Develop organizational overlays

Date: 2015-10-07; view: 536.

Having stripped away unproductive matrix and ad hoc structures from the vertical organization and clarified the line structure, a company must develop organizational overlays in the form of markets and networks that help its professionals work horizontally across its whole extent. These overlays make it easier for them to exchange knowledge, to find and collaborate with other professionals, and to develop communities that create intangible assets.

Because these market and network overlays help professionals to interact horizontally across the organization without having to go up or down the vertical chain of command, they boost rather than hinder productivity. Companies that establish such overlays are making investments not only to minimize the search and coordination costs of professionals who exchange knowledge and other valuable intangibles among themselves but also to maximize the opportunities for all sorts of cost-effective, productive interactions among them.

We believe that moving simultaneously into knowledge marketplaces, talent marketplaces, and formal networks will make all three more effective. A knowledge marketplace, for example, helps members of a formal network to exchange knowledge, which in turn helps to strengthen the network. A talent marketplace works better if the people who offer and seek jobs in it belong to the same formally networked community. In combination, these techniques can make it possible for companies to work horizontally in a far more cost-effective way.

Knowledge marketplaces.For the better part of the past 15 years, knowledge management has generated a good deal of buzz. Despite heavy investment, the benefits have been limited. Real value comes less from managing knowledge and more — a lot more — from creating and exchanging it. And the key to meeting this goal is understanding that the most valuable knowledge of a company resides largely in the heads of its most talented employees: its professionals.

Exchanging knowledge on a company-wide basis in an effective way is much less a technological problem than an organizational one. As we have argued, to promote the exchange of knowledge, companies must remove structural barriers to the interaction of their professionals. These companies must also learn how to encourage people who may not know each other — after all, big corporations usually have large numbers of professionals — to work together for their mutual self-interest. What's the best way of encouraging strangers to exchange valuable things? The well-tested solution, of course, is markets, which the economy uses for just this purpose. The trick is to take the market inside the company.

How can companies create effective internal markets when the product is inherently intangible? Among other things, working markets need objects of value for trading, to say nothing of prices, exchange mechanisms, and competition among suppliers. In addition, standards, protocols, regulations, and market facilitators often help markets to work better.

These conditions don't exist naturally — a knowledge marketplace is an artificial, managed one — so companies must put them in place.2 In particular, the suppliers of knowledge must have the incentives and support to codify it (that is, to produce high-quality "knowledge objects"). "Buyers" must be able to gain access to content that is more insightful and relevant, as well as easier to find and assimilate, than alternative sources are.

Knowledge marketplaces are a relatively new concept, so they are rare. We have found that building an effective one in a large company requires significant investments to get the conditions in place — but that such a marketplace can indeed be built. A successful mechanism of this kind substantially improves the ability to create and exchange knowledge and dramatically cuts search and coordination costs.

Talent marketplaces. A company can create similar efficiencies by developing a talent marketplace that helps employees in a talent pool, either within a single organizational unit or across the enterprise, to explore alternative assignments varying from short-term projects to longer-term operating roles. Simultaneously, anyone with assignments to offer can review all of the people looking for new opportunities. As with marketplaces for knowledge, companies must invest in their talent markets to ensure that gifted men and women looking for new jobs hook up with managers seeking talent.

Companies must define the talent marketplace by specifying standardized roles, validating the qualifications of candidates, determining how managers receive the job seekers' performance evaluations, and so forth. The other requirements include pricing (the compensation for a particular role or assignment), an exchange mechanism to facilitate staffing transactions, and protocols and standards (how long assignments run, the mechanics of reassignment, the process of conveying decisions to reassign employees). Talent marketplaces do exist — particularly in professional organization s— but like knowledge marketplaces they are at an early stage of development.

Formal networks. People with common interests — such as similar work (industrial engineers, say), the same clientele (the automotive industry), or the same geography (China) — naturally form social networks. These networks lower the cost of interaction while increasing its value to all participants. A network often provides them with increasing returns to scale: the larger it is, the more chances they have to find opportunities for collaboration.

Social networks do face problems. They often have limited reach (for example, because they don't extend to many potential members in far-flung units and geographies). What's more, they sometimes operate inefficiently (several conversations might be required to reach the right person), may rely too much on the participants' goodwill, and, most particularly, can fail to attract enough investment to serve the common good of all members effectively.

The solution, for a company, is to boost the value of the network by investing in it and formalizing its role within the organization. One such move is the designation of a network "owner" to build common capabilities (for instance, by making investments to generate knowledge).Others include developing incentives for membership, defining separate territories (the existence of more than one social network may confuse would-be members), establishing standards and protocols, and providing for a shared infrastructure (say, a technology platform supporting the network's activities).

In fact, a formal network with specific areas of economic accountability can undertake many of the activities that have inspired companies to use matrix management structures. A formal network relies on self-directed people who work together out of self-interest, while a matrix uses a hierarchy to compel people to work together. In addition, a formal network enables people who share common interests to collaborate with relatively little ambiguity about decision-making authority — ambiguity that generates internal organizational complications and tension in matrixed structures.

Although social networks flourish at many companies, only a few have formalized them. That next step, though, is one of the most important things a company can do, because it removes unnecessary complexity from horizontal interactions among talented people across organizational silos.