is looking at circles. How active are they? How distributed is the network? Are circles independent? What kind of connections do they have between them?" and "How's the circle's health? Do members continue participating? Is the network growing? Is it spreading? Is it mutating? Is it becoming more or less decentralized?" (p. 207)

RULE 10: Flatten or Be Flattened
You can beat a decentralized organization by attempting to change the members' ideology or by trying to centralize them. But often the best response is to meet a decentralized threat with a decentralized response. For traditional centralized organizations such as General Motors or GE, that meant becoming more decentralized or even becoming a hybrid.


The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations
Ori Brafman and Rod A. Beckstrom
First published by Portfolio, A Member of the Penguine Group (2006)
Penguin Group, New York, NY

No comments:

A 13 year old kid has a few items on his shopping list

  A 13 year old kid has a few items on his shopping list: Beer ❌ Cigarettes ❌ Racy Magazines ❌ Lottery Tickets ❌ Gun — No Problem! Another ...