If organizational structure follows form, the organization that learns well functions well. More precisely, the organization that enables knowledge to flow and be shared at all levels is the organization that performs best. This author describes why learning organizations have the capability to read the market and innovate in ways that lead to success.
Harris Corporation, the largest supplier of microwave communications equipment in North America, decided to enter the emerging Broadband Wireless Access (BWA) market in 1999, a few years before WiMAX became a standard and the buzzword for that market. Harris was launching prototypes as early as 2000 and a full-featured product line in 2002. By the end of 2005, while WiMAX was finally becoming reality, Harris had quietly pulled its BWA product line out of the market in spite of the significant investments made, and of the significant BWA expertise the company had developed. Harris, a 110-year old powerhouse in the U.S., had misjudged the early BWA market, and had not invested in OFDM, the core technology behind the WiMAX standard today.
1. A high-uncertainty business demands leadership
As the example above illustrates, managing in a high-technology environment means working in a high-uncertainty, high-risk context that demands as much market forecasting ability and adaptation capability as one can muster. When high-tech firms talk about management however, they often focus on increasing efficiency and executing to meet next quarter’s numbers. These responsibilities are quite different than providing leadership, for leaders are the ones who initiate change and push it through the organization to pursue new opportunities and drive adaptation.
Significant technological change means unstable product architecture, unclear applications or market, and the possible emergence of new competitors. In other words, total chaos. Because markets, technologies and competition can all be uncertain at the same time, management has no precise instructions to give to their subordinates. With no clear guidelines and great ambiguity on what best to do, employees need a common language, a common set of references that can bring cohesiveness to their individual efforts as they collectively try to come up with proposals and solutions. Only a strong, clear vision can bring order out of chaos. And only leaders can communicate vision.
But, will a strong vision alone suffice to create a viable product and generate a specific level of revenue? Creating value you can sell means achieving a clear match between a technological innovation on one hand and an unmet market need on the other hand. Both the process of innovation and the forecast of new markets require that new knowledge be created or brought into the firm.
2. Organizations that learn adapt better
No matter the industry, a corporation consists of business units with finite life spans: the technological and market bases of any business will eventually disappear. Joseph Bower and Clayton Christensen in “Disruptive technologies: catching the wave,” Harvard Business Review, 1995.
We all know stories of an exceptional scientist or corporate genius that thought of some great innovation in the solitude of his laboratory or office. Research shows, however, that the rapid creation of many news ideas, i.e. innovation, is best done by groups. Meanwhile, the firm must also couple this innovation capability with existing or yet-to-be created market opportunities that are worth pursuing. The organization needs a general ability to recognize the value of external information, assimilate it and, above all, use it for commercial ends. This capability was defined several years ago as the company’s absorptive capacity. An organization can maximize its absorptive capacity by sensitizing a large number of potential “receptors” in various company departments to the need for importing pertinent market knowledge1. Thus, all functions are involved in helping to generate market intelligence and in establishing direct contacts with customers. When shared and used, the information thus gathered flows to all functions, fostering common understanding of customer needs and consistency of actions.
Most high tech companies have enthusiastically used cross-functional project teams to fuel innovation, to share knowledge more efficiently across functional silos and accelerate learning and project delivery. Team-based structures are now responsible for key organizational outputs such as products or services. However, putting a cross-functional team together does not necessarily create knowledge. Those teams that efficiently build and use knowledge:
- Are typically self-organizing (i.e. are autonomous, set their own challenging goals and have a diversified membership of sufficient variety).
- Manage abrasion and chaos into creativity.
- Share common language.
- Are small enough and allow for frequent face-to-face meetings to facilitate socialization and trust.
- Have influential sponsors.
- Have a group leader who helps bridge the functions on the team and also bridges the visionary concepts of top management with the experience-grounded concepts of the team.
- Are supported by a learning infrastructure and compatible company culture.
To a large extent, these characteristics of learning teams are fed by organizational culture. The organization’s innovation capability needs to be augmented and/or complemented by the use of pertinent information that comes from outside of the firm. The ability to create and acquire new knowledge and effectively spread it quickly so that it flows into new products, processes and routines is called organizational learning. This learning is a social phenomenon and an end product of organizational culture. The leader’s job then is not only to provide a vision. In high tech firms, the leader must also promote and inculcate a culture that will support learning.
3. Learning organizations
It’s not about making decisions. If I do a good job of understanding tough issues and clarifying and disseminating our principles, good decisions can be made throughout the organization. Bill O’Brien, CEO of Hanover Insurance, quoted in 1996 by Peter Senge in The Ecology of Leadership.
Mobilizing an organization to adapt its behaviours so that it may thrive in new business environments is critical. But in order to make change happen through the creation and use of new knowledge, leadership has to continuously reinforce a learning culture. Executives have to break a long-standing behaviour pattern of their own: providing leadership in the form of decisions and solutions. This tendency is quite natural because many executives reach their position of authority by virtue of their skill in taking responsibility and solving problems.
When a company faces an adaptive challenge, however, the locus of responsibility for problem solving must shift to its people. Innovative and well-adapted solutions reside in the collective intelligence of employees at all levels, who need to use one another as resources, often across boundaries, and learn their way towards solutions. In the words of Kouzes and Posner2, “[t]he secret of high-performing organizations is that everyone within them knows that leadership at all levels is expected and rewarded, and that individuals everywhere are responsible for making extraordinary things happen.”
Instead of bringing the information to the given decision point, it becomes a matter of bringing the decision to the knowledge bases. Thus, the centre of initiative and action continuously shifts with the consequent changes of roles at all levels of the firm. As an example, Starbucks tackles new opportunities by assembling teams whose full-time leaders often come from the functional marketing areas most critical to success. If the originator of an idea has the right qualifications, that person may take the lead role.
Jack Welch, the former CEO of General Electric, has popularized the concept of “boundaryless organizations” that are not limited by the horizontal, vertical or external boundaries imposed by a predetermined structure. Cross-functional teams dissolve horizontal barriers, while various external alliances and relationships transcend the firm’s boundaries, enabling the company to respond quickly to environmental changes and to spearhead innovation. Boundaryless environments are typical in learning organizations, in which teams self-organize and knowledge is created and shared in the most efficient way.
Peter Bond3 pointed out that the firm’s transformation mechanisms are “the people with knowledge.” Since this knowledge is restructured on a minute-by-minute basis, the firm’s human resource – its “most valuable asset” – is not hard and set. Therefore, if knowledge must now determine structure, restructuring and destabilizing will be corollaries of the enabling of adaptation and continuity. New organizational forms will be rapidly changing and flexible team-based structures moving in and out of chaos, with status based on competencies rather than hierarchical position, and on high levels of creativity structured by goals rather than prescriptive “hows.”
First USA’s credit card unit illustrates how knowledge may determine structure. After identifying new opportunities worth pursuing, the company quickly determines what specialized skills are required and pulls together a suitable “dream team.” To provide qualified leaders quickly, First USA maintains a pool of available managers whose specialized skills can be used to develop and launch a variety of new card products. If building the dream team means pulling people out of their current jobs, finding them in the ranks of partners or hiring from the outside, those people are pulled, found or hired.
4. The Age of the Network
It is useful at this point to step back in history and look at the evolution of the organizational structures we are all working with today. In their 1994 book The Age of the Network, Lipnack and Stamps defined four ages of human organization (Figure 1):
- First was the age of the campfire, when nomadic small groups hunted and gathered.
- Then agriculture sprang up, and with it hierarchy, the top-down organizations still with us 12,000 years later.
- Next, with industry came the steam-engine bureaucracies, spread across departments, divisions and subsidiaries.
- Today we have networks, groups of people working across boundaries of all kinds, as knowledge replaces resources as the new source of wealth.
Each new age had its signature form of organization, with increasingly complex human environments calling for more complex models. Until recently, our only response had been to structure multi-level hierarchies bursting with internal bureaucracies. Bureaucracy grew, got bigger, slower, placing a drag on everything else, including innovation and change. Today’s complexity has outrun bureaucracy’s ability to organize it. The information age and turbulent environments have brought a need for connectivity and dynamic teamwork that only relationships and networks can provide. But that doesn’t mean hierarchy or bureaucracies will disappear.
Lipnack and Stamps demonstrate that each age makes a contribution to the repertoire of human organizations, with older forms gaining new features and being continuously used in later ages. Small groups, hierarchy and bureaucracy can still be used to do what they do best, while networks enhance relationships with customers, anticipate customer needs, increase strategic options and allow competitive entry into new markets.
Companies need to mix and balance these four systems to match their environment. As we saw before, high tech organizations that seek innovation and adaptation capabilities will rely heavily on teams and/or networks, while still making parallel use of hierarchy and bureaucracy when appropriate.
5. Growing a network organization out of a pyramid
A bureaucracy is capable of attaining the highest degree of efficiency… It is superior to any other form in precision, in stability, in the stringency of its discipline, and in its reliability. Max Weber, Economy and Society, 1921.
VISA and Shell have hierarchies. But their hierarchies do not concentrate power in the center. Peter Senge, “Walk into the future,” April 1999.
The bureaucracy of German economist and sociologist Max Weber (1864-1920) was an organizational model rationally designed to perform complex tasks efficiently. Even in this new knowledge era, few organizations can survive without some degree of formal structure. Bureaucracy and hierarchy provide for the stability, accountability and efficiency required to run a business. But is there such a thing as a boundaryless bureaucracy? The answer may very well be yes because the creation and sharing of knowledge have more to do with the existence of a social network that favours the proliferation of links than with a structure.
So, how is a hierarchy-bureaucracy converted into a network? Lipnack and Stamps propose a simple solution: “just add links” to connect all of the organization’s functional groups. Adding a multitude of horizontal links to the hierarchical organization’s vertical lines creates a strong structure, symbolized by the tetrahedrons of Buckminster Fuller’s geodesic dome (Figure 2).4 For Lipnack and Stamps, the key to generating these new links is the firm’s social capital5, which helps grow connections within the firm.
Traditionally structured organizations have found that focusing on developing a genuine, all-encompassing learning culture could go a long way towards building self-organization and adaptation, without having to figure out how to mechanically engineer a web or network organization (remember that learning is not a technology but a social phenomenon). The source, modification and directional flow of knowledge are the three things around which today’s firms have to organize. In the mid 1990s, Leonard-Barton described in detail how a company (Chaparral Steel) that strongly focuses on knowledge management can confer leadership and authority on all levels in an organization.
At Chaparral Steel, knowledge flows readily not only because of the company’s small size, but also because considerable effort has been made to minimize both vertical and horizontal barriers. A scant two levels separate the CEO from operators in the rolling mill, and employees have little hesitation in approaching anyone. There are no assigned parking places, no different coloured hard hats or uniforms reflecting title or position. Progress is everyone’s business, not just the province of a few specialists. Employees are selected as much for their potential and attitude towards learning as they are for their specific backgrounds.
Chaparral is a do-it-yourself company with no acknowledged staff positions and only a few positions that seem staff-like (e.g., personnel). All graduate engineers and technicians have line duties tied directly to steel production. Decisions about production methodologies are pushed down to the lowest possible supervisory level, “where the knowledge is.” Work itself is structured with the objective of disseminating knowledge while or after significant progress is made.
Chaparral’s managerial systems enable and reward learning. The company has invested heavily in an unusual formal apprenticeship program for everyone in the plant; it is constantly improving its workforce skills and actively manages career paths. These incentive and educational systems are supported by a strong set of very clear and consistent values:
- Respect for the individual
- Tolerance of failure
- Openness to ideas from outside
At Chaparral Steel, tolerance for risk taking and failure comes from the belief that risk- less projects hold no promise of competitive advantage – no opportunity to outlearn the competitors.
6. Organization culture
Companies like VISA International, Shell Oil, Toyota, Scania and Interface have found that the key to success is not obsessively measuring costs and profits. It is nurturing the passion, imagination, creativity, persistence, patience, caring and desire to contribute. Peter Senge in “Walk into the future,” April 1999.
Organizational culture typically is defined as a complex set of values, beliefs, assumptions and symbols that define the way a firm conducts its business. Firms with strong cultures are often cited as examples of excellent management. In times of high uncertainty, for example, employees who can turn to strong common cultural references, most often unconsciously, can reduce the perceived ambiguity and make faster decisions6. In the same way that products and services are a manifestation of the firm’s core competencies, its structure and strategy are direct manifestations of its culture.
Senior executives’ ability to implement a true learning organization is indeed limited. They typically articulate new strategies, devise new cost-cutting campaigns or restructure organizations. But they do not design or produce products. They rarely sell directly to customers. And they are usually far too removed to demonstrate the connection between the strategies they devise and the work of people on the front line. Executive leaders can and must, however, create an environment that is open to new ideas and does not confuse rank with leadership, but instead acknowledges the need for leaders at every level of the organization.
In many companies, for instance, new ideas are met not with an open mind but with time-consuming layers of evaluation. As innovative concepts disturb plans or require unplanned resources for their development, management will tend to look for reasons not to use a new idea instead of searching for reasons to explore it further.
Ericsson LMC in Montreal established its “innovation cell” procedure specifically to prevent this from happening. Once a year, the company puts a significant budget aside to support future, out-of-the ordinary initiatives. Any employee with an idea for a new product or product enhancement can present the concept directly to the innovation-cell group, which will evaluate its potential for LMC and other Ericsson operations. Upon a positive review, and only after one high-level sponsorship and commitment of support has been secured, the project is presented to a permanent high-level review committee. The blessing of that committee is the go ahead for investing LMC innovation cell’s human and financial resources to build a prototype and carry out a beta test. By making the innovation cell an independent department, by considering its annual budget as risk capital and by publicly recognizing successful innovators, Ericsson LMC fosters entrepreneurship among its 1,600 employees.
7. The high-tech manager’s job
The leader’s role in an innovative firm is to be a catalyst and facilitator, not an omniscient despot. The leader can support a learning culture by:
- Focusing on managing intellectual assets, talents, competencies and social capital
- Transferring his decision making authority to vision and people with knowledge
- Maintaining creative destruction7 by fostering diversity and unlearning
- Facilitating knowledge creation, sharing and use
- Supporting learning communities and informal networks
Top management’s role is to constantly reinforce the organization’s mission, vision and values and see that it supports a learning culture through its actions. Abraham Zaleznik, Professor Emeritus of Leadership at Harvard Business School, thinks “the job of a leader is to get people to identify with him or her so that the leader becomes a presence in their mind and in their thinking.”8 Thus, the job of top management is not so much to make decisions as it is to guide all employees into making most of the decisions autonomously, acting as a warrant and supporter of the firm’s learning culture. Getting flexibility, responsibility and leadership from all at all levels while strategically managing competencies and alliances, setting a vision for the long term while respecting short-term obligations is a significant challenge.
Hoping to maintain a healthy flow of “creative destruction,” the high technology manager creates and manages the chaos of diversity and discovery. Charged with generating profits today, while ensuring the firm can capitalize on opportunities tomorrow, he is also faced with the dual challenge of efficiency and adaptability. Several times a day, he must reconcile conflicting short-term goals with long-term objectives.
Ambidextrous organizations can operate simultaneously for the short and long term, for today and tomorrow, for both incremental and discontinuous innovations. Without experimental, entrepreneurial units, there can be no future, yet without efficient, consistent units there can be no present. These dualities, which bring internal conflict and politics, explain the use of mixed organizational forms9. The tensions generated in the ambidextrous organization can be managed by a senior team that articulates a clear, common, shared competitive vision that binds inconsistent units together.
High Tech managers that are willing to take on these challenges and help lead a better, learning organization will greatly increase their chances of success. Organizations that learn tend to have the market reading and innovation capabilities required to produce successful products and services. The ability to strategically adapt their resources and benefit from new ideas helps these organizations maintain success as time goes by.
Mr. Aizawa, VP of R&D at Epson Japan in the 1980s would go as far as telling his development staff members that “they need to be both an engineer and a marketer in order to be promoted within our firm.” See Imai, K.-I., I. Nonaka, H. Takeuchi, (1985), The Uneasy Alliance – Managing the New Product Development Process: How Japanese Companies Learn and Unlearn, Harvard Business School Press.
Kouzes, J.M., Posner, B.Z. (2000), “The Janusian leader,” in Chowdhury, S., Management 21C – New Visions For The New Millennium, Prentice-Hall.
Bond, P. (2000), “Knowledge and knowing as structure: A new perspective on the management of technology for the knowledge based economy,” International Journal of Technology Management, Vol. 20, Nos. 5/6/7/8.
Formed by tetrahedrons (triangular base pyramids) joined together at key intersections, the geodesic dome is the only artificial structure known to get stronger as it gets larger. In a way, the geodesic dome is the physical embodiment of synergy: compared to other types of structures, it does more with a lesser number of parts. Lipnack and Stamps have used this analogy to illustrate the flexible structure created by the interlocking of vertical hierarchical lines and new horizontal links between functions – a structure better able to resist the impact of change. They suggest that in team-based organizations, trust, reciprocity and dense social networks (i.e., social capital) can help teams avoid a sense of fragmentation and isolation. Networks, and therefore, teams can extend beyond the boundaries of a single organization.
According to Putman (Making Democracy Work, Princeton University Press, 1993), three things are necessary to develop social capital and grow horizontal connections within the firm: Trust, Reciprocity (“I help you now because I know you will help me later”), and Dense Social Networks. For their role in building social capital, relationships that increase trust, reciprocity and participation in networks generate new wealth beyond their immediate productive results.
Pushing down responsibility and authority significantly improves performance and adaptability when a strong corporate culture is there to help guide decision-making. See how this is done at BP and Toyota in “The new organization – a survey of the company”, The Economist, January 21st, 2006.
For Austrian Economist Joseph Schumpeter who died in 1950, a normal, healthy economy was not one in equilibrium, but one that was constantly being disrupted by technological innovation. Waves of new innovations would destroy the old way of doing things and create the condition for a new “industrial cycle,” thus achieving “creative destruction.”
Taken from an August 2001 interview summarized in “All in a day’s work,” Harvard Business Review, December 2001.
Motorola’s Razr mobile phone, currently a big market hit, was developed in a new laboratory 80km away from the company’s main R&D facility in suburban Illinois. Both the building and the workspace design were very different from Motorola’s main offices, with lots of bright colours and dividing walls. See “The new organization”, The Economist, January 21st, 2006.