Algorithmizing organizational culture with Crypto

If culture is how people show up when authority is not watching, it is easy to see why leaders are so watchful of it. Conventional wisdom says that good organizational culture comes from charismatic leadership. And when culture goes bad, leadership is at fault. Since culture is fundamental to the enduring success of an organization, there must be a way to delink culture from the foibles of individual leaders. Cryptocurrency might just be that way to algorithmically build culture.

Organizational culture is the set of values, beliefs and expectations that inform and guide employees’ behaviour. These are often laid out in lofty mission statements, which people must interpret to do what they think is right in their situation. As a company grows and folklore builds about its heroes, new employees also have precedents to follow. So far, so good.

There are many challenges to building a good, enduring corporate culture. For one, as the world evolves, new situations will emerge which require new interpretations of corporate values and mission. [Should we ‘take care of our own’ and retain people or ‘move with the times, automate and fire people’?] Or there may be situations where values conflict with each other: [‘Ship fast’ vs. ‘Quality is our watchword’]. In the slip between the values, and the gap between expectation and precedents is the potential for culture erosion.

The no-brainer way to do this is to model specific behaviours for employees, allowing no ambiguity in what to do. But this is easier said than done. Imagine anticipating every possible interaction of employees and then prescribing the right way. That would be a psychotic-level of micromanagement – and a tad tedious to implement.

This is where cryptocurrency offers an elegant, non-intrusive way for organizations to direct specific micro-behaviours in a transparent, publicly accountable way.

Cryptocurrency is a form of digital currency (called tokens) that can be created and issued on a blockchain. People can trade these tokens with each other or with an organization, through their crypto wallets on exchanges, that function exactly like a stock exchange. People can buy and sell tokens for real money!

Blockchain is a digital ledger that maintains records of transactions, with the added benefit that once recorded, these transactions cannot be edited or reversed. The record will remain intact for eternity and can be made public. The advantage of recording transactions on blockchain is not just the transparency it provides, but also the immutability it guarantees.

Blockchain can also create and execute smart contracts. Two people can agree to a deal through a smart contract, so that when one person completes her end of the deal, money is automatically and immediately credited to her.

Algorithmic culture building relies on three qualities of the blockchain ecosystem:

1. Tradeable Tokens
2. Immutable Smart Contracts
3. Public Records

Imagine a company that wants to build a culture of high ownership, accountability, innovation and customer centricity. Presumably, it would have various line functions to bring in revenues, and many corporate functions to support its operations. The expectations from each function are broadly defined: sales must sign up customers, service must keep customers happy, R&D must deliver return on investment, HR must hire and retain good talent and so on.

To institutionalize its culture using blockchain, this company would design an economy using its own cryptocurrency – or a token. The idea is that people will voluntarily do what is right if: 1. they know what must be done; and 2. they are incentivized for it. Using tokens, each manager in the company can set the direction of desired behaviour from their subordinates, signal the value of that behaviour and show the reward for behaving.

The company would mint (or create) its own token on the (private) blockchain, much like a Central Bank. The company is the sovereign issuer and guarantor of the token.

For the token to have value, it must be pegged against real money – such as the GBP or USD. So, the company would deposit the tokens it mints and an equivalent amount of fiat currency in its (private) crypto exchange. Such exchanges can be easily set up with automated trading algorithms that can reflect the real-time exchange rate between the token and the fiat currency.

With the currency and exchange set up, the company is now ready to implement a system for rewarding good behaviour. The goal of each employee is to increase the value of the tokens, which can only be done if the company’s financial goals are met in the right way.

And the right way is what good culture looks like. This system guides employees to act according to what is the best interpretation of the company’s values in a situation.

The company issues a limited number of tokens to its leaders to be distributed down the hierarchy. Each leader sets specific goals, timelines and expected quality of outcome from her subordinates, along with the tokens that will be rewarded for satisfactory completion. These terms are defined in immutable smart contracts, so that when the task is completed well, the tokens are automatically credited to the employee.

For example, the VP of customer service might set up 1000 tokens to each divisional manager to meet support SLAs of less than 2 hours, with an average customer rating of 4.5/5.0. From those 1000 tokens, a divisional manager may set up a task for a field engineer to complete a customer service request over a weekend, with a reward of 10 tokens, worth GBP 100. When the task is completed with a 5-star rating from the customer, the field engineer gets the 10 tokens automatically credited to his account.

Tokens can be devolved down the hierarchy to the junior-most member of the team. Auctions can be set up, so that employees can bid for interesting tasks. Employees can collaborate and earn tokens together. And when they want, they can redeem the tokens from the company’s Central Bank, for real money.

When the leaders exhaust their initial corpus of tokens, they can buy more from the company’s Central Bank, at market price. Their demand for tokens counterbalances employees’ demand for real money when they sell tokens to the Central Bank. This balance is an essential feature of the system that helps maintain the price of the token within reasonable limits.

Since the company guarantees to back the token with a share of its financial performance, the token’s value increases when the company does well. When goals, tasks and rewards are public, people will have a clear idea of what kind of behaviour gets rewarded. With clarity will come alignment; and when an organization is aligned to a common way of good behaviour, good culture begins to form.

The advantage of this system is not just that it surfaces the implied behaviours of good culture but also how easy it becomes to review decision-making. How do managers prioritize their goals and how do they direct their team? What behaviours do they value and how much do they value them? These are fundamental questions, the answers to which point to what the company’s culture is.

When priorities of decision-making and choices in behaviour are evident, culture becomes easier to diagnose. And what can be diagnosed can often be fixed.

Sridhar Gopalakrishnan
Chief Data Officer, Hexaware Technologies

Views expressed in this article are personal.