Perhaps, the buck starts here: the case of Morning Star

Recently, on hbr.org, I listened to Professor Gary Hamel speaking about a company called Morning Star, the world’s largest tomato processor headquartered in Woodland, California, near Sacramento and handling about 25% to 30% of tomatoes processed each year in the United States. Amazingly enough, the tomato-processing giant with $700 million annual revenue has no managers at all. Let me repeat it: Morning Star is a company without managers.

The traditional management hierarchy is both cumbersome and costly. First, the more layers of management an organization has, the more overhead it adds. Any way we cut it, management is expensive. Also, it increases the risk of big, disastrous decisions. “Give someone monarchlike authority”, writes Gary Hamel in the Harvard Business Review December 2011 issue in an article titled, ‘First, Let’s Fire All the Managers’, “sooner or later there will be a royal screwup.” And a multi-layered management structure means more approval layers and slower responses. “In their eagerness to exercise authority”, Professor Hamel observes, “managers often impede, rather than expedite, decision making.”

Other than these, typical hierarchy leads, over time, to systematic disempowerment of people. For instance, as a consumer, you can spend 2.5 million rupees on a car by yourself, but, as an employee, you probably can’t sanction the purchase of a new office chair worth just Rs. 5000.00.”Narrow an individual’s scope of authority,” cautions Professor Hamel, ”and you shrink the incentive to dream, imagine, and contribute.”

At Morning Star, the permanent staff of 400 people manage themselves.  Even if we find it hard to believe, this is a company where:

• No one has a boss.
• Employees negotiate responsibilities with their peers.
• Everyone can spend the company’s money.
• Each individual is responsible for acquiring the tools needed to do his or her work.
• There are no titles and no promotions.
• Compensation decisions are peer-based.

Founded in 1970 by Chris Rufer, then an MBA student at University of California (UCLA), Morning Star was initially a tomato trucking operation. Today, with three plants and 20 business units, it is the largest tomato processor in the world. Rufer, who remains the President of the company claims that during the past 20 years, Morning Star’s volumes, revenues, and profits have grown at a double-digit clip whereas industry growth has only averaged 1% a year. Also, the company has funded practically all its growth through internal resources which shows that Morning Star has made robust profits over the years.

It’s interesting to see how Morning Star manages to do without managers. At Morning Star, every employee-in fact, there’re only colleagues and no employees here-has a personal mission statement which he himself has drawn up. Day in and day out, these personal mission statements drive them and help them stay focused on their goals without any managers to guide or supervise them.

Take, for example, Rodney Regert, who works in the company’s Los Banos plant. His mission is to turn tomatoes into juice in a way that is highly efficient and environmentally responsible. As personal mission statements are the cornerstones of Morning Star’s management model, Rufer emphasizes that every employee is responsible for realizing their mission and for acquiring the training, resources, and cooperation that they need to accomplish their mission.

It is noteworthy that, even without managers, people at Morning Star follow all those principles and values of modern management, namely, transparency, accountability, discipline, focus and so on. In fact, whereas these are just boardroom pontification in most organizations, Morning Star people live up to them every day on a peer-to-peer to basis.

Another salient feature of Morning Star management model is Colleague Letter of Understanding (CLOU). Every year, each employee negotiates a CLOU with the associates who are most affected by his work. Basically, a CLOU is a plan for accomplishing one’s mission and can cover as many as 30 activity areas and spells out relevant performance metrics. During the annual negotiations, an employee may speak with 10 or more colleagues, with each discussion lasting 20 to 60 minutes.

 On the whole, CLOUs delineate approximately 3000 formal relationships among Morning Star’s full time employees. These CLOUs are not set in stone- of course, it’s just paper and ink and not stone inscriptions!-and morph from year to year to match with changing competencies and shifting interests. However, they don’t have to renegotiate the terms and conditions in the CLOUs frequently as most people here are such long-serving employees-a considerable number of them has been here for over 10 years- that they know the business and how the operations are going on.

At Morning Star, people don’t compete for promotions or titles, because they virtually don’t exist here. What they instead compete for is value creation. The more value one adds, the richer is one’s compensation. Interestingly, compensation decisions are all made by some eight compensation committees across the organization elected by the employees themselves. These committees appraise each employee’s contribution to the company and make sure their salaries tightly correlate with the value they add.

As an agricultural business, Morning Star also experiences seasonal peaks when they hire people on a seasonal basis. These seasonal workers too are taught all the principles of self-management and have the sense of autonomy and ownership. Amazingly enough, they have recorded the same score of emotional engagement with work as the vice presidents and senior executives do in typical global thousand companies, which I believe is something we should take note of.

Granted, this model is not without some pitfalls and doesn’t fit every organization. Also, there is plenty of interesting self-management practices adopted by Morning Star which I’ve left unexplored here.  I firmly believe, however, that this is a case study our business leaders too should delve into because, perhaps, this is the future of management.