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Building the Virtual Networked Business Models of the Future

(this was supposed to be a 2-page paper for a class on Managing Growth. I wrote 9 before I caught my breath)

by Ryan Petersen
Columbia Business School
MBA Class of 2008

Your customers are in control. The Web has taught them they can get whatever they want, exactly the way they want it, when they want it. And they want it NOW. Tomorrow is too late.

Customers "pulling" the specific products they want represents a radical departure from economic models of the past. Since the dawn of the industrial revolution, corporations have been in the business of producing huge quantities of product X and then "pushing" that product to customers through expensive sales and marketing efforts. Everything about today's organizational structures was designed to serve this model.

Economies of scale were king in the push economy: Huge factories pumped out standardized products as cheaply as possible; broad retail distribution networks put products in front of consumers wherever they shopped; marketing departments created print, television and radio advertisements to interrupt customers with their messaging; sales people knocked on doors and made phone calls to do the same; and MBAs were hired to optimize the entire process.

These organizational structures have not always been with us, however. Rather, they emerged in response to economic paradigm shifts of the past. Thomas McCraw, author of Creating Modern Capitalism, has identified three distinct industrial revolutions. The first arrived with the advent of steam and water power in the 17th and 18th centuries. Business ceased being a family affair as companies organized machines under the roofs of ever-larger factories, filled with hundreds or thousands of employees.

The second industrial revolution came about with the rise of electric utilities in the early 20th century. No longer requiring their own generators, factories could situate themselves closer to customers and labor supplies. Organizations adapted to the economics of cheap, plentiful power by organizing themselves around the assembly line, resulting in a dramatic productivity gains.

The third industrial revolution came about with the rise of mass communications and containerization in the aftermath of World War II. By spending huge amounts on television, radio and print advertisements, companies found they could create demand for the standardized products they churned out en masse. Successful firms began to organize around brands and global distribution networks. Those who were too slow to embrace the trends of branding and globalization quickly became inconsequential.

To execute global strategies behind standardized brands, companies needed new mechanisms of control. Much like the human body, businesses have traditionally organized around a central nervous system (the c-suite) that disseminates market intelligence and commands down to the corporation's muscles (line employees). To a greater or lesser degree, decisions are made at the top and executed at the bottom.

In Growing Pains, Eric Flamholtz and Yvonne Randle, identify three pure forms of organizational structure that have thrived in the push economy: (1) the functional structure, (2) the divisional structure, and (3) the matrix structure (Flamholtz, 190). To greater or lesser degrees, each of these structures greatly enhances top management's ability to control an organization.

Indeed, the central theme of Flamholtz and Randle's work on organizational structures is the need for managers to wield control. In this classical view, rational analysis by highly trained managers is the best way to allocate a firm's resources. Meanwhile, their arguments against more market-centric approaches like those found in the matrix organization center on the difficulty of coordination. Yet the rise of the empowered consumer demands that we push control all the way to the bottom--indeed, even outside the organization into the hands of customers, suppliers and other stakeholders. To do this, we need structures that provide for increased collaboration even at the expense of managerial control.

Throughout the three industrial revolutions, successful businesses of one era rarely made the transition to the next. More often the old companies gradually (or rapidly) faded into irrelevance as new businesses built upon new organizational structures rose to the forefront.

The rise of empowered consumers demanding exactly what they want, when they want it, represents a paradigm shift on the same order of magnitude as McCraw's three revolutions of the past. According to Seth Godin, "just ten years after the birth of the Web, New Marketing [i.e. the pull economy] has so fundamentally changed the dynamics of production and growth that the rules of the third revolution are no longer dominant" (Godin, 44). The traditional model of centralized control cannot adapt fast enough to meet the unique demands of so many individual customers.

Revolutionary new organizational structures--indeed, entirely new conceptions of the firm--are demanded. What might these new structures look like? One inspiring example can be found in a revolutionary new structure developed at SEMCO, a Brazilian manufacturing and services firm headed by Ricardo Semler.

Semler asserts that traditional businesses are built on "formats that are basically legacies of military hierarchies." Even the language we employ--words like strategy, mission, and corporate battles--are borrowed from this military tradition. In Semler's view, these structures neglect or deny the power of human intuition and democratic participation.

"We all find democracy to be a fundamental issue in our lives," he says. "We will send our sons anywhere in the world to die for it. We will not participate in a society where we can't choose our own [leaders]...but, I've never seen a democratic workplace. So it's very important for our lives, except where we spend 60% of our time."

For the past 25 years, Semler and his firm have embarked on a bold experiment in self-organization that eliminates hierarchies, organization charts, job titles, required meetings, corporate headquarters and many other trappings of traditional corporations. Employees select their own leaders--not in a required voting system, but through open discussions at voluntary meetings. They also choose their bosses and set their own salaries. In effect, he says to his workers:

"Don't cross town and get out of bed to come [to our offices]. We don't want to know how many hours you work. Let's contract for something you can do, and you do it anytime you can, anyhow you can. But it is a free market system, and it's unforgiving in some respects. Every six months, you've got to latch on to somebody's payroll. Everybody in the business unit together will write down the names of the people they think they need, and if you're on that list for enough people you have a job."

In addition to its employees on payroll, SEMCO also has more than 1,400 people in its business units who do not work for the firm, including 19 who work for their direct competitor. By putting the creative forces of self-organization and natural selection to work within the company, the firm has unleashed productivity gains that would be the envy of any business.

The net result has been 27% annual growth for the past 25 years during a period in which Brazil went through various cycles of inflation and hyperinflation, economic boom and bust. Semler recently told an audience at MIT Sloan, "The military legacy and...the analytical approach to management in a pyramidal structure is finished. That is anachronistic and if it's going to take 10, 15, or 40 years to go away, it doesn't matter, but it will be during your lifetime."

Semler's most remarkable achievement is his willingness to abandon his need for control. By setting his people free to collaborate with whomever they feel is useful to their specific task, whether inside or outside the firm, he has tapped into a wealth of human intuition and creativity unavailable to traditional firms.

Although SEMCO's democratic workplace remains the exception, examples abound of companies that are experiencing explosive growth as a result of giving up control over their products and processes.

Take Threadless.com, an online retailer of t-shirts. In the traditional push model, a t-shirt company--even one operating online--would hire a talented artist to design great shirts and then spend extensively to generate demand for these products. Instead, Threadless has created a platform for aspiring designers to submit their designs, and put these to a vote by customers. If your design wins, you get paid $1,500 and your t-shirt is produced. The company has quadrupled sales every year since 2001, reaching more than $20 million in 2007 (Godin, 61). They did this by embracing customer control and building an organization that empowers them even further.

A more well-known example of giving up control comes from the Google search algorithm. In the early days of the web, the primary way to find content was through manually edited directories run by firms like Yahoo. Then two Stanford engineers realized that by downloading the entire web onto their servers, and then analyzing all the links between the various web sites, they could actually turn every webmaster into a voter in a popularity contest. If a website received a lot of links from other websites, Google considers it important and ranks it highly.

In fact, Google has taken user participation in its search algorithm at least one step further, by incorporating the behavior of searchers themselves into the results. For example, if a large enough proportion of searchers for a particular term choose the 2nd result instead of the 1st, Google readjusts its rankings to reflect user preferences.

Like traditional media companies, Google earns its revenues by delivering advertisements. However, Google is very different in that each advertisement is tailored to the precise search term a customer types into its engine. In a sense, customers are "pulling" advertisements relevant to their needs in a particular moment.

Just as interesting, Google has taken steps to embrace worker self-organization through its human resources policies. Every employee is permitted to spend 20% of their time on any project they want, even in a completely different field or, in some cases, outside the firm altogether. At the same time, the company has created powerful tools for workers to share ideas about new projects and get feedback from their peers. The ideas that get the most votes attract resources, at first in the form of people's voluntary 20% time. If a project shows significant potential, management may decide to formalize the project with greater financial and engineering resources.

The company's leadership openly acknowledges that they don't know what direction the firm is heading. Instead, they just give their people the tools to develop great products and then get out of the way.

As soon as you give up your need for managerial control, outsourcing work to your customers makes an incredible amount of economic sense. Indeed, many traditional businesses are employing their customers without even knowing it. Kevin Kelly, founder of Wired magazine, points out that every time you track a package on FedEx.com, you are actually doing work that used to be done by FedEx employees (Gibson, 256).

Meanwhile, Amazon's customers generate thousands of product reviews every single day, each of which enhances the shopping experience of other customers--people they don't even know. The result is increased customer loyalty and soaring profits. And they are doing it for free because Amazon empowered them do so.

These new organizational forms need not be constrained to for-profit enterprises. For example, the open source Linux and Apache operating systems now power the majority of web servers, the computers that send web pages to your browser every time you visit a web site. These programs were developed by ad hoc communities of software developers working for free because they found meaning in the work.
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Wikipedia has similarly created the world's largest encyclopedia on the backs of user contributions. By giving up editorial control, Jimmy Wales and his team harnessed the knowledge of millions of readers, who collectively know far more than any team of experts.

Kiva.org has raised millions for microfinance organizations by enabling donors in rich countries to provide micro-loans to entrepreneurs in the developing world. They did this without a marketing department, offices in the countries they serve, or direct contact with their donors. Rather, they let entrepreneurs tell their own stories, which are more authentic and inspiring than anything a corporate marketing department could put out.

In each of the preceding examples, we see a blurring of the lines between organizations and their customers, suppliers, and competitors. As these boundaries become less clear, a new conception of the firm is needed, one that can account for the dynamic, interconnected nature of the business world.

The militaristic perspective of the past must be replaced by the more accurate biological systems perspective. The biological systems framework not only creates a much more useful understanding of the corporation, it is also much more than mere analogy: Composed of human beings, businesses are biological systems in every sense.

As with any living system, companies are open systems that do more than simply take inputs from their environments and turn them into outputs. Much like biological organisms, as they process inputs and generate outputs, businesses are simultaneously creating their environments. In the natural world, it is meaningless to refer to competition between two organisms without taking into account the environment in which they exist. The winner will depend as much upon its inherited characteristics as upon the external factors provided by the environment. Those external factors, in turn, are co-created by all the various organisms within the network. What you have, then, is a competition between networks, rather than between organisms.

The significance of this analogy for the business world should not be overlooked. The future will be characterized by not competition between firms, in the traditional sense, but rather by competition between networks. Successful organizations will be those that can rapidly assemble team members and resources as project work demands. They will be flexible enough to quickly scale up to take advantage of opportunities or overcome challenges, and adaptable enough to scale down before cost pressure eliminates profitability.

As with successful genes in the natural world, successful business modules will be copied and spread widely, tested in new market environments and gradually adapted to local conditions. Unsuccessful modules will die out, though perhaps stored in somebody's mind (or computer database) for use in another situation at some future date.

In this biological model of the organization, there is no need to worry about whether a resource lies inside or outside the formal boundaries of your firm. What matters is whether they lie within your network where they can be brought together on short-notice when they are required.

Biological systems at all levels of complexity--from single-celled organisms to entire ecosystems--take on a life of their own with properties distinct from their constituent parts. These emergent properties arise as the result of the many local interactions of the system's components. In this light, corporate culture itself can be seen as an emergent property resulting from the countless interactions taking place between the members of an organization and its outside world.

While useful for developing a theoretical view of the firm, the biological systems view also generates actionable insights into creating high-performance cultures. To that effect, Robin Good and Ken Thompson have undertaken a systematic study of biological "teams" such as ant colonies and immune systems. These living systems manage to achieve incredible levels of coordination and productivity without advanced intelligence or centralized control. In the "Bioteaming Manifesto," they present a list of these characteristics, along with recommendations for how they can be applied to virtual networked business teams.

Most executives will acknowledge that technology often fails to provide promised productivity gains. Instead of the oft-heralded benefits of always-on connectivity, technology often becomes a time waster. Good and Thompson place blame a lack of norms, behaviors and beliefs properly adapted to the nature of virtual teams. They have therefore outlined twelve rules and seven beliefs that "bioteams"--biologically inspired virtual business teams--can adopt to achieve unheard of levels of coordination and productivity.

Unlike the rules of a traditional business environment, however, these cannot be driven from the top-down. Rather, they must emerge naturally from the bottom up collaboration of team members. Managers are no longer in control. Instead leaders--that means us!--will naturally emerge from within a team because of their ability to exert influence on team behaviors. We can do this in many ways, but the most likely candidate is, as always, leading by example.

Indeed, the first attribute itself is to "stop controlling." Good and Thompson argue that team members should communicate “situational information to team members who are trained to judge themselves what they should do in the best interests of the team.” No more command and control. Communicate what needs to be done and let them decide how.

The next attribute of high performance virtual teams is that all members take responsibility for identifying threats and opportunities. Team intelligence will be distributed, not driven from above. They argue that successful virtual teams must eliminate the "layers of permission" used by traditional teams to protect themselves from team member mistakes. "The only permission structures kept in place by a bioteam are those needed to protect the team against the potentially critical mistakes which would threaten the bioteam's own mission." In a virtual networked team, transparency and reputation are the basis for accountability.

Next the authors exhort us to "treat external partners as fully trusted team members." Partners should be chosen very carefully, but once admitted to a team, they should be granted full transparency and trust. Here they draw the analogy between the porous membrane of an organism, which accepts energy and useful inputs but keeps out poisonous toxins.

In a traditional team, the number of team members is decided in advance, and the group quickly scales up to achieve this optimal figure. Bioteams, on the other hand, acknowledge that they will never be able to calculate the optimal number in advance, and instead allow the growth of the team to rise or fall naturally as circumstances allow. The team should always be on the lookout for useful new members. Here the authors contend that successful teams must acknowledge their own lack of certainty, preferring to learn through "experimentation, mutation and team review" rather than through analysis.

While the lessons outlined above provide clear benefits to any virtual networked business team, Good and Thompson are also careful to acknowledge the key differences between human teams and other biological systems. Indeed, the differences themselves provide lessons that may be just as valuable in creating the dynamic business networks of the future.

The first difference is obvious to anybody who has compared ants and humans: We are much smarter than our six-legged counterparts. The important thing, according to Good and Thompson, is that "team members be able to self-select when to utilize personal 'intelligence' and critical thinking and when to rely on team intelligence before acting." While no team can achieve perfection in this area, trust built on experience working together, transparency, reputation and talent are key to achieving this level of self- and team-awareness.

The second critical difference is the subject of many religious tomes: between stimulus and response, humans are given free will. Because each team member can choose our response to a given set of circumstances, there is far more autonomy in the system, which may lead to less predictable results. Acknowledging that the actions that team members choose are the direct result of their beliefs, Good and Thompson identified the seven beliefs at the core of successful virtual cultures.

The beliefs shared by high performance virtual teams include clear and public accountability, trusted competency, give and take, total transparency, shared glory, meaningful mission value, and outcome optimism. Without these beliefs, virtual teams cannot succeed in mimicking high performance biological teams. However, with these beliefs in place, we can exceed the performance of even the best of today's human teams.

You needn't be a dot com superstar to take advantage of the attributes of biological teams to build a virtual networked business module. For example, in just four years, Wasauna.com has grown to be one of the leading suppliers of luxury bathroom fixtures--yes, toilets--in the U.S. In 2007 the firm sold more than $6 million of toilets, bathtubs, sinks and other 'old' economy products. They did this entirely through the Internet. Without showrooms or a strong dealership network, the firm is running circles around big name competitors like American Standard and Kohler.

How do they do it? Wasauna's management team has created a porous organizational membrane that can quickly assimilate team members with expertise the founders do not possess. They acknowledge their own core competency in web marketing and seek outside team members--whether employees, contractors or vendors--for everything else.

In addition to its ability to quickly assemble outside resources, Wasauna has taken advantage of nature's own form of generating creativity: the genetic algorithm. Before launching new products, traditional corporations appoint committees to size markets, analyze the competition, and build extensive cost-benefit analysis. Wasauna, on the other hand, relies on team member intuition and an acknowledgement that they will never really know what the market really wants until they try. So they roll-out competing products in parallel, as quickly and inexpensively as possible.

The result is a series of live controlled experiments that tighten the feedback loop with its market. As in natural selection, when a product is a hit, the company redoubles their efforts behind it. When a product is a dud, they learn from the lesson and move on--quickly.

In traditional corporations, on the other hand, analysis and optimization still rule. But while you can continue to optimize your products and processes, unless you are continually experimenting with radically new concepts, you are unlikely to make the shift to a paradigm-shifting new way of doing things. You may spend all your time climbing higher and higher, only to find you've reached the top of an ant hill, while Mount Everest looms on the horizon. Unless you step back, moving away from "optimization," you have no chance to find this new peak in the fitness landscape.

Successful business modules are those that constantly send scouts to feel out the landscape, testing new products, processes and ways of organization. While most experiments will fail, the success of one or two may give the company a chance to continue exploring.

The days of the military-inspired corporate pyramid are numbered. Markets are changing so fast that the commands coming down from the top start to bear little resemblance to the reality faced down below. The result is corporate dizziness. While many traditional corporations are taking advantage of the new forms of organization inspired by biological systems, far more will fail to make the shift. Extinction is a natural--indeed, necessary--part of evolution, so we should not lament their fall.

Instead, let this be a call-to-action for today's generation of entrepreneurs. The era of blundering corporate giants thriving on the production of average products for average consumers is rapidly coming to a close. To be sure, many good jobs will be lost in the process. But let historians find someone to blame for this. There is, in other words, no time for sympathy. Wel be too busy building new businesses, creating new jobs, and reinventing the very meaning of work.



Bibliography:

Beinhocker, Eric. The Origin of Wealth: The Radical Remaking of Economics and What it Means for Society. Harvard Business School Press, 2006.

Brafman, Ori and Rod Beckstrom. The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations. Portfolio Hardcover, 2006.

Capra, Fritoj. The Web of Life: A New Scientific Understanding of Living Systems. Anchor, 1997.

Carr, Nicolas. The Big Switch: Rewiring the World from Edison to Google. Norton, 2008.

Gibson, Rowan. Rethinking the Future: Business, Principles, Competition, Control & Complexity, Leadership, Markets and the World. Nicolas Brealey, 1997.

Godin, Seth. Meatball Sundae: Is Your Marketing Out of Sync?. Portfolio Hardcover, 2007.

Good, Robin and Ken Thompson. “The Bioteaming Manifesto” http://www.changethis.com/19.BioteamingManifesto, 2005.

McCraw, Thomas. Creating Modern Capitalism: How Entrepreneurs, Companies, and Countries Triumphed in Three Industrial Revolutions. Harvard, 1998.

Semler, Ricardo. “Leading by Omission.” Talk on December 11, 2005 at MIT Sloan School of Business. http://mitworld.mit.edu/video/308/

Semler, Ricardo. The Seven Day Weekend: Changing the Way Work Works. Portfolio Hardcover, 2004.

Labels: business, Columbia Business School, complex adaptive systems, complexity, entrepreneurship, organizations

By Ryan Petersen
Columbia Business School, MBA '08

The Business Environment as a Complex Adaptive System

The landscape that managers must navigate is unfathomably complex. With an infinite number of interconnections and contingencies, the business environment is subject to waves of upheaval that render the most accurate snapshots irrelevant. Furthermore, this landscape appears to be made of rubber, where each step we take sends ripples of repercussion throughout the system, ultimately shaking the very ground on which we stand. Faced by the impossibility of making even one truly optimal decision in this complex adaptive system, how can managers avoid paralysis?

First, we must understand just how complex this environment is. To illustrate, let’s look at the game of chess, a highly constrained system that generates a seemingly infinite amount of uncertainty. According to Brian Arthur of the Santa Fe Institute, even if every atom in the universe were a supercomputer that had been crunching away since the Big Bang, it would still be impossible to identify the optimal move at the outset of a chess match . Given that any business system is many orders of magnitude more complex than a chess game, it is clear that we must abandon the very notion of optimal decision making.

The economy is a complex adaptive system, whose aggregate behavior emerges from a vanishingly large number of interactions taking place everyday between its component agents and artifacts. In fact, what is true for the economy as a whole is also true for the sub-components themselves; markets, corporations, divisions, business units and individuals themselves are all complex adaptive systems.

In recent years the science of complexity has provided astounding new insights on the behavior of these types of systems. Complexity theory tells us that in any complex adaptive system, the most interesting patterns will unfold at the edge of order and chaos . For managers making decisions in groups, this translates into finding the balance between everybody following the party line (order) and everybody contributing anything that comes to mind (chaos). By keeping our groups poised on this razor sharp edge, we create the greatest probability of generating novelty.

So our job is not to make optimal decisions. Rather, we must facilitate processes that allow for the invention of alternatives, welcoming of challenges, and continual learning. Each of these essential elements of successful decision-making are performed better by well-managed groups than by individuals.

Inventing Alternatives

Given that we can never be certain that our course of action is ideal, we must always be willing to explore alternatives. By their very nature, groups are better at inventing options than individuals. Each member brings a distinct set of experiences and provides unique approaches to any problem. At the same time, the very act of sharing ideas often stimulates further ideation within the group, resulting in solutions that no single member of the group could develop in isolation.

The challenge for management, however, is to create a decision-making process that balances the need for safety in exploring new ideas with the need to reach a conclusion so the group can take action. In his work on building learning organizations, Peter Senge characterizes this as a balance between dialogue and discussion. “In dialogue,” he writes,” “there is a the free and creative exploration of complex and subtle issues, a deep ‘listening’ to one another and suspending of one’s own views. By contrast, in discussion different views are presented and defended and there is a search for the best view to support decisions that must be made at this time.”

More often managers err on the side of discussion, focusing on concrete action at the expense of exploring new directions. To address this problem, managers must be willing to make changes to the very process of decision-making. We should assemble diverse teams and encourage cognitive conflict between the members. We should reward people who propose ideas, even when the idea is not adopted. If we are seen as too close to a problem, we should consider removing ourselves from the idea generation process. If a decision is important enough, we should consult with experts from diverse backgrounds who are further from the problem than our group. And if we remain frustrated by a lack of promising alternatives, we should consider introducing outside facilitators to lead formal ideation sessions.

Inviting Challenge

Challenging our assumptions, ideas and perspectives is crucial to improving our decision-making abilities. Indeed, the generation of actionable feedback is the very essence of learning from experience. We must create atmospheres where dissenting opinions and challenges to our perspectives can be safely introduced. To do this we must open ourselves up to personal challenge.

Unfortunately, by our very nature such challenges generate uncomfortable emotions that millions of years of evolution have programmed us to avoid. This opposition to challenge, known as homeostasis, characterizes all self-regulating systems. We owe our very existence to this built-in resistance to change, as it creates the stability needed to survive in an ever-changing world. Unfortunately, homeostasis does not discriminate between changes that are good for us and those that are not. It just opposes all forms of change indiscriminately!

Developing emotional self-awareness is the key to overcoming this natural tendency to feel threatened by opposition. Managers must foster the ability to disconnectedly observe their own emotions, understand the root causes of the feelings, and then make a conscious decision about whether these are justified or not given the circumstances. Achieving this degree of awareness (enlightenment?) is perhaps the most daunting task we face. Yet if we are to create a process that generates the actionable feedback necessary for learning, we have no choice.

Learning as Feedback in an Evolutionary Business System

The complexities of the business world are such that we will never have all the information we need to make truly optimal decisions. What we can do, however, is to improve our ability to interpret the limited data we do have through continual learning.

The business environment is an evolutionary system: a vast, self-organizing web of agents and business modules coevolving through time. The most successful business modules become widely replicated, while less profitable ones disappear. Fundamentally, the manager’s job is to develop business modules that are able to adapt quickly to the constantly shifting landscape beneath our feet. The “fossil” record provides ample evidence of overly rigid companies that failed to coevolve with their environment.

Recognizing that the business world is subject to the forces of natural selection, managers would do well to take lessons from the evolution of ecological systems. The driving force behind natural selection is feedback from the environment. Mutations in DNA generate alternatives and the environment provides brutal feedback about their fitness. In a sense, over time the species “learns” what characteristics the environment values most.

Fortunately for us, our business units are powered by human brains with the power to receive feedback from the environment far faster than the DNA within us. We have the ability to synthesize a lifetime of diverse experiences to develop near instantaneous decision-making. Most important for the manager, we have the ability to connect our minds in a vast network.

To encourage development of a learning organization, the manager must adopt processes that facilitate a true linking of the minds on his team. A first step is to lay out a vision with the power to motivate team members and align their efforts toward a common goal. He must create safety, reward innovation, encourage dissent and welcome challenge. Meanwhile he must work to maintain a balance between dialogue and discussion. And throughout the process he must be constantly vigilant of his own emotions.

If the leader’s job really is to keep his team forever balanced on this tightrope between order and chaos, then it becomes clear why so many promising young managers plateau just a few years after graduation. They may have unknowingly accepted the hardest task known to man.

Labels: business, Columbia Business School, complex adaptive systems, complexity, evolution

The biggest challenge leading a large organization appears to be getting others to take the right action without consulting you first. How do I get those below me to do the right thing? Or more specifically, how can I define the “right thing” in a way that is clear as day and yet adaptable to the unforeseen?

Technology is allowing for ever-tighter connections between members of ever-larger organizational networks. While this may lead to increased cross-functional collaboration, it also increases the number of relevant stakeholders for every decision. Decision-makers now feel compelled to get buy-in from even more people before they feel free to take action. Thus, vested interests, tradition, or the mere complexity of the network may prevent us from making necessary changes to secure a brighter future.

Although my previous employers have been small companies, with just 8-10 employees, I have seen firsthand how difficult it can be to get all these different individuals behind my projects. Meanwhile, each new employee can increase the total number of relationships in an organization by a factor of ten or more. If every decision requires buy-in from all these diverse parties, even in a relatively small company paralysis seems inevitable.

As I see it, there are three ways that we can better manage these relationships to ensure that decisions can be made quickly and correctly. The first is to reduce the time delays between parties to any decision. What this will mean is more, faster technology deployed at all levels of the organization to minimize delays and transaction costs in communications.

The second way to manage increasing organizational complexity is to add more hierarchy. Layers of organizational structure can limit the number of relationships each employee must manage, and provides the opportunity for specialization of decision-making. Unfortunately, it also can lead to the creation of operational silos incapable of sharing valuable information across the firm. Clearly any reduction in cross-functional collaborations must be a drain on creativity and innovation. Moreover, hierarchy can lead to a dull and frustrating work environment and, one would think, higher turnover rates.

The third, and most desirable, means of managing organizational complexity is to develop consistency in decision-making. When you know what the answer is going to be, you don’t have to waste time asking for permission. You just take action now.

But do we want to be consistent in our decision-making in an ambiguous, fast-changing world? I am not suggesting that we remain consistent in our decisions, but rather in the processes that lead to those decisions. To succeed, our organizations must develop a principled approach to analyzing each problem we face. Solutions must be measured against a common backdrop, framed by the company’s resources, values, and goals. I expect that working out such an approach will occupy all of this semester and most of my career.

If we succeed in creating and training our teams in a principled approach to consistent decision-making, we can push decisions down the hierarchy. This will give us faster solutions that are more appropriate for the problems facing us. Our teams won’t need to wait for permission before they take action—and just as important, they won’t excuse inaction by pointing up the corporate ladder. A culture with that type of responsiveness and personal responsibility would be a dangerous competitor in any industry.

Labels: business, Columbia Business School, complexity, networks