From the May 2000 issue of Entrepreneur

Lois Melbourne didn't hire her new salesperson-her salespeople did. When TimeVision Inc. of Irving, Texas, needed to add to its 20-person sales staff, the 33-year-old CEO decided to assign her two existing salespeople to the job. They created the job specification, posted it on an online job bank, reviewed resumes, held interviews and made the final recommendation. A manager didn't get involved until the salary negotiation. In fact, Melbourne never even laid eyes on the new hire until her first day of work.

Melbourne's hiring hand-off is a perfect example of bottom-up management. This highly empowered style of running a business gives the responsibility for making significant decisions to people who would otherwise wield little influence in a business. Employees are better motivated and their skills are more fully utilized at bottom-up firms, experts say. Companies such as General Electric and Southwest Airlines are among well-known corporations that have championed the bottom-up style.

Melbourne was a veteran of large corporations before founding Time-Vision, a business that offers Web-based organizational charting, in 1994. Today, she's a firm believer that bottom-up is the way to go. "It's still a little early, but I have complete faith," she says of her sales team's recent hiring decision. "And, having met the woman, I think they did a fantastic job."

Behind The Scenes

Back in the 1950s, quality prophet W. Edwards Deming advocated giving lower-level employees more decision-making authority. That approach has proved effective at some Japanese companies, such as Toyota, where fac-tory workers have the power to suspend auto-assembly lines. Bottom-up management isn't yet mainstream, however.

Jeffrey Pfeffer, a professor of organizational behavior at the graduate school of bus-iness at California's Stanford University, agrees, "It's not pop-ular, and everybody thinks you lose control when you do this. In some sense, you do. But what's the point of having smart, well-trained people if you're not going to let them do something with it?"

Bottom-up management is especially effective for matters directly affecting employees, such as benefits. Melbourne assigned an employee team to investigate switching from an employee retirement savings plan that relied on Individual Retirement Accounts to a 401(k) plan. After the team recommended the more complex and costly plan, the company made the change. "They decided we'd be more competitive in the marketplace if we had that benefit," explains Melbourne. She also turns over scheduling to employees. "I don't want to be deciding who gets which days off," she says. "They schedule themselves."

Still, some companies go even further, passing along operational decision-making. Whole Foods Inc., the nation's largest natural grocer, lets employee teams decide on everything from marketing and merchandising to when to clean floors. Turning hiring over to employees is rare even in bottom-up companies; only a few go as far as Whole Foods, where employees can vote out team leaders they deem ineffective.

More companies should involve employees in the hiring process, says Michael Useem, a management professor at the University of Pennsylvania's Wharton School in Philadelphia. "It has to be done responsibly," he says, "but if the people who are going to be reporting to the new hire have input, you have more information on the person's capacity than if the CEO were the only one to interview the candidate."

Making It Work

Effective bottom-up management starts by employing people who can handle management responsibilities, insists Melbourne. "That's the trick," she says. "Hire intelligent people if you're going to let them make decisions."

Information-sharing is another key piece of the bottom-up puzzle. Bottom-up companies let everyone in on financial details such as sales, profit margins and even salaries. This kind of openness may be uncomfortable, but it's unavoidable, Pfeffer says. "If you're going to have people make decisions," he explains, "they're going to have to have [that] information."

Bottom-up advocates say information without understanding is useless, so employees should be trained to comprehend the financial statements they see. They should also be instructed in the use of decision-making techniques, Melbourne adds. Training is a central part of bottom-up empowerment.

None of this will help unless employees are truly free to make decisions. "To me, bottom-up management means the people actually make their own decisions," says Pfeffer. "They may ask the boss for advice, but at the end of the day it's their responsibility to decide what to do, and get it done."

Finally, decision-making employees must be held accountable, with compensation and advancement tied to the quality of their decisions. "Incentive pay is the high-octane fuel in the system," says Useem. "It helps people keep score." Keeping track of that score, he adds, requires a business to have adequate appraisal and tracking tools for evaluating whether employee decisions are producing the desired results.

When To Use It

Bottom-up management isn't for every occasion. When confidentiality is important, such as with merger discussions or sensitive personnel matters, it may be inappropriate or unwise to share information with all employees, says Pfeffer. And any time decisions are made by groups-such as the employee teams utilized by most bottom-up companies-it may take longer to make the decision, but it will most certainly take less time and be easier to implement. So when speed is the priority, bottom-up may not be the way to go.

It can also be risky. Employees who are untrained, ill-informed, improperly compensated or inadequately managed can make bad-and costly-decisions. Useem points out the extreme case of Nicholas Leason, whose uncontrolled securities trading rang up billions of dollars in losses, causing the collapse of his employer, the 200-year-old Baring Group.

This management style carries costs. You'll have to lay out money to train employees and devote time to educate them about the company's financial performance and goals. "You have to spend more time in the early parts of projects and in the early parts of employees' careers teaching [about] decisions and the boundaries and [expectations] of the company," says Melbourne.

As with many management modifications, the biggest investment will be in a new mindset. "Most of us work hard all our lives to be on top, and what this involves is giving up power," Pfeffer says. "That's very tough. It's easy to talk about; it's hard to do." Melbourne agrees that handing over control wasn't easy, especially when her company grew from seven employees to 20 in a year. "You have to be able to let go of it," she says. "You have to let people make the decisions that you formerly made yourself and that you want to make yourself."

Although her employees already enjoy an unusual degree of autonomy, Melbourne considers bottom-up management at TimeVision a work in progress. Her role as entrepreneur continues to evolve from a relatively traditional leader to a new style of business owner who guides rather than controls.

"I run the company," says Melbourne, "but I'm trying to place myself more as a consultant and catalyst. I like to come up with the ideas and see where the employees run with them."


Mark Henricks is an Austin, Texas, writer who specializes in business topics and has written for Entrepreneur for 10 years.

Next Step

The Human Equation: Building Profits by Putting People First (Harvard Business School Press) by Jeffrey Pfeffer describes ways to make the most of your employees' competence. To order, call (800) 668-6780.

Contact Source

TimeVision Inc., rmiller@mbapr.com, www.timevision.com.