Purchasing and Investments

This article describes how purchasing and investments are handled in Teal organisations.

A New Perspective

With respect to purchasing and investments, Teal organizations exhibit the following general measures:

  • Anybody can spend any amount provided the advice process is respected.
  • The one who suggested an investment takes the responsibility to conduct and monitor the purchasing process.
  • Team investment budgets and purchasing can be challenged by peers.

Employees’ power to make decisions using the advice process is perhaps most evident when it comes to spending company money. In self-managing organizations there are no authorization limits and no procurement departments. Employees or teams do the analysis, create the necessary specifications, visit and negotiate with suppliers, and even secure financing from the bank if needed.

In contrast, purchasing and investments in earlier stage organizations can be characterized as follows:

Red organizations

In the Red paradigm, the boss or owner of an organisation decides generally on his own what to purchase or where to invest. There are typically no formal documented processes. Investments are made opportunistically, even impulsively, based on the boss's preferences.

Amber organizations

In the Amber paradigm, purchases and investments are made by dedicated top level resources within the hierarchy following simple, but strict rules. Investments are now less impulsive following medium or long term planning. Purchasing itself could be done at lower levels of an organisation, as long as it follows defined rules. Control mechanisms typically exist ensuring compliance to these rules.

Orange organizations

In the Orange paradigm, the strict general rules of the Amber paradigm become more open and fluid. Rules can be questioned or changed to support innovation. Parts of the organisation are empowered to decide on purchasing and investments within a given range on their own. The breakthrough of Accountability is an important step to distribute investment decisions within the organisation (e.g. into projects) to innovate more and faster. Distributed investment decisions are accepted as long as they follow the overall direction formulated by the top management and the teams reach the desired outcome. A frontline manager might be free to spend up to $1,000 but require authorization from his bosses beyond that amount; a unit manager might have spending power up to $10,000 and a plant manager up to $100,000. Whatever the amounts, the purchase order must generally proceed through a central procurement department that coordinates the relationships and negotiations with suppliers.

Green organizations

The Green paradigm decisions about purchasing and investments are pushed more to the frontline workers. The top down planning of Orange organisations is enriched by bottom up processes involving the operational experts. The breakthough Empowerment activates creativity and responsibility of the teams giving enough space to purchase or invest within budget boundaries and within the values system of the organisation. Most organizations still have authorization limits in place. More decentralized or distributed procurement processes (often supported by software tools) should speed up decision processes and enhance the agility of operations teams.

In Practice

Anybody can spend any amount provide the advice process is respected

An employee who needs a new $50 printer doesn’t have to call the IT department, hope for a green light from his boss, and wait the days or weeks it takes for the printer to arrive. He can simply head down to the specific shop or website and buy a printer. In principle, any person can spend any amount of money, provided he has sought the necessary advice before making the decision; the larger the purchase, the more people are typically involved in the advice process. In hierarchical organizations, when engineers do the analysis and choose a machine model, workers often complain about the new machine and drag their feet when it comes to learning how to operate it. When they have chosen the model, there is no such resistance to change. Organizations might vary in how to conduct the advice process, with some employing formal, written rules while others adopting a more informal, ad hoc process. Whatever specific process finally is chosen, it is based on transparency and trust.

The one who suggested an investment takes the responsibility to conduct and monitor the purchasing process

In self-managing organizations, workers are in charge of the full purchasing or investment process. They do the analysis, write up the necessary specifications, visit and negotiate with suppliers, and secure financing from the bank if needed. It does not necessarily mean that the initiator needs to conduct all steps on his own, but at least he takes the responsibility from start to end.

Peer-based challenging of teams' investment budgets

Especially in larger organisations, a transparent baseline budget is very helpful to let teams monitor whether a new investment can and should be funded or not. Different from non-Teal organisations, investment budgets aren't given or confirmed from higher levels of management. They are created based on realistic assumptions of the teams about what needs to be purchased during a planning period. If the collected numbers are in balance to expected revenues and seem reasonable, the investment budget is set. Any investments fitting into it don't need further investigation as long as the advice process is conducted. Companies like Morning Star do annual intensive budget planning sessions, in which each team presents its investment plans to a panel of peers for advice. Teams that are not performing well are likely to be challenged as to whether spending money is really the best way to fix their problems.

Frequently Asked Questions

Surely money is left on the table if purchases are not pooled? As often, the answer is: trust people to make the right decisions within the framework of self-management. For items where volume discounts are too good to give up, colleagues who buy from the same vendor will choose to coordinate to maximize their buying power. At Morning Star, a tomato processing company, colleagues noticed that lots of people were buying threadlocker, an adhesive that prevents nuts and bolts from accidentally loosening, in dozens of different formats and from different vendors. They were not only losing out on volume discounts, but the uncoordinated purchasing generated unnecessary bureaucracy because regulations in the food industry required workers to painstakingly track every threadlocker format in a Material Safety Data Sheet. At some point, a worker suggested that he could walk around the plant once a quarter and ask colleagues if they wanted to order threadlocker through him. A similar solution emerged for purchasing packaging materials, an area where volume discounts can quickly add up. When there is value in coordination, people simply start to coordinate.

It often makes sense to buy computer or telephone equipment from the same or compatible vendors, for instance. Again, one can simply trust the advice process. A secretary buying herself a new computer, unless she is very well versed in hardware and software specifications, will likely seek advice from a knowledgeable party to ensure the computer will easily fit in with the rest of the IT equipment. In this case, there is no need for a central department to enforce standards. In more complex cases, when standards need to be specified, someone will step up and call together a group that will look into the matter and define the standards.

From time to time an investment might not fit into the budget for some reason. Possibly the investment is based on a sudden event or a valuable opportunity. As with Orange organisations, spontaneous investments should be accommodated under Teal. Again, the advice process is used to handle such situations. If a particular department or group needs an increased budget allocation, they can solicit support from other groups who might be willing to give a piece from their budget. Challenging questions should be asked and answered, but finally there will be a decision driven by the collective intelligence of representatives of the teams.

Self-management

Self-management heavily impacts purchasing and investments. Every employee is enabled to take action and innovate in his working context. Investments are initiated from where they are needed. The advice process creates a deeper understanding of the impacts of investments. The localized responsibility for purchasing leads to a greater satisfaction about what is bought because the user defines the specifications.

Wholeness

To decide about investments a deep holistic understanding about the inter-dependencies and reach of a decision is necessary. The advice process creates a wide transparency about the impacts of an investment. Especially when it is a bigger amount of money, it is essential to understand the company's financial situation and investment impacts on others as a whole.

Evolutionary purpose

One important criterion about investments is whether it fulfills an evolutionary purpose. Distributed investment decisions empower those sensing the organization's purpose to act in a way to serve that purpose.

Concrete cases for inspiration

Related Topics

    Notes and references