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Building the digital enterprise can't be a rehash

Den Howlett Profile picture for user gonzodaddy August 18, 2013
Do we have the right management models in place that will enable the digital enterprise? Possibly not. Some argue that our current structures are hindering the business of the 21st century and need dismantling and recast. Some examples suggest it is possible to instantiate change while delivering value while retaining the best of hierarchies that work.

diminishing returns

I've been scratching my head the last few weeks wondering why, when we're awash with technology, when it's never been easier to connect and interconnect, that we see so many examples of failure to build upon what technology offers in a coherent, sustainable manner? I've tentatively concluded that it is about organizations Band-Aiding solutions instead of asking fundamental questions that start with examining the way business is organized for the 21st century. It's not for the want of management thinking on this topic.

Lee Bryant's latest post, Grow your own organisational structure is a great example, providing a challenge to the organizational status quo that sounds at once fanciful yet tantalizing. Check this out for size:

We have seen first-hand how easy it is for even natively digital companies to fall into old habits when growing quickly. If you are not careful, before you know it you might have an HR function, a cheesy consultation on what your values should be, time-sink meetings and inter-departmental territorialism, and then you start hiring people the wrong sort of people to populate these defensive structures because you make the mistake of thinking the bureaucracy is the company.

The fact is, most of our company building templates are wrong, but it can be challenging and risky to create your own. But that is what you need to do if you want to create the right structures and culture to support your particular mission.

That's a pretty bold statement when you consider that according to some reports, the best performing companies are doing better now than at any time in the past.

New management thinking

Bryant then launches into an assessment of alternative organizational thinking that embraces the thinking of John Hagel, Steve Denning, Don Tapscott and others. He introduces concepts such as holacracy and sociocracy:

Holacracy draws on various previous ideas, as one of its founders explains, and it has a lot in common with agile development methodologies that have transformed software production in recent years. It also shares some thinking, such as the concept of linked circles as a way of scaling informal structures, with methodologies such as Sociocracy. One very interesting element that has echoes of Kevin Kelly’s thesis inWhat Technology Wants, is the idea of the organisation as ‘transpersonal’ – i.e. having its own purpose and evolutionary potential above and beyond its constituent people and structures.

This is heavy going yet serves as the foundation for the thesis that our Internet enabled, peer-to-peer connectedness combined with flat structures is the way forward. The outcome is envisioned as the sustainable model for both management and business into the 21st century. However, Bryant both hopes and caveats: my view the goal should be to evolve just enough structure along the way to meet the changing needs of working practice, much like a wiki begins without a priori structure but gradually evolves its structure to meet the needs of the content it organises. At the end of the day, if your firm’s working practice and culture are strong and positive, and if your ‘values’ are simply how you behave rather than posters on a wall, that usually counts for more than adherence to any particular doctrine.

The casual reader would be forgiven for thinking that Bryant's thesis fails the test of recognizing the status quo and the difficulties in transforming existing structures to those he imagines serve as the template for the future. In my view the problem is much deeper. For example, sociocracy is a framework based upon traditions and thinking that are largely absent from the workplace. It says:

A sociocracy is an organization that is governed by the “socius,” those who associate together,  companions who know each other.  It differs from a “democracy” in that it was intended and has developed as a method in which people work together to govern themselves. While it shares the values of democracy, equality and freedom, it is based on specific governance methods that ensure these values.

It is antithetical to the idea of top down management. However, nothing I see in most of the businesses I come across suggests there will be a sea change in management thinking any time soon. Why should there be when the half life of a CEO is currently running at something like four years. Or that Xueming Luo, a professor at the University of Texas at Arlington, writing in Harvard Business Review arrived at an optimum tenure of 4.8 years, arguing that: CEOs accumulate knowledge and become entrenched, they rely more on their internal networks for information, growing less attuned to market conditions. And, because they have more invested in the firm, they favor avoiding losses over pursuing gains. Their attachment to the status quo makes them less responsive to vacillating consumer preferences.

The problem of inflated reward and antibodies

Just how much internal change can be instantiated in that time while sustaining the kind of performance that Luo finds in his research? That's a hard one. According to Forbes, it is nigh on impossible for public companies to achieve that goal but the biggest impediment?

My deep sense, though, is that the biggest barrier is this: The less hierarchy at a company, the more that certain people will be forced to give up their perks and privileges. One manifestation of this at Morning Star is that the highest-paid employee makes just six times what the lowest-paid earns (including seasonal hires)—a far cry from the 380-to-1 spread between CEO and average worker pay among the S&P 500. “At the end of the day,” says Green, who joined Morning Star in 2006, “we’re asking the princes to lay down their crowns.”

I know of a large organization that is changing through the creation of a new internal org structure designed to take advantage of breakneck speed innovation in a alrge but new area. The problem they face is that what I generically call the 'antibodies' of the remainder business have enormous influence and power. The remedy seems obvious: create all your own structures and systems but that is much tougher than it seems and the clock is ticking. How they negotiate this set of challenges may well determine the future of this company.

Similarly, the examples Bryant  and others quote are either relatively small businesses or ones that are what I term 'startup mode' companies where the leaders can set their stall out to whatever management pattern they like, often out of the public gaze of quarterly financial reports.

Hope through innovation?

Despite this gloomy picture, there may be an alternative, where, rather than going for root and branch replacement, managements incrementally orchestrate change. Cognizant provides an example I find particularly impressive, in part because it outlines how the company's innovation strategy unfolded. It is a nuanced way of looking at structures that doesn't seek to rip and replace but rather instantiate new management thinking based upon established core principles. The long case study takes some getting through but contains important lessons.  Try this.

Machines don’t produce ideas; it is the employees with the right insights that ideate. Every breakthrough innovation in the world came from the frustration innovators had and in most of the cases they were experts in their field. Investing in an employee-centric innovation culture and empowering everyone takes time...In our case, our management funded and BU leaders supported the managed innovation efforts and the core team of innovation group persevered together for six years.

Cognizant argues for 'managed innovation.' On its face, that would run counter to Bryant and others' ideas. But for a company with 132,000 employees? Cognizant is taking some of the ideas that sit within the theories underpinning Bryant's thinking but apply them purposefully to a large organization. The results are impressive. The company claims $548 million in evaluated innovations in 2012. That was after two years where dollar value was not the primary focus and where 2010 and 2011 yielded a combined $340 million.

Concluding thoughts

The radical world that Bryant and other envisages is a long way off. Today, it seems limited to specific outliers. Large companies are enjoying success so one has to ask - why change? The more advanced thinkers believe an inflection point is in view that will require a rethinking of business models that are genuinely sustainable rather than consumptive and which value individual contributions. The technology is available to facilitate those changes. How companies adapt is now the topic to watch. If Cognizant is assumed to be representative then it aptly demonstrates that you don't necessarily have to kill all the bureaucracy to have an identifiable and large positive impact. However, there are pre-requisites that need to be in place.

Image credit: HBR, featured image: City of Kik


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