Curated by Francesco Venier - @checovenier
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Thursday, March 1, 2012
The new organisation
The way people work has changed dramatically, but the way their companies are organised lags far behind
(From The Economist print edition)
FIFTY years ago William Whyte, an editor atFortune magazine, wrote a book called “The Organisation Man” that defined the nature of corporate life for a generation. The book described how America (whose people, he said, had “led in the public worship of individualism”) had recently turned into a nation of employees who “take the vows of organisation life” and who had become “the dominant members of our society”.
Foremost among the organisations that Whyte had in mind was the corporation, which he thought rewarded long service, obedience and loyalty quite as faithfully as did any monastery or battalion. “Blood brother to the business trainee off to join DuPont is the seminary student who will end up in the church hierarchy,” he wrote. The New York Times praised Whyte for recognising that “the entrepreneurial scramble to success has been largely replaced by the organisational crawl.”
Half a century on, organisation man seems almost extinct, though occasionally he can still be spotted in Hollywood. In “The Hours”, a 2002 Oscar-winning film, the actor John Reilly plays a character who lives in a 1950s Los Angeles suburban bungalow, just as Whyte's organisation man lived in “the new suburbia, the packaged villages that have become the dormitory of the new generation of organisation men”. Mr Reilly is waved off to work every morning by his young son and his faithful wife, played by Julianne Moore. His shirt is white and his suit and tie are dark, broken only by the line of a white handkerchief in his breast pocket. He spends all day in an office with the same small group of people and returns home each evening at the same time. “This is perfect,” he says of his life over dinner one evening.
This transformation has been brought about by a variety of changes in the environment in which businesses operate, particularly in communications technology, in the globalisation of production and sales, and in the large-scale shift of responsibility to outsiders for what were once considered a company's core functions—via outsourcing, joint-ventures and other sorts of alliances that involve a loosening of control over vital inputs.The company that used to be most closely identified with this way of life was IBM. For many years its managers wore only dark blue suits, white shirts and dark ties, symbols of their lifetime allegiance to Big Blue. It is some measure of the change that has taken place since Whyte's day that today 50% of IBM's employees have worked for the company for under five years; 40% of its 320,000 employees are “mobile”, meaning that they do not report daily to an IBMsite; and about 30% are women. An organisation that was once dominated by lifetime employees selling computer products has been transformed into a conglomeration of transient suppliers of services. Organisation man has been replaced by a set of managers much more given to entrepreneurial scramble than to organisational crawl.
Whyte, who died in 1999, would have enjoyed witnessing organisation man's metamorphosis into “networked person”, a species that can now be observed in airport lounges, on fast inter-city trains and at motorway service stations. Networked person is always on the move, juggling with a laptop computer, a mobile phone and a BlackBerry for e-mails, keeping in electronic touch with people he (and increasingly she) no longer regularly bumps into in a corridor. Indeed, there may be no corridor. These days, many employees besides IBMers no longer have a physical home base in a building provided by their employer.
Organisation man did bump into people in corridors, but he was cautious about networking. In his world, knowledge was power, and he needed to be careful about sharing out his particular store of it. He found comfort in hierarchy, which obviated the need to be self-motivating and take risks. He lived in a highly structured world where lines of authority were clearly drawn on charts, decisions were made on high, and knowledge resided in manuals.
Networked person, by contrast, takes decisions all the time, guided by the knowledge base she has access to, the corporate culture she has embraced, and the colleagues with whom she is constantly communicating. She interacts with a far greater number of people than her father did. A famous 1967 study by Stanley Milgram (which later became the basis for a film) suggested that there were at most “six degrees of separation” between any two people in America, meaning that the chain of acquaintances between them never had more than six links. According to more recent work along similar lines, that number has now fallen to 4.6, despite the growth in America's population since Milgram's study. Being able to keep in touch with a much wider range of people through technologies such as e-mail has brought everyone closer.
And yet despite the dramatic changes in the way people work, the organisations in which they carry out that work have changed much less than might be expected. In an article in the McKinsey Quarterly last year, Lowell Bryan and Claudia Joyce, two of the firm's consultants, argued that “today's big companies do very little to enhance the productivity of their professionals. In fact, their vertically oriented organisational structures, retrofitted with ad hoc and matrix overlays, nearly always make professional work more complex and inefficient.” In other words, 21st-century organisations are not fit for 21st-century workers.
Mercer Delta, a consulting firm that specialises in “organisational architecture”, recently observed that “the models and frameworks that shaped our leading organisations from the end of the second world war through the conclusion of the cold war are clearly obsolete in this new era of e-business, perpetual innovation and global competition.” The design of today's complex enterprises, says Mercer Delta, requires an entirely new way of thinking about organisations.
The classic structure in which organisation man felt comfortable consisted of a number of business units that operated similarly but separately. They were controlled by a head office that determined strategy and watched over its implementation. It was a system of command and control in which everybody knew his place, made visible in the organisation charts that laid down the corporate hierarchy.
A surprising number of companies today still have much the same command-and-control structure that they had 50 years ago. According to the Boston Consulting Group, what it calls “the imperialist corporate centre” is still the most common type of headquarters. And companies that do decentralise decision-making and accountability often recentralise it again when they run into trouble.
Twenty years ago, Motorola, a co-inventor of the mobile phone, was a tightly centralised business. Three men in its headquarters at Schaumburg, Illinois (including Bob Galvin, the founder's son), were in control of almost everything that went on. As the company grew, they decided to decentralise. But by the mid-1990s the company's mobile-phone business was growing so fast that decentralisation made it impossible to control. “While the numbers are getting better, an organisation can be falling apart,” says Pat Canavan, Motorola's chief governance officer. In 1998 the company laid off 25,000 people and repatriated control to the Schaumburg headquarters.
The trouble with silos
The main failing of the classic structure was that it impeded the spread of knowledge and limited the economies of scale that could be reaped. Ideas and commands moved up and down from headquarters to the units, leading to the creation of vertical “silos” with very little communication between them. Financial-service institutions were notorious for not knowing whether customers who signed up for one service were already customers for other services being provided by the same institution.
As firms became more global, they added what McKinsey called a “matrix overlay” to this structure. Most famously associated with Philips, a Dutch electrical and electronics giant (see article), this attempted to take more account of the different national markets in which a company was operating by superimposing geographical silos that cut across the traditional business units.
Such organisations have not commanded universal admiration. In 1990, in a paper published by the Harvard Business Review, Sumantra Ghoshal and Christopher Bartlett, two academics, reported that matrix structures “led to conflict and confusion; the proliferation of channels created informational logjams as a proliferation of committees and reports bogged down the organisation; and overlapping responsibilities produced turf battles and a loss of accountability.” Nigel Nicholson, a professor of organisational behaviour at the London Business School, called the matrix structure “one of the most difficult and least successful organisational forms.”
Messrs Ghoshal and Bartlett wrote in the past tense, suggesting that companies had escaped from the matrix corset. But 15 years after the article was published, many are still trying to struggle free.
Gerard Fairtlough, a former CEO of Shell Chemicals and the founder of Celltech, a British biotechnology company, also suggests that companies are still being held back by their addiction to hierarchy. In a recent book, “The Three Ways of Getting Things Done”, he points to alternatives to the hierarchical structure that many companies see as their only option.
“You can't have a bunch of hippies running a plant full of explosive hydrocarbons,” he says. “But would you rather have the plant operated by trained professionals, for whom pride in safe working is part of their personal identity, or by people who only work safely because they are afraid of the boss? The identification of discipline with hierarchy is a dangerous mistake.” Mr Fairtlough's preferred alternative is something he calls “responsible autonomy”, a form of organisation in which groups of workers decide for themselves what to do, but are accountable for the outcome.
Clearly there is a need for new kinds of organisation that are more appropriate to modern working methods. But there are many reasons why companies are not in a hurry to adopt them.