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Adapting to New Realities: The Emergence of Network Organizations and Work Systems

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Paper presented by Stu Winby at the 2012 STS Roundtable Conference in Canterbury, UK.

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Adapting to New Realities: The Emergence of Network Organizations and Work Systems

  1. 1. Adapting to New RealitiesThe Emergence of Network Organizations and Work SystemsBy Stu WinbyThe use of organizational networks as transformational mechanisms for change, and the formalization ofnetworks designed as work systems are providing companies with a new capability for agility, speed andadaptation.When scanning today’s current businessenvironment, one quickly notices the use oforganizational networks which are employed for avariety of purposes. These examples range fromcompanies coming together to form networks aroundnew business models, to internal networks designedas productive work systems, to the social/ politicalnetworks that have recently formed in Egypt andelsewhere in the Middle East that are drivingwidespread regional transformation. The emergenceof network organizations and work systems is mostevident in high tech companies and healthcare.Apples iTunes system is a good example. Whiletightly controlled by Apple, the development ofiTunes required significant cooperation betweencontent providers (artists and publishers), wirelessoperators, and application developers. The ease andfree sharing of digital music pushed the musicindustry into turmoil. Apple seized the moment andcreated a disruptive and effective alternative system.In so doing it redefined the value chain, coupledbusiness model and product innovation, anddeveloped open organizational networks.Similarly, healthcare has entered tumultuous times.Soaring costs, government intervention andinnovative technology wreak havoc on existinghealthcare systems. New emergent care models,accountable-care, and the medical home signalsystems transformation that requires a networkedmulti-party collaboration. Fairview Health has createdexternal network models with payers and employerssuch as Target, and internal adaptive work systemnetworks for rapid innovation and widespreaddiffusion. This creation of an interconnected networkhas changed how Fairview views the healthcareecosystem. Health care no longer will be organizedaround discrete, unbundled entities. The dynamiccare systems of the future will focus on oversight,entry and access, enabled by organizational networks.Network models of integrated services, information,resources, workforce and facilities will be the gluethat holds systems together. In the past, the idealorganizational infrastructure for hospitals evolvedfrom discrete departments to integrated clinicalservice lines. However, optimal performance in thefuture will require further transformation towardsynchronized network systems that align core clinicalareas and elevate resource effectiveness to addresspatient needs. The ability to anticipate and respondto patient needs throughout a person’s life cycle willbe the core competency for success in health caretransformation. By building these complex adaptivenetworks, based on the ability to manage a set ofrelationships, versus managing a hospital, will help tominimize costs and maximize impact on patienthealth through education, prevention, andcoordinated patient care when needed.Cisco is targeting to double its growth through“dynamic networks” by integrating its collaborativetechnologies, like TelePresence and WebEx withinnovation. These organizational networks willefficiently scale where past hierarchical models poseda barrier to growth. Cisco has moved rapidly in thisdirection through the design of lateral decisionstructures called councils and boards and the use ofdecision accelerator processes for network drivendecision making. The “dynamic network” initiative is
  2. 2. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 2still work-in-progress and not fully implementedbeyond pilot efforts.Organizational Networks Are Not NewOrganizational networks are not new to technologycompanies, or for that matter healthcare. Early use ofnetwork forms was evident in socio-technical systemsand high involvement organizational models usedinitially in manufacturing and spreading to healthcarein the 70s. In the late 1980s and 1990s, Communitiesof Practice networks, started at Xerox, and the WorkInnovation Network at Hewlett Packard, createdinformal networks for innovation and diffusion. Inthe last decade there has been an explosion in socialnetworks, often referred to as informal networks.Systems networks, often referred to as value-netshave become commonplace in organizing multiplecompany partners along a value chain, each incooperation with the others to provide a product orservice to a shared customer. Innovation networks,frequently referred to as innovation platforms, havebeen used to provide the organizational means forinnovation by focusing resources on innovations andproviding processes for managing innovation.Hewlett Packard and Cisco have used extensivenetworking across selected innovation platforms, andFairview Health has used similar network models forits care model innovation projects. Currently, theDecision Accelerator, an event that is designed andoperates as a network, has been highly successfulboth in technology companies and with health careproviders. Most of these network examples haveresulted from the need to manage innovation andincrease organizational agility and speed throughhigher levels of employee engagement.All organizational lateral designs, such as cross-functional teams and matrix arrangements are formsof networks. However, these current examples atCisco and Fairview rely more on network principlesand practices, and employee engagement thanhierarchical mechanisms to get work done. What isnew, are the use of organizational networks astransformational mechanisms for change, and theformation of networks as work systems to get workdone. Essentially informal networks are becomingformal.The use of networks as the preferred approach tosolving problems, managing projects, and adapting tochange is increasing. These organizational networksand the various processes they employ are emergingunder different names – Cisco calls them dynamicnetwork organizations, McKinsey uses the termdynamic management, others refer to them asadaptive organizations, adaptive work-systems, andcomplex adaptive systems.Hierarchies and NetworksThe pervasive use of information technology(specifically social networking and collaborative 2.0technologies), and the increasing need for strategicand operational agility are driving a shift fromhierarchies to networks. These organizationalnetworks are becoming the external and internalmechanisms fulfilling the need for speed, agility andcontinuous innovation in an increasingly uncertainenvironment.The network form is designed to handle tasks andenvironments that demand flexibility and adaption.The unique capability of networks, compared tohierarchies, is that the network organization canflexibly construct a unique set of internal and externalrelationships and linkages for each unique project.Unlike a hierarchy, which is typically a fixed set ofrelationships for processing problems, the networkconfigures itself to each problem. In a networkorganization a novel problem is routed by theshortest path to the right people, whereas in ahierarchy a novel problem takes long paths bywending its way through channels established forfamiliar (routine) problems.Moreover, a network adapts itself not by topmanagement fiat but by the interactions of problems,people, and resources within the broad confines ofstrategy. The network works within managementauthority but has a self-adaptability feature to self-adjust and self-design. The intrinsic ability of thenetwork organization to repeatedly redesign itself toaccommodate new tasks, unique problems, andchanging environments enables such organizations toescape the plight of hierarchies, which over timebecome ridged and become incapable of change.An observable phenomenon with the use of networksis what we call “foreground-background” where thehierarchy recedes to the background as the network
  3. 3. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 3moves to the foreground to produce value. This issimilar to professional service firms where networksof professionals are energized and focused on clientprojects, which is where the most value is created. Asa result the traditional functions or homeroom whereemployees reside fade into the background.Hierarchical structures also gain flexibility,collaboration, and speed by creating networks acrossbusiness units, countries, and functions. These lateralnetworks are commonplace in most organizationssuch as cross functional teams and various matrixorganizational entities. Because a formally organizednetwork will cross organizational silos, it can beviewed as a form of matrix organization. But thedifferences are significant. Most significant is thedifferent organizing principles which drive each formof organization. The matrix organization worksthrough authority and therefore is based onmanagement hierarchy. A formal network organizeswork through mutual self interest and therefore isprincipally based on collaboration.Today’s hierarchically based organization is built forpredictability, consistency, control, efficiency andoptimization. In order to effectively function in anenvironment that is increasingly more dynamic andturbulent, organizations must continue to optimizeprocesses but also at the same time to adapt. Thenew emerging organizational model does both –optimize and adapt. In other words, the emergingorganizational model is one of hierarchies andnetworks, not one or the other.Optimization and AdaptionAny business faces two demands: it must executecurrent activities to survive today’s challenges andadapt those activities to survive tomorrow’s. Sinceexecuting and adapting require resources, managersface continued competition for resources to addressthe need to perform in the short run and also toinvest in the long run. Because of this issue ofresource allocation it is becoming increasingly morecritical and dynamic for managers to balance the rightmix of execution and adaptive work to act on theirstrategy.An adaptive work process has a different characterfrom an optimizing one. Optimizing reflects the basicprescriptive, cost effective approach to solutions. Anadaptive approach begins not with a single solution,but with multiple, potential solutions (experiments).This approach requires exploration and selection ofthe best solution by applying a series of fitness testsand then adapting to feedback. When uncertainty islow, adaptive approaches run the risk of higher costs.When uncertainty is high, optimizing approaches runthe risk of setting too early on a particular solutionand stifling innovation.Linear thinking and standardized practices arebecoming less effective in today’s volatileenvironment. Management practices andorganizational processes are starting to swing fromanticipatory to adaptive where mobility,experimentation, and speed are crucial.The salient point is that these two fundamentalapproaches to work organization are very different,and they require different processes, differentmanagement approaches, and differentmeasurements of success. It appears that in today’senvironment, understanding the difference betweenthese two approaches, and knowing when to employone approach over the other is a critical managementcompetence. The challenge for leaders today isunderstanding how to achieve the right balance fortoday’s world.The goal of reliability in an optimized environment isto produce consistent, predictable outcomes. Thegoal of validity in an adaptive environment is toproduce outcomes that meet desired objectives.Leadership must increasingly be ambidextrous tobalance both the demands for optimization while atthe same time creating the resources and time forexploration and experimentation. Steve Jobs is anexcellent example of managing both the reliability ofthe organization with predictable processes throughlean-based operations and standardized customerexperience in the retail stores, while at the same timesupporting break through R&D with a series ofinnovations like the ipod, iphone, and ipad that haveliterally changed multiple industries. To achieve thisfeat, Jobs created an ambidextrous organization tosupport optimization and innovation activities.An important notion but beyond the scope of thispaper is managing as designing. The task ofmanagement is one of design. The manager is adesigner, facilitating design work through theinteraction of others. Design provides a discipline infinding and solving problems in practical andorganizational life. Networks do their work through
  4. 4. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 4design principles and practices. Adaptive design isthen a specific approach of work design, we call “network”.These extremes of optimization and adaption driverssuggest that the proper balance of resources, time,and emphasis is a function of leadership. Not everycompany will require a balance of theseorganizational forms. How adaptive the work unitneeds to become will depend on strategy.Organizational Choice and CapabilityHow does a manger determine the mix of adaptionand optimization in work design? It begins bydetermining the types of problems being solved andthe degree of transformation required. The degree ofuncertainty in the task and transformation requiredwill guide the choice of organization and work designto be employed. Fairview Health uses both adaptiveand optimized work designs to develop the newAccountable Care Organization (ACO). For example, amajor project has been to transform its 42 clinics intohealth homes. Clinics used adaptive work processesto innovate on new care processes and then movedto optimizing and standardizing those processesacross the clinics. In the same project, bothapproaches to work design are being used fordifferent purposes to get different results; yet theywork synergistically to meet transformational goals.Some of the same designers and users are engaged inboth projects.According to a Mckinsey Quarterly global survey,executives see an urgent need to increase the agilityand speed of their organizations. One of the mainconcerns identified in the survey was how well theorganization can shift its strategic direction and howfast it can execute its operational objectives. Theorganization’s agility was defined as its ability tochange tactics or direction quickly – that is toanticipate, adapt, and react decisively to events in thebusiness environment. Speed was defined as howrapidly an organization executes an operational orstrategic objective. Also, the Center for EffectiveOrganizations at USC has also found the strategicimportance of agility and speed resulting in anorganizational choice for more networkorganizational capability.There are a number of advantages to building anetwork organizational capability. The networkincreases the capacity of the entire organization tomake more decisions, more often. In a business worldof constant change and adaption, the organizationmust have the ability to constantly decide and re-decide its activities. The network not only makesmore decisions, but also makes different types ofdecisions. The network allows the resources of theentire organization to be marshaled on variousdimensions. The network can lead to better, fasterdecisions.Organization DesignA basic principle of organization design is that thegreater the uncertainty of the task, the greater theamount of information that has to be processedbetween decision-makers during the execution of thetask. This information processing view, firstpostulated by Jay Galbraith in the early 1970s, isconsidered the prevailing design principle amongorganizational designers today. Galbraith went on tosay that “the observed variations in organizationalforms are variations in the strategies of organizationsto increase their ability to preplan, increase theirflexibility to adapt to their inability to preplan, ordecrease the level of performance required forcontinued viability”. The designer chooses one ofthese three strategies based on relative costs. So asthe world has become more uncertain and tasks morecomplex, organizations have used decentralizedlateral mechanisms, like cross functional teams andmatrix structures, to provide the needed flexibilitywhich is less evident in our vertical hierarchies thatare in place.The working assumption of most designers has beenthat the accomplishment of a complex task is througha decentralized process, requiring the simultaneous,coordinated efforts of many specialized workers. Inreality, when the organization embarks on a majornew project, the people involved dont actually knowhow they are going to do it. Designs are rarely finalbefore production itself is commenced, andperformance standards evolve along with the project.Furthermore, no one persons role in the overallscheme is ever precisely specified in advance. Rathereach person starts with a general notion of what isrequired of him or her and refines that notion only byinteracting with other problem-solvers. The trueambiguity of today’s business processes is not justthat the environment necessitates continued redesign
  5. 5. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 5of the production process but that design itself, alongwith innovation and variance control, is a task to beperformed, not only at the same time as the task ofproduction but also in the same decentralizedfashion.When environmental uncertainty is low - that is whenchange occurs slowly and the future is predictable -then task ambiguity is suppressed, effectivelyallowing the design / learning and production phasesto be completed separately. But once theenvironment increases the rate of change requiredfor competitive performance, complex tasks must becorrespondingly repartitioned, and available humancapital correspondingly reallocated. Thisrepartitioning problem is best solved by the sameindividuals who have to perform the task ofproduction. When solving complex problems inambiguous environments, individuals compensate forthe limited knowledge of the interdependenciesbetween their various tasks and for their uncertaintyabout the future by exchanging information,knowledge, advice, expertise, and resources withother problem-solvers within the same organization.The result, in a successful organization, is a continuedswirl of problem-solving activity and ever shiftinginteractions between the problem solvers, each ofwhom has information relevant to the solution of aparticular problem, but none of whom knows enoughto act in isolation. Nor does any one person knowprecisely who knows what; hence problem-solving is amatter of not just performing, but also the necessarycombinations of resources, and searching for anddiscovering of those resources in the first place.In the network organization we may think of the"information-processing" part of the organization asone huge decision-making machine, which takessignals from the environment and transforms theminto actions taken by the workers. It is in this sensethat the information-processing activities are "de-centralized," i.e., spread out among a large number ofpersons in the organization. The adaptive worksystem network utilizes a decision acceleratormanagement process to mobilize networks,decentralize the information processing activity, andserve as large decision-making machine.Organizations that are bad at facilitating distributedcommunications are typically bad at solving problemsand therefore bad at handling uncertainty andchange. The shift from hierarchy to network is tothink about organizations as networks of informationprocessors, where the role of the network is tohandle large volumes of information efficiently andwithout overloading any individual processor.Network organization can be seen as the transmissionof information through connected social-technicalsystems. This model of a network organization isdiscussed later in this paper under adaptive worksystems.Types of Network OrganizationsNetwork organizations have common properties andtraits: an adaptive culture that embraces change,minimal rules that encourage self-organization, highlevels of collaboration and interaction amongmembers, and accountability and a focus onexecution. A network is an ensemble of independentagents who interact to create a community andwhose interaction is defined by the exchange ofinformation. Individual actions are based on somesystem of internal rules. Members self-organize toproduce emergent and business results.As has been noted, there are multiple types ofnetwork organizations. Two of the most commontypes are internal social informal networks andexternal value networks. In addition, the mostpromising emerging network is formal, designed as awork system, and focused on creating value for thefirm. This is known as an adaptive work system.External NetworksThe term value network is used to describe externalpartnership networks. The team, or a value network,jointly possesses capabilities that precisely match acustomer’s requirements. In a network-centricenvironment, then, an organization will belongsimultaneously to a number of value networks—onefor each product or service it is engaged in providing.Value networks can be differentiated according totheir ability to provide a product or service thatcommands a high return. High-value networks arethose with a competitive advantage stemming fromthe tacit knowledge and integrated skills that havebeen combined into a killer value proposition. In thehigh technology world various business modelcombinations are put together which form thesevalue networks.
  6. 6. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 6The network-centric organization exists because ofthe unique set of capabilities—that is, knowledgeassets—that it possesses. Putting these assets towork, to support the value discipline of a network,requires that the organization be explicitly aware ofwhat its core set of capabilities are.A key challenge for network-centric organizations ofthe future is to balance the requirements of value-network leadership against the proprietary nature ofthe firm’s tacit and technical knowledge assets. If anorganization restricts its knowledge to internal use, itwill be precluded from membership in the high-valuenetworks that characterize success. On the otherhand, if it converts all of its knowledge to technicalform and shares it with network partners, it destroysits very reason for existence under the bundle-ofcapabilities view of the firm. The resolution of thisdilemma lies in the nature of the network-centricorganization as a dynamic, rather than a static, entity.Internal Social NetworksInformal networks are a powerful source of lateralcollaboration across silos, but as ad hoc structurestheir performance is typically not goal directed andthey are not managed. Social based networkstypically flourish spontaneously, build social capital,share important tacit information, and are supportedby increasingly more sophisticated digital tools likecommunity websites, web meeting tools, and an arrayof social networking technology. A recent series ofarticles (McKinsey Journal) have suggested that theseinformal social based networks increase complexityand confusion, and are not usually driven to createvalue. This is starting to change where social mediatools are starting to be used in the workplace to getwork done. Silicon Valley companies frequently useFacebook or Twitter to get information on specifictopics or spread information. These tools are beingused more and more as marketing devices to mobilizesocial networks and spread the buzz.When social media technology and social networkprocesses are deliberately used as design elements inthe design of networks, then networks have thepotential to be internal work organizations, or whatare called adaptive work systems.Adaptive Work System NetworkNetworks form to solve problems and executeprojects. The ability to do this more effectively andefficiently than traditional approaches to problem-solving and project management is a very importantcapability in a rapidly changing and complexenvironment. This is exactly what the adaptive worksystem is intended to do. An adaptive work system isa type of network organization which has beendescribed as the modern world knowledge-workproduction system.Work units are self-regulating teams where managersare coordinators who push capability (information,knowledge, and decision-making) into the work unit’sboundary to get its task done. Clusters of teamsreconfigure based on learning and progress.Information is transparent, work is iterative, metricsare value-based, and customers drive acceptability ofwork output. Adaptive work systems are nextgeneration socio-technical systems which optimizesocial system work interactions and self-organizationwith technical system information processing.One healthcare provider used adaptive work systemsto transform 42 traditional medical clinics to statecertified medical homes in less than 10 months.Competitive healthcare providers in the stateachieved less than half this number in the same timeperiod.SummaryAs an organizational capability networks will neverreplace hierarchical structures, but it is clear now thatnetwork forms and capabilities offer a range ofchoices for managing people, ideas, and work thatwere not previously available. Networks willincreasingly play a more important role in facilitatingadaptive change and executing new innovativesolutions for companies.References1. Emery, F and Trist, E. Towards a Social Ecology. London andNew York. Plenum Press: 19732. Galbraith, Jay. Organization Design - an Informationprocessing View. Interfaces 19743. Geerat J. Vermeij. The Evolutionary World – How AdaptionExplains Everything from Seashells to Civilization. New York:St. Martin’s Press; 2110.
  7. 7. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 74. Malone, Thomas W. The Future of Work. Boston,Massachusetts; Harvard Business School Press; 2004.5. Martin, Roger. The Design of Business. . Boston,Massachusetts; Harvard Business School Press; 2009.6. McDermott, Richard and Archibald, Dougles. HBR,Harnessing Your Staff ’s Informal Networks March, 2017. Winby, Stu. Adaptive Work Systems, White Paper, 20108. Winby, Stu. Work Innovation Network: Concepts andPractice. White Paper, 2010.9. Winby, Stu. Transformation Design. White Paper, 2011__________________________________________________Stu Winby- Is a managing partner of Innovation Point andfounder of the Sapience Network – both Silicon Valley firms. Athought leader in new forms of collaboration, communication, andcoordination afforded by innovative work designs and emerginginteractive technologies that affect innovation and businessperformance.

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