Over the past few years, the phenomenon of teal organizations has been discussed regularly in business and publications. Teal management is often described as an innovative, but poorly applicable theory. Only a few companies have been able to apply this approach in practice. The concept of a teal organization itself is still very new. We […]
Teal Organization in Action: Mindbox CEO Shares how the Company Uses Teal Principles Such as an Open Salary Policy, Self-Management, and Transparency (and Mistakes Made When Going Teal)
Our CEO, Alexander Gornik, told Republic Media about how the company has switched to the principles of teal management and what it led to during the pandemic.
Over the past few years, the phenomenon of teal organizations has been discussed regularly in business and publications. Teal management is often described as an innovative, but poorly applicable theory. Only a few companies have been able to apply this approach in practice.
The concept of a teal organization itself is still very new. We first saw it ourselves in publications from 2014. Frederic Laloux, a consultant and former partner of McKinsey, is considered the creator of the term “teal organization.” To briefly describe the nature of the teal organization phenomenon, everything is based on the principles of individual freedom, self-management, a transparent budget, and the absence of formal positions and job descriptions. These are at the center of a teal company's values.
However, the numbers speak for themselves. At Mindbox, we officially began applying teal principles in 2016, but it is important to note that we had taken some small steps even before then. Nevertheless, since that time, we have tripled our total revenue. In addition, our revenue per person has almost doubled, wherein we have almost doubled our staff members; in 2016, the company employed 58 people, whereas today (2020) we have 124 staff members and counting.
Mindbox is an IT-based Customer Data Platform used by businesses – mostly large and medium-sized retailers – to create personalized marketing through messages and channels such as email, SMS, web push notifications, chatbots, website product recommendations, and loyalty programs. Mindbox has been operating since 2006. Our clients include Burger King, Crocs, Panasonic, L’Oreal, United Colors of Benetton, and many more.
Why do we need Teal Management?
Some time ago, we had our eyes set on building a company that would make long-term profits and constantly grow without the need for any active involvement from its owners.
At first, we expected to achieve this by creating a better working environment to keep our employees happy. At the time, there was no evidence to support this hypothesis. Soon, however, publications such as the World Happiness Report began to appear. These referenced employees' happiness and how their level of happiness impacts a company's income, among other things.
According to a majority of these publications, the most important factor in employees' happiness is to build a system made up of autonomous teams, evenly dividing them in a way that they all pursue the same ambitious goal put forth by the company and that is simultaneously beneficial to society. There is a straightforward reason as to why this hypothesis works - it is because people feel a sense of belonging when working in small independent teams. As a result, employees view the company as their own, and are constantly improving their professional output and personal qualities.
Incidentally, we have tried to implement certain teal principles before, such as the lean and agile approach. The problem here was that these failed to be effective when scaling up the company and increasing the number of employees.
So what went wrong?
How everything works:
In his book, "Drive: The Surprising Truth About What Motivates Us," Daniel H. Pink emphasized three parts of employee happiness: purpose, autonomy, and mastery. We slightly altered these by converting them into strategic values, allowing for more vigilance on shaping how the company's culture developed. As a result, three values were at the center of our culture: benefit (purpose), self-management (autonomy), and evolution (mastery). Here's how these values ended up shaping the way Mindbox operates:
There are two components to this principle: transparency and propriety. We can measure benefits in the company by equating it to company money. This takes the form of the company’s profits and revenue. At the same time, earnings themselves are not at the forefront of the the "value" principle. By no means is profit at any cost condoned or promoted; whether via business underhandedness using gray schemes, small print, kickbacks, budget development, bribes, huge mark-ups or by any other means. Our logic is very different, as we are dedicated to our clients, working closely with them and helping them sell more, which is receiving exactly what they pay for.
If something goes wrong with the working relationship, they have the right to refuse our services and subsequently halt payments. This is secured through a written formal agreement with our client. Therefore, the connection between the benefits to our clientele and the company’s revenue is crystal clear.
In order for the principle of propriety to work within the company, client relationships, relationships with and between employees, and company transparency need to be maintained. As everything is in plain sight for our clients, any form of misinformation would be immediately rooted out and dissolved.
Transparency in the company pertains to every aspect of our work. Transparency in the company is, therefore, the most important component as it can be seen in everything we do. All team members can see who is working on what, the results they want to achieve, and the time spent on each task. Approvals are not applicable in a teal organization. Also, the person who assigns tasks cannot likewise set their deadlines. Instead, deadlines are set by the person performing the task. This means that each individual’s unique work process and how they allocate their time isn’t managed or controlled by anyone other than themselves. The only thing that truly matters are task outcomes and tangible value.
We also have a completely transparent economic infrastructure. All our employees can see the company’s earnings, how much is spent and on what, and how much we pay our contractors, employees, and shareholders. An employee can also raise their own salary or make a change to the budget. If no one vetoes this action, the raise goes through to the accounting department and is drafted in accordance with relevant labor laws. As a rule, earnings, bonuses, and various additional payments always come from benefits, not from privilege. The company's decile coefficient (the spread between the lowest-paid and the highest-paid employee) is about 5.
Income in the company is unrestricted. If you do more work, you earn more money. 30% of the dividends are disseminated among our autonomously-working teams, performed at their own discretion. In addition, teams are issued performance bonuses.
An employee can set their own tasks and veto any decision that has to do with them, directly. This act is meant to manifest independence and autonomy within the organization. If a proposal is listed on the Kanban board and no one vetoes it, it is implemented. I am often asked if this will disrupt the organization’s work. The answer is no, as the veto is extremely rare, and actually we would like to see it used more often. As an example of our unique administrative system, if a client is not happy with their manager or a colleague’s decision, they maintain the right to object to it, and subsequently being able to state their argument and receive a fair judgment.
The Japanese Kanban is viewed as a second self-management tool, where work is not distributed with an assigned deadline, but is instead “pulled” from the conveyor on an unreserved basis. Some smaller work tasks are automatically monitored. For example, when a deadline is coming up, a bot sends a reminder in a chat. Rather simple to apply technically, it is better for a bot to remind employees of their deadlines than it is for a real person to remind them in terms of company time and money.
The company’s concept of evolution sees both the company and its employees as constantly adapting to the market. All adjustments are made according to experience and the benefit of the whole and not for self-promotion or other related motives. In effect, organizing a continuous implementation of change involves two primary outcomes: supporting employees in their wish for both professional growth and personal development.
On the whole, even though most people don’t like change, changes are really necessary, especially if the company is actively growing and wants to keep doing so. The process of implementing change is arranged so that all changes, first of all, would have a clear motivation, would be thoroughly discussed, and so all those involved would be given an equal chance to veto. And secondly, that the process would be carried out predictably and swiftly. In effect, not only did change happen regularly and seamlessly, but employees also started to propose changes of their own.
Additionally, we support our employees in both their professional and personal development. Another evolutionary tool that helps here is the so-called "investments in exchange for investments." This involves the employee themselves desiring some kind of professional gain, wherein they take personal lead in investing their time and energy in the initiative. Even though we do not have VHI, we cover 50% of our employees' medical and training expenses, serving as a sponsor regarding extra costs for participation in competitive sports – for example, marathons. Any employee can receive endorsements for professional training. We are willing to pay up to 80% of the course, program or conference cost.
The difficulties we faced:
We were able to reach our goals on a gradual basis, meaning we did not change everything in a day. Of course, there were a few challenges along the way, too.
For one, not having any managers turned out to be a very utopian idea. In theory, a teal organization can operate without managers, operational control, and supervision. However, when we put this into practice, it was unsuccessful. Initially, a majority of our staff members supported the idea of a managerless organization, agreeing that it would be effective. However, as new people joined the company, it became clear that not everyone was ready for autonomy. There was a definite need for some coaching along with some direct monitoring and guidance. This is where we encountered another bump in the road. Individuals who had adapted to the autonomous working arrangement rejected being managed by someone else, because they could earn more working at their own pace, and unmonitored. As a result, we needed to separate out managers, assigning them a separate group of tasks. Hence, creating the urgent need to train people while separately financing management.
Essentially, if you give teams autonomy, you need to provide them with the appropriate resources. Another problem arose when we gave individuals and teams autonomy, but did not provide access to any additional resources. As a result, employees were only able to utilize their own resources, namely time, and unfortunately were unable to accomplish much acting only as a single entity. It was, therefore, necessary for us to designate not only our teams as 100% autonomous, but it also required us to make resources autonomous as well, such as budgetary funds and HR. An example of this can be seen through the development team that has the right, at its own discretion, to spend up to 30% of their time on reducing their technical debt. This is above and beyond the normal infrastructure provided to typical teams at the company level by other companies.
One caveat is that when people do not take the initiative to achieve their goals, despite the freedom provided to them by upper management, then this approach will be ineffective and can only result in inefficiency.
Another important point is that not all activities are tied directly to the company’s earnings. In our ideal model, it appeared that the result of each of our specialist’s work could be converted into earnings. However, it is almost impossible to determine time costs in some professions – developers or HR team members. Evidence of this can be seen within our motivational systems linked to formal KPIs over long periods of time. In the end, the effect was a concerning level of burnout among rising specialists. So, we decided to turn to a grading scale which is much more subjective when developing a team. We also turned to the suitability and importance of a team’s self-assessment when determining salaries.
Meanwhile, we also discovered that payroll issuing to staff was likewise ineffective. We came to the realization that individual salaries motivate staff more. This even stands for when they are working in small teams.
However, it also best not to make any drastic changes in profitability. At a certain point our profits began to grow dramatically, and the company was not prepared for this. Therefore, it became necessary to make some quick changes and adapt to new levels of client tasks. Unfortunately, not everyone was able to adjust. We discovered that this sort of drastic growth could actually damage the company’s corporate culture. This is where the model of gradual growth is more well-suited. This approach enables us to make changes as smoothly as possible.
How we survived the pandemic
The pandemic and working remotely, for many companies, was a test of strength and resilience. As a consequence, it revealed many issues in management that had been building up over the years. Many companies showed economic strength and endurance through the tough pandemic period. This was remarkable as, for example, more than half of our customers had been impacted by the pandemic. In return, we were able to help them by providing reasonable discounts. Despite the pandemic, we certainly felt privileged to have survived it economically. And thankfully, our employees were fully able to continue with their work. This meant that we did not need to arrange for any transfers or adjust workflow.
In fact, we earned more profits within the first 9 months than we did in the entire previous year. We were even able to significantly expand our staff by about 25% and even then we hadn’t hired everyone that we’d planned.
We did, however, face a few challenges as a result of the pandemic.
For this reason, we began to make more use of digital tools. Since we had already been using and had grown quite adept at using multiple online tools, there were not any noticeable changes within the organization. Perhaps the only substantial thing is that we began to use the existing tools on a deeper level, and even integrated a couple of new ones, for example, Miro. We have to admit, the usual white board with stickers still worked better. After all, live team interaction would often take place right next to it. But a digital version was the next best thing.
Yet this is a good example of the moment when we realized that we had communication gaps. During the pandemic, we were able to see how face-to-face communication within the office had hidden many of our communication problems. Remote work forced staff to be more articulate when expressing their thoughts and become more task-oriented. It was, however, the onboarding of new employees that especially required more time and effort. Also notable is that the staff members who were close to emotional burnout experienced it primarily during this remote working period. Related to the issue of communication, we subsequently noticed that the role of our HR team required some adjustment. Employees felt reassurance and support knowing that there was someone on board with whom they could just talk. It was in this way that HR managers became life coaches of sorts. Primarily communicating online, we faced the problem of some vagueness in tasks. We corrected this by strengthening management’s role of providing support and guidance.
One notable side effect of this small correction is that it has now become easier to hire remote staff. Previously, we had not been very eager to hire remote staff. However, the pandemic forced us to reconsider our views. Since then, after employing some changes as described, we have not only continued hiring staff members, but we have also found that it is much easier to hire remote workers. For example, this year alone we have already hired four fully remote employees, and we plan to hire one more by the end of the year. It satisfies about 15% of our yearly vacancies and sets a definite record in company history.
Summing up our progress:
A teal organization cannot be built in one go, rather, it is an ongoing process that we continue to work on to this day. Even the interim results show that we didn’t come all this way without a few victories. We built company trust, obtained productive and robust team players, and expanded on a comfortable, creative atmosphere. We underscored autonomy and initiative, and we have reached our primary goals. For example, there is evidence of exponential revenue growth and a decreasing control of shareholders across the company’s operational system.
If we take a more specific example, this year, I went on a three-month fraternity leave to have a break from work and be there to help my wife after the birth of our child. During this time, I was able to work less than two days a week while being in the office less than once a week.
Being able to take a break is just one example of how we ensure our employees’ happiness. Other evidence of this, albeit indirect, is that most of the staff have remained with us for many years. And, where a tiny portion of people have left, they often return to us in the long run. In addition, for several years now, the company has been conducting a specialized survey on staff burnout. Remarkably, even with an increase in employees, the numbers have remained stable with approximately 60% positive answers across each survey. I truly believe that all of this goes to show that our company is on the right track.