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COMPUTING

The organic enterprise thrives on your knowledge

January 13, 1999
Web posted at: 4:05 p.m. EDT (1605 GMT)

by Megan Santosus

From...
CIO

(IDG) -- A couple of years ago, I attended my first-ever trade show devoted solely to the Internet. As is typical when my name gets on a press list, I was inundated with calls the week or two before the show. Vendors—most of which I'd never heard of—wanted to tell me all about their products and strategies. Since the Internet was like an undiscovered country to me, I decided to accommodate as many vendor requests as I could. That resulted in one visit every half hour with a 45-minute lunch break. Big mistake.
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After five hours of trudging back and forth among 20 or so booths—accumulating more vendor graft and tschotkes with each step—I arrived at my final visit, behind schedule and hobbled by blisters. I explained my predicament to the guy I was meeting, and he offered a brash prediction: "Don't worry," he said. "Most of these companies won't be here next year. Their entire reason for being is to sell out to Microsoft and disappear."

Many of the companies at the show have gone the way of the Great Auk either by design or blunder. (And at least one of the companies I visited—Vermeer Technologies Inc.—was indeed bought by Microsoft.) While there's nothing wrong with planned obsolescence, most companies don't actively pursue a strategy that leads to their own extinction. It's not just human nature that dictates self-preservation; the natural laws of all organic systems are geared toward prolonging life and leaving behind a legacy. Making a fast buck may be a thrill, but nothing has cachet like staying power.

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Companies, like any species, are organic entities whose survival requires carving out a territory within a dynamic ecosystem. They are not—as some executives and consultants claim—machines that can be reengineered, reorganized or reprogrammed. "Fundamentally, organizations are complex, intelligent social organisms," says Michael Rothschild, author of Bionomics: Economy as Ecosystem (Henry Holt and Co. Inc., 1990) and founder and CEO of Maxager Technology Inc., a software company in San Rafael, Calif. "They do evolve, adapt, change, learn and grow over time depending upon what's going on in their environment and what's going on with technology."

Companies also die, usually well before their time. In his book The Living Company (Harvard Business School Press, 1997), Arie de Geus says that the average life span of Fortune 500 companies is only about 50 years. The reason they don't live up to their potential, de Geus argues, is because most companies have a heavy economic bent rather than an organic one. In other words, de Geus believes, companies are so focused on turning a profit that they effectively shut down any feedback mechanisms that could promote learning and growth. Among the handful of companies that predate the Industrial Revolution is E.I. duPont de Nemours & Co. (DuPont Co.), which started off as a purveyor of gunpowder in 1802 with a market cap of $36,000.

Over the course of nearly two centuries, DuPont grew to a diversified powerhouse with 1997 sales of $45 billion in industries ranging from specialty chemicals to petroleum products. DuPont didn't achieve that kind of transformation by snoozing at the buckboard while frontier society gave way to an agrarian economy, which was itself surpassed by an industrial one. As befits one of the world's oldest continuously operating companies, DuPont has mastered the art of survival by adapting and changing.

In the present rough-and-tumble climate, however, time for steady-state adaptation is a luxury most companies no longer enjoy. With the Internet and other technology advancements—not to mention their distant cousins, globalization and deregulation—the business environment changes seemingly overnight. Add in the all-too-human trait of clinging to the familiar—whether it be tried-and-true business strategies or outdated corporate vision statements—and longevity becomes at best a dicey proposition.

Consider a recent study by Opinion Research Corp. International of Princeton, N.J. The study concluded that the Internet has quickly propelled a handful of companies (including Amazon.com Inc., Yahoo Inc. and America Online Inc.) into "household name" status (defined as meaning that 50 million or more American adults recognize them by name). By contrast, it took McDonald's Corp. and The Coca-Cola Co. decades longer than their virtual counterparts to achieve this magic benchmark. In the Web-speed universe, companies need to be quick-change artists of the highest order just to stay in contention.

But achieving such fluidity is no mean feat. Companies court trouble when they try to impose adaptive strategies from above. As organic entities, survival instincts should rise up from within the ranks. True, there are times when radical change is in order—usually in response to an internal crisis allowed to fester too long or a cataclysmic change in the external environment; under such circumstances, an adaptive strategy is necessarily handed down by fiat.

But if adaptive behaviors are to take root, companies need to sustain an environment in which employees are motivated to do things differently and to take responsibility for making decisions. Employees, after all, are the people most likely to meet and talk with customers on a regular basis, to work closely with suppliers or to manufacture the products. They know as well as or better than anyone else what problems hamper service and what opportunities go begging. The problem with many top-down strategies is that they don't grow out of the active participation of employees. And adaptation is less a matter of corporate mission statements and processes than of human behavior.

Michael Fradette, a partner at Deloitte Consulting LLC in Boston and co-author of The Power of Corporate Kinetics (Simon & Schuster, 1998), points to farm-equipment manufacturer Deere & Co., of Moline, Ill., as an example of the power of giving employees responsibility. In his book, Fradette recounts the story of a Deere salesman who encountered a farmer who wanted to plant a new corn hybrid, which, because it had to be planted in tight rows, couldn't be handled by Deere's existing equipment. The salesman took it upon himself to get new specifications from the customer. He then transmitted the specs to Deere's factory, which built a customized planter within 16 hours of receiving the order. By giving employees the ability to respond to what Fradette calls "customer events," Deere has in effect changed the behavior of its company, from the line employees to the executive ranks.

Companies like Deere have glommed on to an important survival tip: Long-term, sustainable adaptability derives both from speed and from a self-organizing capacity. The ability to interpret broad marketplace trends, anticipate what customers want and expand beyond traditional markets equips businesses to rise to the top of the food chain. Such companies are organic in that they are able to process continuous feedback and signals from the environment and convert such information into fluid plans of action.

While successful companies have always exhibited a knack for adaptation, the relatively new emphasis on speed changes the cornerstone on which most organizations are built and managed. "The old corporate way of doing business is based on an ability to predict what customers want, create a plan around those predictions, build an infrastructure and execute," says Fradette. "Now, companies just don't have the time to do extensive market research. And even if they did, they'd be wrong."

Like successful species, successful companies exhibit behaviors that enhance their chance at survival. De Geus, a former Royal Dutch/Shell Group executive and now a visiting fellow at the London Business School, studied enduring companies such as DuPont and found that long-lived organizations—irrespective of industry or national origin—share a surprising number of characteristics that have enabled them to change and thrive with the times. Among the most important, de Geus believes, is a focus on learning and an overriding sense of community, identity and purpose. "There's a tremendous element of trust between employees and management that enables living companies to focus on the long term rather than on next quarter's profit figures," de Geus says.

With knowledge replacing capital as the critical success factor in today's economy, de Geus says, companies need to make investing in their employees the top priority. That means continuous training and development, giving employees an ownership stake and paying more than lip service to the notion of community.

Unfortunately, management practices at most companies haven't crawled very far out of the protozoan stew. "Most companies are still anchored in the Industrial Age, organized in a hierarchical way and managed by command and control," de Geus says. Along with the hierarchical perspective, he says, comes a dependence on seeking advantage through cost-cutting, long-range strategic planning and time-honored HR policies that reward employees based on tenure rather than on other more relevant value metrics.

Trust is a squishy proposition. Yet de Geus makes sense when he highlights the gap between talk and walk. Companies often talk up the power of knowledge and the primacy of their people, but they still operate in a manner reminiscent of the hoariest org chart. When it comes to forging a strategy, executives still default to market research or last month's financial reports. Employees are told that their ideas are valued but find that no action ever seems to result from their input. In the event of a crisis, many executives still turn to outside consultants to come in and reengineer processes.

Organic enterprises are different. The essence of acting organically is continuous learning but not in the way that most companies go about it. Forget about static training classes or personnel development programs. At organic companies, the entire business ecosystem—encompassing customers, competitors, suppliers and other industries—is one huge classroom.

One of the best tools for promoting learning throughout an organization is information systems. Unfortunately, many IS departments are similarly wedded to Industrial Age thinking. In order for people to learn, the information they receive must be actionable. All too often, IS is concerned with churning out reports chock full of information that no one can act upon. Just what are line employees supposed to do about last month's sales figures? Wouldn't it be better to provide employees with real-time information they could use to change processes as they happen rather than in hindsight? In providing such real-time systems, CIOs have an opportunity to facilitate the individual learning that forms the foundation of organic companies.

While executives do keep an eye focused on the marketplace, they spend more time listening to the employees who actually work with customers and interact with suppliers. And listening is not just a token activity. Organic companies rely on feedback mechanisms to continually absorb new ideas from their front lines and turn the best of them into action or new products.

According to Deloitte's Fradette, a copy-machine operator at one of Kinko's stores had an idea: Why not use Kinko's color copying technology to create custom calendars from customers' photographs? The operator went ahead and produced the calendars in the store with great success. Instead of sitting on the idea, the operator called Kinko's founder and chairman Paul Orfalea and left a message explaining the calendar concept on his voice mail. Orfalea in turn used the voice mail network to let managers across the franchise in on the idea. Today, says Fradette, custom calendars are a hit in Kinko's 800 stores around the world.

The same idea would get lost in a company that operates in the chain-of-command mode. More likely, such an idea would never see the light of day in the first place. In order for employees to go out on a limb by coming up with new products or services, there has to be a permissive culture that allows ideas to bubble up. There must be permission to innovate, to make intuitive decisions. Most important, there also needs to be permission to miscalculate and fail. Such a culture flies in the face of those found at hierarchical, rules-bound companies.

It's not that the majority of executives are control freaks; restrictive attitudes are the result of basic distrust. Executives don't believe their employees would act in the best interest of the company, so they feel the need to dictate every action and deed by applying stringent rules to every function. And that's where things get insidious. By keeping employees on the managerial equivalent of a very short leash, executives create—whether intentionally or not—a culture that exudes mutual distrust from every fiber of its being.

Organic companies know that there's an implicit contract between employer and employee. As in nature, species don't survive because their individual members have an overriding sense of altruism. They survive by acting in their own interest. Employees are no different. If they have nothing to gain by coming up with a new idea, going out of their way to solve a customer problem, collaborating with a colleague or sharing information with a supplier, they simply won't do it. Self-organizing companies like Kinko's instinctively know this; that's why, says Fradette, employee compensation should be directly linked to company performance.

Linking pay with performance is only one tool organic companies use to motivate employees. More important is hiring employees who are motivated to begin with—those who are comfortable with risk-taking and can happily link their fates with that of their employer. Consequently, hiring practices that emphasize attitude and aptitude over demonstrated skills are the first steps to hiring an organically inclined workforce. The need for specific skills—particularly in programming languages or manufacturing techniques—changes too rapidly for static skill sets to have much relevance. Fradette singles out Microsoft Corp. and Southwest Airlines Co. for their adroitness at hiring for attitude and innate intelligence rather than for direct industry experience.

"Once you get these people, there's a lot to do to transform them into what I call kinetic workers," he says. Among the methods he suggests are setting up corporate universities and moving employees in and out of different roles. What it all comes down to, says Fradette, is companies investing in employees just as they invest in capital equipment and other assets.

Unfortunately, a lot of executives don't think of employees as assets worthy of investment. And that's too bad. Because for those who can't make the required attitude adjustment, the prospects for long-term survival are grim.

Megan Santosus is features editor at CIO.

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