Organizations 2.0 : where it’s all headed to

by rohit on October 4, 2009

This blog on marketing & Internet has taken a detour. The last of four posts on organizations. In the 21st century, say the pundits, work can be more productive yet fun.

The last three posts were on what’s missing in today’s organizations, why these organizations find it difficult to change et al. This one’s about where our organizations are ‘headed’.

A couple of perspectives:

McKinsey on Mobilizing Minds

We either work in large organizations or in small ones (including one person firms) that ‘feed off’ the large ones. Management guru Charles Handy referred to these small organizations as fleas in his book The Elephant and the Flea. In today’s world, more and more knowledge specialists are working as fleas. It is the elephants though who draw most attention, in the media, in our discussions.

At the elephant end, McKinsey (who else!) has been at work. Here is their advice  for ‘megainstitutions’ (top 150 global companies by market capitalization).

McKinsey's 2007 book on managing megacompanies

McKinsey's 2007 book on managing megacompanies

In 2004 they discovered that – over the previous decade – the 30 largest companies had done very well, they had created disproportionately high profits compared to the other 120 companies, and they had performed much better than in 1970-1994.

In particular, these top 30 earned substantially higher profits per employee than the next 30 companies in the same industries.

Now, these large 30 had an average employee size of 198,000 while the next 30 employed 117,000. McKinsey was surprised because they felt the larger companies would – with more people – be more difficult to manage. On further investigation, they found the top 30’s ability to generate higher profits was due to their ability to get more out of their people working in ‘thinking-intensive’ jobs. Thinking-intensive jobs consisted of ‘professionals’ and ‘managers’.

It appeared that the ability to get more out of thinking people – and employ more of them – is what itself made these companies the leaders in market capitalization. Thus, in 2004, GE had over 150,000 such people. They constituted 55% of GE’s workforce of 307,000. In 1984, they constituted just 20% of the company’s 330,000 people. Over those two decades, GE added about 100,000 managerial and professional employees and quadrupled profit per employee from $12,500 p.a. to $50,000 p.a.

McKinsey estimated (2007) that there were some 20 million such people in the largest 1,500 companies of the world. Even at retailer Walmart, which had 1.7 million employees, they were as high as 120,000.

The thinking power of these people creates “intangibles” like brands, networks (relationships), intellectual property (e.g. patents) & other company-wide skills and knowledge, which are the real drivers of higher profits.

And to actually deliver the above value-additions, these “thinking-jobs” people need to communicate across the entire company and also collaborate with people they don’t know. E.g. IBM has 4,000 consultants in it’s CRM practice, any one of whom might have the unique knowledge any one other specialist needs.

This requirement viz. collaboration is totally different from the hierarchies of 20th century firms; it’s not been done before. In hierarchies, the driver is authority and in collaboration it is mutual self-interest.

Even with all the digital technologies, however, it is tough getting people to collaborate, people’s self-interest and other soft issues come in the way. Another barrier is the perceived information overload e.g. email overload and meetings overload when you interact with more people.

In the last 15 years, deregulation, increased capital mobility, use of English and lower telecom costs have increased the ability and decreased the cost of connecting these thinking people. These trends will continue.

Thus, McKinsey believes that organizations have to carefully and deliberately organize themselves in new ways to make their thinking people more productive. They have nine separate suggestions therein in their book (shown above).

Gary Hamel on Management 2.0

Companies need to innovate in how they manage themselves. This is needed to meet three essential challenges of today. These challenges are
– become adaptable or nimble enough to meet the accelerating pace of change
– make every employee innovative and
– create a company where everyone gives their best.

Making work more productive & fun

Making work more productive & fun

Creating a company where everyone gives their best i.e contributes their initiative, creativity and passion is possible by:
– reducing the managing (‘discipline’) of people and increasing their freedom
– creating a feeling of community and reducing the feeling of hierarchy
– decreasing the amount of top-down exhortation and instead relying on “organizational purpose”.

Here, a handful of organizations have been leading the way. The best known example Hamel cites is that of Google.

Hamel is reluctant to predict how exactly organizations will evolve. He does however believe and hope that Management 2.0 will be similar to Web 2.0, there are many principles of the Internet that organizations too can benefit by :
– everyone has a voice
– tools of creativity are widely available
– capability counts for more than credentials and titles
– commitment is voluntary
– authority is fluid and contingent on value-added
– the only hierarchies are the obvious ones
– individuals are richly empowered with information
– just about everything is decentralized
– ideas compete on equal footing
– it’s easy for buyers and sellers to find each other
– decisions are peer-based
– resources are free to follow opportunities

There will be some conflict in getting to this point, as a belief in bureaucracy is enshrined in us.

“The only way to build a company that’s fit for the future is to build one that’s fit for human beings as well” – The Future of Management

– #&# –

Previous posts in the series :

Do you enjoy working at your current organization ?

Why your organization finds it difficult to be a better place to work

Your organization is a century behind

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