I am currently working on my third book project for which I have already interviewed and visited 10 companies. The new book will be about innovation practices of self-organized companies. Self-organized means that the organization is not relying on traditional hierarchy with positions, functions and ever growing influence and power the higher up the pyramid one gets. Self-managed organizations rely on other means of leadership and making decisions. My key assumption for the book is, that an organization that does not rely on traditional power structures and systems, also will approach innovation differently. After all most innovation processes rely on ordained power and decision making committees to determine the course of action. One of the companies I have looked at, is Lunar Logic.
For this case study I spoke with Pawel Brodzinski the CEO.
Lunar Logic is a software development company based in Poland with 25 people. It runs on a self-developed very informal model of self-management.
Another interesting fact about the organization is that it has decided not to grow anymore. There were all kinds of reasons and different motivations from different members of the organization that led to this decision. Some liked the atmosphere and did not want to lose it, some thought that the current positive culture would not work in a larger organization and some really enjoyed the office building, which again would have not been sufficient if the company turned bigger. Also the cultural shift the company is undergoing is easier, when the group is small and would be much more challenging in a large organization. So the collective decision was therefore taken not to grow further.

Pawel, the organization’s leader was very much inspired by stories of self-organized companies described in Laloux’s book “Reinventing Organizations”. At the same time he does not believe that Teal organizations described by Laloux (characterized by self-management, wholeness and purpose) will be the future. For him this kind of organizations are and will be a niche. A niche that Lunar Logic is grateful to be in and wants to be in.
Why will Teal not become a mainstream model of organizations? For Pawel this has to do with the way our societies are organized and they way we all are socialized to accept the hierarchical model of organizations. So once people leave schools they are used to and respect the hierarchical model of structuring groups, people have been exposed to it for major part of their lives. For Pawel, at the core of this management paradigm there is subordinate-supervisor hierarchy as an overarching structure.

All other models people have less experience with. For most organizations these alternatives are hard and pose a challenge and require change. For this change to be successful, a lot of effort and focus is required that is hard to sustain. For that reason, especially larger organizations will roll back to the “old” hierarchical model.

How does Lunar make decisions?

Lunar Logic uses an advice process very similar to what has been described in “Reinventing Organizations” in the story about Buurtzorg.

Within given constraints (e.g. overall budget) anyone can make any decision. As long as they consult (1.) people with expertise and (2.) people who will be affected by the decision.
That means, people don’t have to create buy-in or obtain agreement. They can also go against the majority of people.
This framework provides people with a pattern of how to think about decisions and finally make decisions.

The scope of the process evolved over time from being limited to people deciding about product feature elements, to decisions about in which projects to work in and in how many projects to work in (guidance criteria: optimize for client happiness). Then the process allowed people to make decisions on spending small amounts of money, to larger amounts of money and has reached its peak now at people making autonomous decisions about their own salary and resetting the company strategy. So basically right now, there are no constraints left and people really can go about making any decision.

Autonomy enables motivation

The process and the entire setup of Lunar Logic grants everyone in the organization great autonomy. Following Daniel Pink’s thinking, Pawel sees autonomy as one key driver for creating engagement in organizations (next to having a purpose of why you go into the organization every day and being able to do your best work in the organization).

There are two challenges when making this step and really granting that much autonomy:

• People formally in power might have a hard time letting it go
• Less experienced people will make mistakes and bad decisions using the autonomy provided. If that autonomy is taken seriously, there is nobody to veto a decision

In hindsight there were some decisions that Pawel believed to be bad and it hurt him to see that these were taken. However, it was not an option to step back into old power paradigms again, just to prevent these. The trick was to be consistent and make sure that people learn and improve.

Interestingly the organizational model of Lunar Logic has become a selling point to clients and a reason for many of Lunar Logic’s clients to work with the company.

Self-organization on different levels

Many “agile” software companies experiment with self-organization on a team level. Self-organization only on a team level, however, has limited impact.
In order to have a stronger impact self-organization needs to be scaled up. The more we scale self-organization the bigger the impact. This requires (1.) distributed authority and (2.) distributed relevant information to enable decisions to be made reasonably. Therefore transparency is a key part of self-organization. Without good information people will make bad decisions. However, transparency will always need authority in order for people to act.
Furthermore people need to practice and they need to occasionally fail!

How is innovation approached at Lunar Logic?

As the company is mostly doing commissioned client projects, Lunar Logic has somewhat limited impact on shaping products for clients. Currently the company evolves itself into a product development consultancy.
Areas of innovation are the company’s own organizational design and the technologies used for client projects. Because of the autonomy everybody has, people can use it to try out new things.
At the time of the interview, for example, Lunar Logic was running a semi-commercial project for a client in regards to the technology used in the project. Instead of using the typical technology stack (Ruby on Rails and Javascript) a different stack is being used (Elixir and Phoenix). Developers felt that another language is likely to be the next thing. After an internal discussion the company openly approached their client and proposed a semi-commercial project: Lunar Logic would like to get some revenues but also would like to experiment with the technology. The client was open to that approach.
So the developers made an assessment how much Lunar Logic is willing to invest, how much time to put in and how much money (on the account of potentially lost profits of the regular work) the company is willing to give up. This project now enables the organization to learn a new technology and run experiments in a commercial environment. It turned out that the whole setup works very well. On the top of that, a part of the project may be used to build a minimum viable product for a new product.
One key factor to understand is that people should not try to look for consensus when making their decisions. There is always one person owning a decision. But they need to use the advice process. They don’t need to agree with everyone. One can even go against majority.
A key insight with Lunar Logic is that self-organization is very likely to make the company more innovative! Teresa Amabile has shown in her work that a key driver to innovation is having people who are engaged and motivated. She has also shown that the key driver for peoples’ engagement is whether or not they can make progress on things they perceive as relevant. Lunar Logic’s setup beautifully ensures that people can make progress.

Lunar Logic as a model for others?

Pawel believes that the organizational model Lunar Logic is using works well for small companies, however will most likely fail in larger organizations, because it leaves too many things open and unconstrained. The Lunar Logic model is still evolving and a system of sticking with what works and abandoning what does not work.
Codified systems of self-organization such as Holacracy explicitly give roles a sphere of influence with explicit authorities and explicit constraints. Lunar Logic works more the other way round: No constraints are given and people figure out constraints on the way. That kind of system works well with Pawel’s style as a leader and with a relatively small group. However, it does not scale well in large organizations as it is too informal.
Both systems provide people with real autonomy. Holacracy is formal and provides boundary conditions for the autonomy of each role. Lunar Logic’s way uses less or almost no constraints and the actual design of the system and its rules is also self-organized.