Theory To Practice

ORGANISMS AND ORGANIZATIONS

Rethinking R&D, networking, and corporate boundaries.

March / April 2009 by Michael E. Raynor

The rhetoric of change is often its own worst enemy: In our haste to identify and embrace the next new thing, we often mistake the merely transitional for the radically new. It’s the intellectual equivalent of treating a truck stop like a destination. (This is easy to do, not only metaphorically but literally: The Giant Truck Stops can be almost a half-mile square, have shuttles to get you around the parking lot—like Disney World—and include lots of shopping, hot tubs, and great prime beef.)

Our thinking about organizational forms could be subject to this sort of error. For twenty years now, there has been chatter about the end of the traditional organization. Beginning with Mark Granovetter’s 1970s work on the sociology of networks and later in 1997’s The Differentiated Network by Nitin Nohria and Sumantra Ghoshal, the general notion is that boundaries are not nearly as important as we thought. Not only is no man, and no organization, an island, it is in fact the linkages to a broader community, or network, that define us, rather than our own individual substance. In other words, we are who we know.

These ideas have of late been amped up and expanded to the point that we’re told the concept of the individual person is almost an anachronism. From Facebook to Flickr, from YouTube to Twitter, not only does a tree falling in the forest not make a sound if no one hears it, but life doesn’t matter if no one is watching.

In the corporate sphere, this has reduced the legal boundaries between organizations to administrative overhead. What happens within the company is secondary; the key to success is to manage beyond corporate boundaries, to embrace broader networks of suppliers, to co-create value with customers, to capture the wisdom of crowds, and so on. Companies are simultaneously contributors to and beneficiaries of the hive mind, and have no meaning separate from this larger context, any more than a bee means anything apart from its swarm.

This is not mere outsourcing anymore. A decade or so ago, companies focused on shedding “non-core” activities or assets so that they could direct their energies to what really mattered. No longer. Companies are going beyond organizational boundaries not for what matters least but for what matters most.

For example, Enlight Biosciences is a joint venture between Merck, Eli Lilly, and Pfizer set up to engage in pre-competitive research, suggesting that go-it-alone research efforts are no longer sufficient. When Lewis Lehr set the goal for 3M that 25 percent of the company’s earnings should come from products that didn’t exist five years ago, he set the bar for corporate innovation: lots of new stuff, but 3M would invent it. Today’s gold standard is qualitatively different: A.G. Lafley at P&G aims to bring in half of the company’s innovations from outside. Even the pundits agree: When the breathless enthusiasm of Don Tapscott’s Wikinomics and the sober reflection of C.K. Prahalad’s The New Age of Innovation point in the same direction, clearly something meaningful is going on.

But what is it? Is the corporation of the future really just a nexus of constantly changing relationships, a platform for everyone but itself? Perhaps. But there’s another possibility: that the organizational forms we see today are not our ultimate destination, and might not even resemble our destination.

We might be on our way to something very different (rather than having already arrived there) because rarely do successful complex organisms start out especially complex. In nature, for example, they typically evolve from much simpler building blocks in a process that is profligate with the two commodities we hold most precious: time and life.

Given enough time and enough life, complexity can be created in two ways. A given species can, through genetic mutation or reproduction, end up with a body change that is more complex and adaptive in important ways. Successive generations of individual creatures compete for resources and reproductive success, and those individuals that are best adapted outnumber, overwhelm, and eventually extinguish the less well adapted. The sorts of mutations that create mud-skippers out of fish, amphibians out of mud-skippers, reptiles out of amphibians, and mammals out of reptiles probably came about in this way.

But a much earlier qualitative change likely required a very different mechanism: getting from single-celled organisms to multicellular organisms. There’s no change to the fundamental three-stage process of variation, selection, and retention, but the theoretical breakthrough is profound nevertheless: that selection pressures play out at the group level rather than exclusively at the level of individuals. The groups best able to cooperate end up dominating ecological niches, and so even the least fit individual in the fittest group ends up ahead of the fittest individuals in less well-adapted groups. Individual success still matters, but it plays a complementary, rather than dominant, role.

This is significant because it provides an explanation for the emergence of more complex individuals from highly cooperative groups. Specifically, single-celled animals began cooperating in order to advance their own self-interest, then cooperation led naturally enough to specialization. But things get interesting when specialization became so advanced that “core capability” activities like predation, eating, digestion, and even reproduction were “outsourced” to other parts of the cooperative. At that point, it no longer made sense to speak of a cooperative network: The group morphed into a new “individual.”

In other words, the quest for individual success begat cooperative groups, and as cooperative groups competed, the most successful became new individuals. As evolutionary biologists E.O. Wilson and David Sloan Wilson put it, “today’s organisms are yesterday’s groups.”

Seen in this light, all the talk that treats the increasingly porous boundaries of the firm, the unbundling of the corporation, and the power of open innovation as an end state might be wide of the mark, for it tends to apply the meta­phors and frameworks of outsourcing to a phenomenon that goes far beyond simply focusing on what you do best. It’s not enough to try and simply “hang on to what creates value,” or “keep the core and shed the context” since what’s being outsourced by some of the most successful firms is the core that creates the value.

For instance, InnoCentive is a market-maker in research that connects those who know what questions to ask with those who have, or can find, the answers. Its “Solver” community of 100,000-plus experts from around the world is populated largely by industrial chemists and life-sciences researchers. Its “Seekers”—companies looking for answers to specific questions—are a who’s-who of research-intensive firms and leading pharmaceutical, agribusiness, and consumer-products organizations.

These are firms for which R&D is not a distraction—it’s the lifeblood of their success. Yet they are doing less of it themselves than ever before. Are they in danger of giving away the goose that lays the golden eggs? Likely not. InnoCentive has connected Seekers and Solvers in a way that could make each dependent on the other not just for value but for survival, with each community so specialized to the needs of the other that the notion of “supplier” doesn’t come close to capturing their relationship. When individuals, whether in biology or the corporate sector, become mutually indispensible, they are no more cooperating than were the digestive and reproductive organs of the first multicellular organisms. In other words, these sorts of shifts are not merely redefining the boundaries of existing organizations—they are creating new ones. When and how we cross the line from “altering old identities” to “assuming new ones” is at times a metaphysical question with few bright lines, but it matters nevertheless.

We need new metaphors to help us think about what’s going on. Firms are building relationships that transcend mere networking: They are creating a new mechanism of wealth creation, not just expanding their Rolodexes. They are redrawing, reconceptualizing, and perhaps even redefining the very notion of corporate boundaries. The emerging organizational forms promise to be more than a network of focused but separate companies in the same way that an ant colony is more than a group of cooperating but otherwise independent ants. Changes of the last twenty years are significant not for what they are but for what they signal we may become. Seeing fundamental change in the displacement of the existing corporate edifice by “open forms” and “networked structures” may mistake the chrysalis for the butterfly.

 

MICHAEL E. RAYNOR Michael E. Raynor is with Deloitte Consulting LLP. In addition to applying theory, he occasionally tries to create some; BusinessWeek named his most recent book, The Strategy Paradox, one of the top 10 books of 2007. He can be reached via www.michaelraynor.com.