Why Peer-to-Peer Networks Outperform Top-Down Hierarchies
Hierarchies and networks are not equal alternative structures. Networks tend to outperform hierarchies by a wide margin. Organizations that have embraced the peer-to-peer network model usually make a dramatic leap in performance. This is because they build their organizations around a distinct set of values that are very different from the practices of traditional management.
In designing the work of large numbers of people, the leaders of organizations need to make a series of structural value preferences among the five sets of paradoxical values presented below.
Structural Value Preferences
Collective Intelligence vs. Elite Intelligence
Iterative Discovery vs. Central Planning
Synergistic Power vs. Coercive Power
Diversity of Opinion vs. Uniformity of Thought
Agreement vs. Compliance
In approaching these preferences, it’s important to note that these are not either/or choices. Instead, leaders are looking to balance two paradoxical values with a clear preference for one value over the other. To understand how these preferences work, let’s borrow an analogy from the field of psychology.
One of the most insightful contributions to understanding human development is Erik Erikson’s Stages of Psychosocial Development, which postulates that individuals, throughout their lives, move through a progression of eight psychosocial stages to reach their full development. Each stage's essential work is resolving the tension between two paradoxical values. For example, in the first stage, an individual needs to balance the two values of Basic Trust vs. Basic Mistrust. While it is obvious that trust is the preferred value in developing a healthy personality, there are times when mistrust is appropriate. That’s why a person who is always trusting is often regarded as a “Pollyanna.”
On the other hand, one who is always mistrusting is considered paranoid. The important point is that the exclusive use of either value is generally problematic. Thus, the healthy person develops a sense of both trust and mistrust, but not necessarily in equal parts. In striking a balance between the two values, the psychologically fit clearly prefers trust over mistrust. While they usually lead with trust, they are savvy enough to know when to mistrust. On the other hand, an unhealthy personality leads with mistrust, making it difficult to build healthy relationships.
The dynamics of this psychological model are analogous to the development of organizations, except that all the preferences are built into the initial organizational design rather than in a series of stages. However, like Erikson’s model, the value choices are not equivalent when building a healthy organization.
Since their inception well over a century ago, public and private organizations have clearly preferred the values on the right in the table over those on the left, which explains why the vast majority of organizations are designed as hierarchical bureaucracies. These top-down structures assume the smartest organizations are the ones that can effectively leverage the intelligence of their smartest individuals. Accordingly, strategy is the responsibility of the elite few, which is discerned through central planning and executed by endowing managers with command-and-control authority to assure uniformity of thought and compliance. These preferences became so enculturated throughout the twentieth century that business leaders continue to assume the top-down, centralized hierarchy is the only way large organizations can be managed, and there are no alternatives.
The problem with bureaucracies is that by leveraging the individual intelligence of the elite experts, they kill the human spirit of the many, which may explain why Gallup’s worker engagement surveys consistently find that only about a third of employees are actively engaged in their work, a clear signal that most organizations are not healthy workplaces. This is problematic because unhealthy workplaces kill not only the human spirit, but also the capacity for innovation. This is further compounded by the reality that experts are rarely innovators. Experts are highly knowledgeable about the way things have been done in the past and are often heavily invested in the status quo. This tendency often causes experts to be blind to future possibilities that may challenge conventional ways.
This blindness is an inherent organizational design flaw that can be fatal when businesses need to be highly competent at innovation. This flaw is a product of the fundamental design principle that shapes the top-down, hierarchical organizational model: Trust authority. Hierarchies ascribe authority to the elite few who perform two specific roles—bosses and experts—to bring order to the workflow of large numbers of people. Bosses are given command-and-control authority to ensure management directives are carried out, and experts are often the exclusive source of intelligence within organizations. In some instances, these are two different sets of people; in other instances, these roles can reside with the same person. Top-down hierarchies are designed to amplify the voices of these two trusted authoritative roles.
Unfortunately, one consequence of relying on the intelligence of the elite few to guide decision-making is that organizations limit their intelligence. In stable times, this flaw may be livable, but in rapidly changing times, this flaw can be fatal.
When the guiding design principle of organizations is to trust authority and when people are expected to do what they’re told, it is easy to see how elite intelligence, coercive power, central planning, uniformity of thought, and compliance are the clear preferences that shape the thinking inside organizations and define the work experience. Everyone is expected to get on board with the thinking of the elite few and comply with the plan. Thus, hierarchical management's prime focus is control, especially controlling people.
The leaders of peer-to-peer networks think differently. They prefer the values on the left of the table and embrace a design principle that is a sharp departure from traditional management: Nobody is smarter than everybody. Accordingly, they welcome diversity of opinion and become skilled at aggregating and leveraging their collective intelligence by developing tools and practices to rapidly integrate divergent views into innovative solutions that no single person—no matter how intelligent—could devise.
Their commitment to diversity of opinion makes them far more intelligent organizations because they are not bound by the limits of individual cognitive biases. By encouraging the expression of divergent points of view and using sophisticated facilitation tools to uncover common ground and create higher-level, convergent solutions, they are able to move beyond the rancor that handicaps top-down hierarchies. Instead, they find ways to consistently reach consensus agreements that render the need for compliance meaningless. They understand the right action is more likely to emerge from an iterative discovery discipline than fixed central planning.
When an organization is designed around the principle that all voices matter and becomes skilled at creating intelligence that no single individual could ever accomplish, it amplifies the human connectivity that is an essential ingredient for innovation. This enables an organization that’s built to last because the capacity to adapt to change is built into its organizational DNA.
To learn more about the future of organizational work, see my new book Nobody Is Smarter Than Everybody: Why Self-Managed Teams Make Better Decisions and Deliver Extraordinary Results.