Q&A on the Book Reinventing the Organization

The book Reinventing the Organization by Arthur Yeung and Dave Ulrich provides a framework of principles of practices that can help companies to deliver greater value in fast-moving markets. The authors explored some of today’s nimblest and fastest-growing large companies from the US, China, and Europe, looking at what goes on inside these companies and what's outside: networks, partners, and the marketplace they want to dominate.

InfoQ readers can download an extract of Reinventing the Organization.

InfoQ interviewed Yeung and Ulrich about their book.

InfoQ: Why did you write this book?

Arthur Yeung: This book is based on a research project that aims to address a pressing problem faced by leading internet firms in China, namely Tencent, JD.com, DiDi, Meituan, etc. In face of VUCA environment, how can large and complex organizations remain innovative, customer-obsessed, and agile? As a result, we identified and researched the most innovative and successful firms that have thrived in VUCA environments in recent years. In spite of the geographical diversity (US, Europe, and China) and industry differences (e-commerce, search, social media, games, mobility) between these pioneering firms, we are very excited to observe, and report in our book, some common principles and logic in how these firms are organized.  In short, this book is written not only out of intellectual curiosity, but more importantly business priority.

Dave Ulrich: The concept of "organization" is not new, and in recent years there have been thoughtful experiments in redefining what an organization is and how it works (holocracy, humanocracy, ameba, network, boundaryless, team of teams, and so forth). It is time to synthesize these organization experiments into a comprehensive model of a new organizational species. Arthur and I identified some of the most successful firms in the world in recent years and discovered common patterns in how these organizations operate. We were committed to distilling these insights into specific steps and tools that any leader can use to reinvent their organization to respond to changing business conditions.

InfoQ: For whom is this book intended?

Yeung: Firstly, it is for CEOs or business leaders who are troubled with organizing companies that embrace VUCA environment fuelled by digital acceleration. These are typically CEOs of large and complex firms who need to maintain agility and innovation, or CEOs who need to transform their companies to be more digitally smart. Secondly, for HR leaders or professionals who need to help business leaders to reinvent their organizations. Finally, for academics who want to bridge organizational theories and organizational practices.

Ulrich: The ideas in this book are for anyone who recognizes that an organization impacts employee well-being, strategic realization, customer commitment, investor confidence, and community reputation. This list includes business leaders who are accountable for and owners of their organization processes; HR leaders who are organization architects; consultants who are organization advisors; academics who are organization observers; and employees who are organization residents.

InfoQ: What do you mean by reinventing organizations?

Ulrich: An organization shapes how employees, customers, investors, and communities think, act, and feel. Organizations traditionally operate through hierarchy with clear roles, rules, and responsibilities. In today's incredibly uncertain and changing world, role clarity is less important than the ability to adapt. An incredible number of historically successful organizations have failed because they did not adapt (e.g., Sears, Kodak, Toys-R-Us, etc.). Reinventing the organization means building new capabilities of information asymmetry, customer centricity, innovation everywhere, and agility throughout. Leaders who can reinvent their organizations will deliver value to all stakeholders. Reinvention is not random, but can be defined by a set of six domains, each with fresh ideas, tools, and actions. Reinvention is not only possible, but critical.

Yeung: Reinventing organization is a holistic evolution of organizational species due to radical environmental changes.  It is not about specific organizational tools, but a holistic approach driven by top business leaders to imagine and anticipate the business future, refresh strategic direction or business modesl, refocus on key organizational capabilities, and then rearchitect both the hardware part of the organization (organizational morphology) and the software part of the organization (organizational governance).

InfoQ: What does the market-oriented ecosystem model look like?

Yeung: Based on the in-depth case studies on Amazon, Facebook, Google in the U.S., Supercell in Europe, and Alibaba, DiDi, Huawei, and Tencent in China, we discovered that the market-oriented ecosystem (MOE) was characterized by three organizational principles that enable these iconic companies to be tremendously successful in their fast changing and highly competitive markets:

• a.    These companies are extremely market-oriented. Highly autonomous customer-facing teams are organized and empowered in ways of capturing or creating new market opportunities. For example, at Alibaba they are organized into 30+ small business product teams. At Tencent, they also have dozens of product teams, each dedicated to a market opportunity. The whole design is to create ownership and entrepreneurship for these autonomous teams to grow and be responsive to market opportunities
• b.    These customer-facing teams are empowered by platforms that share core resources, technology, and functional expertise in the back-end. These platforms do not play traditional headquarters functions of control and compliance; instead, they are more empowering and serve the customer-facing teams so that they can win in the marketplace.
• c.    These companies multiply the competitive capabilities of their organizations by leveraging the complementary products, technologies, and knowledge of their ecosystem partners. In other words, competitive capabilities do not come from internal teams and platforms, but also through ecosystem partners.

Ulrich: When defining an organization, start with

1. The environment: what is the changing business context (e.g., digital) and who are our current and future customers? 
2. Then, create strategic agility by moving from a focus on market share of today’s customers to market opportunity for future customers.
3. Identify the organization capabilities (information, customer, innovation, and agility) that will allow your organization to respond to changing market challenges and opportunities.
4. Create a morphology that allows you to have a platform of shared resources and a set of cells or teams that anticipate and respond to market  opportunities.
5. Establish governance processes around culture, talent, information, collaboration, and accountability that connect the independent market-oriented cells to each other.
6. Create leadership depth by ensuring that leaders at all levels advance this new organization logic.

These six domains offer a comprehensive roadmap for establishing a new or reinventing an existing organization. They enable the organization to be a source of sustainable value for all stakeholders.

InfoQ: What can we do to improve our understanding of environmental demands that disrupt the industry?

Ulrich: We offer leaders a rather simple template to explore environmental demands that change an industry: STEPED. Look at Social trends in your served market.  Recognize Technological innovations in your industry. Appreciate Economic shifts in how competition occurs. Understand Political requirements around regulation.  Be sensitive to Environmental changes around social citizenship. And, pay attention to the Demographics of the employees. By putting the STEPED template on the incredibly changing and demanding business context, leaders can harness uncertainty and anticipate and make changes.

Yeung: STEPED is a good framework to identify sources of potential disruption. How do we do that? DATA is most important. We look at data within our own business units, monitor industry data, and competitive data (e.g., the top 10 global downloads in iOS or Android last week). The mindset of "stay humble and hungry" is critical to the quick identification of potential disruption.

InfoQ: One of the ecosystem capabilities is agility everywhere. Why is this capability needed and how can organizations define, assess, and implement this capability?

Ulrich: Agility is the ability to

1. focus on moving forwards,
2. anticipate and create the future,
3. move quickly into and out of opportunities,
4. learn always.

These four principles apply to strategic choices as they pivot thinking from being an industry expert to industry shaper, seeking market share to defining market opportunity, creating products to building platforms, beating the competition to moving ahead of the competition, and seeing strategy as an event to an on-going process. These four principles also apply to the organization form which is the MOE we advocate in the book. They also apply to leaders who enact these principles and to employees who live these agility principles.

InfoQ: What purpose do platforms serve in companies like Alibaba or Amazon?

Yeung: A platform is designed to enable customer-facing units to win in their respective market spaces. It integrates and centralizes shared resources and capabilities like data, technology, procurement, customer services, logistics, ... so that the business teams do not need to reinvent the wheels, can focus on their core expertise (like game development), and access the best resource and expertise support at company level (like branding, public relations, government relations).

InfoQ: How do business teams or cells operate?

Yeung: Business teams are self-contained teams that are empowered to act fast to address their unique market opportunities. For example, at Tencent, it can be game development studios. At Alibaba, it can be product category team in TMall. At DiDi, it can be taxi hauling. Leaders of business teams need to be well-aligned in their authority, responsibility, and incentive so that they act with a strong sense of ownership and entrepreneurship.

InfoQ: How can we define a suitable culture that supports organizational processes and employee actions?

Ulrich: Everyone knows that an organization has a culture or ways of getting things done. Most cultures are defined by the values that leaders articulate, and culture is seen as the roots of a tree. People often describe the culture of their organization through expectations of how work should be done. We believe that with the market-oriented logic, the discussion of culture should shift from internal values to the value the organization creates for key customers. Culture then becomes the identity of the firm in the mind of key customers, and the value of the values in the marketplace. When an external identity (or firm brand) shapes organization decisions, culture is not something that is nice to do, but a requirement for business success.  

InfoQ: What can leaders do to implement and sustain such a culture?

Ulrich: We found there are five steps to creating the right culture. First, define culture from the outside in: what you want your firm to be known for in the marketplace (e.g., the firm identity or brand). Second, create an intellectual agenda by sharing that identity with all stakeholders through extensive communications. Third, encourage a behavioral agenda by engaging all employees in making sure that their behaviors link to the desired external identity. Fourth, establish a process agenda by adapting financial, HR, information, and other processes to reinforce the right culture (e.g., hire, train, and pay people to fit with promises made to customers). Fifth, and probably most important, instil a leadership brand where leaders at all levels are expected to behave consistently with the firm brand.  

InfoQ: What can companies do to foster personal curiosity for idea generation?

Ulrich: Years ago we did research on learning organizations. We found that learning organizations both generated and generalized ideas with impact. To generate ideas, we found that organizations focus on

1. continuous improvement by always seeking new ideas
2. experimentation by trying new ways of doing things
3. competence acquisition by hiring people with new expertise, and
4. benchmarking, not to copy but to leapfrog competition and discover new ideas anywhere.

When firms did these four activities, they generated new ways of working.

InfoQ: How do market-oriented ecosystems share information?

Ulrich: Using insights from Wayne Brockbank, we found that firms are able to create information asymmetries that enable them to succeed in changing markets. They do so by acquiring new information through structure data sets and unstructured exploration, by analyzing that information through debate and dialogue that leads to prioritization, and by applying the information to improve decision-making. The information advantage is evermore important today because of the abundance of information.

InfoQ: What's your advice for adapting the principles and practices of market-oriented ecosystems into existing organizations?

Yeung: First, build consensus on why organizational reinvention with platform+business teams+ecosystem is a new organizational model that will thrive in a VUCA environment. Second, pick a business team with strong sponsorship from its business leader. Ensure the pilot site has a great chance of success. Third, distill learning from the pilot site and roll out to business teams. Fourth, strengthen the platform capabilities based on the demand from business teams. Make sure the platform treats business teams as real customers. Fifth, redesign supporting governance tools like performance assessments and incentives, job rotation between business teams, and the platform, to understand each other better, create a new shared culture, etc.

About the Book Authors

Arthur Yeung is senior management advisor at Tencent Holdings and sits on the Executive Leadership Committee.  In this capacity, he supports and facilitates organizational innovation and capability development within Tencent and with its key strategic partners such as JD.com, DiDi, Meituan Dianping, Pinduoduo, and 58.com. He also serves as dean of TencentX University, a corporate university sponsored by Tencent, to offer integrated learning programs for 400+ CEOs in internet-related industries.

Dave Ulrich is the Rensis Likert professor of business at the Ross School, University of Michigan, and a partner at the RBL Group, a consulting firm focused on helping organizations and leaders deliver value.  He has published over 30 books and 200 articles/chapters that have shaped the fields of leadership to deliver results, of organizations to build capabilities, and of human resources to create value where he is known as the "father of modern HR."  He has worked with over half of the Fortune 200 companies, has numerous lifetime achievement awards for organization, leadership, and HR work, and is in the Thinkers 50 Hall of Fame.