Towards a Collaborative Form of Network Organisation

Networks are not always flat
By Dr. Reg Butterfield
20-minutes read

Original image by David Mark via Pixabay.com

Last week we explored the world of natural ecosystems as we continued our journey towards a new form of organisation structure and management system. We identified and discussed the importance of understanding the roles of embeddedness and nested activities in a world of mutualisms and some of the other critical relationships needed in organisations.

This week we are embarking on an excursion that unwraps the role and structure of networks. The subject of networks is both wide and complicated to really understand from a practical perspective, which is what we need if we are to consider networks as part of the future business model. Therefore, we will cover this important subject over two newsletters, starting today with some case studies.

Historically, the anatomy and methods of desired control (internal) have had a major impact in deciding the structure (external) of business organisations. To this end a range of well documented design models such as hierarchical pyramid, matrix and project based have developed to meet these two important elements.

Given their origins are rooted in control, the degree of flexibility inherent in the traditional models is very weak and they struggle to meet the current emphasis on flexibility and associated fast response to changes in their external environment. Arguably this is also restricting their ability to harness the full power of new operating methodologies that AI, robotics, automation, Big Data and IoT can provide.

Many organisations have sought alternative ways of managing their organisations so that they can survive and thrive in this changing world. These range from alternative forms of hierarchy, removing the traditional role of leaders, and network approaches within the existing structure and management system for example.

Before we discuss the subject of networks in detail, the following are examples of real cases where organisations have sought a new way of working and managing/leading.

Are networks always flat?

One of the latest management trends is flat, leaderless organisations. Much has been made about the online shoe company Zappos’ efforts with Holacracy, a new type of organisation that promotes the removal and need for conventional forms of management and job titles. Yet Zappos has been slowly moving away from this rigid design, which seems to lose focus on the people themselves. It seems that Zappos is now moving towards an internal marketplace that seems to be a mix of the organisational structures of Haier, the Chinese white goods giant organisation that operates on the principle of permanent self-organising teams that compete for resources in an internal marketplace, and W. L. Gore, of the famous GORE-TEX® breathable material, who rely on individuals who make commitments to each other as the building blocks of the network and not team commitments (Corporate Rebels, 2020).

The company Medium, an online publishing company, also introduced the Holacracy method of organisational form and management and, whilst it states that it was an important step for the company in its growth and development, it has moved on to another approach of its own design. Medium found that that the use of Holacracy was difficult to coordinate efforts at scale. They also found that it requires a deep commitment to record-keeping and governance. Every job to be done requires a role, and every role requires a set of responsibilities. While this provides helpful transparency, it takes time and discussion. They ended up deciding that Holacracy was getting in the way of the work. To move forward, they have established a set of six principles to clarify how they want to organise and manage the company. They have a team to translate these principles into a functional system: a rubric for decision making; a process for assigning ownership and greenlighting key strategic initiatives; and tools to map the organisation and track work.

What can we learn from Zappos and Medium?

Medium is not saying that Holacracy does not work. They are actually grateful for having gone down that road at the right time in their development as an organisation. Medium, like Zappos, was ‘brave’ enough to move on when they found that the organisation was mature enough to take its next stride in its search for the most appropriate design for them. We use the word ‘brave’ because it meant making a definitive decision about what they wanted to be and how to achieve that. So often organisations tinker at the edges or focus on the symptoms.

Medium and Zappos have demonstrated that there is not a single organisational form to suit all organisations. They have has also shown that they have a passion for what they do and how they interact with one another and their customers. This passion has led to their clear vision, and they are now focusing on their strategy to deliver this at the next stage of growth and development. In the case of Medium, the principles that they developed will serve as the strategic measures for their new organisational form.

The real test of a hierarchical network in operation

When General Stanley McChrystal took command of the Joint Special Operations Task Force, he quickly realised that conventional military tactics were failing. Al Qaeda in Iraq was a decentralised network that could move quickly, strike ruthlessly, then seemingly vanish into the local population. The allied forces had a huge advantage in numbers, equipment, and training but none of that seemed to matter.

McChrystal and his colleagues discarded a century of conventional wisdom and remade the Task Force, in the midst of a gruelling war, into something new: a network that combined extremely transparent communication with decentralised decision-making authority. The walls between silos were torn down. Leaders looked at the best practices of the smallest units and found ways to ex­tend them to thousands of people on three continents, using technology to establish a oneness that would have been impossible even a decade earlier. The Task Force became a “team of teams” — faster, flatter, more flex­ible — and beat back Al Qaeda. (McChrystal S, et al 2015).

What is the lesson from the General?

General McChrystal’s Special Forces command was still hierarchical and clustered into small operating groups. What changed is how they were interconnected. Rather than a collection of units, they became a synchronised organisation that acted as one. We will explore synchronisation later in our journey as it is a critical ingredient in all organisations and how to use this is arguably one of the keys to a successful organisation.

So, following General McChrystal’s experience, what really needs to change is not how we describe our organisations, but understanding what leadership means and the new role of leaders within them. General McChrystal and the management of Medium and Zappos have, in their own way, shown that the role of managers and organisations are changing.

Whereas before, it was the role of managers to direct work, in a connected age we need to instil passion and purpose around a shared mission or statement of purpose. The networking, if encouraged and not inhibited, will arguably take care of itself.

Is it that simple? Certainly, currently there is a preponderance of literature and discussion around ‘Passion’ being a pre-requisite for Vision that leads to Strategy; passion is the fuel; vision is the destination and motivator; and strategy is the mission brief to steer you. Unfortunately, the organisational processes and activities for harnessing and delivering the passion are, in our experience, still constrained by the control systems from which our new form is trying to break free; it seems that flexibility and responsiveness may come at a cost hitherto unidentified.

Now let’s explore the concept of networks and make sense of the things we need to understand if organisations are going to increase and formalise their use of networks as their underlying structure.

Networks:

Networks in themselves are a very well developed and accepted form of enabling the relevant interactions that organisations need. It may surprise some readers that the diverse Organisational forms mentioned earlier are all types of a network, albeit many are constructed in a formal hierarchical design that enables a top-down approach to control and, in most cases, decision-making. Figure 1 is an example of how a traditional hierarchical structure can operate in a network approach with the appropriate support and management system. The dotted lines indicate the network boundaries that could be used, albeit many other formats can also be applied.

Figure 1: Traditional Hierarchy using a Network Approach.

Image: Butterfield & Wirth (2022)

It is important to note here, that there is no such thing as a non-hierarchical form in nature or elsewhere; there is an old saying, “put two mammals in a room and you instantly have a hierarchy”. This will become evident as we get into the discussion and what is meant by this omni-presence, will become clearer.

Networks are not new:

Numerous types of networks have been around since the beginning of time. Whether it was in nature or humans cooperating to hunt or carry out some form of business together. For example, it is well-documented, and we have discussed in prior newsletters (Control of Organisations & Control of Organisations Part 2), that business organisations rely on the informal network to survive as opposed to just applying the formal processes and systems.

More than fifty years ago, Herbert Simon defined complex systems as nested hierarchical networks of components organised as interconnected modules (Simon HA 1962). Hierarchy seems a pervasive feature of the organisation of natural and artificial systems (Mihm J, et al 2010); (Amaral MHR, et al 1996).

Examples span from social interactions (Guimerà et al. 2003); (Valverde S, Solé RV, 2007), urban growth (Krugman PR, 1996); (Batty M, Longley P, 1994) and allometric scaling (West et al 1997) to cell function (Ma HW et al 2004); (Yu H and Gerstein M, 2006); Cosentino Lagomarsino M, et al 2007); Bhardwaj N, et al 2010); Rodríguez-Caso C, et al 2009), development (Erwin and Davidson 2009), ecosystem flows (Hirata H and Ulanowicz R, 1985); Wickens J and Ulanowicz R, 1988), brain organisation (Kaiser M, et al 2010, and macroevolution (Eldredge N. 1985); (McShea DW, 2001).

It also seems to pervade a coherent form of organisation that allows reducing the costs associated with reliable information transmission (Guimerà R, et al (2001) and to support efficient genetic and metabolic control in cellular networks (Yu H, Gerstein M, 2006).

Industrial networks

An increasing phenomenon is the networking amongst businesses, and it is worth a short visit to this way of conducting business to see if we can learn anything that is transferable to individual organisational forms.

In the contemporary business environment, an enterprise’s competitiveness is dependent on the collective performance of a network of agents that work together to co-create value (Gaddeet al., 2003). Consequentially, firms are increasingly concerned with the health and well-being of their network and treat the constituent agents as if they were part of their own organisation (Ellram, 1990; Rudberg and Olhanger, 2003; pp. 593–614 Iansiti and Levien, 2004).

In an enterprise network, different sorts of collaboration can be established between nodes (Poler et al., 2008) creating an environment of interconnected business relationships.

This environment has been widely studied since Oliver and Webber (1982) discussed the potential benefits of integrating business functions and therein laid the foundations for the supply chain management (SCM) paradigm and the management of networks of interconnected businesses involved in the fulfilment of customer needs (Christopher, 1992; Fisher, 1997; Cooper et al., 1997; Handfield and Nichols, 1999).

European ECOLEAD Project

The European ECOLEAD Project (2004) provides a useful ontology of collaborative network models (see Figure 2). In this framework a “collaborative network” is defined as a variety of entities (organisations) that are largely autonomous, geographically distributed, and heterogeneous in terms of operative environment, culture, capital, and goals that collaborate to reach common or compatible objectives in a better way. Among these networks, some are “goal-oriented” while others are “long-term strategic alliances” where cooperation rather than collaboration is the objective. Virtual Business Enterprises are shown as VBE in the illustration at figure 2.

Goal-oriented networks can be led by continuous production activities or by the desire/need to exploit specific business opportunities (BO). Networks led by continuous production will typically have existed for some time and will have relatively stable structures with the role of the members in the value chain (VC) being clearly defined. Traditional manufacturing supply chains (SCs) and virtual governments (alliances of government organisations that combine their services to offer citizens integrated services) are examples of this type of network.

Figure 2: The ECOLEAD classification of collaborative networks

Image source: Unknown. It seems to be derived from the ECOLEAD project materials 2004.

Networks that are formed dynamically to address specific Business Opportunities collaborate for only as long as it is necessary. Whereas Collaborative networks represented by long-term strategic alliances aim to offer the conditions and the environment to support the rapid configuration of networks when the opportunity arises. Without going into too much detail about how and when these networks are formed and break up, it is important demonstrate what we can learn from such business alliances.

What can we learn from such business alliances?

It is necessary to identify a location (or function known as the Virtual Development Office — VDO) to conduct the following critical managerial processes:

1. Proactive management of network competencies
2. Identification of Collaborative Opportunities
3. Definition of collaborative Value Chains aimed at Innovation
4. Sourcing competences and resources on the global market
5. Definition of the Virtual Organisation
6. Management of the collaborative innovation process
7. Management of collaborative operations

Additionally, management of the network’s knowledge creation and sharing capabilities were identified as an important source of competitive advantage.

The strategic network partnerships in Cloud Computing are another important form of networking from which we can learn.

Strategic Network Partnerships in Cloud Computing:

In the context of increasing networking, the design and implementation of innovation strategies raise new challenges related to the choice of partners, and the setting of goals for partnership and ownership of their results. Vanhaverbeke et al. (2012) systematised these challenges in a set of rules that have a striking resemblance to those we mentioned earlier in the business networking and alliances. All ten are shown below:

1. The selection of the right or more appropriate partners is crucial because the Open Innovation requires the sharing of risks, time, and investment, making important a clear and even division of duties and benefits.

2. The company that proposed the joint development — central company — usually manages the network, to ensure the harmony of interaction.

3. The survival of the partnership is conditioned to the partners’ motivation. It is claimed that the firms’ innovation network needs to be constantly maintained active. Therefore, it is important to maintain the partners’ enthusiasm and instigate new challenges.

4. Network management (Rule 2) also implies that the central company discerns partners who are not acting according to what had been agreed. Those that are not complying with the rules previously established must leave the network.

5. The openness in communication and in reporting among network partners, associated with the trust factor, is central to the success of the partnership.

6. Manage the balance between the company’s internal management and the external management of the network.

7. The interaction between the partners becomes easier to manage if they have similar goals, ambitions, and size. SMEs often fear to interact with large firms and this fact often hinders trust between partners.

8. The Open Innovation management also involves controlling costs. In an innovation network, the various partners may be working in a specific task. The central firm must keep the overall cost under control.

9. Document and record every activity of the project are also tasks for the firm responsible for managing the network. Over time, the central firm will have a deeper understanding of the competencies of each partner that can facilitate the management of that network or of other future networks.

10. Lastly, manage tensions and problems proactively. Open communication and follow-up meetings can avoid such situations.

Both the business and Cloud computing networks have been well researched, and some critical points emerge that help to make them successful. What can we learn from these rules as we consider new forms of organisational networks for networking within individual enterprises as opposed to multi-business collaborations?

Implications of the lessons learnt

Translating these findings will be one of the critical elements of identifying the design attributes of an organisational form in the style of a collaborative network. Initial thoughts based on the earlier discussion include:

· Organisational overview — where and how is this achieved?

· Competence identification and management — is this still an HR matter or somewhere/somebody else?

· Management of collaboration — what management/leadership means in this context.

· Decision making — where, how, whom?

· Management information system(s) — what types are required for which purposes?

· Operational management system(s) — how do these differ from management systems?

· Capacity management — how is this managed in a network of networks?

· Trust and alignment of operations — the importance of building this and monitoring

· Financial management — central function or distributed?

· Communication and learning — how to achieve highest level of organisational learning

· Job/role definitions — by whom and how?

If we now show the six principles identified and used by the earlier example company Medium, themes and similarities begin to emerge:

1. Individuals can always instigate change.

2. Authority is distributed, though not evenly or permanently.

3. Ownership is accountability, not control.

4. Good decision-making implies alignment, not consensus.

5. The system is designed to be adaptable.

6. Corporate transparency, driven by technology.

Returning to Networks — what are they and how do they work?

Across the sciences, medicine, and engineering, networks are widely used to represent connections between entities, because they provide intuitive windows into the function, dynamics, and evolution of natural and man-made systems (Newman, 2010).

However, with the earlier exception of business entity collaboration networks across businesses, research into the types and management of networks used in the operation of individual business organisations is rare. The exception being when exploring some other phenomena and the organisation concerned has network type attributes in its design and structure. Even then, we have found that the field of research in this area is extremely limited.

With this in mind, we move to the areas of medicine and science to gain some insights into the way that networks develop, work, and sustain themselves.

It is our aim to develop a business organisational Form that is network based that has distinct advantages over the more traditional forms predominantly used across industries when operating in an increasingly complex and changing operating environment.

In most organisations today, networks are emergent informal structures (see our newsletters, Control of Organisations & Control of Organisations part 2) that evolve to facilitate work more effectively than relying on formal network pathways. However, as discussed in earlier articles, other networks arise as people go about their daily activities for many reasons including personal benefits and latent connections from past activities.

The term “network” is often misconstrued. In management circles, it is often used to mean an organic, unfathomable, amorphous structure, but really a network is just any system of nodes connected by links. So, in that sense, any organisational structure is a network, even a formal organisation chart such as that in figure 1 or a simple hub and spoke structure of a small organisation.

For functional purposes, networks have two salient characteristics: clustering and path length. Clustering refers to the degree to which a network is made up of tightly knit groups while path lengths is a measure of linkage distance; the average number of links separating any two nodes in the network. We often hear about having to “break down silos” to create a networked organisation, but this too is a misnomer. Silos are functional groups, and they need a high degree of clustering to work effectively and efficiently. The real problem in most organisations is that path lengths are too great and information travels too slowly across multiple points of connection, resulting in a failure to adapt or respond in a timely manner. There are also the issues around other aspects of silos such as competitiveness, power, decision-making and so on. Figure 3 illustrates clusters that have long links connected by a leadership hub.

Figure 3: Work group clusters connected by leadership hub.

Image: Butterfield & Wirth (2022)

The most efficient networks are small-world networks, which have the almost magical combination of high clustering and short path lengths. So, silos aren’t the issue — high clustering promotes effective collaboration — the trick is to connect the silos together effectively.

Small-world networks:

The idea that clusters of close-knit teams can somehow increase the flow of information on their own, simply through shorter social distances, seems unlikely. Yet, small-world networks often form naturally, without design or complex organisational engineering.

In fact, in their initial paper describing the phenomenon, Duncan Watts and Steven Strogatz (1998) found the neural network of a roundworm, the power grid of the western United States, and the working relationships of film actors all followed the small-world network pattern. It takes effort to design a traditional organisation, but small-world networks form naturally.

The reason why these types of networks are so pervasive in nature is that it takes a relatively small number of random connections to drastically bring down social distance. Over time, most systems will tend to become small worlds if they are left uninhibited. So why do truly networked organisations seem so hard to create when they occur so naturally in nature?

The unfortunate, but obvious answer is that traditional organisations actively discourage connectivity. They favour strict operational alignment within specific functional areas while doing little to foster links between them. Specifically, there are implicit cultural rules that favour formal hierarchical linkages over emergent links that bypass bureaucratic bottlenecks. While the paradigm we inhabit served a purpose in the past or during times of crisis, it continues to guide our actions in how we organise because we fail to see it.

Is it easy to be simple?

According to Dee Hock, the founding chief executive of Visa International — the credit card company that is also one of the world’s most innovative and successful businesses — there is a second law of the universe which applies particularly to organisations. He formulated it as follows: “Nothing can be made simpler without becoming more complex.” The stakeholder co-operatives around the town of Mondragón, in the Basque area of Spain, provide an excellent illustration of this rule.

Around 53,000 people work in the Mondragón Corporación Cooperativa (MCC) — a large organisation by anybody’s standards. But this scale is broken down into over 100 primary worker co-operatives, associated into 12 different groups serviced by half a dozen secondary co-operatives. The MCC is the most outstanding example of network governance in action (Turnball S, 2002, p. 18).

Without delving into the way that the cooperative works at this stage, it is appropriate to say that it is a very successful business model that operates as a complex form of network (Forcadell 2005).

When making sense of how it works, it is immediately clear that there are some points to consider that are in common with the idea of a Collaborative Business Network. In essence these are predominantly about clarity of rules, governance, leadership/management, performance — aligned with working style, relationships — people focused and a democratic culture.

A common feature between Visa International and MCC is that they have both developed a system of design principles, which you may remember from above as how the publisher Medium developed its new organisation. Figure 4 itemises the five Visa International principles and nine for MCC.

Figure 4: Design principles for Visa International and MCC

However, there is a deeper similarity in the information and control architecture of Visa and MCC not revealed in the principles. These are around the areas of (1) governance, (2) de-centralised decision-making, and (3) sufficient ‘control agents’ to cope with the complexity of variables that need controlling.

Organisations with all three of these features embody a kind of ecological architecture — one that obeys the laws of nature and indeed is used by nature to create and manage complexity. Life itself, it has been said, “evolves by building on its own complexity” (Alkek 2007).

This is a key part of the way nature creates complex living things designed to self-regulate, survive and replicate is DNA. The genes in DNA determine the nature of the species. The characteristics of the species are determined by the chemical code in the genes.

In this newly emerging business world of fast changing conditions and increasingly complex demands placed upon the people and the organisation, the challenge is clear. It is to determine the basic design rules to create organisations that manage complexity along the same principles evolved in nature. Visa and MCC appear to have done this for their operating environment. We continue the search for a more generic approach that can be used broadly across multiple organisations.

Next week we continue to explore the complexity and design of networks and learn from a range of natural and biological sources in our search for how a collaborative network can thrive in an organisational setting.

Originally published on Substack July 24, 2022.