How a small town start-up grew into an industry leader without traditional management

The Morning Star Company became a world leader in the food industry with an unprecedented model: self-management. People are not managed by others, so there is no command and control. More than two decades since their founding, Morning Star’s business approach remains ahead of its time.

No revenue, thousands of acres of tomatoes growing out of the ground, and a team of 24 rushed to build their first factory that would employ hundreds of workers, Morning Star had a grand vision and no time to lose. But their founder, Chris Rufer, took the time to be intentional about how the company grew and called a meeting about governance. It was March 1990, and sitting in that meeting was Doug Kirkpatrick, a financial controller among the founding team at Morning Star. I talked to Doug about the details of self-management and how it helped them grow from a tiny farmhouse start-up to over $700 million in revenue today.

How did the team come to an agreement to be self-managed?

We all met in a little construction trailer on the job site and Rufer passed around a document called ‘The Morning Star Colleague Principles’ which boils down to two key principles: 1) People should not use force or coercion against other people, and 2) People should honor the commitments they make to each other. We debated these concepts for hours, and by the end we agreed it just made sense.

What is self-management and how does it work?

It is a corporate governance model founded on those two principles – no command authority and keeping commitments to your colleagues. It’s integrating traditional management functions into the roles of each worker, so you don’t need these expensive layers of managers and you don’t waste time on permission steps and supervising other individuals. The way it works is individuals develop relationships with their peers, maintaining trust, respect, and communication, and they lead by example. No one can tell another what to do, and no one can unilaterally fire another individual.

Why did Rufer choose self-management over all other approaches to governance?

These principles were fundamental to his own world view, and they are perhaps the most fundamental principles of human interaction. In fact, they are the foundation of all law, especially contract law. To the degree that individuals and organisations adhere to these principles, they are relatively better off, and the people in these organisations experience greater happiness, harmony, and prosperity.

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What were the initial reactions throughout the team? Was there skepticism or resistance?

As we talked about the principles, we were fine with it. We quickly integrated them into our world view at work and ran with it. We also had a great deal of confidence in our founder. He had a proven track record, and several of us had already worked with him previously so we knew him well, though we did not know about his ideas on governance before this meeting.

How much needed to get done when self-management was adopted? How much room for error was there?

We had thousands of acres of tomatoes coming up out of the ground. In California, we had vital processing equipment arriving on ocean cargo freighters from Italy that were in the Atlantic Ocean. We had to hire hundreds of workers to operate the factory and drive the trucks. We had to construct a $27 million factory (in 1990 dollars, which would probably be double that today). We had hundreds of contractors on the job site, working seven days a week, 24 hours a day, fabricating, welding, and constructing. We had to make sure they did a great job and got paid on time. So, this was a large project for a small group of people and it took a great deal of concentration to do it right.

So people kept track of these numerous, complex details without having a manager themselves. How did that work out for Morning Star?

The factory was complete about four months after adopting self-management and, since then, the company has grown enormously – from zero to well over $700 million a year in revenue today. We became the largest tomato processor in the world, and we are continuing to grow. That first year, we produced about 90 million pounds of industrial tomato paste for the world market. We changed the cost structure of the industry because we were able to do it in high volume, efficiently, and with a high-level of throughput per unit of capital equipment. In 1995 we built another factory and then a third in 2002. We expanded operations up and down the supply chain toward customers and remote warehouses, and in terms of farming, trucking, transplanting, and harvesting. We've done this all without any significant changes in organisational governance; we’ve always adhered to the same two-core principles; no use of force and keeping commitments. There has been no command authority whatsoever.

How did the team implement self-management? What helped make it successful?

The implementation was just flipping the switch the night we agreed to adopt it. The challenge was many people had grown up in traditional command-and-control organisations, so it could be hard to abandon that mindset and embrace the idea of zero command authority. We addressed this by reminding our peers that this is an environment of request and response; not of command and control. A key aspect to shifting traditional mindsets was re-framing our language and therefore our thinking. We don't call people ‘employees’ we call them ‘colleagues’, implying everyone has an equal voice regardless of their responsibilities. In fact, the word ‘employee’ is defined as ‘one who performs work for another person for pay,’ and that's not what people do at Morning Star. They're working for the mission of the enterprise first and foremost; not just for pay.

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Why do you think self-management is better than the traditional model in today’s context?

Traditional management had a role to play in the Industrial Revolution, when communication systems were vestigial and railroads, for example, needed a manager for every 100 miles of tracks to prevent collisions. But information now moves at the speed of light and top-down, brittle, hierarchical bureaucracy no longer make sense. Managers are wasting time and money supervising people who are already managers of their personal lives.

Secondly, according to Gallup, 70 per cent of American workers are disengaged, and 20 per cent are actively disengaged, meaning they actively undermine their own workplaces. Most of that is due to the bureaucracies in which they operate. If those individuals have an opportunity to proactively contribute to the outcomes they're producing in the workplace, a lot of that disengagement goes away. Organisations do need planning, organising, controlling, selecting, and coordinating, but I draw the distinction between management of one's self and management of others. Gallup also found that 75 per cent of the reasons people quit their jobs are related to managers. I would also mention Gary Hamel’s $3 trillion challenge, and his claim that busting bureaucracy would add $3 trillion to economic growth in the US alone.

Doesn't a natural hierarchy develop under self-management?

Yes it can, but I’d say it’s better because it develops organically and it’s not permanent, which protects the prerogatives and the voice of every individual. The distinction here is between a voluntary situation and one that is forced. Individuals can voluntarily align themselves in a informal hierarchy, and then they can abandon that hierarchy at any point. They aren't locked into anything.

What are some of the biggest challenges with self-management?

Decisions can take longer because one needs the consent, or at least the tacit support, of everyone that's affected by a particular decision. However, this generates better decisions because it's based on the concept of "The Wisdom of Crowds" by James Surowiecki to the degree you increase the input from different sources to make a better decision. So that is a worthy challenge.

A second challenge is protecting the voices of introverts, because in a self-managed environment one must speak up and has an affirmative obligation to contribute verbally to decisions. So we try to ensure our conflict resolution systems, for example, allow for the use of an ombudsman or a confidential advisor to help those who are uncomfortable in directly approaching others.

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Why would the challenges that come with self-management be more favourable than the challenges that come with traditional management?

Because you're not paying the management tax – the unnecessary overhead of maintaining the hierarchical bureaucratic organisations. You're not suppressing people with brittle, heavy bureaucracy, so every single individual is free to innovate and provide leadership. As such, innovation can spring up from anywhere, at anytime; it’s not dependent on a small cadre of designated innovators.

How does one become a leader under self-management?

I’ll preface by saying everyone in self-management is a manager, or a self-manager. This means everyone is involved in planning, organising, controlling, selecting, and coordinating (traditional management functions). Leadership is earned through trust, respect and communication. It is not positional or static; different people step up on any given day based on the issue. They identify opportunities, communicate their vision to peers, and get people to enlist, follow, collaborate, and contribute to the desired outcome. Everyone feels the pull of leadership based on the overall mission of the enterprise, of their particular business unit, and their personal commercial mission. So people become leaders because others choose to follow them, and leaders change with projects and time.

Could it ever turn into a popularity contest?

No system is perfect, and I wouldn't claim perfection for self-management. I just think it's a lot better than traditional management, especially in the age of the millennial generation and light speed communications, in terms of providing the best possible ecosystem in which people are able to have a voice, and have their best chance to thrive and do their best work.

Leadership is earned through trust, respect and communication.

Is it inaccurate to say that self-management lacks structure?

Yes, that’s a misnomer. Structure comes from your peer agreement, which lays out a personal commercial mission, your purpose, what excellence looks like in your role, and how your work supports the mission of the enterprise. And then you have a portfolio of process accountabilities that you agreed to own, associated with decision rights, so you know what the scope and quantum of your decision-making authority is for those processes. KPIs tell you how well you're doing at executing those processes on a regular basis, and you’re held accountable to your colleagues. I would argue that structure is far more robust and drives higher accountability than traditional bureaucracy.

Is there a lot of flexibility to choose how you work?

Everything's negotiable. It's a process of negotiation and coming up with situations that work for every single person in the environment.

A lot of terms are being used interchangeably with “self-management,” like holacracy. Are they all the same thing?

Many different models are picking up momentum, like holacracy, workplace democracy, sociocracy, podular design, etc. I loosely group all these models under the rubric of the 'future of work'. They are distinct models and companies may be implementing any one of these to different degrees, but they all move towards a vision of a better workplace, like the Firms of Endearment.

You have to become knowledgeable of the different approaches that are evolving and emerging, and then you have to be willing to experiment. I would encourage companies to review the literature, look at case studies, see what resonates, and then run experiments to discover what works for you. Every company's culture is different, so it can't be a one-size-fits-all.

- This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Thumbnail from gettyimages.

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