The new boundaries of the "boundaryless" company

In an economy founded on innovation and change, one of the premier challenges of management is to design more flexible organizations. For many executives, a single metaphor has come to embody this managerial challenge and to capture the kind of organization they want to create: the "corporation without boundaries." According to Larry Hirschhorn and Thomas Gilmore of the Wharton Center for Applied Research, managers are right to break down the boundaries that make organizations rigid and unresponsive. But they are wrong if they think that doing so eliminates the need for boundaries altogether. Once the traditional boundaries of hierarchy, function, and geography disappear, a new set of boundaries becomes important. These new boundaries are more psychological than organizational. They aren't drawn on a company's organizational chart but in the minds of its managers and employees. And instead of being reflected in a company's structure, they must be "enacted" over and over again in a manager's relationships with bosses, subordinates, and peers. In this article, Hirschhorn and Gilmore provide a guide to the boundaries that matter in the "boundaryless" company. They explain how these new boundaries are essential for both managers and employees in coping with the demands of flexible work. They describe the typical mistakes that managers make in their boundary relationships. And they show how executives can become effective boundary managers by paying attention to a source of data they have often overlooked in the past: their own gut feelings about work and the people with whom they do it.     

Learning to live with complexity

Business life has always featured the unpredictable, the surprising, and the unexpected. But in today's hyperconnected world, complexity is the norm. Systems that used to be separate are now intertwined and interdependent, and knowing the starting conditions is no guide to predicting outcomes; too many continuously changing interactive elements are in play. Managers looking to navigate these difficulties need to adopt new approaches. They should drop outmoded forecasting tools-for example, ones that rely on averages, which are often less important than outliers. Instead, they should use models that simulate the behavior of the system. They should also make sure that their data include a good amount of future-oriented information. Risk mitigation is crucial as well. Managers should minimize the need to rely on predictions-for instance, they can give users a say in product design. They can decouple elements in a system and build in redundancy to minimize the consequences of a partial system failure, and turn to outside partners to extend their own company's capabilities. They can complement hard analysis with "soft" methods such as storytelling to make potentially important future possibilities more real. And they can make trade-offs that keep early failures small and provide the diversity of thought needed in a nimble organization faced with complexity on virtually every front.     

Lead for loyalty.

The greater the loyalty a company engenders among its customers, employees, suppliers, and shareholders, the greater the profits it reaps. Frederick Reichheld, a director emeritus of Bain & Company, offers advice on improving loyalty that is based on more than a decade of research. Primarily, he says, outstanding loyalty is the direct result of the decisions and practices of committed top executives with personal integrity. The "loyalty leader" companies--those with the most impressive loyalty credentials--are a diverse group, ranging from Vanguard and Northwestern Mutual to Chick-fil-A, Harley-Davidson, Intuit, and Enterprise Rent-A-Car. But beneath their surface variations lie six strikingly similar relationship strategies: 1. Preach what you practice. Executives must preach the importance of loyalty in clear, precise, powerful terms. 2. Play to win-win. It's not enough that your competitors lose; your partners must win. There's a clear connection, for instance, between a company's treatment of its employees and its attitude toward customers. 3. Be picky. A truly humble company knows it can satisfy only certain customers, and it goes all out to keep them happy. Careful selection of employees also plays an important role. 4. Keep it simple. Great leaders understand that they must simplify rules for decision making. 5. Reward the right results. Many companies reward employees who grab short-term profits and short-change those who build long-term value and customer loyalty. 6. Listen hard, talk straight. Long-term relationships require honest, two-way communication and learning. Exemplary leaders break through the cynicism of the times by showing they believe that an organization thrives when its partners and customers do.     

The one number you need to grow

Companies spend lots of time and money on complex tools to assess customer satisfaction. But they're measuring the wrong thing. The best predictor of top-line growth can usually be captured in a single survey question: Would you recommend this company to a friend? This finding is based on two years of research in which a variety of survey questions were tested by linking the responses with actual customer behavior--purchasing patterns and referrals--and ultimately with company growth. Surprisingly, the most effective question wasn't about customer satisfaction or even loyalty per se. In most of the industries studied, the percentage of customers enthusiastic enough about a company to refer it to a friend or colleague directly correlated with growth rates among competitors. Willingness to talk up a company or product to friends, family, and colleagues is one of the best indicators of loyalty because of the customer's sacrifice in making the recommendation. When customers act as references, they do more than indicate they've received good economic value from a company; they put their own reputations on the line. And they will risk their reputations only if they feel intense loyalty. The findings point to a new, simpler approach to customer research, one directly linked to a company's results. By substituting a single question--blunt tool though it may appear to be--for the complex black box of the customer satisfaction survey, companies can actually put consumer survey results to use and focus employees on the task of stimulating growth.     

Appraising boardroom performance

Rare is the company that does not periodically review the performance of its staff, business units, and suppliers. But rare, as well, is the company that does such a review of one of its most important contributors--its board of directors. Reviewing a board's performance is not an easy proposition: it has to be done by the members themselves, people who generally have many other responsibilities and whose time is always at a premium. But done properly, appraisals can help boards become more effective by clarifying individual and collective responsibilities. They can help improve the working relationship between a company's board and its senior management. They can help ensure a healthy balance of power between the board and the CEO. And, once in place, an appraisal process is difficult to dismantle, making it harder for a new CEO to dominate a board or avoid being held accountable for poor performance. Done properly is the key here, though. Done incorrectly, board appraisals can degenerate into self-serving evaluations or unpleasant, time-wasting exercises. Worse, they can evolve into rigid mechanical processes that discourage innovation. In fact, all of the approaches the authors observed in two years of research were incomplete. The authors have therefore drawn on the strengths of several different approaches to synthesize a best-practice process that is both rigorous and comprehensive.     

Who's bringing you hot ideas and how are you responding?

There's an unsung hero in your organization. It's the person who's bringing in new ideas from the outside about how to manage better. These aren't your product and service innovators--those people are celebrated loudly and often. This is the manager who, for instance, first uttered the phrase "balance scorecard" in your hallways, or "real options," or "intellectual capital." Managerial innovation is an increasingly important source of competitive advantage--especially given the speed with which product innovations are copied--but it doesn't happen automatically. It takes a certain kind of person to welcome new management ideas and usher them into an organization. The authors recently studied 100 such people to find out how they translate new ideas into action in their organizations. They discovered that they are a distinct type of practitioner; that is to say, they resemble their counterparts in other organizations more than they resemble their own colleagues, and they share a common way of working. "Idea practitioners," as the authors call them, begin by scouting for ideas. All of them are avid readers of management literature and enthusiastic participants in business conferences; many are friendly with business gurus. Once they've identified an idea that seems to hold promise, they tailor it to fit their organizations' specific needs. Next, they actively sell the idea--to senior executives, to the rank and file, to middle managers. And finally, they get the ball rolling by participating in small-scale experiments. But when those take off, they get out of the way and let others execute. In this article, the authors identify the characteristics of idea practitioners and offer strategies for managing them wisely.     

What it means to work here

What distinguishes a company that has deeply engaged and committed employees from another one that doesn't? It's not a certain compensation scheme or talent-management practice. Instead, it's the ability to express to current and potential employees what makes the organization unique. Companies with highly engaged employees articulate their values and attributes through "signature experiences"--visible, distinctive elements of the work environment that send powerful messages about the organization's aspirations and about the skills, stamina, and commitment employees will need in order to succeed there. Whole Foods Market, for example, uses a team-based hiring and orientation process to convey to new employees the company's emphasis on collaboration and decentralization. At JetBlue, the reservation system is run by agents from their homes, a signature experience that boosts employees' satisfaction and productivity. Companies that successfully create and communicate signature experiences understand that not all workers want the same things. Indeed, employee preferences are an important but often overlooked factor in the war for talent. Firms that have engendered productive and engaged workforces address those preferences by following some general principles: They target potential employees as methodically as they target potential customers; they shape their signature experiences to address business needs; they identify and preserve their histories; they share stories--not just slogans--about life in the firm; they create processes consistent with their signature experiences; and they understand that they shouldn't try to be all things to all people. The best strategy for coming out ahead in the war for talent is not to scoop up everyone in sight but to attract the right people--those who are intrigued and excited by the environment the company offers and who will reward it with their loyalty.     

Why change programs don't produce change

Faced with changing markets and tougher competition, more and more companies realize that to compete effectively they must transform how they function. But while senior managers understand the necessity of change, they often misunderstand what it takes to bring it about. They assume that corporate renewal is the product of company-wide change programs and that in order to transform employee behavior, they must alter a company's formal structure and systems. Both these assumptions are wrong, say these authors. Using examples drawn from their four-year study of organizational change at six large corporations, they argue that change programs are, in fact, the greatest obstacle to successful revitalization and that formal structures and systems are the last thing a company should change, not the first. The most successful change efforts begin at the periphery of a corporation, in a single plant or division. Such efforts are led by general managers, not the CEO or corporate staff people. And these general managers concentrate not on changing formal structures and systems but on creating ad hoc organizational arrangements to solve concrete business problems. This focuses energy for change on the work itself, not on abstractions such as "participation" or "culture." Once general managers understand the importance of this grass-roots approach to change, they don't have to wait for senior management to start a process of corporate renewal. The authors describe a six-step change process they call the "critical path."     

The virtue matrix. Calculating the return on corporate responsibility

Executives who want to make their organizations better corporate citizens face many obstacles: If they undertake costly initiatives that their rivals don't embrace, they risk eroding their company's competitive position. If they invite government oversight, they may be hampered by costly regulations. And if they adopt wage scales and working conditions that prevail in the wealthiest democracies, they may drive jobs to countries with less stringent standards. Such dilemmas call for clear, hard thinking. To aid in that undertaking, Roger Martin introduces the virtue matrix--a tool to help executives analyze corporate responsibility by viewing it as a product or service. The author uses real-life examples to explore the forms and degrees of corporate virtue. He cites Aaron Feuerstein, CEO of Malden Mills, a textile company whose plant was destroyed by fire in 1995. Rather than move operations to a lower-wage region, Feuerstein continued to pay his idled workforce and rebuilt the plant. Unlike the typical CEO of a publicly held corporation, who is accountable to hundreds or thousands of shareholders, Feuerstein was free to act so generously because he had only a few family members to answer to. But as Martin points out, corporations don't operate in a universe composed solely of shareholders. They can be subject to pressure from citizens, employees, and political authorities. The virtue matrix provides a way to assess these forces and how they interact. Martin uses it to examine why the public clamor for more responsible corporate conduct never seems to abate. Another issue the author confronts is anxiety over globalization. Finally, Martin applies the virtue matrix to two crucial questions: What are the barriers to increasing the supply of corporate virtue? And what can companies do to remove those barriers?     

Conquering a culture of indecision

The single greatest cause of corporate underperformance is the failure to execute. Author Ram Charan, drawing on a quarter century of observing organizational behavior, perceives that such failures of execution share a family resemblance: a misfire in the personal interactions that are supposed to produce results. Faulty interactions rarely occur in isolation, Charan says. Far more often, they're typical of the way large and small decisions are made or not made throughout the organization. The inability to take decisive action is rooted in a company's culture. But, Charan notes, leaders create a culture of indecisiveness, and leaders can break it. Breaking it requires them to take three actions. First, they must engender intellectual honesty in the connections between people. Second, they must see to it that the organization's "social operating mechanisms"--the meetings, reviews, and other situations through which people in the corporation do business--have honest dialogue at their cores. And third, leaders must ensure that feedback and follow-through are used to reward high achievers, coach those who are struggling, and discourage those whose behaviors are blocking the organization's progress. By taking these three approaches and using every encounter as an opportunity to model open and honest dialogue, a leader can set the tone for an organization, moving it from paralysis to action.     

Profits for nonprofits: find a corporate partner

Here's a familiar story. A nonprofit organization joins forces with a corporation in a caused-related marketing campaign. It seems like a win-win deal, but the nonprofit--and the media--find out several weeks into the campaign that the corporation's business practices are antithetical to the nonprofit's mission. The nonprofit's credibility is severely damaged. Is the moral of the story that nonprofits should steer clear of alliances with for-profit organizations? Not at all, Alan Andreasen says. Nonprofit managers can help their organizations avoid many of the risks and reap the rewards of cause-related marketing alliances by thinking of themselves not as charities but as partners in the marketing effort. More than ever, nonprofits need what many companies can offer: crucial new sources of revenue. But nonprofits offer corporate partners a great deal in return: the opportunity to enhance their image--and increase the bottom line--by supporting a worthy cause. Consider the fruitful partnership between American Express and Share Our Strength, a hunger-relief organization. Through the Charge Against Hunger program, now in its fourth year, American Express has helped contribute more than +16 million to SOS. In return, American Express has seen an increase in transactions with the card and in the number of merchants carrying the card. How can nonprofit managers build a successful partnership? They can assess their organization to see how it can add value to a corporate partner. They can identify those companies that stand to gain the most from a cause-related marketing alliance. And they can take an active role in shaping the partnership and monitoring its progress.     

Moving mountains

What could be more fundamental to management, or more difficult, than motivating people? After all, a manager, by definition, is someone who gets work done through others. But how? A typical recipe for motivation calls for a mixture of persuasion, encouragement, and compulsion. Yet the best leaders, we suspect, need no recipe: They get people to produce great results by appealing to their deepest drives, needs, and desires. And so we discovered when we asked a dozen of the world's top leaders to describe how they each met a daunting challenge in motivating an individual, a team, or an organization. Their answers are as varied as human nature. Some of the leaders appeal to people's need for the rational and the orderly: Mattel's Robert Eckert emphasizes the reassuring power of delivering a consistent message, and HP's Carly Fiorina focuses on facing hard truths on setting step-by-step goals. Some, like celebrated oceanographer Robert Ballard, Pfizer CEO Hank McKinnell, and BP America president Ross Pillari, see the powerful motivating effects of asking people to rise to difficult challenges. Others focus more on the human spirit, appealing to the desire to do something, as BMW's Chris Bangle puts it, "rare, marvelous, and lasting." And quite a few inspire through example, as Dial chairman Herb Baum did when he donated $1,000 from his bonus to each of the company's 155 lowest-paid people. "If you draw the line on your own greed, and your employees see it," he says, "they will be incredibly loyal and perform much better for you." And he has the numbers to prove it. "Right now," he adds, "we're experiencing our lowest level of attrition in 11 years, and we're tracking toward another banner year because people are happy."     

When your star performer can't manage

Vic, the CEO of a sporting goods company in this fictional case study, is pleased with the numbers. For several years now, they've gone steadily in one direction: up. But there's trouble in paradise Hidden from the public's view of industry-dominating winners--from the coolest snowboards to the hottest in-line skates--lies a product development department that may be ready to shatter like cheap fiberglass. There's one reason in particular for the dark rumblings that periodically reach Vic, and his name is Linus Carver. Carver, the company's chief of product development, is the workaholic mad genius who is responsible for most--he might say all--of the company's successful products. At the same time, he has managed to alienate the rest of his staff, including the two whizkid Generation Xers he brought in. He has been charged with everything from stealing ideas to squashing the initiative of the rest of the team. From his perch as CEO, Vic preaches "team". And he's even made a few stabs at reining Carver in--his latest move has been to recommend that his mercurial star get some coaching. But Vic also knows who butters his bread. In short, he's bewildered. Four commentators suggest how Vic can keep the company's product-development group intact and it sales growth strong.     

Who has the D? How clear decision roles enhance organizational performance

Decisions are the coin of the realm in business. But even in highly respected companies, decisions can get stuck inside the organization like loose change. As a result, the entire decision-making process can stall, usually at one of four bottlenecks: global versus local, center versus business unit, function versus function, and inside versus outside partners. Decision-making bottlenecks can occur whenever there is ambiguity or tension over who gets to decide what. For example, do marketers or product developers get to decide the features of a new product? Should a major capital investment depend on the approval of the business unit that will own it, or should headquarters make the final call? Which decisions can be delegated to an outsourcing partner, and which must be made internally? Bain consultants Paul Rogers and Marcia Blenko use an approach called RAPID (recommend, agree, perform, input, and decide) to help companies unclog their decision-making bottlenecks by explicitly defining roles and responsibilities. For example, British American Tobacco struck a new balance between global and local decision making to take advantage of the company's scale while maintaining its agility in local markets. At Wyeth Pharmaceuticals, a growth opportunity revealed the need to push more decisions down to the business units. And at the UK department-store chain John Lewis, buyers and sales staff clarified their decision roles in order to implement a new strategy for selling its salt and pepper mills. When revamping its decision-making process, a company must take some practical steps: Align decision roles with the most important sources of value, make sure that decisions are made by the right people at the right levels of the organization, and let the people who will live with the new process help design it.     

Stop making plans; start making decisions

Many executives have grown skeptical of strategic planning. Is it any wonder? Despite all the time and energy that go into it, strategic planning most often acts as a barrier to good decision making and does little to influence strategy. Strategic planning fails because of two factors: It typically occurs annually, and it focuses on individual business units. As such, the process is completely at odds with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by unit boundaries. Thus, according to a survey of 156 large companies, senior executives often make strategic decisions outside the planning process, in an ad hoc fashion and without rigorous analysis or productive debate. But companies can fix the process if they attack its root problems. A few forward-looking firms have thrown out their calendar-driven, business-unit-focused planning procedures and replaced them with continuous, issues-focused decision making. In doing so, they rely on several basic principles: They separate, but integrate, decision making and plan making. They focus on a few key themes. And they structure strategy reviews to produce real decisions. When companies change the timing and focus of strategic planning, they also change the nature of senior management's discussions about strategy--from "review and approve" to "debate and decide," in which top executives actively think through every major decision and its implications for the company's performance and value. The authors have found that these companies make more than twice as many important strategic decisions per year as companies that follow the traditional planning model.     

Human due diligence

Most companies do a thorough job of financial due diligence when they acquire other companies. But all too often, deal makers simply ignore or underestimate the significance of people issues in mergers and acquisitions. The consequences are severe. Most obviously, there's a high degree of talent loss after a deal's announcement. To make matters worse, differences in decision-making styles lead to infighting; integration stalls; and productivity declines. The good news is that human due diligence can help companies avoid these problems. Done early enough, it helps acquirers decide whether to embrace or kill a deal and determine the price they are willing to pay. It also lays the groundwork for smooth integration. When acquirers have done their homework, they can uncover capability gaps, points of friction, and differences in decision making. Even more important, they can make the critical "people" decisions-who stays, who goes, who runs the combined business, what to do with the rank and file-at the time the deal is announced or shortly thereafter. Making such decisions within the first 30 days is critical to the success of a deal. Hostile situations clearly make things more difficult, but companies can and must still do a certain amount of human due diligence to reduce the inevitable fallout from the acquisition process and smooth the integration. This article details the steps involved in conducting human due diligence. The approach is structured around answering five basic questions: Who is the cultural acquirer? What kind of organization do you want? Will the two cultures mesh? Who are the people you most want to retain? And how will rank-and-file employees react to the deal? Unless an acquiring company has answered these questions to its satisfaction, the acquisition it is making will be very likely to end badly.     

Job sculpting: the art of retaining your best people

Hiring good people is tough, but keeping them can be even tougher. The professionals streaming out of today's MBA programs are so well educated and achievement oriented that they could do well in virtually any job. But will they stay? According to noted career experts Timothy Butler and James Waldroop, only if their jobs fit their deeply embedded life interests--that is, their long-held, emotionally driven passions. Butler and Waldroop identify the eight different life interests of people drawn to business careers and introduce the concept of job sculpting, the art of matching people to jobs that resonate with the activities that make them truly happy. Managers don't need special training to job sculpt, but they do need to listen more carefully when employees describe what they like and dislike about their jobs. Once managers and employees have discussed deeply embedded life interests--ideally, during employee performance reviews--they can work together to customize future work assignments. In some cases, that may mean simply adding another assignment to existing responsibilities. In other cases, it may require moving that employee to a new position altogether. Skills can be stretched in many directions, but if they are not going in the right direction--one that is congruent with deeply embedded life interests--employees are at risk of becoming dissatisfied and uncommitted. And in an economy where a company's most important asset is the knowledge, energy, and loyalty of its people, that's a large risk to take.     

Execution without excuses. Interview by Thomas A. Stewart and Louise O'Brien

The success of Dell--it provides extraordinary rewards to shareholders, it can turn on a dime, and it has demonstrated impeccable timing in entering new markets--is based on more than its famous business model. High expectations and disciplined, consistent execution are embedded in the company's DNA. "We don't tolerate businesses that don't make money," founder Michael Dell tells HBR. "We used to hear all sorts of excuses for why a business didn't make money, but to us they all sounded like 'The dog ate my homework.' We just don't accept that." In order to double its revenues in a five-year period, the company had to adapt its execution-obsessed culture to new demands. In fact, Michael Dell and CEO Kevin Rollins realized they had a crisis on their hands."We had a very visible group of employees who'd gotten rich from stock options," Rollins says. "You can't build a great company on employees who say, 'If you pay me enough, I'll stay.'" Dell and Rollins knew they had to reignite the spirit of the company. They implemented an employee survey, whose results led to the creation of the Winning Culture initiative, now a top operating priority at Dell. They also defined the Soul of Dell: Focus on the customer, be open and direct in communications, be a good global citizen, have fun in winning. It turned outto be a huge motivator. And they increased the focus on developing people within the company. "We've changed as individuals and as an organization," Rollins says. "We want the world to see not just a great financial record and operational performance but a great company. We want to have leaders that other companies covet. We want a culture that makes people stick around for reasons other than money."     

M&A needn't be a loser's game

Three out of four acquisitions fail; they destroy wealth for the buyer's shareholders, who end up worse off than they would have been had the deal not been done. But it doesn't have to be that way, argue the authors. In evaluating acquisitions, companies must look beyond the lure of profits the income statement promises and examine the balance sheet, where the company keeps track of capital. It's ignoring the balance sheet that causes so many acquisitions to destroy shareholders' wealth. Unfortunately, most executives focus only on sales and profits going up, never realizing that they've put in motion a plan to destroy their company's true profitability--its return on invested capital. M&A, like other aspects of running a company, works best when seen as a way to create shareholder value through customers. Some deals are sought to help create better value propositions for the business or to better execute current strategies--or to block competitors from doing these things. But most deals are about customers and should start with an analysis of customer profitability. Some customers are deliciously profitable; others are dismal money losers. The better an acquirer understands the profitability of its own customers, the better positioned it will be to perform such analyses on other companies. In this article, the authors show that customer profitability varies far more dramatically than most managers suspect. They also describe how to measure the profitability of customers. By understanding the economics of customer profitability, companies can avoid making deals that hurt their shareholders, they can identify surprising deals that do create wealth, and they can salvage deals that would otherwise be losers.     

Defining next-generation products: an inside look

The continued success of technology-based companies depends on their proficiency in creating next-generation products and their derivatives. So getting such products out the door on schedule must be routine for such companies, right? Not quite. The authors recently engaged in a detailed study--in which they had access to sensitive internal information and to candid interviews with people at every level--of 28 next-generation product-development projects in 14 leading high-tech companies. They found that most of the companies were unable to complete such projects on schedule. And the companies also had difficulty developing the derivative products needed to fill the gaps in the market that their next-generation products would create. The problem in every case, the authors discovered, was rooted in the product definition phase. And not coincidentally, the successful companies in the study had all learned how to handle the technical and marketplace uncertainties in their product definition processes. The authors have discerned from the actions of those companies a set of best practices that can measurably improve the definition phase of any company's product-development process. They have grouped the techniques into three categories and carefully lay out the steps that companies need to take as they work through each stage. The best practices revealed here are not a magic formula for rapid, successful new-product definition. But they can help companies capture new markets without major delays. And that is good news for any manager facing the uncertainty that goes with developing products for a global marketplace.