Teal Organizations: What They Are, How They Impact Businesses, and More Importantly, People

Teal Organizations: What They Are, How They Impact Businesses, and More Importantly, People

Dorota Owczarek - April 13, 2022

Teal is the latest color to enter the business world, and it is shaking things up in a big way. So what are teal organizations, and why should you care? This article will lay out everything you need to know about teal organizations. We will discuss the teal paradigm and how it impacts daily organizational practices. We will also take a look at teal culture, examples of teal organizations, and explain what it means for a tech company to be teal. If you’re looking to make your business more sustainable and people-centric, then you need to learn about teal organizations!

Organizational Classification - Reinventing Organizations from Red to Teal

The pyramid structure is deeply rooted in modern business culture. For most of us, the presence of hierarchy is something obvious. A company without a boss, or at least a C-level management? Many would agree that it sounds like pure lunacy! Today, even the most dynamically evolving organizations tend to delegate most decision-making to the very top. For centuries, this model has been used in organizations of different sizes and complexity. But was it, and is it successful?

It depends on the angle we look at. In terms of productivity and business growth, hierarchical models may indeed be a springboard to success – at least in the short run. However, as our thinking about the world and work shifts, such an approach loses its momentum.

There are a few reasons for that. First, the more complexity the organization gains, the less effective the traditional pyramid becomes since the top cannot deal with such a level of complexity effectively and without overlooking critical details. Second, with technology improving the productivity and comfort of our work, we have more time to think about its purpose – and unfortunately, traditional organizations often fail to deliver a satisfying answer.

Frederic Laloux, the author of “Reinventing Organizations,” which describes the phenomenon of teal organizations, argues that we’re on the verge of the next major shift and the rejection of the pyramid structure is a glimmer of it. In all the ego-game and chase for targets, the teal approach comes as a breeze of fresh air with its decentralized distribution of decisive power and focus on purpose.

Teal is the highest step in the evolution of the organization management, but it took a long way to get there – and still, the companies picking this model remain a minority. Let’s look at all the models from which the teal has emerged, offering an alternative to their pyramid structures.

Reinventing organizations - from red organizational structure to teal paradigm

Reinventing organizations - from red organizational structure to teal paradigm

Red Organizations

examples: mafia

Red organizations are on the very opposite side of teal. In their case, the power and decision-making are concentrated in the hand of a strong leader, who often uses fear to ensure authority. They focus on executing short-term goals. In fact, these structures no longer function in the entrepreneurial world – they’re a domain of organized crime organizations, mafias, and gangs.

Amber Organizations

examples: government agencies, the Catholic church

Even though they are a step higher in management development, their structures are still quite stiff and reliant on highly formal, settled roles. The processes within amber organizations are also replicable and stable. As a result, the company is easily navigable and scalable, but the employees have relatively little chance to climb the career ladder.

The amber organizations can be influential, but they don’t respond to changing realities very well, often radicalizing their policies and avoiding innovation. Most public governmental organizations fall under this category, but some companies also rely on this model to this day.

Orange Organizations

examples: Goldman Sachs, Coca-Cola, Wall Street banks

In these organizations, the hierarchy is still strongly present. However, their members have much more freedom and flexibility to do things their own way. The commands still come from above, but the employees get to choose how they want to execute them.

With their focus on growth and profit, orange organizations continue to dominate the entrepreneurial landscape today. One element that makes this model so distinctive from the previous is a meritocracy. In orange organizations, the competencies and hard work promise career growth – at least in theory.

Green Organizations

examples: Starbucks, IKEA

For green organizations, profit is no less important. However, they choose to pursue it differently – by empowering their employees and boosting their productivity with a value-driven culture. Rather than running like clockwork, these companies want to create families (or be seen as such). Thus, they focus on the soft side of the management, motivating their members instead of challenging them with KPIs and promoting egalitarian values.

Contrary to the previous, green organizations focus on the stakeholders instead of the shareholders. In the green organizations, the pyramid is inverted – nevertheless, they are still hierarchical.

And here, we finally get to the crème de la crème – the teal organizations, which are the primary concern of this article. Let’s look through their main breakthroughs and concepts to understand why they are so unique.

Characteristics of Teal Organizations

Before diving into the fascinating world of teal, it’s worth noting that there is no universal teal model. The companies we analyze below as examples of successful teal organizations didn’t have any proven formulas at their disposal when entering the new management path. They came up with their models in an organic manner, and interestingly, these models turned out to be similar, which only proves that teal was born out of an authentic need.

Self-Management

There are no bosses in self-management teal organizations, which is an absolute game-changer. However, successful companies that follow the teal model are not born out of chaos – they’re built on a solid frame. Unlike the models described above (from red to green), the teal model rejects the pyramid in any form, replacing it with a self-management circular structure.

top-down approach from orange organizations, centralized control at green organizations, and decentralized communication of self-managed teams at the living entity of a teal organization

Top-down approach from orange organizations, centralized control at green organizations, and decentralized communication of self-managed teams at the living entity of a teal organization

This way, the complexity of the organization is evenly distributed instead of being pushed to the top. It allows companies to revolutionize their decision-making process. Instead of going for one of the two opposite decision-making models (hierarchical vs. consensus), they replace it with an effective but inclusive alternative that draws from collective intelligence. Frederic Laloux calls it the “advice process.”

In its case, any member of the organization can decide, but only after consulting with those who have expertise in a particular field and those who will be affected by its outcomes. It’s worth underlining here that the advice is supposed to serve as support and provide a broader perspective to the main person concerned instead of suggesting a particular decision.

Wholeness and Integrity

Teal companies do not play the ego game – and that’s one of the main reasons why both the employers and employees consider it so revolutionary. In the age of burnout epidemics, such an approach can bring astonishing effects, allowing the teams and their members to stay in line with their values and avoid internal conflicts. While traditional organizations do not reward honesty (even though they often encourage it), the teal ones want their members to show up with their true thoughts and opinions since wholeness is one of their core breakthroughs.

It may take some time for the employees to get to terms with that shift, as they often consider openness risky due to their previous experiences. But once the game of appearances is over, the comfort of work and the power of collective intelligence turn out to be incomparable, and the meeting practice becomes a pleasure rather than an unpleasant duty.

Transparency

The model based on the nested circles encourages transparency. Working in parallel teams makes it much easier for the members to see the big picture. The pyramid enforces limited visibility – those who are on the top can observe those under, but not vice versa. The hierarchy may also create an unhealthy atmosphere since the team members direct their issues and doubts to the structures above instead of trying to solve them directly. In teal organizations, it’s not likely to happen.

Evolutionary Purpose

In traditional models, strategy is everything. It indicates the company’s path and sets out the clear goals that later allow the organization to validate its efforts. Even though often very effective, such an approach makes it easy for the purpose to sneak out of the picture. As a result, the decisions of the company may seem inconsistent, and the employees may lose their motivation after a while.

Teal organizations do not have a strategy, but they have a clear intent. Instead of trying to predict the future, they go with the flow, responding to the current purpose. It’s not about having a purpose statement and holding on to it against all odds, but rather maintaining flexibility and adjusting to its evolution. As a living organism, such an organization encourages its members to listen to each other and figure out the direction they want to go together. Sometimes it leads to decisions that seem risky from the financial perspective (see the Patagonia example below). Still, in the end, they usually turn out beneficial as they originate in authentic needs.

Examples of Teal Companies

Teal companies still constitute a small percentage of all the organizations on the market – but we believe it will soon change since this emerging organizational model is proving to be successful in various industries. Each of the companies listed below has found its own way to incorporate the main concepts of the teal management model and has not resigned from it ever since.

Patagonia

Patagonia is one of these green companies that have successfully turned teal. The brand got insanely popular with its vests; but in fact, it has been producing high-quality outdoor apparel since the 70s. Patagonia stands out with its environmental focus. Placing itself in opposition to fast fashion, it takes responsibility for its business decisions, trying to reduce its environmental impact.

Of course, as a profit organization, it cannot stop selling and producing. However, it can try to increase the quality and durability of its products and convince its customers to make clever choices and follow good practices, even if they may affect its financial performance. Examples? Aside from the famous “Don’t buy this shirt” campaign, we can point out incorporating the network of repair points in Patagonia’s business model, switching to organic cotton, or rejecting the embroidering of custom logos because they shorten the clothing’s lifespan.

How is Patagonia teal?

1. They don’t rush to hire –  the potential employee participates in multiple interviews carried out by peers.

2. They stick to their environmental values, putting them over the financial benefits (although these, paradoxically, are impressive).

Zappos

Zappos is an online shoe store that went a long way from a typical profit-oriented enterprise to a full-blown teal organization. First, among many possible management variants, Zappos has chosen holacracy and has been faithful to it ever since. Holacracy is a circle-structured framework that helps companies self-manage with a set of predefined rules and checks. It excludes job descriptions in favor of roles, defines governance processes for each circle, and enables independent actions for anyone. That has paved the way for teal, which was a natural next step.

How is Zappos teal?

1. They have rejected the hierarchy and job titles for the sake of circular structure and roles.

2. They are determined to provide their employees with the ability to pursue their passions.

3. They know their purpose (“Zappos is a service company that just happens to sell shoes”) and pursue it by focusing on improving customer service instead of marketing.

Buffer

For Buffer (a social-media planning app), introducing Teal management was an experiment. For its duration, Buffer has stepped away from titles and mentorship, and removed goals from its marketing plan. The long-term teams were replaced with short-term task forces. Team members gained complete freedom to choose their own goals and projects to work on.

Today, the company considers itself something in between after modifying some of the previously introduced teal principles. As you can read in their article describing that metamorphosis, after going all in and observing the outcomes, Buffer came to a conclusion that full-blown teal management doesn’t work for them since the sudden freedom turned out to be “pretty overwhelming.” During the teal period, the company has observed some drop in motivation in productivity. As a result, it has decided to bring back mentorship, long-term teams, and some metrics. The element of wholeness was kept, as it significantly improved the internal communication flow, peer relationships, and the level of trust.

It’s worth noting that the experiment lasted one year, and thus, it is understandable that the employees needed some time to get used to the self-management model. The issues described by Buffer could be temporary. Nevertheless, the teal model has helped the company find its way to successful management driven by its needs.

Nexocode

Back in 2018, here at nexocode, we decided to make a transition into a teal structure. Over four years later, we are an AI-focused software development company that can confidently claim to be a teal organization. This transition has been driven by our need to improve communication and collaboration within our company. The teal paradigm has helped us to create a more flat organization, which has in turn led to improved communication and cooperation between our team members. We are committed to continuing this evolution to create an even more effective and efficient company.

Telling our clients that we don’t have managers may sound a bit unusual. In reality, it means that we trust our team members to be self-organized and proactive. We believe that everyone knows their field of expertise best and is capable of finding the most efficient ways to put their skills to use through self-discipline.

Self-management has helped us build a strong team spirit and achieve outstanding results for our clients. Our focus on quality assurance allows us to deliver top-notch products despite the lack of a hierarchical structure.

What are the teal practices at nexocode?

  1. We have entirely transparent company finances. Incomes, costs, and salaries are known to all team members. Everyone can make purchasing and investment decisions on behalf of the company through the advice process. As the company incomes are transparent, we all have an additional share of monthly company profits (despite the role).
  2. Salaries at nexocode are self-set based on competence matrices we designed and the peer-to-peer feedback we provide to each another.
  3. We have a teal process for making advice-based decisions. Everyone in the company can make a binding company-wide decision by discussing it with either people that might be affected by the decision or employees with experience/knowledge on a particular matter. Still, the last say and final decision are always up to the person who raised the idea.
  4. We have no managers. Instead, we have self-organized teams that are responsible for specific areas of the business.
  5. We have no strict job titles. We believe that everyone knows their field of expertise best and is capable of finding the most efficient ways to put their skills to use.
  6. We focus on open communication based on feedback and believe that everyone has something valuable to say, regardless of their position in the company. As such, we have created a culture of feedback where anyone can give and receive feedback without fear of reprisal.
  7. We empower our employees to focus on personal growth through our New Horizons Program. Each team member gets 24-days a year (paid) to pursue various projects.

Benefits of Teal Management for the Company

Teal is a model that takes time to bring results, but it pays off to wait! These are the main benefits of switching to it from the company’s perspective:

  • Authenticity – the clients and employees are tired of the impersonal, performance, and profit-oriented entrepreneurial landscape. The companies that follow their evolutionary purpose instead of KPIs gain their trust, standing out with their authenticity.
  • Innovation potential – it’s hard to come up with innovation while following the beaten paths. Switching to teal is like a breeze of fresh air – the teams and their members can suddenly look at their work from an entirely new perspective. Once the goals drop out of sight, they gain space to think out of the box without worrying about the outcomes.
  • Improved visibility – the advancing complexity makes it harder for the top management to understand and effectively solve the issues from below. In a circular self-management model, it’s easier to catch problems at their very early stage and solve them right away instead of waiting for authorization.

Benefits of Teal Culture for Employees

An evolutionary teal organization puts human development and human consciousness first, increasing employees’ commitment, proactivity, and sense of belonging. They benefit from it through:

  • Growth-enhancing environment – self-management model fuels personal development. The members have the flexibility to choose their projects and try themselves in different roles. It often turns out that they have much more competence towards a different role than the one they have been performing so far.
  • The sense of purpose – “what’s the meaning of it all?” is a question modern employees ask themselves more and more often. With the purpose-oriented and value-driven culture, it’s much easier to find a deeper sense of work. And that has a great impact on motivation, and as a result, on performance.
  • Decreased pressure – teal organizations reject the individual metrics, replacing them with transparency. With all the data available for everyone, motivation can be maintained without enhancing pressure, leading to burnout and unhealthy competition.

If you would like to learn about our journey to teal and its positive impact on our company, check our founder story, listen to our Dev Story Podcast, and follow our Running Teal article series. Teal may not be for everyone, but for us, it turned out to be a game-changer!

References

Reinventing Organizations - Frederic Laloux

About the author

Dorota Owczarek

Dorota Owczarek

AI Product Lead & Design Thinking Facilitator

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With over ten years of professional experience in designing and developing software, Dorota is quick to recognize the best ways to serve users and stakeholders by shaping strategies and ensuring their execution by working closely with engineering and design teams.
She acts as a Product Leader, covering the ongoing AI agile development processes and operationalizing AI throughout the business.

Have some questions?

We’re happy to answer! You can directly
contact Jarek, who’s got all the info you may need.

Jarek Jarzębowski
People & Culture Lead

jarek.jarzebowski@nexocode.com

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This article is a part of

Running Teal
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Running Teal

Take an insider's look into nexocode organization culture and our path towards the teal structure. We're committed to fostering growth and open communication with all employees so that everyone feels like they belong and can thrive in their work environment.

Follow our article series to discover how our teal company operates within a flat structure based on peer relationships, transparency, ownership, and trust.

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