Who should read this book: Anybody that is interested in the history of centralization and decentralization amongst groups as well as more recently amongst organizations will find this a fascinating read that reveals why we continue to move our world towards a decentralized model.
If you’re already working in the tech industry or are particularly knowledgeable of the blockchain space, you might find this book elementary or outdated; however, it’s still interesting to see how things have evolved so quickly and to know where it started.
The power of decentralized networks (the “starfish”) and groups have manifested themselves for millennia.
A decentralized organization stands on five legs. As with the starfish, it can lose a leg or two and still survive. But when you have all the legs working together, a decentralized organization can really take off.
This was one of the first books to really package the concept of decentralization and bring it to the business world, pre-blockchain, drawing parallels to Apache Indians, Alcoholics Anonymous, slavery and eDonkey. Bill Clinton even picked it up and encouraged business leaders to read it.
“When you give people freedom, you get chaos, but you also get incredible creativity.”
The book tackles important questions like… “What makes a centralized organization weak?” and “How to become more decentralized/develop a hybrid model?” providing actionable advice along the way that is largely geared towards managers and thought leaders looking to implement this at work— or just any group in general.
Here are the 7 principles of decentralization they define:
- This is the first major principle of decentralization: when attacked, a decentralized organization tends to become even more open and decentralized.
- The second principle of decentralization: it’s easy to mistake starfish for spiders. When we first encounter a collection of file-swapping teenagers, or a native tribe in the Arizona desert, their power is easy to overlook.
- An open system doesn’t have central intelligence; the intelligence is spread throughout the system. Information and knowledge naturally filter in at the edges, closer to where the action is
- The fourth principle of decentralization is that open systems can easily mutate.
- The decentralized organization sneaks up on you. Because the decentralized organization mutates so quickly, it can also grow incredibly quickly
- This is the sixth principle of decentralization: as industries become decentralized, overall profits decrease.
- Put people into an open system and they’ll automatically want to contribute.
An interesting story about GE that I enjoyed from the book:
When Jack Welch, GE’s charismatic leader, took the reins, GE was a highly centralized bureaucracy in need of a healthy overhaul. Although much has been written about Welch’s values, his real genius was in decentralizing the massive organization. He separated GE into different units that had to perform as standalone businesses. Each unit maintained its own profit-and-loss statement. Units were so independent that if unit A wanted to buy a product from unit B, it had to pay the full market price. At first, this approach seemed ridiculous. Why would you intentionally segment your company? Why would you create distance between departments? Why would you eliminate the very advantage that being a large company affords? But Welch’s approach benefited GE because it made each unit accountable and did away with inefficiencies. The business rules across the company were: be number one or two in a market or get out, and generate high returns on investments. If a business unit failed in either of these areas, it was sold. Welch’s method ensured that each unit was being run profitably, while allowing unit heads significant flexibility and independence. The plan worked. GE’s market value skyrocketed. Valued at $12 billion in 1981, it was valued at $375 billion twenty-five years later.