The Shattering of Old World Power: Company Rebuilding!

What's going on on the top floors of German companies? Members of top management teams are descending from their thrones (i.e. giving up their offices) and travelling to the world's technology meccas, setting up idea laboratories, taking off their ties, hanging swings in their open-space offices - and despairing, again and again, that even the smallest of their innovation initiatives are still getting lost in their vast and rigid organization. Deep down inside, they know exactly what the problem is: successful business models that yielded high margins for decades are now being turned upside down by new and nimble startups. Specifically, the technological barriers to market entry have almost completely disappeared. While there is nothing new about technology being freely available, just waiting to be used for the next market disruption, German business leaders still continue to watch with amazement as new startups attack their own dinosaur-like companies on a daily basis. Why can’t companies manage to react to all this proactively and continually renew themselves?

Why innovation related endeavors fail to deliver

When corporate innovation initiatives begin, they tend to focus on specific trends. From design-thinking and digital labs, to various cultural programs, the innovation related initiatives try to turn the tanker around so that the corporate can compete against a host of agile companies. It would appear that these large companies have a major disadvantage - their size. Big is no longer just beautiful - agility killers have multiplied over the decades that the company has been around, festering and entrenching themselves in the large company structure: Hierarchies, processes, control systems and armies of managers all act to inhibit innovation. There is no trace of entrepreneurship or a culture of innovation left, but rather, thanks to various efficiency programs, there is an abundance of non-value-adding functions which continue to focus on cost rather than the customer.

There are four questions that every corporation should ask itself when transforming:

• How do you manage to break out of the existing dynamics?
• Are we as a group, with all our inherited burdens, really at a disadvantage compared to the agile start-ups?
• How can we derive an advantage from our history, even if we are far away from the innovation labs and other initiatives present in the company?
• To what extent can we make use of the technology to prevent the creation of overhead, inefficiencies and lack of customer orientation in the future?

The Answer: Company Rebuilding

Company what? Another buzzword? What does is mean! Using the analogy of cellular growth, corporate renewal is based on the principle of continual cell division, whereby organizational growth is controlled, organically and inorganically, by platforms that control communication and value creation, thus providing the basis for the creation of new, transformational products.

It is crucial that when creating new units or cells, that clear rules of organizational cooperation (New Work) are established where a common set of values are established and, in particular, rules for the creation of new cells are set. All organically created units carry one and the same DNA, which has customers and employees at each end of the double helix, ensuring that all kinds of non-value-adding structures and activities are eliminated immediately.

All units of this newly created ecosystem must be guided by a clearly formulated vision (purpose), which specifically focuses on customer value and has the potential to produce transformational products. This purpose serves as a magnet for new partners and stakeholders in the value creation process.

The process of Company Rebuilding

Let’s start at the beginning: Let us go back to the time when these organizations came into being. Companies in both the start-up and growth phases distinguished themselves with their lean structures and flat hierarchies. Due to the limited resources and capital resources, each type of non-value-adding or non-customer-oriented activity was poisonous for growth and profitability, and consequently removed (... which I can also absolutely confirm from my start-up time, in which the few "administrative activities" were carried out by the management at the time).

In the past, the rule was: try to achieve a critical mass or market share as quickly as possible, building up the sheer size (employees, assets etc.) so that this could be used as a barrier to market entry (e.g. in the automotive, banking or mechanical engineering sector). The size was generated either organically (through the build-up of assets and workforce) or inorganically (through acquisition). However, this has resulted in a situation where 80% of the PMI processes now fail[1]. The growth in the size of the organization has also resulted in the creation of the various structural elements: formal and documented processes have been created, departments have also been created to ensure adherence to them, and the number of corresponding managers often grows to a level that exceeds that of the number of actual leaders (who either mutate into managers or leave the company) - the layers build up. However, this has changed fundamentally. Let's take a look at growth of a typical organization in the digital age. At the beginning, (1) a nucleus is formed consisting of a founding team and experts, which enable the development of the first products and prototypes. It is crucial that the nucleus consists of a heterogeneous high-performing team (see Henley's contribution to high-performing teams) and therefore may not exactly match a team described by classic management theory, for example.

Once this team has formed around a vision/idea, it is necessary to formulate a clear vision (2) and to define it in terms of a concrete customer benefit (cf. also Clayton Christensen's "job-to-be-done" logic).

This is the birth of a new ecosystem. At this point it often makes sense to use an ecosystem canvas or similar tools to define the company’s trajectory. It is crucial to determine the specific benefits so that they represent value to partners and customers (i.e. a quasi "dream team" (3) of the best people). This is the only way to survive in a 'The Winner takes it all-Economy'. These units are then organized via appropriate (often digital) platforms.

While start-ups might seem attractive with the way they seeming burst onto the market with energy and ideas, the fact is that this is only the tip of the iceberg and the reality that 99% of all startups fail is often overlooked. However, corporations and established companies still have something that these start-ups lack or have to be acquired at a high price: Resources! And this does not mean money, but rather implementation experience and skills that are needed to generate a product that is accepted by the customer.

Growing the nucleus

An important step in the formation of the nucleus and the structure of the organization is now to lay down clear rules for further growth - the organizational blueprint of the cell (4). This includes in addressing:

• Corporate Culture & Values
• Organizational structures based on New Work principles
• Clear communication channels & rules of cooperation within a unit and with stakeholders outside the unit
• Control mechanisms that regularly ensures alignment between employee and customer benefits. Zero overhead is the clear goal here.

Don't let yourself be deceived by the many organizational approaches such as Holocracy, which recommend democratic structures without any rules. Without clear rules, cooperation often ends up in chaos.

It is also essential to clearly define from which point in time the organizational division (Company Rebuilding) (5) is to take place. From our experience and the latest scientific knowledge, the following rules are useful:

1. Anthropologist Dunbar found that socially stable relationships and interactions are limited to 150 people. To enable large organizations to exist, hierarchies, managers and overhead functions are often introduced. This principle has also been used by military organizations.
2. Some companies have focused on decentralized entrepreneurship to drive success. Haier has utilized, since the beginning of its restructure, an approach which focuses on driving the success of client-oriented micro-enterprises called ZZJYTs and Alibaba has utilized a decentralized approach to entrepreneurship, where new units are formed around a new customer need (until a corresponding complexity limit is reached, which then requires the creation of a new division).

It is crucial that this organizational blueprint is used for every divisional process and forms the foundation of all organically created units.

The concrete manifestation (6) of the respective unit is then - analogously to biological cells - adapted to the respective environment. This ensures that, for example, local conditions or specific customer requirements are taken into account and that suboptimal offers are not provided by the Group head office according to the trickle down principle. For example, the centralized approach that McDonalds has taken has led to KFC taking pole position in China, as they have been more readily able to adapt to local eating habits.

What all organically grown units have in common is that they continuously report relevant changes in the market in order to adjust their vision when required. “Change," says Jack Ma, “is the only constant”. The times where companies developed their vision and strategy for the next 10 years are over – strategy is iterative and requires regular feedback (7).

Corporates vs Startups: The race is on

As mentioned above, companies have a great advantage over the dreaded startups: experience, financial and human resources. So what is the path to the development of a successful ecosystem for corporates? Firstly, it is crucial that business leaders feel sufficiently motivated to take this path, providing them with the focus to protect the newly created nucleus from the 'corporate immune system'. The starting point is the recruiting of the nucleus team - not a ready-made business model or project plan. This team is crucial for further success. Only when this team is up and running will it be necessary to define the exact ecosystem. This is where the advantages of the established company come into play: the further (personnel) growth of the original unit can take place directly from the company's own team, because large companies often have almost all the necessary skills and talents on board, but often located in the wrong environment.

Once the ecosystem begins to grow and develop, interacting with partners and customers is useful when prioritization is needed. It is also crucial to constantly ask whether the growth can be achieved through the transfer of resources from the 'mother' or through inorganic means. Once the new business model is in place, a comprehensive analysis of the' parent unit' and its readiness to embrace the new ecosystem should be carried out.

Into the platform economy!

Of course, for a successful implementation of Company Rebuilding, the devil is in the detail. While our previous remarks have been generalized, including findings such as those of our former colleague Gerhard Wohlands and of Niels P-plasging, the reality is always more complex. However, we are convinced that especially now, with the technological possibilities available for established companies operating in a platform economy, there are enormous opportunities to actively participate in the ecosystems of the future and, in some cases, to bring them into being by themselves. The Company Rebuiling approach offers organizational and structural support that does not remain stuck on the cultural level (as in many New Work initiatives) and does not focus on topics such as digitization or technology. Success stories, especially from the Asian region such as Haier, Alibaba and Tencent, but also further abroad Gore-Tex, for example, provide examples of successful company renewal and newly created, successful ecosystems.

As a member of a large corporation, we too look to the future with curiosity and drive (cf. Heinrich's contribution).

The future that is becoming increasingly difficult to predict and past recipes are rapidly declining in value. To navigate this digital future requires a trusted guide. We too, in our very own company, are in a renewal process. But as they say, "The best way to predict the future is to create it." (A. Lincoln). Company Rebuilding offers us all the opportunity to embrace the upcoming changes with open arms - let's shape the future together.

What is your opinion? I look forward to your feedback.

Further sources:

New Work - On the way to a new working world (Springer / Gabler)

Exponential Organizations: Why new organizations are ten times times better, faster, and cheaper than yours (and what to do about it)

Service Oriented Logic

Innovation culture study

From Knowledge to Skill - Characteristics of Dynamic Microbuster High Performance

Organization for complexity

Anti-fragility

Beyond Consulting - about the future of consulting

On the insignificance of benchmarks in the digital age

Study: Success Factors of Digital Business Models

About the authors

Marc Wagner is a member of the Management Board of Detecon. He is responsible for the New Work, Ecosystems & Corporate Renewal practice and assists companies in the transformation of digital ecosystems, innovation and sustainable organizations. Previously, he held various management positions including being responsible for restructuring, financial management, CHRO advisory and people management. He started his professional career as the founder of an IT start-up. Marc Wagner is the editor of various studies and publications on New Work and the culture of innovation, as well as being the co-author of the book "New Work - on the way to a new working world".

Verena Vinke is a management consultant and member of the leadership team of Functional Practice New Work, Ecosystems & Company Rebuilding. Her focus is on the cultural reinvention that is associated with digital transformation. Most recently, she has worked in various project management roles in the context of New Work.

Philipp Schett is member of the leadership team of Detecon’s San Francisco office and the Functional Practice New Work, Ecosystems & Company Rebuilding. He brings insights from Silicon Valley to clients around the world. Philipp has gathered experience as client partner and project manager in innovation projects in America, Asia and Europa, helping organizations to adopt to technological change and to create a culture, which embraces the opportunities of the digital transformation.

Many thanks to Heinrich, Winfried, Renata, Volker, Lars, Ingrid, Jacqueline and Andreas for your input and support.

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