NEW YORK (TheStreet) -- An open organization trumps the traditional corporate structure because it is about putting innovation first, said Jim Whitehurst, author of The Open Organization as well as the CEO of software company Red Hat (RHT) - Get Report.
"The hierarchical organization is outdated because it is geared for doing rote tasks on assembly line," Whitehurst said, adding that "hierarchy and innovation rarely go together."
And while "crowdsourcing" may be the buzzword of the day for entrepreneurs and moviemakers trying to raise money from the masses for their pet projects, Whitehurst said open sourcing (which his company provides) is a superior method as it allows ideas to be freely transferred and ultimately elevated.
"Crowdsourcing may get you the best idea from a million people, but open sourcing gets you the best idea of a million people working together," Whitehurst said.
Red Hat's Linux operating system provides a good example of open sourcing's appeal, Whitehurst claimed. Linux, which started off as a volunteer effort and now thousands contribute to it, is used to run the New York Stock Exchange, bank trading platforms and nuclear submarines, he said.
And when it comes to motivating employees in an open organization, that's the function of a good leader, Whitehurst said. "Every company exists for a reason beyond profits," he said. "Tying people's work to a greater cause is something that any good executive needs to do to attract millennials or get the best out of your current workforce."
Finally, Whitehurst admits that appreciating the open organization takes some getting used to. In his book, he said he had his "conventional organization filter on" after coming to Red Hat from Delta Air Lines. Over time, however, he said he began to appreciate the subtleties of this very different management paradigm.
"There is still much to learn, and I am sure much to tweak in terms of perfecting how open organizations operate," Whitehurst wrote. "But there is one certainty in my mind: I could never go back."
TheStreet Ratings team rates Red Hat as a buy with a ratings score of B. TheStreet Ratings Team has this to say about its recommendation:
"We rate RED HAT INC (RHT) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, increase in net income, good cash flow from operations and solid stock price performance. We feel its strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."
You can view the full analysis from the report here: RHT Ratings Report