The economics, structure, and behavior of platform ecosystems and organizations

A Model for Upgrading the Organizational Operating System

Right now, your company has 21st century internet-enabled processes, mid-20th century management processes, all built atop 19th century management principles.

| Gary Hamel

At the recent Social Now 2019 conference in Lisbon, I had the opportunity to hear my colleague and dear friend Lee Bryant speak. Lee is the co-founder and principal at Post*Shift, a consulting firm that helps leaders confront their biggest challenge: 'how to upgrade their organization's operating system'.

Lee’s talk inspired me to do some more thinking on what such an organization could look like. So I will begin by summarizing the talk, then add some thoughts on how putting customers at the center of the model is even more revolutionary, and deeply integrates scalable learning. That is how Haier, one of the companies featured in Lee’s presentation, thinks of itself, and I’ll conclude with the results of a discussion I had with Haier.

The quote from Gary Hamel at the top is from Lee's talk, and sets the context for Lee's talk, which was entitled Digital Leadership. The full slides are available, here.

I won't attempt to walk through the (quite long) presentation, however, Lee has written a short version of the talk here, and I will extract some of his thoughts with regard to three slides, one of which focuses in particular on the organizational evolution at Haier.

Lee's thesis is this:

Leaders must confront the challenge of leadership in a digital age, for which our foundational management principles fall dangerously short.

Our concept of leadership is itself a barrier to architectural innovation. As John Hagel says, leaders in the era of scalable efficiency were the ones with all the answers, but in a time when the premium is on scalable learning leaders spend their time asking questions and helping everyone else work out the answers in their own way.

This will require a digital transformation, but, as Lee wrote,

Digital transformation is not just about changing the old organisation, but rather creating new organisational fabric – often digital in nature – that can coordinate work and communications in a better way.

Lee's key metaphor is that companies need a new 'organizational operating system, which he describes like this,

Where digital technology can play the most important role, I think, is in automating, orchestrating and connecting the many services and processes that make up the value chain of an organisation to create a platform on which agile teams and people can be free to work in a more autonomous and creative way – a structure that is more machine-like and automated at the back-end to enable the organisation to be more human and adaptive at the front-end.

Moving onto a platform-centered organizational model shifts the linear and vertical supply chain organization to a parallel and horizontal ecosystem model, where the new operating system is the combination of communications, conventions, and contracts — and the protocols of interaction and governance — that connect them together. Or, in brief,

platforms + services = new operating system.

Lee singled out Haier as an exemplar of this model, and wrote this:

Pioneers like Haier or Amazon are already showing the power of this model to create exponential growth, and more will follow their lead. But for many organisations today, their digital workplace platform is the only example of this they can point to, so we have a lot of work ahead to build out from the digital workplace to create a true example of ‘business as a platform’.

This is what we think of as an organisational operating system, which is less reliant on a special class of managers telling everybody what to do from above. Instead, it needs leaders who can set a course and bring people together to follow it, and it needs embedded leaders who can support, coach and most importantly, act as organisational architects and change agents to create and continuously improve the system that connects and coordinates peoples’ work.

A continuous process of assessing the fitness of our organisational capabilities, defining capability goals and then orienting development efforts to create them is the crux of agile management – a process of continuous design with employees in the centre as the customer. Pursuing this approach can also help remove the friction faced by any organisation struggling to ‘do agile’ in a non-agile organisational structure.

This focus on continuous design is exactly what John Hagel means when he talks about scalable learning, where everyone engaged with the organization, not just management, is engaged in learning — including the customers — and iteratively improving processes, services, and products to better meet the needs of the customer.

Lee referred to the chart above as a reverse hierarchy, with the most senior leaders at the bottom, creating a context in which other participants can flourish but not having all the answers. The customers are at the top, in this model.

However, I think a concentric circle model with customers at the center works better:

In this diagram I have placed the customer at the center, since the entire system is oriented toward delivering value to the customer.

The value-creating functions (customer-facing microenterprises in Haier's terminology) form the next concentric circle outward. They are directly involved in customer interaction and innovation, and they get back from the customer the transfer of money — in exchange for goods and services — but also new insights into customers' needs and wants. This is the starting point of Hagel's scalable learning.

The third concentric circle is the shared services layer (node microenterprises in Haier terminology), which provides goods and services to the value-creating microenterprises, enabling them to focus on the customer. (Note that in Haier's model, these node microenterprises have a big stake in the success of the value-creating microenterprises that they serve, since part of their bonuses are scaled to the fortunes of the value-creating microenterprises. For more on this see Hamel and Zanini on The End of Bureaucracy.)

The lessons and insights captured by those in direct contact with the customers are shared outward, throughout the organization, and can influence the direction of shared service microenterprises and the thinking of senior leadership, as well. Again, pervasive scalable learning.

The fourth and final concentric ring is servant leadership, executive management, which creates the context for the entire organization, and helping lay the groundwork for everyone's success. They serve all participants in the ecosystem, including elements of partner companies — not shown in this diagram, explicitly — but which could be instrumental to the delivery of value to the customer, for example, a logistics partner that delivers goods to customers. In all layers, the individuals within the microenterprises are freed up to think of themselves as owners of their business rather than employees, and the relationship with their customer involves a sense that the customer is paying their salaries, not the company.

The concentric model represents something more revolutionary that flipping the top-down model of 19th and 20th century management principles and processes upside down. The true revolution lies in embracing Lee Bryant's model of a new business operating system, that moves past the linear, vertical supply-chain thinking of the industrial era, and adopts a massively parallel, horizontal ecosystem model at all scales, for value delivery and learning, and for all participants.

A Discussion with Haier

In discussions with colleagues at Haier, I learned that they represent their organization in a similar fashion, as shown here:

As discussed in other recent posts (Hamel and Zanini on The End of Bureaucracy, Simone Cicero on Ecosystemic Organizations, and others ), Haier operates on an ecosystem model in its many lines of business. In the diagram we see ecosystem micro-communities, like the Internet of Water, the Internet of Clothing, the Internet of Kitchen), and the Internet of Food.

In this diagram, Haier has placed the users at the center, since the entire system is oriented toward delivering value to the users.

The concept of ecosystem micro-communities (EMC) is the newest stage in how Haier thinks about organizational evolution. This builds on the basic entrepreneurial business unit of Haier, the microenterprise, and the ecosystem micro-community is made up of a network of microenterprises, including microenterprises within Haier and within ecosystem partners.

From an internal perspective, both microenterprises and partners from Haier’s EMCs would spontaneously embed in user-centered EMCs to achieve the vision of creating Users’ experience of a better life, and reflect the self-organized, flexible and efficient characteristics of ecosystem micro-communities as realized by Haier.

From an external perspective, each EMC would be directly involved in user interaction and innovation, and they get back from the users the transfer of money — in exchange for goods and services — but also new insights into users’ needs and wants, to further improve the users’ experiences. This is the starting point of Hagel’s scalable learning, as discussed earlier in this post.

The Shared Services Platform at the bottom of the structure provides goods and services to the value-creating microenterprises, enabling them to focus on the users. (Note that in Haier’s model, these shared nodes that provide services and supports have a big stake in the success of the value-creating microenterprises that they serve, since part of their bonuses are scaled to the fortunes of the value-creating microenterprises. For more on this seeHamel and Zanini on The End of Bureaucracy.)

I was not surprised to learn that Haier has put the customer at the center of its organization, considering all we heard from Haier about user-centric innovation (see User-Centric Innovation and The Shape of Things to Come).


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