Decentralising forces The future of business organisations lies with fluid alliances of semi-autonomous units For the last century or more, the business landscape has been dominated by a small number of very large corporations The consensus has been that managing these organisations in effect meant controlling them tightly from the centre These organisations are the product of the historical circumstances in which they arose And according to Charles Armstrong, CEO of social technology provider and consultancy Trampoline Systems, the circumstances have changed In today’s fast-changing economic environment, he argues in this interview with The Economist Intelligence Unit (EIU), flexibility is the most important capability an organisation can have The ideal business, therefore, is not a rigidly controlled monolith, but a decentralised “swarm” of small teams that are empowered to innovate This interview is part of an investigation into the future of work by The Economist Intelligence Unit, sponsored by Ricoh Europe For more, visit http://bit.ly/eiufuturework The EIU: What’s the number one organisation design trend that will affect the way people work over the next 10-15 years? Charles Armstrong: The dominant trend is going to be decentralisation As new technologies continue to increase market volatility and reduce barriers to entry, speed of adaptation will be the primary driver for organisation design Large organisations aren’t going to disappear But to remain competitive they will fragment into armadas of small, semi-autonomous units linked by a synaptic mesh of information systems Charles Armstrong Trampoline Systems Photo: Joshua Tucker Small businesses will also begin to organise themselves into fluid alliances So I believe we will see this intriguing pattern where large and small businesses are converging towards organisational structures that are almost identical How have the imperatives of organisational design changed? Through the 19th and 20th centuries the biggest driver for organisation design was the ability to deploy and control resources efficiently on an enormous scale Whether you were building a continental railway or running a global political empire, you needed to be able to mobilise enormous numbers of people in multiple locations while retaining absolute control of strategy along with reliable chains of accountability In response to these demands new kinds of highly centralised organisations evolved, based in many cases on military structures Information technologies such as the telegraph and the telephone enabled successive waves of expansion and efficiency gains Now, in the 21st century, many of these scale challenges have become commoditised to the point where they are no longer pressing competitive drivers At the same time technologies such as the Internet, mobile telecommunications and real-time business systems have opened up one industry after another to entirely new forms of disruption S P O N S O R E D B Y: So what are the priorities now? In this new landscape, agility and innovation take centre stage The strength of an established market position counts for nothing if a company is unable to adapt to new market circumstances fast enough to combat an aggressive new entrant The 19th- and 20th-century organisations were never designed for speed of manoeuvre They were conceived for a more stable world, where change took decades These organisations’ emphasis on central control creates bottlenecks for decision-making that fundamentally limit the speed of change Centralisation also propagates cultures that discourage risk-taking and innovation So I think it is inevitable that the central demand for organisation design in the 21st century is about operating at scale in a highly decentralised fashion Centralisation propagates cultures that discourage risk-taking and innovation Who will be most seriously hurt by this? Charles Armstrong Trampoline Systems In the short term, the greatest impact will be felt by established multinationals, since they have the most at stake Some will succeed in adapting to maintain leadership in the next generation of their industry Others will fail to evolve sufficiently quickly and will find their markets eroded by fast-rising newcomers Since the new organisational strategies will be so dependent on information technologies, it’s very likely that the technology sector will be the first where the new structures are seen Google is an early example of a company that grew up with a distinct “startup” mindset and has consequently grown into a large organisation whose structure is strikingly different from a predecessor like IBM What about the long-term impact? In the long run, the greatest winners could be developing economies In a world of monolithic, slow-changing organisations it was possible for a small group of mainly Western economies to maintain dominance of worldwide markets over an extended period The new landscape will be very different Just as the development of the dreadnought type of battleship levelled naval competition by rendering all previous warships obsolete, the new kinds of organisation will be so much more efficient at harnessing opportunities that it will be hard for any traditionally structured business to compete with them All generational shifts create a “last mover” advantage For instance, many cities in eastern Germany now have far a better data infrastructure than their counterparts in western Germany, simply because they started with nothing in 1989 In the same way, the economies with the least institutional investment in 19th- and 20th-century organisations will face the fewest obstacles to growing the new kinds of 21st-century organisation What sort of timeframe are we looking at? Even ten years ago the leading companies in any sector could point to the four or five businesses that posed the most serious competitive risk to their position They would also have been able to list the relative strengths and weaknesses of each one Today, in many industries, CEOs are painfully aware that the business that might steal half of their market in three years’ time might today only consist of two people sitting in a co-working space So the pressures are already acute, and organisations are responding Within the next five years I think we will start to see the first examples of these new kinds of organisational structures But it will take another decade before they become pervasive How should companies respond now? This generational shift in organisation design won’t be a period of change leading to a stable state It’s a shift to a world of constant change, where innovation is instilled in every cell of an organisation That poses long-term challenges for leadership, skills development, administration and regulation We need to start grappling with these questions now so we’re ready The opportunities are tremendous S P O N S O R E D B Y: ... that discourage risk-taking and innovation Who will be most seriously hurt by this? Charles Armstrong Trampoline Systems In the short term, the greatest impact will be felt by established multinationals,... than their counterparts in western Germany, simply because they started with nothing in 1989 In the same way, the economies with the least institutional investment in 19th- and 20th-century organisations... harnessing opportunities that it will be hard for any traditionally structured business to compete with them All generational shifts create a “last mover” advantage For instance, many cities in eastern