The 21st-Century Organization

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

Develop Organizational Overlays

Having stripped away unproductive matrix and ad hoc structures from the vertical organization and clarified the line structure, a company must develop organizational overlays in the form of markets and networks that help its professionals work horizontally across its whole extent. These overlays make it easier for them to exchange knowledge, to find and collaborate with other professionals, and to develop communities that create intangible assets.

Because these market and network overlays help professionals to interact horizontally across the organization without having to go up or down the vertical chain of command, they boost rather than hinder productivity. Companies that establish such overlays are making investments not only to minimize the search and coordination costs of professionals who exchange knowledge and other valuable intangibles among themselves but also to maximize the opportunities for all sorts of cost-effective, productive interactions among them.

We believe that moving simultaneously into knowledge marketplaces, talent marketplaces, and formal networks will make all three more effective. A knowledge marketplace, for example, helps members of a formal network to exchange knowledge, which in turn helps to strengthen the network. A talent marketplace works better if the people who offer and seek jobs in it belong to the same formally networked community. In combination, these techniques can make it possible for companies to work horizontally in a far more cost-effective way.

Knowledge marketplaces. For the better part of the past 15 years, knowledge management has generated a good deal of buzz. Despite heavy investment, the benefits have been limited. Real value comes less from managing knowledge and more — a lot more — from creating and exchanging it. And the key to meeting this goal is understanding that the most valuable knowledge of a company resides largely in the heads of its most talented employees: its professionals.

Exchanging knowledge on a company-wide basis in an effective way is much less a technological problem than an organizational one. As we have argued, to promote the exchange of knowledge, companies must remove structural barriers to the interaction of their professionals. These companies must also learn how to encourage people who may not know each other — after all, big corporations usually have large numbers of professionals — to work together for their mutual self-interest. What’s the best way of encouraging strangers to exchange valuable things? The well-tested solution, of course, is markets, which the economy uses for just this purpose. The trick is to take the market inside the company.

How can companies create effective internal markets when the product is inherently intangible? Among other things, working markets need objects of value for trading, to say nothing of prices, exchange mechanisms, and competition among suppliers. In addition, standards, protocols, regulations, and market facilitators often help markets to work better.

These conditions don’t exist naturally — a knowledge marketplace is an artificial, managed one — so companies must put them in place. (Lowell L. Bryan, “Making a Market in Knowledge,” The McKinsey Quarterly, 2004 Number 3, pp. 100–11.) In particular, the suppliers of knowledge must have the incentives and support to codify it (that is, to produce high-quality “knowledge objects”). “Buyers” must be able to gain access to content that is more insightful and relevant, as well as easier to find and assimilate, than alternative sources are.

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