CHAPTER 11

Organizational Transformation for Sustainability

Jyoti Bachani

Organizations, in theory and practice, are still largely defined by ideas that were developed during the industrial era. With industrialization came mechanization that required the roles of personnel to become highly specialized too, focusing on the assembly line model. With simple skills, people could do repetitive jobs and be guaranteed employment for life. The profits went to those who could control the means of production and the assets and resources. The basis of competition was the control of assets and resources. Organizations were structured in a hierarchical manner. Senior managers developed the organization’s strategy to compete and kept it a well-guarded secret. Middle managers were responsible for implementing those strategies and frontline managers did the actual work in implementing those strategies.

At the end of the twentieth century, with the widespread proliferation of the Internet in business and other organizations, there was a shift away from the industrial era as we entered a new era—the information era. The first decade of the twentieth century revealed numerous problems in organizing and utilizing resources in a manner that worked better only in the industrial era and that has become increasingly obsolete or irrelevant in contemporary times. The initial economic shifts caused by the Internet companies are playing out on a daily basis. The early signs of the shift came when some Internet companies took over or wiped out established companies. Such dominance has been exemplified by America Online (AOL) taking over Time-Warner, one of the largest and old media conglomerates, or the online bookseller and retailer Amazon.com successfully driving out of business the entire gamut of brick-and-mortar bookstores not only in the United States but across the globe. Travel agencies were wiped out with the arrival of online bookings for air travel. Organizations everywhere are facing all manner of chaos indicative of their being in the throes of a major transformation, and new ways of organizing are still emerging.

In November 2014, Sony Pictures was brought to a standstill, hacked by an anonymous group that gained control of the company’s information systems and stole 100 terabytes of private data that included confidential contracts, private e-mails, passwords, executive compensation information, medical records, and social security data of over 47,000 employees (Fritz & Yadron, 2014). Over the following days and weeks, the hackers published selective data on websites while Sony struggled to defend itself. It is reported that the company may have launched counterattacks on websites that published the stolen private information to deny access, and they involved the Federal Bureau of Investigation for help in tracing the hackers.

This was one of a series of cyberattacks that have prompted a response from the U.S. government at the highest level. In February 2015, President Obama organized a Cyber Security Summit at Stanford University, calling for better practices at consumer companies. They recommended a collaborative approach between the government and private organizations, with partnerships for information sharing on cybersecurity. Even as these events play out, there is a need to reconsider the very basis of the nature of organizing. Since then, threats to the financial system, failure of companies once considered “too big to fail,” debate on privacy with Edward Snowden revelations about the U.S. government surveillance of all its citizens, and many other events are pointing to the need for this transformation.

The very nature of organizing has changed due to technological innovations demanding a fundamental transformation. A quote attributed to Henry Ford, a pioneer of the industrial age and the one who introduced the radical concept of assembly line manufacturing at Ford Motor Company, is “Why is it that every time I ask for a pair of hands, they come with a brain attached?” His attitude typifies the dominant mindset and business requirements that served the industrial-age companies well. People were replaceable cogs in the capitalistic system, and uniformity and conformity were valued. In sharp contrast, in the information-age organization, uniqueness and creativity are more valued than uniformity. Uniform assembly line jobs can be standardized to such an extent that they can be performed by robots. In January 2015, at the Davos Economic Summit, leaders predicted that most of the routine jobs would go to robots that cost $3,000 or less to build and use. In the United States, it is already common to see self-check-out devices everywhere from grocery/retail stores to airports, libraries, and restaurants.

From Stable Hierarchical Organizations to Purposeful Popup Organizing

The industrial-age companies measured their success by chasing competitive advantage. These organizations were often structured hierarchically and pursued their strategic goals in a militaristic manner, with systems built to support such a style of functioning. Top management set goals and developed strategies, middle management were administrators responsible for delivering the goals set by those strategies, and frontline managers acted as functional implementers. In sharp contrast, information-age global giants are designing and selling software and technology-based customized products and services that facilitated technical expertise–based forms of organizing, often project- and team-based, that can span multiple countries and functional domains. This organizing is a dynamic and interactive process, so these corporations are much more purposeful and comfortable in the use of agile processes to deliver multiple versions of the product in rapid succession (Bachani & Vradelis, 2012). Experts who work together to accomplish this shared purpose can come together in technology-mediated ways and platforms. They don’t need to be working for the same organization and they often do not reside in the same geographical area where the company is located. It may simply be a collection of individuals with nothing more in common than a shared commitment to the purpose and a willingness to come together on a collaborative platform to accomplish organizational or project goals in partnership with other individuals. One project may involve hacking and, simultaneously, another may work to resolve technical problems for a major corporation as a third-party consultant/service provider—hired help—with such jobs outsourced to them through a contract awarded by the organization; this system is typically called the gig economy, gig being a one-time work project that is based on specific deliverables. With these changes, the basis of competitive advantage is also shifting. If the industrial age rewarded those who owned resources and assets, the information age is rewarding those who have knowledge and creativity.

At the Stanford Cyber Security Summit, the president and CEO of MasterCard, Ajay Banga, said that the hackers are ahead and at every minute trying to hack into company servers housing customer data. The president and CEO of Bank of America, Brian Moynihan, said there is not enough money that he can set aside to defend the company against hacking and information stealing, a threat to his company’s very existence, and that if they do not monitor their networks and systems 24/7 they would cease to exist. Former president Obama pointed out that it is not just private consumer companies but the society itself relies on information technology and infrastructure in every area of human life, including operating power plants, air traffic control, and other basic ways of organizing in industries and in areas such as military and national security; consequently, both business and the society at large have become vulnerable to cyberattacks. Control of assets is not enough because the creativity and knowledge of an expert teenage programmer in some country to hack into a vulnerable power system and unleash damages on a major scale can completely turn off the power supply for the whole city (Gorlik, 2014).

Sumantra Ghoshal and Christopher Bartlett in their call to reinvent management offered one possible road map for the renewal of the corporation (Ghoshal and Bartlett, 1997). They have argued for moving away from the purely economic basis of thinking about business organizations to include sociological aspects that pay attention to the need to work toward achieving the goal of collective welfare of the whole society. In other words, businesses are not just there to make money; they are expected to deliver something of value to society through specific strategies and goals, in addition to making profits or earning revenue. They strongly suggest reinventing the management’s role that will work better in an information-age organization than in a traditional, hierarchically arranged and operated organization.

In twentieth-century organizations, the role of top management was to develop and implement strategies and control resources, with middle management acting as administrative controllers who translated the strategy for frontline managers who were responsible for implementing those strategies and supervising and managing another layer of personnel who actually implemented those strategies and did work hands-on to deliver the goals set by those strategies. In the twenty-first century, with the current climate of technology-mediated economies and society, all of these roles need to be reassessed. Ghoshal and Bartlett recommend the flipping of these roles, and their ideas seem to be better aligned with the needs of the hour (Ghoshal and Bartlett, 1997). The information-age frontline manager is not just an implementer of the strategy handed down to him or her; he or she is the seed from which creative strategy emerges. The frontline manager might be the one with the most up-to-date knowledge obtained directly from engaging with the users of their various products and services. A factory manager, for example, is more likely to know how to optimize productivity on the production floor because he or she understands the production process better than his or her bosses who only have a hands-off view or knowledge of it that is typically derived from reports that go up the chain of command. Another example is a marketing professional who is pounding the pavement meeting customers on a daily basis and meeting competitive products in proposal face-offs is best informed about the nature of competition and potential future shifts in buying preferences of consumers. Therefore, these frontline managers are best positioned to get the most precise and latest information on products, customers, and competition. They are the ones whose inputs should be the primary driver of the process of developing organizational strategies. Such a strategy best fits external needs. Frontline managers can further act, with proper incentives, as entrepreneurs, who can respond independently and quickly to seize the best opportunities in a timely manner.

With the frontline manager’s role changing from that of an implementer to that of an entrepreneur, the roles for the middle and top management positions will also have to be redefined. The top management no longer needs to be chiefly responsible for developing integrated initiatives or strategies. Their role has come to focus more exclusively on the collective efforts of the organization by clearly articulating the purpose for which the organization exists. Their daily job then is to perform as the architects of organizational processes and mentor people to fulfill or achieve a shared purpose or a goal. The middle managers’ role then would be to listen to the new ideas coming from the frontline managers and be personal advisors to them. Middle managers will also have the responsibility to prioritize and integrate the good ideas that they get to learn from various units, across the organization. By this integration, they may craft strategies for the firm and articulate them for both the frontline managers and the top management. Thus, middle management would play the important role of integrators. Frontline managers are opportunity creators and performance drivers. They are the ones who build new capabilities, as required, based on the immediate information collected through their engagement with consumers and external stakeholders.

Let us examine one way to use this approach, which entails reinterpreting and reframing of problems to come up with best-possible solutions. For example, the story of information breach that occurred at Sony Pictures can be reframed as follows: Instead of senior management or the government agencies trying to control the organization and secure its information infrastructure through contract-based controls and regulatory oversight, the firm needs to adopt a transparent and trust-based approach to problem-solving. The data can be considered a part of the user’s online identity with each user taking ownership of their data, rather than the organization doing the job of protecting consumer data. If all data were owned by the individual consumers, then seller organizations cannot manipulate or sell such data indicating their past purchase behavior. This would free organizations from the burden of data-breaches and transfer the control of information to the customer.

Just as hackers can attack the information technology infrastructure, or more simply computer servers, from outside the firm, the solution too can come from outside in the form of a community-based, crowdsourced response to the hacker’s attack. Some hackers may even find these opportunities to be a way to channel their creativity into building for and defending organizations, as not all hackers are interested in hacking into company servers and stealing information. There is an entire open-source movement where a lot of what the hackers create is shared free of cost under new public arrangements such as Creative Commons licenses. Such open-source approach is likely to be more cost-effective too, as the community ownership will likely increase the engagement due to personal skin in the game. No contracts can be as effective as a culture of belonging and a commitment to the purpose of the organization. Under such a culture, each employee is more willing to voluntarily go the distance to proactively support the purpose, be it to protect cybersecurity with high levels of due diligence, or others. This comes from a good alignment between collective organizational goals and individual goals. This is probably also good for greater commitment to the shared purpose with coordinated effort to ensure that it is achieved.

Such a reframing also implies a transformation of the relationship between the company and its external constituents. When an organization adopts transparency in its operations, there is no incentive for the hacker to break in, as operational data are already in the public domain or shared with consumers. If this comes to pass, public corporations would actually behave in a manner that shows they are answerable to both customers and the general public. The responsibility to secure the data would then be with the person who interacts and shares his or her information with the company online—it could be a customer, supplier, employee, or regulator— because he or she now owns his or her data. Since organizations currently own and have complete access and control over user data, it is not unusual for them to want to monetize such data and use that data to advertise and customize user experience to earn additional revenues. This is obviously a disservice to customers because not only are they robbed of legitimate control over data but they are also not allowed to customize data in a manner acceptable to them. Instead, customers are manipulated by highly targeted advertising that is personalized to reveal their tastes or purchase behaviors from their data.

The reframing also changes the internal relationships within the firm, and the very nature of the employee–employer relationship is fundamentally redefined. If in the earlier era the employer was likely to guarantee lifetime employment to the employees, in the new era, the employee– employer relationship shifts to the employer simply providing opportunities for the employee to contribute with their skillsets. These opportunities allow employees to grow and develop in a manner that is consistent with what they value and want to be and give them skills and experiences that will make them more employable—either with the same employer or another. An example from India illustrates this. Uber is familiar in many countries and provides the technology to connect car owners with those who need rides. Despite disrupting the taxi cab industry, Uber does not have its own fleet of vehicles. The ownership of cars rests with frontline workers, that is, those who invest in cars and often drive those cars themselves or even hire drivers to handle the rides at their behest. In India, a local company competes directly with Uber and is called Ola cabs. The car owners-cum-drivers are often operating both the apps, Uber and Ola, on their smartphones. They will accept rides from whichever app helps them connect with customers needing a ride. This is a very different model of doing business than a traditional taxi cab company.

The frontline managers are the closest to the real activities of the business, be it selling to the customers in the field or producing the goods on the factory floor. They are the ones best positioned to find new opportunities that can be grown by turning them into entrepreneurs. The person selling in the field is most likely to come across competitor’s products and offerings and is best placed to decide what the most desired features to offer in products are. The factory floor manager has the best view of the shop-floor operations and knows better than anyone else about how to improve processes or when to upgrade equipment. When managers operate in an atmosphere of trust that respects and values their contributions, they will work in a more involved manner and take full ownership of their job. Instead of feeling responsible for just delivering results to satisfy someone higher up in the organizational hierarchy for the sake of rewards, they will actually want to do things that best contribute to achieving collective organizational goals. This will also nurture team spirit as they will become more supportive of and value others’ work and share and improve their own knowledge as they grow. The intrinsic motivation is not based on whether or not there are external rewards; therefore, this tapping into individual creativity becomes a source of ongoing advantage.

Let us consider another company that does it differently: Pixar, the animated movie studio that has consistently delivered blockbuster films in a highly competitive market, such as Toy Story series, Ratatouille, Cars, and so on. The company relies on peer reviews where employees routinely share their work-in-progress with each other in a process called the dailies. Through the dailies, the feedback shared provides a way to get everyone’s input to improve the work of each of the contributors. There are no stars or directors who are individually responsible for the creative output, as everyone’s input is considered equally valuable. The openness in sharing work-in-progress takes the pressure off to deliver something perfect, and that open culture becomes conducive to really creating something that suits different tastes based on inputs received from everyone in the dailies (Catmull, 2008).

This does not mean there is consensus and no creative experts. There is a team of directors who together act as a brain-trust for the organization. Whichever project needs their help can count on their expertise. The company has redefined what a manager does by promoting a culture where a manager does not need to know what his or her direct reports are working on, because the manager is no longer someone who gets work done through managing others. Employees are allowed to self-manage and know it is okay for them to go to anyone in the organization to get what they need to do their job well. The typical organizational hierarchy and the chain of command that other organizations use, where employees have to check for boss’s approval before going to talk to someone else in the company, is not a part of Pixar’s culture.

Another example is Tesla Motors that produces the best electric vehicles on the road today. They did not set out to make the best electric car; instead, they wanted to make the best car. The Tesla car is so far ahead of all other competing car models on the road that the company felt confident enough to share their technology. Initially, they provided some components for certain models of Toyota electric vehicles and then they made their entire technology open source. They literally do not have the mindset of an industrial-age company that other car companies embody, where there are patents and licensing agreements to protect intellectual property. Tesla is on a mission to change the world. Toward that goal, they willingly and openly spread their technology with the zeal usually seen in missionaries spreading a new religion. Their confidence in their creative ability and innovative potential of their people is such that instead of worrying about competitors getting rich on the basis their ideas, they are so self-assured that they will have enough newer, better ideas to always stay ahead of competitors. Resting on their laurels and past success is not part of their strategy; instead, they work to offer better technology and better cars for the world.

To conclude, this chapter argues that the economics-driven approach of the industrial-era organizations is an inappropriate fit for the information-era organizing that is better understood by focusing on the sociological aspects with an emphasis on the many disparate actions by managers distributed across the various parts of the organization and the social context or ecosystem within which it operates. The industrial-era organization with hierarchy- and control-based organizing is better replaced with a flat, networked, and trust-based organizing structure where the process of identifying problems and developing solutions is democratized, leading to new roles for managers at each level of the organization. These new roles are defined in the charts provided. With examples, these ideas are illustrated to show how some firms are forging ahead and more is yet to come, as the Internet starts to go beyond the human systems to the Internet of Everything, connecting our devices and material world to the information network.

Summary

Industrial-era organizations relied on economic theories that recommended hierarchy and control-based organizing of Strategy-Structure-Systems. This approach is not appropriate in the information age. Using the examples from the twenty-first-century organizing and focusing on the sociological aspects, this chapter offers the framework for effectively organizing with an emphasis on the Purpose-Process-People. The sustainable approach is to have a flat, networked, and trust-based way of organizing where the process of problem identification and the process of developing solutions for problems are both democratized. This has implications for the new roles for managers at each level of the organization.

Questions

1. How has organizing in the industrial era been theorized and what discipline dominated and why?

2. What is the recommendation for organizing in the information era, and what discipline influences it?

3. How has the role of managers in organizations changed from the industrial era to information era?

References

Bachani, J., and M. Vradelis. 2012. Strategy Making in Nonprofit Organizations: A Model and Case Studies. New York, NY: Business Expert Press.

Catmull, E. September, 2008. “How Pixar Fosters Collective Creativity.” Harvard Business Review 86, pp. 64-72, 134.

Fritz, B., and Yadron, D. 2014. “Sony Hack Exposed Personal Data of Hollywood Stars,” The Wall Street Journal. https://www.wsj.com/articles/sony-pictures-hack-reveals-more-data-than-previously-believed-1417734425.

Gorlick, A. 2014. “Obama at Stanford: Industry Government must Cooperate on Cyber Security.” https://news.stanford.edu/2015/02/13/summit-main-obama-021315/.

Ghoshal, S., and C. Bartlett. 1997. The Individualized Corporation: A Fundamentally New Approach to Management. New York, NY: Harper Business Books.

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