Transform Your Organization into a Web of Relationships
Harari, Oren, Management Review
No company can assemble all the skills it needs within its own walls. You need a network of talented and trusted allies to succeed today.
In the premier issue of the publication Leader to Leader (1996), Peter Drucker made the following observation:
I met with a very big company not long ago - around 80 or so on the Fortune 500 list. They expect to be number 5 on that list in 10 years, and I shocked them by saying I don't think that list will exist, so that goal is meaningless. That list basically assumes that everything you do is under your roof and is owned by you and run by you. But already in many companies, most work is done through alliances, joint ventures, minority participation, and very informal agreements which no lawyer could possibly handle."
I don't agree with Drucker that the Fortune 500 list will be meaningless, but the trend he's citing is unequivocal. In a knowledge-based, free-market global economy, it is naive to assume that any organization can lock up all the necessary resources under one roof. Why would you want to do so, anyway? In a world where speed and agility are paramount virtues, and where your goal is to leap over - not waddle among - competitors, is it smart to weigh yourself down with a heavy, often debt-laden, vertically integrated organization?
Here's an alternative. As Tom Peters has noted, the key nowadays is not to own the resources, but to have access to them. So consider: Why not keep your in-house workforce as small as possible and borrow the best resources and talent? Why not determine what you are "world-class great" in and then link up with partners who are world-class great in other functions and in the non-value-adding activities that currently bleed you costwise while under your roof?
In the past few issues of Management Review, I have been outlining the "giant steps" described m my latest book, Leapfrogging the Competition: Five Giant Steps to Market Leadership. What I have described thus far in this column represents the fourth giant step in strategic management. As the title states, you literally must transform your organization into a web of relationships.
The premise is simple: To leapfrog, you need allies. Organizations that wish to leapfrog the competition continually cultivate trusted networks around the world because they do not believe for a minute that they, or anyone else, can magically collect and hoard the most valuable assets - tangible and intangible - within the confines of their four walls. In fact, they don't even view their organizations in terms of four walls. They view them as extensions of other organizations -their allies - all of which contribute unique value.
This is why Sun Microsystems enthusiastically relies on companies such as Netscape, IBM and Oracle to help develop software and business applications for its burgeoning Java technology. This is why EDS takes over many of Rolls-Royce Aerospace Group's software and hardware functions, designing engineering processes that substantially reduce the Group's product-development cycle time. This is not a simple case of "outsourcing"; it is what EDS calls "co-sourcing." The two have a genuine partnership aimed at achieving commonly held, bold goals. It is a sincere collaboration in which the parties physically intermingle with each other at work and hold ongoing, open discussions on planning, design and execution. It's also a vital product-development web, to the extent that EDS has built a research center near the Rolls-Royce facility and several hundred Rolls-Royce people technically "report" to EDS folks.
Think Global, Think Focused
Webs allow each participating organization to concentrate on developing and capitalizing on its own special competencies and niches without being diverted by activities and functions in which it is not splendid - but which someone else in the web is. Hence, each web member becomes an active and vibrant part of a network tide that raises all boats. Ideally, the strategic focus aims to consolidate the best brains and imagination in the achievement of revolutionary goals. For example, the Teledesic alliance of Boeing, Microsoft and McCaw brings together three parties' unique capabilities for the eye-popping goal of launching into space nearly 300 satellites, allowing anyone on earth to access the Internet without a phone or cable line.
Even in more everyday, mundane contexts, thinking in terms of webs liberates you to focus on your most effective areas. The Electronic Trade Association (ETA) represents independent seller organizations, which act as sales intermediaries between banks that issue credit cards and retail merchants that sign on for their usage. ETA needs to concentrate its efforts on the essential activities of trade associations (client services, research, lobbying, networking activities, etc.) in an optimal way, so it partners with the Robstan Group, which specializes in "association management" for trade groups. The Robstan Group handles ETA's finances, accounting and administrative work; in fact, it literally acts as a headquarters for ETA. Thus, ETA is relieved of both the overhead and opportunity costs associated with handling administrative, personnel and office headaches. Robstan does that so well (that is its special talent) that ETA is free to concentrate on and invest in its own value-adding activities.
As I write this in November 1997, MCI is being simultaneously wooed by British Telecom, GTE and WorldCom. However the drama gets played out, what exactly is MCI? It's basically an integrative software, systems and marketing company that has traditionally outsourced services from paging to security systems, and functions from manufacturing to technology R&D, to its more than 100 carefully chosen partners. (In fact, prior to the merger discussions, British Telecom was simply one of many companies - like Microsoft and Westinghouse - networked together in MCI's constellation of partners.) It is MCI's ability to define its core strengths and then orchestrate talent from around the world that has allowed it to be much fleeter and much more cost-effective (and, many would argue, much more innovative) than the exponentially bulkier AT&T.
For small organizations and start-ups, webs offer huge potential. KT&D, a small, Delaware-based insurance agency, decided to outsource all of its routine work (including claims processing, accounting and marketing) to a consultancy that was an expert in those areas, leaving the professionals at KT&D to do what they do best (and, as they told me, what they like to do best): sell policies, create new lines of business and penetrate new territories.
Colorado-based Black Rock Ventures, a $10 million golf club company, outsources the production of its TV infomercials to marketing experts, contracts with Asian manufacturers to produce clubs and links up with a couple of American contractors to assemble them. Yet another partner handles telemarketing, order fulfillment and customer service. Black Rock itself focuses on strategic direction and product development. So does Irvine Sensors, a fast-growing, Southern California specialty chip manufacturer that doesn't even do its own manufacturing. It sources its chip fabrication to a facility in San Jose, Calif., its quality assurance to a group in Korea and its packaging and worldwide shipping to a group in Kuala Lumpur.
Savvy leaders are extending web arrangements to include competitors. When managers are obsessed with destroying competitors, two counterproductive forces emerge. First, the strategy becomes narrowly focused on beating someone else rather than on creating new, exciting market opportunities that are much more lucrative. Second, managers fail to recognize that some of these competitors can be valuable sources of opportunity as allies on selected ventures. Howard Shultz, CEO of Starbucks, has correctly noted that "adversarial or distant relationships are not inevitable-nor are they the best way of doing business. Much can be gained by enlisting partners and colleagues who are committed to the same goals."
Hence, in the no-nonsense terrain of jet engine manufacturing, General Electric has joined forces with Pratt & Whitney to develop an engine for the Boeing 777-600 series aircraft that will be launched in 2000. The two companies have figured out that they will literally double operating profits if they collaborate rather than try to kill each other. The alliance also allows them to consolidate their expertise to create a new type of engine. GE and P&W thus leapfrog over today's paradigm of competitive feuding by collaboratively developing new technologies and infrastructures that will undoubtedly serve both of them well in other markets in the years to come.
Steve Jobs, the new chairman of Apple Computer, put it nicely by explaining that Apple's new collaborative position with archrival Microsoft is based on the reality that two prominent companies which together control nearly 100 percent of the desktop market will still compete. But they can achieve more in product and business development by working together than by continually lunging at each other's throats. "It's like Nixon going to China," said Jobs. "It's the right thing to do."
Parenthetically, even executives who personally loathe one another -like Ted Turner and Rupert Murdoch - have seen the wisdom of supporting organizational webs. Time Warner (where Turner is the No. 2 executive and No. 1 shareholder) and Murdoch's News Corp. have worked together on several deals that serve to expand the reach of both media empires.
Making the Planet Your Playground
If you're intrigued with the possibility of transforming your organization into a web of relationships, here are some points to think about:
* Webs are rapidly growing in fits and starts whether you do anything about them or not. The enormous outsourcing industry, which has reached $100 billion-plus in the United States alone, is a sign of this trend. Further, relationships among enterprises are already becoming incestuous. The insurance, banking and investment businesses are melding into a broad, intertwined "financial services" industry. At any given moment, depending on the context, AT&T and Motorola, or Sun and Intel, are each other's customers, suppliers, competitors or joint-venture partners. The first piece of advice, then, is simple: Capitalize on this trend. Initiate the webs. You orchestrate them.
* Think in terms of global webs. Go anywhere on earth to get what you need, as Black Rock and Irvine Sensors do.
* Think about forming webs with customers. Stop viewing customers only as endpoints of an economic transaction; start looking at them as viable partners with compatible goals, obligations and commitments. Interact with them, tap into their ideas and initiate opportunities for dialogue, as Harley-Davidson does with its HOGS (Harley Owner Groups). Share work groups and databases with them and focus on developing new products and processes, as Silicon Graphics does with customer LucasFilm and plastics molder Nypro does with customer Gillette.
* Identify, keep and cultivate the core skills, talents, products and niches that define you as world-class. Then, like MCI and KT&D, start letting go of everything else. Partner with allies that are the most outstanding in the technologies, knowledge bases and sectors you want to cultivate further and the functions you no longer want to keep in-house.
* When inviting competitors into your web, start small with some clearly defined projects. Identify the big win-win goals so that both parties can continually rally around them.
* Don't automatically choose the most expedient, the biggest or the cheapest partners. Follow Teledesic's example and choose the most talented, cutting-edge allies whose strategic priorities and codes of personal values mesh with yours. As Nypro does, select people you can trust to invite to planning and budgeting meetings and to share personnel and databases.
Consider: Why does Bank of America use Milwaukee-based M&I Data Systems to develop and manage its ATM systems? Was M&I the lowest bidder? Not at all. According to a senior Bank of America manager, the reason is that the two have "shared corporate values" and that M&I can best "help the Bank decrease time to market for new product introduction, and anticipate the dynamic changes in the financial industry without jeopardizing quality."
Meanwhile, a senior M&I official noted that "our relationship with the Bank of America has evolved to a mutually beneficial partnership which is based on a high level of trust. This trust has been earned over the past 15 years....Our relationship is characterized by an open and continuous exchange of ideas. This environment of mutual respect allows us to conditionally learn from one another." That's the spirit! The days of dealing with partners in an arm's-length, closed-door, highly legalistic manner - or, even worse, of rewarding purchasing managers for jerking around and lying to suppliers to save two bucks - are dying fast.
The picture of the leapfrogging organization is not that of a self-contained pyramid bolted to one locale. Think instead of an ever-multiplying, often virtual, set of overlapping and permeable circles - spread all over the world. This is how leapfrogging organizations stay light, unencumbered and cutting-edge, while making the planet their playground. In the emerging marketplace, webs will be so important that it is safe to say that the value of your organization's relationships will be as important - if not more so-than the value of your products and services.
Oren Harari is a professor at the University of San Francisco and a speaker to numerous business groups. His latest book is "Leapfrogging the Competition: Five Giant Steps to Market Leadership" (American Century Press, 1997). To order call 202-785-0990.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Transform Your Organization into a Web of Relationships. Contributors: Harari, Oren - Author. Magazine title: Management Review. Volume: 87. Issue: 1 Publication date: January 1998. Page number: 21+. © 1988 American Management Association. COPYRIGHT 1998 Gale Group.