In this episode we welcome Niels Pflaeging as a guest. Niels is a full-time management exorcist, and he takes his vocation very seriously. Apart from that, one can say that he has a very philosophical view when it comes to leadership, the world of work and organizations. And he not only talks about leadership, future-proof and more humane organizational business models, but he also writes about them. So first listen to this great episode and then grab one of Niels' bestselling books.
When Niels is described as a management exorcist, that is really no understatement. Right at the beginning of this extraordinarily revealing conversation, he points out where the evil is and what is going wrong in our world of organizations. Don't worry, dear listeners, you are still on the right channel, we have not changed the target audience.
The struggle in so many companies and organizations and the relentless efforts of so-called management to maximize the efficiency of every unit, however small, is constantly increasing. It is becoming increasingly clear that the non-innovative and inhumane command and control structures no longer work. Instead, we should ask ourselves: have they ever done so?
But what alternatives do we have, what do we know about organizations that have left the alpha control and command system or never entered it? The good news is that there are beta companies and environments, some of them even for decades. Niels and the members of the Beta Codex network are keen to make many from the few examples. When things get out of hand like this, sometimes you need a modern management exorcist (or rather an army of them) to dispel the ubiquitous evil that surrounds so many of us in our daily working lives. Can we get rid of it?
Change can happen quickly. Reversals and reorientation are possible, for small, medium, large and huge organizations. When we believe what Niels says, it takes about 90 days, a lot of courage, and intention.
Jump in and decide for yourself.
If you listen between the lines, you can hear and feel what drives Niels.
Questions and issues that we have explored in-depth during this episode:
EXCERPTS YOU MIGHT WANT TO JUMP IN
The big riddle or: Why the world of organization doesn’t change [03:40]
What do some large organizations do differently? [06:23]
Should we stop planning? [07:20]
Why we prepare and what is the difference to planning [12:05]
The Soviet-Style planning is still happening all around [16:24]
What makes a team? [22:45]
Let’s talk about vulgar business models [31:19]
Beta Codex like companies [33:52]
What is the Beta Codex all about? [38:12]
Why the Alpha model is not working and how that affects business as we know it [40:59]
What is relative performance and how you measure it? [43:43]
The real role of the CEO [50:51]
Flash Hub provides tools, workflows, and skills to hire freelance experts and set up your first team in a matter of days. Develop virtual leadership skills, solve the digital agency hamster-wheel issue, and build freelance teams with ease. We have selected best practices and the most helpful skills you need to work smart, less, and grow a digital business that is easy to sustain you can work on from virtually anywhere. Visit FLASH HUB to get free access to the virtual business builder training. Learn how to build, grow, and scale your business with virtual teams and global freelancers in this free training.
For our international community. This is an English episode and you can find the transcript of this conversation now in more than 20 languages on our blog, at happy scribe public, or watch the video with subtitles for this episode on our YouTube Chanel.
Website of Beta Codex Network
The BetaCodex white paper No.10 Making Performance Work (BetaCodex10)
The BetaCodex white paperNo. 11 Org Physics – Explained (BetaCodex11)
Website of Niels’ consulting firm Red42
The personal Website from Niels Pfläging
The Book Open Space Beta from Niels Pfläging and Silke Hermann
The international bestseller Organize for Complexity from Niels Pfläging
Have a look at the mentioned Dutch healthcare company Buurtzorg
Find out more about the amazing Jos de Blok, Buurtzorg’s founder
Lean how Ricardo Semler lead Semco to a self-organized enterprize.
Visit the mentioned companies, how they work and what makes them great W. L. Gore & Associates , Handelsbanken, The Toyota Way, dm-Drogerie Markt, Southwest Airlines
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Dani Guaper
Hello and welcome to our new episode here at Virtual Frontier. My name is Daniel. And our guest today is Niels Pfläging. Niels is a founder and Associated of the Beta Codex network, and as well president of a consulting firm in Germany in Wiesbaden. But, um, yeah. Niels, thank you very much for joining us today. Nice to have you here. Please introduce yourself. Explain us a little bit. What is Beta Codex and what is the network behind it? That is very interesting to me.
Niels Pfläging
Hi Daniel, hi Manuel, thanks for inviting me. So, yeah, I'm happy to be talking about Beta and the Beta Codex network. But maybe a good way to explain what Beta is is, to just say it is the alternative to Management the social technology. It is the antidote. It's the kryptonite to Management the social technology to pyramid organizations to command and control. That is what it is. It is the antithesis. The opposite.
Niels Pfläging
So and this came, let's say it was discovered Beta was it was not invented, it was discovered around fifteen, twenty years ago by a bunch of British guys from the Beyond the budgeting roundtable of which I became associate 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 annual planning. And they found some very interesting companies or larger companies, successful companies, mostly in Europe, some in the United States as well. And then they found that was in the year 1999 or 2000, they found the Swedish bank, Handelsbanken an organization that has 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 describe OK what makes organizations like Toyota Handelsbanken or in Germany DM Drogeriemarkt the drugstore and retail company. And they these guys wanted to describe what made what this model was made up and made from. And they figured out the principles behind it. And that is what we today call beta or the beta Codex. The principles of running organizations without command and control, without centralized steering, without annual planning and an Agile way, so to say. Radically decentralized organizations without heroes at the top, not pyramid-shaped organizations, but we call them peach-like radically de-centralized. That is Beta, that's Beta Codex. 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 technology.
Dani Guaper
That was my initial question. So why I understand the Beta Codex. I understand the model behind it. When I was doing my research for our podcast today, I'm fan of it. I like it. But I see, there are a few companies or organizations that maybe go in that direction somehow. But the vast majority isn't. Well, what is happening? Why?
Niels Pfläging
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 even humanly appropriate for human beings. We know that. But still, the world hasn't changed. 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 when one of the main inhibitors is that we. Well, let's put it differently. Make it turn it into a little riddle. Why do you think are there so few imitators to the Toyota model? We have known about Toyota and how great it is and about Lean and all that stuff for 40, 50 years. Right. The company Toyota is doing has been doing it for 60 years. But still German car manufacturers for example run on command and control. They totally do it, and American companies in Detroit haven't changed either. And most of the Korean companies are command and control as well. So why aren't we learning from the good examples? That's the big riddle.
Manuel Pistner
So maybe because it still works for them.
Dani Guaper
Somehow. I would say the struggle, it is not big enough until now.
Niels Pfläging
How big can it be?
Niels Pfläging
It works for them only, I think it only works for them because they think it's normal, what they are doing is normal. Yeah, and it's inevitable. So command and control only survive's, I think, because we believe it is normal, it is inevitable. There is no alternative. And of course, everybody's doing it, which is a lie. That's not true. Like there was a drugstore company, a retail company very famous in Europe, Schlecker. Hmm. Doesn't exist anymore. It was Germany's and Europe's biggest retail drugstore chain imploded a couple of years ago. Now, DM Drogeriemarkt, a much better company, radically decentralized like Toyota, like Handelsbanken. They rule, because they not because they have better products, really. It's just that they 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. 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 self intrinsically motivated. We believe that other people do not like the work. We have to force them, bribe them, punish them a little bit.
Manuel Pistner
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. What I'm wondering when you talking about Agile organizations, decentralized organizations and you're talking about not planning. Would you say that we should not plan anymore?
Niels Pfläging
Yes, absolutely.
Manuel Pistner
Why is that?
Niels Pfläging
I think this is a luxury that no company can afford to do to give itself? Planning is great when the environment doesn't change.
Manuel Pistner
Yes.
Niels Pfläging
Yes. Then you can plan, because then it's safe. You make a plan here. Nothing changes. You can execute. So planning in itself isn't bad. It's just bad if the world, you know, is complex and full of surprises, then I think it's bad.
Niels Pfläging
It's really simple. It's really just that planning works well when there's no surprise. When there is surprise, planning works not well.
Manuel Pistner
Yeah. And the surprise happens when the environment and the assumptions that are part of the plan Change. And if they changed more rapidly than the plan, becomes crap.
Niels Pfläging
Yeah. The more surprises, the dumber and dumber it 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 and connect them with incentives. It ist the most stupid thing that you can do because then you imprison people to execute on targets that have become irrelevant at the moment, right in the moment of planning. Or they were always irrelevant because people can not see what would be a good target. They cannot know. I mean, people who do plan cannot know what would be the target. So that the whole thing of planning and target setting and fixed planning and bonus systems, all this performance Management crap. Sorry. Pardon the language, but it is real. It's bullshit.
Manuel Pistner
I want to understand three on that because um. 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 the 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 closed eyes on autopilot, the 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.
Niels Pfläging
Yes, well said. And in your private lives, you both can call it planning, if you like, or you can. Manuel, 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 from something.
Manuel Pistner
Absolutely, yes.
Niels Pfläging
So how is that called? You want to run a marathon?
Manuel Pistner
That is the part we, I think we are not yet aligned because I don't know this for it's planning. What is it for you?
Niels Pfläging
No, no, no. It's not planning for, you know, a better way. Everybody knows a better word if you want to run a marathon...
Manuel Pistner
Measurement. (Indistinct speaking).
Niels Pfläging
No, all these are technocratic terms. And the interesting thing is, I mean, I'm not criticizing here or anything. I just want to make you aware that that the words that we use already are infested with command and control concepts. We have to measure people. We have to incentivize them. We have to plan ta ta tataa.. We have this technocratic mindset and language. A less technocratic mindset would say, OK, want teams to be responsible. We want to hold them accountable for results. It's not even called talk of 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 human beings. So honest technocratic language, I mean, or 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 words. In this case that you want to get fit for a marathon, you don't have a plan. What do you do? Train. You train. Yes, but training is not enough. You also must become smarter and understanding your body, your limitations. You may have to learn a method we call that. There's a huge word for that. Preparation,
Manuel Pistner
Preparation, OK.
Niels Pfläging
Preparation, it sounds very simple. So the opposite to planning is preparation. Sounds very simple. I know, but preparing is totally different because it's the preparer's responsibility to prepare and to get fit. And so this is one of the Bete Codex principles. Preparation instead of planning. Sounds very simple, but there is a huge difference because usually, we use the plans in organizations and companies that are used to plan and to steer others.
Manuel Pistner
And then when we compare it with the 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....
Niels Pfläging
No
Manuel Pistner
No?
Niels Pfläging
No!
Manuel Pistner
But a range. I want to be like, so when I ran, I want to be like at five minutes per kilometer, for example. That is my KPI. I want this. That was my goal.
Niels Pfläging
You run a marathon, and if you are smart, you work differently. First you want to reach the goal. Also, you have to distance.
Manuel Pistner
Yes!
Niels Pfläging
You want to make the distance. But then you do not say I want to make it in two hours and 40 minutes. I'm not sure a 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 winds. Nobody does. Nobody does it.
Manuel Pistner
I would bet on them that they do. That's why they have to pace. The pace is exactly as the KPI's that you have that....
Niels Pfläging
You usemarkers oriented, you get orientation. Something's OK.
Niels Pfläging
(Indistinct).... You just use... the first minute....the first five kilometers took me such and such time as you said. But it's not a target. Because if the weather conditions, for example, or your physical conditions don't allow, you will you'll have to adapt. And that is what (Indistinct)...
Manuel Pistner
And I think that is exactly of 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 achieve that. I did for example, sports for a very long time. Right. And I always wanted 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 OK. It's one, two, 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 preparation helped me, but I still always see these numbers.
Manuel Pistner
But the thing 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.
Manuel Pistner
Yes.
Niels Pfläging
Nobody told you what to do.
Manuel Pistner
That is the big difference.
Niels Pfläging
And plans, let's be very honest about it. Planning in organizations is done to steer others. So to (Indistinct.....) brains
Niels Pfläging
And that also, it already happens when you tell them what the key performance indicators are. Instead of telling them, no, no, you have to figure out what's important for your work. However, we must make profit. We must satisfy clients as well. Those are obvious. It's obvious stuff.
Manuel Pistner
You know, these obvious things sometimes fall below the table if you don't make....
Niels Pfläging
Yah, in comand and control. But in a great organization, everybody would understand. We have to satisfy customers, like the DM Drogeriemarkt. It's pretty obvious what DM Drogeriemarkt lives from. Satisfied customers who come again and again, who try and new products. You know. Who are happy with the product and with the environment. The company must make a profit there. I always like to say every 14 year old child or 60 year old cild, can understand what the company needs to do to be successful.
Niels Pfläging
It's very simple.
Manuel Pistner
Yeah. But with commad and control you force people to forget what's right because you have to force them to follow the plan.
Manuel Pistner
That's right.
Niels Pfläging
That's why Soviet-style planning, it's still happening in big companies. We talked about Volkswagen etc. It's like Soviet evil Soviet empire or facism.And so that's one of the downsides of planning. It's 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 evil.
Manuel Pistner
I want to share one experience 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...
Niels Pfläging
Dont expect too much. I usually criticize a lot.
Manuel Pistner
No no, it's a conversation and I want to understand your opinion. We were till 2018, 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 owner than 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 company for software development.
Niels Pfläging
How many people?
Manuel Pistner
Forty three. In 2018. And then it was always driven by command and control. So there were customers that hired us for doing the 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 and I fired 20 people because I was so disappointed. That was an emotional thing. And the company was at huge risk. There is a TEDx talk, if you want to see that. If you Google Manuel Pister TEDx, 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 8000 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 say I love that because I saw that people, 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's. 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 make everything transparent, salaries transparent, the balance sheet transparent, PNL 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.
Manuel Pistner
OK 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 how it works. And I left them. I let them do so. This is your KPI's 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 want to adapt and live in the system. There are others. And this is the thing that excited me, those that cancel the relationship working with us. They went into large corporations where they had a boss that tells them what to do again.
Niels Pfläging
OK, now I will show you how I worked with my clients. Yeah. Perfect. Yes. Yeah. It's not pretty.
Manuel Pistner
That's good. Must not be treated, just... Indistict
Niels Pfläging
Usually I say something a little tough at the beginning.
Dani Guaper
Go for it.
Niels Pfläging
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 red lesson. Let's put it like that. Because I think the right lesson is this. An owner like you or founder, 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 the size of seven people or 30 people or 50. There is 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 then three teams a certain size, you know, a team. I think that's the secret sauce to self organization that most in even in the Agile movement have not yet understood. They yet has to grasp this. That team is the most important thing in large organizations. So you were still. 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, at least I think I heard. I'm not sure.
Niels Pfläging
I don't know the details.
Manuel Pistner
Always. Two people have one performance KPI's. Exactly.
Niels Pfläging
And what Beta suggest is always have teams, five people, maybe a team starts, maybe with four people. But that's not very robust because when two one of them ist, one is on vacation, then falls apart. Five is a good team size six, seven, eight, and then not so much anymore. So the secret sauce to a BETA organization is teams. Let's talk about Toyota. They have teams on the shop floor. It's like it's a stream. 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 DM Drogeriemarkt. At DM Drogeriemarkt 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. So then, you know, not in software engineering or software development, by the way, or services, teams should be smaller than that for obvious reasons. But, you know, to make to maintain social density like an family, you know, the density that let's say the commitment with each other for each other. You need to measure team performance, not individual performance. Don't give people targets. Set team measures or have team PnL, profit and loss state.
Manuel Pistner
We have exactly this. Then I described it wrong. Every team has own PNL on balance sheet. And that's how they how they manage it.
Niels Pfläging
Why, towards the end of the story, I couldn't figure out exactly what went wrong in your company. So I do not want to over analyze it.
Manuel Pistner
It was 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 their own.....
Niels Pfläging
This is a misstake. So I 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.
Manuel Pistner
We have three individuals.
Niels Pfläging
Now, that's the thing to often we ignore that in companies in order to have a success for business, you must feel like you are in a mini company with others.
Manuel Pistner
Correct, absolutely.
Niels Pfläging
That's a team. When you feel like, oh, we run a business together, it's the five of us, six of us. You cannot build it with two people and you cannot make it happen with 50. It's impossible. So this is not... It has nothing to do with you with your talent, your skills or with a company's business model or something. It's like organizations should be built on teams. Period. Not on departments, not matrixes. They shouldn't have matrix structures. Bosses, bosses are unimportant. If you have a team based organization where evey team sells something to an external customer or an internal customer.
Manuel Pistner
That's how we do that, exactly how we do it.
Niels Pfläging
In the peach 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 be near the center. And the center serves the periphery.... indistict.. thats part of Beta.
Manuel Pistner
That's exactly how we do it. And we measure clearly the internal value proposition with numbers so that we understand how good 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 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?
Niels Pfläging
What you should experience, I'm not sure?
Manuel Pistner
I mean, you say that a team cannot consist of two people and not enough teams of two people since two years and.... indistict.
Niels Pfläging
You have helpless people stuck with each other. Like double pairs. Let's call it a pair of pairs that you call teams. That's like fraut, it's a lie. A pair is not a team. I'm trying to.....
Manuel Pistner
What's the difference?
Niels Pfläging
I just go straight to how to approach this problem. I'm not judging. This is real.
Manuel Pistner
I understand this. I just want to understand what is the difference? I mean, when you say a team or another team, what are the attributes of a team then, that I cant have with two people.
Niels Pfläging
Team dynamics. You can not have team dynamics with yourself or with just one other person. In a team, for example, let's say 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. Thats a question I'm not talking to clients or whatever. I'm not ... I dislike ringing people phone calls. I don't like them very much. And you like them. And do 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. among others. 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. You cannot be perfect, I 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.
Manuel Pistner
They can be perfect. But they must not be perfect. Right.
Niels Pfläging
They must find that perfection, of course. They must find their way to...
Manuel Pistner
....Compensate their skills the missing skills. I mean, it may be happen that I don't speak Turkish. Nobody in the team does, still there is no compensation. Right.
Manuel Pistner
Yes. And then, of course, if you have a diverse team of five. If people are only criticizing each other and, you know, making each other's lives hard, then there's no advantage. So there can be productive interaction in teams or destructive interaction in Teams. Of course, that's not there's no simple solution to that. It must be curated, so to say. That's why or why 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, a fight about why is our performance bad? Why are we not making a profit? Why are our clients unsatisfied.
Manuel Pistner
Exactly.
Niels Pfläging
And then you have to fight about. That's why don't we just ...(Speaking indistinctly) You askes in 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.
Manuel Pistner
I agree just not for everyone.
Niels Pfläging
It's not .... No, it's not pleasant. No, I think it's for everyone.
Manuel Pistner
Not pleasant. Exactly.
Manuel Pistner
A place that people leave because they want a pleasant feeling in their job. And they think this is not plesant i dont want this.
Niels Pfläging
I don't think so.
Manuel Pistner
I have people that told me that.
Niels Pfläging
Speaking indistinctly.
Manuel Pistner
I don't want to care about all these numbers, transparency. I don't care. I want to do coding.
Niels Pfläging
I have a great lesson for you. When people leave, they almost never tell the truth. OK. Yeah. And now good reasons, excellent reasons for that. So even if I hate your guts, I would say no, no. It was a big pressure.
Manuel Pistner
Yeah, that's also true.
Niels Pfläging
That's OK. You can't expect people to tell the ultimate truth. But, you know, I believe that and of course there are, let's say in the world, in the world, assholes exist, 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 wanted to that is that. So that's I think it's it's you know, most people want to bring that. Then there are other things that must be aligned or that must work out. There are a thousand reasons why to leave a company or leave a job. But I think to create the best system, that is a very attractive thing. And that's a powerful thing. That's what that's what we can do as you as an entrepreneur as well. Yes, we can.
Manuel Pistner
I'm trying very hard to do that.
Niels Pfläging
That's why I admire companies like Toyota or Aldi, because their businesses are vulgar. To me, it's vulgar. You know, I like Aldi the Supermarket. I go there every week, but the business is trivial. Right. 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 that have faded away. And they don't have to, you know at Aldi, they don't have to. You know, drill and punish state employees all the time. They have a system that works for itself and that is very admireable, you know, to offer people a well-paid employment. They pay excellent salaries in retail Aldi pays in Germany at least, and I think Europe wide. They pay the best salaries. Trader Joe's in the United States also an Aldi company. They pay the best salaries in the sector and they employ the oddest people, you know.
Manuel Pistner
OK.
Manuel Pistner
And that's just great. I think that's a wonderful thing that companies have, you know, to make people shine and grow and to create a sustainable business, you know, that runs over decades and to not treat people like children. I think that's better. Thats why I'm in love with Beta so much. You know all about fulfilling humanity's potential through work, which often is very simple and repetitive and boring.
Manuel Pistner
That is that is what I decided, I want to build a company that contributes 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.
Niels Pfläging
Yes. But for people to take, to be accountable, to behave like accountable human beings, you have to create the right system that I think. I think the sience or the art of creating well functioning, decentralized systems, it's very little understood. And that is what the Beta Codex and the Beta Codex network are about. 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 20 people.
Niels Pfläging
These deep principles scale. It's not a tool like, you know.
Manuel Pistner
Which are other successful examples of organizations working according to the rules of beta.
Niels Pfläging
Well, OK. The usual suspects. Southwest Airlines W.L. Gore. One of the recent examples in Germany we even have a magazine that features companie's Brand 1 from Hamburg. They feature companies like that frequently. One of the later newest examples of a great company like that is. Buurtzorg from the Netherlands, a health organization. I heard about it. They do predominantly healthcare, but they are now in doing having kindergarten's of that kind of stuff. They are very diversified by now. How many people do they have, 11000 employees. I'd estimate. Yeah.
Niels Pfläging
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 Jos de Blok the founders stuff on YouTube. His interviews, his keynotes. I think he's a brilliant speaker and explains very well how this works. I lived in Brazil for a while. In Brazil, we always had the company, Semco, as a great example. Yeah, yeah. Semco also very diversified. And they have been growing and de-growing because they create companies and grow and then they sell them and have growth overall. But the company has these principles. And Ricardo Semler has written several books about this. He is on our website. BetaCodex.org. You'll find a list of companie.
Manuel Pistner
This guy 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 the same.
Niels Pfläging
Yes. The problem ..., I also admit I have a problem with cases we just mentioned, a few. Right. Buurtzorg and Semco, and Toyota and Handelsbanken and Gore. Fantastic companies. The problem is that cases do not work.
Manuel Pistner
Not for others to copy you mean..
Niels Pfläging
Exactly, nobody. I mean, cases are someone ..... Cases are like chocolate, you know. Very sweet, and you get a good, good feeling you know, looking at them. But they do not convince you to do the same in some cases. They inspire what you just said Manuel, like the Semco case inspired you. But inspiration is not enough. I guess I prefer the Joda approach "Do or do not. There is no try." If you want to have a company like that you go full force, full throttle or you better leave it at that.
Manuel Pistner
Absolutely agree.
Niels Pfläging
Because self-organization is the game of making, you know, self organization requires you big faith like our faith and democracy must be it must be very strong to defend democracy. Otherwise, you would say, ah, our politicians are crap. I'm not sure we can also have a dictator. But I believe in democracy and we should also do believe in self organization. This is very relevant for the Agile movement. I think in the Agile movement, too few people are in love with self organization to too many of people in the Agile movement are in love with Tools and Tools are just.
Manuel Pistner
They help you to do what you want to do. Maybe more efficient, but you need to understand what you really want and have to do. Exactly.
Niels Pfläging
We have to be in love with the philosophy, with the human, with the politics, let's say, of self organization
Manuel Pistner
Values.
Niels Pfläging
And not a Tools to Tools come last. You cannot put the philosophy into Tools, doesn't work.
Niels Pfläging
(Speaking indistinctly) we crystallize thinking into Tools, then the thinking dies.
Manuel Pistner
Mm hmm. Yeah, makes sense
Niels Pfläging
We need that everybody has to appropriate the thinking so that self organization can sustain itself. That is what the Beta Codex movement is about. It's not about Tools. Yeah, Tools. I mean, we need tools , you know, but the tool is not interesting.
Manuel Pistner
Yeah, absolutely. Yeah. When a company starts.... And then Daniel. Sorry. Then you can continue with the question because I find it so exciting and engaging.
Dani Guaper
I can see that.
Manuel Pistner
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 we like this blueprint, but which values or things concrete ,would you give this person to his or her hand so that he or she can build such a self organized company?
Niels Pfläging
Well, I think you've got it wrong. We have very specific ideas about startups. OK, we say we like to say startups usually are in naive, beta, as we call it. Beta is the peach for a larger organization, at a startup it's like a one cell organism. Yes. You start with four people, five people, seven people, whatever, you know? 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 and always there is. There is. And one of them, maybe the founder is an asshole and sheltered everybody. But still they have the social density that when, 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 density. We call this naive Beta. OK, 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 emerging. That is why when an organization grows beyond 10 or 15 people, it starts, as we call it, to two distinct do to differentiate between center that should serve the periphery, but not steer it in the periphery, as such, that serves to external customers clients and market. If you don't do that consciously, you fall into the trap of command and control. Once a startup grows beyond the super mini size, it can only take the path of pyramid or peach, centralization or decentralization. And most startups ups surprise, take the road to?
Dani Guaper
Yes, command and control
Manuel Pistner
But still, it works. I mean, that's the thing, right? The pressure is high enough so that they need really decentralization.
Niels Pfläging
No alpha organization works. Maybe they survive. Maybe they make a profit, but they do not work. Get this out of your head. Like, could you make sure that fascism works anywhere on 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 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 a democracy. I believe in democracy. I believe in self organization. Don't tell me that VOlkswagen or any other command and control organization like Siemens works. It doesn't work. It's barely enough, you know, to still attract.
Manuel Pistner
So what can you do that makes a company work? I mean, which measures or how do we see if I look at a company, how can I see works does not work.
Niels Pfläging
Relative performance.
Manuel Pistner
Compared to what if it's relative?
Niels Pfläging
Compare Toyota with Volkswagen and you'll see that Volkswagen is up to the.... at all for four decades? They have been bigger sometimes.
Manuel Pistner
OK, so. (Indistinct speech). Yes. So compare comparing the performance of the company to others you mean. And we measure...
Niels Pfläging
Relative targets or relative or that relative performance to compare actual performance of one party of a team or a company to another team or company.
Manuel Pistner
Yeah. Yeah. And you compare the performance on what? Profitability or customer satisfaction or revenue growth. What is it?
Niels Pfläging
Yeah. Well, read our white paper. No, I think 10 or 11 about performance system it is called performance systems at work, I think. OK, I will. Yeah. For example, do not compare profit in euros or dollars with the other teams or companies profit in euros or dollars because that would mean comparing large and small. Sometimes teams have more or less customers or size, for whatever reason, that size doesn't matter. Size only mattered in the industrial age when markets were still monopolists. (Indistinct speech). So if you want to make a good comparison about profit, do it relatively. For example, for a retail company, it might be a return on sales. The percentage, you know, is it? Yeah. Yeah. People think three percent, five percent Aldi has maybe five Lidel as 2.5. Which is the better company?
Manuel Pistner
Yeah. Got it.
Niels Pfläging
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 bettler let's make 10. Never ever youll turn it in to a fix and people will bribe the system or game the system. So I very much recommend this white paper. We'll look at which one it is. The beta Codex white paper called. I think it's called. Yes, "making performance work". Beta could not white the number 10. OK. Now it's very highly recommended. It also tells you my bonuses are a crime against humanity and so on.
Manuel Pistner
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...
Dani Guaper
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 hierarchical organization, command and control and as well the informal part of the organization. Could you give a little bit more insight about this? About the struggle itself between those different environments that are clashing with each other or sometimes interacting with each other. But we have them always present, right, we don't have like pure peachee organizations or pure command and control organizations.
Niels Pfläging
Yes, that is ...I've been with this movement to beyond budgeting movement and now the beta movement for almost 20 years. And this is always a big topic. But there is no pure beta, pure alpha companies these days. There is always these dynamics between informal, formal and whatever. So at some point we wanted to solve this riddle and we solved it. In 2011, we solved this riddle. We figured out that every organization has three structures, every organization in the world. Aldi, toyota, Handelsbanken, W.L. Gore. And also, what's the most terrifying command and control organization in the world? Ok, let's say Volkswagen or whatever. Or General Motors, Bank of America, or whatever it is, whatever it is. And of course, most organizations are command and control pyramide organizations. So each of every all these organizations have three structures. We call this concept arc physics. There's also a beta codex white paper number eleven, it's called ARC Physics explained. This is really one of the best works. One of the best things that we have developed in the last couple of years. So arc physics says every organization has formal structure, which is bosses on top people at the boat. So we have to have a CEO at the top. We have to have an audit committee. We must have contracts. And we must have, you know, an accounting system and bookkeeping, you know. Formal structure it's needed to be within the law. Usually what we do is we overexcite most organizations over exaggerate formal structure because they think it matters beyond compliance, which is a mistake. People think that because I was the CEO, I can steer, I know more. I should steer the entire company like mad evil emperor. 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, you know, 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 sort of formal structure. Usually, we try to draw on org chart to depicted. Second structure. You just mentioned it Daniel, informal structure. So that's we like each other or we dislike each other. It doesn't respect hierarchy at all. You know, very powerful. And that's present at every organization. So every organization has huge power games going on, an informal structure from solidarity to, you know mobbing, as we call it, backstabbing people at work. Water cooler talk, "kurzer Dienstweg" as we say in Germany. Thousands of phenomenas, in informal structure. That's very powerful. So we have formal structure, very powerful, but only good for solving compliance problems. Informal power structure. Very powerful. And that's more beyond the , 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 formal structure informal structure. We like or dislike each other. But here's the thing. The most important structure to 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 arcs physics flows from the inside out, from the 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. If markets are complex, the periphery must be in charge to steer the center and not the other way around. So this is the peachy structure of what we call Beta usual. And here's the thing. If you do not understand or respect this value creation structure, that structure in which the real work and value creation is done in innovation is done, then the formal structure of the pyramid and this value creation structure start to have an epic fight. And that's bad. The Formal structure should do what it does best, which is to generate compliance, to fulfill the law. And you should liberate valuation structure that people with mastery and teams can be incharge. And it's very different, you know, a boss and somebody with mastery. They may be the same people, but usually it's not.
Niels Pfläging
So these two structures are in this epic struggle in most organizations. You said there are no organizations pure. I think yes, because there is this epic fight going on between these three structures. For example, people with mastery want to do the work, but they can't because bosses are steering so hard and there's so much playing and allocations and budgeting and performance appraisal, all this bullshit. So there's a conflict. And through informal structure in politics, you try to smoothing it out. Happens all the time, in organizations, extremely wasteful, leads to Zipp performance. So the only solution, the only salvation for organization is to put the value creation structure first too decentralized radicaly. That's what Toyota and Semco and Audi DM Drogeriemark and Handelsbanken have done, decentralize and formal structure.... look at the CEO a woman called Terry Kelley.
Niels Pfläging
She says it's not my duty to know what's going on in the company while people are doing the work. I'm just the CEO. My role is to attract people to the company and represented it well and to, you know, to sign the certain 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. I'm just serving the company so that other people can run the business. That's what Ricardo Semmler from would say about Semco 20 years ago. And so this idea of understanding of the three structures of organization, understanding arc physics is key to seeing better organizations emerge. This is not about revolution. That is this is just about putting value creation structure first, understanding the vocabulary.
Manuel Pistner
What would you put KPI's on this value proposition, to measure it?
Niels Pfläging
Yes, value creation structure, within the value creation structure. You have teams in the center, teams in the periphery, and you should measure all of their performances. Yes.
Manuel Pistner
Yes, then we are aligned in this picture.
Niels Pfläging
Not two people. Five to seven people right.
Manuel Pistner
Yeah. 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 what so ever. 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 idea. So 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 was before.
Dani Guaper
One big atvantage we have at Bright Solutions and Flash Hub is that and that I can say without making commercials for ourselves is, we respect each other right there in our team. So in our relations between the co-workers and colleagues there is a huge amount of respect, which helps us through these times and helped us over the last two or three years to figure out all the stuff. And in a hierarchical company this would 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 Niels. How important is it and how we get out of these toxic environments that we found so often in different companies. As you mentioned, a lot of them right now on the show, because it seems to me that as one of the key factors or key indicators, how things could things go better in the future as we still don't see this vast majority changing to Beta or something similar?
Niels Pfläging
Not yet. Not yet. 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 almost two decades. We figured out how to... how any organization can transform in 90 days, which is a huge step. You wouldn't want to do it with consultants, right? So a good method must be consult free, fast, reliable self-organized as the organization we want to create. We call that open approach open space beta. It is an open source. Anybody can read about it and anybody can do it without asking me, for example. So that's an interesting thing. But you asked about respect, right? Respect. I'm not sure. It's a tough topic, probably respect. What does that I think respect and trust and culture and that kind of stuff. they are results. So, you cannot, I cannot say to my wife, trust me more, respect me more. Let's have a better family culture. I could do it, but it's nonsense. She would laugh at me, you know, 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 respectful environments. I want to have respect within my family, my organization, my life and our society. 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, you know, an alpha organization will always strive on fear and loathing and in a way on disrespect. Because any command control organization curates and creates learned helplessness. So that's the antidote of something like respect and dealing with each other... eye level and so on.
Niels Pfläging
So within command and control systems, we cannot expect things like trust or respect or social density or fulfillment of people's potential. We cannot really expect that, because those organizations are built against it. It's like authoritarianism in Turkey currently. Unfortunately, it's a sad thing. We cannot expect trust to grow because people will, you know, or as in fascism in Germany 70, 80 years ago, people were sniping, you know, and, you know, talking bad-mouthing 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 Beta organizations work. We know how organizations like Semco, Toyota, Handelsbanken, W.L. Gore and South-Western, that'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 more plans and set fixed targets and should not have bonus systems and all of that.
Niels Pfläging
We know all of all about it, how the Buurtzorg's of this 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 would think we will see a lot more respect, more trust, lot more fulfillment of human potential. A lot more a lot more democracy.
Manuel Pistner
I can 100 percent confirm that when I compare our culture before 2018 to the culture that we have right now. Exactly we see these phenomenons.
Niels Pfläging
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, even if they take time. So one thing that you mess up today. Today, you shout at an employee that may show up in your organization culture, something terrible two years later, one year later. So these things are not directly linked. They never forget, organizations are complex systems and systems theory is very important for us. It's very informative, has been very informative for improving the beta Codex model as well. This distinction between center and periphery and what it does to the organization to not steer internally, but to decentralize the steering to the market and have self organizational, self organized cell structure network to respond to market complexity.
Dani Guaper
Great.
Niels Pfläging
I hope it was a decent answer to your question about respect.
Dani Guaper
Yes, yes. Yes, of course. Thank you so much news. I think we are way over time. We want to spend or (indisticty speech) listeners too much. Thank you very much for for participating and sharing those inputs. It was very, very interesting. I think for Manuel as well. I could see him on his chair wipping. And this is this is great. Niels, how could people get in contact with you or the beta codex 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?
Niels Pfläging
Yes, the network is on betacodex.org. My my company or our new company is called Red 42. That is red. Forty letters. And then the two as a number redForty2.com. And I have a personal website as well. nielspflaeging.com. And so all of this is good. I also published two books that I have recommended a little bit during the session.
Niels Pfläging
Organize for Complexity and Open Space Beta. Most of most of our work is free, though, and I recommend you to make use of the fact that the beta Codex is an open source, so-called social technology, cell structure, design and open space beta also, open source social technology. So you can use these these words to Google it and to find out, where you find the concept of the the 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 beta codex.org
Dani Guaper
Great. That's a good closing point. Thank you very much, again.
Niels Pfläging
Thank you.
Dani Guaper
Thank you as well. Thank's as well to our listeners for joining today, and we see each other in our next episode here at Virtual Frontier.