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This chapter is from the book

The Need for Organizational Convergence

Changing the organization appears to be essential in making technology investments pay off. Erik Brynjolfsson and Lorin Hitt, studying both econometric data and individual company cases, found that the returns from investments in IT are far greater in firms that make complementary changes in their organizations—such as new business processes, new skills, and new structures. The impact of these changes may be as much as an order of magnitude larger than the investments in the technology itself.2 The communications and information technologies that drive convergence work against the grain of the traditional organization. The traditional organization is built upon separation and specialization. Because of the need for specialization, poor communication mechanisms, and high coordination costs, the large organization could not operate as a total organism. Instead, it was broken down into component parts, divisions and strategic business units (SBUs), brands and product lines. The supply chain was broken into suppliers, manufacturers, and buyers. Industries were broken into fairly neat sets of competitors. The car companies in Detroit could look out their corporate windows and see their competitors. The customer was outside the organization, and there was a clear boundary between the inside and outside.

This led to the creation of a variety of ways to slice up the traditional organization into "silos" by function (finance, operations, marketing, etc.) brand, customer, and geography, as shown in Exhibit 10–2. Each of these silos creates pieces of the organization that are separated from the whole. While this creation of silos may facilitate management and control, breaking a complex organization into small pieces reduces interaction among the pieces and increases complexity for customers. For example, one customer may be forced to interact with several separate divisions of a single company. Is customer relations a marketing, information technology, or operations issue? Is a telephone customer with a cell phone and several landlines a "business" or "residential" customer? Should a road warrior who buys a laptop be viewed simply as a customer in his home country? What geographic division should serve a customer in Singapore who orders online from a U.S. business unit? Should an upscale customer in Manhattan be considered part of the same "U.S." market as the poor Hispanic worker in Los Angeles?

The implementation of e-business initiatives has, in many cases, added to the silos in the organization. The rise of e-business has often led to the creation of independent e-business units within organizations. For example, Procter & Gamble created Reflect.com as a separate unit or Kmart set up the independent BlueLight.com website. Without careful management, the separation of online and offline businesses can lead to a rift between these organizational units and reduce the likelihood of seamless convergence.

Exhibit 10–2 So long to Silos

Over the years, the company has been sliced and diced in many different ways. While these divisions facilitate managing large organizations, they create silos that can create barriers to convergence. There is a critical need to bridge and break these silos. Among these silos are:

  • Function: Companies have traditionally been managed by functional areas such as finance, operations, marketing but many business challenge such as new product development span these functional areas. There are further silos within each of the functions. For example, the marketing function is further divided into silos such as sales, advertising, public relations and other components of marketing strategy.

  • Brand: Companies manage their businesses by brands, such as P&G's brand structure and its associated category or group product management that groups together a number of related brands.Yet even these efforts have not encouraged coordination across company /industrydefined brand categories, which may not be relevant to the consumer.

  • Industry: SIC codes are often quite common. AT&T, for example, has proposed reorganizing into business lines of business (residential, wireless and broadband services), but the lines between these offerings and markets are increasingly overlapping.

  • Geography: Companies typically break their organizations into geographic units by region and countries, and within countries by Census-type regions, but the Internet is erasing many of these geographic distinctions.

  • Team: Even organizations that create cross-functional teams often find that the teams create their own silos and start competing with one another.

  • e-Silos: The rise of e-business has led to the creation of independent e-business units within organizations, but these can become silos that are separate from and competing with the traditional business.

  • Across companies: Historically, we have treated the company as a silo, separate from its partners, but companies are increasingly moving to become part of integrated supply chains and value networks that bridge these boundaries.

While pharmaceutical firms usually market brands, their customers, who often suffer from multiple ailments, are seeking integrated wellness solutions. Separate marketing campaigns target doctors and consumers, yet physicians are a part of both audiences. The organizational separations do not make sense. But how can companies remove the brick walls of these silos without losing the benefits of specialization and their ability to manage the business?

To counteract the weaknesses of these silos, companies have moved to matrix structures, in which one silo is overlaid upon another silo. But these matrix organizations often become complex to manage, eroded functional expertise, made accountability more difficult to assign, and presented the customer with an even more complex organization.

The Web and the centaur are all about openness and connection, but organizational "silos" create barriers to openness

What are the major silos of your organization and what are you doing to facilitate their convergence? and connection. With the change in the balance of power, the walls of this "fortress" corporation need to be reconfigured. From the customer's perspective, the ideal would be to organize the company around the customer, but such a customer-centric model makes the organization difficult to manage. Is it possible to do both?

Bridging Silos

Now, these silos are converging. Advances in information technology are shattering walls between industries and between companies and customers. Microsoft's research agenda, for example, is focused on using technology to leap across a variety of barriers including: reality barrier (virtual reality), barriers between people, barriers between people and computers (language, speech), barriers between people and information (data mining), barriers among computers (high speed networking), and barriers between work, car and home.3 These information and communications technologies are creating what information technology expert Colin Crook has called the emergence of a "global grid." This grid is a network of users and portals, offering free communications, scalability for even the smallest corporations, globalization, total connectivity, and universal digitalization. In this new environment, simple rules often produce complex outcomes, as can be seen with fractals or traffic patterns on the Internet. The boundaries between organizations and customers and suppliers are breaking down. The boundaries between once-separate industries are blurring. And, finally, as we have explored in this book, customers are running zigzag over the dividing line between online and offline businesses.

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