This summer, my wife and I took our two boys to visit the famous Ford Rouge Complex in Dearborn, Michigan.Â This Ford Motor Company factory was once the wonder of the industrial world, where Henry Ford pioneered America’s leadership in last-centuryÂ manufacturing.
Hub Controls the Spokes
The Rouge Plant was the first large-scale example of “vertical integration” – where companies control all the inputs needed for their manufacturing processes.
Ford built the Rouge plant to run like a giant machine, sucking in iron ore and timber on one side and spitting out automobiles and automobile parts on the other. You can think of the Rouge plant’s vertical integration as a giant hub, with all the spokes of inputs and outputs running into and out of an all powerful center. Ford used the humming, machine-like efficiency of this hub and spokes model toÂ minimize the threat of interruption to his manufacturing processes and turn this self reliance into the pinnacle of operating efficiency for its time.
Steps to Radical Connectedness
The day after our visit to Dearborn, we drove through Detroit – headquarters to General Motors, the automotive giant that later took vertical integration to gargantuan proportions. I won’t dwell on the impact of GM’s fall, or what it’s done to that community, but it’s clear that vertical integration is no longer the key to manufacturing growth.Â In fact, you could say it’s the exact oppositeÂ of where modern organizational design is now moving: fromÂ self-reliance to a radical connectedness.
Our first, awkward, blockyÂ steps in this direction wereÂ outsourcing, where companies hand off pieces of what they don’t do well to other organizations that can do it better. I say “blocky” because, in our first steps in this direction in the 1990’s, most of what got outsourced wereÂ big blocks of a company’s activities. For example, firms might outsource all of their customer support to call center specialists that were better at that kind of work. Back then, we relied on legal contracts to ensure each party upheld its responsibilities in a collaborative value creation process because weÂ lacked the tools to coordinate lots of small, loosely joined pieces of work (or “business processes”) between firms.
The Internet changed all that. Today’s radical connectedness is largely fueled by “connection technologies” like websites, email, SMS, databases that take for granted the “always-on” reliability of our new communications networks. These new technologies are essential to an organization’s ability to coordinate work with people outside its org charts.
Essential, but not sufficient.
You can think of these tools are “enabling technologies” in the sense that they enable a new generation of organizational strategies and processes. And of these, one of the most important, if still under-appreciated is the “modularization of business processes.”
Modular: composedÂ ofÂ standardizedÂ unitsÂ orÂ sectionsÂ forÂ easy constructionÂ orÂ flexibleÂ arrangement.
Without getting too geeky, let’s just say that when we make it easy to connect small pieces together, we make it easy to connect things in unexpected ways. Think Legos, but with the various tasks and jobs companies do in order to create value.Â ModularizingÂ business processes, gives us greater flexibility in who does what, which enables us to specialize and more effectively collaborate with others. And that is the key to radical connectedness.
The radical connectedness that connection technologies and business process modularity bring transforms the old hub and spoke model into a new model: the network model.
The Original Cellular Network
Networks are everywhere you look in nature, and of these, the most amazing are the ones that connect cells: the cellular networks that make life on this planet even possible.
There came a point in the evolution of the cell when physics prevented it from getting any bigger, and life’s innate drive for intelligence nudged it to a different strategy:Â modularity.
Think Legos, but with biology.
The cellular membrane is the ‘connection technology‘ that enables cells to connect with each other in cellular networks. This protective structure doesn’t just surround the cell and separate it from its environment like some simple barrier or wall. It’s aÂ permeable boundary embedded with connections that enable the cell to exchange physical resources as well as information with its environment. These connections, which include both receptors and ion channels, are what give the cell its intelligence of, and ability to coordinate with, other cells.
Over time, evolutionary forces helped some cells specialize in certain functions and others in others.Â Their membranes gave them the standardization they needed modularize for “easy construction and flexible arrangement”Â across their networks. Through this radical connectedness, cells became amazing collaborators, coordinating and combining themselves into the remarkable array of biological forms we see all around us – our eyes and hands, tigers and armadillos, bamboo and mosquitos — everything we think of as alive.
Why Vertically Integrate, When You Can Network?
Like the cell, companies eventually hit a roadblock when they use size to compete and create value. Bureaucracy, sluggishness, rigidity, risk aversion, and a preoccupation with internal affairs are just some of the problems associated with this strategy, and they point to a new direction – the direction of radical connectedness.
For today’s startups, the richness of connection technologies, and the easy-to-connect with partnerships they enable, mean that there’s all kinds of work they just don’t have to do. Why worry about doing it all, when partners can pick up pieces of the value chain that aren’t really your thing? Why vertically integrate, when you can network?
As I’ve notedÂ before, today’s value-creation networks aren’t limited to traditional outsourcing partnerships. They also include value creation with customers.Â Think about companies like Twitter and Facebook and their amazing collaborations with customers. Without these users interacting with these services, there would be no Twitter or Facebook.
The radical connectedness of modularity and connection technology extends to all points of contact with the firm. The companies that really get that are the leaders of tomorrow.
The Nature of the Firm
We’ve come a long way since the days when the Ford Rouge Complex was the cutting edge of organizational design.Â But in some ways, we’re still stuck in the old model. Though we might not say it explicitly, we still tend to think of the corporation as a kind of machine; a mechanical, deterministic thing that we wind up and point in the direction of making money.
That is the old model, where connections are deliberate, planned and controlled, and it is not the true nature of the firm. The true nature of the firm is nature, and it is now time to look to biology for guidance on how it creates value in the new, networked era — the era of radical connectedness.
The Biology of Great Organizations
The Biology of Organizational Intelligence â€“ Itâ€™s People
Model T image modified from original by: neonbubble
This is terrific description of the move to networks. We still, I believe, have to more thinking about the infrastructures — not just technological but institutional as well — that all these small pieces loosely joined to thrive and not be just as subject to the fall of a single industry or business.
Thanks Marnie. That’s a good point that I didn’t even go into in this piece, which is the benefits of redundancy that radical connectedness brings. In the old days of Ford, risk reduction came through controlling all the resources via vertical integration. Today, that risk reduction comes through interoperability, standardization, API’s and other mechanisms for openness and connection.
Gideon, this post has made me take the cob webs off a partially-written piece about Complex Adaptive Systems and their relationship between the economy and the ecosphere. I will see what I can do to finish writing down my ideas and publish a post on that topic in a few days.
The thought that comes to mind after reading your piece is that, unlike evolved biological systems, human constructs like businesses and cooperative structures are veritable neophytes on the evolutionary scale. It took single-celled creatures many millions of years of evolution before the benefits of multicellular cooperation were discovered. Whereas humankind can act in a faster timeframe due to the nature of our multicellular-powered systems, we are still very young in our quest to perfecting cooperative and collaborative interactions between other humans.
I’m really glad to hear that, Jeff. Let me know when you publish it. I’ll look forward to reading it.Â
And yes, that’s a great perspective to throw into the mix. We’re still not even newborns, when it comes to comparing our organizational networks with the rigorous environmental/evolutionary testing that the cellular networks have been exposed to. We can iterate faster, for sure, but that’s a lot of catching up to do!Â
Gideon, I enjoyed your post and views.
But how do we quickly see the connections, inside an organization and/or outside? How do we make sense of the whole of the company or situation?I think you will enjoy this 118 second company knowledge blast video showing the whole by connections.
This is actually what the “cloud” is all about but unfortunately it’s been denigrated into IT infrastructure outsourcing by the brands and geeks. Your message is why I hate people saying “cloud is nothing new” – the typical salesperson’s scam to keep the client at ease, or that we’ve had cloud in the guise of Hotmail or Google mail and they are good examples – in that case just a case of pure ignorance.
Cloud is transformational because it enables what you describe in business terms.
Self organising business proces networks that are assembled & selectively applied by business users on the fly; without having to write code, will make their debut in 2012.
It’s going to be a great year for business innovation & job creation.
Interesting. Would love to know more about what you’re talking about here. Do you have a link to more info?