Chapter 30. Organizing for Strategic Flexibility
Homa Bahrami and Stuart Evans
The key challenge facing organizational architects is to design structural configurations that are truly flexible—that have the capacity to expand and contract at short notice, to rapidly change course, and to be quickly repositioned as new realities unfold. This may be an unattainable goal. However, there are examples of dynamic ecosystems in which enterprises do exhibit some of the building blocks and the recipes of this emerging organizational order.
The ebb and flow of success in the Silicon Valley has prompted many entrepreneurs to structure their enterprises for real flexibility. The name of the game is constant change—focusing at one time on innovation, changing the rules, and reinventing the future, while at another time pruning excess to survive and consolidating in the face of a major downturn. The perpetual challenge is to grasp short-lived opportunities, innovate continuously, and compete globally. Effective organizational architectures are about harnessing kaleidoscopic change.
This chapter describes how high-technology enterprises in the Silicon Valley are organized to address the challenges of meteoric growth on the one hand and sudden downturns on the other. How do they provide anchors of stability for expectant knowledge workers, but stay flexible enough for the ups and downs of the business cycle and innovation loops? With widely dispersed global teams, how is a sense of cohesion, identity, and community achieved? How do they stay robust and resilient, while becoming agile and versatile?
The Building Blocks
Three core dimensions coalesce to form the architecture of the flexible enterprise.
- The organizational dimension is about the traditional challenges of differentiation: how to break up the entity into manageable work nodes, projects, and teams, and focus the talent pool on targeted assignments. This task requires balancing the needs for flexibility on the one hand and stability on the other.
- The connective dimension is about harnessing synergies and creating linkages. Linkages are largely about integration: how to coordinate globally dispersed work nodes by sharing codified knowledge through core processes and an efficient information and communications infrastructure.
- The cohesive dimension is about binding together the various components. A blend of the hard and the soft—it is the physical, the intellectual, the financial, and the emotional glue that keeps the enterprise together.
The Organizational Dimension: Blending Base Units and Project Teams
The organizational systems of many high-technology companies are in a continuous state of flux, yet formal structures do exist in the sense of clear reporting relationships, grouping of skills, and concise assignment of responsibility, authority, and accountability. Many firms strive to be structured yet flexible and disciplined, while creative. They have evolved dualistic work nodes that seek to strike a dynamic balance between stability and flexibility comprising base units and project teams.[1]
Base Units
Base units are the relatively stable component. They are the formal mechanism for grouping skills, clustering activities, and assigning reporting relationships. They refer to functional departments, product divisions, sales offices, manufacturing sites, and research centers. They are used to compartmentalize work, provide focus, assign accountabilities, and generate a sense of shared identity.
Project Teams
Project teams are the variable arm or the rapid deployment capability. These teams enable a firm to focus on critical assignments without causing major disruptions to the base units. Knowledge workers from various base units can be pooled together at short notice, put to work on new assignments, and disbanded once their task has been accomplished. In some cases the project teams may evolve and become the foundation of a new base unit, depending on critical mass and business scope. Consider the reflections of a senior executive of a $1 billion net storage company:
We have a functional organization...it is the most simple from a line of sight perspective...as your products become more complex and you become geographically dispersed, it starts to fall apart...so we started what we call virtual business units...they don't own any people...there'll be a virtual CEO who's responsible for bringing together cross-functional teams...let's take the example of our CDBU (content delivery business unit)...it actually has three people and drives fairly significant revenue...the various functional teams participate as members of both the functional unit as well as the CDBU.
The key point is that base units are a blend of functional and product clusters, market segments, and geographic units. While they transform over time, they are effective as a platform on which project teams, such as virtual business units, are overlaid for creating short-term flexibility.
The Connective Dimension: Fusing Physical Architecture and Technology Infrastructure
Work has to be aligned among the various base units and project teams in order to avoid each node marching to its own tune. That is where a variety of linkages are used to facilitate communication and knowledge sharing among globally dispersed work nodes. This is succinctly summed up in the comments of the co-founder and executive vice president of a telecommunications company:
We like the idea of small, decentralized units with focused accountability...but our products have to play together. Our customers buy an integrated system...there is a major element of success that depends on coordination and close cooperation between the units.
These linkages are typically a mixture of the physical and the virtual. They utilize cross-unit meetings, the IT infrastructure, and the physical design of offices and campus-like facilities.
Ironically, while technological sophistication facilitates remote and mobile work, the setup of the physical workplace is becoming more important. Visual and symbolic norms can be conveyed through workplace design. These can nurture collaboration, ease or impede communication, and create a sense of community.
The facilities of a major global company in Menlo Park, California, like those of many others in the Silicon Valley, are intentionally designed to create a campus-like atmosphere. A key feature is a central thoroughfare, analogous to a downtown or main street, with office complexes built around. People can "bump" into each other as a matter of course. The staircases are wider than normal to allow for continuity of dialogue and conversation among teams walking to a meeting or to the cafeteria, which is located at the center of the campus. White boards are placed along the corridors to enable people to spontaneously reflect on their creative thoughts. Shared common rooms take center stage—as they provide group space—while individual cubicles and offices take on secondary importance.[2]
The administrative backbone of the enterprise has been radically impacted by hardwired IT, which has made it feasible for knowledge workers to become nomadic, working any time, from any location; it has given rise to the interconnected global entity, where like a relay team, tasks are passed from location to location over different time zones. By means of knowledge management, CRM, and other tools, brainpower and critical information are distributed throughout the organization, which reduces the size of the physical center. This has given real-time broadcast capability and access to unfiltered information to the dispersed knowledge workers. This was conveyed in the comments of a senior vice president of a networking company:
[The real value of IT] is to get information to those doing the work...information that used to filter only through the hierarchy...that only managers used to have...Two thirds of our (knowledge workers) are nomadic...able to work any place, any time...they can choose when, where, and how they work...many of our meetings are really assigned phone numbers, where people call in...recently we had a meeting with five people, in different locations, calling in...but we were all looking at the same page of our intranet at the same time."
Naturally, the hardwired component is dynamic and will evolve in different ways. Over time, it provides the codified knowledge base of the enterprise. The important point is that there are three complementary linkages that augment one another:
- Technology enabled linkages;
- Physical architecture of the workplace; and
- Personal and team communication channels.
The real challenge is to align these and evolve them on a continuous basis.
The Cohesive Dimension: Welding Cultural Norms and Financial Controls
The productivity of employees in knowledge-based enterprises depends as much on personal commitments, motivations, and relationships as it does on capabilities. There needs to be some kind of fusing mechanism to bind together the distributed nodes. While financial controls provide the "hard" control glue, cultural norms and people policies provide the motivational "soft glue." Cultural norms and core values are broad pillars and guiding principles; nonetheless, they do impact daily actions and work practices. For instance, motivation and cultural fit influence the types of people who are recruited. Cultural fit tests are used to devise assessment and reward criteria, and they influence how a firm may deal with an adverse situation. Consider the comments of the CEO of an enterprise application software company:
One of our unwritten cultural tenets is that everyone's a sales and support person...and that we should use our own products...in putting our value tenets together, we wanted to think about "what kind of a company do we want to work for?"...the emphasis is on the company, not the management—we even do report cards on how the whole company is living up to its cultural tenets.
Additionally, while many high-tech companies are global from inception, they still have to deal with the challenge of transferring their culture out of their home base. Many firms generate more than half of their sales outside the United States, and they have a large population of non-American employees even among their founders and early employees. As summarized by the CEO of a financial software company,
When you open an office several thousand miles away, it is difficult to export the culture of these cases. We make sure that our new employees spend a large part of their time, early on, here at the home base, so they can really experience, feel, and live our culture, and not just read about it.
Effective high-technology firms evolve a cultural mindset, which incorporates diverse assumptions and premises. This requires balancing strong corporate values—typically reflecting the home culture—with a broad perspective—accommodating the diverse viewpoints of global customers, employees, and competitors. The most critical implementation tools focus on the composition of their employee base and senior executive teams. Other mechanisms include short-term sabbaticals to projects outside the home base, job-rotation opportunities, real-time global communication forums, and global account-management systems.
Cultural glue instills bedrock values, which provide "sameness" and give emotional cohesion to a distributed organization—disseminating the critical ingredients of the genetic code. The key challenge in striking an effective balance is figuring out what has to be the same so that everything else can be different.
Designing a Versatile Federation
In contrast to the mechanistic, linear hierarchies of the Industrial Era, enterprises in the Silicon Valley resemble sports teams, rock bands, and film studios, in that roles and assignments continuously change; customization, flexibility, innovation, and speed are the key challenges. Organizational personalities are forged around the dominant players, giving each company a unique look and feel.
Notwithstanding the idiosyncrasies, there are also many similarities between flexible organizational architectures. The most striking is that they resemble a versatile federation—one that can accommodate opposing needs and yet have a shared mission and climate; one that can embrace true diversity and yet have a clear purpose and identity; one that can constantly evolve its trajectory and yet provide a few anchors of stability; one that has focused silos with clear accountabilities yet can leverage horizontal synergies; one that is financially disciplined and yet has a sense of community.
A federal organizational architecture is multipolar. Globally dispersed work units and project teams are typically welded together with hardwired IT and communication systems and the soft glue of cultural norms, people practices, and personal networks. The line units are interdependent, relying on one another for critical expertise and know-how. In addition, they have a peer-to-peer relationship with the center. The center's role is to orchestrate the strategic vision, develop the shared organizational and administrative infrastructure, and create the hard and the soft glue that can create synergies and ensure unity of mission and purpose. However, these tasks are undertaken together with the line units, not dictated to them. What are the success criteria in creating a flexible federation?
First and foremost, there are clear federal mandates that apply to all citizens and work units, with built-in flexibility for autonomous "state" initiatives. Consider the positioning of IT groups; in many companies, for example, the corporate or central IT group is responsible for providing the standard IT infrastructure and communication services that can be used by all the nodes, irrespective of their special needs. The "states" take the initiative in identifying their own customized application needs. Based on their unique requirements, they may use the corporate IT function as an internal vendor or go outside for sourcing the required services. The critical task in this context is to isolate the commonalities across the various zones of "federal and state" tensions—what has to be the same across all nodes so that everything else can be locally customized.
Second, while information and communication technologies provide linkages in the context of codified knowledge, individual initiative is needed to share and crosspollinate uncodified and spontaneous know-how. In a crucial yet complementary sense, this is where hubs come into play. Hubs are knowledge workers who connect the dispersed units, vendors, and projects and sit at the intersection of key constituencies. They may include product managers, project leaders, account representatives, and critical interface functions like marketing, IT, human resources, and business development. Hub roles are important in distributed, nodal architectures, because they provide the connectivity between critical sources of expertise. Additionally, they manage communication links to various stakeholders and are tangible sources of real-time information.
The front-line troops are the radars that can detect the early signals of change, while hubs provide structural connectivity. These teams and individuals are in direct contact with the market and competitive realities, and many include programmers, engineers, salespeople, account managers, and customer service staff. Since the generals, senior executives, are typically responsible for developing the enterprise strategy, it is important to establish direct communication channels between the two and minimize the role of filters and intermediaries. Indeed, to reinforce the connectivity between the strategic vision and operational realities, many senior executives have dual roles and are directly accountable for specific line operations. By fusing their strategic and operational roles, they are able to recalibrate strategies based on real-time information and realistic action plans.[3]
Living With Shades of Gray
The flexible enterprise walks a tightrope between several opposing tensions. The organizational framework is neither totally chaotic nor tightly synchronized. Utilizing the hard wire of IT and remote work protocols does not reduce the importance of soft cultural glue, personal networks, and face-to-face interaction. The focus must be on generating short-term results while not losing sight of the long-term direction. Front-line workers exercise real power and influence, but there are also clear mandates and directional guidelines from the top.
Federal organizational architectures do not fit into the either/or premises of the traditional mechanistic structures. Instead, they must embrace the traditional paradox of centralization/decentralization. On the one hand, the need for focus coupled with the coordination needs of interdependent product families and market segments push towards centralization. Maintaining the pace of innovation and generating the capacity for rapid and flexible response to market needs push towards decentralization. This is a difficult balancing act to pull off, especially in view of continued market and political volatility.
Creating a versatile federation poses a major challenge, because our existing organizational systems, managerial vocabularies, and professional mindsets have evolved to address the challenges of the Industrial Era and its inherent focus on standardization, binary thinking, and unidimensional recipes. The emerging, knowledge-based enterprise needs a versatile set of capabilities to address technological sophistication, complex innovation, short-lived opportunities, competitive intensity, and expectant knowledge workers. It needs tolerance for thinking in terms of "shades of gray," establishing tradeoffs, and continuously fine-tuning the organizational architecture. The current turbulence in the business environment offers exciting opportunities for experimentation, innovative thinking, and diversity in organizational designs, but we have to be willing to lift our organizational blindfolds and move away from simplistic cure-all, one-size-fits-all solutions.