Rising to the Challenge of New Success Factors
A new world order is replacing generations-old patterns of power and privilege. Leaders have been replaced, centers of governance have been renamed, new patterns for distributing wealth and influence have been created. And we're not talking about the demise of the Soviet Union, the construction of the International Space Station, and the end of apartheid in South Africa.
We're talking about business. Twenty-first-century business is in the midst of a social and economic revolution, shifting from rigid to permeable structures and processes and creating something new: the boundaryless organization.
Consider these developments, once thought unimaginable and now almost taken for granted:
GlaxoSmithKline Pharmaceuticals has cut months out of the drug development process by replacing sequential clinical data collection, analysis, and regulatory reporting with cross-functional teams composed of statisticians, biometricians, clinical trials experts, data management experts, and others.
General Electric managers routinely have fifteen to twenty direct reports. Often, there are no more than three or four layers of management between the CEO and frontline workers in a company of more than 300,000 people.
Fidelity Investments, Charles Schwab, CSFB Direct, and Spear, Leads & Kellogg-brokerage competitors-have formed a joint venture to develop an electronic communications network for trading NASDAQ stocks online.
Business authors have described hundreds of similar innovations, declaring the rise of a "new organization" to which they have given many names: virtual organization, front/back organization, cluster organization, network organization, chaotic organization, ad hoc organization, horizontal organization, empowered organization, high-performing work team organization, process reengineered organization, and the list goes on.
However, underlying all these descriptions, theories, and experiments, we believe, is a single deeper paradigm shift. In our view, that shift-the emergence of the boundaryless organization-is the driving force that makes all these new organizations possible, the underpinning that lets them move from theory to reality. Emerging organizations may take a variety of forms, but the constant is that they evoke different kinds of behavior. Specifically, behavior patterns conditioned by boundaries between levels, functions, and other constructs are replaced by patterns of free movement across those same boundaries. Rather than using boundaries to separate people, tasks, processes, and places, organizations are beginning to focus on how to get through those boundaries-to move ideas, information, decisions, talent, rewards, and actions where they are most needed.
In that context, our purpose here is not to herald yet another new organization. Rather, it is to describe the boundaryless structures behind all the new labels and to lay out their underlying assumptions, the changes in behavior they generate, and the results they can yield. To do this, we delineate four types of boundaries that characterize most organizations.
Vertical boundaries between levels and ranks of people
Horizontal boundaries between functions and disciplines
External boundaries between the organization and its suppliers, customers, and regulators
Geographic boundaries between locations, cultures, and markets
We also describe the leadership challenges that the new structures pose. Most important, we provide leaders with a practical set of tools for moving their own organizations toward useful and practical boundaryless behavior.
Boundaryless Behavior: The Art of the Fluid
Organizations have always had and will continue to have boundaries. People specialize in different tasks, and thus boundaries exist between functions. People have differing levels of authority and influence, so boundaries exist between bosses and subordinates. People inside a firm do different work than suppliers, customers, and other outsiders do, so boundaries exist there as well. And people work in different places, under different conditions, and sometimes in different time zones and cultures, thus creating additional boundaries.
The underlying purpose of all these boundaries is to separate people, processes, and production in healthy and necessary ways. Boundaries keep things focused and distinct. Without them, organizations would be disorganized. People would not know what to do. There would be no differentiation of tasks, no coordination of resources and skills, no sense of direction. In essence, the organization would cease to exist.
Given the necessity of boundaries, making a boundaryless organization does not require a free-for-all removal of all boundaries. That would be silly. Instead, we are talking about making boundaries more permeable, allowing greater fluidity of movement throughout the organization. The traditional notion of boundaries as fixed barriers or unyielding separators needs to be replaced by an organic, biological view of boundaries as permeable, flexible, moveable membranes in a living and adapting organism.
In living organisms, membranes exist to provide shape and definition. They have sufficient structural strength to prevent its collapse into an amorphous mass. Yet they are permeable. Food, oxygen, and chemical transmitters flow through them relatively unimpeded so that each part of the organism can contribute to the rest.
So it is with the boundaryless organization. Information, resources, ideas, and energy pass through its membranes quickly and easily so that the organization as a whole functions effectively. Yet definition and distinction still exist-there are still leaders with authority and accountability, there are still people with special functional skills, there are still distinctions between customers and suppliers, and work is still done in different places.
Like a living organism, the boundaryless organization also develops and grows, and the placement of boundaries may shift. Over time, the levels between its top and bottom may decrease, functions may merge to combine skills, or partnerships may form between the firm and its customers or suppliers, changing the boundaries of who does what.
Because the boundaryless organization is a living continuum, not a fixed state, the ongoing management challenge is to find the right balance, to determine how permeable to make boundaries and where to place them. But why should anyone make this effort? What is so important about becoming boundaryless?
A Changing Paradigm for Organizational Success
In recent years, almost all organizations have experimented with some type of change process aimed at creating more permeable boundaries. Whether it was called total quality, reengineering, reinvention, or business process innovation, organizations have invested untold resources in trying to make change happen.
The impetus behind many of these efforts has been the astounding fall from grace, or actual demise, of some of the most highly regarded and revered organizations in the world: IBM, Lloyd's of London, Eastern Airlines, General Motors, Eastman Kodak, and many others. Each experienced severe financial difficulties, crises in leadership, and major changes in direction. Nor is membership in this fallen-angels club limited to a handful of fields. The phenomenon crosses all lines from retail sales to automotive manufacturing, publishing to air travel, financial services to computers. It crosses geographic boundaries, with troubled giants found not only in North America but also in Europe, Asia, and Latin America.
The difficulties in these companies cannot be explained by lack of long-range strategy or intelligent planning. IBM, Kodak, and many of the others had and continue to have world-class planning functions and capabilities. They have not stumbled due to lack of technology or investment. In the past twenty years, GM probably invested more in automation than any other company in the world. IBM's research investment was, for many years, far beyond the business norm.
Naturally, individual explanations can be provided. IBM was too wedded to mainframe computers; TWA was unable to cope with deregulation; Xerox mismanaged the reorganization of its sales force. But such explanations miss the larger pattern. The stark reality is that each company slipped from invincible to vincible when it faced a rate of change that exceeded its capability to respond. When their worlds became highly unstable and turbulent, all these organizations lacked the flexibility and agility to act quickly. Their structures and boundaries had become too rigid and calcified.
It is against this backdrop of highly visible failures and falls that most organizations have launched their change efforts. And though each effort has unique characteristics, conditions, and drivers, they tend to share a common theme: the attempt to retool the organization to meet an entirely new set of criteria for success.
Out with the Old-In with the New
For much of the twentieth century, four critical factors influenced organizational success.
Size. The larger a company grew, the more it was able to attain production or service efficiencies, leverage its capital, and put pressure on customers and suppliers.
Role clarity. To get work done efficiently in larger organizations, tasks were divided and subdivided, clear distinctions were made between manager and worker, and levels of authority were spelled out. In well-functioning organizations, everyone had a place, accepted it, and performed according to specifications.
Specialization. As tasks were subdivided, specialties were created or encouraged to provide fine-grained levels of expertise. Thus finance, planning, human resources, information technology, inventory control, and many other tasks all became disciplines in their own right.
Control. With all these specialized tasks and roles, most organizations needed to create controls to make sure the pieces performed as needed, coming together properly to provide whole products or services. Therefore, a major role of management throughout the twentieth century was to control the work of others to ensure that they were doing the right things, in the right order, at the right time.
With these success factors in mind, managers and organizational theorists focused on organizational structure as their primary vehicle for achieving effectiveness. They debated such questions as these:
How many layers of management do we need?
What signing authority will different levels have?
What is the proper span of control?
What is the best balance between centralization and decentralization?
How do we describe and classify each job and set pay levels?
How do we organize field locations and international operations?
Their goal was to create the organizational structure and attendant processes that would let a company maximize the four critical success factors. What has happened, however, is that microprocessors, high-speed information processing and communications, and the global economy have conspired to radically shift the basis of competitive success. To a large extent, an exclusive focus on the old success factors has become a liability. Instead-as shown in the box-the old success factors need to be combined with a new and sometimes paradoxical set of factors that look very different from the old.
Speed. Successful organizations today are increasingly characterized by speed in everything they do. They respond to customers more quickly, bring new products to market faster, and change strategies more rapidly than ever before. While size does not preclude speed, large organizations are like tankers. Compared to smaller firms, they take longer to change direction because they have a greater mass to be informed, convinced, and channeled. Their challenge is to act like a fast-moving small company while retaining access to the large company's broader resources.
Flexibility. Organizations that move quickly are flexible. People do multiple jobs, constantly learn new skills, and willingly shift to different locations and assignments. Similarly, the organization pursues multiple paths and experiments. Role clarity can constrain flexibility-people locked into specific roles and responsibilities become unwilling to jump in at a moment's notice and do whatever is needed. Conversely, flexible organizations revel in ambiguity, throw out job descriptions, and thrive on ad hoc teams that form and reform as tasks shift. Integration. Organizations adept at shifting direction have processes that carry change into the institutional bloodstream, disseminating new initiatives quickly and mobilizing the right resources to make things happen. Instead of breaking tasks into pieces and assigning specialists to perform those pieces with precision, the organization creates mechanisms to pull together diverse activities as needed. It focuses more on accomplishing business or work processes and less on producing specialized pieces of work that management will eventually pull together. It still needs specialists, but the key to success is often the ability of those same specialists to collaborate with others to create an integrated whole.
Innovation. A world of rapid change makes innovation essential. Doing today's work in today's way becomes outdated quickly, so boundaryless organizations constantly search for the new, the different, the unthinkable. They create innovative processes and environments that encourage and reward creativity, rather than stifling the creative spirit with the systems of approvals and double-checks needed to preserve standard operating procedures in organizations that focus on control.
In short, organizations designed to meet the old set of critical success factors alone are increasingly incapable of thriving or even surviving in the new world. Consider the contrast between retailers Sears and Wal-Mart.
The Giant and the Upstart
Sears, for many years the world's largest retailer, succeeded with a management process based on structure and control. As the company grew, Sears leveraged its buying power through strong centralized functions. Almost all key decisions were made in its Chicago headquarters. The stores mirrored the control philosophy, allotting different levels of approval to various managerial levels, with all really important decisions traveling far up the chain of command. This approach succeeded for many years, as long as size, role clarity, specialization, and control were what drove competitiveness.
Then, in the 1980s, the rules of the retail game changed. Consumers wanted lower prices, better service, and a constantly changing array of merchandise. In this environment, speed mattered more than size. Customers wanted goods on the spot; they weren't willing to place orders and wait. At the same time, flexibility and integration proved able to drive out costs. Successful retailers gave people multiple jobs and designed integrated service functions. Innovation became critical to maintaining the edge in merchandise, service, and store layout.
In this new world, Sears began to slip. At first, management asked the traditional questions, looking to structure for answers and repeatedly restructuring, closing stores, and changing leaders. Nothing worked. It was not until Sears started trying to become a more "customer-focused company" and asked each store to find ways of identifying and serving customer needs that things began to turn around. Once it shifted focus, Sears was able to reduce corporate staff dramatically, moving decision-making responsibility to stores and store managers. The new success factors compelled Sears to redesign itself.
In contrast, upstart Wal-Mart, from the beginning of its existence, focused on the new success factors. Founder Sam Walton's philosophy was to find out what customers wanted and provide it quickly, at lower cost than any competitor. This meant designing fast, flexible processes for gathering and using consumer and competitive intelligence. One such process is the weekly "quick market intelligence" (QMI) exercise that is at the heart of Wal-Mart's success.
Excerpted from The Boundaryless Organization by Ron Ashkenas Dave Ulrich Todd Jick Steve Kerr Copyright © 2002 by Ron Ashkenas. Excerpted by permission.
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