In their book, The Individualized Corporation[1], Sumantra Ghoshal[2]and ChristopherA. Bartlett[3] (Random House, 2000) (Buy it at Amazon.co.uk or Amazon.com) present an alternative view of what the future of the organisation might be. Their intent is not to provide a detailed “how to” manual for organisational change, but rather to present reasons why change is needed and some frameworks within which change will need to be envisaged and attempted.
The authors specifically lay out their intent: “rather than focus on the artefacts of the problems, we want to help managers understand their root causes. And instead of adding to the proliferation of prescriptive tools and normative techniques, we have developed a set of integrated ideas and a conceptual framework that we believe provides [a] mental map of the new corporate terrain.”[4]Hidden towards the end of the book, almost as an afterthought, seems to be the purpose behind the author’s various observations and suggestions. For them, successful corporations are increasingly shaping their organisational structures to fit the talents and motivations of their employees, thus harnessing their creative and entrepreneurial talents and “evolving” as an entity[5]. The corporation’s role is to define broad purposes and ambitions in which such individuals can find a place to belong. As such, corporations will assume a much greater role as social institutions and “primary creators and distributors of value” as well as being “creators of substantial amounts of social capital through their role as forums for human interaction and personal fulfilment, and through the vital contributions to the development of people.”[6]
“Underneath the structures and processes of the Individualised Corporation lies a very different management philosophy. Grounded in a different set of assumptions about human nature and the roles of institutions in modern society, this philosophy leads to some very different beliefs about the role of the company in society, about the relationship between employers and employees, and about the functions of management in its obligations as a profession. Overall, it posits a very different moral contract between the individual, the company, and society. It is this new moral contract, more than any of its specific operating characteristics, that is the essence of the Individualised Corporation.”[7]
1.1. Some (minor) concerns
I have two minor quibbles with the book. The book, while gripping in its content, is not entirely accessible in either its style or structure[8].I was more than halfway through the book when I finally worked out the structure for each of the sections. I am sure that if Sumantra Ghoshal had not tragically passed away[9],the publishers would have insisted on a revision and reprinting of the book. In fact, seminars done by the authors seem to be a lot more helpful in following the flow of their thoughts[10].
Secondly, I have some concern around the particular use of the case study method in this book. Whenever the authors attempt to draw lessons from the vast amount of direct case study research conducted, there are always three conclusions drawn. This occurs so regularly throughout the book that it feels contrived. In most cases,the actual content is excellent. It would have just been much better for the authors to present a framework, without overly referencing particular case study examples. In a similar book with a similar theme and intent, Reggie McNeal puts it this way:
That is why this book is not a travel brochure (“go here to see this”). When I give illustrations of leaders and [organisations] who are operating effectively within the these new [realities], I deliberately don’t give specifics. I want to give you enough suggestion for you to prepare for your own journey.[11]
Of course, Ghoshal and Bartlett are always quick to remind the reader not to rely on the case studies. They say that the descriptions of organisational development of a few key example companies are used “merely as an example, not a model for all companies different organizational forms work for different companies. Each entity must define its own version based on its strategic imperatives and organizational history. There are, however, some core processes that are likely to be common to all.”[12] It is these commonalities of the emerging organisational model that they claim to focus in on.
But these are minor concerns about their approach. Their content is superb. Here is what they have to say:
2. Where We’ve Come From
The opening chapters of the book deal with the context of emerging connection economy.[13] Like most organisational analysts, they like going back into history to show a natural progression from where we’ve come to where we’re going. They use the story of Halley’s Comet as an anchor for a three part progression in the story of the history of the corporation. In 1835 as the comet hurtled past the earth the concept of a limited liability entity was emerging in Europe and the United States – the vehicle of financing in the Industrial Era was being born. The “corporation” was the key to financing the age of machines. This new kind of organization was necessary because a new era was under way, an industrial revolution that would utterly alter the whole scope of business. These first corporations would be the first vertically integrated organizations, involved in the planning, designing, making, and selling of products across national borders.
As the comet returned in 1911, the era of mass production was forcing a change on this corporate entity. Frederick Winslow Taylor published his “Principles of Scientific Management” (1911) and Pierre du Pont was starting his experiments in diversification – a few years later to be pioneered as the divisionalised Corporation by Alfred Sloan at General Motors. By creating divisions, the heads of corporations were able to allocate capital to a diversified, competing portfolio of businesses at the same time. Divisionalisation was the wonder of its day,allowing corporations to grow larger than ever while still being led by a relatively small group.
“[A] 1950s-based culture was ideal in the post-war era in which a company’s opportunities exceeded its ability to fund them, in an environment in which innovation, responsiveness, flexibility, and learning had become vital sources of competitive advantage, [and] a management context [was] framed by compliance, control, contract, and constraint.”[14]
As the comet swung by again in 1986, the Japanese led the new revolution of excellence and global efficiency and effectiveness. Jack Welch of GE made his name as the “manager of the century” by completely focusing his attention on growth, efficiency and effectiveness. But that has not been enough to rescue business from the harm inflicted on it by large, centralised bureaucracies.
“By the mid-1990s, the managers of most large companies felt that the toolkits were overflowing and their apprenticeships had been served. Yet most remained confused about what it was they were creating. Worse still, the outcomes were disappointing: Many of the change initiatives had proven unsuccessful, and even where they had seemed to pay off, they had not bridge the widening gap between the companies’ strategic imperatives and their organisational and managerial capabilities.”[15]
Other authors, of course, have gone much further back in time to prove their point. Thomas Malone[16],for example, goes right the way back to the hunter gatherers to show society’s progression from independent to centralised to decentralised systems. Malone’s model, as with many others, serves to reinforce the story told by Ghoshal and Bartlett. In particular, he argues that a given the recent rapid advances in communication technologies, and especially the dramatic decrease in the cost of communication, “you can afford to decentralise in a way that gives you both the benefits of bigness, like scale economies, and the benefits of smallest, like motivation and flexibility.”[17]
3. The Old Management Context
In the name of efficiency and accountability, divisionalised hierarchical companies place a premium on divided accountability at the expense of broader cross-unit collaboration that drives organisational learning. But this was essential at a time when there were many opportunities – in fact, when the primary management role was to ensure that the company did not pull itself apart as it diversified, and when one of the major functions of top executives was to choose between too many opportunities, not all of which could be pursued.
Many different management models emerged to try and help stretched Executives manage the realities of their business. Most emphasized Strategy, Systems and Structure[18]. Traditional companies, designed and managed for this era, were characterised by four main management strategies emerging out of managerial context described above:
- Constraint – This is the negative side of Strategy. “As companies expanded and diversified, top management found it increasingly important to develop clear, focused definitions of corporate strategy as boundaries within which those with delegated responsibility could operate.”[19] This was particularly true in an environment in which opportunities for expansion in exceeded most companies’ ability to finance them. Constraint (and strategy) was helpful in preventing diversification from becoming unmanageable or from wantonly dissipating precious resources. “Eventually, however, as broad strategic objectives were specified in detailed strategic plans and translated into specific portfolio roles for different businesses, the strategic constraints became confinements and the operating boundaries became barriers. The strategic process became constraint that not only affected how managers could act but ultimately how they could think. Constantly bombarded by strategic visions, roles, goals, challenges, and priorities, front-line managers retreated into a passive mode far removed from the spirit that had once powered the organization’s growth engine.”[20]
- Compliance – this is the negative side of structure. It was important, even vital, in the post war years when many companies diversify their activities into scores of inviting opportunities. As they began their rapid expansion into a diverse range of new businesses and markets, most found an urgent need to have widely dispersed employees complying with common policies and uniform practices so as to prevent powerful centrifugal forces from pulling their organisations apart. Many employed the classic military model of line authority, ensuring that employees would follow the direction set by the leaders. Of course, this could also degenerate into a pathological form, where inflexible procedures and authoritarian intolerance of dissent prevented policies from being challenged and shut down a meaningful debate on top-down directives.[21] Front line managers learnt to keep their mouths shut and comply, or at least tell their bosses what they wanted to hear.
- Contract – This is the negative side of Systems. It is “a characteristic born of legalistic biases that became greatly strengthened by two more recent organisational trends: the highly incentive-leveraged compensation systems that reinforced the notion of a financially based relationship between the company and its employees, and the massive restructuring, rationalisation, and redundancy programs that underlined the fact that this relationship could be terminated at any time it eventually lead to a formalisation and depersonalisation of the way in which individuals felt about their companies More and more, they felt like employees of an economic entity, and less and less like members of a social institution.”[22]
- Control – This is the negative face of all three of the above. Control is the leadership curse of our age, being so deeply rooted as a norm of classic hierarchical relationships. In a divisionalised structure, corporate level executives delegate substantial responsibility to a new level of general managers only if they have the mechanisms to hold them accountable. The primary method of control is financial, around budgeting and reporting, with sophisticated capital planning and operational budgeting systems to establish top down control throughout the organisations. “While such systems proved highly effective in allocating funds and driving ongoing performance, they eventually contributed to a deterioration in interpersonal relationships. The object of setting and forecasting processes often degenerated into a gameplaying exercise between adversaries, and the monitoring activity frequently became an excuse for an increasingly powerful corporate staff to intervene in the operations of front-line managers. Once again, the impact of the front-line managers’ behaviour was to make them defensive and risk averse.”[23]
It is important to understand what the old context is, so that we can better understand what it needs to be. We must also understand that the four items mentioned above were not bad- they were necessary at the time in which they rose to prominence. The intent behind each of them was important,and some of their elements would still be valuable today. But we must go beyond them.
4. The Changing Management Context
As the 1990s dawned, downsizing,rightsizing, outsourcing, de-layering, re-engineering, and empowerment all indicated that companies were undergoing a fundamental change in their corporate models, organisational structures and the role of management. Many leaders are still scrambling to keep up,and desperately trying to find solutions in an age of transition. Globalisation is a driving force behind this change, but so too are information technologies, deregulation, privatisation,the service-based economy, the convergence of industry boundaries, offshoring (global outsourcing of services), increasing efficiency in global capital and money markets and the knowledge revolution. Today’s scarce resources are the information, knowledge, and expertise that are embedded in people’s heads, and networks of human relationships. Companies designed to efficiently allocate and control financial capital have got to change so that they can develop and diffuse intellectual capital and manage human capital.[24]
In this new emerging business reality, strategy is no longer a purely executive function because front-line people know more about business pressures and customer needs than CEOs. Much of that knowledge is lost, distorted and delayed as it is standardised and stripped down for formalised reports to managers up the chain of command. Structure building as a task of senior executives is often irrelevant because the structures they design are irrelevant and temporary at best. Systems design is equally problematic for senior executives. Engaging people’s imaginations and designing work so that it matters to people is not something that can be done from a top floor corner office. If attracting and retaining people is a critical competency of the 21st century, then the ability to design systems that inspire people, rather than soulless systems designed purely to achieve functional outcomes is critical for success – and is best done by people close to the operational levels of the organisation.
Ghoshal and Bartlett suggest moving beyondtraditional management models. “Our observation is that in the emerging knowledge-based, service-intensive environment in which companies compete today, management must supplement traditional hard edged tools with a perspective offered by the broader and more dynamic model that we have defined as the purpose, process, people philosophy.”[25]
Purpose is about providing a guiding vision for the organisation. It goes beyond strategy in that it is about why a company exists, not just what it exists for. “Today, the corporate leader’s greatest challenge is to create a sense of meaning within the company, which its members can identify, in which they share a feeling of pride, and to which they are willing to commit themselves.”[26] Processmoves beyond structure in that it looks at integrating different operating units and ensuring the free flow of information, transfer of ideas and best practices within the organisation. Managingpeople in a service-based economy requires much more than defining priorities and monitoring operations through detail-oriented information, planning, and control systems. “What it means is that instead of the historical reliance on planning systems for setting direction, they rely on the deployment of key people to specific jobs to influence the company’s evolution. Similarly, instead of depending primarily upon formal information systems to influence the nature of information processing in the company, top management communicates complex ideas, senses subtle signals, and fosters the transfer of knowledge through its personal relationship with people. And,instead of depending exclusively or even primarily on the traditional control systems, managers find more effective ways of influencing people’s behaviours by shaping the context in which people work.”[27]
5. New Management Tasks
In this environment, each of the four traditional management characteristics must be superseded. The old abilities are sometimes still needed, but new skills must now extend and enhance a modern manager’s abilities. The changes are as follows:
- compliance to discipline (independence/responsibility)
- constraint to stretch (mastery)
- contract to trust (belonging)
- control to support (generosity).[28]
The definitions of each of these are:
Discipline — “is the performance standard that comes from within each individual.”[29] “It is more than compliance to directives or conformity to policies; it is an embedded norm that makes people live by their promises and commitments.”[30]Discipline includes the rules of engagement that constitute the required level of behaviour that is an absolute condition of employment. It is instilled by:
- establishing clear standards and expectations, as well as emotional commitment to bridging visible performance gaps. “More grounded and measurable than the vague objectives of a vision statement yet more broadly framed and durable than the line items of the annual budget, these standards and expectations are the criteria that set the height of the bar and define the conditions for autonomy.”[31]
- consistency in the application of sanctions for underperforming units and individuals who are dealt with quickly and firmly in a no excuses culture.
- democratisation of information.
- implementing a system of open and fast-cycle feedback, with openness, honesty and candour in the review process at every level of the organisation.
- creating a cult-like culture through careful socialisation of new recruits, with an intensive education and development focus.
Stretch – is the ability to engage people with a challenge and move them to a level of performance they did not know they were capable of by “liberating and energizing [them, and] raising individual aspiration levels and encouraging people to lift their expectations of themselves and others.”[32] To create stretch:
- establish shared ambition through well communicated and shared goals.
- visible celebrations of successes will breed optimism.
- structure around focused, small groups that are specialised and niched, resulting in “the emergence of a collective identity”[33].
- ensuring that individuals have a clear picture of how their own tasks contribute to the overall performance of the company, and have an ability to create personal meaning and ownership.
Trust — is the glue that bonds organisations together and allows people the freedom to experiment. “People who trust one another rely on each other’s judgments and depend on reciprocal commitment.”[34] It can be developed by:
- “[high levels of] perceived fairness and equity in the company’s decision processes”.[35]
- continually increasing the overall level of personal competence at all levels of the organisation. Jack Welch used to refer to this as “increasing the average IQ of the company”.
- ensuring that decisions are made in collective meetings, based on objective data and no subsequent changes are made in one-on-one deals.
- teamwork occurs within and across units. “Even when decisions run counter to the interests of individuals, they are exposed to the broad rationale and have the opportunity to advocate their positions.”[36]
Support – is “the relationship between bosses and subordinates defined by characteristics of coaching, helping, and guiding it also frames the horizontal linkages amongst peers [and requires people to] voluntarily seek and provide assistance to colleagues” as the norm[37]. Support is the idea that people are not hung out to dry, and that the organisation does everything to help its people to succeed. “The problem is that after decades serving as loyal implementers of a classic hierarchy, most employees do not have the attitudes, common knowledge, or skills to allow them to take advantage of the new freedom made possible by such changes to the structure and systems. To allow these individuals to become real front-line entrepreneurs, companies must create a nurturing and supportive environment that develops the skills and builds the confidence of those being asked to take on this new role.”[38] This can be achieved by:
- cross-unit and cross-functional interactions, with “increased access to company resources located outside of their own unit”[39].
- radical decentralisation, emphasizing autonomy with “less control-focused and more help-orientated senior management”[40], who take on a role of guidance, coaching and help.
- fostering freedom of initiative at lower levels.
- Management coaching — “the biggest source of failure in the transformational change in most companies is not that those on the front lines are unable to rise to the challenge of becoming more entrepreneurial but that their managers fail in their ability to give them the freedom and support to do so.”
- Openness to challenge — “the most common cause of failure and success. Management become so proud of its past achievements and so wedded to the strategic logic and organisational capabilities that made them that it loses the ability to re-evaluate itself and revise its traditional approaches.” (pg 63). “The willingness and ability of individuals to challenge embedded policies or to question top management decisions is made much easier when the routine interactions across organisation levels are based on a coaching relationship rather than a relationship dominated by control.” (pg 64).
- Tolerance for failure – 3M’s adage goes, “You can only stumble when you are in motion.” They refer to well-intentioned failure. They know mistakes will be made, “but if a person is essentially right the mistakes he makes are not as serious in the long run as the mistakes management will make if it is dictatorial and undertakes to tell those under its authority exactly how they must do the job. Management that is destructively critical when mistakes are made to kill initiative, and it is essential that we have many people with initiative if we are to grow.” (pg 65f) These were the words of 3M’s founder William McKnight.
These four elements are not blunt instruments or new versions of systems. They deal with attitudes,culture and “the smell of the place”. Thus, “ultimately it is not the tools and initiatives but the quality of management in applying them that [will] contribute to the establishment of[each of the elements] as an established behaviour norm management cannot be separated from the message.”[41] “While we have described each of these attributes separately, they are neither independent nor static. Indeed, it is the interplay among these dimensions and in the co-evolution of each that the whole dynamic of self-renewal is created.”[42]
Ghoshal and Bartlett do add some further complexity to their simple model, by indicating some of the interactions between the four elements they describe. “People learn to operate in an environment that is, on the one hand, highly disciplined and demanding yet, on the other hand, also trusting and secure; an environment where expectations are stretched, ambitious, yet within a setting that is supportive and nurturing. And it is in the resolution of these complementary yet often contradictory forces that the organisation develops the energy and direction to drive its self-renewal process.”[43]
6. New Processes Required
The phrase “self renewal” comes up often in the book. In fact, there are three specific processes that Ghoshal and Bartlett believe should characterise the new type of organisation: entrepreneurial processes, which produce and support opportunity seeking; integration processes,which link dispersed resources, competencies and businesses of the company together, and ensure learnings are shared horizontally and well as vertically;and, renewal processes, which create and sustain the company’s capacity to continuously challenge its own beliefs and practices thereby revitalising the strategies that drive the business[44].
In linking these processes to the management context, they show that discipline and support are essential to stimulate individual initiative and entrepreneurial behaviour. Trust is key to engendering organisational learning and establishing horizontal integration. Stretch is an energising force that drives continuous self renewal. They argue for a complete turnaround of traditional thinking of management tasks in this regard.
Front-line managers (sometimes referred to as Operational Managers) must become the primary initiators of entrepreneurial action, creating and pursuing new opportunities for the company. “Inspiring individual initiative requires that individuals feel a sense of ownership in what they do; this is achieved in small organizational units more easily than in large ones.”[45] Innovation is often seen as coming down from Executives, when it is more likely to happen at the customer interface, and should become one of the primary responsibilities of operational management. Rewards and incentives must be put in place to encourage front-line managers to stretch beyond their immediate responsibilities, and also to play a role in challenging embedded assumptions. “Frontline managers, heading small,disaggregated, and interdependent units focused on specific opportunities, are the company’s entrepreneurs. They are the builders of the company’s businesses and competencies and take full responsibility for both the short-term and long-term performances of the units. Importantly, they face out to an external environment with which they build strong contact and relationships,rather than upward into a hierarchy from which they expect direction and control.”[46]
Middle managers (sometimes referred to as Senior Management) become a key resource to the front-line managers, coaching and supporting them in their activities and integrating their various activities across the business. Thus middle managers play a key anchor role in the integration process. They must create and maintain credibility and trust in the entire system, displaying fairness and transparency, create a participative decision-making context and design and manage the various horizontal coordination mechanisms required for knowledge and skills sharing across functional units. Middle managers become developmental coaches. “Like coaches who leverage the strengths of individual players to build a winning team, middle level managers link these separate businesses and leverage the resources and capabilities developed in each of them. Overall, they play the role of capability developers – developing both the skills and competencies of the individual front-line managers through mentoring and guidance, and also the overall capabilities of the organisation by integrating the diverse capabilities of the front-line units across businesses, functions,and countries.”[47]
Top management (sometimes referred to as Executives or Senior Executives) must become institution builders. Their primary responsibility is to energise and inspire the renewal process, in particular by serving as the source of organisational disequilibrium. They must focus on driving the entrepreneurial process more by developing a broad set of objectives and establishing stretch performance standards that the front-line initiatives must meet. In the integration processes, they have a responsibility to attract and develop competencies and manage operational inter-dependencies. “Top management provides the foundation for this activity by infusing the company with an energising purpose – a sense of ambition, a set of values, and overall identity – so as to develop it as an institution that can outlive its existing operations, opportunities, and executives. Like social leaders, top management creates the challenge and commitment necessary to drive change and ensure that the company continuously renews itself. Rather than trying to control strategic content, top management focus is much more on shaping organisational context.”[48]
“If a company is to become an Individualised Corporation, its operating-level managers must evolve from their traditional role as front-line implementers to become innovative entrepreneurs; senior-level managers must convert themselves from administrative controllers todevelopmental coaches; and top-level executives are forced to see themselves less as their companies’ strategic architects and more as their institution builders.”[50]
Although the intention of the book is to provide an overall framework of thought, rather than a how-to guide, chapter 8 outlines some of the key activities and tasks each level of management would need to come to grips within order to adapt as indicated above. The authors also point out that HR will also have new tasks. They specifically point out that formal training is a key component of most knowledge era companies, along with coaching for skills mastery. “Indeed,this coaching role has become so important that it is now widely defined as a central management responsibility, particularly at the senior level of the organization.”[51]
7. Getting From Here to There
The transformation task will be different for different companies and adapted to the unique situations of each company. In the book, the authors use GE under Jack Welch as an example of general principles of change. “Successful transformation process is almost always followed a carefully phased approach that focused on developing particular organisational capabilities in an appropriate sequence, [and] actual transformation occurred only when the structural reconfiguration was reinforced by real and enduring change in the behaviours of individuals within the organization.”[52]
The three phases they identified are: rationalisation, which embeds the entrepreneurial process and is about discipline and a focus on efficiency and smaller functional units which do less things better; revitalisation,which focuses on developing integrative synergies in a context of openness and collaboration; regeneration, or continuous self renewal[53].
But the authors are not only concerned about the internal workings of organisations. Their revision is even bolder, and includes a rethinking of what companies can contribute to society as a whole. “Amid a general decline in the authority of other institutions – political parties, churches, the community, even the family units – corporations have emerged as perhaps the most influential institution of modern society, not only in creating and distributing a large part of its wealth but also providing a social context for most of its people, thereby acting as a source of individual satisfaction and social succour.”[54]
In this type of environment to focus on the value of people and the value forpeople is critical. People are not machines – they cannot be owned. But they have value to the company, specifically when they become specialised to the company’s business and activities. There must be some incentive for the company to commit itself to those people who can help it develop, just as there must be incentive for those individuals to commit themselves to a company for a period of time.
“It has, by now, become a cliche to claim that people are the key source of a company’s competitive advantage. But, in a literal sense, this cannot be true in the long-term – at least not since slavery was abolished. The only way people can directly serve as the source of a company’s competitive advantage is if they are exploited – in prison factories or sweatshops. In companies that pay a fair wage commensurate with the individual competencies of their employees, the real source of competitive advantage lies in the context – in the internal environment that allows people to individually and collectively create far more value than they could if they were employed elsewhere. If, as is often asserted, the key function of management is to help ordinary people produced extraordinary results and if[the] behaviours of people in the company can be so radically changed by changing the internal behavioural context, then shaping that context is undeniably the principal task of managers and the best measure of the firm’s quality of management.”[55]
8. Conclusion
The biggest mistake that can be made in reading a book like The Individualized Corporation is to think that the task of changing the corporate environment is all about finding the “seven habits” or “21 laws” – that it’s about the tweaks and tricks that can get you easy wins. In reality, this book and others like it,represent a manifesto for a radical new way of doing business in the world. It is nothing short of revolutionary if it is correctly understood.
Becoming one of these new type of organisations is a lot more about being than doing. This can be tough for leaders and managers who have not been brought up in this environment nor have skills for it. But moving in this direction is critical to the future success of organisations in the 21stcentury.