Arthur Yeung and Dave Ulrich
Every executive recognizes that technology has disrupted their world. Technology transforms entire industries—e.g., lodging with Airbnb, transportation with Uber and DiDi, retail with Amazon and JD.com, and entertainment with Supercell and Netflix. Technology also shifts a focus from market share to specific customer share, such as customized solutions for entertainment with Sling, and to an operational efficiency gain through manufacturing, such as the use of robots in assembly businesses. No longer can senior executives delegate technology’s impact to an IT department and respond with hardware or software investments. Senior leaders need to get ahead of the technology revolution by creating strategic agility to anticipate opportunity, and by creating operational modernization to access and use digital information. But even more, for senior leaders to outmaneuver the digital age, they have to reinvent their organizations. Why Organization Matters An effective organization turns individual competencies into collective organization capabilities, aspirations into actions, and opportunities into outcomes. Our research found that the quality of the organization has four times greater impact on business results than the skills of individual employees. According to the study “Redefining Small Business Success” by the Small Business Administration, roughly 66 percent of new businesses survive two years or more, 50 percent survive at least four years, and just 40 percent survive six years or more. Larger, more traditional companies have difficulty making change projects happen in their organizations; statistics vary from 50 to 60 percent failure rate on change initiatives. Based on the challenge of succeeding in our changing environment and the technology tsunami facing businesses, traditional views of organization as hierarchies, processes, and systems need to be replaced. Senior business leaders have to reinvent how they think about their organizations so that they can anticipate and respond to the unique opportunities required in the digital age. Is your organization ready to respond to technology disruption? How to Redefine Organization Reinventing an organization to respond to change is not a new idea. Anti-bureaucracy advocates have been around for years who want to remove layers, reengineer processes, and revamp decision making. A number of organization experiments boast fancy names (holacracy, exponential, boundaryless, network, and agile, to name a few) to describe an organization that moves more quickly to adapt to changing business conditions. Changing processes is not enough. Organizations have to reinvent themselves and how they are designed. We have studied some of the most dynamic organizations in the world in the U.S. (Amazon, Facebook, Google) and China (Alibaba, DiDi, Huawei, Tencent) and Europe (Supercell) to discover principles of reinvention that can be adapted to any organization. This reinvented organization form starts with market-oriented opportunities and works to position itself to define and access emerging market opportunities, even more than market share, by understanding the environment and strategy that set the context for success. Then the company reorganizes its resources and people governance processes into an ecosystem to win in the marketplace. We call these organizations market-oriented ecosystems (MOE). While this is a bit of a “clunky” phrase, we believe it captures the new organizational logic. We distilled insights from our research into six principles and practices of reinventing your organization that you can use to assess how well your organization is prepared today for the digital age and where you can focus improvement efforts (see figure below). How to Diagnose and Improve Your Organization Each of these six dimensions leads to a diagnostic and pathway for improving your organization. 1. Environment: How well does your company appreciate and anticipate the trends and changes in your business context: social, technical, economic, political, environmental, and demographic? The pace of change in each of these areas demands ever-increasing responsiveness and innovation. Successful organizations look beyond current market conditions to anticipate what’s next and create what can be. 2. Strategy: How well does your company grow your businesses and through what paths? Leading companies today don’t just seek market share but anticipate and create market opportunity. They clearly see how to allocate resources to create strategic agility to capture these opportunities. 3. Ecosystem capabilities: How well does your company win by leveraging strengths to be truly customer-centric, innovative, and agile through shared resources, information, technology and engaged employees? Successful MOEs create capabilities in the ecosystem more than within the boundaries of any single division. 4. Morphology: How well does your company have the right organizational form to deliver these ecosystem capabilities and capture market opportunities? The form most useful in this regard consists of platforms, cells, and allies, which offers a new organizational logic that is not pure matrix, multi-divisional, or holding company, traditional organization forms. 5. Governance mechanisms: How well does your company make mutually reinforcing decisions and actions based on shared culture, performance accountability, idea generation, talent pipeline, information transparency, and collaboration? These governance mechanisms guide and reinforce the mission, vision, and operations of the firm and its ecosystem. 6. Leadership at all levels: How well do the top leaders of your company set the context and rules for self-driven units to operate through market-oriented relationships? How well do your leaders empower, energize, and orient employees through the right culture? How well do your leaders master and exemplify the following five roles? • Business strategists who anticipate the future and build consensus on how to get there. • Organization architects who replace bureaucracy with focus on internal rules with customer-centric information and innovation. • Culture definers who identify the right culture based on purpose, brand, and values that the company stands for. • Talent managers who find and inspire the right people to give their best efforts through learning and growing. • Individuals with personal proficiency who model passion for growth with personal energy, empathy for others, and a commitment to learning. The technological tsunami and subsequent digital disruptions often intimidate and threaten leaders. CEOs who create the right organization can not only respond to these digital changes but take advantage of them and use their organizations to continue to win in the marketplace.