The 21st-Century Organization

Big corporations must make sweeping organizational changes to get the best from their professionals.

Other ad hoc organizational devices, such as internal joint ventures, co-heads of units, and proliferating task forces and study groups, serve only to complicate the organization further and to increase the amount of time required to coordinate work internally. The result is endless meetings, phone calls, and e-mail exchanges as talented professionals — line managers or members of shared utilities — waste valuable time grappling with the complexity of a deeply flawed organizational structure.

A New Organizational Model

To raise the productivity of professionals, big corporations must change their organizational structures dramatically, retaining the best of the traditional hierarchy while acknowledging the heightened value of the people who hatch ideas, innovate, and collaborate with peers to generate revenues and create value through intangible assets such as brands and networks. Companies can achieve these goals by modifying their vertical structures to let different groups of professionals focus on clearly defined tasks — line managers on earnings, for instance, and off-line teams on longer-term growth initiatives — with clear accountability. Then these companies should create new, overlaid networks and marketplaces that make it easier for professionals to interact collaboratively and to find the knowledge they need.

Companies can not only build this new kind of organization but also reduce the complexity of their interactions and improve the quality of internal collaboration by implementing four interrelated organizational-design principles:

  1. Streamlining and simplifying vertical and line-management structures by discarding failed matrix and ad hoc approaches and narrowing the scope of the line manager’s role to the creation of current earnings
  2. Deploying off-line teams to discover new wealth-creating opportunities while using a dynamic management process to resolve short- and long-term trade-offs
  3. Developing knowledge marketplaces, talent marketplaces, and formal networks to stimulate the creation and exchange of intangibles
  4. Relying on measurements of performance rather than supervision to get the most from self-directed professionals

The ideas underlying each of these policies may not be entirely new, but we don’t know of any company that applies all of them holistically — and this failure limits the ability to perform up to potential. A company that tries to simplify its vertical organizational structure without helping large numbers of self-directed professionals to collaborate more easily might increase its efficiency, for example. But that would be more than offset by a decrease in its effectiveness.

Simplify the Line Structure

The first design principle is to clarify the reporting relationships, accountability, and responsibilities of the line managers, who make good on a company’s earnings targets, for all other considerations will get short shrift until short-term expectations are met. To achieve this goal, a company must establish a clearly dominant axis of management — product, functional, geographic, or customer — and eliminate the matrix and ad hoc organizational structures that often muddle decision-making authority and accountability. Dynamic management and improved collaboration, as we show later, are better ways of accomplishing the purposes of these ad hoc structures.

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