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.     

What's a business for?

In the wake of the recent corporate scandals, it's time to reconsider the assumptions underlying American-style stock-market capitalism. That heady doctrine--in which the market is king, success is measured in terms of shareholder value, and profits are an end in themselves--enraptured America for a generation, spread to Britain during the 1980s, and recently began to gain acceptance in Continental Europe. But now, many wonder if the American model is corrupt. The American scandals are not just a matter of dubious personal ethics or of rogue companies fudging the odd billion. And the cure for the problems will not come solely from tougher regulations. We must also ask more fundamental questions: Whom and what is a business for? And are traditional ownership and governance structures suited to the knowledge economy? According to corporate law, a company's financiers are its owners, and employees are treated as property and recorded as costs. But while that may have been true in the early days of industry, it does not reflect today's reality. Now a company's assets are increasingly found in the employees who contribute their time and talents rather than in the stockholders who temporarily contribute their money. The language and measures of business must be reversed. In a knowledge economy, a good business is a community with a purpose, not a piece of property. If, like many European companies, a business considers itself a wealth-creating community consisting of members who have certain rights, those members will be more likely to treat one another as valued partners and take responsibility for telling the truth. Such a community can also help repair the image of business by insisting that its purpose is not just to make a profit but to make a profit in order to do something better.     

Selling the brand inside

When you think of marketing, chances are your mind goes right to your customers--how can you persuade more people to buy whatever it is you sell? But there's another "market" that's equally important: your employees. Author Colin Mitchell argues that executives by and large ignore this critical internal audience when developing and executing branding campaigns. As a result, employees end up undermining the expectations set by the company's advertising--either because they don't understand what the ads have promised or because they don't believe in the brand and feel disengaged or, worse, hostile toward the company. Mitchell offers three principles for executing internal branding campaigns--techniques executives can use to make sure employees understand, embrace, and "live" the brand vision companies are selling to the public. First, he says, companies need to market to employees at times when the company is experiencing a fundamental challenge or change, times when employees are seeking direction and are relatively receptive to new initiatives. Second, companies must link their internal and external marketing campaigns; employees should hear the same messages that are being sent to the market-place. And third, internal branding campaigns should bring the brand alive for employees, creating an emotional connection to the company that transcends any one experience. Internal campaigns should introduce and explain the brand messages in new and attention-grabbing ways and then reinforce those messages by weaving them into the fabric of the company. It is a fact of business, writes Mitchell, that if employees do not care about or understand their company's brands, they will ultimately weaken their organizations. It's up to top executives, he says, to give them a reason to care.     

How to have an honest conversation about your business strategy

Too many organizations descend into underperformance because they can't confront the painful gap between their strategy and the reality of their capabilities, their behaviors, and their markets. That's because senior managers don't know how to engage in truthful conversations about the problems that threaten the business--and because lower-level managers are afraid to speak up. These factors lie behind many failures to implement strategy. Indeed, the dynamics in almost any organization are such that it's extremely difficult for senior people to hear the unfiltered truth from managers lower down. Beer and Eisenstat present the methodology they've developed for getting the truth about an organization's problems (and the truth is always embedded within the organization) onto the table in a way that allows senior management to do something useful with it. By assembling a task force of the most effective managers to collect data about strategic and organizational problems, the senior team sends a clear message that it is serious about uncovering the truth. Task force members present their findings to the senior team in the form of a discussion. This conversation needs to move back and forth between advocacy and inquiry; it has to be about the issues that matter most; it has to be collective and public; it has to allow employees to be honest without risking their jobs; and it has to be structured. This direct feedback from a handful of their best people moves senior teams to make changes they otherwise might not have. Senior teams that have engaged in this process have made dramatic changes in how their businesses are organized and managed--and in their bottom-line results. Success that begins with honest conversations begets future conversations that further improve performance.     

CORPORATE GOVERNANCE, ETHICS, AND ORGANIZATIONAL ARCHITECTURE

Effective corporate leadership involves more than developing a good strategic plan and setting high ethical standards. It also means coming up with an organizational design that encourages the company's managers and employees to carry out its business plan and maintain its ethical standards.
In this article, the authors use the term organizational architecture to refer to three key elements of a company's design:

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  the assignment of decision-making authority–who gets to make what decisions;

       
  
  

A new mandate for human resources

Should we do away with HR? In recent years, a number of people who study and write about business--along with many who run businesses--have been debating that question. The debate arises out of serious and widespread doubts about HR's contribution to organizational performance. Dave Ulrich acknowledges that HR, as it is configured today in many companies, is indeed ineffective, incompetent, and costly. But he contends that it has never been more necessary. The solution, he believes, is to create an entirely new role for the field that focuses it not on traditional HR activities, such as staffing and compensation, but on business results that enrich the company's value to customers, investors, and employees. Ulrich elaborates on four broad tasks for HR that would allow it to help deliver organizational excellence. First, HR should become a partner in strategy execution. Second, it should become an expert in the way work is organized and executed. Third, it should become a champion for employees. And fourth, it should become an agent of continual change. Fulfilling this agenda would mean that every one of HR's activities would in some concrete way help a company better serve its customers or otherwise increase shareholder value. Can HR transform itself on its own? Certainly not--in fact, the primary responsibility for transforming the role of HR, Ulrich says, belongs to the CEO and to every line manager who works with the HR staff. Competitive success is a function of organizational excellence, and senior managers must hold HR accountable for delivering it.     

Make your values mean something

Take a look at this list of corporate values: Communication. Respect. Integrity. Excellence. They sound pretty good, don't they? Maybe they even resemble your own company's values. If so, you should be nervous. These are the corporate values of Enron, as claimed in its 2000 annual report. And they're absolutely meaningless. Indeed, most values statements, says the author, are bland, toothless, or just plain dishonest. And far from being harmless, as some executives assume, they're often highly destructive. Empty values statements create cynical and dispirited employees and undermine managerial credibility. But coming up with strong values--and sticking to them--isn't easy. Organizations that want their values statements to really mean something should follow four imperatives. First, understand the different types of values: core, aspirational, permission-to-play, and accidental. Confusing them with one another can bewilder employees and make management seem out of touch. Second, be aggressively authentic. Too many companies view a values initiative in the same way they view a marketing launch: a onetime event measured by the initial attention it receives, not by its content. Third, own the process. Values initiatives are about imposing a set of fundamental, strategically sound beliefs on a broad group of people. That's why the best values efforts are driven by small teams. Finally, weave core values into everything. It's not enough to hang your values statement on the wall; it must be integrated into every employee-related process--hiring methods, performance management systems, even dismissal policies. Living by stated corporate values is difficult. But the benefits of doing so can be profound; so can the damage from adopting a hollow set of corporate values.     

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.     

When no news is good news

For as long as can be remembered, BestBaby Corporation, a manufacturer of baby equipment and furniture, has enjoyed a solid reputation with retailers, a good track record with consumers, and a supportive relationship with stockholders. But then the child of a celebrity is injured when her stroller tips over because its brakes failed. The media go wild, and CEO Greg James finds himself in uncharted territory. The morning after the accident, Greg calls an emergency meeting of his executive staff. As he searches his memory to prepare for it, he thinks about Arzep Enterprises, BestBaby's main provider of parts and materials. He remembers his COO, Keith Sigismund, telling him that Arzep had switched suppliers at some point in order to cut its own costs. Nevertheless, Keith had assured Greg that the new material, although not quite as sturdy, hadn't affected the quality of Arzep's components. By the time the meeting is set to begin, several employees have threatened to quit, and stories are surfacing in the press and on the Web about other consumers who have had problems with their strollers. Then in the meeting, Keith drops a bombshell: he reads from a year-old memo sent to him by an employee in manufacturing stating that the new brake fittings delivered by Arzep don't grab the front brakes as well as the ones previously supplied. The same employee, and others, had complained in the past that Keith hadn't adequately attended to concerns they brought up to him. In this fictional case study, four commentators offer advice to Greg on how BestBaby should respond to the victim's family, the media, the public, and the company's own employees during this PR crisis.     

Managing for value. It's not just about the numbers.

In theory, value-based management programs sound seductively simple. Just adopt an economic profit metric, tie compensation to agreed-upon improvement targets in that metric, and voilà! Managers and employees will start making all kinds of value-creating decisions. If only it were that easy. The reality is, almost half of the companies that have adopted a VBM metric have met with mediocre success. That's because, the authors contend, the successful VBM program is really about introducing fundamental changes to a big company's culture. Results from their major research project into the practice of VBM reveal that putting VBM into practice is far more complicated than many of its proponents make it out to be, requiring a great deal of patience, effort, and money. According to the authors' study, companies that successfully use VBM programs share five main characteristics. First, nearly all made explicit and public their commitment to shareholder value. Second, through training, they created an environment receptive to the changes the program would engender. Third, they reinforced that training with broad-based incentive systems closely tied to the VBM performance measures, which gave employees a sense of ownership in both the company and the program. Fourth, they were willing to craft major organizational changes to allow all their workers to make those value-creating decisions. Finally, the changes they introduced to the company's systems and processes were broad and inclusive rather than focused narrowly on financial reports and compensation. A VBM program is difficult and expensive. Still, the authors argue, properly applied, it will put your company's profitability firmly on track.     

How we went digital without a strategy

Once you say what business you're in, you put your employees into a mental straitjacket and hand them a ready-made excuse for ignoring new opportunities. So rather than dictate his company's identity, Ricardo Semler--the majority owner of Semco in S?o Paulo, Brazil--lets his employees shape it through their individual efforts and interests. "I don't know what Semco is," he writes in this first-person account of his company's expansion from manufacturing to Internet services. "Nor do I want to know." Ten years ago, Semco employees who were selling cooling towers to owners of large commercial buildings heard customers complain about the high cost of maintaining the towers. The salespeople proposed a new business in cooling-tower maintenance, and the venture is now a $30 million property-management business. That initiative led to the creation, with Semco's support, of an on-line exchange to facilitate the management of commercial construction projects. The exchange is revolutionizing the construction process in Brazil and has become a springboard for further Web initiatives such as virtual trade shows. The author shares some of the lessons he has learned along the way: Forget about the top line. Never stop being a start-up. Don't be a nanny (treat your employees like adults). Let talent find its place. Make decisions quickly and openly when it comes to reviewing proposals for new businesses. And partner promiscuously: "Our partners," Semler says, "are as much a part of our company as our employees."     

The power of collective ambition

In the past few years, some companies have not just weathered the economic storm: They've emerged stronger than ever. How did such players as Four Seasons, Sephora, and Standard Chartered Bank defy conventional logic? Instead of pursuing a single ambition, such as profits, employees defined a collective ambition. As a result, those organizations deepened their engagement with employees and other stakeholders and became sustainably profitable. Purpose, a company's reason for existence, is the central element of collective ambition. The other elements--vision, targets and milestones, strategic and operational priorities, brand promise, core values, and leader behaviors--must be aligned to serve the company's purpose. Articulating the elements of collective ambition can give everyone in the organization a better sense of the company's purpose and how they can contribute to it. Purpose does not have to be about saving the world; providing excellent entertainment or banking services is just as meaningful a purpose as improving health care in emerging economies--as long as it is an authentic representation of why the company exists. To shape and then achieve a collective ambition, companies must strengthen their organizational glue (the collaborative engagement that creates a unified culture) and grease (the disciplined execution that enterprisewide change initiatives require).     

Driving Performance Through Corporate Culture: Interviews with Four Experts

Establishing an effective link between corporate strategy and employee performance has traditionally been seen as a function of organizational structure and internal marketing—that is, of getting the right compensation systems in place to reward the desired behavior, and relentlessly communicating the strategy to all employees. But, according to the four organizational behavior experts who were interviewed for this article, there's more to it than that. Also important is a market- and customer-oriented corporate culture, which can be a highly effective tool for companies seeking to improve performance and increase value.
This article presents four distinctive, but complementary views on why and how senior executives should play a significant role in managing the cultures within their organizations. According to these experts, it is possible to both transform and harness the power of a culture by paying greater attention to succession issues; articulating and communicating an organization's core values; aligning a company's behavioral norms with employee assumptions; and offering "constructive reconciliation of cultural differences." In the last analysis, a company's culture is said to be the most effective way for executives to ensure that their employees will perform "when no one is looking."     

No ordinary boot camp

Many companies now run boot camps--comprehensive orientation programs designed to help new hires hit the ground running. They're intense and intimidating, and new employees emerge from them with strong bonds to other recruits and to the organization. But at Trilogy, organizational consultant Noel Tichy discovered one program that's a breed apart. In this article, Tichy gives us a detailed tour of Trilogy's boot camp, Trilogy University, to demonstrate why it's so different--and so effective. Like the best boot camps, it serves as an immersion in both the technical skills new recruits will need for their jobs and Trilogy's corporate culture, which emphasizes risk-taking, teamwork, humility, and a strong customer focus. But this is a new-employee orientation session that's so fundamental to the company as a whole that it's presided over by the CEO and top corporate executives for fully six months of the year. Why? In two three-month sessions, these top executives hone their own strategic thinking about the company as they decide what to teach the new recruits each session. They also find the company's next generation of new products as they judge the innovative ideas the recruits are tasked with developing--making the program Trilogy's main R&D engine. And they pull the company's rising technical stars into mentoring roles for the new recruits, helping to build the next generation of top leadership. After spending months on-site studying Trilogy University, Tichy came away highly impressed by the power of the virtuous teaching cycle the program has set in motion. Leaders of the organization are learning from recruits at the same time that the recruits are learning from the leaders. It's a model, he argues, that other companies would do well to emulate.     

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.     

I was greedy,too

Americans are outraged at the greediness of Wall Street analysts, dot-com entrepreneurs, and, most of all, chief executive officers. How could Tyco's Dennis Kozlowski use company funds to throw his wife a million-dollar birthday bash on an Italian island? How could Enron's Ken Lay sell thousands of shares of his company's once high-flying stock just before it crashed, leaving employees with nothing? Even America's most popular domestic guru, Martha Stewart, is suspected of having her hand in the cookie jar. To some extent, our outrage may be justified, writes HBR senior editor Diane Coutu. And yet, it's easy to forget that just a couple years ago these same people were lauded as heroes. Many Americans wanted nothing more, in fact, than to emulate them, to share in their fortunes. Indeed, we spent an enormous amount of time talking and thinking about double-digit returns, IPOs, day trading, and stock options. It could easily be argued that it was public indulgence in corporate money lust that largely created the mess we're now in. It's time to take a hard look at greed, both in its general form and in its peculiarly American incarnation, says Coutu. If Federal Reserve Board chairman Alan Greenspan was correct in telling Congress that "infectious greed" contaminated U.S. business, then we need to try to understand its causes--and how the average American may have contributed to it. Why did so many of us fall prey to greed? With a deep, almost reflexive trust in the free market, are Americans somehow greedier than other peoples? And as we look at the wreckage from the 1990s, can we be sure it won't happen again?     

The people who make organizations go--or stop

Managers invariably use their personal contacts when they need to, say, meet an impossible deadline or learn the truth about a new boss. Increasingly, it's through these informal networks--not just through traditional organizational hierarchies--that information is found and work gets done. But to many senior executives, informal networks are unobservable and ungovernable--and, therefore, not amenable to the tools of management. As a result, executives tend to work around informal networks or, worse, try to ignore them. When they do acknowledge the networks' existence, executives fall back on intuition--scarcely a dependable tool--to guide them in nurturing this social capital. It doesn't have to be that way. It is entirely possible to develop and manage informal networks systematically, say management experts Cross and Prusak. Specifically, senior executives need to focus their attention on four key role-players in informal networks: Central connectors link most employees in an informal network with one another; they provide the critical information or expertise that the entire network draws on to get work done. Boundary spanners connect an informal network with other parts of the company or with similar networks in other organizations. Information brokers link different subgroups in an informal network; if they didn't, the network would splinter into smaller, less effective segments. And finally, there are peripheral specialists, who anyone in an informal network can turn to for specialized expertise but who work apart from most people in the network. The authors describe the four roles in detail, discuss the use of a well-established tool called social network analysis for determining who these role-players are in the network, and suggest ways that executives can transform ineffective informal networks into productive ones.     

How to implement a new strategy without disrupting your organization

Throughout most of modern busi ness history, corporations have attempted to unlock value by matching their structures to their strategies: Centralization by function. Decentralization by product category or geographic region. Matrix organizations that attempt both at once. Virtual organizations. Networked organizations. Velcro organizations. But none of these approaches has worked very well. Restructuring churn is expensive, and new structures often create new organizational problems that are as troublesome as the ones they try to solve. It takes time for employees to adapt to them, they create legacy systems that refuse to die, and a great deal of tacit knowledge gets lost in the process. Given the costs and difficulties involved in finding structural ways to unlock value, it's fair to raise the question: Is structural change the right tool for the job? The answer is usually no, Kaplan and Norton contend. It's far less disruptive to choose an organizational design that works without major conflicts and then design a customized strategic system to align that structure to the strategy. A management system based on the balanced scorecard framework is the best way to align strategy and structure, the authors suggest. Managers can use the tools of the framework to drive their unit's performance: strategy maps to define and communicate the company's value proposition and the scorecard to implement and monitor the strategy. In this article, the originators of the balanced scorecard describe how two hugely different organizations--DuPont and the Royal Canadian Mounted Police-used corporate scorecards and strategy maps organized around strategic themes to realize the enormous value that their portfolios of assets, people, and skills represented. As a result, they did not have to endure a painful series of changes that simply replaced one rigid structure with another.     

Building corporate character. Interview by Nan Stone

Stride Rite is a good company by any definition: Keds, Sperry Top-Siders, and Stride Rite children's shoes are consumer favorites for their fit, quality, and comfort. Wall Street analysts praise the company's outstanding financial performance. Innovative programs such as the first corporate child-care center and public service scholarships support Stride Rite's reputation as one of the most responsible employers and corporate citizens in the United States. Behind Stride Rite's good performance are the building blocks of corporate character: a legacy of quality and service and a leader committed to keeping that legacy lively. When Stride Rite shipped its first children's shoes in 1919, they came with the company's commitment "to produce an honest quality product in an honest way and deliver it as promised." For Arnold Hiatt, that commitment has been the driving force behind the company's evolution from manufacturing into marketing and product development as well as the guiding principle in its relations with consumers, dealers, suppliers, and employees. But Stride Rite's corporate character is also a reflection of Hiatt himself. In his early 20s, Hiatt fled a management training program "designed to make carnivores" out of its new employees and bought Blue Star Shoes, a small manufacturing company that had gone into Chapter 11. Through experience and "stumbling around," he built Blue Star's sales to $5 million-and got a practical education in management, markets, and human nature that has proved equally useful in running Stride Rite.     

The enemies of trust

Researchers have established that trust is critical to organizational effectiveness. Being trustworthy yourself, however, does not guarantee that you are capable of building trust in an organization. That takes old-fashioned managerial virtues like consistency, clear communication, and a willingness to tackle awkward questions. It also requires a good defense: You must protect trust from its enemies. Any act of bad management erodes trust, so the list of potential enemies is endless. Among the most common enemies of trust, though, are inconsistent messages from top management, inconsistent standards, a willingness to tolerate incompetence or bad behavior, dishonest feedback, a failure to trust others to do good work, a tendency to ignore painful or politically charged situations, consistent corporate underperformance, and rumors. Fending off these enemies must be at the top of every chief executive's agenda. But even with constant vigilance, an organization and its leaders will sometimes lose people's trust. During a crisis, managers should enlist the help of an objective third party--chances are you won't be thinking clearly--and be available physically and emotionally. If you "go dark" in the face of a crisis, employees will worry about the company's survival, about their own capacity to cope, and about your abilities as a leader. And if trust has broken down so badly that your only choice is to start over, you can do so by figuring out exactly how the breach of trust happened, ascertaining the depth and breadth of the loss, owning up to the loss instead of downplaying it, and identifying as precisely as possible the specific changes you must make to rebuild trust.