Technology is reshaping organizations

In Today’s chaotic, uncertain, and high-tech world, there is essentially only one type of design that is going to survive. This is the electronically configured organic organization.

We are undergoing a second Industrial Revolution and it will change every aspect of people’s lives. The changes the large corporations used to take a decade to implement now occur in one to two years. Companies that are successful will be designed to thrive on change. And the structure of those organizations will have common characteristics.

Ten years from now there will be nothing but electronic organizations. Brick-and-mortar organizations won’t go away, but click-and-mortar will become the only means to survival. In addition, every organization will need to keep its finger on the pulse of its customers. Customer priorities will change very rapidly.

What customers will pay a premium for will become a commodity so rapidly that those who lose touch with their customers will be candidates for extinction. Consumers are gaining the ability to compare the prices of hundreds of competitors rather than two or three. This is going to drive down prices dramatically. If firms don’t improve their productivity to match these drops in prices, they’ll be out of business.

Technology allows firms to stay closer to the customer to move jobs to where costs are lowest, and to make decisions much more rapidly. For instance, executives at Cisco Systems can monitor expenses, gross margins, the supply chain and profitability in real time. There no longer needs to be surprises. Every employee can make decisions that might have had to come from the top management ranks a few years ago.

At the end of a quarter, individual product managers at Cisco can see exactly what the gross margins are on his or her products, whether they are below expectations, and determine the cause of any discrepancy. Quicker decision making at lower levels will translate into higher profit margins. So instead of CEO or chief financial officer making 50 to 100 different decisions in a quarter, managers throughout the organization can make millions of decisions. Companies that don’t adjust to create this capability will noncompetitive.

There’s an old saying that every generation thinks it has discovered sex. This seems to be the case with technology and how it’s going to change the world completely.

Technology will transform the structure of organizations at a much slower rate than many believe. For instance, it’s useful to go back and ask if the railroads changed the world. There were definitely changes in how commerce and industry were arranged. But life remained the same, and the way people related to each other remained the same.

There are changes occurring that will influence the way businesses organize.’ But the changes have been, and will continue to be, gradual. They may accelerate some, but we’re not going to see a revolution in the design of organizations.

Take the case of globalization. It’s significant but it is also evolutionary. Has the formation of the European Union abolished national borders in the largest continental society in the Western World? No, France is still France, and Germany is still Germany. Things have changed, but things have not changed.

The emphasis on speed has its limits. Brains don’t speed up. The exchange of ideas doesn’t really speed up., only the overhead that slowed down the exchange. When it comes down to the bulk of knowledge work, the twenty first century works the same as the twentieth century: You can reach people around and clock, but they won’t think any better or faster just because you’ve reached them faster. The give and take remains a limiting factor.

The virtual organization also has its limitations. When you farm out your data processing, manufacturing, and other functions, you make your capabilities available to your competitors. So virtualization of work diminishes competitive advantages. It leads to rapidly spreading commoditization of everything. Any function that an organization uses to achieve a competitive advantage cannot be outsourced.

Look back over the past 40 years. People haven’t changed. And our fundamental organizations haven’t changed. On the fringes, there is more looseness in the organization. But more hasn’t changed than has. The changes we’ve seen have been slow and gradual. And that pace is likely to continue into the future.

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