Structures Without Jobs

The fundamental building block of most organizations is the job. Traditional job descriptions are long, elaborate, detailed, and often badly out-of-date. They cover what the job holder is supposed to do, the kind of skills needed, and, in some cases, how performance can be measured. Changing a job description usually requires a major effort. A new job description needs to be written, reviewed for accuracy, and ultimately processed in terms of its implications for hiring, pay levels, and reporting relationships. Once a new description is approved, individuals are expected to do what it says, nothing more and nothing less. To be sure that employees are following their job descriptions, “auditors” are sent to check on what they do.

When an organizational restructuring occurs and employees have to do different kinds of work, report to different supervisors, and perform new procedures, it is definitely not business as usual. It is a major event, not an ongoing, continuous reality. It also often is resisted by employees, because of the loss of certainty and clarity and the “extra” work involved in implementing the change. One result of restructuring often is a costly dip in an organization’s performance.

When we teach executives about organization design, one of our favorite questions is whether their organizations have job descriptions; virtually all of them raise their hands. But when we ask how many of them have job descriptions that are up-to-date, only a few hands go up. This is neither surprising nor necessarily a problem; in fact, in some respects it may be positive, because it means the company is changing.

Increasingly, organizations are recognizing that job descriptions are not only costly to maintain but also obstacles to change. They become hard-wired in an organization and calcified, rendering change difficult. That said, change still occurs, because people often do what they have to do in order to get things done, so job descriptions become badly out-of-date and irrelevant. Instead of worrying about this, b2change organizations simply abandon the fiction that fixed jobs and job descriptions are a good thing. Capital One did this by stating “that every job has an expiration date.”

The best alternative to having fixed jobs and well-developed job descriptions is a structure that is characterized by dynamic work assignments and relationships. With this type of structure, individuals are assigned responsibility, on a temporary basis, for performing groups of tasks. As people’s skills change and the needs of the organization change, the task mix that individuals are responsible for is adjusted. The kind of projects individuals work on and the kind of tasks they perform change depending on what is happening with a particular customer or a particular product.

As a result of being in an environment of continuous change, individuals are experienced in the art of organization change. They are not led to expect, nor do they experience, structural change as a disruption of their lives. Instead, it is a matter-of-fact part of the way the organization does business.

We often see this kind of structure in consulting firms and in other professional service organizations where individuals are continually moved from project to project with a different project lead for each assignment. Instead of reporting to a single manager of marketing, production, or other function, individuals report to multiple managers—for example, one who represents a function and another who is managing a customer relationship or a product development process.

Clearly this approach to organizing puts a heavy demand on individuals and their supervisors to continually redesign their work. It is, however, far better than the alternative of having job descriptions that are limiting, difficult to change, and out of date. It also changes an important aspect of how individuals define themselves: instead of being known primarily by their job, they are viewed in terms of what they can do as well as what they are doing.

Teams

The use of teams has a number of advantages that b2change organizations can leverage. Working in a team helps individuals develop skills they will need when the organization changes. In particular, the ability to establish relationships, to manage interactions with different parts of the organization, and to adjust to changes in the business situation can all be developed in a team-based organization.

Teams that are multidisciplinary and focused on the external environment are particularly likely to help individuals understand the organization’s strategy and business model. These teams also provide people with feedback about how well their part of the organization is performing.

Temporary teams can greatly enhance the agility of an organization. They can allow an organization to focus quickly on new products, customers, capabilities, and competencies. The key is to charter teams as temporary structures that have deliverables and limited life expectancies.

Project teams and temporary problem-solving teams can be very powerful aids in developing the kind of skills that are needed to implement organizational change. In essence, individuals learn about building new working relationships and performing new tasks every time they are on a new project team.

To be effective, project teams need to have clear accountability and produce results that are visibly tied to customer satisfaction and business performance. For example, creating a team to launch a new product is a powerful way to motivate individuals, encourage them to learn new skills, help them to understand the business, and ultimately help them be more accepting of change.

Permanent teams can facilitate tactical change, although they probably aren’t as useful as temporary teams in supporting strategic change. There is quite a bit of research suggesting that self-managing teams in which individuals can perform multiple tasks are particularly good at tactical change.³ For example, they respond well to unusual customer requests, equipment breakdowns, new processes, and service failures. The major reasons for this are that they have regular customer contact and are trained to understand the work flow.

Virtual Work Relationships

A third important structural element that b2change firms use is virtual work relationships. With the capability of connecting employees through electronic means growing all the time, organizations are increasingly using teams whose members are scattered across different locations.⁴ For example, Sauer-Danfoss, which designs and manufacturers engineered hydraulic and electronic systems for mobile equipment, regularly uses virtual teams that are spread across the globe so that projects are driven forward twenty-four hours a day. P&G uses global virtual teams to speed the development of new products. Virtual work relationships do have an important downside. Individuals can feel disconnected and may not be well integrated into the organization.

When it comes to organizational change, virtual working relationships have a number of advantages. With virtual structures, reporting relationships and team formations can be changed without many of the usual problems. Individuals do not have to change their offices, nor do they have to disrupt their personal lives by moving to a new location. One result is that they are less resistant to change.

Innovative companies like Sun Microsystems and SEI Investments don’t want employees to think in terms of having a permanent physical location. Sun Microsystems expects most of its employees to work from multiple locations and to communicate with coworkers electronically. SEI Investments has designed a workplace without walls or even partitions—everything is on wheels. Employees reconfigure the office any time there is a need. The whole point is to make change an easy, everyday activity, not a disruptive event.

Business Units

There are a number of advantages to designing an organization with multiple business units. Business units create more “surface area” between the company and the environment. Employees are closer to the customer, which, as we have discussed, can be highly motivating. Particularly when business units have considerable autonomy, employees take ownership for results and willingly adapt to change. In essence, business units are a way to get the parts of a large organization focused on the external environment and tied into performance results that they can control.

Contrast a constellation of business units with a large functionally structured organization. In a functional structure, most employees do not have a clear line of sight to the business results, nor do they get feedback from customers. Instead of creating a product or service for a customer, they perform functions for other parts of the organization. Thus, if they have a customer at all, it is an internal one.

Multiple customer-facing business units have one more advantage that is rarely recognized. They create a much larger number of employees who understand “their business.” These people understand their business because they have control over a total business experience. All too often, business understanding is missing in large organizations, even among experienced managers. Managers tend to focus on understanding the function in which they are embedded, not the total business equation. They are thus poorly positioned to understand when and why change is necessary; they also lack the skills to execute a major change effort.

The business unit model has one final advantage for a b2change organization. In order to implement strategic reorientations or transformations, individual units can be subtracted or added to the organization’s portfolio of activities with minimal disruption to the rest of the organization. In essence, if a particular market is growing or disappearing, the organization can adjust to it simply by changing one of its business units. The rest of the organization can continue to do business as usual.

The extreme version of an independent business unit model is the well-known Berkshire Hathaway corporation, which has totally independent business units. Its corporate center is so small that it doesn’t have to alter itself at all when it buys or sells a business, and the business units are so independent that they are not affected by the addition and subtraction of other business units.

A less extreme version is Johnson & Johnson (J&J). It has multiple independent business units, each of which has its own board of directors that is staffed by executives from other J&J businesses. Unlike Berkshire Hathaway, J&J has a significant corporate staff that provides services and supports synergies among the units.

L-3 Communications is an example of an organization able to acquire a new business every month because it lets each new division run fairly autonomously—it couldn’t possibly manage that kind of growth if it had a functional structure.

GE is another example of an organization that is comfortable adding and eliminating business units. A look at the company’s history shows that it has done so many times every year for decades. For example, it has eliminated a computer business, a uranium business, and a household appliance unit that was one of its original businesses. The organization has entered numerous financial service businesses and the entertainment business.

Like J&J’s, GE’s units are not as autonomous as those of Berkshire Hathaway, and as a result there are some repercussions throughout the rest of the organization when units are added or subtracted. The corporate staff needs to change according to what happens in the business units, and often the human capital management plan needs to change. In the GE model, the top managers from each of the business units are considered to be corporate property, so their careers are managed centrally. Thus a change in the business mix may change who is developed and how he or she is developed. Overall, however, these adjustments are not a serious obstacle to change.

Perhaps the major disadvantage of the multibusiness model is investor skepticism. Because of the management problems that some megaconglomerates experienced in the 1980s, investors are understandably suspicious of them (remember ITT and Westinghouse). It is important, however, not to overlook the success stories or the issue of relatedness among the business units. GE is well known, but how about United Technologies Corporation? It is a $37 billion multibusiness company that since 1984 has generated greater returns to its shareholders than GE.

Managing a multibusiness corporation is a capability that has to be developed. If a company does develop such a capability, it can produce a significant competitive advantage, not the least of which is the ability to change.

Matrix Structures

Simplicity is desirable in an organization’s structure, but it is not the be-all and end-all. Functional structures are simple. Business unit organizations are simple. Matrix organizations are clearly more complicated to design and operate. Nevertheless b2change organizations often choose a matrix structure over the others. The reason is that when a matrix structure is performing correctly, it can implement strategy and change in ways that the others cannot.⁵ Why? Because matrix organizations can develop competencies and capabilities that more traditional structures simply cannot.

When a matrix structure works well, it gives the organization both a focus on current performance and the ability to change—the yin and yang of a b2change organization. Change is built in because individuals are responsible for projects and business areas that are constantly changing in response to the environment. A matrix structure supports changing both the knowledge base of the organization and its operations. Thus it can be a structure that supports tactical as well as major strategic change. And although a dual reporting relationship is complicated, it creates a business environment that challenges employees and provides them with feedback. Employees have a sense of stability because they have a career home and someone who is worried about their development.

The complexity of matrix structures often generates criticism, but they have been working for over thirty years in such organizations as Boeing and Northrop Grumman. This longevity proves that matrix structures can provide a competitive advantage. The combination of many close-to-the-customer business units and a matrix structure is often the best way to design a large b2change organization.

Front-Back Structures

The front-back structure is not well known, but it can be the right approach for a b2change organization. As the name suggests, the organization has a “front”: a customer-facing piece that deals with all customer-related activities, including sales, most of marketing, and the delivery of products and services. The rest of the organization, the “back,” produces the products and services that the front sells and delivers to the customer. In essence, the front of the organization becomes a customer to the back. In some respects, the front is not the best customer for the back, because as we noted earlier, no internal customer is, but it can be a reasonable proxy for an external customer. When the front is properly designed, it can reflect the needs and desires of the ultimate end user of the organization’s products and services.

B2change organizations often choose front-back structures because customers want to deal with only one representative even when the company sells a complex array of products and services. Information technology firms (for example, IBM, HP) and financial services institutions (for example, Merrill Lynch, Citibank) sell a wide variety of products and services. Many of their best customers, large companies, want to deal with a single representative who manages the overall interface between the two organizations.

The same situation exists with many individual customers; they want a single person when interfacing with large financial service organizations and other complex service delivery organizations. They don’t want to have to work their way through the various product offerings and the individuals representing the products to buy a mix of services and products.

For many types of tactical change, such as eliminating selling to particular segments of the market or discontinuing products, the front-back organization is relatively easy to change, because it has a kind of modular structure. This is particularly true when change affects the customer-facing part of the organization, which has a good sense of how the market is changing and therefore is motivated to adapt. For example, if the organization no longer wants to sell to a particular kind of consumer or to a particular geographical area, it can eliminate or reassign those employees who are the “front” for that particular type of customer.

A similar situation exists with respect to the back of the organization. If the organization wants to reduce its services and products, “all” it has to do is eliminate the particular piece or pieces of the back that produces them. The rest of the organization doesn’t need to change. If the organization wants to add a new product and enter a new market, it can simply add a production module or a sales unit.

Sometimes the front-back structure is easier to change than to operate. Those organizations that have tried this model find managing the interface between the front and the back to be a major challenge. All too often, the back does not want to listen to the front, and the front is frustrated by its relationship with the back. The front may even end up demanding to go to other suppliers to satisfy the customers’ needs. Some of this tension is clearly healthy—it calls for improved performance, and the front is behaving exactly as external customers would—but not all of it is.

When all is said and done, the strengths of the front-back organization usually do outweigh its complexity and the disadvantages that stem from it. In many respects it is not surprising that organizations using this structure are in complex businesses, with customers who buy multiple, often complex products and services.

Organizations in complex businesses face an interesting choice: they can either pass complexity on to their customers and ask the customers to sort it out, or reduce the complexity their customers experience by managing it themselves. Managing complexity is a capability that can produce significant dividends. Customers usually prefer to have a supplier manage complexity and will pay accordingly. Because the front-back organization has an advantage with respect to change management, it can keep ahead of its customers’ abilities to self-manage the complexities of their products and services. This can allow front-back organizations to enjoy high revenue and healthy profit margins on a sustainable virtuous spiral basis.

Business Process Outsourcing

The structural elements we have looked at so far involve only one party: the b2change organization itself. However, one of the fastest-growing industries in the United States is business process outsourcing (BPO). It is particularly popular in finance, accounting, HR management, and information systems management.

The BPO model is a simple one. An outsourcing firm agrees to take over one or more entire functional areas for a company. The outsourcing firm creates and runs the systems that provide information services, HR, or whatever traditional internal staff services the organization decides can be done better by an outsourcer. Recently, P&G, IBM, Bank of America, International Paper, PepsiCo, and BP have all outsourced HR administration, despite the fact that each of them has been acknowledged as having “best practice” HR functions.⁶

BPO arrangements can produce real cost savings because of the economies of scale an outsourcing firm can achieve. There is also a core competency advantage which argues that an outsourcing firm, because of its scale and focus, will always have more of a core competency in an area like HR management than any single company is likely to have.

Finally, and most relevant to a b2change organization, another potential advantage has to do with managing change. Some outsourcing firms not only have expertise in managing change but are in a position to make change less painful for their customers. If the customer wants to grow or contract quickly, it simply goes to its outsourcer and says that it would like to change the level of service. The outsourcer is then responsible for handling the change. By shifting responsibility from an internal staff group to an outsourcer, the firm makes its own change effort less complicated and avoids the political pressure that in-house units would exert against change.

There is another reason why both tactical and strategic change can be more effective when a process is outsourced. The firm that is either upsizing or downsizing doesn’t have to worry about whether its systems need to be revised or whether new knowledge and skills are required to operate them with its new business model. It relies on its outsourcing firm to provide this kind of expertise and indeed to revise processes so that they fit the new business model.

For example, if an organization shifts from a functional structure to a matrix structure, it will need to change its performance management system. If the company outsources its performance management design and operation, then the outsourcer will be expected to have the knowledge and systems to handle this new structure.

BPO fits very well with the front-back approach. The customer-facing part of the organization stays intact while parts of the back and the corporate staff are gotten rid of altogether through outsourcing. The relationship between the front part of the organization and the BPO provider is a true customer-client relationship, not the weaker internal customer relationship. Thus b2change organizations may move toward using BPO not just for cost savings but because it enables them to make change an ongoing activity.

B₂Change Structure

At this point we can begin to envision the shape of the b2change organization. It will have internal elements that facilitate change when it is needed: teams, virtual working relationships, and a jobless structure. It will stay close to the customer with either small business units, front-back structures, or possibly, a combination of these. It may have matrix structures and BPO providers that create integration and competency excellence. All of these will be explicitly seen as tools for day-to-day success but also as essential ingredients for creating a b2change organization.

New Business Units

Often the only viable approach to starting new businesses within an existing organization is to create a special business unit that is “independent” of the existing corporation, much like the businesses in Berkshire Hathaway. The degree of independence can vary, but clearly it needs to be high. This may mean that, for example, only the CEO of the new business venture reports to the CEO of the existing company. The rest of the new venture has no reporting relationship to the old organization, so that it is protected against “infection” from parts of the old.

Even though the use of new venture business units sounds like a good approach for a b2change organization, it may not be. It has been used by a number of companies, including Intel, Mead Paper, and P&G, but it is not clear that it has been highly successful. We know of no good research data that has addressed the question of whether new venture units are more likely to be successful than new firms that are founded to enter the same business area. Our guess is that they are not and that in fact they may even be less successful.

In a new venture that we worked with, the people in the new business were transferred from the existing business and still saw themselves as working for that company. Thus, unlike people in a truly entrepreneurial venture, they didn’t see the failure of the business as a big threat, because they could always go back to the existing organization. In addition, their compensation followed the practices of the existing organization rather than being like that of the typical start-up venture in which individuals could lose everything or become very wealthy. But perhaps the biggest limitation of the venture was that most individuals came to it laden with a “big corporation” mind-set. When it comes to expenses and speed, what works in a big company can be fatal for a start-up.

The risk associated with creating new business units can be reduced to some extent by building good links between the new organization and the existing organization. A successful example of using the independent unit model to spur growth is Ciba Vision, a business unit of the Swiss pharmaceutical company Novartis. Ciba Vision sells contact lenses and eye care products. Searching for innovative breakthroughs in the markets where it was not performing well, Ciba Vision launched six new venture units, each focused on new product areas. These autonomous units each had their own R&D, finance, and marketing; in short, they were full, functional organizations.

Ciba Vision staffed them with leaders who were willing to challenge the status quo and operate independently. Each of the units had their own uniquely structured processes and organization designs. To ensure that the knowledge generated in the new ventures would be shared and integrated, a single executive was put in charge of all the new units. This approach has paid off for Ciba Vision. The company launched a number of new products and even overtook J&J, the market leader, in some market segments. Its ability to operate in an ambidextrous way also allowed it to maintain its conventional business.

Overall, new business units are a way to produce major change in a b2change organization. They are particularly appropriate when the future scenarios and strategic intent favor getting into a new business area and the organization realizes that its existing business units do not possess the appropriate competencies and capabilities. It is probably the best approach for existing organizations to use when they want to make a major entry into a new business area, but there is no guarantee of success—quite the opposite, in fact: it is a risky strategy. Because it is risky, an organization would do well to consider the options, described in the next sections.

Joint Ventures

Joint ventures are an approach to creating new businesses that is often favored by b2change organizations. Corning, for example, has successfully used them as a way to bring technical innovations to market. Joint ventures typically benefit from having relatively high levels of autonomy, and when this is combined with the right transfer of competencies and capabilities, they can be very successful.

B2change organizations need to see the creation of joint ventures as an important capability. In the future we expect to see more CEOs drive joint-venture capabilities through their organizations just as Larry Bossidy and Ram Charan argue that organizations should drive execution capabilities through organizations today.⁷ It’s all a question of mind-set. Is change an occasional event—in which case we don’t need strong joint-venture capabilities—or is it an ongoing part of an organization’s life?

Acquisitions and Mergers

Acquisitions and mergers are two of the most obvious and frequently used ways to produce major strategic change in a corporation. They have a number of obvious and very attractive advantages. They can, for example, provide an entrée into a new market, allow an organization to increase its scale, and provide new core competencies. B2change organizations are cautious about acquisitions and mergers because they have a certain “fatal” attraction. They seem to offer quick and easy reorientation and in some cases transformational change. They can indeed change the very identity of a firm, but, more often than not, they fail. Depending on the scoring system used to measure the success of acquisitions and mergers, the failure rate varies between 60 and 80 percent.

As a general rule, mergers, as contrasted with acquisitions, are particularly difficult to manage. In fact, many have argued that there are no such things as mergers, there are only acquisitions that are mislabeled. All too often, mergers are accompanied by statements that they are “a merger of equals” and that the best people and practices from each organization will be continued in the new merged company. In reality, there is often extreme competition for jobs between the members of the two merged organizations. People often have a strong attachment to the way their organization was run, and they fight to have that way adopted. The result is often conflict and the adoption of a set of practices and policies that really don’t fit together to form a coherent whole.

Acquisitions, particularly those in which one organization is significantly larger than the other, present a different set of issues than mergers. They represent a better way for b2change organizations to grow and develop. B2change organizations typically employ one of two acquisition strategies. The first is a hands-off, “We won’t touch it; it will operate as an autonomous business unit” approach. This has worked well for Berkshire Hathaway and other true holding companies that buy good businesses and run them independently. The major problem with the hands-off approach is that it really is roughly the equivalent of buying stock in a company or managing an investment fund. It only rarely creates synergies that enhance the value of the acquiring organization.

The second approach is to look for the synergies that can occur when a b2change organization buys a smaller business to bring in a key skill, group of customers, or perhaps technology. When this type of acquisition is handled correctly, it can indeed create a new core competency or at least supplement the core competency of the existing b2change organization. It also can create new customers.

Limited Brands (The Limited) is an organization that has successfully used a mixture of acquisitions and internal development to enter new businesses. Most of its sales came from apparel in the 1990s. Today, as a result of its acquisitions of Victoria’s Secret and Bath & Bodyworks, 70 percent or more of its sales come from skin care products, cosmetics, and lingerie. In many respects, these are better businesses than apparel, which suffers from strong competition, relatively low margins, and hard-to-predict fashion trends.

A number of The Limited’s existing capabilities, such as store management and location, were directly applicable to the new businesses. But to get a head start with recognizable brands and product expertise, the company felt acquisitions were necessary. The approach has been successful in developing new businesses while allowing The Limited to stay true to its existing identity.

As a rule of thumb, b2change organizations make clear to everyone that an acquired company is going to become part of the acquiring company and is going to operate like the acquiring company. In this type of acquisition, integration can be quick, thorough, and strategic. It rarely changes the operating procedures of the acquiring company, but it may change elements of its business model.

One company that has done an excellent job with acquisitions is Cisco. It has acquired numerous companies, thus building its business, increasing its customer base, and adding important new technologies. In each of its acquisitions, Cisco has been clear that its systems and practices are going to dominate. What Cisco is buying, in essence, is the intellectual capital, human capital, and customers of an existing organization. As the CEO of Cisco explains it, buying an existing group with existing relationships and existing capabilities is cheaper and in many ways easier than building new groups and capabilities.

Sysco, the food-service firm, is another company that has done an excellent job with acquisitions. It has used them primarily to enter into new geographical areas. They have found that buying an existing food-service operation and integrating it into the Sysco network is much quicker than coming into a new territory and starting from scratch.

Sysco has expanded nationally by systematically acquiring companies in key markets. In all of its acquisitions, Sysco has made it clear that the acquired company is expected to adopt most of Sysco’s practices. Because the core competency of Sysco is its ability to handle the logistics of wholesale food sales and distribution, it makes good business sense for the acquired companies to adopt Sysco’s practices. Occasionally the company picks up a great idea from one of its acquisitions, but given its years of experience and many acquisitions, Sysco simply has more knowledge about wholesale food distribution than the companies it has acquired.

Cisco and Sysco show that acquisitions can be a powerful technique for a b2change organization. However, the very high failure rate of acquisitions warns that for most companies they are unlikely to be successful. Thus, unless an organization has developed the capability of managing the transition from two organizations to one, new business development and strategic change should come from other approaches.

Alliances

One final approach to creating new businesses is to use alliances. Alliances, like acquisitions, can be a quick and effective way for a b2change organization to add to its capabilities and competencies. One recent study found that U.S. companies announced 74,000 acquisitions and 57,000 alliances from 1996 to 2001. Clearly these two structural options are on the agenda of most organizations. The pace has slowed some since 2001. In 2002, for example, U.S. firms announced “only” 7,795 acquisitions and 5,048 alliances. But that was a period when the economy was weak, and in 2004 and 2005, activity picked up.

There are many different kinds of alliances, but most of them have in common an agreement between two or more organizations that, at least at the beginning, is seen as mutually beneficial. Organizations may, for example, market each other’s products or share technologies and core competencies, potentially gaining such advantages as market share and visibility.

The Star alliance of major air carriers is one of the most highly visible alliances. The members (United, Lufthansa, and others) share a great deal of information, conduct joint marketing, and coordinate operations. The alliance has allowed members to offer customers a global capability, giving them an advantage over airlines that serve only regional markets. They can offer connections and access to flights and flight information around the world. Given the difficulties of expanding airlines to new countries, the Star alliance has allowed its members to become global players much more quickly than they could have otherwise. Had they tried to do it through acquisitions or internal growth, they would still be decades away (perhaps an eternity away) from achieving this objective.

Alliances are often difficult to create and are certainly not an automatic success. Before b2change organizations enter into alliances, they need to conduct a great deal of due diligence on their prospective partners and protect themselves against their alliance partner eventually becoming a competitor as a result of what it learns from the alliance. This happened in the Fuji/Xerox case, in which Xerox’s core competencies and intellectual property were shared and Fuji desired to expand into manufacturing products similar to the ones it was getting from its partner.

Like implementing acquisitions and mergers, the ability to form effective alliances may best be thought of as a capability that an organization needs to develop. Forming alliances is not something organizations naturally do well, but having the ability to do it can enhance both current organizational performance and the ability to change. For example, it is much easier to exit a market if it means severing an alliance than if it means closing down your own operations in that market. It is also easier to grow into a new market by forming an alliance than it is by following a build-from-nothing strategy. This is particularly true if entering that market requires developing a new core competency or organizational capability.

Acquisition or Alliance

B2change organizations view alliances and acquisitions as alternative ways to accomplish the objective of quickly changing their performance and capabilities. The change can be minor or transformational. Ideally, b2change organizations should be capable of structuring and operating both acquisitions and alliances, enabling them to choose the one that best fits what they need to accomplish.

As was mentioned earlier, Cisco has for years followed an acquisitions-based growth strategy. It also has entered into a large number of alliances. The company has a director of corporate development who is responsible for both acquisitions and strategic alliances. This puts the decision about whether to pursue an acquisition or alliance in the hands of a single, knowledgeable individual. When the decision options include the possibility of developing a particular technology or capability internally, this structure makes a great deal of sense and increases the likelihood of a good decision.

Cisco is particularly likely to use alliances where the competency or capability it needs is not central to the organization’s future. The rationale here is rather obvious: the company doesn’t want to trust critical core competencies and organizational capabilities to an organization that it doesn’t completely control. If it is acquiring a support technology or something that isn’t critical to the business, then an alliance may make a great deal of sense, as an alliance can often be activated and terminated with less cost.

Interestingly enough, alliances may be particularly effective when “soft” or human resources are a critical part of the the desired competence. Even a company that is very skilled in integrating soft resources, such as human talent, can very easily lose those resources as a result of an acquisition. This is much less likely to happen with alliances, because they are less disruptive and require less change on the part of the partners. There is rarely a reason, for example, to significantly change reward systems or career tracks as a result of an alliance. Ultimately an organization’s choice between an alliance and an acquisition may best rest on the degree of uncertainty the company faces. The greater the uncertainty, the more that alliances make sense.