The Starfish and the Spider

A spider is a creature with eight legs coming out of a central body. It has a tiny head and usually eight eyes. If you chop off the spider’s head, it dies. That is exactly what happens with a centralized organization. A centralized organization has a clear leader who is in charge, and there is a specific place where decisions are made. Get rid of the leader and you paralyze the organization.

A decentralized organization is a different animal – it is actually a starfish. At first glance, a starfish is similar to a spider in appearance. But the starfish is decentralized. The starfish does not have a head. The major organs are replicated throughout each and every arm. In reality, a starfish is a neural network – basically a network of cells. Instead of having a head, like a spider, the starfish functions as a decentralized network.

In the book, “The Starfish and the Spider“, the authors argue that organizations fall into two categories: traditional “spiders,” which have a rigid hierarchy and a top-down organization, and revolutionary “starfish,” which rely on the power of peer relationships. From this premise, they explore what happens when starfish come up against spiders, and they reveal how established companies and institutions are learning to incorporate starfish principles to achieve success.

Their thesis is that a centrally controlled organization is slowed by that central control and can be paralyzed if something interferes with that system, while organizations that share a philosophy and goal, a knowledge base, and a methodology, but are not centrally managed, can’t be stopped by a single point of failure. They use a number of examples to support their thesis, like, the dismal performance of centrally controlled industries and economies under many totalitarian governments and the more dynamic and successful performance of economies where no one single authority is in charge. It is the reason that big businesses often do better with a franchise model than a wholly owned model. This bears closely on politics, warfare, and terrorism as well. The book comprises numerous success scenarios about Toyota, GM, Craigslist, P2P file sharing and Apache where decentralised teams have created successful organisations.

When There’s No One in Charge – one would think there would be disorder, even chaos. But in many arenas, a lack of traditional leadership is giving rise to powerful groups that are turning industry and society upside down. Decentralization has been lying dormant for thousands of years. But the advent of the Internet has unleashed this force, knocking down traditional businesses, altering entire industries, affecting how we relate to each other and influencing world politics. The absence of structure, leadership, and formal organization, once considered a weakness, has become a major asset. Seemingly chaotic groups have challenged and defeated established institutions.

MGM’s Fault and the Mystery of Apaches

The authors use two examples to show the power of distributed organisations. First one when MGM along with other giants like Columbia, Disney and Atlantic Records joined hands in a lawsuit against Napster (free peer to peer music sharing), a company launched by Shawn Fanning out of his college dorm room. The Supreme Court gave a unanimous decision in MGM’s favour. But this did not prevent the problem of music piracy. In fact, the labels were adding fuel to the fire with every new lawsuit. The harder they fought, the stronger the opposition grew. On the other hand, is the story of Spanish defeat at the hands of the Apaches. After defeating the Aztecs and the Incas (both centrally organised) the Spanish were confronted by the Apaches in the 1680s. This engagement is crucially linked with the music industry’s fight. Why? Because the Spanish lost. They lost to a people who at first seemed primitive. The main reason for the defeat was the way the Apaches were organized as a society. The Apaches distributed political power and had little centralization. They persevered because they were decentralized.

A centralized organization has a clear leader who is in charge, and there is a specific place where decisions are made. Rules need to be set and enforced, or the system collapses.  Decentralized systems, like the Apaches, are different. There is no clear leader, no hierarchy, no headquarters. The power is distributed among all the people and across geographic regions. Instead of a chief, the Apaches had a Nant’an – a spiritual and cultural leader who led by example. On first impression, it may sound like the Apaches were disorganized. In reality, they were an advanced and sophisticated society that was immune to attacks that would have destroyed a centralized society.

Coercive vs. Open Systems

When a coercive system, like the Spanish, takes on an open system, like the Apaches, they start killing the leaders. But as soon as they killed a Nant’an, a new one would emerge. The strategy failed because no one person was essential to the overall well-being of Apache society. Surprisingly, the Spanish attacks served to make the Apaches even stronger.

This is the first major principle of decentralization: When attacked, a decentralized organization tends to become even more open and decentralized.

Napster’s destruction did not quell people’s desire for free music. Along came Kazaa. It was different from Napster because there was no central server. Kazaa was like an Apache village. Unlike the record labels, there were no headquarters, and if you want to make a thousand copies of your favourite song, it could be done without any problems. Not only is the music industry unable to curb pirating, but, in accord with the first principle of decentralization, every time the labels sue a Napster or a Kazaa, a new player comes onto the scene that is even more decentralized and more difficult to battle. The harder you fight a decentralized opponent, the stronger it gets. Waging the battle started a chain reaction that now threatens the entire music industry.

A Sea of Starfish

What do an encyclopaedia, a piece of software, a phone company, classified ads, and naked people in the Nevada desert have in common? They are all decentralized.

Skype

Niklas Zennstrom, the founder of Kazaa, applied the lesson from Kazaa – to avoid central servers – to the phone business. Zennstrom started Skype, which let people connect to each other directly, via free computer-to computer phone service. In December 2004, Skype had 15 million users. By the end of 2005, it had 57 million. Skype rendered the telephone industry’s models of generating profits through long-distance charges obsolete.

Craigslist

Founded by Craig Newmark in 1995, Craigslist is now in 35 countries and more than 175 cities around the world. The site attracts three billion page views a month. According to Newmark, “The way Craigslist runs is that people who use it post, and if they find something inappropriate, they flag it for approval. So, in a very day-to-day kind of way, the people who use the site run it.” The Website is a starfish company because it allows users to interact with each other directly without anybody telling anybody else what they can and cannot do. But the big attraction to the site is not just free ads. It is community. In an open system, what matters most is not the CEO, but whether the leadership is trusting enough of members to leave them alone. Newmark does have reverence for his users. He lets them be.

Apache

The first popular browser for surfing the Web came from the University of Illinois at the National Center for Supercomputing Applications (NCSA) Project. But NCSA did not respond when engineers sent patches to be integrated. The engineers started talking to one another through an email list and decided to post the patches on their own. An engineer named Brian Behlendorf came up with a name for the project – Apache. Apache was organic – engineers would contribute, and the good patches would be picked up by other users. Apache collected so many patches for the NCSA Project that eventually it posted its own version. The software was completely opensource. Engineers all over the world started using Apache to run their Web site server. Apache quickly became the industry standard. Today 80 percent of all Web sites are run on Apache.

Wikipedia

Wikipedia has fascinating origins that in many ways capture the evolution of an open system. In 2000, Jimmy Wales launched Nupedia, a free online encyclopaedia that could be used by children whose parents couldn’t afford their own set. Larry Sanger, Nupedia’s editor-in-chief, saw that getting something published on Nupedia was a chore. He learned about wiki. Wiki is a technology that allows Web site users to easily (and quickly) edit the content of the site themselves. With that, Nupedia became Wikipedia. Within five years, Wikipedia was available in 200 languages and had extensive articles – more than one million in the English-language section alone. The quality of the articles is outstanding. People take great care in making the articles objective, accurate and easy to understand. Members themselves take on the job of policing the site. This brings us to another principle of decentralization – Put people into an open system and they will automatically want to contribute.

Burning Man

The Burning Man festival, happens yearly in the Nevada desert, is known for eclectic costumes, rave music and a host of naked people on drugs. It’s the only 24/7 decentralized experience you can find these days. There are two main decentralized qualities to Burning Man. The first is that there really aren’t many rules. The other thing that takes getting used to is that nothing costs money. That’s the second decentralized quality of Burning Man – it’s based on a gift economy. You provide things because you want to, as a way to contribute to the community, not because you expect anything in return. Burning Man, though outside the mainstream, holds a crucial lesson for businesses. When you give people freedom, you get chaos, but you also get incredible creativity. Because everyone tries to contribute to the community.

Five Legs of the Starfish

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.

LEG 1: Circles

Circles are important to nearly every decentralized organization previously mentioned. Once you join a circle, you’re an equal. It’s then up to you to contribute to the best of your ability. Today, the Internet has allowed circles to become virtual. Joining circles is so easy and seamless that most of us are members of a decentralized circle of one kind or another. Circles gain freedom and flexibility when they go virtual but being in the physical presence of other participants adds a dimension of closeness, and a sense of ownership emerges. Instead of rules, circles depend on norms. The norms become the backbone of the circle. Members enforce the norms with one another. As a result of self-enforcement, norms can gain even more power than rules. As the norms of a circle develop and as members spend more time together, they begin to trust one another and are often motivated to contribute to the best of their abilities.

LEG 2: The Catalyst

In open organizations, a catalyst is the person who initiates a circle and then fades into the background. In Apache circles, the Nant’an played the role of a catalyst. He could lead by example, but he never forced his views on others. The same pattern appears with every decentralized organization: A catalyst gets the decentralized organization going and then cedes control to the members. In letting go of the leadership role, the catalyst transfers ownership and responsibility to the circle. When the job is done, a catalyst knows it’s time to move on. Once the catalyst leaves, however, his or her presence is still felt. The catalyst is an inspirational figure who spurs others to action. Circles don’t form on their own.

LEG 3: Ideology

Ideology is the glue that holds decentralized organizations together. Ideology is the shared philosophy among members.

LEG 4: The Pre-existing Network

Decentralized networks are much more conducive to serving as platforms for budding starfish organizations. Typically, it takes the special skills of a catalyst to enter a network. But the Internet changed everything. Today the Internet serves as an open platform on the back of which a wide variety of starfish organizations can be launched. The implications of the Internet for decentralization are profound. The Internet not only makes it easier for people to communicate, it also provides a fertile ground for a host of decentralized organizations.

LEG 5: The Champion

A champion is relentless in promoting a new idea. Catalysts inspire and naturally connect people, but there’s nothing subtle about the champion. Champions are inherently hyperactive. Like catalysts, they operate well in non-hierarchical environments, but they tend to be more like salesmen than organizers and connectors.

The Combo Special: The Hybrid Organization

eBay represents the combo special. It’s neither a pure starfish nor a pure spider, but a hybrid organization. Companies like eBay combine the best of both worlds – the bottom-up approach of decentralization and the structure, control and resulting profit potential of centralization. eBay is a centralized company that decentralizes the customer experience. The second type of hybrid organization is a centralized company that decentralizes internal parts of the business. These companies have a CEO and some hierarchy, but they also have starfish-like DNA. When Jack Welch, GE’s charismatic leader, took the reins, GE was a highly centralized bureaucracy in need of a healthy overhaul. His real genius was in decentralizing the massive organization. He separated GE into different units that had to perform as stand-alone businesses. Welch’s approach benefited GE because it made each unit accountable and did away with inefficiencies. The combo special often requires a constant balancing act. Companies can’t rest on their decentralized laurels; they must seek and pursue the elusive “sweet spot.”

In Search of the Sweet Spot

The decentralized sweet spot is the point along the centralized-decentralized continuum that yields the best competitive position. Around the same time that eBay was founded, another auction house, Onsale, entered the market. Onsale held and sold inventory like other vendors, but rather than charging a set price, it allowed consumers to bid against one another. It was a centralized solution that took a small step toward decentralization. When people started using eBay, the market dramatically shifted. Compared to Onsale’s small step, eBay took a giant leap toward decentralization by allowing anyone to sell and purchase items. Onsale began losing market share and soon went out of business. The decentralized system that allowed eBay users to auction items directly to each other was simply superior – eBay had landed on the sweet spot.

The New World

RULE 1: Diseconomies of Scale

As counterintuitive as it sounds, it can be better to be small. We have entered a new world where being small sometimes provides a fundamental economic advantage. As diseconomies of scale increase, the cost of entering a new market dramatically decreases.

RULE 2: The Network Effect

The network effect is the increase in the overall value of the network with the addition of each new member. Starfish organizations are particularly well positioned to take advantage of the network effect. Often without spending a dime, starfish organizations create communities where each new member adds value to the larger network.

RULE 3: The Power of Chaos

In the decentralized world, it pays to be chaotic. In seemingly chaotic systems, users are free to do whatever they want. Starfish systems are wonderful incubators for creative, destructive, innovative, or crazy ideas. Where creativity is valuable, learning to accept chaos is a must.

RULE 4: Knowledge at the Edge

In starfish organizations, knowledge is spread throughout the organization. The best knowledge is often at the fringe of the organization.

RULE 5: Everyone Wants to Contribute

Not only do people throughout a starfish have knowledge, but they have a fundamental desire to share and to contribute. Contributors spend hours editing Wikipedia articles because they want to make the site better.

RULE 6: Beware the Hydra Response

Attack a decentralized organization and you’ll soon be reminded of Hydra. If you cut off one head, two more will grow in its place. There are ways to battle a decentralized organization –– but don’t try to cut off its head.

RULE 7: Catalysts Rule

Catalysts are crucial to decentralized organizations. It’s not because they run the show, it’s because they inspire people to action. But watch out: If you turn a catalyst into a CEO, the entire network will be in jeopardy.

RULE 8: The Values Are the Organization

Ideology is the fuel that drives the decentralized organization. If you really want to change a decentralized organization, the best strategy is to alter the ideology of the members.

RULE 9: Measure, Monitor and Manage

Just because starfish organizations tend to be ambiguous and chaotic doesn’t mean that we can’t measure their results. But when measuring a decentralized network, it’s better to be vaguely right than precisely wrong. Most catalysts care about the members, but they don’t expect reports or want control. Managing a decentralized network requires someone who can be a cross between an architect, a cheerleader and an awestruck observer.

RULE 10: Flatten or Be Flattened

There are ways to fight a decentralized organization. But often the best hope for survival is to join them. Increasingly, in order to survive, companies and institutions must take the hybrid approach. Yes, decentralized organizations appear at first glance to be messy and chaotic. But when we begin to appreciate their full potential, what initially looked like entropy turns out to be one of the most powerful forces the world has seen.

One line takeaway from the book is that “a smart business model for the future is a hybrid organization – part starfish, part spider”. The book is an easy and an enjoyable read. Strongly recommended for all.

Quotes from the Book

In open organizations, a catalyst is the person who initiates a circle and then fades away into the background.

Ideology is the glue that holds decentralized organizations together.

… when attacked, centralized organizations tend to become even more centralized.

The harder you fight a decentralized opponent, the stronger it gets. The labels had the power to annihilate Napster and destroy Kazaa. But waging that battle was possibly the worst strategic move the labels made. It started a chain reaction that now threatens the entire industry. As the labels go after the Napsters and Kazaas of the world, little programs like eMule start popping up. Now, it’s not that MGM and the other labels are stupid, nor are they alone. It’s just that MGM hasn’t stopped to fully understand this new force. What we’ve seen with the P2P companies is just the tip of the iceberg.