To compete, companies develop a set of core competencies, building what it believes to be a unique business model that delivers value to its customers. But in modular organization setup, these companies also continuously develop and maintain new competencies that can be completely different from the set of competencies that it have right now. The advantage; to use these new competencies to tackle new, sudden challenges in the business climate or to develop a new business model and to better manage the often sharp, painful effect of organizational restructuring. In effect, modular organization can tap into the necessary competencies that not only allows it to adapt to structural changes in their current industry but to move into a new industry altogether. It is akin to building an array of different arsenal, keeping them in the reserve, which the organization can use at will as it operate in different battle terrains to win the battle.
Companies are practically designed with divisions and functions to support a particular business model. These traditional hierarchies are in fact competencies shaped by people, assets and processes. In modular organization setup, modularity is gained on the manipulation of these three components;
1) Enhance the talent-skills of the people, eg. a computer hardware engineer of 20 years, learns HTML5 and is now capable of producing apps for Facebook.
2) Introduce a new process, eg. instead of the Suez canal route to Japan, ships from Europe can also use the Siberian route, which can be faster and safer.
3) Expand the utility of each asset, eg. farmland used to grow tobacco can also be used to grow Cocoa
By mashing all three components and injecting fair amount of creativity and imagination that flows from every corner of the organization into everyday routines, companies can develop more diversified competencies that can be used to innovate the business model or invent a new one altogether.
- Core Competencies revisited
The word “Competency” will be used liberally in discussing the modular organizational theoretical framework. Understandably, it will be difficult not to revisit the idea behind organizational core competencies. Hamel and Prahalad for instance argue that companies must learn to leverage on these core competencies to adapt effectively to industry changes.
In essence, core competencies are that special set of capabilities, developed over time that result in products and services that deliver value to the customers. To get some idea how core competencies look like, here are some examples from several well-known global corporations;
- Disney; characters development (Mickey, Minnie, Donald), stories and content, fun theme parks and places, imaginative and innovative workforce
- Apple; customer-centric design for mobile computing
- Microsoft; lots (and lots) of IT engineers, capable of driving IT innovations
In modular organizations, competencies are defined in the broadest of sense; it could be a product, service or a capability using the creative energy of the same people and assets that produce the organization’s core competencies coupled with a new work process. But most importantly, these modular competencies are non-existence in the first place. They are invented and kept in the peripherals until circumstances require it to be made central to the organizational business model.
- …of Blocks, Clusters and Competencies
In modular organization, traditional hierarchy remain intact but underneath them, people from cross-functions and divisions can work together (if they want to), getting access to assets from across the organization to master competencies that may not be related to their business model. This is known as a modular block and essentially the DNA of a modular organization.
Modular blocks can be clustered, practically mashing the competencies together. Modular organizations can use these clusters to redesign their business model to tap into cost saving opportunities, better efficiencies or simply responding to new regulations. OR to channel these clusters into internal entrepreneurship projects that deliver new business model altogether. It is also a strategic option for the Leadership during business restructuring exercises, either to use these modular blocks/clusters to bring the organization into a new direction or as part of a component for employee outplacement program.
There are several micro examples with this regard. Amazon is one. Its business model is basically being an online retailer for everything. As its offering expanded, so does it computing capability. By developing new sales & marketing competencies in web services and mesh it up with existing competency in server management and storage, Amazon is able to offer an alternative business model, this time as cloud computing service company - an emerging IT trend with huge business potential. In its original business model, Amazon is competing with Barnes & Noble, Apple's iTunes and Macy. In the new business model of cloud computing, Amazon is competing with IBM, Oracle and EDS. Again this new business model will not be possible if Amazon does not have the relevant competencies. Modular organizations in some ways operate similarly to Amazon's.
- Business Restructuring
One of modular organization’s powerful applications is during business downsizing, which normally involves mass retrenchment of workforce across the board. Without doubt, downsizing can become an opportunity for the organization to cut surplus requirements and take out the underperformers from the talent pool equation. The organization is expected to become more lean to withstand the downturn and thus enter an economic upturn in a better efficient shape. A modular organization setup may give the Leadership the same positive effect with that opportunity of turning the downsizing initiative into a rightsizing exercise using a more strategic approach.
Instead of retrenching individuals with separation payouts, the organization can identify modular blocks and clusters (essentially individuals in team) that can be transferred out from the organization into entrepreneurial projects. As an option, the organization can redirect the separation payouts into seed money to finance cluster incorporation and lend its weight to tap into other funding sources such as government grants, venture capital and even take a strategic ownership of the new entity itself for these incorporated clusters to take-off. This rightsizing exercise allows the company to bring out any surplus requirement out of its expense/liability side and move them into asset/investment (Finance guys will love this!) and potentially creating new revenue streams from an otherwise unused competencies. At the same time, it created goodwill in the marketplace and amongst outplaced employees for being a more caring organization by preparing them for their next career launch.
- Managing Modular Networks
Because modular blocks are basically unofficial hierarchies, it is best driven by social dynamics. Establish a company-sanctioned social media platform moderated by the leadership, move everyone to the social media, get modular blocks and clusters organized on the platform. Share its progress, success stories, failure and its remedies and even upload the competency map for everyone to see. In all, encourage open interactivity, get it flowing and let the wisdom of the crowd set its direction.
- Expanding the Modularity
How to become more flexible? To expand the scale of modularity depends on two leverages;
1) Talent and skills of its people; Constantly exposed the employees to new skills even if these skills are unrelated to their current job description. If these skills are officially certified and market-recognized then it will even be better. It gives the organization deeper leverage because to enter certain businesses require the company to have its employees properly certified. The IT industry is a good example of this. Major principals such as HP, Cisco, Oracle and Microsoft require their partners to get their people certified before actually committing to a project on their behalf.
2) Connection to the marketplace; this is not simply a function of sales, marketing or business development. It is actually relationship between people of the organization with individuals and communities of the society at-large and the ability to direct this relationship in a way meaningful to the development of the competencies into a working business model. It is also about developing market intelligence that allows people of the organization to scan and detect competencies that are in need by the marketplace that is worth mastering.
- Suggested Best Practice
1. Practice make perfect - Gladwell claims to become an expert, a person need to practice up to 10,000 hour (The 10,000 hour-rule). Beckham is said to have trained up to 300 freekicks a day to get that perfect bend he is famous for. Whatever it is, modular blocks must keep practicing to master a competency.
2. Document it - Map the competency modeling, have it documented and accessible to everyone in the organization. A good documentation process must have at least details of the three components of a modular block;
- The name, the formal education, contact details. MIX “me-in-three” is also a good way to describe the kind of individual involved in the block.
- Map the process. Identify the critical paths that will make the competency works. Between the modular organization, the process mapping initiative is a point of differentiation; the more standardized the process mapping, the more easier each competency can be understood and adapted thus giving the organization an edge in faster execution.
- Listing of assets involved in developing the competencies. This is where financial considerations and costs can be ascertained towards arriving to a common financial implication for each competency.
3. Asset-Light Organization - Modularity will be more achievable when they are asset-light organizations. The Leadership must proactively look for alternatives for their fixated, immovable assets to something that is more fluid and mobile. For example, replacing server storage with cloud computing, using notebooks instead of PCs, etc.
I am reminded of Sister Nur Amalina, a fifth-former student who scored 18As in the nationally accredited O-level exam, practically passing with the highest distinction every single subject being offered in the national curriculum. She is competent in every subject that she can apply to enroll in any course and become a doctor, a lawyer, a teacher or an engineer etc. etc. She idolises Dr. Mahathir Mohamad (the former Malaysian Prime Minister) so she picks to do medicine in Oxford and hope to become the prime minister one day! An organization mastering diverse set of competencies is a lot like her; it can choose to apply any business model and excel at it.
1. [updated] Democratize The Strategy Process. Modular organization can actually democratize the strategy process; instead of largely being a C-suite domain, practically everyone in the organization can now play a role by matching and mixing modular blocks to enhance the business model experience.
2. [updated] Socialized R&D. Modular organization can also socialize the R&D strategy beyond some corporate centres in “Palo Alto”. Experiments are now conducted by modular blocks, potentially driven by everyone in the organization and not just some people in white coats in some remote location. In modular organization, the R&D function should focus on the clustering initiative, offering expert advice to blocks and clusters on the proper R&D process and provide documentation services.
3. [updated] Faster Competency Replication. A modular setup using blocks will also allow more efficient replication of the competency. Practically, the organization already knew the critical ingredients to make a competency work. It can cut down research and learning cost significantly while enabling the organization to ramp up competency scaling at a more faster rate. This fact will be most useful to small medium enterprises seeking ways to expand rapidly.
4. Transforming mindset, from employees into entrepreneurs. It is a powerful shift where we can see people in the organization are fired-up as they have the opportunity to become business owners themselves through the modular clustering program.
5. Preparing for the Downturn. Developing alternative competencies and having it properly mapped gives the leadership (and perhaps everyone) some psychological comfort, knowing that the company is better prepared for sudden change in the externalities. For the employees, they have benefitted from new learning opportunities which will add value to their career progression.
6. Organic Hierarchy. Hierarchies have become more organic since the company is tapping into the social dynamic of the organization. People are working across bureaucratic borders and into knowledge/opportunity circles. The cluster module is also a powerful push for people in different clusters to work together to pursue new wealth opportunities. Practically, silos and turfs created by traditional hierarchies are being dismantled by modular structuring.
7. New Leadership Role. For the Leadership, they can now link mentorship directly to the organization's present and potential business models by helping people identify new competencies and influencing how these competencies can be clustered. Mentorship is no longer an activity in the sideline and is now an integral part to make business model works.
8. Multiple Facets of Organization Structure. Modular organization is also stretching the dimension of operations through creations of shadow teams that can be positioned to pursue new business agenda without affecting the current setup that is key to its current business model. Because people are organized through teams, the risk of persons being over-burdened can be effectively mitigated.