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New Ways of Organising

Richard Seel

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Over the last few years organisations have tried many ways to organise in the face of ever-changing markets and business conditions. Functional, divisional, geographical, matrix, and so on—but all of these are variations on the basic theme of command and control. This is the notion that somehow it is possible for managers to control the way an organisation behaves and for the managers and leaders to dictate how and when the organisation should change in order to adapt to a changing environment.

More recently, some organisations have come to accept that organisational life is too complex to be controlled but that organisations may be able to adapt to change if they are allowed to. They have been experimenting with new ways of organising; ways in which managers do not attempt to control or predict, though they still have a vital role to play.

For instance, the Great Harvest Bakery is a very successful franchise operation in the US. Unlike MacDonald’s they do not try to impose a uniformity on their franchisees. Instead, their franchise contract begins with the statement: “ANYTHING not expressly prohibited by the language of this agreement IS ALLOWED.” Experimentation is encouraged and all successes are communicated by the central organisation and immediately adapted to local conditions by franchise holders—what works in Milwaukee may be a complete flop in Chicago, but it may well give the Chicago franchise holder a great idea which he will also pass on. There is thus a culture of constant innovation and adaptation. No-one controls it but the key rules ensure that the core values of the organisation are not ignored.

Adaptation is also the key to the runaway success of Capital One, a financial services firm in the US. In 1998 return on equity was 23 per cent despite a 50 per cent growth in marketing budget. Capital One started in the credit card market, though it has now ‘cloned’ its expertise into a number of other fields such as mobile phones and auto financing. The key to its success is constant experimentation and review. All staff members are encouraged to put together ‘offers’ suitable for targeted direct marketing. These are then test marketed and evaluated using very sophisticated software tools. About 99 per cent of all tests fail—a figure which is considered quite acceptable. Internally, people are encouraged to compete for resources, to join whatever project teams will have them and generally to organise themselves in whatever way seems best.

Capital One is not looking for ‘the best’ solution but rather for a whole range of approaches which are ‘good enough’. Because they are constantly innovating (one goal is to always have at least 80 per cent of product offerings invented in the last two years) they do not need to find the best, they simply evolve new solutions as needed. As a consequence, Capital One is very hard for competitors to deal with—if they try to mimic any of its products it will simply move on and find others.

Organisational life in Capital One is different from the average corporation. People are assessed, not on their ‘successes’ but on their passion and their ability to spot ‘white space’—areas currently not being worked on by someone else. If your superior doesn’t like your ideas, you are free to go and lobby anyone else for support. The senior team do not direct operations but they do specify the areas of business and ‘tune’ the organisation by reference to a rather unusual balanced scorecard consisting of four key areas: economics (spending on marketing is as important to them as net lifetime value of customers), customer satisfaction, internal people satisfaction and growth. If one ‘quadrant’ gets out of proportion they will change the organisational emphasis until things are in balance again.

There are other examples: Rowe Furniture Company where they scrapped the production line and let workers choose their own teams; Semco where they abolished central buying and allowed production teams to negotiate directly with suppliers—less efficient but more effective—and also where managers set their own salaries, which are promptly published on company notice boards; the giant VISA credit card operation which was deliberately set up by Dee Hock to avoid conventional hierarchies and controls; Mercedes-Benz Credit which re-organised itself through the efforts of all its workers—one supervisor effectively abolished her own job as well as her whole section but they all found new employment in the slimmer organisation; there are many more.

What these companies have in common is a belief that prediction, control and efficiency are no longer the most important qualities in a fast-changing market. Instead they go for adaptability, participation, effectiveness and learning as the cornerstones of their enterprise. And their results suggest that they may be on to something big.

Further reading

Maverick! by Ricardo Semler. Century, 1993.

The Trillion-Dollar Vision of Dee Hock by M. Mitchell Waldrop. Fast Company issue 5, page 75

Corporate DNA by Ken Baskin. Butterworth Heinemann, 1998.

The New Pioneers by Thomas Petzinger. Simon & Schuster, 1999.

The Biology of Business edited by John Henry Clippinger III. Jossey-Bass, 2000.

 

2000 Richard Seel.

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Last modified: 12th January 2008
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