June 24, 2010 at 3:29pm
In order to sustain long term growth, organizations need to constantly reinvent themselves. But reinventing requires constant change, which may be hard to implement. This organization created a management model that allows it to self-reinvent, making a concept of "resistance to change" irrelevant.
My customer (name omitted for contractual reasons) was first founded for one reason - to help customers make sense of large amounts of data. The firm developed a software product based on 10 years of research, allowing customers to mine data in a very unique way and turn it into real intelligence. Although this firm marketed this specific product, it realized that its core competency lies in being able to understand customer requirements better than anyone else and developing innovative software solutions to support those requirements.
Shortly after the launch, company executives found that their market was changing. The firm needed to re-invent itself. But doing so was hard. This company had lots of baggage that made the company slow. This baggage consisted of two things: (1) prior research and capital investments the firm didn't want to abandon and (2) employee's resistance to change. The biggest resistance obviously came from employees who were going to lose their jobs.
The firm needed to change but the baggage was too heavy to carry. In addition, it recognized that their market was going to change again and again and could not fall prey to these changes. At the same time, this company didn't want to be in the business of constant reorganization and employee layoff.
Key Innovations & Timeline
To solve the problem, this company decided to reinvent its management structure.
All employees were broken into two teams: the core team and the supporting team.
The core team of the organization had two roles: (1) develop and maintain core competencies of the organization and (2) provide general services any organization would have a need for regardless of its portfolio of products, services, or core competencies (e.g. human resources, finance, marketing, etc). The core team was hired for attitude, ability to be open minded, ability to change, and ability to learn. Skills were of a lower priority. A special culture was created around this team. Concepts like innovation, constant change, questioning status quo, and reinventing the industry were embedded as core values in this culture.
This core team was tasked with (1) constantly thinking about the future, (2) reinventing the organization, the industry, and core competencies, (3) being innovative, (4) thinking small, not obsessing over growth, (5) reorganizing the entire organization every year or two, (6) not worrying about bureaucracy, titles, promotions, and org charts, (7) focusing on team work, (8) reinventing the business model, (9) changing the product portfolio, (10) stretching, (11) reshaping the industry, etc. The basic idea was to have this core team reinvent the entire company. Proper controls and motivational factors were put in place to ensure the core team’s interest in completing these tasks. For example, instead of creating financial incentives around profitability of specific products, the firm created incentives around profitability of core competencies and company as a whole.
The supporting team was identified as that performing all the non-core functions that may change if the firm were to change its portfolio of products, services, or core competencies. For example, technical support was important to a software business but it wouldn't be important if the firm were to become a book publisher. If the firm were to change its line of business, it would have to change the mix up of the supporting team. This change could be costly in terms of employee outplacement costs, transition costs, sunk costs write-offs, asset liquidation, and so on. The layoff of employees may also send a negative chain reaction throughout the organization, resulting in anything from minor employee unhappiness and fear to complete brand destruction. A combination of such negative reactions, executives’ wishful thinking, and turnaround costs often act as barriers to change. In order to fix this problem, this company outsourced the entire supporting team.
The new management structure made it easy for the company to reinvent itself without having to deal with resistance and all the baggage that comes with reorganizing its supporting team. Mechanisms were put in place to encourage constant change and self-reorganization. The core team was trained to think in an abstract way, allowing it to run any type of business.
As a result, the company became more dynamic and could now reorganize quickly and at a low cost. In the next three years, the firm changed its line of business from that of managing data to marketing cloud computing software to marketing customer relationship management to marketing vertical applications for nonprofits. The last business proved lucrative but the firm had to change one more time. This time it changed its business model, from selling products directly to customers to giving away the product for free and collecting fees from channel partners licenses to sell support services.
All these changes were possible due to the new structure. The core team remained while the supporting team of contractors came and left.
Challenges & Solutions
Initially the core team wasn't able to function as expected. It took a lot of training and development. Specifically, the firm had to educate employees on innovation, organizational development, strategy, change management, and vendor management. Each of these areas was carefully architected to fit the unique management approach of the organization.
Benefits & Metrics
The firm became more dynamic and was able to quickly reinvent itself. This allowed it to be more competitive, gave the firm ability to shape its industry through speed an unique ability to innovate, created an attractive cost structure, and reduced risks associated with new product roll out.
There are many strategies, frameworks, ideas, and methodologies that prescribe the recipe for success. History shows that none of them work over the long term. To stay afloat, companies need to constantly reinvent themselves. Reinventing requires huge change management efforts, which may be hard to implement. In order to be effective change agents, organizations must design their management structures around constant change and innovation. Self re-inventing should be embedded in the culture.