Transformation: from Self-contained Company to Networked Global Organization

Indust_Kg_orgWhat does the Knowledge Economy Portend for the Industrial Economy organization?

Today, most of the world’s global commercial and governmental organizations increasingly find themselves confronted by the Knowledge Economy’s new success factors, which are often contrary to the Industrial Economy’s. Compounding the challenge, past competitors have had similar structures and limitations to incumbents’, which gave everyone more time to adapt to change; however, new Knowledge Economy competitors often do not have the same structures and limitations. Technology and globalization are changing the rules of engagement.

These developments leave industrial companies in an awkward situation. Now, they need to excel at collaborative innovation—historically a weak point—to capture and hold customers’ attention. In the Knowledge Economy, innovation will replace efficiency as the primary driver of value creation. Competitors that can engage rapidly shifting customer desires will dominate.

To succeed, incumbents must quickly become more adaptive and collaborative with external partners and customers. Moreover, they must transform themselves while they continue to operate at increasing levels of performance.

Industrial Economy Success Factors Knowledge Economy Success Factors
Deliver vast quantity and low prices to relatively few broad demographics Deliver unprecedented choice to many narrow customer segments; low prices table stakes
Tightly integrated command/control organization Loosely coupled collaborative networked organization
Failed new offering launches are the rule because it’s a low velocity, internally-focused research/ produce/ sell process New offering launch processes are high velocity and feature customer input and collaboration with external specialists
Off-line consumers isolated and passive; buying decisions usually made using company-influenced information; consumers can’t easily find consumer-produced information On-line customers validate each other’s interests and influence purchases, creating micro-markets with unique demands; this will be the rule in emerging markets, where on-line is the default for new middle classes
Focus on product/service features Focus on customer experience

New Structural Capability Enables New Level of Customer Focus

The increased practice of (out)sourcing is enabling the enterprise to evolve in order to meet the challenges of Knowledge Economy customers. (Out)sourcing failures and successes are educating enterprises and their providers about new IT-enabled options for executing (and redesigning) business processes. Forward-thinking executives are realizing that their options for business process execution and competency definition will continue to increase in step with their sophistication in sourcing.

In the Knowledge Economy, the enterprise’s networked structure enables it to put customer needs before the needs of the organization. Even today, most corporate “organizations” are defined by their positions within their enterprises’ organizational structures, and their actions are defined by their performance within the departmental context. Thanks to “reengineering” pioneers, executives began to appreciate the relevance of the business process orientation in the 1980s, but very few organizations have truly been transformed. The organization has been the required mechanism to deliver value to the customer, but it adds little value to the customer today (its services do).

What if the company could deliver the services without the organization?

The industrial organization is large, complex and expensive, and maintaining its optimal function too often requires the enterprise to focus on itself at the expense of the customer. If the company were to separate the organizational structure from the services it delivers, the company could transform how it delivers value to customers.

E-Business, the application of open standards-based Internet technologies and processes throughout enterprises of all sizes, has provided a capability to change all this. Because executives increasingly have granular, real-time information about business processes, they can change the model: in effect, the degree of information available renders the “organization” far less relevant today, and the stage is set to move the customer-serving business process in the forefront.

What does this mean? First, execute the process in the way that is most advantageous to the customer, based on the nature of the customer’s request and the enterprise’s ability to fulfill it at that moment in time. Real-time, granular information can begin to enable executives to understand that the context around requests (for products or services) and their fulfillment is in constant flux. Previously, executives did not have the information or visibility.

But “organizations,” which were required prior to the e-business era to manage inflexible actions that coordinated complex inputs to produce and deliver products/services, are no longer required.

Because each part of a business process increasingly can self-report its status, it can be reconfigured on the fly as needed. In other words, processes will increasingly self-organize.

Self-organization

Self-organization is a future state that already exists in pockets today, and it will be more true every month that passes. But executives have a serious legacy problem: organizations have provided the structure and coordination to marshall tremendous resources to produce vast amounts of product very efficiently. If they want to dismantle them in favor of the business process, how can this be accomplished? How does one change a tire while the car is still rolling? It is well established that organizations struggle with “adaptiveness.” Why? Their method of making order out of chaos has been scale and its inflexibility. They have “tightly coupled” (inflexible) processes, which were required due to the massive process dependencies within the enterprise.

The future state calls for enterprise organizational structures to devolve into “business components” that fulfill service requests from each other using standardized communications (business services). Such business components will organize themselves around service requests. Of course this idea is by no means new; however, I.T. maturation, business process digitization and the rapidly developing, robust outsourcing provider market make process-focused transformation actionable today. What is missing is an approach to deliver the vision incrementally yet decisively. Transourcing™ is that approach.

For a more detailed treatment of organizational transformation, see transourcing.com.

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