Imagine the following scenario: You are discussing the future needs of your business with your management team. Key questions are raised. “What will you need to survive the environment of the future? What will your customer relationships need to be? What type of flexibility will tomorrow’s customers require in terms of cost, service and customisation? How fast will we need to innovate to stay ahead? How will you deliver better value? How will we achieve all of this and more to ensure the business’ survival in, say, 2015?”

Our answer is that organisations will need to rethink their existing strategy and come up with a new game plan that delivers improvement in performance and profitability to compete successfully, especially if they want to ensure their survival in the future.

ER Consultants believe that tomorrow’s corporations will need to develop themselves in three fundamental ways:

1. A customer closeness so close that you develop a unique bond with them;
2. Lock-in/tie-in with your customers’ systems or services;
3. A product/service strategy that moves the cost/product differentiation to the next level.

Putting these elements together in a cohesive strategy will be critical for success. But most importantly, to be effective in the future, tomorrow’s organisations will have to change in two ways: how they make decisions and in the way that they are structured.

Decision-making

Placing decision-making responsibility in the hands of staff who understand the issues of the customer is a theme that has been increasingly debated because of competitive pressures, total quality management, the trend towards knowledge work and time-based competition.

These business issues have created a need for decision making and staff support to be closer to the customer. Increasingly, I am seeing companies moving work that used to be carried out at HQ to units and divisions; in other words, from single profit centres to multiple profit-measurable units.  These value-added structures require decisions and people to move from corporate headquarters to business units or to clusters of business units. In business units, general management decisions have to move to teams with direct product, project, service or customer contact. As decision power moves to teams, the teams need additional knowledge, information and rewards that are tied to the businesses they manage.

In all cases, faster decision-making, control of quality at the point of origin and delivery of service at the point of customer contact requires decisions to be moved to lower levels. This in turn leads to a focus on a new, more networked form of organisational structures, i.e. smaller organisations with reduced hierarchy. Innovation and customisation through customer closeness, in conjunction with the customer, will help to accelerate the decision-making process. Moving from a hierarchy to a fast moving network structure will achieve this. As a result, the people lower down not only have a better understanding and closeness to the customer, but can make quick decisions (decisions that would have normally taken time to filter up the chain in the hierarchical structure) and respond to customers’ needs much faster.  These developments will have a two-fold effect: realizing greater value and reducing overhead costs.

The network structure

The network organisation gets its name by analogy with distributed computing. Originally, most corporate computing was centralised on big mainframe computers. But then the alternative – distributed computer power around the organisation using personal computers, workstations and minicomputers – changed things. These networks now allow people access to the computing power of the whole network of computers across the web.

Just like the growth in the power of our personal computers, the new network structure will allow us to do things that we did not even imagine before. For example, activities such as customer management that were originally centralised and performed at corporate headquarters, will now be networked to the best locations for their execution. The best locations are not corporate headquarters, but rather divisions where the customer management capability is located.

For example, the purchasing of semiconductors goes to the division that purchases the largest number; another division, which has the most experience with computer-aided design and manufacturing systems, now negotiates for all divisions in the corporation. In this manner, activities are networked around the organisation. The locations are referred to as ‘centres of excellence’ or ‘of having lead division responsibility’.

The network organisation decentralises an activity by moving it out of corporate headquarters and into a division or business unit, or to other partners. The activity is therefore performed close to the action and a sense of urgency develops that is usually not found at corporate headquarters. The network organisation consolidates the activity so that it is still performed in only one of a few places. This arrangement allows for high levels of excellence and reduces the likelihood of duplication. The network organisation is a compromise that responds to the requirements involving speed, coordination and cost. It will add value to the business through shared capabilities and key competencies.

International networking

To get the scale, volume and consistency required for a global strategy, the corporation may need to have a business that is centralised and performed in one place. Value-adding activities are moving out of the country of ownership in order to get market access. Some governments insist on adding design or manufacturing value to products sold in the host countries. To prevent fragmentation and duplication, the company in turn places worldwide responsibility in the country, to satisfy the government and to fulfil that responsibility in one place.

Headquarter location is another issue. What advantage does Apple have in being located in Cupertino, GE in Fairfield, GSK in London and HP in Paolo Alto? In some cases, there are better places for a worldwide responsibility than the country of ownership. Some countries have unique skills. India, for example, is a powerhouse for software and northern Italy is a world-class leader in design skills. Companies move value-adding activities to countries that have superior skills. Other responsibilities are moved to markets where state-of-the-art competition is taking place. Worldwide responsibility goes to the country where the company finds its most demanding customers and its toughest competitors.

Today’s contest in the marketplace is tomorrow’s contest in the country of ownership. To be prepared, a company must strategise in the leading market.

Developing a productive network structure

The network configuration was not used before because it was feared that a local unit would give priority to its own needs and its own market first and to others second. Several actions, however, can be taken to implement the model successfully.

The networked activity must be measured and rewarded on corporate criteria. These criteria need to be derived from a plan prepared by the unit and approved by other units and reviewed by HQ. The managers of the activity need to think globally and act locally. They should have experience in the other divisions and countries. Units that have corporate-wide responsibility should also have staff with corporate-wide comprehension. Typically, half the employees in a centre of responsibility are division employees; the other half come from other participating units, and linked electronically for constant communication through email, computer and video conferencing.

Making the network organisation really add value

The real keys to making the networked organisation add value are the vision, creativity, desire and the capability to rethink what we are doing, where it could be done better, and how we wire all this up to deliver greater agility, value, innovation and responsiveness. Ultimately, that is what will ensure your survival in 2015.