Decentralization in the Workplace: How Distributed Management is Changing the Game
In October 2018, the Japanese IT company Yumemi launched a so-called “Agile Organization Declaration.” Over the years, this inspired them to launch a series of unique workplace practices such as the "Everyone-CEO system,” an unlimited paid leave policy, radical transparency, an extremely decentralized organization structure, and the self-determination of salaries. Recently, I interviewed Toshiyuki Kataoka, the CEO who has been driving this change. This is what I learned.
Before we dive deeper into the “Agile Organization Declaration,” let me first give you some background about the company.
Yumemi was founded in 2000 by a group of Kyoto University students. They provide software development support to major companies and develop applications and systems used by 50 million end-users. They call their business model "BnBtoC" (business and business to Customer).
The company currently has about 300 members, 60-70% of whom are engineers. Their offices are in Tokyo, Kyoto, and Kamakura. However, after the COVID pandemic, they decided to work fully remotely.
A need for change
While they currently employ about 300 people, their “Agile Organization Declaration” aims to build a future-proof structure suitable for organizations with over 1,000 employees.
Naturally, I asked Mr. Kataoka why. Here’s what he had to say:
"The reason we set the goal of 1,000 people is based on the many needs and challenges we face from our Japanese clients. In Japan, where digital transformation seems to lag behind, few companies can meet these needs, and expectations for Yumemi are high. There is an assumption that scale is necessary to meet these expectations.
In addition, to further enhance the technical quality we offer, we need expertise in each IT specialty area. However, the speed of evolution in the industry is so fast nowadays that there is a limitation in what an individual can learn and keep up with. That is why we want to create specialized teams for each area of IT specialty and create a system to keep learning in an organized manner.
For example, if we consider about 30 people working in 15 different areas of expertise, then we would need at least 450 engineers. Depending on how we think, there is a difference in whether we are aiming for 1,000 or 450 employees, but we certainly want to break through the so-called ‘300-employee’ barrier.
To break through this barrier, we want to create a working environment where people with big talents and strong personalities can be part of our organization while still being able to keep their individuality alive. I envision that as a working environment where employees are ‘embedded’ rather than ‘engaged.’ Because each individual may have talents in their particular expertise, but by bringing together people with diverse expertise, the organization as a whole will be in a state of broad coverage.”
These were all valid reasons for Mr. Kataoko to start changing many things in their organization. In this article, I will cover the following ones:
- Decentralized Organization
- Distributed Management
- Distributed Decision-making
- Radical Transparency
- Self-set Salaries
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Let's start with the organization itself. Yumemi used to rely on the ordinary hierarchical organization since its founding. But around 2014, they realized their traditional structure's limitations.
There were multiple reasons to start changing their structure, but the main objective at that time was to reduce the workload of project managers.
As Kataoka explained:
"Around 2008, Yumemi was building a store-visit application for a client with several thousand stores nationwide. This required both 'high agility' and 'system robustness.’ It was a highly complex project that could be described as the cutting edge of digital transformation. Still, it became a huge burden for the project manager responsible for this particular project.”
It was the first sign that something needed to change in a structural way. “Then, in 2011, a major system failure occurred,” said Kataoka. “This was caused by this structural problem of excessive workload on the project managers. At that time, three project managers told me they wanted to step down from their roles. So, we decided to change the traditional role of the project manager by gradually decentralizing the organization.”
So, how has the organizational structure changed since the Agile Organization Declaration in October 2018?
From a structural perspective, the organization is now built up by what they call “Guilds” and “Teams.” Let's take a deeper look at each concept.
The largest unit in Yumemi is called a Guild. These are organized by IT specialty. There is, for example, an “Android Guild” for Android engineers, an “iOS Guild” for iOS engineers, a “Frontend Guild” for front-end engineers, and a “Serverside Guild” for server-side engineers.
But there is also a "Sales and Marketing Guild," a "Design Guild," "Project Management Guild," and a "Corporate Guild." (In line with their radical transparency policy, the organization chart is also public on miro)
Within each Guild, you can find several "Teams.”
Teams are the smallest units in Yumemi. They are limited to a maximum of seven members, collectively responsible for their client projects. Teams stay small and are encouraged to split up when they exceed the critical number of seven members. Moreover, teams choose their own representative, but this person is not expected to play a management role.
Each member of Yumemi is required to be part of at least one team, and members choose which team(s) they want to join. They may belong to more than one team, but they are expected to contribute at least 80% to any one team.
Since teams are responsible for their own dedicated client projects, and members have the freedom to choose their own team, members can choose a mix of client projects that appeals most to them. Moreover, teams can decide for themselves which projects they want to work on or abstain from.
So, how does this work in practice? Let’s examine a quick example.
The process starts when the sales team (as the client contact point) acquires a new project opportunity. (Note: this is just an opportunity, not yet a project.)
Before the sales team can turn the opportunity into a project, it must first find an engineering team in the firm willing to take on this work and willing to accept the proposal acquired by the sales team. Once this happens, the sales team can start introducing the engineering team to the client, and the project can finally kick off.
This mechanism is all focused on motivating the engineers, admits Kataoka:
"Engineers can voluntarily move to another team if the team they belong to is engaged with projects that do not appeal to them. On the other hand, if the sales team does not take up opportunities for projects that are interesting to engineers, they will have a hard time finding a team that will take them on. This can be a hassle for the sales side, which is a challenge in the current organizational structure.”
The decentralization of Yumemi"s organizational structure was accompanied by the distribution of management roles. This was done to ensure that the work the project managers traditionally did was now distributed into different roles performed by different people.
From a management perspective, the organization is now managed by "Guild Committees," "Tech Leads," a "Center of Excellence," and a "Company-wide Committee."
Let"s take a deeper look at each concept.
Each Guild is managed by its own committee. While teams are groups of employees to which each member must belong, Guild Committees are groups of volunteers from different teams of one Guild. The Guild Committee is responsible for most of the tasks that are traditionally assigned to the role of a middle manager, such as hiring, training, improving business processes, and so forth.
Joining a Guild Committee is voluntary—employees only participate in this work based on their availability and intrinsic motivation. As such, the Guild Committee involves several people in tasks that would normally be handled by a single manager.
In the short term, this approach may seem unproductive and costly in terms of communication. However, Yumemi argues that this system reduces their dependence on a single manager and allows for more span of control in the organization, which, according to them, contributes to organizational scalability.
As a positive side effect, they also found that it contributes to strengthening relationships between people from different teams since there are now more opportunities for members of different teams within the same Guild to interact through committee discussions.
Each Guild also has its own "Tech Leads," which can be seen as subject-matter experts. They are responsible only for technical advice and mentoring in their respective Guilds.
Recently, as the number of Tech Leads has increased, some are taking on more individualized expertise roles, such as the "contributing to an Open Source role" and the "communicating outside the company role.“
Center of Excellence
Next to Tech Leads, there are also members who are part of the "Center of Excellence,” which are in-house experts who can provide services and have a responsibility in the "people areas" such as counseling, coaching, career consulting, and development planning.
These experts work throughout the entire organization, not only in these roles but also in different areas of expertise, such as engineers with certification in system coaching.
The management of major issues that transcend multiple Guilds are dealt with by the "Company-wide Committee." In other words, this committee is responsible for all kinds of company-wide organizational matters that individual Guilds cannot handle alone.
Members can only be part of this committee for a maximum of 2 years, and they must apply for the position either by self-recommendation or on the recommendation of somebody else. New members can only be assigned after a screening process by the existing board members.
The committee now consists of about 20 members who voluntarily participate in the role. This rather large number of people is intentionally chosen as a way to develop more people in their leadership skills on a wide variety of topics.
The committee makes its decisions during so-called "Broad Meetings," which are similar to traditional Board meetings. They are “broad” because they cover a wider range of topics.
To further decentralize the organization, Yumemi started to make changes in how they make decisions in the firm.
The source of inspiration for this practice was the "advice process" Kataoka learned after reading Laloux’s Reinventing Organizations:
"I was shocked when I learned about the advice process. I felt that using this process would increase the organization's scalability through the distribution of decision-making, which had previously been biased toward a few managers. Now I understood that it was possible for a ‘process' to decide things in the organization, rather than placing certain levels of 'authority’ to a specific person."
Since Yumemi is an organization full of engineers, a process called "Proposal Review Request", similar to GitHub"s "Pull Request," was defined.
The process is fairly simple:
- A "committer" writes the proposal and asks for review from a certain number of relevant stakeholders
- The stakeholders write a review
- The committer checks if the proposal needs any modifications from the review and merges whatever changes needed
- The committer commits the proposal by themselves
However, for this advisory process to work, everyone needed to have equal access to information, so the company took a step toward radical transparency.
This radicalness is reflected in the fact that everyone can view almost everything about the organization in Notion. Here, you can view the internal structure, practices, and systems, as well as the history of changes and decisions made in the organization.
Although Yumemi tried to make this information public, some members objected, saying, "Even if we have information, we can't make decisions if we don't have the authority.”
So, Yumemi went one step further and essentially distributed all authority to all members so they could make decisions on par with the CEO.
Although there is still a process of systematic approval by the CEO as a governance mechanism, Kataoka says that "what I do is not approval, but rather confirmation that I saw it.”
Rewards and compensation at Yumemi are determined through a self-determination process based on the above-mentioned advice process. In short, each member is supposed to follow three steps to set their own salary:
- Step 1. Each employee first creates their own career plan. They do this with the help of a colleague from the Center of Excellence who functions as a “career counselor” to help them draft a proper career plan. In their career plans, each employee proposes a specific salary for themselves, among other things.
- Step 2. The employee must let their career plan and proposed salary be reviewed by at least three other people through the advice process described above. This is done on an annual basis.
- Step 3. When the employee has received advice from at least three people on their proposed salary, they must take that advice into account and then decide on their own salary.
This radical process was only introduced three years ago. But now that members have become more accustomed to the process, it has started to evolve little by little. For example, certain more detailed guidelines are created for different job categories to make it easier for members to set their own salaries.
Although Yumemi aims for radical transparency, the company is still cautious about disclosing salaries. This is because there were initially many negative reactions to the disclosure of salaries. The company felt that the benefits were not worth the effort at the time, so it decided not to disclose everyone's salary uniformly.
Although Yumemi still does not officially disclose everyone's salary, they also do not prevent members from disclosing their own salaries. In fact, they actively encourage employees to self-report their own salaries to get a better sense of the market rate in the company.
Looking toward the future
So, what does this all hold for the future of Yumemi?
I’ll close with some final remarks from Kataoka:
"As for the organization's design, I believe it can function with 1,000 people as it is now. For example, we have no more than ten people out of the 300 that do administrative work. In the future, we aim to keep that within the 2% range.
I see this moment as a time to invest more in recruiting and training people to run this organization in a decentralized manner. However, we encounter similar management challenges in different teams, and in some ways, we may be reinventing the wheel.
Nevertheless, I believe that several best practices will eventually be created within the organization by our own employees. These practices will then be spread horizontally throughout the organization, and they will finally be united and developed into one optimal way to self-manage the firm."
It will certainly be interesting to see if Kataoka’s predictions come to fruition. We’ll certainly be keeping tabs in the meantime.