From the November 2006 issue of Research Magazine • Subscribe!

Starfish organizations

"If you cut off a spider's leg, it's crippled; if you cut off its head, it dies. But if you cut off a starfish's leg, it grows a new one and the old leg can grow into an entirely new starfish."

Thus starts the new book causing a stir in business circles, The Starfish and the Spider. The authors are Ori Brafman and Rod Beckstrom, Stanford MBAs who have spent five years researching organizations that they say fall in two categories: traditional "spiders," which have a rigid hierarchy and top-down leadership, and decentralized "starfish," which rely on the power of peer relationships. Starfish organizations include Wikipedia, Craigslist and Skype. Since starfish are capable of growing and operating with independent sections, peer companies have a tough time competing with them.

Starfish organizations aren't a new phenomenon. The authors point to such organizations as the Apache tribe. "The traits of a decentralized society -- flexibility, shared power and ambiguity -- made the Apaches immune to attacks that would have destroyed a centralized society," write Brafman and Beckstrom. In fact, the Apaches not only survived Spanish attacks, but they became stronger by becoming even more decentralized and more difficult to conquer.

The authors consider Alcoholics Anonymous the ultimate starfish. Nobody owns it. Each chapter runs autonomously. "AA is constantly changing form as new members come in and others leave," they write. "The one thing that does remain constant is the recovery principle [but] there is no one in charge; everyone is responsible for keeping themselves -- and everyone else -- on track."

More recent examples of starfish organizations share values among their members but independent groups proliferate; leaders act more as catalysts than traditional CEOs. In the financial arena, author Rod Beckstrom points to Electronic Communication Networks, which are computerized order matching and placing systems, as examples of the starfish structure. Until recently, only institutions could trade stocks via ECNs, but when that changed in 1997, the execution, speed and transparency redefined stock trading.

Are starfish companies superior? The authors write that these organizations empower their members (employees) and create a strong feeling of community. This can bring out the best in people. While the authors also write that relatively few starfish companies generate high revenues, they note that the starfish can pluck revenues from out of the spiders' mouths. For examples, the authors write about how peer-to-peer song sharing networks shook up the entire music industry, draining sales from traditional record distributors.

The authors discuss how traditional spider companies have integrated some starfish qualities, resulting in them becoming more adaptable and competitive in the changing marketplace. For instance, they compare General Motors' traditional assembly line of the 1980s to Toyota's more flexible approach. "Assembly line workers [at Toyota] were encouraged to make suggestions to improve the manufacturing process," they write. "In decentralized fashion, teams functioned like a circle, and whatever ideas employees had for innovation were put into practice. Rather than regarding line workers as drones who had to follow directions and be kept in line, Toyota viewed its employees as key assets."

Another example is General Electric. When Jack Welch took the reins, the company was a highly centralized bureaucracy in need of a healthy overhaul. The authors write that Welch's true genius "was in decentralizing the massive organization. He separated GE into different units that had to perform as stand-alone businesses." This method ensured that each unit was operating profitably while allowing unit heads significant flexibility and independence. "The plan worked," they write. "Valued at $12 billion in 1981, it was valued at $375 billion 25 years later."

Many of the aspects of starfish-like behavior appear to run counter to intuitions about the way that businesses are run today. However, the authors believe the more successful businesses of tomorrow will embrace more starfish qualities. The key to this success is having a quality employee base and a corporate culture that is built on trust. This easy-to-read book could inspire both small and large business owners to become more starfish-like.

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Mary Scott is the co-author of Companies with a Conscience ; see www.companieswithaconscience.com or write to maryscott303@comcast.net .

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