The Self-Regenerative Organization
One could say that the purpose of a business organization is to add value and be paid for this added value. A manufacturing company, for example, adds value by converting raw materials into finished products. The manufacturing process can be seen as a chain of steps, each of which adds value to the raw materials. Raw materials have, in fact, no value of their own, but acquire value in terms of the future they represent, i.e., what will be produced at the end of the value-added chain. To be competitive, a company must, in the end, add greater value than its competitors.
Each step in the value-added chain reflects some competency or expertise, applied to the developing product. Those competencies that are unique or special to a particular company (as distinct from competencies that are general to an industry or to doing business itself) and are central to the value that added by that company we call core competencies. The specific constellation of core competencies in the value added chain of a given company defines the market identity and competitive advantage of that company over its competitors. If a company does not have specific core competencies needed to establish market identity and competitive advantage that are durable and robust, that company will need to buy or create those competencies that are missing, or will need to develop alliances to provide them.
Any consideration of the true worth of a company must take into account not only the usual array of assets and liabilities and its hidden assets (intangible but real factors such as R & D, labor relations, leadership, vision, etc.), but also an assessment of its core competencies, its value added,
Historically, decline seems to be an inevitable part of the organizational life-cycle. Even the most vital, spirited, high-riding organization ultimately deteriorates and declines, and eventually this deterioration and decline is reflected in loss of business, internal discontent, and organizational demise, often after an agonizing descent into organizational senility. The IBM of the early 1990s is barely a shadow of the living, vigorous IBM of the 1970s. The same could be said of companies such as Digital Equipment, General Motors, Wang Laboratories, and others too numerous to mention.
In other cases â€œturnaround specialistsâ€ have come in and shaken the company up, pruning away dead wood, and re-fertilizing the company’s soil. Sometimes the turnarounds have worked, obscuring the real tragedy, namely that the company declined in the first place.
It is becoming increasingly clear that, in the last decade of the 20th Century, â€œturnaroundâ€ is no longer a sufficient response to corporate decline. More and more companies are turning to options called â€œre-engineeringâ€, â€œorganizational breakthroughâ€, and â€œlarge- scale systems changeâ€ not merely to repair, but re-create their organization to design futures that are not extensions of the past. Magma Copper Company, under CEO Burgess Winterâ€™s leadership, has achieved such an outstanding rise from the ashes that it was hailed by Industry Week as a â€œMetamorphosis in the Desert,â€ strong language from a publication not normally given to effusiveness. The transformation of General Electric under CEO Jack Welch is a better-known, but no less dramatic example of an organization altering its culture, character, and design through an intentional self-regeneration.
It is our contention that organizations designed for the next century will have built into their “genetic code” the ability to self-regenerate. Like the starfish, when limbs are damaged or lost, the ability to grow new, and perhaps better limbs will be designed in. Further (and unlike the starfish) the organization of the 21st Century will cut off its own limbs to grow new and better appendages! By contrast, 20th Century companies are reactive â€” captives of their past, responding to problems, crises, and threats by looking to historical competencies, and seeing the future as an extension of the past. They are survivors, not thrivers, dedicated to being conservative, (taking small risks) and see risk management and risk aversion as synonymous.
The â€œSelf-Regenerative Organizationâ€ will:
- Respond to change in terms of self-generated strategic drivers as distinct from basing response to change on tactics derived from past experience.
- Add maximum value at every step of the value chain, treating each step as if it were a product in itself.
- Develop critical core competencies through internal development and external acquisitions and alliances.
- Build in strategically-based architecture for internal and external cooperation .
- Build a culture of generativity in which rapid change and flexibility are given ratherthan anomalous.
- Create powerful high-level synergies.
- Engage in systematically planned and applied projects for breakthrough ordiscontinuous results continually challenging what is already known.
- Utilize future-oriented, regenerative benchmarking.
- Establish wholistic/systematic measurement systems which go beyond the meremeasuring of results to building registers for accomplishment in which people cansee the difference they are making.
- Trigger its own regenerative mechanisms proactively.
(These features of the model will be discussed in more detail below.)
As we mentioned above, Magma Copper Company provides an excellent example of a company that has organized itself for self-regeneration. Magmaâ€™s Internal Development Department has declared its Strategic Intent:
To provide a self-creating and self-sustaining breakthrough culture which will give Magma a competitive edge into the 21st century. This development must take into account both the executive management transition within the company and the transition within the labor unions.
Combining a â€œself-creating, self-sustaining breakthrough cultureâ€ with an effective executive management and union transition has never been accomplished in American industry. We, therefore, will be inventing another historic breakthrough by sustaining and creating a new paradigm for leadership, organization, and worker/management relations.
ORGANIZATIONAL GENETIC ENCODING
Genetic Encoding occurs in an Organization in its culture (context) and architecture, as reflected in:
- Performance Measurement and Reward Systems
- Beliefs and Values
- Hierarchy Structure
- Policies and Procedures
- History of Experience
- Communications Patterns
- Core Competencies
- Behavior Patterns
- Response to Threat, Risk, andOpportunity
- Methods of Differentiation and Integration
- World-view (Internal and External)
- Valuation of Team Vs IndividualEffort
- Sacred Cows
- Patterns of Ethnic and GenderDiversity
- Customer and Vendor Relations
- Work Ethic
- Leadership Style
This â€œgenetic encodingâ€ is ingrained in the contextual fabric of the company as critical to the companyâ€™s survival. The â€œin the backgroundâ€ nature of the encoding and its perceived necessity for survival make it very difficult to access, affect, or alter the code.
This survival mechanism eventually results in the death. Typically the company goes through a development cycle of Startup, Growth, Stability, and Decline, with Stability seen as the desirable end state and Decline ignored, denied, or staved off. Stability is characterized by minimizing risk, conservative decision-making, and rigid hierarchies. Stability can be maintained only if the surrounding world is stable, and there are no aggressive competitors. Companies in Stability adopt as measurement systems lagging indicators of performance such as financial reports, which fail give a picture of the companyâ€™s performance that is too late to be responded to effectively. Thus the â€œGenetic Encodingâ€ causes the company to react too slowly, or to be responsive only to crises, or to withdraw in the face of threat. When leadership is most needed, it is the most difficult to provide.
The company of the future will have in its Genetic Encoding “triggers” and processes that enable it to be responsive to threat and to maintain its structural and cultural integrity in the face of crises, emerging from them strengthened. What is more important, the company of the 21st Century will be genetically programmed to be proactive, and to de-stabilize structures that make it vulnerable to threat before the threat occurs.
THE MODEL OF THE SELF-REGENERATIVE ORGANIZATION
Responsive to change in terms of self-generated strategic drivers:
Companies exist in a field of internal and external forces, opportunities, and demands to which they can respond in reactive and proactive ways. These include competitive threats, productivity changes, market opportunities, technological innovations, etc. The Self-Regenerative Organization will place a premium on being proactive â€” anticipating and even causing changes in the operative forces in its industry and in business at large.
Adds maximum value at every step ofthe value chain:
As noted above, the real job of any company is to add value. While this can be very easily seen in, for example, mining and manufacturing, it is no less true for service businesses. The Self-Regenerative Organization will have as an integral part of its strategic intent to gain the greatest strategic advantage at each step of the value-added chain.
Develops critical core competencies through internal development and external acquisitions and alliances: The effective functioning of the value- added chain is dependent upon having the right core competencies and capabilities. Features such as high quality, low cost, innovation, and productivity will be a function of the level and appropriateness of a companyâ€™s core competencies. The Self- Regenerative Organization will acquire, either through hiring, acquisition, or alliance the core competencies that are critical to its particular value-added chain.
Built-in architecture for internal andexternal cooperation:
Cooperative Architecture describes the companyâ€™s posture with regard to strategic alliances and joint ventures, both internal and external. The Self-Regenerative Organization will use external alliances to provide missing or strengthen inadequate core competencies External alliances also provide avenues to products or markets where internal core competencies can be leveraged. Internal alliances maximize decentralized or â€œvirtualâ€ corporate structures by creating synergies between business units and departments that add power at points on the value-added chain.
Builds a culture of generativity:
In the culture of every company is the “genetic encoding” of its rules of thinking and its rules for existence. Most companies are encoded for the survival of the corporate culture and structure by placing a high value on what has worked in the past and applying the thinking that has been successful in the past to present and (anticipate future problems. Unlike real genetic coding, corporate genetic coding can be changed. By systematically changing this coding the company gives itself a new response pattern that enables it to respond to threat, stagnation, and opportunity in a positive way, empowering itself to break with, or build upon its old paradigms, regenerating itself in new forms. This is what is rightly called culture change, or organizational transformation.
Creates powerful high-level synergies
Most Western business organizations today are designed on what could be called an analytic model. That is, they are composed of more or less specialized, separate units, centrally controlled or managed. The bankruptcy of this model has been becoming increasingly apparent over the past 10 or 15 years, and such innovations as MBO, matrix management, MBWA, independent business units, etc., can be viewed as attempts to deal with the inadequacies of the model. The Self- Regenerative Organization will include in its design a commitment to and a structuring for synergies at all levels of the organization â€” between individuals, between the organization and other organizations, and between parts of the organization. Business units will form strategic alliances and joint ventures with each other, and one business unit may even acquire another in the interest of creating synergy â€” wholes that are greater than the sum of their parts. Synergy derives from synthesis, a method of thinking and acting in which cooperation results in creativity, innovation, and in turn stimulates new levels of regeneration in an upward spiral.
Engages in systematically planned and applied projects for breakthrough or discontinuous results:
Remaining competitive requires a company to add unique value at every step in the value-added chain. This will require the continuous development and acquisition of new competencies. The core competencies that add the most value to the chain will be those that are most innovative and creative with respect to the history of the organization and the industry. Breakthrough projects are projects intentionally designed to produce results and fields of possibility that are discon- tinuous with the past. The methodology exists for designing, implementing, and executing projects to produce these results, and competency in producing breakthroughs is a core competency that empowers the entire value-added chain.
Utilizes future-oriented, regenerative benchmarking:
Conventional benchmarking at its best measures where the company is now relative to the competition. (More accurately it measures where the company is now relative to a description of the competition), since it is almost impossible to obtain an accurate picture of the creative processes that went into the competitorâ€™s production of the results being studied This standard is clearly insufficient since the best it can do is shift the companyâ€™s current past-based operation to someone elseâ€™s past-based operation. The Self- Regenerative Organization will benchmark against an invented future state â€” a vision of where the company is committed to being at a specified future time. This benchmarking will need to look “outside the box” of current thinking, and outside the industry to other industries that share similar patterns, drivers, pressures, and technologies.
Establishes wholistic/systematic measurement systems:
The lagging-indicator measurement system favored by successful (and declining) com- panies is insufficient for what is needed for the Self-Regenerative Organization If, in Druckerâ€™s words, “what you measure is what you get,â€ then a measurement system must be established that measures the “big picture,” leading indicators, and integrative processes. We have designed measures that approach this, (Strategic Return On Investment, Total Life Cycle Cost), but these are the subject for a future paper.
Triggers its own regenerative mechanisms proactively:
To make the Self-Regenerative Organization viable, a series of “triggers” must be designed to activate the regenerative system before decline sets in. Benchmark results, breakthrough projects, employee participation, and the generation of breakdowns, provide some (though undoubtedly not all) of these triggers.