Decentralizing Organizations

Updated: Aug 8, 2020

Over the centuries, centralized hierarchical forms of organization have been the standard for large-scale coordination of human activity. Well-defined, stable, and predictable, they seem to express an inherent logic to social ordering. This hierarchy has long formed the default position for how we have organized governments, enterprises, and armies, and proven incredibly enduring throughout history. At the same time, while decentralized forms of organization have always existed they have remained local in scope, too difficult to coordinate effectively at a large scale.

Today, this dynamic is changing in profound ways. A confluence of technological, economic, and social changes are starting to converge in powerful new ways, working to erode these centralized patterns of economic organization and create fertile grounds for new forms of distributed systems. Many have predicted the 21st century as the century of networks. Today, the reality of this transformation is becoming ever more tangible, as the operating environment conducive for this new kind of organization grows every day.

In the past 50-70 years we have transitioned from a world organized predominantly by hierarchies to the free market system, to the rise of online digital platforms, to today where we start to see the emergence of new forms of truly networked organizations enabled by the next generation of web 3.0 technologies – the so-called decentralized web.

The large vertical bureaucratic system of management that was the great organizational innovation of the modern era – helping us achieve many great things – has recently started to be seen as constraining rather than enabling. In today’s dynamic environment, it appears dangerously inept at adapting and evolving, inherently resistant to complexity and unable to effectively harness proliferating connectivity towards the benefit of the organization.

Meanwhile, many have reached the conclusion that solutions to some of the world’s challenges , including cybercrime, climate change, and terrorism, will not be solved by our existing institutional infrastructure. Instead, they require fundamentally new ways of organizing through the power of decentralized collaboration on a global scale, as well as a widespread shift from zero-sum games of competition to positive-sum games of cooperation.

In the face of these major societal challenges, it is becoming apparent that while we have become very good at developing formal centralized organizations, we have become inept at building distributed coordination and aligning the interests of members across a whole society or economy with overall beneficial outcomes. We have created efficient closed systems but have poor coordination between them. This leads to negative externalities that create major problems at the macro-level. While each individual, enterprise, and state is trying to become more efficient and aligned, we are actually becoming less aligned on a global scale and creating systemic risks because of these negative externalities.

In this paper, we provide an overview of the workings of decentralized organizations. We outline the key organizational structural aspects that change as we go from a centralized to a decentralized model. This analysis is coupled with a preliminary assessment of existing solutions for decentralized coordination such as Holacracy, Colony, and DAOstack, among others.

Decentralized Organizations
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