Organizational Form

If we step onto an elevator in an office building, it will deliver us to an organization that looks, at first, quite familiar. There will be an office, cubicles, and workers who appear to be regular full-time employees. However look deeper, and you may find that one small cubicle is the entire IT department, with one employee managing work outsourced to India; another cubicle contains not an employee but a consultant on a long-term assignment. The meeting room is packed, but not one person is an employee; they are a mix of alliance partners and free agents in a rare face-to-face gathering. The office looks the same, but it's a different type of organization.

The fundamental change is the move from seeing the organization as being a stable entity behind solid walls, to a much more flexible structure where deep collaboration with outsiders is the norm. The image we used before was going from a permanent brick house to a flexible prefab structure. You might also envision it as a move from a luxury store with heavy mahogany doors that separate those inside from those outside, to an outdoor market where people come and go and the edges of the market are unclear.

It isn't the case that the stable structure is always wrong, and certainly this form has served the insurance industry well for years. However, we need to be able to twist the dials toward flexibility when the need arises, and that need is arising for insurers who require technical talent.

In this chapter, we describe four dimensions that help you understand the patterns emerging in how work is done so that you can better understand what's happening in organizations, and better decide how you will lead the work. The dimensions are permeability, interlinkage, collaboration, and flexibility (PICF).

Here is how we see it in a nutshell. A traditional organization has thick walls and a sharp distinction between insiders and outsiders. As it shifts to a beyond employment model, the walls become more permeable, and people and work cross the walls quite freely. This movement opens up the chance to interlink with other organizations, such as outsourcers or talent platforms; and at this stage it has become natural for the organization to look outward as a way to get work done. Finally, as organizations get adept at working with outsiders, they form true collaborative relationships, sharing ideas, risk, intellectual property, people, and physical assets.

So permeability leads to interlinking which leads to collaboration—and the role of leaders is to understand what's appropriate for their own organization. Another way to think about this is that “permeability” describes the amount of work and workers that flow through the organization boundary, “interlinkage” describes the pattern of connections through which those flows occur, and “collaboration” describes the strength and nature of those connections.

The last dimension, “flexibility,” is a bit different. It means whether to allow the boundary to flex to actually encompass those outside. It captures big decisions about mergers, acquisitions, divestures, outsourcing, and insourcing. The more we turn up the dial of flexibility, the more we are willing to change the fundamental structure of the organization.

How Easily to Permeate?

As we said, a look around a typical office won't show you whether work and workers reside inside a relatively sealed organization boundary or flow freely across it. A familiar example is when you discover that someone working in your office is not a coworker at all, but actually a consultant on an extended contract. That's an example of a worker flowing into the organization without an employment relationship. Do some employees stay only a couple of years, to bolster their resume and then move on? That's an example of workers flowing out across the boundary. Do employees leave for a few years, gain valuable experience, and then return? That's an example of workers flowing both outward and then inward through the boundary.

We tend to think of the organization as a place where there's clear inside and outside, and the way to cross it is to become an employee or to terminate employment. In the world beyond employment, work and workers flow through the organization quite freely, and often without an employment relationship.

As a leader, you decide how much of this inflow and outflow fits your mission—how much to allow your organization boundary to be permeable.

Permeability is closely related to the ideas that we discuss in the previous chapter. The better we get at deconstructing assignments, the more we disperse them, and the more they are detached from regular full-time employment, the more permeable the boundary can become, and the more important it becomes for leaders to choose carefully where they fall on the permeability dimension. The same is true for the workers themselves. There is a range of emerging relationships you can have with workers, from regular employees to consultants on secondment to using employees from another firm (perhaps an outsourcer or alliance), and the work they do can flow through your boundary or be contained within it.

For example, a large company valued its HR consultant because he was the only person who had been around long enough to know how and why certain decisions had been made. Many regular full-time employees in HR had come and gone, leaving no one else to match the consultant's long-term connection and institutional knowledge of the company. In this case, the relationship between the work and the worker—the job of continuity in the HR department—had unintentionally been moved outside the firm and into the consulting firm that employed the consultant. Continuity is important, but if we see the organization as permeable, there may be ways to achieve it without relying on employees embedded inside the firm. Leaving such choices to chance, without a framework to guide them, may be risky in the new world of work.

Leading the work means using the flow of talent, work, and workers to sustain and achieve your mission. Making a sharp distinction between how you manage contractors and how you manage employees feels increasingly odd when people and work flow so freely in and out of the company, even if the distinction is important from a legal perspective. Thinking of free agents providing their work from distant locations as “outsiders” seems odd when the regular employees themselves are rarely in the office, and the work of both employees and free agents is intermingled as it flows in and out across the boundary of the organization.

There will be differences in how you treat people who are working for and with you. Some will be in the inner circle and some, like the MTurkers, will be completely anonymous. Some will merit investment to cement a long-term relationship; others will do a microtask and disappear. The point is that increasingly the work they do flows across the boundary called your “organization,” that is demarcated by a regular full-time employment relationship. Your key people and your closest advisors need not be employees “inside” the boundary. You may shield trade secrets from employees who are inside yet share them with a trusted contractor who is outside. You may work hard to retain the work of uniquely skilled free agents yet accept the fact that less-uniquely skilled employees may leave. Leading the work means focusing more on how the work and workers flow through the boundary than on whether or not it is done by regular full-time employees sitting inside that (increasingly) imaginary boundary.

How much should you allow work and workers to permeate your organizational boundary? Dialing this dimension to zero means that no work will be done unless it can be done by regular full-time employees residing inside the boundary. Dialing permeability a bit higher might involve encouraging some employees to become onsite independent contractors, or offsite free agents working through a talent platform, or to form a microbusiness to which you outsource the work. That's letting the work and workers flow out. Conversely, you could offer a talented free agent the opportunity to become a regular full-time employee, so they build more enduring ties with your organization. That's what happens with the most talented coders on Topcoder; they are frequently offered regular full-time employment with companies like Google, Twitter, and Amazon.

In Chapter 4 we related the story of the owner of a small company who hired what turned out to be a very talented software coder. The owner wanted to keep this talented employee but could not compete with Topcoder's variety of projects, high pay, and visibility for talented coders. If you think of work as happening only inside the employment boundary, the inevitable result is that the programmer will leave forcing the small company to hire someone else. The owner was more creative. He encouraged his young programmer to work for Topcoder on the side. The employee was so pleased with this arrangement that he actually turned down a lucrative offer to work for a high-tech firm, to stay with his current employer. Seeing the organization boundary as permeable means that the owner could allow work to flow through the boundary, even when it flowed outward to the Topcoder platform, as long as the coder's work for the small company was still useful. Dial up permeability a bit, and nonobvious solutions emerge for keeping top programming talent happy and close at hand.

The idea is to dial permeability up and down optimally. An organization boundary, with “insiders” that are regular full-time employees and “outsiders” that are not, matters less now; and leading the work means being more savvy about how freely work flows through the boundary.

The solution for the insurance industry's talent shortage will be to embrace a greater flow of technical expertise outside the organization. It will not be able to hire all the technical workers it needs as employees; so its optimal solution may be to get better at finding outsiders to do the work.

How Strongly to Interlink?

The organization can be unlinked to the outside, getting work done by focusing on internal relationships and processes, or it can be strongly interlinked to the outside, with lasting connections to workers and providers beyond the boundary. When interlinkage is dialed down, worker interactions are with other employees, and the issues involve coordination among employees within their unit and with other groups of employees in other units. In this kind of unlinked organization, the outside world sometimes seems like a distant rumor. Everything that matters is happening inside the walls.

When interlinkage is dialed up, workers may go for long periods with little contact with other employees and spend their days working with workers that are employed by the company's allies, competitors, media partners, technology vendors, and consultants. In the highly interlinked organization, the work relationships more often exist outside the boundary defined by employment.

Interlinkage is often complementary to permeability, but it goes farther. A permeable organization allows work and workers to flow more freely across the boundary. An interlinked organization also has work and workers flowing across its boundary, but now it forges actual connections with one or more individuals, platforms, or other employers to make those flows easier, more systematic, and more predictable. It's one thing to send your work out to a freelance designer that you find through a job board. That's permeability. It's another to repeatedly connect with a talent platform like Tongal, to have an ongoing source of such free agents. That's interlinking.

Leading the work through an interlinked organization includes lasting connections with alliance partners, outsourcers, and free agents. Organization design principles like reporting structures, decision rights, information sharing, trust, and collaboration must now be applied as much to the interlinked ecosystem of workers, work, and external entities as they are to more traditional organization units such as employees and divisions.

Consider what the map of interlinkages might look like for your own work and workers. Where does the work come from, where does it go to? With whom do you spend time communicating, employees or “outsiders”? There is an entire social science discipline devoted to mapping such connections, called “social network analysis.” What it often reveals is that work gets done through social connections that span traditional boundaries and often involves workers that are not formally designated as gatekeepers or liaisons. Imagine what a social network analysis of your organization would look like if it fully measured all those interlinkages that cross the organizational boundary; it might give quite a different picture of what your organization “is” than a map that only shows links between regular full-time employees within the walls.

As a leader, when you recognize that you can dial up or down interlinkage to fit your mission and strategy, you begin to think of the organization differently. Rather than a hierarchy made up of boxes with employees in it, the organization is a node in an ecosystem of value creation. The same is true for your individual workers, your team, your department, your division, and so forth. Each is a node that gets work done through links connecting it both inside and outside the organization. Traditionally, leaders distinguish between connections that happen inside the boundary and those outside, with strong emphasis on leading through inside connections. The world beyond employment is a more interlinked world, where leaders must make assertive decisions about when and where to dial up and down the links that span the traditional organizational boundary, and the outside, and manage the linkages between regular full-time employees and outsiders.

How Deeply to Collaborate?

Even when an organization has a good deal of its work flowing through its employment boundary, and through many linkages, collaboration may be dialed up or down. Collaboration is dialed down when the links reflect an insular approach focused on protection and formality. Such connections operate through formal and arms-length relationships often founded in specific contracts and legal agreements. Collaboration is dialed up when the links reflect a more open approach focused on trust, sharing, and informality. Such connections operate through mutual trust, common values, and informal ties.

When collaboration is dialed down, organizations are introspective and more secretive. Employees are discouraged from sharing with competitors, and leaders believe their ideas and processes are valuable intellectual property that must be shielded from the outside. It's a world of “us” surrounded by the world of “them,” with connections made only when they can be well defined and codified. When collaboration is dialed up organizations reach out frequently to connect their work and workers with others. Their leaders emphasize sharing ideas rather than hiding them.

This spirit of greater collaboration with the outside world shows up in how organizations think about innovation. An article by Boudreau and Ziskin noted the evolution from an emphasis on intellectual property to what they call “agile cocreativity.”² It has its roots in traditions such as Total Quality Management where all workers are asked to suggest improvements. It has evolved to a more boundaryless idea where any product or service offering is seen as a prototype, the object of gathering criticisms and improvement ideas from users and others, supported by a system to prioritize and implement the changes. Traditionally, innovation is seen as occurring within the organization, in designated roles such as product developer or designer. These roles guide innovation through specific, sequential process “gates,” leading to results that can be identified and protected through patents or other intellectual property rights. This idea is giving way to a reality of agile cocreativity, the concept that creativity can come from anyone and anywhere, and that traditional organization boxes or job roles are no longer the sole repository of creativity.

Creativity is becoming less of an ownership-based endeavor and more of a community-based one. This means that creativity and innovation occur both inside and outside of the organization. Creativity may arise from many different roles and levels, and it happens in nonsequential and often unpredictable processes. In the agile cocreativity model, innovation produces transient results that are more like experiments than finished products to be claimed and owned. Wikipedia is one prominent example. In such a collaborative world, getting work done depends less on a concept of “us” and “them” and more about understanding and defining how collaborative the organization should be.

The idea of dialing collaboration up and down applies to individual workers as well. We build relationships at work, and when those people leave, or we leave, the relationships remain. Yes, the person may be working for a competitor, but they're still our friend and perhaps even our future collaborator. Many coworkers will be free agents, leading to sharing significant amounts of information and goodwill with people outside the firm. Alliances may deliver a large share of our revenue, and when someone is filling half your rice bowl, it's hard not to view them as family. Not only are “they” feeling more like “us,” but we as employees are not feeling so much like “us” anymore. Is there really a special bond between employer and employee when the employee is working remotely, most of their linkages are outside the firm, and they plan to stay in this gig for only a few years? As CEO of Me, people have their set of loyalties to individuals and organizations, and their current employer may or may not be included in that group.

We normally frame the loss of the feeling of “us” as a loss of loyalty, however, in the world beyond employment, the flip side is that, with the loss of “us,” we move toward being open to and collaborative with the outside world. It's a different attitude that may increase the risk of leaking competitively valuable intelligence, but offers greater access to the intelligence and capabilities of the outside world.

Collaboration fits well with human motivation. People often are more engaged by affiliation with ideals than by commitment to a specific company. This has been observed for a long time among scientists and engineers in places like Silicon Valley. For example, an engineer may see herself as building the “Internet of things” or “the world of augmented reality”—that broad ideal matters more to her than what company she happens to be working for this month. The same definition of loyalty and engagement applies in television and movie production, where teams of collaborators move from project to project, employed by different companies, but engaged and loyal to their team, not the institution that employs them. When you combine the employees' desire to contribute to something bigger than themselves, and to have a hand in inventing and reinventing their environment, the potential to harness the collective creativity of those within and outside the organization becomes clear.

The insurance industry's best bet may be to drop their inward focus and turn up the dial on collaboration and begin working with cool organizations that are able to attract the technical talent insurers need.

How Extensively to Flex?

Leading the work clearly means making decisions about the extent to which the organization boundary will be permeable, interlinked, and collaborative. Sometimes, however, the decision is not so much how extensively work and workers should move across the boundary, but how much actually to move the boundary itself. This is flexibility. The idea is that even when you get work done with regular full-time employees, you may choose to extend your boundary to include formerly outside entities, and contract the boundary to send formerly inside employees outside it. Flexible organizations stretch and contract as needed by acquiring and divesting other organizations, outsourcing or insourcing processes, and engaging or disengaging in alliances. A flexible organization reshapes itself to fit the most profitable niches in an evolving ecosystem.

Flexibility often applies not to individual workers, but to larger units like departments or processes—the big building blocks of organizational structure. We can move work around the world within our organization, or move big blocks of work right outside of the organization. We can use the Lego metaphor: an organization as a set of interlocking blocks that can be reconfigured as needed. The IT function may sit inside the firm now, but a flexible firm sees no fundamental reason why it might not be detached from the structure and moved outside—which is exactly what Bharti did with its own IT function, unplugging that department and shifting it over to IBM as part of their alliance. John Boudreau and Peter Ramstad in their book Beyond HR (2007) described how Boeing organized the work of building aircraft out of composite materials by forming a web of interlinked collaborations among a global supplier network, dialing up interlinkage and collaboration. Boeing eventually acquired some of those outside suppliers, which is a good example of dialing up flexibility. The supplier employees became Boeing employees, essentially surrounding the supplier company with the Boeing boundary. This is increasingly common as organizations stretch to acquire small startups (sometimes to get the talent inside), and then shed much of what they acquired, keeping only what makes sense for the long term.

Scott Sherman, formerly the executive vice president of human resources of Allergan and now at Ingram Micro, said that pharmaceutical firms (and others) increasingly flex their boundary to actually acquire early-stage companies that have developed promising therapies to an appropriate level of risk and return. The employees of the early-stage company become company employees. However, the employees and leaders of an early-stage startup are well suited to the high-return and high-risk environment of startups. Companies cannot offer all the elements of that work. So, it's not unusual for the leaders and employees of the startup to leave after the transfer of the ideas is complete, to found a new startup that develops new therapies. Allergan's boundary stretches to encompass the startup leaders and employees and then contracts to allow them to depart.

There are few areas that are not potential targets for flexibility. Some might say that “core functions” must remain inside the firm. Yet design firms routinely move their design work outside to talent platforms. If you name a core function that must always stay inside the walls, someone will come along with an example that proves you wrong. Choosing what sits inside and what sits outside, and what is partially in and out, is one of the biggest strategic issues an organization faces.

Reshaping the organization is never easy, but in the world beyond employment it is increasingly possible. Indeed, writers on organizational agility like USC professors Edward Lawler and Chris Worley would argue that constant reshaping or being “built to change” may be the key to sustainable performance.³ When it comes to leading the work in a world beyond employment, this means that a leader's task is to optimize choices about when to stretch your organization boundary to pull in other organizations, or contract the boundary by spinning them off. It all depends on the optimal way to get the work done. This focus on the work helps to clarify the dimensions that should drive such decisions.

Making Decisions about the Organization: Permeate, Interlink, Collaborate, and Flex

How do we view outsourcing? We see it as dialing up permeability and interlinkage. When a clean chunk of work can be moved outside the boundary then outsourcing may make sense.

How do we view alliances such as the one where Siemens engaged employees at Disney to market its hearing aid? This dialed up permeability a bit, in that the project was not a full function and didn't involve moving vast amounts of work across the boundary. Interlinkage was also dialed up a bit, involving a link to only one organization, not an entire ecosystem. The key here was to dial up collaboration to a very high level. Siemens and Disney could not rigidly or comprehensively define the legal relationship to get the work done. They had to rely on their history of trust and sharing, for something as creative as marketing a child's hearing aid.

So, a typical question in leading the work is, “What capabilities do we need and how can we best get them? Do we build, buy, outsource, or ally?” Yet, there is a complementary question, “How can we generate the greatest value from our own capabilities? Who needs these capabilities and how can we structure things to get the most value from that need?” Consider IBM. If you look at the IBM mainframe days of the 1960s and 1970s versus the IBM of today, much of the value is created in the cloud, and through an ecosystem of entities. IBM's professional services group looks a lot like a consulting firm, where their internal work routinely flows through their boundary to be accomplished with deep collaboration and on the sites of their customers. IBM flexed its boundary quite dramatically when it divested to Lenovo its assets devoted to the PC, including the employees, who became Lenovo employees. IBM's innovation process reflects a web of many interlinkages between corporations, universities, and even a global community of freelance or volunteer puzzle solvers. IBM is constantly asking, “Where do we generate the most value?” and where they don't bring something special to value creation (such as building PCs) they move it outside the boundary.

PICF Pictured

For convenience let's introduce the acronym PICF to stand for the permeable, interlinked, collaborative, and flexible organization. Figure 8.1 captures all these elements. With all the dimensions set to zero (the images on the top), the organization is a fixed structure with all the parts welded into place, and all the work and workers residing inside. On the bottom, permeability is dialed up, as shown by the organization boundary as a dotted line, with individual workers (depicted as faces) and tasks (depicted as boxes) moving work across it. Interconnectedness is dialed up as shown in the arrows that connect outside functions with those inside. The outside functions might be done by outsourcers, contractors, and so forth. When collaboration is dialed up, think of it as handshakes connecting boxes, rather than simply arrows. Finally, flexibility is turned up, as whole departments may slip outside the organization or slip inside. Or, even if parts stay within the organization, they're freed from the traditional bounds of hierarchy.

Another way to see the organization when you dial up “permeable” and “interlinked” is to zoom in on the organization chart of one department. The diagram below (Figure 8.2) shows a portion of the organization chart under a hypothetical vice president of marketing. Only two of the boxes—Joe and Mary—represent employees. At least half the work is done by people outside of the firm, a free-agent assistant to handle administrative tasks, a consultant to handle social marketing strategy (who might be a free agent or an employee of a consulting firm), and a PR agency, which has had a big chunk of work outsourced to them. In this case, the VP of marketing is well aware that more than half of his work is being carried on outside the organization. The organization chart includes both internal and external work with equal emphasis.

When it comes to leading the work, if you draw the organization chart to include only the employees (Joe and Mary), you miss the full picture. What would your set of direct reports look like if you included all external relationships?

Finally, consider what the value chain might look like in a highly interlinked and collaborative firm (Figure 8.3). A firm can pick the parts of the value chain where it wants to operate (in our diagram this includes Brand/Mission, R&D, Product Marketing, and Customer Support), and have the other steps in the value chain handled by outsourcers, allies, or talent platforms. The opportunity to focus exclusively on what your firm is really good at is sitting there waiting to be grasped.

To lead the work, not just the employees, requires envisioning the organization as a set of options beyond simply containing regular full-time employees to do the work. Fortunately, the familiar tools that you already use, such as organization charts and value chains, can help you describe and communicate this new vision—you just need to extend these diagrams beyond the walls of the company. Instead of trying to figure this out armed only with examples such as Wikipedia, IBM, or Allergan, the PICF framework allows you to use these tools to map the evolution from an organization with all the dimensions dialed down, to an organization that can dial them up selectively, to crack the code of achieving your mission.

Let's return to the insurance industry story we started this chapter with. Can the industry meet their talent challenges by embracing the Lead the Work framework? For example, could the evolving work of the actuary be deconstructed and performed on talent platforms? Could the organization outsource its marketing activities to a world-class digital marketing company? Could the insurer leverage its core capabilities to “trade” for technology talent? Even prestigious high-tech firms are suffering from a shortage of skills, albeit of a different kind. While they may have the best software engineers, they don't have the best risk managers. The best risk management talent is at insurance companies. This disparity in skills and needs presents an interesting arbitrage opportunity, perhaps insurance companies can share their risk experts in exchange for high tech's software experts.

One possibility in a PICF world is a staffing model that pools the talent needs of several noncompeting companies. A corollary would be a collaborative production model in which companies pool resources based on their competitive advantages to collectively produce greater value than they might have been able to separately. For example an insurer, a global retail bank, and a high-tech company could collaborate and pool their staff's expertise. In such a collaborative model, the insurer could look to the high-tech company for the talent to harness social media and big data. The high-tech company, for its part, gets risk management expertise to protect itself from change and uncertainty. Likewise, the insurer could look to the global retail bank for help with customer-relationship management and marketing. In return, the insurer could share its risk optimization skills with the bank. The high-tech company, interested in creating a global presence, could draw on the customer-relationship skills of the bank, which could, in turn, use some help in building its digital platforms. In each case, these symbiotic partners are looking to one another for access to the kind of talent and expertise they could never attract on their own. By using this collaborative model, these noncompeting companies can attract the talent they need to fuel growth and innovation without building infrastructure and taking on cost and risk.

How PICF Makes Leading the Work Easier

Turning up the PICF dials of the Organization may seem complicated. Isn't it much easier just to define the organization as a relatively fixed container with regular full-time employees in it? Actually, when you try to lead the work by assuming that all the PICF dials are turned down, it can be much harder. The potential solution to many familiar problems becomes clearer when you can envision turning the PICF dials up.

When permeability is zero, you must get work done with people you hire as regular full-time employees, even if your needs change. Dial permeability up a bit and you can envision letting some work flow across the boundary as needed so that you can reserve employment for the work that does endure.

Assume zero interlinkage and collaboration, and planning your future work needs is beset with rigidity. Imagine if you must prepare a plan for how many delivery drivers to hire over the next couple of years. Even if you could predict delivery demand, some periods are much busier than others, and staffing up to meet average demand would leave you overstaffed half the time and understaffed the other half. Dial up interlinkage and collaboration, and you can tap other organizations that can provide talent on demand. Leading the work by forging good linkages and collaborative agreements with those other organizations is how you mitigate the risk of volatility.

Assume zero flexibility, and the work must include things that you are not very good at. If you're going to distribute, manufacture, brand and service your product, you need to do all of that within your boundary. Dial flexibility up a bit, and your boundary can flex. You can carve out entire departments or processes and give them to someone who excels at them. Dial flexibility down, and you must take on challenges and big risks single-handedly. Dial flexibility up a bit, and you can extend your boundary to acquire small companies after they have taken the early-stage risks and developed their products and services to a less risky stage; and then you can contract the boundary to free the entrepreneurs up to start new firms.