Chapter 23 The New Network Firm: a Spherical Structure Built on a Human Investment Philosophy

1. Chapter 23The New Network Firm: a Spherical Structure Built on a Human Investment Philosophy Raymond E. Miles and Charles C. Snow

2. Introduction • “Network organization” Delayered, highly flexible and controlled by market mechanisms rather than administrative procedures, obtain complementary resources through strategic alliances and outsourcing

3. Network form of organization • Combine the resources of two or more firms with complementary competencies • Can simultaneously collaborate and compete • Can be no more flexible and effective externally than they are internally--their ability to arrange and manage their internal resources determines the quality of their external relationships and service • Replace the traditional metaphor of the organization pyramid with that of the rotatable (See exhibit 32.1 p. 449)

4. Network form of organization • Flexible, rapid response--the ability to arrange and rearrange resources to meet the changing, unique needs of upstream and downstream partners and those of customers • When a request confronts the organization, the sphere rotates, quickly providing the initiator with a means of accessing the company’s entire array of resources • This member sees the request through to completion • Resources are at work on existing projects “inside” and on the sphere’s “surface” • As soon as the organization confronts its next problem or opportunity, the sphere will rotate once again, bringing the appropriate new set of resources to the surface

5. TCG: A Multifirm Spherical Network • New product development is called “triangulation” it involves a three-cornered partnership among a TCG firm, a similar technology-based firm outside TCG and a major customer • Triangulation involves five key steps • Identify the market niche • Find a development partner • Locate a major customer • Involve other TCG firms • Extend the triangle in new directions • For a list of the governance mechanisms used by TCG, see exhibit 23.2 p. 452

6. The Human Investment Philosophy • Form autonomous operating units and self-managing teams; eliminate unneeded administrative mechanisms; empower everyone to act as an entrepreneur and leader; be adept at relationship management and willing to make both hard and soft investments in their partners; a human resource management philosophy in which employees act as partners in their own development; facilitate employee development; locate opportunities for employees to apply their continuously expanding knowledge and ability

7. The Human Investment Philosophy • Assumptions • Most people want to contribute to the organization and will act as partners in their own development • Most people, both inside the network firm and across current and future partner firms, are trustworthy. They can and will develop effective “relationship management” skills

8. The Human Investment Philosophy • Policies • Managers must view human capabilities from the perspective of an internal venture capitalist, building organization members’ operational and entrepreneurial strengths by investing in their long-term education and competence • Managers must locate opportunities for employees and teams to practice new skills and exercise new knowledge • Managers must be prepared to make investments in technical and governance skills within other network-member firms

9. The Human Investment Philosophy • Expectations • Continuing, heavy investment in human capabilities builds adaptive capacity widespread skill and knowledge reserves--a learning organization • The more competent the manager’s own organization, the more facile and effective are the network linkages it can make

10. Implications for management policies and practices • Create learning-oriented partnerships within the firm and among network members. • Create empowered jobs • In the firm of the future, the concept of a “job” will disappear as employees learn to think of themselves as responsible for satisfying “customers,” whether internal or external to the firm • Routes planning and control information directly to those who need it

11. Implications for management policies and practices • Development investments need not be justified • Future skills and knowledge requirements can seldom be fully predictable • Does not advocate a particular type of reward system. Instead, it anticipates that all organization members will have knowledge and responsibilities with bottom-line implications

12. Expectations • Organization members have the potential to be full partners in the enterprise, not only helping to meet company objectives but also being actively involved in generating new business

13. The Human Investment Model in Action • Emphasizes investment as the key determinant of company success: firm’s human assets and its ability to use them effectively; organization members will flourish only in an atmosphere of mutual trust and respect; competencies and trust must be built

14. The Human Investment Model in Action • Investing in capabilities • At the individual level • Cover a variety of educational opportunities to develop intellectual muscle and the ability to learn continuously; • Training focuses on specific skills and know-how; and • Apprenticeship relationships provide role models; judgment and insight, and an appreciation for the values and expectations embedded in the occupation • At the team level • Cross-training to develop team flexibility knowledge required to understand and total production and business processes • Employees who understand the business increase their ability to exercise responsible self-management, and work teams that can calculate profits from their activities improve their self-goverance

15. The Human Investment Model in Action • At the firm level • Return on its educational investment in strategic thinking, empowerment and partnering • Proactive and extensive knowledge development--key competitive weapon in the future • Culture managers and employees can help the corporation by helping themselves • High level of average compensation rewards must accurately reflect the actual performance of managers

16. The Human Investment Model in Action • At the network level • Assist suppliers in need of financial help by buying their inventory in advance and settling accounts when deliveries are made • Extend purchase orders for future output • Send its own technicians to work in manufacturing plants to bring them up to performance standards

17. Conclusion • Managers must overcome two major barriers • an intellectual one: the broader concept of a single organization with multifirm properties may be difficult for some managers to grasp • Attitudinal managers they may resist building the network organization because doing so conflicts with their beliefs about people and how they should be managed • Where strategies and structures are implemented without supporting human resource management philosophies, failures usually occur • Successful redesign will occur only as strategies, structures, processes and philosophies are brought into tight fit