Decision making decentralization is one of the core concepts this books talks about. A specific topic that really enticed me was the use of economics to manage dependencies.
Regulating shared resource through supply and demand economics
The core idea is as following: when two teams need the same resource, instead of escalating hierarchy to choose what to do, just make sure teams must pay for the resource and adjust price based on suppy and demand.
- If the resource is underused, it will be cheaper and teams will have an easy time to use the resource
- If the resource is busy, it will be pricier and teams will have to choose — in autonomy, at their own level — if the need justifies the price, or if they can just delay their need and wait that the price gets lower, or finally if they’d be better just doing without the resource or using some alternative (like getting taught the resource’s skill)
Budgets can be used to delegate decision making on shared resources through supply and demand based prices.
This way of doing regulates how teams rely on each others. But there is more to it.
- What if the resource is always busy, and other teams need it so much that they are all willing to pay more for it? Then the resource is getting rich — and with more money, they can make sure they become able to get more work done and satisfy the other teams.
Supply and demand based prices allow to delegate hiring decion making.
Less wasted money: customer-focused support teams
You might be thinking…
It doesn’t work this way! Teams gets allocated a budget and they spend it.
Isn’t there any way around?
First, let’s completely stop funding teams that are not directly producing value. Let’s call these teams support teams. We don’t kill these teams, of course, since they are providing a very valuable support to the other teams. We just want these teams to be funded through this internal payment with demand and supply based prices. We want the support teams to be funded by the value-producing teams.
Support teams have a clear incentive to help other, value-producing teams when they are directly funded by those teams.
Please note that in this case these support teams now have to outperform the competition. The internal solutions they provide must be more interesting than, say, third-party, off-the-shelf solutions.
This might sound like a very tough context for these teams but, hey, there is no better way to make sure money is well-spent. How many companies built internal custom-made solutions that could have been replaced with already available third-part solutions? Sometimes they build solutions that aren’t used at all. This is a waste of money. And it’s as easy as to have people pay for it to make sure it doesn’t happen.
Having teams behave as internal customers allows to make sure money is well-spent.
From budget allocation to investment
But where does the value-producing teams budget comes from? Why are they getting money? Why this amount?
Budgets are usually about giving the required money to get something done. This might not be the focus we are looking for. We want people and the company to focus on value. We should talk about investments instead: how much money are we willing to invest in this idea or product?
This is a well-known model: that’s the venture capitalist business. It gives a lot of autonomy while focusing on value — current and potential value.
Investing money in teams instead of spending budgets, like a VC would do with businesses, allows to focus on value.
What would such a company look like? It would look like a startup ecosystem, actively seeking for innovations and corporate entrepreneurs.
What’s your take?
What do you think of this thought? Is it a model worth thinking about? Has it been already thought out by other people? Please comment!