Innovation in the times when the Future gets closer to the Present

Why Ambidextrous Organizations might not be enough, and your organization may need to embrace Platforms & Ecosystems

Simone Cicero
Stories of Platform Design

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As I had the chance to say already, in the last few months we have been increasingly in touch with company boards, decision makers and even teams, coming to us with the pressing need of understanding “how to become a real Platform Organization”, asking for examples, and paths to follow.

While being inspired by examples is certainly a good thing, let’s be honest: truly good examples of industrial age incumbents successfully adapting to the age and economy of networks don’t abound, and even the definition on success in these cases, is a hard catch.

Becoming a Boundaryless Platform Organization

In these cases I often find myself speaking about Chinese champion Haier Group, a company that has been pursuing a transformation into a truly boundaryless network since years, pushed by fearless CEO Zhang Ruimin:

“Ronald Coase [and Oliver Williamson] had a theory about the boundaries of companies: if you have a competitive product, expand production; otherwise, shrink your boundaries. Coase’s theory was correct for his world. But that world had no internet. In a hierarchy, whoever has more resources has broader boundaries. However, as today’s companies are integrated with the network, to some extent, resources are infinite. In this sense, we are building a borderless ecosystem to co-create and win together

Haier CEO, Zhang Ruimin, presentation, September 19, 2015).”

The Chinese company operates as a network of self-managed and governed micro-enterprises (MEs) that compete with each other and other market competitors. These MEs are linked by internal platforms connecting them with resources within and outside of the organization, playing “back office roles”, providing things such as financing, accounting, HR, legal, procurement, distribution, and other capital-intensive services, which in turn permit micro-enterprises to focus on their competitive strengths. While platform structures are highly flexible in recombining resources and capabilities in response to changing needs and short product life cycles, they provide a meta-organization structure gaining the economies of scale and scope that are necessary for competitive survival in a flexible manner.

Simone and Bill Fischer are giving the first Haier Certified Masterclass online for you to learn more about Rendanheyi: buy your tickets here

Despite the encouraging financial results, Haier’s transformation has been (and is) not a walk in the park, and the challenges of the process are extremely well described in a great paper by Jiao Luo and others “Transitioning from a hierarchical product organization to an open platform organization: a Chinese case study” (available in Creative Commons here).

The study points out “(a) role confusion, (b) control imbalance, (c) staffing mismatches” as key challenges associated with the organizational redesign and highlights the enormous cultural challenges in transitioning from an organization made of employees, to an organization made of entrepreneurs.

“Besides hiring new people matching the platform organization, the organization should facilitate learning via various training programs and knowledge sharing among individuals and units” […] “One way to fill the skill shortages is to hire desired entrepreneur-type job candidates from labor markets. Another way is to develop entrepreneurs in-house. Organizations are arenas for learning because they directly and indirectly shape the knowledge and skills needed for entrepreneurship”

We previously shared our insights on the challenges and potential of unbundling the organization into a platform-marketplace, read it here:

The operating model that is eating the world

In 2013, Undercurrent’s (at the time, now The Ready’s) Aaron Dignan wrote an amazing essay that clarified how a new breed of responsive organizations was starting to eat the world by doing business in a radically new way.

“These organizations” — said Dignan — “may start small (like Medium or Slack), but they can get bigger fast (like Airbnb, Uber, or Tesla), and ultimately dominate markets (like Amazon, Google, or Facebook)”.

In line with these considerations, as the loyal reader of Stories may know, no earlier than two weeks ago we commented on Mary Meeker’s Internet Trends update. Our commentary humbly explained how a clear message is coming from the iconic yearly presentation, and it’s a tale of companies continuously getting amazon’d.

Not only Amazon of course, but the GAFA’s of the world (call them responsive organizations) continue to eat out larger part of the economy, and do this by listening to their ecosystems, and being organized to continuously leverage and componentize (read, “Ecosystems” by swardley)

From “Design APIs for Disobedience

These companies, learnt how to fall in love with uncertainty: as Dignan said in his piece, these are “lean, mean, learning machines” with an “intense bias to action and a tolerance for risk, expressed through frequent experimentation and relentless product iteration.”

While these organizations “hack together products and services, test them, and improve them […] their legacy competition edits PowerPoint.”

The risk of focusing on internal dynamics and power structures instead of value creation.

So what’s the right approach to Innovation and Transformation for the incumbents of the industrial age?

Industrial incumbents worldwide are now faced with the competition of these new breed of companies: from telcos dealing with Google Fi or Apple SIM, to European banks pushed through PSD2, from retailers seeing their customers shopping on Amazon mobile, directly from inside their shops, the competition is getting tougher.

Some companies, faced with the challenges of the age of interconnected complexity, have too often kept falling in love with complicatedness instead, victims of the “NAH” syndrome (Not Applicable Here), believing that they could stick with their bad profits just because their industry, or business model, is too complicated to be simplified by a responsive org.

As the story of Haier shows, no industry is too hard to not be subject to platformization and ecosystems enabling.

Take a look to Haier’s financials…

“When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification.”

The Collapse of Complex Business Models, Clay Shirky

The Rise and Risks of the Ambidextrous Organizations

Organizational ambidexterity has been praised for long — also by innovation champions of the caliber or Alex Osterwalder — as a potential solution to the challenges posed to companies by continuous disruption.

With ambidexterity we normally define the capability of the organization to execute exploitation (of existing business cores) and exploration of new possibilities.

From the paper cited in the Article.

In particular, a mixture of Technological Innovation and Business Model Innovation — as demonstrated by cases like that of Telia Sonera, excellently explained in this amazing paper “Double ambidexterity: How a Telco incumbent used business-model and technology innovations to successfully respond to three major disruptions”produced sometimes the capability for companies to successfully build their future while nurturing their present.

Despite the attractiveness of the idea though, my experience — and some literature — points out that, as well explained by the aforementioned paper, “a small minority of farsighted firms initiate discontinuous change before a performance decline.”

This incapability to change is normally caused in incumbents by different forces. This forces of inability may depend on the focus on short term profits (vs. breakthroughs), on customer orientation (vs. third parties ecosystem enabling), and even be a problem of human incentives, with most of performance appraisal systems based on praising existing returns.

In countless times I’ve heard this alibis in companies that are failing to change: “our HR is broken”.

As a result, most of the incumbents remain focused on their industrial processes, in the comfort of their past success stories, until the market just, moves over.

While ambidexterity may have been a solution for some, in my humble experience, companies often have a strange behavior towards it: first they dismiss the need for innovation, and refer to their complex business (“we’re special”), until suddenly — as exponential change transform their industries and make new business models emerge rapidly — they see their industrial relic as a giant human liability, and as a huge amount of technical debt.

This “Oh Shit!” moment, this stressful realization, certainly doesn’t help real change to happen then.

Present and Future are getting closer

As the speed of techno-social changes increases, your company might want to look into the “high road”, leapfrogging traditional ambidexterity solutions and trying to find its own way into an integral transformation.

The Un-bundled organization, where every entity — micro enterprises and enabling platforms — is able to interact internally and with external third parties

This integral transformation will need to be based on unbundling deeply the organization in the smallest pieces possible: some of these pieces might be running industrial processes — and therefore be slightly bigger, more structured and focused on efficiencies more than others.

Being able to function based on an interaction of enabling infrastructures and micro-enterprises may be essentially, the future of organizational ambidexterity: just a more organic version.

All these organizational elements will need to embed a variety of convergent features: certainly capabilities of business strategy, but also strictly technological ones; the role of “architectures” and interfaces will be key in organizational development of the future. It’s not a case that “CEO Zhang is referred as the chief architect rather than a strategic leader.”

My friend Ron reminded me that there’s an architect in The Matrix too :)

All these organizational elements will need to be open to interact with larger ecosystems, and expose “interfaces” for third parties. The interaction with ecosystems will be most certainly the main way for incumbents to discover their future: the future of business models might be surprising.

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Photo by Alan Chen on Unsplash

The content of this Essay has been widely based, inspired and influenced by Luo, J., Van de Ven, A., Jing, R. and Jiang, Y. (2018). Transitioning from a hierarchical product organization to an open platform organization: a Chinese case study. Journal of Organization Design, 7(1). Available in CC-BY License here.

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Building the ecosystemic society. Creator of Platform Design Toolkit. www.boundaryless.io CEO Thinkers50 Radar 2020