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The death of the company


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The Death of the Company
Doug Poretz

Published in: Technology, Education
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The death of the company

  1. 1. THE DEATH OF THE COMPANY; THE BIRTH OF THE COLLABORATIVE -- Some thoughts about a new model –It is time to adopt a new organizational structure to replace the way companies arecurrently designed. In this paper, I try to jump-start a discussion about a neworganizational structure that I call a “collaborative.” This is not an evolution of the“company.” It is not a variation on the existing theme. This is a new structural model.THESIS:For all practical purposes, enterprises have been (and are) organized and operatedbased on a master:slave relationship. By that I mean enterprises are organized in astructure that is based on the premise that things get done when people tell otherpeople what to do, how to do it and at what standard and schedule, and then evaluatethose people on how well they complied with those requests. That is what basicallycomprises and defines the concept of “organization” as we currently understand andlive with that concept. That model is becoming increasingly outdated and needs to bereplaced by a much better model, one that is based on the idea that endeavors can beundertaken and completed in a much more successful way both for the enterprise as awhole and for the individuals who comprise it when a collaborator:collaborator model isused.WHY THE TRADITIONAL ENTERPRISE STRUCTURE IS WRONG:The traditional enterprise structure is not simply out of date, but it is based on amisunderstanding of (and conflict with) the fundamental nature of the human being.Research led by Michael Tomasello of the Department of Developmental andComparative Psychology of the Max Planck Institute for Evolutionary Anthropology,asserts a compelling case that humans communicate for a very different reason and in avery different way than all other creatures: to collaborate. In one of his books, Originsof Human Communications (MIT Press, 2008), when explaining how early hominidscommunicated primarily by pointing and pantomiming even before they had a largerbrain and possibly even before they could make sounds, Tomasello wrote: Thus, for reasons we do not know, at some point in human evolution individuals who could engage with one another collaboratively with joint intentions, joint attention, and cooperative motives were at an adaptive advantage. Cooperative communication then arose as a way of coordinating these collaborative activities more efficiently, first inheriting and then helping to build further a common psychological infrastructure of shared intentionality. This all began almost certainly in mutualistic activities in which an individual who helped her partner was simultaneously helping herself. But then there was a generalization to more
  2. 2. altruistic situations in which individuals simply informed or shared things with others freely, possibly as a way to cultivate reciprocity and a reputation for cooperation within the cultural group.Recent research by anthropologists at the University of Missouri and Arizona StateUniversity published in the March 2011 issue of Science, confirms Tomasello’s research,as summarized by The New York Times: Early human groups, according to the new view, would have been more cooperative and willing to learn from one another than the chimpanzees from which human ancestors split about five million years ago. The advantages of cooperation and social learning then propelled the incipient human groups along a different evolutionary path.I acknowledge that research conducted by Tomasello and others could be debated. Forexample, an argument may be made that great apes evidence some forms ofcooperation. Tomasello’s own research shows that dogs, after thousands of years ofdomestication by humans, now show some signs of shared intentionality betweenthemselves and humans. Nevertheless, the basic point is that it is inherent in thehuman spirit that we are cooperative and collaborative creatures. However, modernorganizations are not structured to encourage or even allow cooperation andcollaboration among employees.Of course, there are plenty of examples of cooperation occurring within enterprises, butthey occur despite, not because of, the current organizational structure. The naturalhuman drive of sharing and being collegial about their intentions occur in the modernenterprise only when a special effort is made to encourage the collaboration. Conduct aGoogle search for “encouraging collaboration in companies” and you will find more than300,000 citations. If collaboration was built-into the enterprise, there would be no needto “encourage” it. The reason collaboration needs to be aided and abetted is becauseorganizations are structured without regard to the natural human instincts tocollaborate. That needs to change.TRADITIONAL ORGANIZATIONAL STRUCTURE IS ESPECIALLY OUTDATED FOR THEKNOWLEDGE ECONOMY:In the manufacturing process, products being built are moved down the assembly linefrom one stage of its development to the other. The person (or, robot) receiving theproduct for the purpose of undertaking the next step in the process does not need toknow anything about what happened to the product before it got to the currentsituation. The next step simply needs to be undertaken, and the product needs to movefurther down the line until completion. Thus, cooperation wasn’t really necessary forthe Manufacturing Economy. But that is not the case in the Knowledge Economy.
  3. 3. In functions and processes where knowledge is either the (or one of the) mostimportant components, the individual(s) engaged in the process will perform best if theyunderstand what has been done to create the product or service up to the currentsituation. Intellectual context becomes a valuable asset for everyone involved in theprocess. For example, consider the lawyer preparing to argue a case for their client:they could not perform effectively without the input from the investigator who gleanedthe facts, or the associate who researched legal precedent, or the ideas of legalcolleagues as to what could make a compelling argument. Similarly, the softwaredesigner needs to understand fully the hows and whys of the programming that hasalready been done, the capabilities of the computer that will operate the programming,the collateral processes and interaction with other programs that might impact the waythe new software works. In such cases, the players must have a shared intentionality tobe successful. Thus, whereas, the master:slave organizationally-structured relationshipbetween people worked (and may, in fact, have been preferential) for a manufacturingbusiness, it is a non-starter in the knowledge business.THE COLLABORATIVE IN BRIEF:Collaboratives start from an entirely different premise. Humans maximize theirknowledge, experience, contacts and ideas when they are shared among and betweeneach other. Although that can be achieved in the current organizational structure, it isaccomplished only as the result of a special effort. Collaboratives must be organizedfrom their inception so that collegiality is not the result of extraordinary effort but arisesfrom the environment itself. In a collaborative, rather than people telling other peoplewhat to do at what time and at what standard, everyone understands the shared goalsand joins forces to achieve those goals.That is not to say that collaboratives exist without leadership. Leadership must exist toavoid chaos. But leadership in a collaborative arises from the trust and confidenceothers in the organization have for the person who steps up to the leadership role, notsimply because of title or salary or the size and location of their office. Furthermore,leadership is not necessarily permanent in all instances. In some cases, one person mayhave the unique experiences or capabilities to lead one aspect of an effort, only to stepback and allow others to assume the leadership role when appropriate.But isn’t all that impossible because of the competitive nature of the human being?Wouldn’t there have to be a change in “the nature of Man” to realize such anenvironment? That might be a viable argument if the premise is accepted that humansare competitive animals, but Tomasello’s research shows that humans are cooperativeanimals. Thus, although our current culture may encourage competitive positions, ourvery nature encourages collaboration. If we allow “nature” (collaboration) to supersedethe enterprise environment that has been nurtured for the sake of an efficientmanufacturing process (the relationship between the boss and those “under” the boss),we will eventually come to learn that we actually benefit as individuals in a collaborative
  4. 4. rather than competitive environment. Such a cultural view of the workplace isabsolutely necessary for the collaborative to succeed. Therefore, structures,methodologies, rules and processes that have been created to encourage thecompetitive work environment must disintegrate and be replaced by those policies andways of doing things that encourage collaboration.THE CURRENT BALANCE SHEET IS NOT ONLY OUT-DATED, BUT IT IS COUNTER-PRODUCTIVE:One of the first things that must be bombed out of existence if we are to encourage thecollaborative organizational structure is the current balance sheet. The balance sheet isnot terribly complicated: it is simply a list of assets and liabilities so that the latter canbe subtracted from the former to determine net worth. That’s the key measurementused to determine an individual’s or an enterprise’s “worth” in financial terms. Ofcourse, when looking at a spouse or a friend or a political leader nobody thinks in suchterms. But banks do think that way when they decide whether to provide a loan or not,and investors do think that way as part of their process of determining whether theywant to buy some ownership of the company. Thus, the balance sheet is criticallyimportant to the growth of businesses, which, in turn, drives growth of jobs,innovations, and progress in general. So, the balance sheet is critically important.When banks take a look at the balance sheet, they often focus on “hard assets,” whichare generally listed as “property, plant and equipment.” The reason why these assetsare important is because when a bank considers making a loan and evaluates their riskand weighs the worst case scenario they assume that if the company has to go out ofbusiness the hard assets can be sold, even if at a discount to their market value.But in addition to hard assets, there are “soft assets,” which are most usually classifiedon a balance sheet as “goodwill.” These assets come on the balance sheet primarilywhen a company buys another company for more than the value of the hard assets, asis virtually always the case in an acquisition. That gives rise to the question: how shouldthe acquiring company account for the premium paid over the hard assets listed on theacquired company’s balance sheet? To answer that challenge, accountants havedeveloped the contrivance they call “goodwill.”Bankers and investors do not like goodwill, and they punish the enterprise that hasbrought goodwill onto their balance sheet by requiring that such assets be depreciatedat a faster schedule than hard assets. Because that depreciation is taken as a cost item,it negatively impacts the P&L, and thereby it costs the company some of theirprofitability. In other words, in accounting terms, a company is penalized more when itacquires intellectual property than when it acquires property, plant and equipment.Soft assets are often dismissed as an asset because they aren’t tangible. In truth, thecurrent balance sheet is 180° wrong. Hard assets deteriorate and become outdatedover time. They need to be renovated or replaced. But knowledge grows over time and
  5. 5. becomes increasingly valuable.How does the current balance sheet treat intellectual property: the combinedknowledge of the people who work at the company and the knowledge gained from thepeople who preceded them? How does it treat assets such as trade secrets, proprietaryformulas, and so on? It leaves them off the books entirely – they are not accounted for.The current balance sheets ignore knowledge, and that means that when the currentbalance sheet is used as a measure of a company’s net worth, knowledge is not part ofthe calculation. That leaves a knowledge business with a low value as measured by thecurrent balance sheet. And that is mighty strange when governments want to build a“Knowledge Economy” and create “Knowledge Jobs.”When attempting to build or value a collaborative organizational structure, the currentbalance sheet should be ignored – dismissed – immediately by bankers and investors.Some new device needs to be established to measure worth in a way that is appropriatefor a knowledge-based business. Bankers and accountants would reply: “But you can’tput a value on a person’s knowledge the same way you can get an appraiser to put avalue on a factory.” That’s correct. So, we cannot look to bankers to create the newdevice for measuring intellectual assets; maybe accountants can do it, but that isn’tlikely either. A new expertise and new algorithms need to be created so that knowledgeeconomy assets can be fairly valued. That’s a mechanical issue. The major point is thatthe current balance sheet needs to be blown up if we are to move to the newcollaborative organizational structure.THE OTHER DIFFERENCE BETWEEN HARD AND SOFT ASSETS IS LEGS:The primary objective of a business is to nurture and grow its most important assets soas to increase the value of the enterprise. Profit, of course, helps to achieve that goal,but making a profit is less of a priority than growing enterprise value.All property, plant and equipment share a common feature: they can be locked-up orlocked-down. Whatever way that might be accomplished, whether an assembly line isbehind a fence or tools are put into a safe at night, the net effect is that owners of hardassets can keep those assets from moving. That is not the case with human assetsbecause they have legs. They also have emotions and needs and desires that, whenunmet to too great a degree for too long a time, will lead to an individual’s desire toleave their job, or perhaps where their job is located. Because a collaborative relies onthe collegiality and energy and commitment of the people who comprise it, keepingthose people highly satisfied with their working environment becomes a very highpriority.But people do not exist solely in the context of their job; they live in a community – andthus the community itself is a vital ingredient to their continued involvement with thecollaborative. Assuming that they need to live near where they work (which is less of a
  6. 6. good assumption as communications technology progresses), these people must be ableto find housing that meets their needs at a price they can afford. They must be happywith their commute to work and their ability to access the culture and restaurants andother components of society that add to their enjoyment of life. They must feelconfident that their children are prospering in their community. If those factors (amongmany others as explained by scholars including Richard Florida in “Rise of the CreativeClass”) do not exist in the individual’s community or if they begin to decline, thecollaborative will soon begin to lose its most precious assets: the people who, in thefinal analysis, are synonymous with the collaborative itself. Thus, the leadership of acollaborative must play an active role in supporting the communities where they exist –not as a nicety, nor because they want to be “a good corporate citizen” and win PRpoints, but because the viability of the community where the collaborative exists (evenif that is in cyberspace) is integral to the viability of the collaborative itself.NO TITLES:Titles give people authority over other people. “Associates” know that Vice Presidentscan tell them what to do and they know that they can lose their job if they do not do itin the way and on the schedule the Vice President wants. That isn’t the waycollaborative teams work. Look to the sports team as an example. In baseball, theplayers have various niches of expertise; they know how to play first base or pitch or bea designated hitter, and so on. All that each player needs to know and all that the fansneed to know is the individual player’s special niche. The really talented first basemanisn’t called a team “vice president,” and the good but not great shortstop isn’t called ateam “associate.” Such titles are irrelevant. Similarly, members of a collaborative don’tneed titles; they simply need to understand the talents and capabilities they bring to theteam, and other members of the team need to understand those talents, know whythey are important, and respect them.HOW COLLABORATIVES ARE LED:In addition to the negative consequences of titles, they do provide the benefit ofestablishing a leader for the team. Leaders are necessary for the success of thecollaborative and the teams that may exist within the collaborative. But thecollaborative leader has a different role than the “boss” and they get their roles in adifferent way than by promotions.The boss in the current organizational structure tells people what to do, sets theagenda, manages the effort, and assumes responsibility for the success of the effort,which will be rewarded with a promotion or special bonus. Although good bossesincorporate input from the members of the team, they determine the final terms of howand when things get done.In many ways, “bosses” live in a quantitative world, where they are measured by profit
  7. 7. or some other quantitative goal that ends up enhancing the team members’ quality oflife. In counterpoint to that, collaborative “leaders” live in a qualitative world, wheretheir success is measured by the quality of life for the team members that ends upproducing an improved profit or some other quantifiable measurement. In short: in thecurrent organizational structure, quantitative results are the goal and qualitative resultsare consequences of achieving that goal whereas in a collaborative, qualitative resultsare the goal and quantitative results are the consequences.The roll of the collaborative leader is to coordinate and inspire the entire team, not rulethem. Individual tasks naturally fall to the individuals with the expertise or other assetappropriate to the task. Just as the first baseman is the player who best knows how tostretch for the toss from the shortstop, the traffic manager on a project is the personwho best can keep things on schedule, get calendars coordinated to schedule meetings,and get deliverables into the hands of the client at the right time in the right way. Thiscan be achieved only when a person is known by their expertise and the assets they canbring to a team rather than when they are known by their title and their position ofpower.When this approach imbues an organization, the quality of the work improves becausecollegiality maximizes the assets of each individual. In fact, the power of the teamamplifies each individual’s strengths so each individual has even more to give and thequality of work truly excels. As that happens, the team’s reputation grows. The teamattracts more business from clients willing to pay higher fees. As business grows, theteam expands with additional highly talented and motivated people who seek outopportunities to be part of the collaborative because they want to be part of anenvironment where they can contribute to great work and be remunerated well for sodoing. As more talent accumulates within the collaborative, the exactly right expertise,contacts and experiences are more likely to exist for any specific problem. As thathappens, the speed-to-solution accelerates and quality of response improves, both ofwhich merit higher fees. Higher fees received from work that takes less time equates tohigher margins. In the collaborative, therefore, the margin is elastic and encountersonly modest constraints. Thus, a collaborative is not simply a “good” organizationalstructure, but it is also an organizational structure that makes sense in the strictlybusiness and even selfish terms of making more money and creating wealth.HOW DOES LEADERSHIP HAPPEN?The leader is critical for success. How do leaders become leaders and how do they lead?Someone addressing those questions speaking from the perspective of the currententerprise structure would be saying something like: “We look for the person who hasestablished the best track record in terms that are important to us – the person who cansqueeze the best margin out of the effort while also keeping customers coming back formore and the people on the team happy. When we identify that person, we promotethem to a position of greater responsibility, give them a raise in salary and a new title,
  8. 8. and very often we give them a better and bigger office with more windows.” Thatlanguage will not work for a collaborative leader.When a person is made a leader in the current enterprise structure, they are stuck in therole of being a leader. An individual may have the right skills and subject matterexpertise to be the absolutely right leader for a unique project that lasts for six months.But what happens when the task is over? In the current structure, the individual staysboss for the next project whether it is right for that person or not. That’s not good forthe individual nor the organization, but titles stick. Promotions, titles, raises and biggeroffices aren’t taken back unless the person is fired, quits, or is promoted to their nextlevel of incompetence as noted years ago (1969) by Laurence J. Peter and Raymond Hullin “The Peter Principle.” So, the individual and the organization are both stuck with thelegacy of what was once a perfect solution but is far from that going forward.On the other hand, in a collaborative it is assumed that someone may be the perfectleader for a specific team or team function but would be inappropriate as a leader inother occasions. So, leadership isn’t forever; it’s for as long as appropriate. Andsomething is “appropriate” when it facilitates the improvement in the way something isdone and the quality of the final product or service. In other words, the focus stays onthe quality of the experience and the service to the client.In a collaborative, leaders emerge. I know that isn’t a rational statement given thecurrent enterprise structure. It is extremely easy to pooh-pooh and dismiss as a cop-outanswer. But it is the only way to explain it with current vernacular. In some instancesthey emerge for totally logical reasons. A person who came up with the idea andstarted pulling together the resources to turn the idea into a reality is a leader at leastwhen it comes to understanding the idea. The person who seeks out prospective clientsestablishes relationships that position them for a leadership role. Those who have theexpertise to undertake a function that becomes critical to the success of the team alsobecome a leader. People rise to the occasion in appropriate ways at appropriate times.Because each individual benefits when the whole team benefits, it is in everyone’svested interests for the best person for the job to assume the job.But what happens when there is a disagreement? How is the dispute settled? In thecurrent organizational structure that is very easy: the boss has responsibility for solvingconflicts so everyone goes to the boss. But what happens when the inevitable conflictsarise in a collaborative? The first important step is that everyone needs to recognizethat someone needs to assume the role of settling legitimate conflicts. That personwould most likely already be a leader of the team and be the individual most adept ataddressing differences: good judgment as to how to identify the best person for the job,how to explain the situation to the people involved, the ability to understand thedynamics of the team, and so on. This person may gain such recognition that theyalways take on that difficult role and their role takes on many of the attributes of beinginstitutionalized. But the institutionalization has the imprimatur of the team itself and is
  9. 9. never a “forever” thing.HOW COLLABORATIVES ARE LIKE LAVA LAMPS:New models need new images. When thinking of the modern corporation, one thinksperhaps of imposing buildings that “say business,” or perhaps of people sitting around aconference business, or as a bunch of cool young people sitting around in an informalsetting as in the example of the tech company.When it comes to imagining collaboratives, the right image is the lava lamp. The blobsinside are in constant change, depending on conditions of their external environment –the environment in which they live. They grow, shrink, change shape, sometimes dieoff, merge with other blobs, hive off from a big blob or bounce around to differentpositions. But the change is organic, not forced or controlled in any way.HOW COLLABORATIVES CAN GROW LIKE APPS:Apps are created when one or more people come up with an idea of something thatmay be needed by others who use a certain platform, such as a smart phone. So, theymorph the idea into something real and offer it for sale at the app store. If there is aneed for it, the market may respond right away, or it may take some better timing andmore promotion to get the app to the point where it gains the necessary visibility andcredibility, largely through the reviews and recommendations of others. Similarly,collaboratives are formed when its founders determine they can fill a need. Theirsolution may be used exactly as envisioned or, like the blob inside the lava lamp, theymay morph to meet other needs as they come to understand those needs better.[Thanks for the app analogy goes to Bhaskar Chakravorti, recently named by TuftUniversity’s Fletcher School of International Affairs as Senior Associate Dean forInternational Business and Finance, Executive Director of the International BusinessCenter and Center for Emerging Markets Enterprises, and Professor of Practice inInternational Business.]MOVING THE COLLABORATIVE FORWARD:People and organizations under attack establish defense tactics; people in pursuit of ashared goal establish tactics and strategies to succeed. There will be resistance tochange. Most people reacting to the concept that the existing “company” must bereplaced by the new “collaborative” will argue that the new structure cannot exist andcannot succeed and makes no sense. And to make their arguments they will citehistorical case histories even while failing to appreciate that, by definition, such casehistories occurred in the past, with past standards and outdated tools.The collaborative form of organization, or some iteration of it, will emerge a little at atime. We will hear of more collaboratives achieving success. At a certain point, the new
  10. 10. model will be understood well enough and will have built enough successful precedentsthat the adoption of this new form or organization will accelerate and expand. In themeantime, pioneers will attempt to use this structure. Some will succeed. Some willfail. It will be worth the effort to watch the evolution; it will be especially valuable if youcan be one of the successful pioneers.