Net Profits

In 1997, Royal Dutch Shell will celebrate its centennial. Like its competitors and cousins in other industries, the l00-year mark heralds a daunting task. How can companies that began in the 19th century face the challenges of the 21st?

The rules of the game have changed considerably since the rise of the great industrial bureaucracies. A hundred years ago, only geography, access to resources, and capital mattered. In the century ahead, the key is organisation and access to information. Once companies could simply set their dials to continuous growth driven by fierce competition. But the complex market realities of the next century call for a new way of doing business.

Suddenly, in the past few years, the most unlikely of foes have become friends: Mobil and Exxon, General Motors and Toyota, Apple and IBM. In each case, by working together, firms are able to do something that they cannot do alone: explore new territories, learn how to manufacture in a foreign environment and engage in sophisticated research and development.

Just as bureaucracies came about in the Industrial Age and hierarchies came about in the Agricultural Age, networks are the organisations of choice for the Information Age now upon us. Between each of these new company initiatives lies a network of people, a new form of organisation that is just coming into its own.

Whereas once even the largest of firms could go it alone, today a new philosophy has replaced the urge to merge: co-opetition. Co-opetition combines the concepts of competition and co-operation. On this project you co-operate, while you still compete in other arenas. Each company maintains autonomy while being able to leverage the resources of the other.

Companies engage in co-operation because they have no choice, which offers a guiding principle. If you can go it alone and do it well, then do so. When a project which stretches your limits threatens you, you need to network with one or more companies.

Interestingly, the same idea applies within companies, where competition can be even more fierce than it is outside. The major management initiatives of the past decade all lead companies to work across internal boundaries. Decentralisation, matrix organisations, cross-functional teams, and quality improvement all require companies to work across internal boundaries, another form of co-opetition. Where it makes sense, you network with people from another organisation. Where it doesn't, you go back to your home organisation and compete with others for internal resources.

Networks co-exist with bureaucracies and hierarchies. They make life easier because they don't carry the costly administrative overhead of bureaucracies nor the slow-moving top-down control of hierarchies.

Over the past 15 years, we have studied hundreds of companies that work across boundaries both internally and externally. These networks of teams, what we call 'teamnets', show five basic characteristics.

Teamnets share a common purpose

Each member of the team understands the long-range view of the work, as well as his or her role in it. If everyone doesn't hold the same view of the work, the teamnet will fail. Where hierarchy has hire and fire power over employees, and bureaucracies have rules and regulations to go back to for authority, networks only have shared purpose. Purpose is the glue.

But if everyone's view is absolutely uniform with no room for exception or disagreement, the teamnet will also fail. 'Groupthink' is no solution to a lack of common purpose

Teamnets have independent members

Were the Exxon/Shell venture in Venezuela to fail, it hopefully would not bring down either original company. This characteristic of networks is much misunderstood. In nearly every culture, people complain that they can't join a network because they are 'too independent'.

It's this very independence which gives a network its vitality and distinguishes it from the exclusive dependence of hierarchies and bureaucracies. Independent members also provide the network with the fuel for its own bifurcation. When the disagreements become too large, the network splits into factions.

Teamnet members are richly linked

This means that they have both excellent and multiple means of communication and that they have rich and diverse relationships among the people. Too often, people think that networks are only the physical links. More than one company has installed computer networks thinking that the wires alone would solve the inter-departmental work problem. But computer networks really connect people, and without them, the network is quite useless.

Relationships are the grease of networks, and they are built on trust. Trust is an elusive quality in an organisation, but it's one quality that people can categorically tell you whether it exists or not. It takes time to build trust in an organisation, but you also can destroy it in an instant. lntegrity is critical to networks. Many hierarchies and bureaucracies structure mistrust into their organisations, through such unexamined assumptions as reward systems which, regardless of performance, dictate that half the people are above average while the other half are below.

Teamnets have multiple leaders

Unlike hierarchies which have a single person at the top of the pyramid or bureaucracies that install bosses at every successive level, networks empower numerous leaders depending on the task at hand. At Eastman Chemical Company, which won the United States' prestigious Malcolm Baidridge Award for National Quality in 1993, manufacturing is managed by a self-directed team of five. The team comprises the presidents of the manufacturing facilities, with leadership rotating every quarter.

Does this mean that everyone has to be a leader? Yes and no. Everyone involved in a cross-boundary effort is there for a reason; the group carries no administrative body-count that is there 'just because'. Each person has a unique role to play and depending on what task is underway, may be leading the group. However, this doesn't mean that all decision.making authoritv has to be left to endless rounds of consensus.building, Clear decision making co-exists with multi-leadered networks.

Teamnets involve people from the hierarchy and the 'lower-archy'

They integrate all the levels of the enterprise. The most successful cross-boundary organisations stay closely tied to their sponsoring organisations. The days of the skunkworks, where a hot-shot team was sent off to the organisational equivalent of Antarctica to 'get the job done in record time', are over. Networks link cross-boundary people within an effort and remain linked to the organisations from which people came.

It is vitally important that networks stay connected all up and down the chain of command. If the people at the top don't endorse the effort, it will surely fail. But if the people down the line are not included, the organisational boundaries will slow down the process immensely. Include the secretaries and the people in the mail room, the platform managers and the platform workers, and the effort is well on its way to success.

Common purpose. independent members, rich communication links, multiple leaders, and integrated levels. These five characteristics indicate whether a network exists, and whether a network can succeed. The absence or misapplication of any of the five will throw the effort back into the old ways of doing business. The 21st century is a time of extremely rapid change. Only flexible, nimble organisations will survive networking both internally and externally.