designing the open enterprise

Designing The Open Organization
Introduction
Most people don’t realize that business organizations have short half-lives. Only 16 of the top 100 American corporations in 1917 still exist
today. Theaverage life expectancy ofa Fortune500firm isnow 40to 50years.
Firms fail to survive or remain independent for a multitude of different reasons. The business media frequently points out that non-surviving
firms moved into businesses they did not know, or a market leader failed to respond quickly enough to important cues in the marketplace.
Others argue that failure is often due to psychological pathologies or leadership failure within the top management team. A recent study by
Seton Hall’s Stillman School of Business and New York-based crisis management consulting firm Buccino and Associates, that involved
surveying 1,900 executives, concluded that businesses fail due to internal reasons, such as excessive debt, improper planning and failure to
change,asopposed to externalfactors like competitionandthe economy.
Thepost-mortem analysesvary,butoneelementtendsto underliemost business failures -they failedto operateasanopenorganization.
The Meaning of an Open Organization
The concept of viewing organizations as an open system was first popularized by the London-based Tavistock Institute. One of its
pioneering thought leaders, A.K. Rice, stated that any given organization takes various things from its environment, uses those
in some sort of conversion process, and then exports products, services, and waste materials which result from the conversion
process. One key import of the organization is the information that’s acquired from being “wired” with the environment - and
which is used to help the organization survive.
The concept of open systems is far from being new. Kenneth Boulding, the imminent social scientist, described our planet as an
open system decades ago. In the discipline of biology, open systems theory has been applied to the study of our environment and
earth’s ecosystems for years. On the corporate front, General Electric’s former CEO Jack Welch espoused a “boundarylessness”
organization with no internal barriers resulting from hierarchy, geography, and function, and forges a strong partnership with
customers and suppliers. Peter Senge, in his advocacy of the learning organization, underscores the importance of systems thinking
- which he argues involves looking at the whole instead of just the parts.
The concept of open systems also underlies many of today’s popular organizational renewal techniques, including total quality
management and Six Sigma improvement efforts . A firm that practices total quality management must continuously uncover and
anticipate customer expectations, and bring that information into the firm to design and deliver products/services that provide more
value to the customer than competitive offerings. That explains why 61 percent of the original criteria for the Baldridge Quality
Award were targeted toward the organization’s ability to use information relating to customers, employees, and business processes.
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How Does an Open Organization Operate?
As diagram 2 illustrates, the key design elements of all organizations include structure, systems, people, and culture. In an open
organization, these design features support open system principles. Diagram 3 gives a few key examples of design features that
further these principles.1
Key Elements of Organization Design
Diagram 2
Structure Culture
• Organization structure • Values
• Business processes • Norms
• Job design • Management philosophy
• Roles & responsibilities
Systems People
• Methods & procedures • Technical competencies
• Company policies • Behavioral competencies
• Human resource management systems • Leadership competencies
• Information systems
• Technology
• Product & service development/delivery systems
1
Key Elements of Organization Design diagram has been adapted from Nadler & Tushman’s congruence model. Nadler, D. & Tushman, M. “A Congruence
Model for Diagnosing Organizational Behavior.” Approaches to Managing Organizational Behavior: Models, Readings, and Cases. Boston: Little, Brown,
1981.
PeoplePeople
SystemsSystems
StructureStructure
CultureCulture Products /
Services
Products /
ServicesStrategyStrategy

Key Organization Design Features in an Open Organization
Diagram 3
Culture ♦ Employees are business partners
♦ High levels of egalitarianism exist
♦ Information openly shared among all people
♦ “Messengers are not shot; controversial views welcomed
♦ Expertise and quality of ideas more important than rank
♦ Paternalism taboo; performance over tenure
♦ Company preoccupied with business growth
People ♦ Employees have a diverse set of work experiences
♦ Key competencies: intellectual curiosity, innovativeness,
♦ Leaders are developed to facilitate change; to be anticipatory
♦ Employees know the business, marketplace, and competitors
♦ Moderate amount of turnover considered healthy
♦ Diverse workforce and cadre of leadership
Structure ♦ Lean (but not anorexic)
♦ Wide span of control by members of management
♦ Few levels (enables information to move more quickly)
♦ Key, macro business processes identified and streamlined
♦ People decentralized; paper centralized
♦ Organization design is product or market focused.
Systems ♦ Performance management and rewards support innovative behavior.
♦ HR management practices strategic in orientation
♦ Active leadership development process
♦ Active, comprehensive training and education process
♦ Strategic planning interactive, involving many stakeholders
♦ Information system open. Equal access to information.
♦ Mechanisms exist for customer and employee feedback.
♦ Employee communications accent business news and trends.
♦ Benchmarking and the use of industry “best practices” common.

The Key Byproduct of anOpenOrganization: TheAbility toCreate Information
Information is a necessary ingredient for learning, innovation, and adaptation – ultimately survival of the firm. None of these
activities can occur unless employees receive and synthesize the rich cues that are presented through the speech, words, and the
constant stimuli they receive from inside and outside the corporation.
Peter Drucker stated nearly a decade ago that we are entering “the knowledge society” in which the basic economic resource is
knowledge. He said:
“The single greatest challenge facing managers in the developed countries of the world is to raise the productivity of
knowledge and service workers. This challenge, which will dominate the management agenda for the next several decades, will
ultimately determine the competitive performance of companies. Even more important, it will determine the very fabric of
society and the quality of life in every industrialized nation.”
The key point made by Drucker is that knowledge can not be generated without information. And, the most innovative and nimble
companies will increasingly be those who have the ability to acquire, synthesize, and analyze information more rapidly than their
competitors.
Information can be obtained through external collection or through the internal development of ideas. Collecting information
externally (about customers, the marketplace, etc.) can only happen if employees cross their firm’s boundaries and interact with the
outside world on a continuous basis. Generating internal information occurs within the organization and through such activities as
analyzing the results of previous actions, sharing “best practices” across divisions, and building feedback loops into key programs
and processes. Open organizations are highly adept at linking external and internal information.
A large amount of information should be generated - in fact, to the point of redundancy. As Nonanka states:
“Sharing extra information also helps individuals understand where they stand in the organization, which in turn functions to
control the direction of individual thinking and action. Individuals are not unconnected but loosely coupled with each other,
and take meaningful positions in the whole organizational context. Thus redundancy of information provides the organization
with a self-control mechanism to keep it heading in a certain direction.”
Generating lots of information is important, but that’s not enough. An organization must have the ability to take a large amount of
ambiguous information and apply it in a manner that results in learning. Organizations that are skilled in this regard are called
learning organizations. They continually improve by rapidly creating and refining the capabilities needed for future success.

The Danger in Becoming Too Open
Becoming an open organization entails some risks. They include:
Becoming Too Close to the Customer
Few woulddisagreethatsatisfying the customeris key to any company’ssurvival. However, the mantra to “get close to the customer,” can
notbepursuedinasimplistic orblindmanner. Afterall,notallcustomersknow whatthey want. Theirstated expectations maynotbetheir
actualexpectations. Somecustomers areso demanding thatitis notinthefirm’s best interests to attempt to satisfy theirwhims. According
to Macdonald,gettingtoo closemay limittheability to innovateorto movefast because gettingcloseinvolves moreintegrationofthe
customerandsupplier,with each beingless ableto make amajorchange withouttheparticipationoftheother.
Losing Predictability in How theOrganizationOperates
Stevensonofthe HarvardBusinessSchoolrecently lamented onhow organizationsarelosing their predictability. He states:
“The discontinuities that so many current management practices introduce into people’s lives many not drive them mad, but
they do encourage them to keep their resumes up to date and their commitments to their employers minimal.”
Maintaining thestatusquo is certainly nottheprescription,butsome organizationsandmanagers have to bemoresensitive to adoptingso
many different programsandactivities thatarenotalwaysintegratedinto oreven relevantto thefirm’smostpressing problems. Change
fatigueamong employeeshasto be avoidedatallcosts. Goldstein echoes thisaswell,arguingthatallorganizations must havesomedegree
ofdiscrete boundary with their environment,. This provides asafeholding environment fortheanxiety anddiscomfortoftenassociatedwith
change.
Adapting Rather than Innovating
Many successful companies,such as3MandSony,havebuilta work culturewhereemployees are keenly awareofindustry trendsand
shifting consumerpreferences. Thesefirmsoftenadapt to changes inthemarketplacethrough incrementalproductimprovements or
extensions to their basic entreeofservices. Moreimportantly,these companies anticipate unarticulated customerneeds by offering novel,
paradigm breakingnew products. 3M’s development ofthePost-it™andSony’sdevelopmentoftheWalkman™arekey examples.
Many theorists,includingGoldstein andSenge, have commented onhow organizationsmustpursuegenerativelearning andinnovation,as
opposed to merely adaptingto theenvironment. While few woulddisagreewith this argument, it’s importantto note thatno organization
canbeinnovative unlessit’salso open.
Theupshotisthatinbecominganopenorganization, therestill must bea certainamountofvigilanceinmakingsurethatthe organizationis
notjust reacting,oradapting to itsenvironment. Firms thatcontinually innovatewhenneededinevitably leadthe pack. Beingopen, but
reactive ratherthananticipatory,limits performanceinthemarketplace.
Some Final Thoughts
Theeerie parallelthatruns through the histories ofmany business failures ishow success becamethe seedoffailure.Aclose examinationwill
usually show thatoldsolutionscontinued to beappliedto new problems, orworse,customerexpectationschanged,buttheproducts and
servicesbeing deliveredto them remainedthesame. Therealfailureis thatthese firmsdidnotoperateasanopen system,andimportant

cues wentunrecognized. Criticalinformationwas eitherconsciously orunconsciously ignored. Theendresult: market share andprofitability
suffered.
Thereisanincreasingamountofevidence thatfirmscanconsciously structureandmanage theirsurvivalby building aculture, organizational
structure, systems,andworkforce thatsupporttheprinciples ofopen systems. America’sbestcompaniesdo this -andso canothers.
References
Dixon, N. “A Practical Model for Organizational Learning.” Issues & Observations. Center for Creative Leadership, Vol. 15. No.2,
1995.
Drucker, P. “The New Productivity Challenge.” Harvard Business Review, Nov.-Dec., 1991
Goldstein, J. The Unshackled Organization. Portland: Productivity Press, 1994.
Gandosy, R. “The Need for Speed,” Journal of Business Strategy, Jan. – Feb. 2003
Hurley, R. and Laitamäki, J., “Total Quality Research: Integrating Markets and the Organization.” California Management Review,
Vol. 38, No. 1, Fall 1995.
Levinson, H. “Why the Behemoths Fell: Psychological Roots of Corporate Failure.” American Psychologist, May 1994.
Macdonald, S. “Too Close for Comfort?: The Pitfalls of Getting Close to the Customer.” California Management Review, Vol. 37, No.
4, Summer 1995.
Nonanka, I. and Takeuchi, H. The Knowledge Creating Company. New York: Oxford University Press, 1995.
Rice, A.K. The Enterprise and Its Environment. London: Tavistock Publications, 1963.
Senge, P. The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Doubleday, 1990.
Stevenson, H. and Moldoveanu, M. “The Power of Predictability.” Harvard Business Review, July/August 1995.
Wick, C. and Leon, L. “From Ideas to Action: Creating a Learning Organization.” Human Resource Management. Vol. 34, No. 2,
Summer 1995.

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