Murmuration Organisations: Flying Haier

“After the arrival of the Internet, we realised that under this triangular hierarchical structure, people had a difficult time adapting. So we reorganised ourselves as an entrepreneurial platform.”?Zhang Ruimin, CEO, Haier

In the wake of the digital revolution, businesses worldwide are confronting the limitations of traditional hierarchical structures. Zhang Ruimin, CEO of Haier, encapsulated this shift succinctly: “After the arrival of the Internet, we realized that under this triangular hierarchical structure, people had a difficult time adapting. So, we reorganised ourselves as an entrepreneurial platform.” This transformation highlights a broader trend towards agility and innovation, urging organisations to rethink their approach to management and growth.

The Power of Exponential Growth: A Personal Experiment

To illustrate the concept of exponential growth, I embarked on a New Year's resolution experiment with my son involving the daily task of emptying the dishwasher. I offered him €31 to empty the dishwasher just once and he would not have to do it again for the rest of the month, or he had another choice. I offered him €1 on the first day and double that amount each subsequent day for the 31 days of January. He opted for the immediate reward, missing out on the potential exponential growth of his earnings. I am glad he did because I could not deliver on the reward.

Had he opted for the exponential choice, this is how it would have played out.

1st day = €1
2nd day = €2
3rd day = €2 \times 2 = €4
4th day = €4 \times 2 = €8
5th day = €8 \times 2 = €16
6th day = €16 \times 2 = €32
7th day = €32 \times 2 = €64
8th day = €64 \times 2 = €128
9th day = €128 \times 2 = €256
10th day = €256 \times 2 = €512
11th day = €512 \times 2 = €1,024
12th day = €1,024 \times 2 = €2,048
13th day = €2,048 \times 2 = €4,096
14th day = €4,096 \times 2 = €8,192
15th day = €8,192 \times 2 = €16,384
16th day = €16,384 \times 2 = €32,768
17th day = €32,768 \times 2 = €65,536
18th day = €65,536 \times 2 = €131,072
19th day = €131,072 \times 2 = €262,144
20th day = €262,144 \times 2 = €524,288
21st day = €524,288 \times 2 = €1,048,576
22nd day = €1,048,576 \times 2 = €2,097,152
23rd day = €2,097,152 \times 2 = €4,194,304
24th day = €4,194,304 \times 2 = €8,388,608
25th day = €8,388,608 \times 2 = €16,777,216
26th day = €16,777,216 \times 2 = €33,554,432
27th day = €33,554,432 \times 2 = €67,108,864
28th day = €67,108,864 \times 2 = €134,217,728
29th day = €134,217,728 \times 2 = €268,435,456
30th day = €268,435,456 \times 2 = €536,870,912
31st day = €536,870,912 \times 2 = €1,073,741,824        

Needless to say, once I explained it, he looked at me as if I was an exponential a$$, but the lesson was learned. This experiment underscores the astonishing potential of exponential growth - from a mere €1 to over €1 billion in just 31 days, showcasing the principle that underpins many facets of our business world, from technological advancement to competitive strategy.

Exponential growth is not only applicable to money, but also to many other aspects of our business world, such as technology, innovation, information, and competition. According to Moore’s law, the processing power of computers doubles every two years, which means that the speed and capacity of our devices and software increase exponentially. This also means that the pace and scale of change in our business environment increase exponentially, creating new opportunities and challenges for businesses and workers.

Transient Advantage in an Era of Exponential Change

Rita McGrath , our forthcoming guest on The Innovation Show argues that in a world of exponential change, the traditional sources of competitive advantage, such as market position, scale, or brand, are no longer sustainable. Instead, she proposes the concept of transient advantage, which is the ability to seize, exploit, and move on from temporary opportunities in a dynamic and uncertain market. In this world, businesses need to adopt a more agile and flexible approach to strategy, innovation, and leadership, and embrace a culture of learning and experimentation.

From Hierarchies to Networks: The Need for Organisational Flexibility

The impact of exponential change reaches beyond a change in our mental and even our business models. We need to recalibrate and rethink our organisational structures. We can no longer rely on rigid and hierarchical models that were designed for stability and efficiency.

Organisational hierarchies are the structures that define the roles, responsibilities, and relationships of individuals and groups within an organisation. They are based on military and religious orders because these institutions have a long history of developing and maintaining effective hierarchies for their purposes. Such hierarchies have some advantages, such as efficiency, and loyalty but they also bear disadvantages, such as rigidity, bureaucracy, conformity, and resistance to change.?

Instead, we need to adopt more networked and adaptable structures optimised for creativity and resilience. We need to empower our teams and individuals to collaborate and communicate across boundaries, to respond and adapt to changing situations, and to leverage the collective intelligence and creativity of the organisation. We need to create a shared vision and purpose that aligns and motivates everyone in the organisation. We need to become more like a "murmuration organisation".

A murmuration is a phenomenon where a large group of birds, usually starlings, fly together and change direction together, creating dazzling patterns and shapes in the sky. Scientists have discovered that each starling reacts to the movements of the nearest seven or so neighbours in the flock, resulting in a coordinated and agile response to external stimuli, such as predators or weather conditions.

A networked organisation, inspired by a murmuration, could have a fluid and dynamic arrangement of roles and relationships, where each individual or group can react and collaborate with others based on the situation and the goal. A networked organisation could also have a shared vision and purpose, where everyone is invited to contribute and benefit from the collective intelligence and creativity of the organisation. A networked organisation could be more resilient, adaptable, and innovative in a world of exponential change.

Recognizing the need for change, companies are transitioning from hierarchical, bureaucratic models to task-driven organisations. This shift involves reducing reliance on authority, rules, and narrow divisions of work while emphasising teamwork, information sharing, and delegation. Despite senior managers acknowledging the need for such change, they often misunderstand the transformation process. Common assumptions include the belief that companywide programs can drive change and that altering formal structures and systems changes employee behaviour. However, Mike Beer , our recent Innovation show series guest, challenges this thinking, terming it the "fallacy of programmatic change."

Beer's research shows that successful revitalisation often begins at the periphery of the corporation, led by general managers in specific units, not by corporate staff or CEOs. Rather than focusing on formal structures, these managers create ad hoc arrangements to address real business challenges. By aligning roles, responsibilities, and relationships around key tasks (which Beer termed "task alignment"), the focus shifts to the work itself, fostering successful and tangible transformations. Before we look at an organisation that adopted a murmuration approach, let's first explore how a hierarchical structure can hold an organisation hostage to its past.

Nokia's Failed Transition from Hierarchy to Murmuration

“A fearful emotional climate…grounded in a culture of temperamental leaders and frightened middle managers, scared of telling the truth.” - INSEAD postmortem of Nokia Mobile's collapse

Despite anticipating industry shifts, a key ingredient of Nokia's failure lay in its inability to revamp its hierarchical structure. A systemic failure to restructure the hierarchical emotional structures at Nokia during the iPhone's rise froze coordination across the organisation. The fearful emotional climate at Nokia prevented effective coordination and communication between different levels and units of the organisation and hindered the development and implementation of a coherent strategy to compete with Apple.

While Nokia foresaw the need to enhance its proprietary operating system, Symbian, the organisation grappled with an outdated matrix structure. Attempts at decentralisation further hindered collaboration, resulting in a fragmented system unsuitable for the rapid innovation demanded by the dynamic mobile technology landscape. The failure to recognise leadership's role in shaping the organisational structure left Nokia stagnant, unable to adapt to industry changes and contributing to its downfall.

As Mike Beer puts it, "a top-down, command-and-control form of organisation can cause as many problems as it solves in an environment of rapid and continuous change—and that's the environment we're all in now. It's not that top executives can't figure out what to do quickly enough. It's that they can't get the organisation to change itself quickly enough— if at all. You can see the iceberg and give the command, but that doesn't mean a huge ocean liner loaded with passengers can change course in time. Hierarchy discourages knowledgeable people at lower levels from sharing their vital information with senior leaders So leadership is left unaware of critical aspects of the systemic change it needs to make."

Flying Haier

“After the arrival of the Internet, we realised that under this triangular hierarchical structure, people had a difficult time adapting. So we reorganised ourselves as an entrepreneurial platform.”?Zhang Ruimin, CEO, Haier

Some organisations adopt the murmuration model of organisation. Such organisations encapsulate a diverse range of structures, each navigating the cultural landscape in its distinctive way. Whether through cultural influence, extended connectivity, shared-risk ventures, dynamic adaptability, or a balance of chaos and order, these organisations shape the business landscape and societal fabric with their unique approaches and enduring impacts. Some examples include:

"Fishnet": Organisations that have a flexible and adaptive hierarchy that is managed by information technology.?They respond quickly to market conditions and rely on dynamic communication networks and advanced tools.

"Chaord": Organisations that balance between chaos and order, without central control. They adapt organically to market niches and thrive on spontaneous adaptation. (As introduced by the late Visa founder, Dee Hock, docuseries with Dee here.) These models empower their employees to create and manage their projects, teams, and profits, based on customer feedback and market information.

"Simultaneously competing and cooperating, separate yet inseparable, a whole of parts and a part of wholes, none in control but all in order." - Dee Hock, Founder and CEO Emeritus, VISA

Zhang Ruimin, the founder and boss of 海尔 , a huge domestic appliance firm in China, made it the heart of their organisational philosophy. He dismantled the corporate hierarchy in 2009 and now has 2,000 self-managed teams.

Any employee can generate a new idea - for a new appliance model or a new feature on an existing model - by examining customer comments and market information. If approved by management, that employee can create and manage their team to implement the project, which will involve persuading specialist staff to contribute their time. Team members get a share in the resulting profits. In 2013, Zhang got rid of 16,000 staff from the old hierarchy. Now he and a small group of top executives keep a close eye on what is, in effect, a federation of tiny businesses - or murmurations.

To sum up, the murmuration model is based on trust, not control. It requires the leadership to communicate clearly and consistently the organisational purpose, vision, values, and goals, and to empower the staff to act on them instinctively. It also requires a significant investment in the development of the staff, to enable them to collaborate and innovate across boundaries and disciplines. Although this may seem costly in the short term, it pays off in the long term, as the organisation becomes more agile, resilient, and effective. In a murmuration culture, people are evaluated on their outcomes, not their processes, on their impact, not their efficiency. They form a fluid and dynamic network of teams, aligned by a common purpose, but not constrained by a fixed identity.

As Rita McGrath observed in her book, "The Entrepreneurial Mindset" (a forthcoming series on The Innovation Show ), the most entrepreneurially-minded teams constantly reconfigure and pursue an emerging purpose, but do not necessarily feel a sense of belonging to a permanent team. They often work independently and remotely, and when they do meet, they prefer to confer in subgroups rather than in large meetings.

In a world where businesses navigate through fragmented work-from-home, flexible work conditions with a flock of diverse generations. The organisation is akin to a flock of diverse birds soaring through shifting skies. In that world, the concept of murmuration could emerge as a guiding light towards collective success.

Thanks for Reading

Check out Part 3 in the Mike Beer series here: