Dion Hinchcliffe's Next-Generation Enterprises

Dion Hinchcliffe

When Our Organizations Became Networks

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One might say that it's always been the case in the verge between major industry transitions, there's little urgency until it's far too late. And it's getting fairly late as the digital era begins in earnest.

It's probably not overstating it to say that perhaps more than any time previously our organizations are broadly being confronted with an existential and fundamental challenge to how they currently operate and are structured.

The shifts themselves are not as frequently discussed in day-to-day business circles as they should be, but the writing is on the wall for anyone willing to look: Organizations wielding yesteryear's creaky corporate hierarchies, slow moving command-and-control processes, and sclerotic silos of functionality are frequently being bested in the marketplace by agile, decentralized, fast-adapting, and often self-organizing networks, almost always directly enabled by the capabilities of the Internet and modern technology.

For examples, of course, we have Amazon in retail, Netflix for video distribution, open source software and the whole commercial software industry, and so on. You are probably quite familiar with these stories as most executives now are, but are likely being held back by the Bystander effect, not-invented-here, poor corporate posture for change, other inhibiting factor.

Ironically, this shift isn't even novel in most business circles today. We've moved into a post-hierarchical world in most business thought leadership and certainly our management models themselves are indeed starting to shift, albeit not very quickly. The message has arrived, but the process itself has been slow to filter down into the average organization, who often have the bulwark of large yet stalled or steadily declining ecosystems to hide behind, at least for a few more quarters.

Shift From Hierarchy and Silos to Networks and Communities

Urgently needed: A clear picture/path for digital change

Another contributing factor too has been the lack of an effective, widely shared understanding of exactly how -- and how fast -- the world is changing. For every exceptional poster child (the too-often cited examples of Uber or Airbnb), there are dozens of other important stories that aren't being told as well. The talk of unicorns, or 'moon shots', of the winner-takes-all aspect of digital business tends to obscures the very real issue: Most organizations are in the process of being disrupted by networks, often many of them, some of them commercial, others not, all vying in scale, dynamically, inexorably for their customers and business partners, even their workforce.

In a new seminal essay a few days ago by Tim O'Reilly titled 'Networks and the Nature of the Firm' only underscores a key point about the companies that understand the nature of this change and how to make it a nearly unbeatable competitive force:

These firms use technology to eliminate the jobs of what used to be an enormous hierarchy of managers (or a hierarchy of individual firms acting as suppliers), replacing them with a relatively flat network managed by algorithms, network-based reputation systems, and marketplace dynamics. These firms also rely on their network of customers to police the quality of their service.

For instance, the cost today of creating a digital business now is so low this fact itself is the start of the value chain that's causing disruption in many industries today. This fact also makes it extremely easy for the market to experiment en masse with new digital business models in huge numbers and get to the right answer faster than traditional organizations.

Networks are also the causal factor for the transaction cost of almost anything that happens on them to drop towards zero. This formerly used to make any traditional business that doesn't have a real-world anchor of some kind with heavyweight cost associated with it relatively immune to network-based models. At least it did for a while. With the recently rise of the sharing economy, the network has now solved this issue for a large number of business models across many industries.

The short answer today is that traditional organizations must gather the network around them quickly and build meaningful network effect. And not just around the transactional aspects of today's network, those are relatively easy to replicate or otherwise reproduce. Instead, in my experience, I've found that it is the unique and very difficult to replace relationships between people that are the most unique source of competitive advantage. This is why large yet lightweight distributed networks of people is where we are generally moving to in business.

What's more, today's digital networks make it very easy to build strong communities that can work together to achieve shared outcomes that they couldn't any other way. And communities consisting of strong relationships cannot be easily disrupted, copied, or co-opted.

Communities: Scale, Richness, Sustainability + Hard to Disrupt

The method to achieve this new type of competitive advantage in our organizations consists of drawing as straight a line as possible between how we are structured and organized today, and to the new network models emerging such as Holacracy, Wirearchy, social business, etc. Like the fast growing gazelles of the first Internet boom, the Web 2.0 era, and now the sharing economy, those that take half-measures will be eclipsed by those more deeply making the changes and adapting to new market realities at their core.

I've explored ways to get there this year: Empowering digital change agents at scale, creating and unleashing what I call a Network of Excellence, reorganizing IT to be much more bottom-up and decentralized (with proof points.) These I believe are some of the paths forward to putting networks at the center of our organizations.

There are other models for digital transformation too, and I commend some of them, and all have good elements. But one thing is now absolutely clear to me: The standard policies and practices of traditional change management, or business process re-engineering, even corporate restructuring are woefully unlikely to get us there.

To succeed, we will require potent new models matched to the type and scale of today's digital challenges. The stark lesson of the past is that many organization just do not survive generational changes that faced them. We must deeply take that lesson to heart and pro-actively attempt to learn from the future. Only then do we have a real opportunity to become healthy, sustainable business networks.

Additional Reading

How leaders can address the challenges of digital transformation

The Essential CIO Priorities for Digital Business

Dion Hinchcliffe

Dion Hinchcliffe is an internationally recognized business strategist and enterprise architect View more

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