JOHANNES KEPLER UNIVERSITY LINZ Altenberger Straße 69 4040 Linz, Austria jku.at

Author Julian Koll, BSc. Submission Institute of Strategic Management Thesis Supervisor Mag.a Dr.in Sabine Reisinger October 2021

HUMANIZING ORGANIZATIONS THE CASE OF BELLAFLORA GMBH

Master’s Thesis to confer the academic degree of

Master of Science in the Master’s Program

Management

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STATUTORY DECLARATION

I hereby declare under oath that the submitted Master’s Thesis has been written solely by me

without any third-party assistance, information other than provided sources or aids have not been

used and those used have been fully documented. Sources for literal, paraphrased and cited

quotes have been accurately credited.

The submitted document here present is identical to the electronically submitted text document.

Leonding, October 2021

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EXECUTIVE SUMMARY

The present master thesis is concerned with the topic of how organizations can respond to the

growing pressure for more flexible forms of organization. To this end, as an alternative to the

bureaucratic-hierarchical form of organizing practiced in most companies, which is often

considered inappropriate and inefficient under today's conditions according to Morris et al. (2006,

p. 1486), a new form of organization is presented that puts people at the center. The

characteristics of this form of organization, the so-called Humanocracy (Hamel & Zanini, 2020),

which are summarized in seven principles, are described in the context of this work. After a rough

overview of all of these seven principles, the focus is limited to three of them in the remainder of

this thesis. A literature review will provide a detailed overview of the current state of the literature

on these topics. In addition, a practical relevance of the findings from the investigation of the

literature is established. To this end, this paper identifies how the individual principles discussed

can help the Austrian company bellaflora GmbH achieve its strategic goals and to master its

current and future challenges. This happens in the form of a case example.

In recent years a range of pressures increased the necessity for reconsidering existing

organizational forms. A fact that is emphasized by several scholars (Hiltrop, 2005; Holbeche,

2019; Johnson et al., 2009; Lee & Edmondson, 2017; Morris et al., 2006; Schreyögg & Sydow,

2010). Above all, the changed environmental conditions such as the explosive growth of new

technologies as Holbeche (2019, p. 668) explains, or the rising globalization, hypercompetition,

and the shortening of product life cycles and declining competitiveness which are emphasized by

Schreyögg & Sydow (2010, p. 1251) led to a shift to leaner and flatter organizational forms (Morris

et al., 2006, p. 1486). In addition Lee & Edmondson (2017, p. 37) point out that rethinking

traditional structures and processes is becoming increasingly necessary due to demographic

change in many organizations. The departure of the so-called Baby Boomers from the world of

work and the increased entrance of Millennials is not only changing the age structure of the

workforce, but also their attitudes and expectations towards work according to De Hauw & De Vos

(2010), Ng et al. (2010), and Smith & Nichols (2015).

This growing pressure on organizations has been recognized by the authors Gary Hamel &

Michele Zanini (2020), who have been studying management innovation for years. In the book of

the same name, they describe a revolutionary, flexible, human-centered organizational form,

called “Humanocracy”. Hamel & Zanini (2020) summarize the characteristics of this form of

organization in seven principles: Ownership, Markets, Meritocracy, Community, Openness,

Experimentation, and Paradox. In this thesis these seven principles are briefly described. In order

to gain more depth in the findings, the focus in the further course of the work is limited to the three

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principles ownership, community, and openness which, in consultation with the CEO of bellaflora,

were classified as the three principles most relevant for the company at the moment.

According to the principle of ownership an important step towards a more human-centered form

of organizing is that employees perceive themselves as owners of the organization, Hamel &

Zanini explain (2020, p. 114). This topic of ownership has experienced growing interest from

researchers and practitioners in recent decades and is already a widespread concept in

companies, especially in the U.S., but an increase is also evident in Europe. According to Kruse

et al. (2010, p. 205), to achieve such a sense of ownership, it is particularly important to give

employees a share in the profits of the organization. However, to increase the feeling of ownership

and subsequently also the positive effect employee ownership can have on company performance

and employee attitudes, this stake in the profits should be combined with participative

management practices, as Kaarsemaker & Poutsma, (2006, p. 680), K. J. Klein (1987, p. 329),

Pendleton et al. (1998, p. 99), and Rousseau & Shperling (2003, p. 565) point out. Accordingly,

employees should also have the opportunity to participate in decision-making and have access to

business information according to Chi & Han (2008, pp. 694–696), Kaarsemaker & Poutsma

(2006, p. 679), and Rousseau & Shperling (2003, pp. 557–559). Furthermore, Kaarsemaker &

Poutsma (2006, pp. 671–672) emphasize that companies that have employee ownership as a

central element should pay attention to an internal fit, i.e. to the coherence and consistency of

their HRM practices. According to Harrison et al. (2018, p. 7), Kaarsemaker & Poutsma, (2006, p.

680), and I. L. Pierce et al. (1991, pp. 139–140), management commitment is also crucial to the

effectiveness of employee ownership. This thesis also shows how the implementation of an

employee ownership concept could help bellaflora to achieve its strategic goals and overcome its

challenges. Thus, several positive effects are described which could be achieved by implementing

the concept of employee ownership in the company. These include among others aligning the

interests of employees and owners and increasing organizational commitment and employee

productivity. Furthermore, the concept of employee ownership could also be helpful with regard to

the described difficulties of the company in retaining employees. Possible negative effects or

challenges for bellaflora of an implementation of employee ownership are the danger of free-riding,

the reduction of speed and quality of the decision-making process and the partly high

administrative costs of a profit-sharing program.

The second principle which is in focus of this work is community. In a humanocracy, according to

Hamel & Zanini (2020), it is important for employees to perceive themselves as part of a

community. A community is more than a workgroup, which is a collection of individuals reporting

to the same supervisor, but it is a network of trust, made up of people who share a common

passion and live the values of unity, selflessness, determination, and accountability Hamel &

Zanini (2020, pp. 161–162) explain. One company that has successfully embedded such a sense

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of community in its organization, according to Hamel & Zanini (2020, p. 174), is Southwest Airlines.

The company has been outperforming in its industry for decades (Hamel & Zanini, 2020, pp. 163–

165). Hamel & Zanini (2020, p. 174) see this performance as rooted in the company's unique

organizational culture. To answer the third research question, how to create a sense of community

in an organization, point 4 of this thesis tries to find out how leaders can create a similar successful

organizational culture. For this purpose, a definition of the term is given at the beginning, followed

by the possible positive effects that the culture of an organization can have on corporate

performance and other factors. Furthermore, points are described to which leaders should pay

special attention when it comes to establishing a strong culture in the company and consequently

also a sense of community. Accordingly, it is important to develop an understanding of the present

culture in the company, to define a mission, vision and values, to align strategy and culture, to hire

and train for culture fit, that the management orients their behavior to the communicated values,

to recognize and reward desired behaviors and practices that support the desired culture, and to

use symbols and ceremonies to reinforce cultural ideals (Chatman & Cha, 2003; C. O’Reilly, 2008;

Rosenthal & Masarech, 2003; Warrick, 2017; Warrick & Gardner, 2021). This thesis also illustrates

how bellaflora could benefit from such a strong culture. Thus, a successful establishment of such

a culture could help bellaflora especially in terms of expanding their market leadership and in

differentiating themselves from its competition. Furthermore, positive effects in terms of customer

service and employee performance could result from the emergence of social control. However, it

should be noted that establishing such a strong culture and thus achieving these positive effects

is challenging and is an interplay of many different factors, Warrick & Gardner (2021, p. 50) point

out.

In addition to the two principles of ownership and community, the principle of openness is also

examined more closely in this thesis. In it, Hamel & Zanini (2020, p. 177ff) address the topic of the

strategy making process and explain how, according to them, it should be designed in a human

organization. Accordingly, in a humanocracy, the strategy process should be a company-wide

conversation that is open to employees, as well as customers and other external partners (Hamel

& Zanini, 2020, p. 190). This approach of involving internal and external stakeholders in the

strategy making process is referred to as “Open Strategy” in the literature (Appleyard &

Chesbrough, 2017; Chesbrough & Appleyard, 2007; Hautz et al., 2017; Luedicke et al., 2017;

Mack & Szulanski, 2017; Whittington et al., 2011). The examination of the current state of the

literature on the topic has shown that this opening up of the strategy process and the associated

involvement of a wider audience represents a promising approach for companies. The urge for

greater openness and thus increased transparency and inclusion is driven by a variety of forces,

as Whittington et al. (2011, p. 536ff) point out. Thus, the concept of open strategy is gaining

increasing relevance through various organizational, social, cultural and technological

developments, according to Whittington et al. (2011, p. 536ff). Furthermore, the opening of the

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strategy process is associated with several positive effects, as Hautz et al. (2017, p. 301ff)

emphasize. However, also risks and costs are associated with increased openness, as Hautz et

al. (2017, p. 301ff) explain. Hautz et al. (2017, p. 301ff) summarize these conflicting outcomes,

i.e. the positive effects and the risks and costs associated with the concept of open strategy, in

five dilemmas, which are discussed in chapter 6.4. At the end of chapter 6, the high dynamics

associated with open strategy are described. This is especially driven by these different dilemmas

and makes an ongoing adjustment of the two key dimensions of an open strategy, namely

transparency and inclusion necessary, according to Hautz et al. (2017, p. 303ff). In this context,

the results are also illustrated using the case example of bellaflora. One of several identified

positive effects for the company in opening up the strategy process could be for bellaflora the

overcoming of industrial thinking and the generation of a multitude of revolutionary ideas.

However, in addition to the range of benefits, this thesis also points out the challenges bellaflora

could face in increasing transparency and inclusion. These include the jeopardization of

competitiveness, as competitors could more easily obtain strategically sensitive information if the

strategy process were to be opened up.

All in all, the findings of this thesis show that in order to become more human as an organization,

a rethink is needed in many areas. Such a rethinking is made necessary by various developments

that require a more decentralized and flexible form of organizing.

VII

TABLE OF CONTENTS 1. Introduction .......................................................................................................................................... 1

1.1. Problem statement ......................................................................................................................... 1

1.2. Objectives of the thesis .................................................................................................................. 3

1.3. Methodology ................................................................................................................................... 5

1.4. Structure and content ..................................................................................................................... 6

2. The case example................................................................................................................................. 7

2.1. Overview of bellaflora Gartencenter GmbH ................................................................................... 7

2.2. bellaflora’s strategy ........................................................................................................................ 7

2.3. Risks and challanges ................................................................................................................... 10

3. The concept of Humanocracy ........................................................................................................... 12

3.1. Humanocracy ............................................................................................................................... 12

3.2. Ownership .................................................................................................................................... 13

3.3. Markets ......................................................................................................................................... 15 3.3.1. Collective intelligence ........................................................................................................... 15 3.3.2. Allocational agility ................................................................................................................. 16

3.4. Meritocracy ................................................................................................................................... 17

3.5. Community ................................................................................................................................... 18

3.6. Openness ..................................................................................................................................... 20

3.7. Experimentation ........................................................................................................................... 22

3.8. Paradox ........................................................................................................................................ 23

3.9. Interim conclusion ........................................................................................................................ 25

4. Ownership ........................................................................................................................................... 28

4.1. Forms of shared capitalism .......................................................................................................... 33

4.2. Factors of employee ownership effectiveness ............................................................................. 35 4.2.1. Participation in decision making ........................................................................................... 36 4.2.2. Access to business information............................................................................................ 37 4.2.3. Internal fit .............................................................................................................................. 38 4.2.4. Management commitment .................................................................................................... 39

4.3. Effects of employee ownership .................................................................................................... 40 4.3.1. Organizational effects .......................................................................................................... 40 4.3.2. Employee attitudes ............................................................................................................... 41

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4.4. Problems & disadvantages .......................................................................................................... 42

4.5. Interim conclusion ........................................................................................................................ 44

5. Community .......................................................................................................................................... 47

5.1. Organizational culture .................................................................................................................. 51

5.2. Why bother with organizational culture? ...................................................................................... 53

5.3. Characteristics of strong cultures ................................................................................................. 55

5.4. Building a strong culture ............................................................................................................... 56 5.4.1. Develop an understanding of the present culture ................................................................ 56 5.4.2. Define vision, mission and values ........................................................................................ 57 5.4.3. Alignment of strategy, day-to-day practices and culture ...................................................... 58 5.4.4. Hire and train for culture fit ................................................................................................... 59 5.4.5. Walk the talk ......................................................................................................................... 60 5.4.6. Recognize and reward desired behaviors and practices ..................................................... 60 5.4.7. Symbols and ceremonies ..................................................................................................... 61

5.5. Interim conclusion ........................................................................................................................ 62

6. Openness ............................................................................................................................................ 65

6.1. Open strategy ............................................................................................................................... 69

6.2. Dimensions of open strategy........................................................................................................ 69 6.2.1. Inclusion ............................................................................................................................... 70 6.2.2. Transparency ....................................................................................................................... 71

6.3. Four forces of open strategy ........................................................................................................ 72

6.4. Dilemmas ..................................................................................................................................... 74

6.5. Dynamics ...................................................................................................................................... 77

6.6. Interim conclusion ........................................................................................................................ 80

7. Conclusion .......................................................................................................................................... 83

8. Limitations and future research ....................................................................................................... 89

9. References .......................................................................................................................................... 90

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LIST OF FIGURES

Figure 1: Central dilemmas of open strategy (Hautz et al., 2017, p. 302) ................................... 74 Figure 2: Dynamics of open strategy: Movements along and between the dimensions (Hautz et

al., 2017, p. 304) ............................................................................................................................ 77

LIST OF TABLES

Table 1: Characteristics Humanocracy (Hamel & Zanini, 2020, p. 233) ...................................... 13 Table 2: Literature sources concerning the concept of ownership ............................................... 32 Table 3: Literature sources concerning organizational culture ..................................................... 51 Table 4: Literature sources concerning open strategy ................................................................. 68 Table 5: Possible effects of employee ownership......................................................................... 84 Table 6: Summary of findings in regard to building strong culture ............................................... 86 Table 7: Effects of Open Strategy ................................................................................................. 87

LIST OF ABBREVIATIO

CEO .............................................................................................................. Chief Executive Officer

ESOP ............................................................................................ Employee Stock Ownership Plan

HRM ................................................................................................. Human Resource Management

n.R. .................................................................................................................................. no Ranking

P&L .......................................................................................................... Profit and Loss Statement

ROE ........................................................................................................................ Return on Equity

WoC ................................................................................................................ Wisdom of the Crowd

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1. Introduction

At the beginning of this chapter, the relevance of the topic is highlighted in the form of a problem

statement. Subsequently, the research questions which this work tries to answer are stated and

the objectives of the work are explained. In section 1.3, the methodology used in this thesis is

described. Finally, an overview of the structure of this thesis is given in this chapter.

1.1. Problem statement

According to scholars (Hiltrop, 2005; Holbeche, 2019; Johnson et al., 2009; Lee & Edmondson,

2017; Morris et al., 2006; Schreyögg & Sydow, 2010; Starkey et al., 2000) a range of pressures

increased the necessity for reconsidering existing organizational forms in recent years. First and

foremost, the changing environmental conditions such as the explosive growth of new

technologies as Holbeche (2019, p. 668) explains, and the rising globalization, hypercompetition,

the shortening of product life cycles and declining competitiveness emphasized by Schreyögg &

Sydow (2010, p. 1251) led to a shift to leaner and flatter organizational forms (Morris et al., 2006,

p. 1486). Under such uncertain conditions, the bureaucratic-hierarchical form of organization is

seen as inappropriate and inefficient according to Morris et al. (2006, p. 1486). As Lee &

Edmondson (2017, p. 36) point out, managerial hierarchy functions are “more effectively in stable

conditions but faces serious challenges in dynamic conditions”. Furthermore, they support the

effectiveness of the execution of routine tasks but hinder the handling of complex unknown

problems, especially when cross-functional cooperation is necessary for solving Adler (2001, p.

216) explains.

In addition to the above-mentioned environmental conditions, there are also internal developments

in the organizations which require a rethinking of traditional structures and processes. Thus

according to scholars (De Hauw & De Vos, 2010; Lee & Edmondson, 2017; Ng et al., 2010; Smith

& Nichols, 2015), employers are facing a change in their workforce due to the retirement of the

so-called Baby Boomers and the increased entrance of people born between 1980 and 2000 into

the workforce, referred to as Millennials. These Millennials, also called “Echo Boomers”,

“Generation Y” or “Generation Next” in the literature (De Hauw & De Vos, 2010, p. 293), are

characterized by very different attitudes and expectations toward work compared to previous

generations according to De Hauw & De Vos (2010), Ng et al., 2010 and Smith & Nichols (2015).

In their study Ng et al. (2010, p. 289) that one of these differences is that for Millennials a good

work-life balance is of great importance. Furthermore, this generation enjoys the social aspect of

work as Ng et al. (2010, p. 283) describe: “Millennials also like collaborating closely with, and

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learning from, colleagues and managers they respect, and hope to form friendships with their

coworkers”. Another characteristic that distinguishes this new part of the workforce is the desire

and aspiration for meaningful and fulfilling work as De Hauw & De Vos, (2010, p. 294) and Ng et

al. (2010, p. 283) explain. According to the literature (De Hauw & De Vos, 2010, p. 294; Ng et al.,

2010, p. 283), it is more important for Millennials to have meaningful work where they can grow

than financial rewards. Moreover De Hauw & De Vos (2010, p. 294) and Lee & Edmondson (2017,

p. 37) state that this generation generally values a certain degree of autonomy in the execution of

their work.

Another pressure that leads to the rising popularity and importance of less hierarchical forms of

organizing is the growth of knowledge-based work according to Lee & Edmondson (2017, p. 37).

Thus knowledge is playing an increasingly central role in more and more companies operating in

the so-called knowledge economy (Lee & Edmondson, 2017, p. 37). This growing knowledge-

intensity is driven on the one hand by the rising educational level of the workforce and on the other

hand by the growing scientific and technological knowledge, Adler (2001, p. 216) explains. One of

the consequences of this development is according to Lee & Edmondson (2017, p. 37) that

managers often do not have the knowledge and expertise to solve organizational problems in the

best possible way. Because of this, Lee & Edmondson (2017, p. 37) emphasize the necessity for

such companies to involve employees at all hierarchical levels in the generation of solutions and

ideas in order to be successful.

This growing pressure to move away from traditional managerial hierarchies especially due to the

mentioned developments led to increasing interest of scholars and practitioners in the topic of new

less hierarchical organizational forms in the last decade (Lee & Edmondson, 2017; Martela, 2019;

Morris et al., 2006; Pfeffer, 2013). In this context, there are some organizations that have attracted

high managerial and scholarly attention due to their revolutionary way of organizing. Examples

include Zappos, Morning Star, Valve, W.L. Gore and Hayer (Lee & Edmondson, 2017; Martela,

2019).

Although some companies have already succeeded in transforming themselves, Gary Hamel &

Michele Zanini (2020) are convinced that the majority of companies are still trapped in outdated

bureaucratic structures and thought patterns: “Like all technologies, bureaucracy is a product of

its time. Since its invention in the nineteenth century, much has changed. Today’s employees are

skilled, not illiterate; competitive advantage is the product of innovation, not just scale;

communication is instantaneous rather than tortuous; and the pace of change is hypersonic, not

glacial. Yet the foundations of management have remained cemented in bureaucracy. This must

change.” (Hamel & Zanini, 2020, p. 19). The authors who have been working on management

innovations for years, emphasized the problem that companies are too inhuman. In their work

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"Humanocracy" (2020) they describe that companies should become as resilient, creative, and

passionate as the people inside them (Hamel & Zanini, 2020).

Due to these developments and the resulting growing need for more flexible and "human" forms

of organization, this paper will examine which specific elements characterize such an organization

and how organizations can manage to implement individual elements of such an organizational

form.

1.2. Objectives of the thesis

The main objective of this thesis is to answer the following research questions:

- What constitutes a human-centered organization?

o How can organizations achieve a sense of ownership in the workforce?

o How can organizations create a sense of community within their company?

o What are the benefits and problems associated with opening up the strategy

process?

The need for more flexible and less hierarchical organizational forms is increasing due to various

factors, such as the uncertain environment with which most organizations are confronted or the

demographic change that is taking place in many companies. These developments make it all the

more interesting and relevant to find answers to the stated research questions of how

organizations can make their processes and structures more human.

For this, it is first necessary to find out and define what are characteristics of such a "human" and

"flexible" organization. For this purpose, the organizational form of a so-called humanocracy,

which was brought to life by Gary Hamel and Michele Zanini (2020) in their book of the same

name, will be examined in detail. This form of organizing is characterized by seven principles,

namely Ownership, Markets, Meritocracy, Community, Openness, Experimentation, and Paradox,

which will be described in the course of this work and will be related to the current state of the

literature on the individual topics. In the further course of this thesis, the focus is particularly on

four of these principles. In consultation with the CEO of the company under investigation,

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ownership, community, and openness were determined to be the most relevant principles for

bellaflora GmbH at present.

The goal of the principle of ownership is according to Hamel & Zanini (2020, p. 114) that

employees perceive themselves as owners of the organization in which they work. Creating such

a sense of ownership in the workforce is associated with a number of positive effects, such as

increased productivity (Pendleton & Robinson, 2010) and job satisfaction (Bryson et al., 2016) or

the alignment of the interests of the employer and employee (Rousseau & Shperling, 2003). The

aim of this paper is to shed light on this particular aspect of humanocracy and to explore how such

a sense of ownership can be achieved in the workforce of an organization.

In addition to ownership, another principle of a humanocracy is examined in more detail, which is

community. According to Hamel & Zanini (2020), employees in a human-centered organization

should perceive themselves as part of a community. According to them, a community is more than

a workgroup, i.e. a collection of individuals reporting to the same supervisor, but it is a network of

trust, made up of people who share a common passion and live the values of unity, selflessness,

determination, and accountability (Hamel & Zanini, 2020, pp. 161–162). The outcomes of

successfully establishing a culture where employees see themselves as part of a community are

dedication, devotion, and loyalty towards the employer but especially towards the customers

Hamel & Zanini (2020, pp. 164–165) emphasize. But how can an organization achieve this?

Answers to this very question are to be found within the course of this thesis.

The third principle which is examined more closely in the context of this work is openness. In this,

Hamel & Zanini (2020, p. 189) criticize the way strategy is currently made in most organizations

and describe the process as “(…) a top-down, budget focused ritual that harnesses only a tiny

fraction of the organization’s collective imagination”. In a human-centered organization, however,

this strategy making process should be a company-wide conversation involving employees,

customers and other external partners, Hamel & Zanini (2020, p. 190) emphasize. This relatively

new approach of involving internal and external stakeholders in the strategy making process is

referred to as “Open Strategy” in the literature (Chesbrough & Appleyard, 2007; Hautz et al., 2017;

Pittz et al., 2019; Pittz & Adler, 2016; Whittington et al., 2011). What exactly is meant by opening

up the strategy process and what advantages and disadvantages are associated with it will be

answered in the course of this thesis.

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1.3. Methodology

In order to find answers to the stated research questions, a comprehensive literature review on

the topic was conducted. In management research, this method can be understood as a key tool,

as it is used to handle “the diversity of knowledge for a specific academic inquiry” (Tranfield et al.,

2003, p. 208). With regard to the procedure of this literature review, it was guided by the model

formulated by Tranfield et al. (2003, p. 214 ff). This describes the process of a systematic review

in three phases. Accordingly, the planning of the review is the focus of the first phase. Here, the

necessity of the review is determined and a search strategy for the identification of relevant

literature, i.e. criteria for the inclusion and exclusion of studies in the review, is defined. In the

context of this work, the description of the need and relevance of the investigation was initially

made in the problem statement. According to Tranfield et al. (2003, p. 215 ff), this initial planning

of the review is followed by phase 2, which involves finding relevant literature based on defined

quality criteria. The quality assessment in this thesis was mainly based on information from the

online database VHB, which ranks journals according to various criteria (VHB Ranking, n.d.). To

ensure a high significance in this search, the focus was on top-ranked academic journals, i.e.

those with a ranking of A+, A, B, or C. For finding relevant literature on the topic, the search

engines primarily used were EBSCOhost, Emerald Insights, ScienceDirect, SAGE Journals, and

Google Scholar. The findings of this process are presented in the chapters three, four, five, and

six. In the third and final phase described by Tranfield et al. (2003, p. 218 ff), the results of the

literature review are to be linked to practice.

To ensure this link to practice, this thesis also includes an empirical part in addition to the

investigation of the current state of the literature on the topic. Accordingly, an illustration of the

findings from the literature review will take place using the case of the Austrian company bellaflora.

The information for the case example described in chapter 2 was obtained from various sources.

In addition to examining documents from the company, an interview was also conducted with the

CEO Franz Koll. The aim of this document analysis and the interview was to gather information

regarding the company’s strategy and the challenges and threats bellaflora is currently facing or

will face in the future, in order to show how the results of the literature review could help in

achieving the objectives and overcoming these challenges.

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1.4. Structure and content

This thesis begins with a problem statement that emphasizes the relevance of the topic from

today's perspective. Subsequently, in chapter 1.2. the research questions are presented, and the

objectives of this work are described. The methodology chosen for this thesis is outlined in the

following. In chapter 2 there is a presentation of the case of bellaflora GmbH, where an overview

of the company, its goals and challenges is given. Subsequently, Chapter 3 begins with a brief

explanation of the term humanocracy. After that, the seven principles of this form of organization,

namely Ownership, Markets, Meritocracy, Community, Openness, Experimentation, and Paradox,

are described and linked to the current state of the literature on the individual topics. After this

rather brief insight into the various principles, the focus in chapters 4, 5, and 6 is limited to the

three principles of ownership, community, and openness which have been assessed by the

company under investigation as the most interesting and relevant at present. At the end of

chapters 4, 5, and 6, an interim summary shows how the findings from the literature on each topic

can help bellaflora meet its strategic goals and overcome its challenges. A conclusion can be

found in Chapter 7 followed by the enumeration of limitations of this thesis and opportunities for

further research in Chapter 8.

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2. The case example In addition to examining the current state of the literature on each of the principles, this paper also

investigates the applicability and relevance of the resulting findings for a specific company, namely

bellaflora Gartencenter GmbH. This takes place in the form of a case example. In the following is

a description of the case, starting with an overview of the company, followed by an outline of the

current strategy of the company and a description of the risks and challenges the company faces

or may face in the future.

2.1. Overview of bellaflora Gartencenter GmbH

bellaflora Gartencenter GmbH, in the further course of this work simply referred to as bellaflora, is

the largest purely Austrian retailer of plants and garden accessories. The company was founded

in 1978 by Josef Umdasch, the father of the current owner Hilde Umdasch. In total, bellaflora

operates 27 garden centers in seven provinces, with the company headquarter located in

Leonding (Upper Austria). In total, the company employs 550 people. At the top of bellaflora since

2018 is Mag. Franz Koll. In 2019, the company managed to achieve a revenue of 86 million euros,

with more than two-thirds of it generated by plants and the rest by garden accessories and

decorative items. bellaflora's biggest competitor is the German garden center chain Dehner.

(Bellaflora.at, 2021; Wikipedia, 2021). After this brief overview of the company, the next point

describes bellaflora's strategy. For this purpose, information from the sustainability report from

2019 and a PowerPoint presentation of the company were taken. In addition, an interview was

conducted with bellaflora's CEO.

2.2. bellaflora’s strategy

With the change at the top of bellaflora and the entry of Franz Koll into the management, also

came a new strategy, mission and vision. The fundamental goals of this new strategic direction

are to expand and strengthen the company's market leadership position and to make bellaflora

one of the Austrians' favorite brands (bellaflora presentation, 2018). To achieve these goals, the

focus is on four strategic pillars, according to the company's sustainability report: assortment,

stores, services, and online. In all the company's efforts and activities, it is repeatedly emphasized

that the customer should be the focus (sustainability report, 2019, p. 18). In addition, the issue of

sustainability plays a very important role for bellaflora. The individual focal points of this corporate

strategy are described in more detail in the following.

8

bellaflora aims to expand and strengthen its position as market leader and to stand out more

clearly from its competitors (bellaflora presentation, 2018). To achieve this, Franz Koll wants to

move away from the standard and act revolutionary in their industry (bellaflora presentation, 2018,

Interview Franz Koll, 40-43). In this context, especially the offered assortment of the company

plays a decisive role. Thus, bellaflora intends to successively broaden and also deepen its product

range. Through this wider range, the company hopes not only to further differentiate itself from the

competition, but also to make itself less dependent on the peak season in March, April and May.

In these three months, on average, about 50% of the annual revenue is made. The main source

of income is plants and accessories for the garden and balcony. This represents a risk as this

business is very weather dependent. Through the mentioned larger assortment, the company also

hopes for a more even distribution of sales over the rest of the year. (Interview Franz Koll, 31-59).

bellaflora wants to stand out from the competition not only with an enlarged assortment but also

with a revolutionary store concept. This store concept was introduced in 2019 and has already

been implemented in the stores in Leonding and Graz St. Peter. At the heart of the new concept

are inspiring themed worlds, a customer-focused guidance system combined with seasonal

product recommendations (sustainability report, 2019, p. 82). Also included in the strategy is an

expansion of the services offered by the company. Thus, since 2019, the company has been

offering advice and maintenance of indoor and outdoor green areas for private customers and

also companies as part of its "Raum Grün" program. It is planned to further expand this service in

the coming years (sustainability report, 2019, p. 82). One difficulty that arises in this context is

finding qualified personnel to manage this expansion. For this reason, the company plans to train

more employees itself. This training should also enable career changers to turn their passion for

plants into a profession (Interview Franz Koll, 243-247). In addition to deepening and broadening

the existing product range, implementing the new store concept in additional stores and expanding

the services offered, bellaflora's strategic planning also envisages extending the store network in

the coming years. However, not only the stationary trade is to be pushed, but also the online store

of the company is to be continuously optimized (Interview Franz Koll, 261-262).

Repeatedly emphasized by bellaflora's CEO Franz Koll in a personal conversation in relation to

the strategy of the company was that the customer is placed absolutely in the center. Thus, the

main goal is to inspire, convince, win and keep the customer. In addition to the aforementioned

product variety and the presentation of these products, this is to be achieved specifically through

competent advice from the employees. For this reason, the competence and expertise of the

employees plays a very important role. However, a high level of expertise is not enough. For Franz

Koll, customer orientation and passion for this profession are even more important. This attitude

can also be seen in the hires to the company, because customer orientation and passion are

difficult to develop or learn, but expertise is, he explains (Interview Franz Koll, 254-256). In addition

to competent and friendly advice, the customer should also be offered a certain level of comfort.

9

In this context, Franz Koll appeals to his employees to go the extra mile once in a while. As an

example of what he understands by such an extra effort, he says if an elderly lady buys a few

bags of soil and the employee's time permits, he should help her load them into the car. This is

exactly the kind of behavior that creates enormous customer loyalty and extremely good word of

mouth, he explains. This example becomes even more important when you look at bellaflora's

existing customer base. This group is 84% female, over 50, and mainly comes from rural areas.

This high value that the customer has, or should have, at bellaflora is also expressed in the

company's current lead motto of the strategy process: The world of the green No.1 - We for our

customers. (“Die Welt der grünen Nr.1 – Wir für unsere Kunden“) (bellaflora presentation, 2018).

Also covered in bellaflora's strategy is how the company intends to position itself in the future. In

this respect, the brand is to be associated in the future with high customer orientation, as already

described, but also with high quality (bellaflora presentation, 2018). A competitor of the company

which is already mostly associated with these characteristics is the regional gardener. bellaflora

also wants to achieve such an image (bellaflora presentation, 2018). The obstacle here is often

the size, because a large “evil“ chain is usually not associated to the same extent with the

characteristics of regionality, sustainability, and quality as the small regional gardeners, Franz Koll

explains. However, these topics do play a very important role at bellaflora and, according to the

company's strategy, are to be pushed even further in the future, as shown, among other things,

by the sustainability report published in 2019. The high strategic importance of the topic of

sustainability can also be seen from the fact that the sustainability officer, who is responsible for

the coordination and operational implementation of the goals and measures of the sustainability

program, reports directly to the management as a staff unit (sustainability report, 2019, p. 21). One

of these measures in this program is to raise employee awareness of the issue of sustainability.

In this context, the topic is addressed in annual employee appraisals and training courses and

seminars on sustainability issues are held annually. In addition, employees are invited to submit

suggestions and ideas that contribute to improving sustainability in the company via the company

suggestion scheme "IdeenRaum" (sustainability report, 2019, p.21).

Based on the focal points of the strategy just described, five guiding principles were formulated

(bellaflora presentation, 2018):

- The customer is at the center of everything we do

- We inspire and excite with diversity & competence

- Quality & attractiveness are important to us

- We respect and protect the nature – sustainability

- We are an Austrian company and focus on regionality

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After this insight into bellaflora's strategy, the next point describes challenges and risks the

company is currently facing or may face in the future.

2.3. Risks and challanges

In this section, current and potential future risks and challenges of the company are described. As

with the previous chapter, the information is based on bellaflora's sustainability report, a

PowerPoint presentation about the company’s strategy and an interview with Franz Koll, the

company's CEO.

One of these identified challenges for the company is the high dependence of sales on the

weather. As mentioned earlier, plants account for more than two-thirds of the company's revenue

and around the half of total revenue is generated in the months of March through May

(bellaflora.at, 2021; bellaflora presentation, 2018). If snowfalls or prolonged cold spells during

these three months delay the start of the gardening year, the lost sales cannot be made up

(sustainability report, 2019, p.27). It remains to be seen whether the efforts to expand the product

range in order to offer customers an attractive range of products also outside of these three months

will bear fruit and result in a more even distribution of sales over the entire year.

In a personal conversation with Franz Koll, he explained another challenge the company is

currently facing. According to him, it is extremely difficult to find personnel, especially landscape

gardeners or workers in garden design. But these are urgently needed to realize, among other

things, the goal of expanding the services offered by bellaflora (Interview Franz Koll, 374-376).

But not only attracting new employees seems to be a problem, but also retaining existing ones,

looking at the company's turnover rate, which was 26.2% in the 2019/20 reporting period. This

percentage corresponds to 148 departures during this period (sustainability report, 2019, p.57).

To put this into perspective, it should be noted that this figure also includes seasonal employees.

Another problem perceived by Franz Koll is the employees' attitude to work after resumption of

operations following the lockdown caused by COVID-19. He has the impression that some

employees found it difficult to return to the branches or to the office from the home office and/or

short-time work, which according to him was reflected in a lack of motivation and a certain lethargy

on the part of these people. This is problematic insofar as these work attitudes have been retained

by some employees, Franz Koll explains. However, he is aware that the re-entry for the employees

was also made more difficult by the fact that this happened exactly in the months with the strongest

sales. This high workload, he further explains, was reflected in a rising sickness absence rate.

However, Franz Koll emphasizes that bellaflora is not the only company to have experienced such

11

difficulties. According to him, these struggles of the employees to find their way back into the daily

work routine were also recognizable in other companies and industries.

An uncertainty and a risk not only for bellaflora but for the whole industry is the impact of the

increasing travel behavior caused by the vaccination progress and the progressive relaxation of

the measures taken by the governments. This is a risk because the decline in travel has led people

to invest money partly in the beautification of their gardens, which, according to Franz Koll, has

also been clearly noticeable in the company's sales. Due to the increase in travel behavior,

forecasts predict a negative development for the industry. So far, fortunately, these effects are not

yet apparent, Franz Koll explains. If and when they come remains to be seen. (Interview Franz

Koll)

In this chapter, an overview of the examined company bellaflora was given and the strategy, risks

and challenges were described. The decision to focus on these described difficulties and risks and

not to also analyze the possible opportunities of the company was made together with Franz Koll,

who assigns the highest priority to the points described in this chapter. In the author's view,

bellaflora represents a good case example because the company is already well-established in

the market and has a history of over 40 years. Due to this age and also due to its size, the

characteristics such as “bold, simple, lean, open, flat and free”, which Hamel & Zanini (2020, p.

112) use to describe what they consider to be the most human organizations, the start-ups, only

apply to a very limited extent to bellaflora in the estimation of the author. For this reason, it is very

interesting to investigate how bellaflora could approach these characteristics and what positive

effects would accompany such a change to a more human form of organization with regard to the

fulfillment of its strategic objectives and the mastering of the challenges described above.

In the next chapter, the concept of humanocracy is discussed, which was brought to life by Gary

Hamel and Michele Zanini (2020) in their book of the same name. This “human” and “flexible” form

of organizing is characterized by seven principles, which will be described and related to the

current state of the literature on the individual topics.

12

3. The concept of Humanocracy The beginning of this chapter is a brief description of the term humanocracy to provide a good

basis for the reader. Subsequently, seven principles are described which, according to Gary

Hamel & Michele Zanini (2020), characterize this human-centered form of organizing. These are:

Ownership, Markets, Meritocracy, Community, Openness, Experimentation, and paradox (Hamel

& Zanini, 2020). In the following points, these seven principles are examined in more detail and

the current state of the literature on the individual topics is presented.

3.1. Humanocracy

In the book of the same name, Gary Hamel and Michele Zanini (2020) describe a revolutionary,

flexible, human-centered organizational form, called “Humanocracy”. In times of unrelenting

change and unprecedented challenges, an organizational form that is characterized by top-down

power structures, control and centralization is no longer appropriate, according to the authors.

Instead, organizations that are resilient and daring are needed. The authors summarize the

characteristics of their humanocracy in seven principles. These are: Ownership, Markets,

Meritocracy, Community, Openness, Experimentation, and Paradox. One of the fundamental

differences between the organizational form of humanocracy and that of most organizations is a

shift in perspective. According to Hamel & Zanini (2020), in most organizations “(…) human beings

are instruments, employed by an organization to create products and services. In a humanocracy,

the organization is the instrument – it’s the vehicle human beings use to better their lives and the

lives of those they serve” (Hamel & Zanini, 2020, p. 20). Some characteristics of this form of

organization are shown in table 1.

HUMANOCRACY

- INFLUENCE IS EARNED FROM ONE’S PEERS

- STRATEGY IS AN OPEN, FIRMWIDE CONVERSATION

- RESOURCES ARE ALLOCATED VIA MARKETS - INNOVATION IS EVERYONE’S JOB

- COORDINATION IS THE PRODUCT OF COLLABORATION

- ROLES ARE BUILT AROUND INDIVIDUAL SKILLS

- TEAMS DIVIDE UP WORK

- CONTROL COMES FROM TRANSPARENCY AND PEERS

- STAFF GROUPS COMPETE AGAINST EXTERNAL VENDORS - INDIVIDUALS COMPETE TO ADD VALUE

- UNITS ARE RESPONSIBLE FOR LOCAL P&L’S

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HUMANOCRACY - COMPENSATION CORRELATES WITH IMPACT

- EMPLOYEES HAVE SIGNIFICANT FINACIAL UPSIDE

- TEAMS AND INDIVIDUALS ARE SELF-MANAGING

- CRITICAL TRADE-OFFS ARE OPTIMZIED LOCALLY Table 1: Characteristics Humanocracy (Hamel & Zanini, 2020, p. 233)

This explanation of the term humanocracy is now followed by a description of the seven principles

which, according to Hamel & Zanini (2020), characterize this people-oriented form of organization.

The order in which these principles are discussed is based on the chapters in the book

Humanocracy (Hamel & Zanini, 2020). Accordingly, the principle of ownership is addressed as the

first of the seven.

3.2. Ownership

One of the seven principles described in the book of Hamel & Zanini (2020) is “ownership”.

According to this, an important step toward a more human-centered form is that employees

perceive themselves as owners of the organization (Hamel & Zanini, 2020, p. 114). Kruse et al.

(2010, p. 205) as well as Hamel & Zanini (2020, p. 123) emphasize in this context the importance

of a profit-sharing plan to achieve such a sense of ownership. The target of this profit sharing can

be either the individual employee or the entire team Kruse et al. (2010, p. 205) explains, with

individual pay having the effect of increasing the employee's personal output and group pay having

the potential to increase group collaboration and coordination. In a humanocracy, both methods

should be applied according to Hamel & Zanini (2020, p. 124). Thus, Hamel & Zanini (2020, p.

124) state that individual employees should have the opportunity of a share in the profits, but also

teams should have the chance of overpayment through the achievement of formulated targets.

However, this alone is not enough. According to Hamel & Zanini (2020, pp. 116–118), this stake

in the profits should go hand in hand with increased autonomy of employees. This point that

employee ownership should be combined with participative management practices to increase the

effect on productivity and job satisfaction of employees is also emphasized by other scholars

(Basterretxea & Storey, 2018; Bryson et al., 2016; Kruse et al., 2010; O’Boyle et al., 2016;

Pendleton & Robinson, 2010; Rousseau & Shperling, 2003; Wagner et al., 2003). Specifically,

participatory practices include increased employee participation in decision-making as

Basterretxea & Storey (2018, p. 314), Kaarsemaker & Poutsma, (2006, pp. 678–679) and

Rousseau & Shperling (2003, p. 558) state. Furthermore, sharing relevant information and training

employees in business literacy and mediation are seen as other important human resource

practices that can strengthen the sense of ownership in the company, according to Kaarsemaker

14

& Poutsma, (2006, pp. 678–679): “An employee cannot be a real owner if he or she has no say, if

he or she does not share in the returns, if he or she has no information about the business or does

not understand the information that is being shared (…)”. The absence of such human resource

practices in employee-owned companies would be considered as unfair by the workforce (Hamel

& Zanini, 2020, p. 117) explain: “(…) offering someone the chance for a bigger payout while

denying them the right to make the necessary decisions will produce frustration and resentment”.

In addition to increased productivity and job satisfaction, other effects described by Rousseau &

Shperling (2003, p. 565) are the formation of trust and the alignment of the interests of employers

and employees: “Bundling equity and profit sharing with financial information and participation in

decision making can enhance worker contributions to the firm by creating employment

relationships based on congruent psychological contracts. Such a bundle can form the basis of

trust and aligned interests between workers and employer.”.

The evolving process of employee ownership can be very complex for management and

employees as Brown et al. (2019, p. 77) notes. In addition to the methods mentioned above, the

introduction of a profit-sharing plan on an employee and team basis and the increase of autonomy

of the workforce, another important step to increase the sense of ownership is that each unit is

equipped with its own P&L for which it is fully responsible according to Hamel & Zanini (2020, p.

123). In this regard (Kruse et al., 2010, p. 205) points out that the monitoring activities of the

management should change so that it is no longer the actions of employees that are monitored

but the final product respectively the output. Increased autonomy should therefore be

accompanied by increased responsibility. “Authority and responsibility necessarily go hand in

hand. One cannot give responsibility to someone without having given the relevant authority.”

(Hamel & Zanini, 2020, p. 121)

After this brief illumination of the concept of ownership, the next point describes another principle

of a humanocracy, namely the principle of markets.

15

3.3. Markets

"Markets" is another principle described by Gary Hamel and Michele Zanini that characterizes a

humanocracy. Here, the authors emphasize the effectiveness and advantages of free markets

and explain how the virtues of these markets can be used to make organizations more resilient,

innovative, and human (Hamel & Zanini, 2020, p. 125).

3.3.1. Collective intelligence

Hamel & Zanini (2020, p. 126) see the decision-making process in markets as one of these

mentioned benefits. Markets aggregate a variety of information to arrive at a decision or value.

For example, the price of a stock reflects everything investors know about a company and its

expected profitability. Without this consideration of all relevant information, investors would not

trust the price determination, for example, if it were set by a single person as Hamel & Zanini

(2020, p. 126) explain. However, this is not the case in most organizations according to Hamel &

Zanini (2020, p. 126). Often the larger the decision, the smaller the number of people involved in

the decision-making process. This approach makes it impossible to consider all relevant

information in decision-making: “No single mind, or small group of minds, can encompass the full

gamut of information that is relevant to a major strategic decision” (Hamel & Zanini, 2020, p. 126).

As a solution Hamel & Zanini (2020, p. 126) propose to place the trust in the wisdom of the crowd.

In this concept, referred to as WoC, decisions are made through the involvement of a large group

of individuals as Hosseini et al. (2015, p. 121) describe. WoC is receiving more and more attention

from practitioners and scholars alike, especially due to recent developments in information

technologies such as social networks, virtual communities, and information sharing, which made

online communication more effective and widely used according to Hosseini et al. (2015, p. 122)

and Nguyen et al. (2019, p. 7279). In his work, Hosseini et al. (2015, p. 124) identified a number

of situations in which the use of WoC is particularly useful. For example, the inclusion of the crowd

is useful when there is a lack of knowledge on a certain subject. “(…) sometimes the required

knowledge, expertise, or experience may not be present at the managerial level, or even inside

an enterprise, and that tapping into the WoC is a feasible solution to overcome such defencies”

(Hosseini et al., 2015, p. 124). Furthermore, Hosseini et al. (2015, p. 124) consider the use of

WoC to be particularly useful in decisions about future developments, where consensus among

the various stakeholders is important and decisions that require constructive criticism and

feedback. This can lead to the identification of possible weaknesses that would otherwise be

ignored Hosseini et al. (2015, p. 124) notes. But it is not only the quality of the decision which is

positively influenced by WoC. Hosseini et al. (2015, p. 125) emphasizes that through involving a

large group of individuals in the decision-making process makes them feel valued and increases

their membership feelings toward the organization.

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3.3.2. Allocational agility

In addition to the decision-making process, Hamel & Zanini (2020) also criticize the way resources

are allocated and funding decisions are made in many organizations: “(…) major funding decisions

are made by a small number of senior executives in what is usually a highly politized budget brawl.”

(Hamel & Zanini, 2020, p. 128). Criticism in this context also comes from several scholars including

Ang et al. (2014), Arrfelt et al. (2013), Bardolet et al. (2011, 2017), Glaser et al. (2012), Shin &

Stulz (1998) and Wulf (2009), which identified a number of anomalies that distort the allocation

process. For example, Bardolet et al. (2017) has shown in his study that the largest units in a

multibusiness company tend to get more resources because of the greater political power of their

leaders. Another phenomenon concerning resource allocation in organizations has been

discovered by Arrfelt et al. (2013) in his work. According to this, executives tend to overinvest in

underperforming businesses in the hope of turning them around. It is all about who you know, a

motto underscored by the findings of Glaser et al. (2012), who demonstrated that senior leaders

with strong internal networks generally get more resources.

As a way to overcome this allocational inertia, Hamel & Zanini (2020, pp. 128–131) suggest that

organizations should again rely on the crowd to make funding decisions. Specifically, the authors

propose the use of enterprise crowdfunding. The concept of crowdfunding has become

increasingly popular recently, with creative projects being funded through an open call for support

via the internet according to Feldmann & Gimpel (2016, p. 1). Inspired by this, companies are

starting to adapt this approach to their innovation management process. In this so-called

enterprise crowdfunding, employees publish their own innovative project proposals on an internal

crowdfunding page and ask for contributions from their colleagues. In contrast to traditional

crowdfunding, these colleagues do not invest their own money but fictitious company money. By

reaching a predefined funding target, the most promising ideas can be identified and implemented

(N. Feldmann & Gimpel, 2016, pp. 1–2). An example of how successful such an enterprise

crowdfunding program can be is provided by IBM (N. Feldmann et al., 2013; N. Feldmann &

Gimpel, 2016; Hamel & Zanini, 2020; Muller et al., 2013; Zuchowski et al., 2016). In 2016, IBM

invited its employees to generate ideas to improve the company's work on artificial intelligence. In

total, 2603 ideas were generated through this initiative. Subsequently, each employee was

provided with $2,000 of virtual currency and could invest in what he or she considered the most

promising idea. The top-rated ideas were given green light for further development (Hamel &

Zanini, 2020, pp. 130–131).

Two of the seven principles of a humanocracy have already been described. The next point is

devoted to another of these principles, called meritocracy.

17

3.4. Meritocracy

Meritocracy represents another principle of a human organization (Hamel & Zanini, 2020, pp. 139–

156). The term can be defined as “a social system, society, or organization in which people get

success or power because of their abilities, not because of their money or social position”

(Cambridge Dictionary, n.d.). Therefore, according to Hamel & Zanini (2020), influence and

compensation in a humanocracy should not depend on rank but on competence. Hierarchy

therefore also plays an important role in a humanocracy, because some individuals deserve to

have more authority than others due to the fact that not everyone is equally competent or

believable. The authors refer to this as a "natural, dynamic hierarchy" (Hamel & Zanini, 2020, pp.

152–155). A crucial element in this concept is played by peer-based assessments. In this type of

performance evaluation, employees rate their peers on the basis of certain attributes (Hamel &

Zanini, 2020). According to Bamberger et al. (2005, p. 344) this approach plays an increasingly

important role in organizations adopting self-managing teams and team-based work processes.

In such settings, traditional performance evaluations where the supervisor alone is responsible for

the assessment of his subordinates are no longer sufficient as the employees often have the most

information regarding the performance and contribution of their peers Deb et al. (2016) explain. In

order to achieve such a natural and dynamic hierarchy in an organization, a significant weight has

to be given to such peer assessments in all hiring and promotion decisions according to Hamel &

Zanini (2020, p. 155). Furthermore, they emphasize that the decision-making process should be

redesigned in a way that those with relevant, peer-attested competence have a greater share of

voice. The peer rating should also have an influence on the compensation of individual employees,

thus minimizing the correlation between compensation and rank, Hamel & Zanini (2020) state.

In the literature, the topic of peer evaluations is a highly controversial one. Although peer

performance evaluation is associated with several advantages, such as the reduction of the

number of free riders (Tavoletti et al., 2019) or the positive influence on group communication and

group viability (Bamberger et al., 2005), its implementation is very challenging and can be

associated with numerous weaknesses (Bamberger et al., 2005; Deb et al., 2016; Huang et al.,

2017; J.-H. Kim, 2011; Sol, 2016). In his study Huang et al. (2017) for example revealed that

employees often manipulate the ratings of their peers. More precisely, they downgrade ratings of

more qualified colleagues and give higher ratings to peers who are less qualified compared to

them. Another danger of using peer-evaluations is that negative appraisals could reduce peer

productivity due to a drop in team cohesion and employees may experience a loss of utility due to

rising peer pressure Sol (2016, p. 59) warns.

According to Kim (2011, p. 566), incentives should be used to counteract this problem of

manipulation in peer evaluations: “For workers to reveal their true signals, some incentives must

18

be provided to reward truthful reporting, and the ability to game the system must be controlled.

The firm can achieve this goal with incentive payments based on team production”. The idea

behind this is that the output is related to the ability of the person holding the managerial position,

thus employees have an incentive to promote the best candidate.

In summary, the concept of peer evaluations has high potential in terms of employee performance

assessment, especially for organizations adapting self-managing work groups and team-based

work processes according to Bamberger et al., (2005, pp. 346–347), but it should be noted that

especially when these evaluations are used to determine pay or promotion, the likelihood of raters

having a conflict of interest in evaluating their colleagues increases, as they are also seen as

competitors as Huang et al. (2017, p. 3) point out.

In the following point 2.5 the principle of community is explained, which will be treated in detail in

the further course of this work.

3.5. Community

“(…) a band of physically proximate compatriots who trust one another, are unmindful of rank and

unencumbered by petty rules, and are mutually accountable and knit together by a common goal”

(Hamel & Zanini, 2020, p. 162). This is how Hamel & Zanini (2020, p. 162) describe what they

mean by a community, which represents another principle of their concept of humanocracy. A

community is more than a workgroup, which is a collection of individuals reporting to the same

supervisor, but it is a network of trust, made up of people who share a common passion and live

the values of unity, selflessness, determination, and accountability according to Hamel & Zanini

(2020, pp. 161–162). The outcomes when employees see themselves as part of such a community

are as stated by Hamel & Zanini (2020, p. 164) dedication, devotion, and loyalty towards the

employer but especially towards the customers.

Essential to creating such an organizational culture, where people see themselves as part of a

community, is a common purpose, Hamel & Zanini (2020, p. 166) explain. A “common purpose”

in this context explains “how the people involved with an organization are making a difference,

gives them a sense of meaning, and draws their support” (Quinn & Thakor, 2018, p. 79). This

purpose or mission must be understandable and clear in order to generate dedication and pride.

When employees see and understand the higher purpose for which they are working, this can lead

to many positive effects such as reduced turnover or absenteeism as well as increased

commitment and a sense of fulfilment according to Warrick & Gardner (2021, p. 42). However,

Quinn & Thakor (2018, p. 82), Warrick et al. (2016, p. 66), and Warrick & Gardner (2021, p. 42)

19

point out that the content must not only be comprehensible and clear, but must also be

communicated openly and regularly. Hamel & Zanini (2020, p. 167) also emphasize the issue of

honest and proactive communication, but they also point out that open communication in a

community requires also open books. In particular, relevant financial information should be shared

with employees as noted by Hamel & Zanini (2020, pp. 166–167).

Another step in creating such a sense of community in the organization is according to Hamel &

Zanini (2020, p. 167) to allow employees to be themselves at work. In the book Humanocracy

(Hamel & Zanini, 2020), the example of Southwest Airlines is used in this regard, in whose culture

the values of authenticity and fun play a major role. Similarly unconventional is the culture of

Zappos, an American online retailer, as Warrick et al. (2016) describes in his article "Building high

performance cultures". One of the core values of the company is "Create fun and little weirdness”

Warrick et al. (2016, p. 67) states. Accordingly, employees are invited and encouraged to “bring

their own unique personality to work”. The goal of this value is “to create a positive and

unconventional environment for employees to enjoy their work and in turn transfer that spirit to

customers” (Warrick et al., 2016, p. 67) .

Both in a humanocracy, as described by Hamel & Zanini (2020, pp. 168–169), and at Zappos, as

Warrick et al. (2016, p. 67) mentions, employees, guided by the formulated and communicated

purpose, should be empowered to make independent decisions in the interest of the customer.

According to Warrick et al. (2016, p. 67) this freedom enable employees at Zappos to offer an

extraordinary experience for customers and to go the so-called extra mile. At Zappos, for example,

this freedom lead to the fact that it is not uncommon for employees to send notes, birthday cards,

flowers, or the like to customers as Warrick et al. (2016, p. 67) explain. According to Hamel &

Zanini, (2020, p. 169) such shared accountability to the customer and the freedom to make

decisions welds a community together.

In order to maintain the sense of community in the long term, the organization's values must also

be reflected in its hiring and training policies, which is emphasized by Klein (2012, p. 37), Warrick

et al. (2016, p. 69) and Warrick & Gardner (2021, p. 43). When hiring new employees, it is

particularly important to ensure that they fit in with the company's culture. If applicants are hired

who do not fit the values of the organization or if it is neglected to convey the organizational

purpose to the new employees so that they can commit to it, this can quickly undermine a culture

that has been painstakingly built up over a long period of time as Warrick & Gardner (2021, p. 43)

point out. This hiring for culture needs a well-designed recruitment, selection, orientation, and

training process in which applicants are carefully screened and the importance of core values is

communicated according to Warrick et al. (2016, p. 69).

20

To create a strong culture of community in the organization, formal and informal events can also

be helpful to create and reinforce such a culture, Warrick & Gardner (2021, p. 44) note. Examples

of such social events are according to Warrick & Gardner (2021, p. 44) lunches, dinners,

workshops or other activities where employees from different departments and hierarchy levels

can get to know each other and exchange ideas. Through such social ceremonies, employees

feel valued and, at the same time, organizational values are strengthened through the exchange

among employees, Warrick & Gardner (2021, p. 44) further explain. Another way to express

appreciation as an employer, especially for employees who perform exceptional actions that

reflect the company's values are rewards as noted by (G. D. Klein, 2012, p. 38). As an example,

Klein (2012, p. 38) mentions the “Winning Spirit Award”, which is awarded monthly at Southwest

Airlines to employees who have gone above and beyond the call of duty to provide an exceptional

customer experience that reflects the values of the organization.

Establishing a strong culture can be challenging and is an interplay of very different factors

according to Warrick & Gardner (2021, p. 50): “building culture involves much more than deciding

on some values and then telling people to act accordingly. Building culture involves aligning many

factors with the desired culture”.

After this brief illumination of the concept of community, the next point describes another principle

of a humanocracy, namely the principle of openness.

3.6. Openness

Another principle of the so-called humanocracy is Openness (Hamel & Zanini's, 2020, pp. 177–

198). In it, the authors address the topic of the strategy process and explain how, according to

them, it should be designed in a human organization. In most companies, the authors say, the

planning process is elitist, formulaic, and extrapolative. “It’s a top-down, budget-focus ritual that

harnesses only a tiny fraction of the organization’s collective imagination” (Hamel & Zanini, 2020,

p. 189). In their view, this kind of strategy-making is no longer in keeping with the times. The

process should be a company-wide conversation that is open to employees, customers, and other

external partners. This relatively new approach of involving internal and external stakeholders in

the strategy making process is referred to as “Open Strategy” in the literature (Chesbrough &

Appleyard, 2007; Hautz et al., 2017; Pittz et al., 2019; Pittz & Adler, 2016; Whittington et al., 2011).

Like Hamel & Zanini (2020), authors such as Chesbrough & Appleyard (2007, p. 58ff) and Pittz et

al. (2019, p. 1597) also question the effectiveness of the traditional process of strategy making.

According to Scholars, an increasing relevance of this topic can be seen due to various

developments. First and foremost, the rapid increase in technological possibilities, such as the

21

emergence of social networks and collaboration software, that enable more transparent and

inclusive approaches of strategy making (Chesbrough & Appleyard, 2007; Hautz et al., 2017; Pittz

et al., 2019; Stieger et al., 2012; Whittington et al., 2011). Furthermore, greater openness is

promoted by the increase in knowledge work and the tendency towards higher collaboration in the

economy and society (Whittington et al., 2011).

Opening the strategy making process brings several advantages but is also associated with some

disadvantages. One of the reasons for using open strategy is that it generates a lot of information

and ideas. Especially external information can allow the organization to better fit with

environmental uncertainties (Pittz et al., 2019). Often it is difficult for people in top management

who have been in the industry for a long time to overcome the industry mindset and generate

creative ideas (Hamel & Zanini, 2020). In this respect, opening up the strategy process can help,

as external but also internal stakeholders often perceive problems differently (Pittz et al., 2019).

However, another advantage is a stronger commitment to the developed strategy of the involved

parties, especially of the employees (Hamel & Zanini, 2020; Stieger et al., 2012). Another benefit

mentioned by Hamel & Zanini (2020, p. 191) in their book but also in the literature (Stieger et al.,

2012) is the faster implementation of the strategy if it was developed through an open process.

The rationale for this is that people who participate in the process see the strategy take shape in

real time. When the time comes that the strategy is ready for implementation, the people are

primed and ready to act (Hamel & Zanini, 2020, p. 191). The concept of Open Strategy also carries

some risks. The inclusion of the knowledge and ideas of different stakeholders can increase the

content of the strategic decision, but it can also be very challenging as (Hautz et al., 2017, p. 301)

describes: “(…) the involvement of wider audience reduces the speed, flexibility and control over

the decision making process, which in some cases might even prevent the organization from

making any decision at all”. Another obstacle for companies to open up their strategy process

could be the fear of competitors gaining access to strategically sensitive information.

This brief insight into the concept of open strategy gives an idea of its advantages and

disadvantages. If companies are unsure about opening up to external stakeholders or if

implementing an open strategy process is considered too resource intensive, Hamel and Zanini

(2020) suggest to start small: „Make sure every future-focused meeting includes a

disproportionate number of young people, newcomers, and individuals who’ve worked in other

industries” (Hamel & Zanini, 2020, p. 197).

Five of the seven principles of a humanocracy have already been described. The next point is

devoted to another of these principles, called experimentation.

22

3.7. Experimentation

“(…) only a relentless pace of experimentation can protect an organization

from relentless pace of change” (Hamel & Zanini, 2020, p. 201)

Experimentation plays a crucial role in a humanocracy. In such times of continuous change, the

only way for most companies to be competitive and successful in the long term is through regular

innovation (Hamel & Zanini, 2020). This need for experimentation is also described by Denning

(2020, p. 13) in his work "Why a culture of experimentation requires management transformation"

where he describes the environment of most companies as VUCA - volatile, uncertain, complex

and ambiguous - and also emphasizes the importance of experimentation in order to be viable as

a company in the long term. In this context, Hamel & Zanini (2020) as well as Denning (2020)

criticize the way experimentation is currently conducted in most organizations: "Typically, the

ability to design and run trials is the province of a small band of specialists in R&D or product

development” (Hamel & Zanini, 2020, p. 200). Instead, experimentation should be the job of

everyone in the company, especially of the so-called frontline employees, as Hamel & Zanini

(2020) employees at the lowest hierarchical level.

Therefore, in a humanocracy, employees should act as if they were entrepreneurs within their

organization. In the literature, this behavior is referred to as “intrapreneurship” (Antoncic & Hisrich,

2003; Blanka, 2019; A. Feldmann & Teuteberg, 2020; Gawke, 2019; Guven, 2020; Neessen et

al., 2019). Due to the growing importance of the topic, intrapreneurship has developed as a sub-

field of entrepreneurship (Antoncic & Hisrich, 2003, p. 7; Blanka, 2019). Currently, there is no

universal definition of the term in the literature (Blanka, 2019; A. Feldmann & Teuteberg, 2020;

Neessen et al., 2019). However, Neessen et al. (2019, p. 551) defines intrapreneurship as “a

process whereby employee(s) recognize and exploit opportunities by being innovative, proactive

and by taking risks, in order for the organization to create new products, processes and services,

initiate self-renewal or venture new business to enhance the competitiveness and performance of

the organization”. There is also disagreement, as with the definition of the term, regarding the

dimensions that characterize intrapreneurship (Neessen et al., 2019, p. 546). For this reason, the

choice of the definition of the term used in this thesis fell on this rather comprehensive one, since

it covers the essential characteristics discussed in the literature in connection with

intrapreneurship (Neessen et al., 2019, p. 551). These are “(1) innovativeness and creation of new

products/processes/services, (2) new business venturing, (3) self-renewal of the organization, (4)

opportunity recognition and exploitation, (5) proactiveness and (6) risk-taking” (Neessen et al.,

2019, p. 551).

In addition to this mentioned definition, Neessen et al. (2019, pp. 557–560), in their comprehensive

review of the literature on the topic, also defined various organizational conditions that influence

23

intrapreneurship. Accordingly, it is important for employees who want to engage in intrapreneurial

activities to receive support from management. Therefore, management should promote and

facilitate intrapreneurship (Neessen et al., 2019, pp. 559). In addition, an organizational structure

that facilitates open communication and provides mechanisms that allow the generated ideas to

be selected, evaluated and subsequently implemented is positively linked to intrapreneurship.

Neessen et al.'s (2019, p. 559) findings also highlight the importance of giving employees

autonomy and decentralizing the decision-making process within the company. This can lead to

an increase in intrapreneurial activities and employee self-efficacy according to Neessen et al.

(2019, p. 559). Rewards can also be useful to increase employees' willingness to participate in

innovative projects, Neessen et al., (2019, p. 559) further explain. Another point that companies

that want to promote intrapreneurial activities must pay attention to is to provide employees with

enough time and financial resources for innovative projects, Neessen et al. (2019, p. 560) note.

After this explanation of the principle of experimentation, the last principle described by Hamel

and Zanini is discussed in the following point 2.8.

3.8. Paradox

“Paradox” represents the last of the seven principles described by Hamel & Zanini, (2020, p. 211ff).

“(…) a paradox involves not merely a choice, but one where the alternatives are both mutually

desirable and mutually exclusive” (Hamel & Zanini, 2020, p. 212). According to the authors,

organizations are confronted with a number of such paradoxes. Examples include the trade-off

between “(…) scale and flexibility, discipline versus creativity, diligence versus speed, or prudence

versus risk taking” (Hamel & Zanini, 2020, p. 215). All these trade-offs, according to Hamel &

Zanini (2020, p. 215), reflect a deeper paradox, namely the tension between exploit and explore.

That is, the commitment of an organization to sufficient exploitation in order to secure current

viability and at the same time to invest sufficient resources and time in exploration to secure future

viability (Hamel & Zanini, 2020, p. 215). An organizations’ ability to balance these contradictory

tensions is referred to as “Ambidexterity” in the literature (Gibson & Birkinshaw, 2004; C. A.

O’Reilly & Tushman, 2013; Sinha, 2016; Van Assen, 2020). Ambidexterity is defined by O’Reilly

& Tushman (2013, p. 324) as “(…) the ability to pursue both incremental and discontinuous

innovation”. Simultaneously exploiting existing resources, competencies and products as well as

focusing on innovation and experimentation to grow and compete in the long term is, according to

Sinha (2016, p. 35), a critical capability due to the volatile, uncertain, complex and ambiguous

environment many organizations face.

24

Basically, there are three different ways how to achieve ambidexterity in the organization (C. A.

O’Reilly & Tushman, 2013, pp. 327–329). One of these is what is known as sequential

ambidexterity. In this case, companies adapt their structures over time to changing environmental

conditions and switch between exploitative and explorative modes as necessary (C. A. O’Reilly &

Tushman, 2013, pp. 327–328). In times of continuous change, however, this approach may be

inefficient, according to O’Reilly & Tushman (2013, p. 327). In their view, exploitation and

exploration should happen simultaneously in the organization. This could be achieved through

structural ambidexterity, where exploitation and exploration take place simultaneously in

autonomous entities separate from each other, each with its own people, processes and structures

(C. A. O’Reilly & Tushman, 2013, pp. 327–328). A different approach is described by Gibson &

Birkinshaw (2004). Instead of a structural separation, they suggest resolving the mentioned

tensions on an individual level. This so-called contextual ambidexterity can be achieved through

“building a set of processes or systems that enable and encourage individuals to make their own

judgements about how to divide their time between conflicting demands for alignment and

adaptability” (Gibson & Birkinshaw, 2004, p. 210).

In their book Hamel & Zanini (2020) indicate that this idea of contextual ambidexterity, where

individuals in the organization are empowered to make independent decisions about trade-offs, is

also the one that should be pursued in a humanocracy. Even though (Hamel & Zanini, 2020, p.

232) do not explicitly use the term "contextual ambidexterity", they emphasize in their book that

the best way to deal with trade-offs is to equip frontline employees with the information and skills

to make smart and real-time trade-offs.

25

3.9. Interim conclusion

This chapter introduced the revolutionary, flexible, human-centered organizational form of a

humanocracy developed by Hamel & Zanini (2020). After an initial description of the term, seven

principles were discussed which, according to Hamel & Zanini (2020), constitute this form of

organizing. These are: Ownership, Markets, Meritocracy, Community, Openness,

Experimentation, and Paradox.

As mentioned in the beginning of this chapter one of the fundamental differences between the

organizational form of humanocracy and that of most organizations is a shift in perspective.

According to Hamel & Zanini (2020, p.20), in most organizations “(...) human beings are

instruments, employed by an organization to create products and services. In a humanocracy, the

organization is the instrument – it’s the vehicle human beings use to better their lives and the lives

of those they serve”. And the main question which should be at the heart of a humanocracy,

according to Hamel and Zanini (2020, p.20) is “What sort of organization elicits and merits the best

that human beings can give?”. This philosophy can be seen across all seven principles of this

organizational form. The focus of this form of organizing is clearly on flattening the hierarchy and

thus the power differences in companies and providing employees, especially those at lower levels

of the hierarchy, with more opportunities, rights and influence (Hamel & Zanini, 2020, p. 233).

This expansion of the opportunities, rights and influence of employees, especially the so-called

front-line employees, is particularly addressed in the principle of ownership (Hamel & Zanini, 2020,

pp. 111–124). Accordingly, employees should have a share in the profits of the company,

participate in decisions and be granted access to relevant business information (Hamel & Zanini,

2020, p. 123). The quintessence of the principle of markets is that trust should be placed in the

crowd when making important business decisions (Hamel & Zanini, 2020, p. 137f). This also

applies to allocational and funding decisions (Hamel & Zanini, 2020, p. 137f). In this context,

Hamel & Zanini (2020, p. 130f) propose the use of enterprise crowdfunding to identify the most

promising ideas and projects from the employees' point of view. In addition to influencing

decisions, employees in a humanocracy also have the power to influence the power hierarchy in

the company (Hamel & Zanini, 2020, p. 155f). Hamel & Zanini (2020, p. 152f) firmly believe that

influence and compensation should not depend on rank but on competence. In a humanocracy,

competence and performance are not assessed and evaluated by supervisors, as is the case in

most companies, but by colleagues through so-called peer assessments (Hamel & Zanini, 2020,

p. 155). The result of putting special emphasis on these peer assessments when it comes to the

allocation of power and authority in the company, but also when it comes to hiring and promotion

decisions, is what Hamel & Zanini (2020, pp. 152–155) call a "natural and dynamic hierarchy".

26

The aforementioned expansion of employee possibilities refers in particular to the fact that

employees in a humanocracy should be given the resources, the freedom and the time in order to

experiment and innovate (Hamel & Zanini, 2020, p. 209). According to Hamel & Zanini (2020, p.

200,208), this should no longer be the task of a small number of specialists in the research and

development department, but experimentation should be the job of everyone in the company.

Besides the principle of experimentation, this freedom is also thematized in the principle of

paradox (Hamel & Zanini, 2020, p. 227). According to this, employees in a human-centered

organization should be trained and equipped to make smart real-time trade-offs (Hamel & Zanini,

2020, p. 231). This refers especially to the trade-off between exploitative tasks, for example the

optimization of existing processes in the company and explorative tasks, the experimentation and

innovation mentioned above (Hamel & Zanini, 2020, p. 227). This freedom, where employees are

more or less free to decide how to invest their time, requires companies to move away from narrow

role definitions, petty rules and constant oversight, emphasize Hamel & Zanini (2020, p. 231). “In

a humanocracy, control comes from a shared commitment to excellence, from accountability to

peers and customers, and from loyalty to an organization that treats you with dignity” (Hamel &

Zanini, 2020, p. 231).

This mentioned shared commitment, accountability to colleagues and customers, and loyalty to

the company are particularly addressed in another principle of a humanocracy, called community

(Hamel & Zanini, 2020, pp. 157–175). According to this, employees in a humanocracy feel part of

a community, which according to Hamel & Zanini (2020, p. 162) is “a network of trust relationships

among people who are breaking new ground and have a shared passion for making a difference”.

Essential to creating such a sense of community among the workforce is, among other things, a

clear common mission to which everyone is committed, and which is to be achieved together,

Hamel & Zanini (2020, p. 166) emphasize.

All these discussed principles require a clear rethinking by managers but also by employees, in

many different areas. Such rethinking should also take place when it comes to the strategy making

process, according to Hamel & Zanini (2020, p. 189). Thus, in a human-centered organization,

strategy making should be a company-wide conversation that is open to employees, customers,

and other external partners, Hamel & Zanini (2020, p. 190) explain. Although the authors are

aware that such an open strategy process is messier and more time consuming, they describe a

number of benefits they associate with it, which they believe are worth the effort (Hamel & Zanini,

2020, p. 190f).

This rather rough description of all seven principles is followed in the next chapter by a detailed

examination of one of these principles, namely ownership. In addition to ownership, the principles

of community and openness are also examined in more detail. For this purpose, an extensive

27

study of the current state of the literature on these three topics was carried out. The decision to

focus on these three of the seven principles in this thesis was made in consultation with Franz

Koll, the CEO of bellaflora, who considers these three topics to be particularly relevant for the

company at present.

28

4. Ownership After a brief description of all seven principles of a humanocracy, this chapter will take a closer

look at the principle of ownership. The decision to describe this aspect of a human-centered form

of organizing in more detail was made in consultation with the CEO of the company under

investigation, who considers ownership to be one of the most relevant principles of humanocracy

for bellaflora at the present time. According to Hamel & Zanini (2020, p. 114), an important factor

in a humanocracy is that there is a sense of ownership in such an organization, i.e. that employees

perceive themselves as owners of the company in which they work.

The following chapter is intended to provide an overview of the current state of the literature on

the concept of ownership. An overview of the literature used in this chapter can be found in Table

2, which is arranged in descending order by publication date.

Name of researcher, Journal

Research method

Title of research paper Key findings

Kim and Patel

(2020), British

Journal of Industrial

Relations (n.R.)

Quantitative

Research

Broad-based employee

ownership and labour

productivity during the

2008 recession: evidence

from public firms in

Europe

Higher firm performance of

firms with EO than firms

without EO during and after

the recession

Brown et al. (2019),

British Journal of

Industrial Relations

(n.R.)

Qualitative

case-study

Buying into capitalism?

Employee ownership in a

disconnected era

Firms with EO are

characterized by strong

workforce participation,

high levels of employment

security, active employee

engagement and strong

levels of employee

creativity

Basterretxea and

Storey (2018),

British Journal of

Industrial Relations

(n.R.)

Qualitative

case-study

Do employee-owned firms

produce more positive

employee behavioural

outcomes? If not why not?

A British-Spanish

comparative analysis

Identification of a link

between employee

ownership and higher

productivity, lower turnover

but also of effects such as

higher absenteeism and

29

Name of researcher, Journal

Research method

Title of research paper Key findings

mixed effects on employee

attitudes

Harrison et al.

(2018), Canadian

Journal of

Administrative

Sciences (n.R.)

Qualitative

case-study

What does employee

ownership effectiveness

look like?

Identification of 4

interconnected themes that

facilitate EO effectiveness

(Confidence in EO,

participative decision-

making, the organization as

family unit, ownership

identity)

Kim und Patel

(2017), Journal of

Business Research

(B)

Quantitative

Research

Employee ownership and

firm performance: a

variance decomposition

analysis of European firms

Small effect of EO on firm

performance

Contextual and firm related

factors are important for the

effective utilization of EO

Blasi et al. (2016),

British Journal of

Industrial Relations

(n.R.)

Quantitative

Research

Do broad-based employee

ownership, profit sharing

and stock options help the

best firms to do even

better?

Identification of a link

between shared capitalist

forms of pay and

participation in decision-

making, information sharing

and high-trust supervision

Bryson et al. (2016),

Labour Economics

(B)

Quantitative

Research

Share capitalism and

worker wellbeing

Share capitalist forms of

pay are associated with

higher job satisfaction

O’Boyle et al.

(2016), Human

Resource

Management

Journal (B)

Meta-

Analysis

Employee ownership and

firm performance: a meta-

analysis

Small positive effect of EO

on firm performance

Lampel et al. (2014),

European

Management

Journal (B)

Quantitative

Research

Does governance confer

organisational resilience?

Evidence from UK

employee owned

businesses

EO when combined with

employee involvement is

associated with greater

stability in performance and

30

Name of researcher, Journal

Research method

Title of research paper Key findings

participative decision

making

EO business have longer

investment payback horizon

Olckers and du

Plessis (2012),

Journal of Human

Resource

Management (B)

Systematic

literature

review

The role of psychological

ownership in retaining

talent: a systematic

literature review

Psychological ownership is

a multidimensional

construct which seems to

enable organisations to

retain talented employees

Poutsma et al.

(2012), The

International Journal

of Human Resource

Management (B)

Systematic

literature

review

Employee share

ownership and profit

sharing in different

institutional contexts

Institutional pressures and

responses of different

actors shape the form and

use of financial participation

Daneshfar et al.

(2010), International

Business &

Economics

Research Journal

(C)

Systematic

literature

review

Motives for employee

profit sharing schemes in

the U.S., U.K. and

Canada

Different motives for

employee profit sharing

schemes

Theoretical framework for

adopting a profit sharing

plan

Pendleton and

Robinson (2010),

Industrial and Labor

Relations Review

(A/B)

Quantitative

Research

Employee stock

ownership, involvement,

and productivity: an

interaction-based

approach

Stock plans seem to need

other forms of employee

involvement to be effective

Chi and Han (2008),

Journal of

Occupational and

Organizational

Psychology (B)

Quantitative

Research

Exploring the linkages

between formal ownership

and psychological

ownership for the

organization: the

mediating role of

organizational justice

Identification of a positive

relationship between

psychological ownership

and employee participation

in decision making and

profit sharing and access to

information

Kaarsemaker and

Poutsma (2006),

Conceptual

framework

The fit of employee

ownership with other

Development of a

connection between

31

Name of researcher, Journal

Research method

Title of research paper Key findings

Economic and

Industrial

Democracy (n.R.)

human resource

management practices

employee ownership and

strategic human resource

management literature

Rousseau and

Shperling (2003),

Academy of

Management

Review (A+)

Systematic

literature

review

Pieces of the action:

ownership and the

changing employment

relationship

Bundling equity and profit

sharing with financial

information and

participation in decision

making can create

psychological contract

between employer and

employee

Wagner et al.

(2003), Personnel

Psychology (A)

Quantitative

Research

Employees that think and

act like owners: effects of

ownership beliefs and

behaviors on

organizational

effectiveness

Climate of self-

determination, financial

participation are positively

related to ownership

attitudes and behaviors

Ownership behaviors are

positively related to

financial performance

Pierce et al. (2001),

Academy of

Management

Review (A+)

Conceptual

framework

Toward a theory of

psychological ownership

in organizations

Concept of psychological

ownership

Identification of different

factors influencing feelings

of ownership

Pendleton et al.

(1998), British

Journal of Industrial

Relations (n.R.)

Quantitative

Research

The perception and

effects of share

ownership: empirical

evidence from employee

buy-outs

Support for intrinsic and

instrumental models of

ownership

Feelings of ownership are

associated with higher

levels of commitment and

satisfaction

Buchko (1993),

Journal of

Quantitative

Research

The effects of employee

ownership on employee

attitudes: an integrated

Perceived influence is

positively related to

32

Name of researcher, Journal

Research method

Title of research paper Key findings

Management

Studies (A)

causal model and path

analysis

organizational commitment,

job satisfaction and

ESOP satisfaction

Klein (1987),

Journal of Applied

Psychology (A)

Quantitative

Research

Employee stock

ownership and employee

attitudes: a test of three

models

When ESOP provides

financial benefits and

management is committed

to EO and when ESOP

communication program is

in place, organizational

commitment and ESOP

satisfaction is high

Table 2: Literature sources concerning the concept of ownership

The topic of ownership has experienced growing interest from researchers and practitioners in

recent decades (Harrison et al., 2018, p. 5; Kim & Patel, 2017, p. 248; O’Boyle et al., 2016, p. 1;

Poutsma et al., 2012, p. 1513). According to O’Boyle et al. (2016, p. 1), is employee ownership

already a widespread concept in companies, especially in the U.S., but an increase is also evident

in Europe. According to Rousseau & Shperling (2003, p. 554), this rising interest is due in large

part to the rise of knowledge-based work and the concomitant change in the power balance of the

employment relationship. By "balance of power" the authors mean the relative influence workers

have over the conditions of their employment (Rousseau & Shperling, 2003, p. 554). This influence

has increased as many organizations' most valuable assets, especially in technology- and service-

oriented companies, “reside in the unique capabilities that firms derive from the collective skills of

their members, relationships among people, and interactions between workers and processes”

(Rousseau & Shperling, 2003, p. 556). As a result, managers and investors must increasingly rely

on the goodwill of employees, due to the difficulty of exercising control, as Rousseau & Shperling

(2003, pp. 553, 556) explain. According to Wagner et al. (2003, p. 848), this problem is addressed

by agency theory, which is concerned with the fact that the intentions of the principal, i.e. the

owner, often do not coincide with those of the agent (employee) and that the actions and decisions

of the employee are often not in the best interest of the principal. The concept of ownership can

provide a remedy, as a number of authors point out (K. Y. Kim & Patel, 2017, p. 249; Pendleton &

Robinson, 2010, p. 3; Poutsma et al., 2012, p. 1513; Rousseau & Shperling, 2003, p. 557; Wagner

et al., 2003, p. 848). “(…) having employees that are also owner of the business is considered a

mechanism that aligns the interests of stockholders and employees (…)” (Wagner et al., 2003, p.

848).

33

In addition to this alignment argument as Poutsma et al. (2012, p. 1513) refer to it, a number of

other positive effects of employee ownership are described in Chapter 3.3. Before that, however,

the different forms of shared capitalism and factors that are important for the effectiveness of an

employee ownership program are described. In addition, possible problems and disadvantages of

employee ownership are presented in chapter 3.4.

4.1. Forms of shared capitalism

Rousseau & Shperling (2003, p. 555) define the term ownership as “a rightful claim to property”,

which brings with it several privileges. According to the authors, one of these privileges is a sharing

in the profits (Rousseau & Shperling, 2003, p. 557). As already briefly mentioned in chapter 2.2,

the fact that employees should participate in the profits of the organization also plays an important

role in a humanocracy in order to achieve a sense of ownership, according to Hamel & Zanini

(2020, p. 123). Such compensation practices through which workers’ pay depends in part on the

performance of the work group or firm are often referred to in the literature as "shared capitalism"

(Blasi et al., 2016; Bryson et al., 2016; Carberry, 2011; Kruse et al., 2010; O’Boyle et al., 2016) .

There is a variety of forms of shared capitalism as described by Carberry, (2011, p. 3) and Kruse

et al. (2010, pp. 4–5). The following forms are cited by Kruse et al. (2010, pp. 4–5):

• Employee Ownership

• Individual employee stock ownership

• Profit sharing

• Gain sharing

• Stock options

Regarding the first of these terms, employee ownership, the authors note that the “(…) extent of

employee ownership varies from workers having complete ownership of the firm to owning a

majority stake or a nonnegligible minority stake, usually through a trust or other legal entity that

votes the shares as a group” (Kruse et al., 2010, p. 4). As an example of a form of employee

ownership, Kruse et al. (2010, p. 4) bring up the so-called Employee Stock Ownership Plan

(ESOP). Under this program, companies have the opportunity through federal legislation “(…) to

contribute money to a trust to buy worker shares or to borrow money to fund worker ownership

and then repay in installments from company revenues.”, Kruse et al. (2010, p. 4) describe. This

approach allows employees to “gain an ownership stake without investing their own money to buy

the stock” (Kruse et al., 2010, p. 4).

34

Another form of shared capitalism which Kruse et al. (2010, p. 4) mention is individual employee

stock ownership. In this case, workers buy shares in the company and vote those shares privately.

According to Kruse et al. (2010, p. 4), they can do this either through a company's own retirement

plan or in the conventional way via the stock market.

Profit sharing is another form of shared capitalism, according to Kruse et al. (2010, p. 4), in which

shares of profits are paid out to employees. This payment can be made annually or at shorter

intervals in the form of cash bonuses or by placing these profit shares into a retirement plan, as

Kruse et al. (2010, p. 4) explain. Alternatively, some firms pay out these profit shares in company

stock, according to Kruse et al. (2010, p. 4). Regarding the determination of the amount of these

profits, the authors explain that this is either calculated formally, i.e. based on a specific formula,

or fully discretionary, where companies determine at the end of a year how much of the profit

employees should receive (Kruse et al., 2010, p. 4).

Gain sharing, unlike profit sharing, is not based on the performance of the entire company but that

of a single work unit, explain Kruse et al. (2010, p. 4). In this approach “One group of workers can

benefit from their effort even if the firm does poorly or if other groups of workers are not meeting

their targets” (Kruse et al., 2010, pp. 4–5).

According to Kruse et al. (2010, p. 5), stock options represent a hybrid between profit sharing and

employee ownership, as it gives employees the opportunity to buy a share at a set price in a

specified period, where the employee “gets the upside gain of a rise in the share price without the

downside risk of losing part of their investment”.

Among these described forms of shared capitalism, one in particular should be used in a

humanocracy, according to Hamel & Zanini (2020, p. 123). They see the use of a profit-sharing

plan, which should be available to all employees, as a central instrument for creating a sense of

ownership in the company (Hamel & Zanini, 2020, p. 123). For the company that is the focus of

the case example conducted in this work, this form of shared capitalism may also be the most

relevant, since it is not a listed company and therefore three of the five forms described, namely

employee ownership, individual employee ownership and stock options, are not applicable.

After describing the different forms of shared capitalism, the next chapter describes factors that,

according to the literature, are important for the effectiveness of ownership programs.

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4.2. Factors of employee ownership effectiveness

As explained in chapter 3.1, there are various ways in which employees can participate in the

profits of their company. In this chapter, factors are described which, according to Basterretxea &

Storey (2018), Chi & Han (2008), Harrison et al. (2018), Kaarsemaker & Poutsma (2006), I. L.

Pierce et al. (1991) and Rousseau & Shperling (2003), in addition to employee financial

participation, are important for the effectiveness of an ownership program, especially with regard

to effects on company performance, employees’ job satisfaction and commitment.

Over the past four decades, the effects of employee ownership on firm performance has been a

topic of strong interest to practitioners and academics, as Kim & Patel (2017, p. 253) explain.

Several empirical studies have been conducted in this regard but with mixed results, according to

O’Boyle et al. (2016, p. 2). For example, Kruse & Blasi's (1995, p. 26) meta-analysis of 27 studies

on ownership and firm productivity or profitability concluded that frequently better or unchanged

performance was found. Only a small effect of employee ownership on firm performance was

found by O’Boyle et al. (2016, p. 15) in their meta-analysis of 102 studies which represented

56.984 firms. This was also the conclusion reached by Kim & Patel (2017, p. 253) in their

comprehensive study, which also found only a small effect of employee ownership on company

performance.

In addition to studies of the effects on firm performance, the relationship of employee ownership

and employee attitudes has also been investigated by several authors, as Olckers & Du Plessis

(2012, p. 2) point out. Klein (1987, p. 329), for example, found in her investigation that there was

no significant relationship between the percentage of stock an ESOP (Employee Stock Ownership

Plan) employee has and their level of job satisfaction and commitment. Pendleton et al. (1998, p.

110) found that most ESOP shareholders in their study showed no signs of having a strong sense

of ownership. Moreover, the majority believed that nothing or very little had changed as a result of

employee ownership (Pendleton et al., 1998, p. 110). To increase this effect of employee

ownership on company performance and employee attitudes, researchers emphasize the

importance of using participative management practices in addition to employee financial

participation (Kaarsemaker & Poutsma, 2006, p. 680; K. J. Klein, 1987, p. 329; Pendleton et al.,

1998, p. 99; J. L. Pierce et al., 2001; Rousseau & Shperling, 2003, p. 565). In the following, these

participative management practices are explained in more detail, as well as other factors that,

according to the literature, are important for the effectiveness of ownership programs in

organizations.

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4.2.1. Participation in decision making

According to Chi & Han (2008, pp. 694–695), participation in decision making is, beside

participation in profit-sharing plans and access to business information, one of three prerequisites

for creating what is known as psychological ownership. The term psychological ownership can be

defined as “a state in which individuals feel as though the target of ownership (e.g., the

organization) or a piece of that target is theirs.” (Chi & Han, 2008, p. 692). Chi & Han (2008, p.

695) explain that when organizations allow their employees to influence organizational decisions,

they are more likely to perceive that “This is MY organization”. Rousseau & Shperling (2003, pp.

558–559) also address the issue of participation in decision-making. According to them, the

authority to make decisions is possibly the most complex and politically sensitive aspect of

ownership (Rousseau & Shperling, 2003, p. 558). Furthermore, Rousseau & Shperling (2003, p.

558) explain that participation in decision making can have many forms, “ranging from operational

decisions affecting day-to-day practices (e.g., process improvements) to strategic choices

impacting the firm as a whole”. In particular, participation in decisions that have strategic

implications can have a motivational effect on employees, who subsequently share tacit

information that they would otherwise probably withhold, Rousseau & Shperling (2003, p. 558)

explain. An explanation for the need to allow employees to influence organizational decisions

when using a shared capitalist form of pay is provided by Hamel & Zanini (2020, p. 117): “(…)

offering someone the chance for a bigger payout while denying them the right to make the

necessary decisions will produce frustration and resentment”. That the use of shared capitalist

forms of payment, in this case especially broad-based employee ownership, profit sharing and

stock options, is also associated in practice with participation in decision-making is shown by Blasi

et al. (2016, p. 74). They came to this finding when analyzing data from 780 companies that

applied for the "100 Best Companies to Work for in America" competition (Blasi et al., 2016, p.

74).

In addition to involving employees in decision-making, several authors also emphasize that

employees should have access to business information in order to increase the effectiveness of

employee ownership (Basterretxea & Storey, 2018, p. 314; Chi & Han, 2008, p. 695f; Kaarsemaker

& Poutsma, 2006, p. 679; I. L. Pierce et al., 1991, p. 136; Rousseau & Shperling, 2003, p. 557f).

This will be discussed in the next point.

37

4.2.2. Access to business information

According to Chi & Han (2008, pp. 695–696), access to business information represents the third

“route” to psychological ownership, in addition to profit sharing plans and participation in decision-

making. “By virtue of acquiring information and being familiar with the organization, employees

can gain a feeling of ownership. Thus, organizations can enhance employees’ psychological

ownership by providing them with the rights to information about the status of the organization”

(Chi & Han, 2008, pp. 695–696). Rousseau & Shperling (2003, pp. 555, 557–558) describe access

to information as one of three privileges (along with profit sharing and participation in decisions)

of ownership. In particular, Rousseau & Shperling (2003, p. 558) emphasize that financial

information should be shared with employees. This availability of financial data in daily decisions

leads to employees becoming more "business literate", meaning that they can better understand

and use financial information, Rousseau & Shperling (2003, p. 558) state. Besides the result of

more business literate employees, sharing information has another positive effect, namely it can

also signal that employees are trusted, Rousseau & Shperling (2003, p. 558) explain.

Not only Chi & Han (2008, p. 705) and Rousseau & Shperling (2003, p. 555) argue that besides

profit sharing, the two privileges of participation in decision making, as described in point 3.2.1.,

and access to business information are prerequisites for the effectiveness of employee ownership.

This fact is also emphasized among others by Basterretxea & Storey (2018, p. 314), Kaarsemaker

& Poutsma (2006, p. 679), and Pierce et al. (1991, p. 136). “An employee cannot be a real owner

if he or she has no say, if he or she does not share in the returns, if he or she has no information

about the business or does not understand the information that is being shared (…)” (Kaarsemaker

& Poutsma, 2006, p. 679). The fact that profit-sharing, participation in decision-making and access

to business information are also combined in practice is shown by Blasi et al. (2016, p. 74). In their

study they examined the linkages between groups incentive methods of compensation, employee

assessment of organizational culture, labor practices, firm performance and turnover (Blasi et al.,

2016, p. 55). For this purpose, Blasi et al analyzed data from 230.465 employees from a total of

780 companies and found that shared capitalist forms of pay are associated, among other things,

with increased employee participation in decision-making and access to relevant information.

In addition to involving employees in the decision-making process and enabling access to

business information, companies should also pay attention to the consistency of their HRM

system, according to Kaarsemaker & Poutsma (2006, p. 671f). What is meant by this in detail is

described in the following.

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4.2.3. Internal fit

According to Kaarsemaker & Poutsma (2006, pp. 671f), an internal fit plays an important role in

companies that have employee ownership as a central element. Internal fit, also called horizontal

fit, is “the coherence or consistency of” a company's HRM (Human Resource Management)

system, Kaarsemaker & Poutsma (2006, pp. 671f) explain. According to the authors, the

components of an HRM system are workforce philosophy, HRM policies, HRM principles and HRM

practices. By workforce philosophy is meant the beliefs about the value and relative role of

workers, Kaarsemaker & Poutsma (2006, pp. 671) describe. Furthermore, HRM principles include

the guidelines of how to treat and value workers. The enactment of these guidelines is done

through HRM policies. Lastly, HRM practices “refer to the specific tools to execute the policies and

to motivate the necessary role behaviors” Kaarsemaker & Poutsma (2006, pp. 671). In a company

with employee ownership, Kaarsemaker & Poutsma (2006, p. 675) emphasize the importance of

a clear and consistent message coming from the HRM system. This message should convey that

“employees are seen as worthy of their co-ownership of the company and they are taken seriously

as owners” (Kaarsemaker & Poutsma, 2006, p. 678). To reflect this attitude in the HRM system,

(Kaarsemaker & Poutsma, 2006, pp. 678f) recommend the use of HRM practices such as enabling

participation in decision-making, sharing information, and “training for business literacy and

mediation”. Furthermore, they emphasize that this attitude should also be reflected especially in

the workforce philosophy: “(…) the workforce philosophy should propagate the idea that

employees deserve to be co-owners, and managers should take them seriously as such”

(Kaarsemaker & Poutsma, 2006, p. 680). This opinion that employee ownership is most effective

when several factors are aligned is also shared by Kruse et al. (2010, p. 23). “(…) shared

capitalism works best when it combines monetary incentives with employee decision-making and

personnel and labor policies that empower and encourage employees” (Kruse et al., 2010, p. 23).

In addition to the three points already described is another factor which according to Harrison et

al. (2018, p. 7), Kaarsemaker & Poutsma (2006, p. 680), and I. L. Pierce et al. (1991, p. 139f) is

important for the effectiveness of employee ownership the commitment of management regarding

employee ownership. This is discussed in the following point.

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4.2.4. Management commitment

Another important factor influencing the effectiveness of employee ownership, according to

Harrison et al. (2018, p. 7), Kaarsemaker & Poutsma (2006, p. 680), and Pierce et al. (1991, pp.

139–140), is the commitment of management to employee ownership. Pierce et al. (1991, p. 140)

argue that the intensity of management commitment has a major impact on the design of the

employee ownership system that is operationalized, especially on the amount and type of

influence provided to co-owners. In addition, Pierce et al. (1991, p. 140) emphasize the importance

of managerial commitment in creating psychological ownership among employees: “(…) if

management is not strongly committed to the legitimacy of employee equity possession,

decisional influence, and informed citizenship, the system is unlikely to be highly effective in

producing a strong sense of psychological ownership”. However, management should actively

take steps to reinforce employees' perception that it is legitimate for them to be owners, to have

access to information and to exert influence, Pierce et al. (1991, p. 129) explain. The effects this

can have when management is committed to the concept of employee ownership are shown by

Klein's (1987, p. 327) findings. In her study, in which she analyzed data from 2.804 employees of

37 companies operating an ESOP program, the results show that employees were far more

satisfied with employee ownership and had a higher commitment to the organizations when

management was highly committed to the concept of employee ownership (K. J. Klein, 1987, p.

322,327).

In this chapter, the importance of four factors was highlighted which, in addition to the use of some

form of shared capital, according to the literature, are essential for the effectiveness of an

employee ownership system. In the next chapter, motives for the implementation of such a system

are presented.

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4.3. Effects of employee ownership

This chapter describes various positive effects associated with employee ownership. First,

organizational effects are described in point 3.3.1. and subsequently, in point 3.3.2., the effects of

employee ownership on the attitudes of employees are outlined.

4.3.1. Organizational effects

In the literature a number of effects of employee ownership on the organization are described.

First and foremost, the impact on company performance was examined in this context (Blasi et

al., 2016; Daneshfar et al., 2010; Kim & Patel, 2017, 2020; O’Boyle et al., 2016; Pendleton &

Robinson, 2010). In their study of a total of 780 companies that applied between 2005 and 2007

for the '100 best companies to work for in America', Blasi et al. (2016, p. 74) found that forms of

shared capitalism are associated with higher ROE (Return on Equity) and lower voluntary

turnover. However, they emphasize that the impact on ROE and turnover depends on the

interaction between the type of compensation and those work practices described in chapter 4.2.

(Blasi et al., 2016, p. 74). A rather small effect of employee ownership on firm performance was

found by Kim & Patel, (2017, p. 25) and O’Boyle et al. (2016, p. 15). However, they point out in

both papers, similarly to Blasi et al. (2016, p. 74), that this effect can be increased by the use of

work practices, such as those described in the previous chapter. The effect of employee ownership

on firm performance was also studied by Kim & Patel (2020), but in a different context, namely

during the 2008 recession. The results of this study show that organizations with employee

ownership had higher firm performance during and after the crisis compared to those without (Kim

& Patel, 2020, p. 396). In addition, Kim & Patel (2020, p. 396) found that companies with employee

ownership were less likely to reduce headcount during and after the recession. The same

conclusion was reached by Lampel et al. (2014, p. 71), whose results also show that employee-

owned businesses performed better than companies without employee ownership during the 2008

economic crisis.

Apart from improving firm performance, another motive for implementing employee ownership

could be to reduce monitoring and supervisory costs, according to Daneshfar et al. (2010, p. 2):

“(…) monitoring systems can be costly and employees’ actions are often complex and not fully

observable. (…) In this context, profit sharing can be used to complement direct monitoring

systems and reduce supervisory costs because employees will have an incentive to observe the

actions of their peers”. Daneshfar et al. (2010, p. 2) see another advantage of profit sharing in

wage flexibility. By this, the authors mean the advantage that part of the personnel costs becomes

variable through the use of profit sharing and that salaries are thus oriented to a certain extent to

the performance of the company (Daneshfar et al., 2010, p. 2). This allows companies to pay

41

employees less in times of low profitability than would be the case without variable compensation,

Daneshfar et al. (2010, p. 2) explain.

As can be seen, a variety of positive organizational effects of employee ownership have been

demonstrated, but several scholars point out that only participation in profits is not sufficient to

achieve the cited effects on the organization (Blasi et al., 2016, p. 74; K. Y. Kim & Patel, 2020, p.

25; O’Boyle et al., 2016, p. 15). This requires, according to the different authors, work practices

such as those described in chapter 4.2. In addition to these effects on the organization, scholars

have also examined how employee ownership affects employee attitudes (Basterretxea & Storey,

2018; Brown et al., 2019; Bryson et al., 2016; Buchko, 1993).

4.3.2. Employee attitudes

Various scholars examined the effects of employee ownership on employee behavior and attitudes

(Basterretxea & Storey, 2018; Brown et al., 2019; Bryson et al., 2016; Buchko, 1993). The results

of these studies are briefly summarized in this subchapter.

Often mentioned in connection with employee ownership is the agency theory, which involves two

fundamental problems, as Harrison et al. (2018, p. 9) describes. The tensions between the

principal (owner) and the agent (manager), especially when it is difficult for the principal to monitor

the actions of the agent, is the first problem according to Harrison et al. (2018, p. 9). The second

problem arises from the differences of risk and investment in the organization between principal

and agent, since the principal has more financially invested and thus faces a higher risk, Harrison

et al. (2018, p. 9) states. Harrison et al. (2018, p. 9) considers the use of employee ownership to

be helpful in solving these problems “(…) because ownership may change the goals and outlook

of employees to reflect the perspective of a principal rather than an agent”. Also Rousseau &

Shperling (2003, p. 565) emphasize that the bundle of profit sharing, participation in decision

making and information sharing can increase the contribution of workers and form the basis of

trust and aligned interests between employees and employers.

In addition to this alignment argument as Poutsma et al. (2012, p. 1513) refer to it, Brown et al.

(2019, p. 78) identified a number of other positive behavioral outcomes in employees due to

employee ownership. In 10 in-depth case studies of Scottish employee-owned businesses, Brown

et al. (2019, p. 80) found that employees of these companies “(…) feel strongly connected and

committed to their employer, with resultant benefits particularly in terms of employee engagement,

greater levels of employee creativity and, ultimately, enhanced productivity gains.” However,

Brown et al., (2019, p. 78) note that the reason for the increase in performance in employee-owned

firms is not just that employees work harder but that they work smarter. Brown et al., (2019, p. 78)

42

attribute this to the participative work practices used in these firms and the associated pro-social

behavior and engagement with other employees and customers which, according to Brown et al.,

(2019, p. 78), promotes creativity.

After this description of the various positive effects of employee ownership on the organization

and on the behavior and attitudes of employees, the next chapter presents possible problems and

disadvantages that can arise in connection with this concept.

4.4. Problems & disadvantages

As is so often the case, employee ownership does not only have positive aspects. According to

scholars (Basterretxea & Storey, 2018, p. 296; Blasi et al., 2016, pp. 57–58; Brown et al., 2019,

p. 79; Bryson et al., 2016, p. 152; Daneshfar et al., 2010, p. 3; Pendleton & Robinson, 2010, pp.

3–4; Rousseau & Shperling, 2003, pp. 562–563), the concept is also associated with certain

problems and difficulties, which are described in this chapter.

According to Basterretxea & Storey (2018, p. 296), the most cited problem associated with

employee ownership is the risk of so-called ‘free-riding’. This problem occurs especially when

there is an incentive plan where all employees get the same reward, Blasi et al. (2016, pp. 57–58)

describe. The threat, according to Blasi et al. (2016, pp. 57–58), is that some employees in this

case “free-ride on the effort of others”. Basterretxea & Storey (2018, p. 296) emphasize in this

context that this threat increases with an increasing number of employee owners, as “the link

between an individual’s effort and the reward he or she receives becomes weaker and the risk of

shirking or free-riding increases”. A solution to this free-rider problem is described by Pendleton &

Robinson (2010, p. 4) who state that “(…) measures to facilitate employee involvement in decision

making insofar as encouraging information-sharing, mutual monitoring, and cooperation will

counter shirking and free-riding”. At the same time, Pendleton & Robinson (2010, p. 4) warn that

too much employee involvement can have a negative effects on productivity, because the

involvement of ill-qualified employees can affect the quality and speed of decision-making. This

problem was also noted by Brown et al. (2019, p. 79) in their study of 10 employee owned

companies, which specifically noted a slowdown in the financial decisions of the firms.

Another difficulty with employee ownership is pointed out by Rousseau & Shperling (2003, p. 563),

who mention that workers, managers and investors often have different motivations in regard to

shared ownership arrangements. Thus, the benefits that these three groups seek from ownership

may differ, as they value autonomy, job security and financial returns differently, Rousseau &

Shperling (2003, p. 563) explain.

43

One disadvantage of profit-sharing plans is addressed by Daneshfar et al. (2010, p. 3) in their

work. Daneshfar et al. (2010, p. 3) point out that profit sharing is often associated with high

administrative costs, which according to them makes it difficult for small companies to implement

this form of shared capitalism. Accordingly, larger companies are more likely to adopt profit sharing

plans.

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4.5. Interim conclusion

According to Hamel & Zanini (2020, pp. 111–124), ownership, that is, employees feeling and

acting like owners, plays an important role in a humanocracy. After this comprehensive review of

the literature on the subject, it can be said that it is a promising concept for companies which is

associated with several advantages. Thus, employee ownership was associated with lower

voluntary turnover, higher ROE (Blasi et al., 2016, p. 74), and reduced monitoring and supervisory

costs (Daneshfar et al., 2010, p. 2), among other things. Furthermore, positive effects on the

attitudes of employees have been demonstrated, such as an increased commitment of employees

towards their employer, productivity increases (Brown et al., 2019, p. 80) and the alignment of

interests of employees and owners (Harrison et al., 2018, p. 9; Rousseau & Shperling, 2003, p.

565). In order to achieve such a sense of ownership in the workforce and subsequently achieve

these positive effects, scholars like Chi & Han (2008), Kaarsemaker & Poutsma (2006), and

Rousseau & Shperling (2003) highlight the importance of implementing different work practices

and introducing a form of shared capitalism in the company, such as employee participation in

company profits. These work practices include involving employees in company decisions and

sharing relevant information with employees (Chi & Han, 2008, p. 694ff; Rousseau & Shperling,

2003, p. 557f). Kaarsemaker & Poutsma (2006, p. 679) justify this with the fact that “An employee

cannot be a real owner if he or she has no say, if he or she does not share in the returns, if he or

she has no information about the business (…)”. In addition, according to Kaarsemaker & Poutsma

(2006, p. 671ff) care must be taken to ensure an internal fit, i.e. coherence and consistency, of

the HR practices used in the company. Furthermore, from the management's point of view, it is

important that they stand behind the concept of employee ownership and see the employees as

legitimate owners, Harrison et al. (2018, p. 7), Kaarsemaker & Poutsma (2006, p. 680), and I. L.

Pierce et al. (1991, p. 140) emphasize. However, scholars also point out problems that can arise

in connection with the concept of employee ownership. One such problem, highlighted by

Basterretxea & Storey (2018, p. 296) and Blasi et al. (2016, p. 57f) among others, is the danger

of free-riding, i.e. that some employees free-ride on the efforts of others. Negative effects on the

quality and speed of decision making due to the involvement of ill-qualified employees (Pendleton

& Robinson, 2010, p. 4) or the high costs often associated with profit sharing plans (Daneshfar et

al., 2010, p. 3) are other potential problems.

After examining the literature on the topic of employee ownership, the question now arises as to

how the introduction of this concept could help bellaflora achieve its strategic goals and overcome

its current and future challenges.

45

A key positive effect of introducing the concept of employee ownership for bellaflora could be the

alignment of interests between employees and owners. Due to the fact that employees think and

feel like the owners of the company, it could become a personal need of the employees to achieve

a high customer satisfaction and to possibly go the mentioned extra mile for it. However, not only

the customer satisfaction could possibly be increased by the introduction of this concept but also

the work attitude of the employees could be positively influenced by it. Thus, employee ownership

is associated with higher organizational commitment among employees and higher employee

engagement and productivity, according to Brown et al. (2019, p. 80). Furthermore, the concept

of employee ownership could also be helpful with regard to the described difficulties of the

company in retaining employees. Thus, Blasi et al. (2016, p. 74) were able to demonstrate a link

between employee ownership and a reduction in voluntary turnover. In addition to all these positive

effects, Brown et al. (2019, p. 80) also found in his study that employee ownership is associated

with greater levels of employee creativity. This increased creativity, combined with the opportunity

for employees to contribute their own ideas and participation in decision-making, could be very

beneficial in terms of expanding the product range, as it could give employees the opportunity to

contribute their own ideas for new products. Especially contributions and ideas from employees

from the branches could be interesting and relevant in this context, as they have the most

customer contact and consequently often also have a good assessment of the needs of these

customers. This could subsequently lead to the product range being designed in such a way that

a more even distribution of sales can be achieved throughout the year. This more even distribution

of sales throughout the year would consequently make the company's sales less dependent on

the weather in the best case. According to the sustainability report (2019, p.21), there is already

a platform called "IdeenRaum" (Ideas Room) where employees can submit suggestions and ideas.

However, this is limited to contributions relating to the topic of sustainability. bellaflora could

possibly use this platform to allow employees to contribute to other topics, such as new product

suggestions.

However, after this description of the many positive effects that an implementation of an employee

ownership concept could have for bellaflora, it is also necessary to point out the dangers and

possible challenges that are associated with it. Thus, a free rider problem could occur, that is, the

employee free-ride on the effort of others, as Basterretxea & Storey (2018, p. 296) and Blasi et al.

(2016, p. 57f) explain. Furthermore, the productivity of bellaflora could be negatively influenced by

employee involvement, due to the fact that the involvement of ill-qualified employees influences

the quality and speed in decision-making (Pendleton & Robinson, 2010, p. 4). Also to be

mentioned are the partly high administrative costs with which profit sharing concepts of are

associated (Daneshfar et al., 2010, p. 3).

46

After this comprehensive overview of the literature on this topic and the presentation of which

positive but also negative effects could be associated with an implementation of an employee

ownership program at bellaflora, the next section will focus on another principle of humanocracy,

namely the principle of community.

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5. Community After this illumination of the concept of ownership in chapter 3, the focus in the following is on the

principle of community. Again, the decision to examine this principle of a humanocracy in more

detail was made in consultation with the CEO of bellaflora GmbH, who at this point in time

considers the principle of community described by Hamel & Zanini (2020, pp. 157–175), in addition

to ownership, to be the most important for the company. According to Hamel & Zanini (2020, p.

162), a performance-oriented community is the backbone of a humanocracy. Such a community

is described by Hamel & Zanini (2020, p. 162) as “a band of physically proximate compatriots who

trust one another, are unmindful of rank and unencumbered by petty rules, and are mutually

accountable and knit together by a common goal”. One company that has successfully embedded

such a sense of community in its organization, according to Hamel & Zanini (2020, p. 174), is

Southwest Airlines. The company has been outperforming in its industry for decades (Hamel &

Zanini, 2020, pp. 163–165). Hamel & Zanini (2020, p. 174) see this performance as rooted in the

company's unique organizational culture. In addition to Hamel & Zanini (2020), several other

authors point to the example of Southwest Airlines and its outstanding organizational culture

(Chatman & Cha, 2003, p. 21; G. D. Klein, 2012, p. 32; Rosenthal & Masarech, 2003, p. 7; Warrick

& Gardner, 2021, pp. 37–38). But how can companies create a similarly successful and unique

culture in their organizations and what characterizes a successful corporate culture in general?

Answers to these questions will be provided in this chapter, but first the term "organizational

culture" will be elaborated and its importance for corporate success will be explained. The scientific

articles used in this chapter can be found in the table below, as in the chapter before. The order

is again based on the publication date of the individual journal articles, starting with the most recent

one.

Name of researcher, Journal

Research method

Title of research paper Key findings

Warrick and

Gardner (2021),

Journal of

Leadership

Accountability and

Ethics (n.R.)

Systematic

literature

review

Leaders Build Cultures:

Action Steps for Leaders

to Build Successful

Organizational Cultures

10 action steps for leaders

to built successful cultures

Pathiranage,

Jayatilake and

Abeysekera (2020),

Systematic

literature

review

A literature review on

organizational culture

Presentation of findings

from the literature

concerning the role of

48

Name of researcher, Journal

Research method

Title of research paper Key findings

International Journal

of Management,

Accounting and

Economics (n.R.)

towards corporate

performance

organizational culture on

business performance

Reino et al. (2020),

Baltic Journal of

Management (C)

Quantitative

Research

Connections between

organizational culture and

financial performance in

Estonian service and

production companies

Examination of the

relationship of different

culture types (market, clan,

adhocracy, hierarchy) and

performance indicators

Aboramadan et al.

(2019), Journal of

Management

Development (n.R.)

Quantitative

Research

Organizational culture,

innovation and

performance: a study from

a non-western context

Positive impact of

organizational culture and

marketing innovation on

banks’ performance

Polychroniou and

Trivellas (2018),

International Journal

of Quality and

Service Sciences

(n.R.)

Quantitative

Research

The impact of strong and

balanced organizational

cultures on firm

performance

Identification of a strong

positive relationship of

culture strength and internal

performance

Warrick (2017),

Business Horizons

(C)

Systematic

literature

review

What leaders need to

know about organizational

culture

consistent findings from the

literature in regard to what

leaders can do to build

strong, successful cultures

Boyce et al. (2014),

Journal of

Organizational

Behavior (A)

Quantitative

Research

Which comes first,

organizational culture or

performance? A

longitudinal study of

causal priority with

automobile dealerships

Positive effect of

organizational culture on

customer satisfaction and

vehicle sales

Chatman et al.

(2014), Journal of

Organizational

Behavior (A)

Quantitative

Research

Parsing organizational

culture: How the norm for

adaptability influences the

relationship between

culture consensus and

Better performance of firms

with higher culture

consensus and intensity

about adaptability

49

Name of researcher, Journal

Research method

Title of research paper Key findings

financial performance in

high-technology firms

O’Reilly et al.

(2014), Group &

Organization

Management (B)

Quantitative

Research

The promise and

problems of organizational

culture: CEO personality,

culture, and firm

performance

CEO personality affects firm

culture; organizational

culture is related to

organizational outcomes

including financial

performance, reputation,

analysts’ stock

recommendations and

employee attitudes

Kottke and Pelletier

(2013), Journal of

Business Ethics (B)

Quantitative

Research

Measuring and

differentiating perceptions

of supervisor and top

leader ethics

Employee perceptions of

top managers’ and

supervisors’ ethics were

significantly related to

climate, top leadership

direction, organizational

commitment and the OCB

dimension, civic virtue

Klein (2012),

Organizational

Dynamics (C)

Qualitative

case-study

Creating cultures that lead

to success: Lincoln

Electric, Southwest

Airlines, and SAS Institute

Examination of

philosophies, policies and

practices of Lincoln Electric,

Southwest Airlines, and

SAS Institute

O’Reilly (2008),

California

Management

Review (B)

Systematic

literature

review

Corporations, culture, and

commitment: motivation

and social control in

organizations

Examination of culture as a

social control mechanism;

effects of culture on

organizational commitment;

mechanisms for developing

culture

Berson et al. (2007),

Journal of

Organizational

Behavior (A)

Quantitative

Research

CEO values,

organizational culture and

firm outcomes

CEO values influence

organizational culture;

differential associations of

culture and subsequent

50

Name of researcher, Journal

Research method

Title of research paper Key findings

company sales growth,

organizational efficiency

and employee satisfaction

Chatman and Cha

(2003), California

Management

Review (B)

Systematic

literature

review

Leading by leveraging

culture

Clarification of why culture

is so powerful; specific

criteria for developing a

strong, strategically

relevant culture

Rosenthal and

Masarech (2003),

Journal of

Organizational

Excellence (n.R.)

Systematic

literature

review

High-performance

cultures: how values can

drive business results

Examination of the concept

of high-performance culture

Sørensen (2002),

Administrative

Science Quarterly

(A+)

Quantitative

Research

The strength of corporate

culture and the reliability

of firm performance

In relatively stable

environments, strong

culture firms have more

reliable (less variable)

performance; In volatile

environments these

reliability benefits disappear

O’Reilly and

Chatman (1996),

Research in

Organizational

Behavior (A)

Systematic

literature

review

Culture as social control:

corporations, cults, and

commitment

Exploration of the

psychological mechanisms

used to develop social

control systems

Denison and Mishra

(1995), Organization

Science (A+)

Quantitative

Research

Toward a theory of

organizational culture and

effectiveness

Evidence for the existence

of four cultural traits

(adaptability, involvement,

mission, consistency);

these characteristics are

positively related to

organizational performance

51

Name of researcher, Journal

Research method

Title of research paper Key findings

Chatman and Jehn

(1994), Academy of

Management

Journal (A+)

Quantitative

Research

Assessing the relationship

between industry

characteristics and

organizational culture:

how different can you be?

Industry characteristics

have an influence on

organizational culture

Table 3: Literature sources concerning organizational culture

At the beginning of this chapter, the term organizational culture is defined and explained.

Afterwards, positive effects are described which, according to the literature, are associated with

the culture of an organization. In point 5.3 it is then stated what constitutes a strong organizational

culture according to scholars. Finally, points are described which are particularly important when

it comes to building a strong organizational culture.

5.1. Organizational culture

The basic requirement for leaders to develop a successful organizational culture is to understand

what organizational culture is and what influences it, Warrick & Gardner (2021, p. 39) explain.

O’Reilly (2008, p. 86) also emphasizes that there must be clarity about what is meant by the term

culture in order to analyze and manage it successfully. For this reason, this chapter provides an

explanation of the term organizational culture.

Since the late 1970s and early 1980s, the topic of organizational culture has been one of great

interest to managers and scholars, according to O’Reilly et al. (2014, p. 596). Since then,

numerous authors have attempted to capture the essence of what defines and constitutes an

organizational culture, Warrick & Gardner (2021, p. 39) state. Thus, the term has been defined by

various scholars as follows:

„(…) as a pattern of shared basic assumptions that was learned by a group as it solved its

problems of external adaptation and internal integration, that has worked well enough to be

considered valid and, therefore, to be taught to new members as the correct way to perceive,

think, and feel in relation to those problems.” (Schein, 2004, p. 17)

52

“Culture is a system of shared values (defining what is important) and norms (defining

appropriate attitudes and behaviors” (Chatman & Cha, 2003, p. 21)

“(…) the taken-for-granted values, underlying assumptions, expectations, and definitions that

characterize organizations and their members” (Cameron & Quinn, 2011, p. 18)

To counteract the confusion that often surrounds the definition of what culture really is, Schein

(2004, p. 25) differentiates between three levels in which culture manifests itself. He terms these

three levels as “artifacts”, “espoused beliefs and values” and “underlying assumptions” (Schein,

2004, p. 26). Schein (2004, pp. 25–26) summarizes all visible organizational structures and

processes under the level of artifacts. This part of the culture is on the surface, which means it is

very easy to observe, but very difficult to decipher, Schein (2004, p. 26) explains. Examples that

fall under this level are the language spoken in the company, the technology, the clothing, visible

rites and ceremonies as well as myths and stories that are told about the organization (Schein,

2004, pp. 25–26). Less visible is the next level, which includes the cultural belfies and values of

what ought to be, according to Schein (2004, p. 28). Such espoused beliefs and values are, for

example, the strategies, goals and philosophy of the company. The level of underlying

assumptions Schein calls the essence of culture. Such basic assumptions are unconscious and

deeply embedded in the organization and tend to be non-confrontable and non-debatable and

therefore very difficult to change, according to Schein (2004, pp. 25, 31). Schein (2004, p. 36)

justifies the importance of understanding this level of a culture by the fact that “if one does not

decipher the pattern of basic assumptions that may be operating, one will not know how to interpret

the artifacts correctly or how much credence to give to the articulated values”.

After explaining the term organizational culture and briefly describing how it manifests itself in an

organization, the next chapter explains why it is important for managers to understand and

manage organizational culture. For this purpose, the impact that the culture of an organization has

on its performance and other factors are highlighted.

53

5.2. Why bother with organizational culture?

In the following, reasons are described why culture and the building and managing of a culture

should be high on the priority list of leaders, according to Berson et al. (2007), Boyce et al. (2014),

Chatman & Cha (2003), C. O’Reilly (2008), O’Reilly & Chatman (1996), Rosenthal & Masarech

(2003), Sørensen (2002), and Warrick & Gardner (2021).

Interest in the concept of organizational culture experienced an explosive increase since the the

late 1970s and early 1980s, according to O’Reilly et al. (2014, p. 596) and Sørensen (2002, p. 72).

Over time, the meaning attributed to culture changed in terms of its influence on organizational

success, Rosenthal & Masarech (2003, p. 3) explain. Thus, according to Rosenthal & Masarech

(2003, p. 3), in the past, only a few maverick businesspeople considered a company's culture to

be a potential competitive advantage, whereas over time, the concept of culture is increasingly

seen as a business tool and is on the agenda of leaders for several reasons. First, companies are

relentlessly searching for a way to develop an advantage over their competition, something that

is unique and impossible to replicate, Rosenthal & Masarech (2003, p. 3) state. Furthermore,

Rosenthal & Masarech explain (2003, p. 3), there is also a trend that the workforce is looking for

jobs that offer more than just a paycheck, but also things like meaningful work, a purpose and

camaraderie. According to Rosenthal & Masarech (2003, p. 4), organizational culture can be seen

as the key to this issues. The same opinion is shared by Chatman & Cha (2003, p. 2), who point

out that culture can be a tool that, if managed correctly, can be used to “improve performance by

energizing employees – appealing to their higher ideals and values and rallying them around a set

of meaningful unified goals. Such ideals excite employee commitment and effort because they are

inherently engaging and fill voids in identity and meaning”. Also Warrick & Gardner (2021, p. 38)

emphasize the importance of organizational culture: “Organization researchers and informed

leaders alike realize that culture is critical to the success of organizations and that culture effects

many important factors such as performance, morale, quality of work life, and the ability to attract

and retain employees”.

These positive effects on employees attitudes are also confirmed by several other authors (Berson

et al., 2007; Denison & Mishra, 1995; C. O’Reilly, 2008; O’Reilly et al., 2014; O’Reilly & Chatman,

1996; Warrick, 2017). For example, Berson et al. (2007, p. 627) point out that supportive cultures

are associated with higher employee job satisfaction. In addition, Berson et al. (2007, p. 619)

emphasizes that organizational culture can help create a strong sense of ownership among

employees. According to C. O’Reilly (2008, p. 93), creating a strong organizational culture can

lead to high levels of intensity and dedication among employees, which he considers “particularly

valuable when the employees have knowledge that is instrumental to the success of the

organization or when high levels of motivation are required”. Such a highly dedicated workforce

54

represents a significant competitive advantage, C. O’Reilly (2008, p. 93) explains. “Under turbulent

or changing conditions, relying on employees who wait to be told exactly what to do can be a

liability”, C. O’Reilly (2008, p. 93) reasons.

While there is evidence that organizational culture can be positively related to employee attitudes,

the issue of whether an organization's culture influences its performance is a highly controversial

one. Pathiranage et al. (2020, p. 535), among others, point to these very different findings in the

literature regarding the effects of organizational culture on performance. While most studies on

the subject have identified a positive relationship between culture and corporate performance,

there are also studies that have found no relationship, Pathiranage et al. (2020, p. 535) explain.

Two studies that O’Reilly et al. (2014, p. 600) considers significant enough are those by Berson

et al. (2007) and Kotter & Heskett (1992), both of which identified positive associations between

culture and objective firm performance, but under certain conditions. However, Christensen &

Gordon (1999) found no association of culture and performance in their study. More recent studies

such as that of Polychroniou & Trivellas (2018, p. 16,30), who analyzed data from a total of 1305

employees from 114 companies found that organizational culture positively influences company

performance. This was also the finding of Reino et al. (2020, pp. 381, 387ff), whose study analyzed

data from 19 service and manufacturing companies with 2256 respondents. Also a positive

relationship between organizational culture and performance was demonstrated by Aboramadan

et al. (2019, p. 445) in their study.

Less contradictory than the relationship between culture and firm performance just described are

the findings of Chatman & Cha (2003, pp. 21–22), O’Reilly & Chatman (1996, p. 167), and

Sørensen (2002, p. 73), who point out that culture can lead to a kind of social control if there is

widespread consensus and endorsement regarding organizational values and norms within the

firm. “(…) widespread consensus and endorsement of organizational values and norms facilitates

social control within the firm. When there is a broad agreement that certain behaviors are more

appropriate than others, violations of behavioral norms may be detected and corrected faster.

Corrective actions are more likely to come from other employees, regardless of their place in the

formal hierarchy” (Sørensen, 2002, p. 73). This informal social control is more effective and less

costly than formal control systems, according to O’Reilly & Chatman (1996, p. 164). However,

Chatman & Cha (2003, p. 23) also point out that relying on formal rules is only useful for

standardizing performance and avoiding having to relearn things over and over again, so they are

only useful for dealing with situations that are predictable and regular. Outstanding customer

service from the customer's point of view, however, arises from situations that are almost

impossible to anticipate, unique and difficult to solve, Chatman & Cha (2003, p. 23) explain. This

is where Chatman & Cha (2003, p. 23) see an essential advantage of informal social control.

“Employees have to be freed up from rules in order to deliver fully on strategic objectives; they

55

have to understand the ultimate strategic goals and the norms through which they can be

successfully achieved, and they must care about reaching those goals and what their coworkers

will think of them if they don’t” (Chatman & Cha, 2003, p. 23). Boyce et al. (2014, p. 355) also

found out in their six-year study that the culture of a company can have an influence on customers.

Their results showed that a higher intensity of positive organizational culture traits leads to

increased customer satisfaction over the years (Boyce et al., 2014, p. 355).

Now that these effects have been described, which culture can have on the organization, its

employees and customers, the question arises as to how the organizational culture must be

characterized in order to generate these positive effects. In order to answer this question, the next

chapter will describe which characteristics characterize a successful and strong organizational

culture according to scholars.

5.3. Characteristics of strong cultures

After an initial definition of the term organizational culture and a subsequent enumeration of the

possible positive effects of culture, this chapter will clarify what characterizes a successful

organizational culture, according to Chatman et al. (2014), Chatman & Cha (2003), Chatman &

Jehn (1994), and Rosenthal & Masarech (2003).

According to Chatman & Cha (2003, p. 23), strong cultures are characterized by two features.

First, in such cultures there is a high level of agreement among employees regarding what is

valued in the company, and second, there is a high level of intensity regarding these values and

norms. In this regard, Chatman et al. (2014, p. 788) note that to achieve such a high intensity it is

not necessary for an organization to embrace very many norms. Thus, according to Chatman et

al. (2014, p. 788), strong-culture firms are characterized by only one or two central norms that

“(…) are so intensely held that members of the organization are willing to tell one another when

they are not living up to a core belief and norm enforcement is predictable and consistent”.

Rosenthal & Masarech (2003, p. 4) also see shared organizational values, which guide employee

behavior and influence business practices, as one of the main components of what they call a

high-performance culture. In addition, according to them, it is important as a company to have

“(…) a clear compelling corporate mission or purpose that informs business decisions, generates

customer loyalty, ignites employee passion, and inspires discretionary effort” Rosenthal &

Masarech (2003, p. 4). The third characteristic of a high-performance culture is that the company

provides an environment that encourages employee ownership, Rosenthal & Masarech, (2003, p.

4) explain.

56

In the search for characteristics that make up a successful culture, there were relatively few articles

that provided concrete attributes (Chatman et al., 2014; Chatman & Cha, 2003; Rosenthal &

Masarech, 2003). The reason for this could be that factors for cultural success often vary from

industry to industry. This relationship of industry membership and variance in cultural patterns was

identified by Chatman & Jehn (1994, p. 546) in their study of 15 companies from four different

industries.

After this brief description of the factors that successful organizational cultures have in common,

the next chapter explains points to which leaders should pay special attention when it comes to

establishing a strong culture in the company and consequently also a sense of community,

according to Chatman & Cha (2003), C. O’Reilly (2008), Rosenthal & Masarech (2003), Warrick

(2017), and Warrick & Gardner (2021).

5.4. Building a strong culture

Scholars agree that leaders are the primary influencers in shaping organizational culture (Berson

et al., 2007, p. 618; O’Reilly et al., 2014, p. 595; Warrick & Gardner, 2021, p. 40). “It is a leader’s

values, leadership style, personality and practices that predominantly create the culture in which

people work” (Warrick & Gardner, 2021, p. 40). Berson et al. (2007, p. 618) also note that although

the founders play the initial role in building an organizational culture, “cultures have been known

to change in the hands of subsequent CEOs”. This relationship has been demonstrated, for

example, by Berson and his colleagues (2007). In their study of 26 CEOs, 71 senior vice

presidents and 185 other organizational members reporting directly to senior vice presidents, the

findings showed that CEO values influence organizational culture (Berson et al., 2007, pp. 622,

626). A similar study was conducted by O’Reilly et al. (2014, p. 595), who found in their survey of

32 high-technology companies that CEO personality affects organizational culture. Because of the

importance organizational leaders play in shaping culture, this chapter describes points CEOs

should pay special attention when building a successful and strong organizational culture,

according to Chatman & Cha (2003), C. O’Reilly (2008), Rosenthal & Masarech (2003), Warrick

(2017), and Warrick & Gardner (2021).

5.4.1. Develop an understanding of the present culture

To build a strong organizational culture, Warrick (2017, p. 401) believes it is important for leaders

to develop an understanding of the current culture within the company. “(…) leaders need to

understand the present culture so the strengths can be reinforced and any weaknesses,

57

inconsistencies, and gaps between the desired culture and the present culture can be identified

and addressed” (Warrick, 2017, p. 401). To gain such an understanding, Warrick (2017, p. 401)

suggests using standardized culture questionnaires or interviewing focus groups to get a sense of

how they perceive the organization's current culture. An alternative to such questionnaires or

interviews, according to Warrick & Gardner (2021, p. 45), is the involvement of external experts

who can help evaluate the current culture and change or build a culture. In addition, Warrick &

Gardner (2021, p. 45) describe another way to monitor an organization's culture. Accordingly, a

so-called "culture team" can also be entrusted with the responsibility of monitoring the

organizational culture or, for example, organizing culture-building activities. According to Warrick

(2017, p. 402), such a culture team should be made up of people from different functional areas

and hierarchical levels. In addition, Warrick (2017, p. 402) suggests that one member of the team

should be part of the senior leadership, so that an advocate for culture is at the top. However,

Warrick & Gardner (2021, p. 44) point out that these described ways to develop an understanding

of the culture and monitor the organizational culture should be applied regularly. “Just as leaders

monitor and manage results, budgets, and other important key performance indicators, they

should also monitor the organization’s culture” (Warrick & Gardner, 2021, p. 44).

After highlighting the need to develop an understanding of the current culture and to monitor

culture, the next point will focus on the importance of a compelling vision, purpose and values for

building a strong culture.

5.4.2. Define vision, mission and values

Besides the importance of developing an understanding of the current culture and monitoring

culture, according to Rosenthal & Masarech (2003, p. 9) and Warrick & Gardner (2021, p. 42), for

building a strong culture it is also essential that leaders formulate a compelling vision, a purpose

and organizational values. Such a mission and purpose can be a powerful motivator for people to

join the organization and lead to high employee commitment, Warrick & Gardner (2021, p. 42)

explain. Furthermore, Warrick & Gardner (2021, p. 42) emphasize that working for a higher

purpose and engaging in meaningful work can lead to a number of positive effects, such as

reduced stress, turnover, and absenteeism, as well as increased engagement and a sense of

fulfillment. As already indicated in chapter 4.3, values and norms also play a crucial role in strong

cultures, according to Chatman et al. (2014, p. 788), Chatman & Cha (2003, p. 23), and Rosenthal

& Masarech (2003, p. 4). Accordingly, in a strong organizational culture there is a high agreement

and a high intensity among employees regarding these values, Chatman & Cha (2003, p. 23)

state. However, according to Rosenthal & Masarech (2003, p. 11), it is not enough to simply post

these mission and core values on a bulletin board and wait for change to happen. The key to

success in developing a strong organizational culture is regular communication, Rosenthal &

58

Masarech (2003, p. 11) explain. In addition to the formulated mission and values being

communicated regularly and openly, it is also important that the management team is credible,

and their communication is consistent, according to O’Reilly (2008, p. 99). This helps members

develop consistent expectations about what is important, O’Reilly (2008, p. 99) further explains.

In this context, Rosenthal & Masarech (2003, p. 12) emphasize that it can also be very beneficial

to encourage two-way communication. This means that the new values are not only explained to

the employees but that they also have the opportunity to ask questions and voice concerns.

O’Reilly (2008, p. 95) also sees such employee involvement as critical in developing or changing

a culture. This not only allows employees to make incremental choices, but also signals to them

that they and their opinions are valued, O’Reilly (2008, p. 95) emphasizes. There are various ways

in which such employee participation can be enabled “These may range from formal efforts such

as quality circles and advisory boards to less formal efforts such as suggestion systems and

opportunities to meet with top managers and informal social gatherings.” (O’Reilly, 2008, p. 95).

In addition to the formulation and communication of mission, vision, values, it is important to build

a strong culture that the culture is aligned with the strategy of the company, according to Warrick

(2017, p. 402) and Warrick & Gardner (2021, p. 42). This will be discussed in more detail in the

next point.

5.4.3. Alignment of strategy, day-to-day practices and culture

According to Warrick (2017, p. 402), leaders should align for consistency between culture and

strategy. “When leaders pay attention to both strategy and culture in their planning and decision

making, making sure that both are aligned to support one another, they are in a position to develop

culture by design and not leave it to chance” (Warrick, 2017, p. 402). Thus, for example, decisions

aimed at reducing costs while cultural values are focused on excellence and quality are likely to

have a weakening effect on organizational culture, Warrick, (2017, p. 402) explains. It is precisely

with this alignment of culture and the organization’s day-to-day operations that many companies

struggle, according to Rosenthal & Masarech (2003, p. 14). Rosenthal & Masarech (2003, p. 14)

see performance management and decision making as two of the areas that have an immediate

influence on the culture of an organization in this context. In performance management, according

to them, the great difficulty is not only to measure the results of the employees and make them

accountable for them, but also their behavior that achieved them. In terms of decision making, this

should not only drive business results but should also reflect the values the organization stands

for, Rosenthal & Masarech (2003, p. 14) explain.

Not only should day-to-day practices, decisions, and corporate strategy be aligned with

organizational culture, but according to Chatman & Cha (2003, pp. 26–28), Warrick (2017, p. 402),

59

and Warrick & Gardner (2021, p. 43), human resources policies should also be guided by the

company's values. What is meant by this in concrete terms is described in more detail in the next

point.

5.4.4. Hire and train for culture fit

“Recruiting and training for culture at all levels of an organization is essential to sustaining the

desired culture” (Warrick, 2017, p. 402). In this respect Chatman & Cha (2003, pp. 26–28), Warrick

(2017, p. 402), and Warrick & Gardner (2021, p. 43) are in agreement. In this context, Chatman &

Cha particularly emphasize the importance of the selection process, i.e. the selection of new

members for the organization. According to them, the focus should not only be on the person-job

fit, which means that the skills of the person match the job requirements, but also on a person-

culture fit. By person-culture fit, Chatman & Cha (2003, p. 26) mean that the person and his or her

characteristics fit the organizational culture. Chatman & Cha (2003, p. 26) rate this fit between the

person and the culture, or the desired organizational culture, as even more important than the

applicant's fulfillment of the job requirements. “(…) it makes sense to hire people who will fit the

culture, possibly even trading off some immediate skills necessary for the specific entry job for

better culture fit. People can learn new skills; establishing culture fit is much harder” (Chatman &

Cha, 2003, p. 26). Warrick & Gardner (2021, p. 43) also emphasize that companies should pay

attention to this culture fit when recruiting. Furthermore they point out that particular attention

should be paid to this when hiring for management positions (Warrick & Gardner, 2021, p. 43).

Accordingly, a cultural misfit at the top can very quickly undermine a culture that has been

painstakingly built up (Warrick & Gardner, 2021, p. 43).

In addition to hiring for culture, companies should also train for culture, Warrick & Gardner (2021,

p. 43) explain. By this they mean that employees must be made aware of the organization's cultural

values and what is expected of them in terms of behavior, attitudes and performance (Warrick &

Gardner, 2021, p. 43). Chatman & Cha (2003, p. 27) refer to this process by which an individual

understands the values, abilities, expected and desired behaviors, and social knowledge that are

crucial for participating as an organizational member and for assuming an organization role as

socialization. The two main goals of socialization, according to them, are “(…) clarifying the cultural

values and creating strong bonds among employees so that they are accountable to one another

for upholding those values” (Chatman & Cha, 2003, p. 28)

After describing how important it is to align the personnel policy with the organizational culture,

the next point describes the decisive role of the top management team when it comes to building

a strong culture and maintaining it in the long term, according to Chatman & Cha (2003), C.

O’Reilly (2008), and Rosenthal & Masarech (2003)

60

5.4.5. Walk the talk

Several authors emphasize the importance of leader’s behavior for the organizational culture

(Chatman & Cha, 2003, pp. 28–31; Kottke & Pelletier, 2013, p. 426; C. O’Reilly, 2008, p. 96;

Rosenthal & Masarech, 2003, pp. 12–14; Warrick, 2017, pp. 401–402; Warrick & Gardner, 2021,

p. 41). According to Rosenthal & Masarech (2003, p. 12), it is not enough to define organizational

values and communicate them repeatedly, as described in point 4.4.2., but these values must also

be visibly demonstrated by the leaders of the company through their behavior and decisions. It is

precisely such clear, visible actions by the management team that are in support of the cultural

values of the organization that characterize a strong organizational culture, O’Reilly (2008, p. 96)

states. O’Reilly (2008, p. 96) also provides a rationale for why employee perceptions of leader’s

behaviors are critical to cultural success. Accordingly, members of an organization want to know

what is important and what is not and one way they can figure this out is to watch and listen

carefully to those above them, O’Reilly (2008, p. 96) explains. Thus, O’Reilly (2008, p. 96)

continues, employees are looking for consistent patterns. “When top management not only says

that something is important, but also consistently behaves in ways that support the message, we

begin to believe what is said” O’Reilly (2008, p. 96). Chatman & Cha (2003, p. 28) point out in this

context that employees are very vigilant about the behavior of their leaders, and even to rather

mundane aspects such as what they invest time in, what is on their calendars, what they ask

questions about, what they fail to ask or also what they follow up on. Thus, it is extremely important

for leaders to regularly review their behavior in order to understand the signals they are sending

to employees, Chatman & Cha (2003, p. 28) emphasize.

However, leaders must not only pay close attention to their behavior and how their employees

perceive them, but for achieving cultural success, it is also critical that they recognize and reward

behavior that supports the desired culture emphasize Chatman & Cha (2003, p. 28), O’Reilly

(2008, p. 98), and Warrick (2017, p. 402). This will be discussed in more detail in the next point.

5.4.6. Recognize and reward desired behaviors and practices

Chatman & Cha (2003, p. 28), O’Reilly (2008, p. 98), and Warrick (2017, p. 402) agree that to

build a successful culture, there must be a reward system in place that recognizes and rewards

behavior that supports the desired culture. Thus, Warrick (2017, p. 402) believes that leaders can

make as many statements as they want about the desired organizational culture, but in the end,

employees align their behavior with what they see as valued, recognized and rewarded. The same

opinion is shared by O’Reilly (2008, p. 98), who explains that at its simplest people do what is

rewarded and avoid what is punished. Thus, O’Reilly (2008, p. 98) continues, by simply analyzing

what gets management's attention, one can get an idea of what the culture supports. For this

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reason, he describes the reward system as a key mechanism for promoting and shaping

organizational culture (O’Reilly, 2008, p. 98). In this context, however, O’Reilly (2008, p. 98) notes

that not only monetary rewards should be used, but primarily the focus should be on rewards such

as recognition and approval. He justifies this with the fact that on the one hand such rewards can

be given much more frequently and on the other hand because “Recognition by your boss or

coworkers for doing the right can be more potent in shaping behavior than an annual bonus”

(O’Reilly, 2008, p. 98).

In addition to the importance of using an appropriate reward system that recognizes and rewards

desirable behavior, leaders can reinforce cultural ideals through symbolic acts and ceremonies,

according to O’Reilly (2008, pp. 96–97), Warrick (2017, p. 402), and Warrick & Gardner (2021, p.

44). This will be addressed in the next point.

5.4.7. Symbols and ceremonies

According to O’Reilly (2008, pp. 96–97), Warrick (2017, p. 402), and Warrick & Gardner (2021, p.

44) symbols and ceremonies can be a useful tool for leaders to build a strong organizational

culture. Symbols in this context Warrick (2017, p. 402) defines as “actions, objects or events that

communicate meaning”. Warrick & Gardner (2021, p. 44) describe an example of such symbolic

action. According to them, the former CEO of Southwest Airlines, Herb Kelleher, sometimes

surprised his flight crew with coffee and donuts in the early morning hours (Warrick & Gardner,

2021, p. 44). Through this symbolic act, he reinforced the service-oriented culture of the

organization, Warrick & Gardner (2021, p. 44) explain. Also, a powerful message for all members

of an organization can be formal and informal ceremonies and gatherings that honor individuals

and groups whose actions reflect the organization's cultural ideals, Warrick & Gardner (2021, p.

44) point out. In this context, Southwest Airlines is again mentioned as an example, which gives

out various awards for exceptional employee performance, according to Klein (2012, p. 38). One

of these is the so-called "winning spirit award" which is given monthly to any number of employees

who have reflected the company's values through their behavior and actions, Klein (2012, p. 38)

explains. Another example is the "president's award" which is given at an annual banquet to those

employees who have continued to contribute despite personal problems or to those whose

performance has gone far beyond what was expected of them.

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5.5. Interim conclusion

All in all, the examination of the current state of literature on the subject has shown the high

relevance of organizational culture on the company and its employees. The "right" culture can

provide a competitive advantage for companies, according to C. O’Reilly (2008, p. 93) and

Rosenthal & Masarech (2003, p. 3). Thus, among others, positive effects of organizational culture

on job satisfaction (Berson et al., 2007, p. 627) and dedication of employees (C. O’Reilly, 2008,

p. 93), as well as on customer satisfaction (Boyce et al., 2014, p. 355), have been observed.

Furthermore, the study of the literature on the subject has shown that values and norms play an

important role. Thus, according to Chatman & Cha (2003, p. 23), strong and successful cultures

are characterized by two features, namely a high level of agreement among employees regarding

what is valued in the company and a high intensity regarding these values and norms. Such high

consensus and endorsement regarding organizational values and norms within a firm can lead to

a kind of social control, Chatman & Cha (2003, p. 21f), O’Reilly & Chatman (1996, p. 167), and

Sørensen (2002, p. 73) emphasize. This informal social control is not only less expensive than the

formal alternative of rules and regulations (O’Reilly & Chatman, 1996, p. 164), but the advantage,

according to Chatman & Cha (2003, p. 23), is that it gives employees some freedom to act and

decide in accordance with the ultimate strategic goals, values and norms of the company.

At the end of this chapter, various points were described which, according to the literature, are

particularly important for creating such a strong organizational culture. According to Warrick (2017,

p. 401), it is first of all important to get an impression of the current culture in the company and to

understand it in order to subsequently reinforce the strengths of this current culture and to identify

and address the weaknesses, inconsistencies and gaps between the desired culture and the

present culture. According to Rosenthal & Masarech (2003, p. 9) and Warrick & Gardner (2021,

p. 42) a strong culture also requires a compelling vision, a purpose and organizational values,

which must be defined and regularly communicated by the leaders. In this context, Rosenthal &

Masarech (2003, p. 12) emphasizes that it is essential that the values are visibly demonstrated by

the leaders through their behavior and decisions. Attention should also be paid to ensuring that

the company's culture and strategy are aligned and consistent, Warrick (2017, p. 402) explains.

Culture should also play a role in recruitment and training, in this respect Chatman & Cha (2003,

p. 26ff), Warrick (2017, p. 402), and Warrick & Gardner (2021, p. 43) agree. Accordingly, when

hiring new employees, companies should not only pay attention to whether the person's skills

match the job requirements, i.e. a person-job fit, but also and especially to whether the person fits

the organizational culture of the company, also called person-culture fit (Chatman & Cha, 2003,

p. 26). In addition, employees should be trained for culture. Thus, according to Warrick & Gardner

(2021, p. 43), they should be made aware of the organization’s cultural values and what is expected of them in terms of behavior, attitudes and performance. However, Chatman & Cha

63

(2003, p. 28), C. O’Reilly (2008, p. 98), and Warrick (2017, p. 402) also note that in order to build

a successful culture, there must be a reward system in place that recognizes and rewards behavior

that supports the desired culture. Finally, the usefulness of ceremonies and symbols in creating a

strong culture is emphasized.

After this comprehensive examination of the literature on the topic of organizational culture, what

insights can be derived for bellaflora with regard to building a strong culture, achieving its strategic

goals and meeting its challenges?

One of bellaflora's clearly defined goals is to expand its market leadership. To achieve this, they

want to clearly stand out and differentiate themselves from the competition (Interview Franz Koll).

Particularly in this respect, it could be beneficial to establish a strong culture within the company.

After all, sooner or later just about everything can be imitated by competitors, including the product

range offered, the new store concept, and even the services offered. However, according to

Rosenthal & Masarech (2003, p. 3), the culture in an organization is something unique that is

impossible to replicate. Accordingly, organizational culture can represent a long-term competitive

advantage (C. O’Reilly, 2008, p. 93; Rosenthal & Masarech, 2003, p. 3).

As described in this chapter, it is mainly up to Franz Koll and his management team to form such

a strong culture, as scholars like Berson et al. (2007, p. 618), O’Reilly et al. (2014, p. 595), and

Warrick & Gardner (2021, p. 40) agree in this respect that leaders are the primary influencers in

shaping organizational culture. Franz Koll took a first step in changing the organizational culture

shortly after joining the company in 2018 by formulating a new strategy, mission and vision. He

subsequently presented this new strategic orientation in person to all branches and answered the

employees' questions as they arose (Interview Franz Koll). After three years of introducing this

new strategy, it could be helpful to analyze whether and how the organizational culture in the

company has changed with regard to this new strategic direction. This is especially emphasized

by Warrick (2017, p. 401), who points out that it is important to develop an understanding of the

current culture in the company in order to subsequently reinforce the strengths of this current

culture and to identify and address the weaknesses, inconsistencies and gaps between the

desired culture and the present culture. In this context, Warrick (2017, p. 401) suggests the use

of culture questionnaires or focus group interviewing to get a sense of how they perceive the

organization’s current culture. An alternative to such questionnaires or interviews, according to

Warrick & Gardner (2021, p. 45), is the involvement of an external expert. In this investigation,

one could try to identify whether the communicated values, such as that the customer is to be

placed absolutely in the center, are actually lived in the company and whether there is agreement

among the employees regarding these values. According to Chatman & Cha (2003, p. 23), such

an agreement and a high intensity regarding values and norms is a characteristic of strong

64

cultures. If such a high level of consensus and endorsement regarding organizational values is

achieved, the resulting social control can have highly positive effects, as Chatman & Cha (2003,

p. 21f), O’Reilly & Chatman (1996, p. 167), and Sørensen (2002, p. 73) emphasize. Thus, in

conjunction with the relaxation of formal rules and regulations, it can lead to outstanding customer

service, according to Chatman & Cha (2003, p. 23). “Formal rules are useful for standardizing

performance and avoiding having to relearn things each time. However, they are only useful for

addressing situations that are predictable and regular. In contrast, outstanding service is

determined, in customer’s eyes, by how organizations deal with situations that are nearly

impossible to anticipate, unique (…) and difficult to solve.” (Chatman & Cha, 2003, p. 23). This

freedom, coupled with a commitment to organizational values, could lead employees to go the

extra mile for the customer that Franz Koll mentioned in the interview.

A strong corporate culture could also have a further positive effect on employee retention.

According to the company’s sustainability report (2019, p.57), the company is struggling with a

relatively high turnover rate. Thus, an organizational culture where employees feel comfortable

and where there is a high sense of community could potentially lower this rate since a strong

organizational culture is associated with positive effects such as increased job satisfaction (Berson

et al., 2007, p. 627) and dedication of employees (C. O’Reilly, 2008, p. 93).

Finally, it should be noted that establishing such a strong culture and thus achieving these positive

effects is challenging and is an interplay of many different factors, Warrick & Gardner (2021, p.

50) point out. However, whether or not one dedicates oneself to this challenging task of creating

a successful culture a culture will be formed either way in the organization, department or work

group, according to Chatman & Cha (2003, p. 32). “The question is whether the culture that forms

is one that helps or hinders the organization’s ability to execute its strategic objectives.

Organizational culture is too important to leave to chance (…)” (Chatman & Cha, 2003, p. 32).

After this comprehensive discussion of the literature on the topic of organizational culture, how to

build a strong culture in the company and the derivation of conclusions for bellaflora from this

information, the next chapter deals with another principle of humanocracy in detail, namely Open

strategy.

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6. Openness In this chapter, the focus is on another principle of a humanocracy described by Hamel & Zanini

(2020, pp. 177–198), namely the principle of openness. The decision to investigate this principle

in addition to ownership and community was again made with the CEO of bellaflora, who considers

it to be one of the most relevant for bellaflora at the present time. In this principle, the authors

address the topic of the strategy making process and explain how, according to them, it should be

designed in a human organization (Hamel & Zanini, 2020, pp. 177–198). Hamel & Zanini (2020,

p. 190) see the planning process currently practiced in most organizations as no longer in keeping

with the times. They describe it as “elitist, formulaic, and extrapolative”, and explain further “It’s a

top-down, budget-focus ritual that harnesses only a tiny fraction of the organization’s collective

imagination” (Hamel & Zanini, 2020, p. 189). In a humanocracy, however, the strategy process

should be a company-wide conversation that is open to employees, as well as customers and

other external partners, Hamel & Zanini (2020, p. 190) emphasize. The authors are aware that

such an opening of the process of strategy formulation is messier and more time consuming than

the top-down alternative, but there are numerous benefits associated with it which, according to

Hamel & Zanini (2020, p. 190), are worth the effort. Thus, they are convinced that more radical

and ambitious ideas can be generated. Furthermore, this openness leads to a higher commitment

and understanding of the different individuals involved towards the formulated strategy, Hamel

and Zanini explain. Another benefit the authors describe is the faster implementation of the

strategy if it was developed through an open process. The rationale for this is that people who

participate in the process see the strategy take shape in real time and when the time comes that

the strategy is ready for implementation, the people are primed and ready to act, according to

Hamel & Zanini (2020, p. 191). Similar benefits are also described by scholars (Appleyard &

Chesbrough, 2017; Hautz et al., 2017; Hutter et al., 2017; Luedicke et al., 2017; Mack & Szulanski,

2017; Stieger et al., 2012). These, together with possible disadvantages and problems of opening

up the strategy process, are discussed in more detail in chapter 6.4.

This relatively new approach of involving internal and external stakeholders in the strategy making

process is referred to as “Open Strategy” in the literature (Appleyard & Chesbrough, 2017;

Chesbrough & Appleyard, 2007; Hautz et al., 2017; Luedicke et al., 2017; Mack & Szulanski, 2017;

Whittington et al., 2011). In the following points, the current state of the literature on the topic of

open strategy is elaborated in detail. As in the previous two chapters, the literature used for this

purpose is listed in the table below and sorted in descending order by publication date.

66

Name of researcher, Journal

Research method

Title of research paper Key findings

Mount et al. (2020),

Long Range

Planning (B)

Systematic

literature

review

Conceptualizing the de-

materializing

characteristics of internal

inclusion in crowdsourced

open strategy

Identification of ways how

to involve different

organizational actors in

strategic conversation;

Description of social and

structural barriers

Dobusch et al.

(2019), Organization

Studies (A)

Qualitative

case-study

Closing for the Benefit of

Openness? The case of

Wikimedia’s open strategy

process

Development of a two-

dimensional framework of

openness

Appleyard and

Chesbrough (2017),

Long Range

Planning (B)

Systematic

literature

review

The Dynamics of Open

Strategy: From Adoption

to Reversion

Dynamics of Open

Strategy; Motivations of

switching between open

and closed modes of

strategizing

Baptista et al.

(2017), Lang Range

Planning (B)

Systematic

literature

review,

Qualitative

Research

Social Media and the

Emergence of

Reflexiveness as a new

Capability for Open

Strategy

Examination of the role of

social media in regard to

open strategy;

Definition/description of the

capability of reflexiveness

Gegenhuber and

Dobusch (2017),

Long Range

Planning (B)

Qualitative

case-study

Making an Impression

Through Openness: How

Open Strategy-Making

Practices Change in the

Evolution of New Ventures

Identification of three

different modes of how

organizations pursue open

strategy with external

audiences; Relation of

these modes to impression

management effects

Hautz et al. (2017),

Long Range

Planning (B)

Systematic

literature

review

Open Strategy:

Dimensions, Dilemmas,

Dynamics

Identification/formulation of

five dilemmas of open

strategy; Exploration of key

dynamics of Open Strategy

67

Name of researcher, Journal

Research method

Title of research paper Key findings

Hutter et al. (2017),

Long Range

Planning (B)

Quantitative

research

Falling Short with

Participation – Different

Effects of Ideation,

Commenting, and

Evaluating Behavior of

Open Strategizing

Examination of the different

forms of participation

behaviors and of their

effects on virtual and

organizational senses of

community

Luedicke et al.

(2017), Long Range

Planning (B)

Qualitative

case-study

Radically Open

Strategizing: How the

Premium Cola Collective

Takes Open Strategy to

the Extreme

Investigation of practices

and outcomes of a radical

open strategy; Identified

practices allow the

collective to develop a

collective identity, legitimize

strategic decisions,

maintain employee

motivation

Mack and Szulanski

(2017), Long Range

Planning (B)

Qualitative

case-study

Opening Up: How

Centralization Affects

Participation and Inclusion

in Strategy Making

Examination of how open

strategy practices and

activities vary with

centralization

Malhotra et al.

(2017), Long Range

Planning (B)

Action

research

Using Public Crowds for

Open Strategy

Formulation: Mitigating the

Risks of Knowledge Gaps

Online collaboration of

stakeholders can be used

for the formulation of an

open strategy; Identification

of two risks for open

strategy formulation when

knowledge gaps are

present

Yakis-Douglas et al.

(2017), Long Range

Planning (B)

Quantitative

research

Opening M&A Strategy to

Investors: Predictors and

Outcomes of

Transparency during

Organisational Transition

Investigation of the

circumstances in which

organisations engage in

increased transparency

towards their outside

stakeholders during M&A;

68

Name of researcher, Journal

Research method

Title of research paper Key findings

likelihood to demonstrate

increased transparency is

high for those who have

strategies that depart from

industry norms

Stieger et al. (2012),

California

Management

Review (B)

Qualitative

case-study

Democratizing Strategy:

How Crowdsourcing Can

Be Used For Strategy

Dialogues

Formulation of five goals

companies can pursue

employing internal

crowdsourcing;

Identification of three broad

dimensions that

characterize the unique

contexts of different

crowdsourcing initiatives

Whittington et al.

(2011), British

Journal of

Management (B)

Systematic

literature

review

Opening Strategy:

Evolution of a Precarious

Profession

Analysis of four forces that

drive the evolution of

strategy as a profession;

Identification of increased

transparency and inclusion

of organizations with regard

to their strategy

Chesbrough and

Appleyard (2007),

California

Management

Review (B)

Systematic

literature

review

Open Innovation and

Strategy

Investigation of the concept

of open innovation -

especially with regard to

business strategy

Table 4: Literature sources concerning open strategy

At the beginning, the concept of open strategy will be briefly described in section 6.1, followed by

a discussion of the two dimensions of open strategy, namely inclusion and transparency.

Furthermore, point 6.3 describes forces which, according to scholars (Hautz et al., 2017, p. 299f;

Whittington et al., 2011, p. 536ff), lead to greater openness of companies with regard to their

strategy. The advantages and disadvantages of the concept of open strategy are then presented

in the form of five dilemmas. In addition, the high dynamics of the concept described in chapter

6.5 are discussed.

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6.1. Open strategy

According to Mack & Szulanski (2017, p. 385) and Whittington et al. (2011, p. 535), there is a trend

that the strategy process of organizations is becoming more open to a wider audience. More

specifically, this means that organizations are increasingly moving away from a formal strategy

making process that is centralized around the CEO and the top management team towards a more

open form of strategizing that also involves internal and external stakeholders, Mack & Szulanski

(2017, p. 385) explain. This development represents a defining feature of the emerging concept

of open strategy, as Mount et al. (2020, p. 1) explain. The concept of open strategy builds on the

notion of open innovation and is used as an umbrella term to describe processes and practices

that increase the inclusiveness and transparency of strategy work to a larger group of internal and

external stakeholders, according to Hautz et al. (2017, p. 299), Mount et al. (2020, p. 2), and

Whittington et al. (2011, p. 535). This fundamental nature of greater inclusiveness and

transparency “stand in sharp contrast to strategy’s conventional elitism and opacity” as Whittington

et al. (2011, p. 536) point out. Accordingly, strategy has traditionally been very exclusive and

strategic responsibility has been strictly separated from operational management (Whittington et

al., 2011, p. 535). Furthermore, an organization's strategy is usually considered a secret, and

competitive advantages were due to asymmetries and ambiguities of information that prevented

competitors from imitating successful strategies, Whittington et al. (2011, p. 535) emphasize.

After this brief explanation of the term open strategy, the following chapter will explain in detail the

two key dimensions of the concept, namely inclusiveness and transparency.

6.2. Dimensions of open strategy

The concept of open strategy challenges the orthodoxies of the conventional way of strategy

making, i.e. that strategy is traditionally exclusive and it is considered a secret, by increasing

transparency and inclusiveness, according to Whittington et al. (2011, p. 535). Inclusiveness in

this context can be defined as “the range of people involved in making strategy” (Whittington et

al., 2011, p. 532) and transparency as “the visibility of an organization’s strategy” (Whittington et

al., 2011, p. 536). In simple terms, this means that with openness “more strategic information is

available, and more people are able to engage in the strategy conversation” (Hautz et al., 2017,

p. 298). These key factors of strategy work, according to Whittington et al. (2011, p. 531f), are

described in more detail in the following.

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6.2.1. Inclusion

„Inclusion refers to participation in an organization’s strategic conversation, the exchanges of

information, views and proposals intended to shape the continued evolution of an organization’s

strategy” (Whittington et al., 2011, p. 536). In this context, Whittington et al. (2011, p. 536)

distinguish between internal and external inclusion. By internal inclusion, the authors mean the

inclusion of people within the organization (Whittington et al., 2011, p. 536). In the case of external

inclusion, there is an exchange with regard to the strategy process with external stakeholders,

such as with other companies or with the public at large, as is the case with crowd-sourcing,

Whittington et al. (2011, p. 536) explain. According to Hautz et al. (2017, p. 299f), such efforts to

involve internal and/or external stakeholders are particularly promoted by new information

technologies such as strategy jamming or wiki technologies. However, Hautz et al. (2017, p. 301)

and Mack & Szulanski (2017, p. 386) point out that inclusion can come in different forms. Thus,

Mack & Szulanski (2017, p. 386) distinguish between participation and inclusion, whereby the

former is understood as the pure collection of inputs in the sense of ideas and information and

inclusion goes further. “Inclusion is about creating and sustaining a community of interacting

stakeholders engaged in an ongoing stream of issues in the strategy process” (Mack & Szulanski,

2017, p. 386). Accordingly, organizations engage in inclusion when they involve stakeholders in

task forces or working groups in which they interact, share information and knowledge, and joint

decision making among members, Mack & Szulanski, (2017, p. 386) explain. Hutter et al.'s (2017,

p. 365f) findings show how powerful inclusion can be, in the sense of this definition. The study of

Siemens' internal crowd sourcing process showed that involvement in the form of idea evaluation

and active commenting led to the emergence of a sense of community among the employees

involved (Hutter et al., 2017, p. 365). However, the mere submission of ideas, according to Mack

& Szulanski (2017, p. 386) a form of participation, had a very small or even negative effect on the

sense of community, Hutter et al. (2017, p. 366) demonstrated. In summary, Hautz et al. (2017, p.

301) note that “inclusion in the Whittington et al. (2011) sense needs to be understood as involving

varying degrees of inclusiveness, with different kinds of outcomes”.

However, the concept of open strategy is characterized not only by increased inclusivity but also

by increased transparency, according to Whittington et al. (2011, p. 536). What exactly is meant

by transparency is explained in the next point.

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6.2.2. Transparency

According to Whittington et al. (2011, p. 536), “Transparency refers to the visibility of information

about an organization’s strategy, potentially during the formulation process but particular with

regard to the strategy finally produced”. Again, a distinction can be made between internal and

external transparency, Whittington et al. (2011, p. 535f) explain. As with inclusion before, the

former refers to transparency within the company and the latter to transparency to external

stakeholders (Whittington et al., 2011, p. 535f). However, Hautz et al.'s (2017, p. 300) study of the

literature on the subject concluded that transparency is “contingent and highly variable in form”.

This variability of transparency has been demonstrated by Baptista et al. (2017), who examined

“the roles of different kinds of information technology, such as blogs, wikis, and videocasts”. With

respect to these technologies, a significant graduation in transparency was evident, particularly in

terms of the range of topics permitted, the degree of access, and the degree of freedom from

moderation and controls, according to Baptista et al. (2017, p. 328f). Furthermore, Hautz et al.'s

(2017, p. 300) emphasize in this context that “Transparency is a continuum subject to managerial

choice”. However, Yakis-Douglas et al. (2017, p. 412) show that transparency does not always

depend on managerial choice. In their work, the authors distinguish between voluntary and

mandatory disclosure of strategic information, thereby pointing out the regulatory pressures that

often require a certain degree of transparency from organizations (Yakis-Douglas et al., 2017, p.

412). Summing up these two papers by Baptista et al. (2017) and Yakis-Douglas et al. (2017),

Hautz et al. (2017, p. 300) conclude that “(…) transparency comes in many forms, with managers

sometimes having to make careful choices about the degree to which it is allowed, but sometimes

obliged to concede openness whether they like it or not”.

After this closer look at the two dimensions of inclusion and transparency, the next chapter will

discuss which forces are according to the literature responsible for companies tending towards

greater openness in their strategy process.

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6.3. Four forces of open strategy

In his work, Whittington et al. (2011, p. 537) describe four forces which, according to them, support

inclusion and transparency and, consequently, greater openness of companies. Whittington

adapted these forces from Abbott (1988), who studied the development of professions under the

influence of various environmental and endogenous forces. Whittington et al. (2011, p. 537)

consider four of the forces defined by Abbott (1988) as particularly relevant to the concept of open

strategy, which are organizational, social, cultural and technological. These four forces will be

examined in detail in this subsection.

As one organizational force that requires greater openness of companies, Whittington et al. (2011,

p. 539) cite the increased international scope which “ (…) has challenged the capacity and value

of exclusive central control from the center”. In this context, Whittington et al. (2011, p. 539) point

to the increasing importance of decentralized initiatives and local expertise for multinationals. In

addition, Whittington et al. (2011, p. 539) point out that more transparency of corporate leaders

regarding their strategies is also encouraged by the rise of a more aggressive financial form of

capitalism since the 1980s. According to Whittington et al. (2011, p. 539), the best prevention of

hostile takeovers is to keep shareholders fully informed about the business and its strategy.

As a social force that requires increased transparency and inclusion, Whittington et al. (2011, p.

539) mention the generational shift that is taking place in companies. Accordingly, involvement in

strategy conversations is considered simply natural by younger employees, Whittington et al.

(2011, p. 539) explain. The increasing inter-firm mobility of some corporate employees represents

another development for Whittington et al. (2011, p. 539) that makes it difficult to keep the strategy

secret and within the company. “As managers become more mobile, strategies become more

transparent to outside audiences. It is vain to set much store in secrecy when key staff are always

on the move.” (Whittington et al., 2011, p. 539).

Cultural changes also require companies to be more open about their strategy, according to

Whittington et al. (2011, p. 539). As one such change, the authors cite the wide dissemination of

strategic knowledge through Google and Wikipedia, among others (Whittington et al., 2011, p.

539). “Strategic planning techniques are no longer the arcane possession of an elite; every

manager can access them” (Whittington et al., 2011, p. 539). Moreover, Whittington et al. (2011,

p. 539) explain that the rise in postmodernism has led to the knowledge of local lower managers

being increasingly respected. Accordingly, strategic planners in the head office no longer have a

monopoly on wisdom (Whittington et al., 2011, p. 539).

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The fourth force that Whittington et al. (2011, p. 540) believes plays a major role in inclusion and

transparency comes from technology. The importance of this force for the concept of open strategy

is also reflected in the fact that it is probably the most frequently mentioned in this context. Thus

besides Whittington et al. (2011, p. 540), Baptista et al. (2017, p. 322), Dobusch et al. (2019, p.

344), Hautz et al. (2017, p. 299f), Mount et al. (2020, p. 1ff), and Stieger et al., 2012, p. 45) also

point out the great potential for opening up the strategy process which stems from new

technological possibilities. Whittington et al. (2011, p. 540) emphasize that strategies are no longer

laboriously typed, photocopied and posted as in the past. Instead, new technologies such as

PowerPoint enable collaborative creation of strategy documents across numerous worksites and

organizational levels (Whittington et al., 2011, p. 540). In this context, other technologies that

promote greater inclusion and transparency are also mentioned, such as social media (Baptista

et al., 2017, p. 322; Hautz et al., 2017, p. 299), wiki technologies (Dobusch et al., 2019, p. 344;

Hautz et al., 2017, p. 299), crowdsourcing (Mount et al., 2020, p. 2) or strategy jamming (Hautz et

al., 2017, p. 299).

Finally, Whittington et al. (2011, p. 540) note that these four forces do not affect all companies

equally. For example, privately held companies are under less pressure from financial market

regulations and external shareholders, according to them (Whittington et al., 2011, p. 540).

Nevertheless, they are convinced that most companies should address the issue of openness:

“(…) most organizations will need to factor in the impact of information technology and the

managerial advantages of openness, both internally and externally. To a large extent, greater

external transparency is probably unavoidable” (Whittington et al., 2011, p. 540).

After explaining the organizational, social, cultural, and technological forces that, according to

Whittington et al. (2011, p. 536ff), require organizations to increase their degree of openness, the

next point discusses possible positive effects, but also risks and costs that, according to scholars

(Appleyard & Chesbrough, 2017; Baptista et al., 2017; Gegenhuber & Dobusch, 2017; Hautz et

al., 2017; Hutter et al., 2017; Luedicke et al., 2017; Mack & Szulanski, 2017; Malhotra et al., 2017;

Stieger et al., 2012; Yakis-Douglas et al., 2017), are associated with the concept of open strategy.

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6.4. Dilemmas

The concept of open strategy and the increased transparency and inclusion it brings are

associated with numerous positive effects, but also with risks and costs, according to Hautz et al.

(2017, p. 301). Hautz et al. (2017, p. 301) summarize these conflicting outcomes in five dilemmas,

which are discussed in more detail in this chapter. An overview of these dilemmas is provided in

figure 1.

Figure 1: Central dilemmas of open strategy (Hautz et al., 2017, p. 302)

The first dilemma described by the authors is called the dilemma of process (Hautz et al., 2017,

p. 301). Here, Hautz et al. (2017, p. 301) refer to the ambivalent effects that arise when a wider

audience is involved in the strategy process. Stieger et al. (2012, p. 46) explain that the great

advantage of inclusiveness is that you can “tap into the knowledge of the people involved” and

thus “improve the content of strategic decisions”. In this context, Appleyard & Chesbrough (2017,

p. 316), for example, have shown that the involvement of a larger audience allows access to

different sources of technical expertise. Furthermore, a multitude of different ideas for strategic

initiatives can be generated as Hautz et al. (2017, p. 301), Hutter et al. (2017, p. 355ff), Luedicke

et al. (2017, p. 382), and Mack & Szulanski (2017, p. 387) point out. However, increased

inclusiveness is not only associated with positive effects, but often leads to significant challenges

in the decision-making process, according to Hautz et al. (2017, p. 301). “(…) the involvement of

wider audiences reduces the speed, flexibility and control over the decision making process, which

in some cases might even prevent the organization from making any decision at all” (Hautz et al.,

2017, p. 301). Gegenhuber & Dobusch (2017, p. 347) emphasize in this regard that greater

openness often demands considerable organizational resources, for example the time needed to

answer user questions. Furthermore, Malhotra et al. (2017, p. 398) describe the risk of continuous

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conflict where “the crowd engages in posting negative, personal and destructive attacks instead

of focusing their interaction on the strategic challenge at hand”. In addition, according to Malhotra

et al. (2017, p. 398), there is a risk of self-promotion. Here the authors mean that individuals are

often too focused on promoting their own point of view without paying attention to the contributions

of others (Malhotra et al., 2017, p. 398).

In the dilemma of commitment, Hautz et al. (2017, p. 302) highlight the fact that open strategy

can increase but also decrease commitment towards an organization’s strategy. Thus, the

involvement of a wider audience in the strategy process has a positive motivational effect and

leads to an increased commitment to the outcome of the process, according to Hautz et al. (2017,

p. 302). Stieger et al. (2012, p. 46) also point out that the involvement of a large number of

employees results in a common understanding and a stronger commitment. This understanding

of and commitment to the strategy is also conducive to its implementation, Stieger et al. (2012, p.

46) explain. However, there are also studies describing that difficulties in processing the input of

the people involved often leads to dissociation and frustration from the strategy process, Hautz et

al. 82017, p. 302) point out. In this context, the authors refer for example to Baptista et al. (2017,

p. 328) who explain that what they call user frustration can arise when the people involved in the

strategy making process find that their inputs are restricted or moderated in terms of visibility.

Furthermore, Baptista et al. (2017, p. 328) emphasize “Employees were happy to engage with

organizational disclosure but expected in return their voice and contribution to be acknowledged

and purposefully considered”. Luedicke et al. (2017, p. 374) explain that it can lead to a loss of

motivation on the part of the participants if they are excluded from developments that originally

came from their own initiative.

The third dilemma, the dilemma of disclosure, Hautz et al. (2017, p. 302) address the many

benefits that come with greater transparency, but also the significant risks associated with it. On

the one hand, higher transparency can serve as a means for impression management, as

Gegenhuber & Dobusch (2017, p. 350) demonstrate in their study, or help to reduce information

asymmetries according to Yakis-Douglas et al. (2017, p. 420). Moreover, Whittington et al. (2011,

p. 539) emphasize that it can increase a company's legitimacy in the face of regulatory

requirements and new social norms about transparency. On the other hand, Hautz et al. (2017, p.

302) warn that increased transparency can weaken an organization's competitiveness by making

it easier for competitors to obtain strategically sensitive information. Another negative effect,

according to Hautz et al. (2017, p. 302), could also be “that the organization gets exposed to

greater regulatory influence as regulatory agencies are granted access to information about the

internal workings of the organization”.

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The inclusion of a larger group of people in the strategy process can be seen as a blessing but

also as a burden by the participants, a circumstance Hautz et al. (2017, p. 303) address in the

dilemma of empowerment. In this context, Hautz et al. (2017, p. 303) emphasize the positive

effect that greater inclusion gives participants a say in strategy and thus more power in the

organization. However, this can also be a burden for the people involved because of “(…) the

expectation that the participants invest – typically in addition to their regular tasks – extra time and

effort into strategy work” (Hautz et al., 2017, p. 303). In addition, Hautz et al. (2017, p. 303) explain

that by being involved in the strategy making process, “participants become (formally or at least

morally) accountable for the results of their work”.

The dilemma of escalation represents the fifth dilemma described by Hautz et al. (2017, p. 303),

which addresses the problem that when organizations begin to open up their strategy process in

certain areas, forces arise that require other areas also to be opened up. In some cases, such

escalation can be positive, according to Hautz et al. (2017, p. 303), when organizations experiment

with openness in limited areas before using these experiences to practice openness on a large

scale. However, the authors warn that there is often no way for organizations to restrict openness

once some areas have been opened up (Hautz et al., 2017, p. 303). “Hence, organizations face

the dilemma, on the one hand, of not opening up at all, hence, to relinquish potential benefits of

selective openness, or, on the other hand, to risk being forced to open up completely with the

respective challenges or to suffer the negative consequences of disappointed expectations about

openness” (Hautz et al., 2017, p. 303). In this context, Baptista et al. (2017, p. 328f) emphasize

that when people are involved in the strategy making process, they often expect to have access

to the relevant information concerned and, conversely, when a company gives information about

the strategy to a selected group, these people often want to participate in the strategy development

process. Moreover, according to Baptista et al. (2017, p. 328f), when an audience experiences

the privilege of participating in an organization's strategy, other audiences are likely to expect the

same openness toward them.

From these five dilemmas it can be seen that the concept of open strategy is associated with many

positive effects but also with numerous risks and costs. Therefore, the decision to move towards

greater transparency and/or inclusion should not be taken lightly by companies and the pros and

cons should be carefully weighed. If a company decides to move toward greater openness in the

sense of increased transparency and inclusion, the dilemmas described in this chapter “require

continuous reassessment and rebalancing of the extent and mixture of the bundle of practices

applied” (Hautz et al., 2017, p. 303). Appleyard & Chesbrough (2017, p. 311ff) and Hautz et al.

(2017, p. 303) emphasize in this context that this process can be seen as very dynamic with

frequent movements along and between the two dimensions. This dynamic of the open strategy

concept will be discussed in more detail in the next chapter.

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6.5. Dynamics

Hautz et al. (2017, p. 303) describe the choice of openness of an organization as very dynamic

with possible movements between and along the two dimensions of transparency and inclusion.

This dynamic is particularly fostered by the dilemmas explained in the previous chapter, according

to Hautz et al. (2017, p. 303). The following chapter explains how exactly these emergent

dilemmas induce this adjustment of the levels of transparency and inclusion. These dynamic shifts

are illustrated in figure 2, with the axes of the individual figures 2a-d describing the two dimensions

transparency and inclusion as variable in their form and extent.

Figure 2: Dynamics of open strategy: Movements along and between the dimensions (Hautz et al., 2017, p. 304)

The lower left corner of figure 2a shows the traditional way of strategy making Hautz et al. (2017,

p. 303), which according to Whittington et al. (2011, p. 535) is considered as an exclusive and

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secretive process. Arrows 1, 2 and 3 illustrate the growing trend towards greater openness in

terms of increased transparency and/or inclusion, which according to Hautz et al. (2017, p. 303)

is particularly motivated by the expected beneficial outcomes for companies. Arrow 1 (figure 2a)

represents the situation in which a company decides to increase transparency and provide more

information about strategic decisions but without the possibility of participation in the decision-

making process, Hautz et al. (2017, p. 304) explain. The reverse is also possible, according to

Hautz et al. (2017, p. 304), where a company moves “along the continuum of inclusiveness”, as

was the case at Siemens, for example, which invited employees to submit ideas and suggestions

regarding strategy formation as part of a company-wide initiative (Hutter et al., 2017, p. 359ff).

Mack & Szulanski (2017, p. 389) show in their study that this is particularly the case in centralized

organizations, where increased participation in idea generation is still combined with a low level

of transparency. However, Hautz et al. (2017, p. 304) emphasize that in most cases where there

are efforts regarding increased openness, there is a combination of increased transparency and

inclusion noticeable, which is illustrated in arrow 3. Furthermore, Hautz et al., 2017, p. 305) point

out that there are companies that do not have to undertake shifts in order to be more open. One

such company is “Premium Cola” which was already born open, Hautz et al. (2017, p. 305) explain.

Thus, Premium Cola has practiced radical open strategizing with high levels of transparency and

inclusion since its beginning, according to Luedicke et al. (2017, p. 376ff).

Apart from exceptional cases, such as Premium Cola, organizations increase transparency and/or

inclusion only to limited degrees, Hautz et al. (2017, p. 305) emphasize. The result of this limited

movement on the two dimensions can be various dilemmas, such as the dilemma of commitment

and the dilemma of escalation, Hautz et al. (2017, p. 305) explain. Thus, according to Baptista et

al. (2017, p. 328f), it can lead to additional questions and demands for more information if a

company practices moderate levels of transparency and only selectively provides exclusive

information (movement along arrow 1). Similarly, pressures can also arise regarding a shift on

arrow 2 if an organization has only moderate levels of participation, as this “might raise actors’

expectations to be also included in further decision-making” (Hautz et al., 2017, p. 305). The

dynamic toward greater transparency and/or inclusion can also be driven by the dilemma of

commitment, as the findings of Baptista et al. (2017, p. 328f) and Hautz et al. (2017, p. 305)

demonstrate. “Allowing only limited levels of transparency or inclusion may noticeable reduce

newly gained commitment and motivation when participants are eventually excluded from

developments that originated from their own contributions or find them restricted in visibility”

(Hautz et al., 2017, p. 305). This in turn could create pressures for companies to move along

arrows 1 and 2, according to Hautz et al. (2017, p. 305).

As illustrated in figure 2b, restrictively opening one of the two dimensions of transparency and

inclusion can also lead to forces to open up the other dimension as well, Hautz et al. (2017, p.

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305) explain. Thus, according to Baptista et al. (2017, p. 328f) and Hautz et al. (2017, p. 305),

providing more information to a larger audience can lead not only to a demand for a higher degree

of transparency, but “can simultaneously raise demands of increased participation, driving

organizations to move along arrow 4” (Hautz et al., 2017, p. 305). According to Hautz et al. (2017,

p. 305), this also applies to companies that increase inclusiveness but provide insufficient

information to enable meaningful participation, leading to shifts along arrow 5.

However, the dilemmas described can lead not only to an increase in transparency and inclusion,

but also to a decrease in openness, Hautz et al. (2017, p. 305) explain. Examples where

companies have decided to switch from an open strategy to a closed one are provided by

Appleyard & Chesbrough (2017, p. 312f) in their study. The authors refer to this transition from

open to closed as reversion (Appleyard & Chesbrough, 2017, p. 318). According to Hautz et al.

(2017, p. 305), the dilemmas of disclosure, empowerment, and process may be particularly

responsible for movements toward lower levels of openness or even a return to a completely

closed approach. A reduction in transparency along arrows 6,7 or 8 (figure 2c) may be driven by

the dilemma of disclosure and empowerment, in which increased sharing of information with a

larger audience becomes inefficient due to the risk of loss of competitiveness or due to the risk of

“information overload and the inability of individuals to appropriately process and interpret the

additional information“ (Hautz et al., 2017, p. 305). Furthermore, the dilemma of process and

empowerment can cause a reduction in levels of inclusiveness, according to Hautz et al. (2017,

p. 305). “Empowering people to participate can also require digesting an excessive amount of

information, investing free time or being accountable for the results of the suggestions” (Hautz et

al., 2017, p. 305). These burdens can cause movement along arrows 8, 9, and 10 (figure 2d)

toward lower levels of inclusion, Hautz et al. (2017, p. 305) point out.

These dynamics, triggered by several dilemmas, give an idea of how complex the concept of open

strategy is. To practice the right degree of openness, companies must remain very flexible and, in

the face of new developments and circumstances, constantly reflect on and assess past decisions,

Hautz et al. (2017, p. 306) emphasize.

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6.6. Interim conclusion

After this examination of the current state of the literature on the topic, it can be said that the

opening up of the strategy process and the associated involvement of a wider audience represents

a promising approach for many companies. The urge for greater openness and thus increased

transparency and inclusion is driven by a variety of forces, as Whittington et al. (2011, p. 536ff)

point out. Thus, the concept of open strategy is gaining increasing relevance through various

organizational, social, cultural and technological developments, according to Whittington et al.

(2011, p. 536ff). Furthermore, the opening of the strategy process is associated with several

positive effects, as Hautz et al. (2017, p. 301ff) emphasize. For example, an open strategy process

makes it possible to tap into the knowledge of the people involved and thus has the potential to

improve the content of strategic decisions, according to Stieger et al. (2012, p. 46). Another

advantage is that a multitude of different ideas can be generated by involving a wider audience,

several authors point out (Hautz et al., 2017, p. 301; Hutter et al., 2017, p. 355ff; Luedicke et al.,

2017, p. 382; Mack & Szulanski, 2017, p. 387). Furthermore, the concept of open strategy is also

associated with positive motivational effects of the people involved and increased commitment to

the outcome of the strategy process, Hautz et al. (2017, p. 302) explain. However, organizational

skepticism about increased transparency and inclusion is not unfounded, as risks and costs are

also associated with increased openness, as Hautz et al. (2017, p. 301ff) explain. Thus, opening

up the strategy process and involving a broader audience reduces flexibility, speed, and control

over the decision-making process, Hautz et al. (2017, p. 301) point out. Moreover, increased

transparency can jeopardize an organization's competitiveness, as it becomes easier for

competitors to obtain sensitive information, Hautz et al. (2017, p. 302) warn. Hautz et al. (2017, p.

301ff) summarize these conflicting outcomes, i.e. the positive effects and the risks and costs

associated with the concept of open strategy, in five dilemmas. At the end of this chapter, the high

dynamics associated with open strategy are described. This is especially driven by these different

dilemmas and makes an ongoing adjustment of the two dimensions of transparency and inclusion

necessary, according to Hautz et al. (2017, p. 303ff).

The question that remains to be answered after this examination of the literature on the subject is

how the concept of open strategy could help bellaflora to achieve its goals and to cope with its

challenges. From the study of the company and especially from the conversation with Franz Koll,

it can be surmised that the current type of strategy-making can be classified as rather traditional.

Thus, this strategy was formulated by Franz Koll and his management team without involving

employees or other stakeholders. The impression was given that the company's strategy is more

of a secret and that strategic responsibility is separate from operational management. For this

reason, the opening up of the strategy process and the associated increase in transparency and/or

inclusion could represent a challenge for bellaflora, as according to Whittington et al. (2011, p.

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536) the fundamental nature of greater inclusiveness and transparency “stand in sharp contrast

to strategy’s conventional elitism and opacity”. If the company nevertheless succeeds in opening

up its strategy process to a wider audience, this could have positive effects in terms of achieving

its goals and mastering its challenges.

As mentioned above, the involvement of a wider audience in the strategy process has a positive

motivational effect and leads to an increased commitment to the outcome of the process,

according to Hautz et al. (2017, p. 302). This increase in motivation could have a positive effect

on the described challenge of the work attitude of some employees, who showed a lack of

motivation and a certain lethargy after returning to the branches after the lockdowns. In addition,

the increased commitment to the strategy, if it has been developed with the participation of the

employees, can lead to them taking the contents more to heart and possibly implementing them

more conscientiously.

Other positive effects of an open strategy are that it allows to tap into the knowledge of the people

involved and thus has the potential to improve the content of strategic decisions (Stieger et al.,

2012, p. 46) and that a multitude of different ideas can be generated by involving a wider audience

(Hautz et al., 2017, p. 301; Hutter et al., 2017, p. 355ff; Luedicke et al., 2017, p. 382; Mack &

Szulanski, 2017, p. 387). This multitude of ideas and the access to knowledge of different

stakeholders could serve the company especially with regard to the goal of underlining their market

leadership position through a revolutionary course of action. Therefore, the involvement of

customers, suppliers, employees and other stakeholders could potentially overcome the industry

mindset and generate innovative and revolutionary ideas that will lead to the company

differentiating itself even further from its competitors.

However, opening up the strategy process is not only associated with positive effects, but also

with risks and costs, as highlighted in section 6.4. Thus, an increase in transparency could

jeopardize bellaflora's competitiveness, as competitors could more easily obtain strategically

sensitive information (Hautz et al., 2017, p. 302). Furthermore, the involvement of a wider

audience is associated with the loss of control, flexibility and speed in the decision-making

process, which can lead to no decision being made at all in some cases (Hautz et al., 2017, p.

301). Greater openness also often takes up considerable organizational resources (Gegenhuber

& Dobusch, 2017, p. 347) which, in the case of bellaflora, may be needed elsewhere, such as in

the expansion of the online store or the services offered by the company. Another danger is that

if bellaflora decides to open up certain areas of its strategy process, this could lead to forces

demanding that other areas be opened up as well, as Hautz et al. (2017, p. 303) discuss in the

dilemma of escalation.

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As you can see, the decision as an organization to take steps towards greater openness in the

strategy process is not an easy one, as there are several advantages, but also numerous

disadvantages associated with it. It is important that bellaflora's management is aware that if it

decides to increase transparency and/or inclusion, that the company must remain flexible and, in

the face of new developments and circumstances, constantly reflect on and assess past decisions

(Hautz et al., 2017, p. 306). This flexibility, and the constant adjustment of the degree of

transparency and inclusion, is necessitated by the various dilemmas described in Section 6.5,

according to Hautz et al. (2017, p. 303).

After this comprehensive examination of the literature on the topic of open strategy and an

illustration of the results based on the case study of bellaflora, the reader will find a conclusion in

the next point in which the research questions formulated in point 1.2 are answered based on the

findings of this work.

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7. Conclusion The present work is concerned with the goal of finding out what constitutes a human organization.

For this purpose, the organizational form of humanocracy, which was brought to life by Hamel &

Zanini (2020), and its seven principles were described in the context of this thesis. Furthermore,

three of these principles were discussed in detail and the current state of the literature of the

different thematic fields was closely examined. In addition, an illustration of the results of these

findings took place in the form of a case example of the Austrian gardencenter bellaflora. The

following chapter contains a conclusion in which the following research questions are answered

based on these findings.

- What constitutes a human-centered organization?

o How can organizations achieve a sense of ownership in the workforce? o How can organizations create a sense of community within their company?

o What are the benefits and problems associated with opening up the strategy

process?

Developments such as the explosive growth of new technologies (Holbeche, 2019, p. 668), the

rising globalization, hypercompetition, the shortening of product lifecycles (Schreyögg & Sydow,

2010, p. 1251), the generational change in the workforce of organizations (De Hauw & De Vos,

2010, p. 293ff) or the rise of knowledge-based work (Lee & Edmondson, 2017, p. 37) increase the

necessity of a shift towards leaner and flatter organizational forms (Lee & Edmondson, 2017, p.

37). The authors Hamel & Zanini (2020, p. 19) are convinced that most organizations are still

trapped in bureaucratic structures and thought patterns and describe in their book a more flexible

and “human” form of organizing. After analyzing this form of organization described by Hamel &

Zanini (2020) and a comprehensive examination of the literature, it can be said that a human

organization differs from others especially in its perspective towards its employees. Thus,

organizations should move away from the attitude and view that employees are perceived as

instruments to create products and services. Rather, the organization should be seen as an

instrument that is used by the people within it. In order to become more human as an organization,

it is also necessary to flatten the hierarchy and thus the power imbalance and to provide

employees, especially those at lower levels of the hierarchy, with more opportunities, rights,

influence and freedom.

This increase in opportunities, rights and influence should result, among other things, in a sense

of ownership in the workforce. This means that employees perceive themselves as owners of the

organization. In order to achieve such a sense of ownership, and thus answer the second research

question, the review of the literature on the subject has shown that it is important to implement

84

different work practices and introduce a form of shared capitalism in the company, such as

employee participation in the profits of the organization (Chi & Han, 2008, p. 692ff; Kaarsemaker

& Poutsma, 2006, p. 677ff; Rousseau & Shperling, 2003, p. 555ff). These work practices include

involving employees in company decisions and sharing relevant information with them (Chi & Han,

2008, p. 694ff; Rousseau & Shperling, 2003, p. 557f). Furthermore, care must be taken to ensure

an internal fit, i.e. coherence and consistency, of the HR practices used in the company

(Kaarsemaker & Poutsma, 2006, p. 671ff). From the management point of view, it is also important

that they stand behind the concept of employee ownership and see the employees as legitimate

owners (Harrison et al., 2018, p. 7; Kaarsemaker & Poutsma, 2006, p. 680; I. L. Pierce et al., 1991,

p. 140). This thesis also showed how the implementation of an employee ownership concept could

help bellaflora to achieve its strategic goals and overcome its challenges. A key positive effect in

this regard could be the alignment of interests between employees and owners. Furthermore,

could the introduction of employee ownership positively influence the work attitude of the

employees, as the concept is associated with higher organizational commitment among

employees and increased engagement and productivity. In addition, the concept of employee

ownership could also be helpful with regard to the described difficulties of the company in retaining

employees. It is also conceivable that employee ownership would be beneficial in terms of

expanding the product range. However, this thesis also describes possible challenges bellaflora

could face if they were to increasingly realize employee ownership in the company. One of these

challenges is the risk of free riding. Accordingly, there is a danger that employees free ride on the

effort of their colleagues. In addition, the quality and speed of the decision-making process could

be negatively affected by the involvement of ill-qualified employees. Also to be mentioned in this

context are the partly high administrative costs which are often associated with profit sharing

concepts. An overview of these advantages and disadvantages of the concept of employee

ownership, which were identified during the review of the literature on the subject, is provided in

table 5.

Positive effects Possible challenges/risks

• Alignment of employees and owners’

interests

• Increased productivity and

commitment of employees

• Lower voluntary turnover

• Higher ROE

• Reduced monitoring and supervisory

costs

• Free-riding

• Negative effects on quality and speed

of decisions

• High administrative costs of profit-

sharing plans

Table 5: Possible effects of employee ownership

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A human-centered organization is also characterized by a sense of community among its

workforce (Hamel & Zanini, 2020, p. 157ff). With regard to the third research question, how to

achieve such a sense of community in the company, the examination of the literature showed that

various factors are of importance in this context. Therefore, it is important that there is a high level

of agreement among employees about what is valued in the organization and that there is a high

intensity regarding these values and norms (Chatman & Cha, 2003, p. 23). To achieve such an

culture within the organization, where these requirements are met, a compelling vision, a purpose

and organizational values have to be defined and regularly communicated by the leaders of the

company (Rosenthal & Masarech, 2003, p. 9; Warrick & Gardner, 2021, p. 42). Furthermore, it is

essential that the values are visibly demonstrated by the leaders through their behavior and

decisions (Rosenthal & Masarech, 2003, p. 12). Attention should also be paid to ensuring that the

company's culture and strategy are aligned and consistent (Warrick, 2017, p. 402) and that culture

plays a role in recruitment and training of employees (Chatman & Cha, 2003, p. 26ff; Warrick,

2017, p. 402; Warrick & Gardner, 2021, p. 43). Also helpful in strengthening a culture and thus

achieving a sense of community is a reward system that recognizes and rewards desired behavior

(Chatman et al., 2014, p. 28; C. O’Reilly, 2008, p. 98), or the use of ceremonies and symbols (C.

O’Reilly, 2008, p. 96f; Warrick, 2017, p. 402). This thesis also illustrates how bellaflora could

benefit from such a strong culture. Thus, a successful establishment of such a culture could help

bellaflora especially in terms of expanding their market leadership and in differentiating

themselves from its competition. Because sooner or later just about everything can be imitated by

competitors, including the product range offered, the new store concept, and even the services

offered but the culture in an organization is something unique that is impossible to replicate

(Rosenthal & Masarech, 2003, p. 3). Therefore, organizational culture can represent a long-term

competitive advantage. In addition, the literature describes that when there is a high level of

consensus and endorsement regarding organizational values, a so-called social control is created

which can have a positive impact on customer service and employee performance in general

(Chatman & Cha, 2003, p. 21f; O’Reilly & Chatman, 1996, p. 167; Sørensen, 2002, p. 73) .

Achieving a sense of community could also help in regard of employee retention. Thus, an

organizational culture where employees feel comfortable and where there is a high sense of

community could potentially lower the turnover rate of the company since a strong organizational

culture is associated with positive effects such as increased job satisfaction (Berson et al., 2007,

p. 627) and dedication of employees (C. O’Reilly, 2008, p. 93). Finally, it should be noted that

establishing such a strong culture and thus achieving these positive effects is challenging and is

an interplay of many different factors, Warrick & Gardner (2021, p. 50) point out. However, whether

or not one dedicates oneself to this challenging task of creating a successful culture a culture will

be formed either way in the organization, department or work group, according to Chatman & Cha

(2003, p. 32). “The question is whether the culture that forms is one that helps or hinders the

86

organization’s ability to execute its strategic objectives. Organizational culture is too important to

leave to chance (...)” (Chatman & Cha, 2003, p. 32). An overview of the positive effects of a strong

organizational culture and the points to be considered when building it is given in Table 6.

Positive effects Important points for building a strong culture

• Increased job satisfaction and

dedication of employees

• Increased customer satisfaction

• Long-term competitive advantage

• Social control

• Develop an understanding of the

present culture

• Define vision, mission, purpose and

values

• Alignment of strategy and culture

• Hire and train for culture

• Leaders must walk the talk

• Reward system

• Symbols and ceremonies

Table 6: Summary of findings in regard to building strong culture

All these discussed points require a clear rethinking by managers but also by employees, in many

different areas. Such rethinking should also take place when it comes to the strategy making

process, according to Hamel & Zanini (2020, p. 189). Thus, in a human-centered organization,

strategy making should be a company-wide conversation that is open to employees, customers,

and other external partners. The examination of the current state of the literature on open strategy

gives an idea of the great potential associated with this concept. Thus, numerous advantages are

described in the literature which have been associated with the opening up of the strategy process.

For example, an open strategy process makes it possible to tap into the knowledge of the people

involved and thus has the potential to improve the content of strategic decisions (Stieger et al.,

2012, p. 46). Another advantage is that a multitude of different ideas can be generated by involving

a wider audience, several authors point out (Hautz et al., 2017, p. 301; Hutter et al., 2017, p. 355ff;

Luedicke et al., 2017, p. 382; Mack & Szulanski, 2017, p. 387). Furthermore, the concept of open

strategy is also associated with positive motivational effects of the people involved and increased

commitment to the outcome of the strategy process (Hautz et al., 2017, p. 302) explain. However,

organizational skepticism about increased transparency and inclusion is not unfounded, as risks

and costs are also associated with increased openness, (Hautz et al., 2017, p. 301ff) explain.

Thus, opening up the strategy process and involving a broader audience reduces flexibility, speed,

and control over the decision-making process, Hautz et al. (2017, p. 301) point out. Moreover,

increased transparency can jeopardize an organization's competitiveness, as it becomes easier

87

for competitors to obtain sensitive information, Hautz et al. (2017, p. 302) warn. Another danger

is that companies can be pressured to open up their strategy process completely if they start to

open up only certain areas to internal and/or external stakeholders. In this context, the results are

also illustrated using the case example of bellaflora. As mentioned above, the involvement of a

wider audience in the strategy process has a positive motivational effect and leads to an increased

commitment to the outcome of the process. This increase in motivation could have a positive effect

on the described challenge of the work attitude of some employees, who showed a lack of

motivation after returning to the branches after the lockdowns. And the increased commitment to

the strategy, if it has been developed with the participation of the employees, could lead to them

taking the contents more to heart and possibly implementing them more conscientiously. Other

positive effects of an open strategy are, as already mentioned above, that it allows to tap into the

knowledge of the people involved and a lot of different ideas can be generated through that. These

ideas and the access to knowledge of different stakeholders could serve the company especially

with regard to the goal of underlining their market leadership position through a revolutionary

course of action. Therefore, the involvement of customers, suppliers, employees and other

stakeholders could potentially overcome the industry mindset and generate innovative and

revolutionary ideas that will lead to the company differentiating itself even further from its

competitors. Possible risks in this context could be that competitors could more easily obtain

strategically sensitive information. Greater openness also often takes up considerable

organizational resources which, in the case of bellaflora, may be needed elsewhere, such as in

the expansion of the online store or the services offered by the company. Furthermore, as already

mentioned the speed and flexibility of the decision-making process is probably reduced. Again,

Table 7 provides an overview of these positive and negative effects which, according to the

literature, are associated with increased transparency and inclusion.

Positive effects Negative effects

• Tap into the knowledge of the people

involved

• Generation of a multitude of different

ideas

• Positive motivational effects of the

people involved

• Increased commitment to the outcome

of the strategy process

• Reduction of speed, control and

flexibility of the decision-making

process

• Jeopardize organizational

competitiveness

• Openness takes up considerable

organizational resources

Table 7: Effects of Open Strategy

88

All in all, it can be said that in order to become more human as an organization, a rethink is needed

in many areas. Such a rethinking is made necessary by various developments that require a more

decentralized and flexible form of organizing.

On the whole, it can be said that it was possible to answer the formulated research questions to a

large extent, based on the literature found on the individual topics. It should be noted, however,

that in answering the first research question, what constitutes a human-centered organization,

reference is made mainly to the two authors Gary Hamel and Michele Zanini (2020), which calls

into question the general validity of the findings.

Finally, in the last chapter of this thesis, limitations of this work and possibilities for further research

in this research area are pointed out.

89

8. Limitations and future research Among other things, due to the broadness of the thematic field investigated in this thesis, there

are limitations to this work, which will be described in the following.

One of these limitations is that only three of the seven principles described by Hamel and Zanini

have been examined in detail in this work. Thus, a literature review on the remaining four principles

(markets, meritocracy, experimentation, paradox) would be interesting. Furthermore, an

illustration of the results was only carried out on the basis of one company. It would be exciting to

conduct a more comprehensive empirical study to determine the feasibility and effects of

implementing one or more of these aspects of a human organization. In addition, there are

limitations due to the chosen illustration. Accordingly, only one person was interviewed about the

strategic orientation and the challenges bellaflora is facing. A larger number of interview partners

might have provided more or different information in this context.

90

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