Steps of Transition to an Organic Business

The first time published on MAY 27 – JUNE 8, 2018

Understanding the Subject: Part 1

Introduction

In our previous articles “The Major Principles of the Organic Business Design” and “Results of Applying Principles of Organic Business Design” we discussed how an Organic Business organisation looks like from inside. This article aims to explain how to move to the Organic Business organisation from a relatively traditional hierarchical business; what business transformation needs operational IT transformation that is so populat now.

A transition to Organic Business from the management perspective is driven by the changes in relationships between the teams delivering particular business functionality and, correspondingly, leads to the organisational, structural change of the organisation. An internal organisation of the delivery team (DT) should be focused on the business domain and dynamics of environment the teams work within. The fouindation of the DT work  is a set of Principles of the Organic Business Design and the business tasks the company assignes to the each DT. From the perspective of the company, until the DT delivers its outcomes according to the SLAs with its consumers and can transform itself as needed to maintain its agility to the environment, the internal organisation of the team is less material.

Therefore, the major reasons for transition steps we describe here are:

• resolution of particular task for the benefits of the consumers
• accountability to consumers.

When we keep in mind what we have to achieve or why are we doing what we are doing, the chances of success based on innovations and enthusiasm of people is usually higher than when we look on what we have already. If the judgement of value of our work comes from consumers/customers, it is usually more objective than the judgement of one person – the manager. The more objective the feedback is, the more adequate our performance will be in the given execution context.

As with any innovation in management, creating a new management model in parallel with the existing model is safer. We can start with a well understood  proof of the new model. If the proof results promise higher efficiency in operations and responsiveness to the changes (dynamics of the market), the proof may be represented to the less critical corporate function. The latter is usually the one that can be easier backed-up by outsourcing as the whole with minimal or no impact on the rest of the company.

We have chosen a Human Resource (HR) management function for an illustration of the transition we describe. In our case, a traditional HR Department (HRD) is organised hierarchically as shown in Figure 1.

Figure 1.

The HRD has a departmental HR Manager and each team in the department has its own Team Manager who reports into and is accountable to the HR Manager. The latter reports into and is accountable to the Vice President of HR – a member of the corporate Board not shown in the diagram.

The organisational chart of HRD may be changed by the HR Manager upon an agreement with the Vice President of HR. An organisatioal structure and a number of people in the departments are vety important to the HR Manager because they correlate with his.her influence. Current practice recogmised that ted direct subordinated for the department manager is too many and it is a motivation for creating an intermediary management layer with only three managers reporting directly to the HR Manager.

The responsibilities of the managers are defined at the top of the company and delegated downstream while accountability is derived from the hierarchical subordination. The teams operate on different loosely-coupled tasks. Apparently, each of those tasks as well as the entier department can be outsourced, but the Vice President of HR believes that it is more convenient to keep them in the company.

In the rest of the article, we will review the steps of transition from the described model to the one typical of the Organic Business. This is not a manual or prescription to follow blindly; this is a set of examples and concerns managers have to take care of based on their own individual and unique situation in the company and its markets.

1.      Feasibility Study Step

Before making a decision about transitioning into Organic Business model, choose charcteristics of your company profile:

№	Supports Organic Model	Supports Mechanistic Model
1	The company defines concrete business values for its external customers for now and for perspective, which it cannot or have difficulties to provide within the current organisational and operating structures	The company does not define concrete business values for its external customers, or defines only those values it can deliver with its existing internal resources or via enlargement of internal resources.
2	The company operates or wants to operate in the dynamic market[1]	The company operates in a slow-moving market
3	The company need to act upon market trends	The market trends are practically immaterial for the company’s success
4	The majority of managers at all levels appreciate contractual relationships with their current subordinates	The majority of managers at all levels prefer a “command-and-control” style used currently in the company
5	The company defines a notion of “done” as the solution, which is prepared for the change tomorrow	The company defines a notion of “done” as the solution that satisfies only a yesterday/today need
6	The majority of managers at all levels appreciate management by rules/policies	The majority of managers at all levels appreciate management by roles[2]
7	The company management ready to consider strategy and objective risks as the decision drivers	The company management is strictly authoritarian and exercises a direct driving in all cases
8	The company management delegates the authority – responsibilities and rights – and operates on the grounds of a strategy and on-demand	The company management delegates the responsibilities with minimal rights – and operates on the grounds of a plan regardless changes in the execution context
9	The majority of people appreciate creative competitive work environment	The majority of people execute strictly on command –  no “extra mile”
10	The majority of people appreciate owning real though slight responsibility for the company business	The majority of people believe that all responsibility for everything is on the management

The characteristics you outline in the left-hand column will contribute to your arsenal, the characteristics in the right-hand column will indicate your challenges. The cells outlined by your analysis will give you ideas about what can you rely on in the transition and what you have to overcome.

If the outlined statements indicate a strong risk that the transition can be stopped in the middle or deviated from the target due to the human factor, we would not recommend starting this process unless you are ready to invest time, efforts and funds in re-balancing the people mood and motivation via combining hierarchical (mechanistic) and organic organisational aspects for a while. This, however, is not always possible and can threat the well-being of the company.

The Managers and Architects of Business [3] who lead the transition should make sure that the business functionality presented in the selected proof-of-concept department can be split into items or groups that address relatively compact sub-functions. For example, as shown in Figure 2, “Classification & Compensation”, “Compliance & Administration” as well as “HR Information systems” and “Recruitment” sub-functions constitute their own stand-alone groups of functionality while “Performance evaluation” and ”Motivation & Benefits” are seen in the company as well related functions and may be considered together.

Figure 2.

2.      A Step of Vision: Organic Realisation of Business Function

A vision of organic realisation of a business function, an HR function in our case, is in that it has to operate in the internal regulated market formed and governed by the Organic Business. This is a consumer market, i.e. realisation of the function survives only when and until it is in the consumer demand.

Let us describe the HR Function in such a market by answering traditional questions.

Who is a potential consumer of an HR Function?	Different business and technology units in the company. The company itself including its individual employees. Potential external organisations.
How an HR Function is realised for its consumers?	An HR Function is realised as a composite HR capability, which, actually, is a composition of several special capabilities, i.e. sub-functions and related implementation resources. Each special capability appears to its consumers as a special business service regardless of its actual implementation. A corporate HR Service is an orchestrating composition of different specialised HR services.
What does the specialised HR service provide?	Each specialised HR service provides predefined business values and delivers promised outcome to each of its consumers. A content of the outcome to each consumer may vary depending on the Service Contract , which defines all elements of the service, all delivery interfaces with related SLAs and additional information needed for the consumer to choose and work with the service. The service consumer may focus on the certain subset of all existing specialised HR services offers and may be even unaware of others.
Can an HR service consumer engage external service providers?	In certain cases, yes, it can. Usually, the reason for going outside the company for a competing service is a low quality of internal service or a disability of existing service to provide required service features.
How a specialised HR service is managed?	Each specialised HR service has a permanent Service Manager. This role is performed by the manager of the business team, which now appears as a Business Unit[4] (BU). The Manager is responsible for: Gaining a revenue via servicing consumers on the contractual basis, internal and externalMaintaining relationships with the top company management (TCM), especially regarding marketing directions, centralised funds, corporate risks and their mitigationDefining the internal operational and organisational structure of the BU and its daily management, including consumer relationship strategy and tactics. The Service Manager is responsible for surviving in the internal/external market via providing scalable and reliable compliant service.  From the operational perspectives, the Service Manager is accountable to the service consumers for the consumer satisfaction, including quality of service and its safety.
What is the scope of specialised HR service work?	By itself, each specialised HR service provides one or just a few HR sub-functions or even features of the service. It obtains all other needed qualities and information via contractual cooperation with other services of different specialisation. For example, a “Benefit Service” capitalises on the technology services that enable scalability and reliability of the operations. Also, it cooperates with accounting, security, compliance and other services for the daily work.
Who commands the specialised HR service?	Nobody. The TCM sets the tasks and related financial and operational ‘rules of engagement’ for resolving these tasks. The TCM also sets a context for the new task. While external providers can be invited as well, the internal potential providers are invited first. During the task resolution, the TCM periodically evaluates the performance of the selected providers and can replace the latter as needed. These controlling/governing functions are usually performed via the Practice of the Architecture of Business (AoB) . If a new task is such that the company does not have desirable competence, but the TCM prefers having related capability in the company, the TCM/AoB acts as a “service factory” and creates a new specialised BU with the appropriate capability and service.
What is the life-cycle of a specialised HR service and how is it regulated?	The life-cycle of a specialised HR service has two drivers: a) a life-cycle of the BU providing this service; b) a need in such service in the market. A BU may deliver more than one service and can propose opening, modification or closure of the service. The Practice of AoB makes related decisions. The same Practice can make additional decisions about forming a new cooperative intermediary or final composition of services where particular specialised service can be engaged. This “engagement” is not a command to the Service Manager. The TCM/AoB sets a Composition Manager who acts as an internal service consumer responsible for the orchestration of new composition. The company regulates behaviour of its internal services via competition and financial support .

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[1] A market is considered dynamic from the company’s perspective if the pace of the market changes (that impact the company) becomes near or exceeds the pace of adoption these changes in the company.

[2] A rule explains what a right and a wrong activity is, and what the consequences of doing wrong. The decision about acting is on the person. A role commands what activity to perform, controls its execution and valuates the outcome. The person is responsible for doing the activity and tolerant to its impact and consequences.

[3] An Architect of Business (do not mistake this role with “Business Archtiect” in IT) is a person who alone or in a group architect/designes the business of the organisation. In the small-to-medium size companies, this rols is played by the top company executives; the defin what functionality and in what combinations the company has to possess, when, where and for what type of consumers. In big companies, this role may be plaid by highly ranked business specialists responsible for realisation of the corporte strategy via the Target Operating Model. They define what should be built/created, not how this to be done.

[4] In this article, a Business Unit is the minimal in size logical segment of a company representing a specific business function and operating under supervision of an accountable manager.

Preparing to the Transition: Part 2

3.     Adjustment of the Corporate Policies for Service

Since we have recognised and described specialised HR services, we need to review how we could manage them with maximum efficiency. Should it be just a new scheme of traditional delegation of responsibilities or this is a new quality of governing principles and policies, under which the company uses the HR Function in a form of service.

In the internal regulated market of Organic Business [“Architects Know What Managers Don’t”, “Results of Applying Principles of Organic Business Design, Part 2“], the governing principles and policies are elements of the regulating means. One of the major differences of Organic regulations from the routine management orders is in that BUs are recommended using particular specialised BU services while final decisions remain with the consuming BUs. For example, if the BU engages recommended BU/service, it can count on operational and financial support from the corporate funds, as shown in Figure 3; otherwise, the BU is on its own.

The relationships between BUs are based on formalised contracts recognised in the company. The specialised HR unit as well as all others is not only created, but also officially contracted by the company according to special policies. Thus, when the TCM/AoB creates a new specialised BU, it also authorises the BU to produce and maintain specialised service(s) the company’s asset(s).

Figure 3.

Operating policies related to other BUs have to be adjusted in presence of specialised HR services. Particularly, the policies should give BUs the right to choose and contract the new specialised HR service. If a BU prefers to use another service than the recommended one, this preference should be justified in front of Architecture Governing Council.

As we outlined when described realisation of Principles of Organic Design, the organic company has to have a cross-functional cross-departmental management unit (CFCDMU) [“Architects Know What Managers Don’t“], which includes a team of Architects of Business. One of the tasks of this team is to review and control all functional development in the company as well as the relationships between functional elements such as services. The CFCDMU verifies the reasons/arguments provided by a BU on why it prefers another service than the recommended one and evaluates the replacement candidate service, if it is external. This verification control is another regulation means in the internal market.

4.     Development of BU-to-BU Modus Operandi

In the service ecosystem, the Interaction Protocols are the sets of rules and means that one BU utilises when interacting with other BUs via business services. In other words, we talk about protocols of interaction between internal business services and their consumers. The integration protols is a different matter and they can vary for the same interaction protocol.

The protocol rules define, for example, the descriptions of the interaction initiation and completion, information/data flows that the service provider and consumer exchange and the order in which these exchanges take place, resolutions of interaction failures and potential conflicts, changes in preliminary agreed contracts, and so forth. The protocol means may include, for example, telephone, paper/letter or digital technology – practically anything that can carry the information and support agreed interactions.

The protocols should be accompanied by regulations and policies applicable to the interactions and depicted in the related SLAs. For example, specialised HR services may have a unified SLA about a single protocol with all other BU or may have different SLAs/protocols – one with each consumer; the latter is usually a subject of mutual agreements. The implicit or expicit agreements are articulated in the Service Contracts respectively. The rationale of using one or another form is proposed by the HR Manager, but defined by the ‘market’ (needs and convenience).

The Interaction Policies require the provider of each specialised HR service to announce a Service Description (SD) – a document that describes promising business functionality of the service, all possible outcomes, all interaction protocols (including related manual and/or automated interfaces and SLAs), operational scenarios and contexts. The context includes all related constraints and is derived from applicable laws, regulations and policies known together as a Business Execution Context (BEC). The discussed policies usually state that the service may be provided only on the basis of the SC; no contract – no service.

At this point of our description, it would be useful to mention a modern “Digital Revolution” and “API Economy”. Both of them utilise APIs[1] and Microservices. Currently, Microservices are treated as the means of implementation of small services. Though this technology is immature, some businesses have started to use it for engaging capabilities and resources owned by other businesses in the external market. As a result, when you review some internal APIs/Microservices consumed by your BUs, it is not an unusual situation where you can find an invocation of external, non-controlled APIs/Microservices. That is, your internal solution has an unmitigated risk of dependency on possibly unknown provider, which you have no business relationships and contracts with. In the Organic Business, an invocation of external APIs/Microservices is regulated by special policy and permitted only upon setting explicit business contracts with such providers.

The internal regulated market in the Organic Business materialises an internal “ecosystem of services” comprising providers and consumers (Service Ecosystem or SE). In the SE, the service provider ‘knows’ only those consumers who contracts it. There are two rules usually preserved: a) ‘consumer of my consumer is not my consumer’ and ‘provider of my provider is not my provider’. That is, every BU, the service provider, focuses on delivery of its service only.

Some BU/services can play roles of coordinators/orchestrators of other BU/services, as we see in Figure 2, Part 1. The orchestrating BU/services are usually used for organising a collective effort for resolving certain big business task. A business product is, in essence, such organised collective efforts of multiple services. For example, a consumer BU can contract a “Recruitment” and “Employee Relationship” services (see Figure 2, Part 1 ) and either coordinate their work by itself or, instead, contract a special coordinating service. In this case, for nstance, the “Recruitment” service can be external (a Recruitment Agency) while the “Employee Relationship” can be internal.

While such model looks like “point to point”[2] interaction from a technology perspective, from the business side, it is a regular “consumer to business” model used internally. A consumer does not really care who provides the service if the provider delivers expected functionality and outcomes in accordance to the SLA. This abstraction of provider is the key to maximum quality and flexibility of the services.

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[1] An API stands for “Application Programming Interface”. However, for the last few years, some specialists started to interpret this term wider as an abbreviation for an application providing certain business functionality accessible via Internet interface such as API. In essence, a modern API is a Service, which can comprise Microservices.

[2] This expression is used in Technology to outline that two parties are coupled by communication and Technology proposes different solutions to de-couple them. In reality, these parties are only logically coupled like two businesses knowing about each other. They are physically decoupled, but Technology tries to decouple them logically as well and breaks business cooperation by doing so.

A Transition Journey: Part 3

5.     Accountability and Responsibility Model

A transition journey into Organic Business starts with an allocation of new RACI (R=Responsible, A=Accountable, C=Consulted, I=Informed) model. This is, probably, the most challenging part of the transition because it affects people directly. This model requires transformation of corporate culture from whatever it is into the service-oriented culture [“Architcts Know what managers Don’t“].

Mentioned challenge is one of the reasons why we approach the transition via a single business Function with so many precautions and preparations. Several examples in macro-economic teach us that building and developing a new model in a clearly and strictly defined area (incubator) is, usually, a successful path. It is rich of potentials for extending positive experience on more areas or on the whole.

In internal SE, we have three main players: a CTM, a BU service consumer (BUSC) and a BU service provider (BUSP) as shown in Figure 4. The BU is represented by its Manager and the BU can play the roles of BUSC and BUSP at the same time as it happens in an external market.

Figure 4.

In the mechanistic hierarchical management models, the company Owners delegate the CTM certain rights on the company management within corporate vision and mission. This makes the CTM answerable or accountable to the Owners for the fulfilment of the vision and mission via on-going strategies and outcomes of company operations. The CTM has to do the work to resolve the strategy tasks, i.e. become responsible for the development and realisation of the strategies. The CTM, in turn, delegates responsibility for certain tasks/sub-tasks and realisation rights down the hierarchy, which creates layers of accountability and responsibility.

The granularity of delegated responsibility (and related accountability) and the tasks in the mechanical models varies and can drop to the level next to a suspicion that a superior simply does not want to do anything but commanding subordinates. The nature of Organic Business prevents such inefficient management because it is based on delivering certain business values encapsulated in the business capabilities – functions or features, not individual activities.

Organisationally, the Organic Business comprises three major categories, as shown in Figure 5:

• the CTM for overall corporate management
• the Practice of AoB for designing business solutions for implementing corporate strategy in particular market dynamics
• the compendium of specialised BU/services, forming the Target Operating Model.

The compendium includes individual BU/services and their temporary combinations – intermediary and final. The temporary combinations have their Managers who handle the combination’s goal, purpose and organisational logic. In the normal circumstances, the combination appears as another internal consumer of the specialised BU/service. In our context, the most important is that there are no direct orders between compositions, BU/services and consumers; the organisation is flat and contract based.

Figure 5.

An accouintability structure may look like this:

• a BU Manager / Service Manager is accountable to the CTM for the revenue generated by the service and to the AoB for realising particular functionality and outcome (RWE).
• a BU Manager / Service Manager is also accountable to all service’s consumers for the RWE, functionality and values specified in the SC.

The responsibilities of the BU Manager / Service Manager comprise all aspects of producing and delivering RWE  and business values, including all needed relationships with other specialised services inside and outside the company. Actually, each BU/service is a small uni-product enterprise realising only the core functionality when all supplemental functionality is outsourced. The BU’s internal management should follow the company’s principles and policies, but it is substantive in all other aspects.

6.     Forming a Corporate Culture

Described structure of accountability and responsibility in Organic Business causes and forms so called service-oriented culture. This culture is characterised by a combination of Market Culture[1] with Adaptive Culture[2] when both are centred with the same notion of a consumer.

While some think-tanks warned against trying to change corporate culture, nowadays in the dynamic economic environment changing culture is a matter of surviving, not a whimsy of management. If conservative people’s behaviour inside the company becomes inadequate to the market changes, the company risks serious troubles unless it positively influences this behaviour. As practice shows, changing of corporate culture is doable, but have to start from the top of the company. Serious preparation that includes public announcements, discussions and education accompanied by changes in the operational principles and policies have to be immediately followed by the restructured model of benefits. This create such regime in the company that is very difficult to resist. It especially relates to transition into service-oriented culture where an idea of servicing each other is usually compelling and enthusiastic.

It is the matter of fact that servicing is a quite instinctive behavioural pattern for many people. It comes naturally and, in many cases, does not require any additional efforts. If such behaviour is even appreciated in the company via moral and material rewards, we have a high readiness to the culture change. A service-oriented culture is adequate to the dynamics of life we see “behind the window”. In our practice, we have seen several cases of competitions among employees for the right to work in the new experimental teams or departments regardless of risk of negative results.

We agree that changing corporate culture is a serious challenge if not a problem if the surrounding environment remains the same. If it changes and even accelerates, the corporate culture will follow. The major managerial task will be making a “green light” for this movement leading toward the direction needed by the company.

7.     Transition of the Teams in the Specialised BUs

It is always better to reuse the team’s knowledge and expertise via transitioning it into a specialised BU, which has to deliver a service that is the same or very similar to what the team provided before.  This transition is a delicate political and emotional process in spite of all groundwork. This is about people changing their work habits – even those who welcome the changes may feel unsure and uncomfortable in the new environment at the beginning.

The employee relationship care becomes crucial for this step: a full support from the management is mandatory. Also, the employee performance tasks should be adjusted to meet new requirements in a graceful manner.

It is recommended to segregate transition of existing HR functionality and teams from creating new functionality and BU services. The transition should be complete first. The learnt lessons can be applied for creating new services instead of making the same possible mistakes again.

It is not a new phenomenon when a company or its division changes title and objectives; many employees passed through such transformations before. In the transition from the team into the specialised BU organisation, the focus should be on the people in the team because new operational principles and policies require people to figure out how to operate under them in the new organisational structure.We have to anticipate that some policies might appear clumzy and require refining. This transition is a two-way road.

In the relatively small BU, it has to be clear that the BU Manager is an ambassador of the team while everyone is responsible and accountable for the outcomes. A work of each person becomes much more transparent and the impact of his or her results becomes more visible in the overall performance of the BU. This is a serious factor of motivation for people as we see it in the work of startups.

In a mid-size BU, a creativity and innovations should become the modus operandi. A high level of professionalism and personal respect can help in organising ab effisient and effective work a great deal.

8.    Development of the Contracts with Internal Consumers

A mandatory condition of transitioning teams into specialised BU/services is setting supplemental contracts needed for the daily work of the BU. The list of supplements starts with the information and technology, and ends with the office supplement providing pens and paper for printers.

Because of monetary relationships between specialised BU/service with its suppliers and partners, the CFO office has to create a category of special internal accounts for the BU/services. It can be a prototype of the future financial structure of the company, but this topic requires a special talk in a separate article. Since in our case only one HR Function transits, all other specialised BU/services are represented by the corporate departments and divisions. The latter might be replaced by related specialised BU services in the future and existing contracts may be inherited or the new ones may be signed off.

We can point to an idea borrowed from the service-oriented technology, particualrly, API and Microservices. Let’s imagine a BU A, which serves external consumers by providing a Service A. The BU A is supplied by the BU B and BU C. The latter is supplied by a chain of the BU D, BU E and BU F. Since each of them provides a service, it is not difficult to estimate the cost of each service to the company and the usage of each of service respectively along the chain up to the Service A for each consumer. When a BU A gains a revenue from its work, we can have a clear and justifiable idea of the contributions provided by other BU/services into gaining of this revenue. This model may become a skeleton for the internal inter-BU financial relationships.

Apparently,  the relationships between the BU/services and their are contractual. These contracts should reflect all aspects of for both ‘sunny’ and ‘rainy’ days, communication protocols with SLA, financial transactions and reports, usage of shared corporate resources such as marketing, technology, compliance, security, etc. Contracts may not leave any dark areas and have to be taken seriously in the same way as the company does it for itself in the market. At the same time, the contracts should be smart to avoid constraining too much the evolution of relationships and collective work of the BUs.

If in the past, the work of an HR sub-function could rely on the informal (and may be inappropriate) inter-personal relationship for the quite formal important tasks, now it is a chance to legalise these relationships. Responsibilities without rights will not work anymore – no consumer will take the service if the consumer cannot drive the contract. We are not against informal relationships in the company – they were and always will be. We say that if important processes and procedures are based on the personal favours, the BU might end-up in a trouble when it needs to mobilise these procedures urgently to react to the market change.

Our reader can ask a reasonable question – what is the fundamental difference between a mechanistic hierarchical formalism of management and a proposed contractual formalism that seems not much simpler? Here are several differences for your consideration:

• In the hierarchical model, the decisions are made by a person and his/her risk is only in meeting of failing fulfilment of personal KPI. People try to minimise even this risk by substituting personal decisions with collective decisions formed in the meetings. If decisions are tough, they are escalated to the upper management level where important details are usually omitted, and which takes even more time. The final decision has potentials to be unrealistic, not linked to the existing execution context.

In the organic horizontal model, the decisions of a BU/service Manager are vital because the wrong decision can be quickly picked up by the market and its response may be fatal. That is, each serious decision has a risk of surviving; there is no structure for delegating a right on the decision to someone else and there is not escalating way though consultations are guaranteed by Architects of Business. Also, the role of BU/service Manager does not assume a frequent change of the person in this role, i.e. s/he will face the decision consequences, especially in the fast-changing market. The ratio between personal accountability and remuneration in the self-funding BU delivers the balance for this role.

• In the hierarchical model, there is a strong temptation of shifting to an authoritarian and even bureaucratic operational style because an occupation of the position depends only on the upper level of management. For example, an excessive management can be created if a manager uses the rule of “3 direct reports” and tends to create an extra management level when the chart assumes 5 direct reports.

In the organic horizontal model, a BU Manager is the only managerial position. For a short period of time, a BU can incorporate 2 or 3 managers, but only until the BU would be split in 2 or 3 units.

• A complexity of formalism in the hierarchical model is a result of the hierarchy itself and holds more of individual human factor than an objective necessity (in industries different from manufacturing). A manager at any level can create a supplementary function that serves his or her department only while another department, with different manager, might had this function already. This generates organisational disunity and unnecessary redundancy wasting resources and decreasing flexibility.

A complexity of formalism in the hierarchical model is derived from the nature of the task and the service solving the task – a simple task leads to minimal formalism. This model of decision-making is much more objective and less depending on the BU Manager personality because competition in the market dictates certain style of management. A BU Manager signs a new contract only if related functionality is needed by the consumer.

If a BU Manager wants to create a supplemental function, this has to be proposed to the CFCDMU, which will scrutinise and validate it; a new business function in the Organic company requires a very strong business objective reason. Any other initiatives of the BU Manager  are regulated by other business principles and policies.

All this relates to Technology as well. Technology resources that create, deliver and support business functionality of particualr BU belong to this BU. If they need to access shared corporate services like e-mail, they are served by the centralised IT department, but if software developers need particular programming tools, the BU decids on this. If BU’s developers work on new products that the BU delivers, they execute the internal BU operational processes; if they want to create or invoke a new supplemental functionality, they have to get an approval from the CFCDMU because it may be available in the company already.

Described specifics of the organic horizontal model are driven by the Organic Design Principles. Coupling business functions under the same manager defeats the purpose of Organic Business.

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[1] Market Culture emphasises competitiveness not only between the organization and its market competitors but also between employees. An emphasis on individual performance is thought to lead to greater achievement for the individual employee and, as a result, greater success for the organization.

[2]  Adaptive Culture is focused on the surviving via adoption of changes and has some characteristics of Adhocracy Culture (flexibility, employee empowerment and an emphasis on individual initiative.)

An HR Service in the Internal Market: Part 4

9.     Adopting Changes via HR Service Combinations

Over the time, the needs of the company in particular HR sub-function can change as well as new industry regulations can create new opportunity or restrict certain activities. Let’s see how such changes can be adopted by the Organic Business company.

Since a corporate HR Service is an orchestrated combination of different specialised HR services, the first reaction to the new task or external change is to re-combine specialised HR services rather than to build a new one. This includes modification of the relationships between BU/services.  For instance, services “Training & development” and “Induction and internal mobility”, shown in Figure 2 of Part 1, formed a Combination 1 while services “Motivation & Benefits” and “Performance Evaluation” formed a Combination 2. A company can create a Combination 3 by adding “Training & development” service to the Combination 2 and eliminating Combination 2. The “Training & development” service can remain in the Combination 1 at the same time and now has to serve consumers of both Combination 1 and Combination 3.

A former BU/service Manager of the Combination 2 can become a new manager of the Combination 3 or released from the role and a new Manager can be assigned to the Combination 3. Any re-combination has to be reflected in the new inter-BU/service contracts. Described scenario are based on the Principle of Service Composability of the concept of service orientation: a service can participate is as many compositions or combinations with other services as it wants.

If the re-combination does not solve the problems, the second option is adding a new BU/service and connect it with the existing ones in the new combination. For example, a new BU/service “Publication Assessment” (which is not shown in Figure 2) can be added to Combination 2 transforming it in the new Combination 3.

Usually, described two activities resolve the new business task. The major power of the orientation on service approach is in its composability and re-composability of new solutions instead of new development. The benefits of this include: lower cost, much faster time to market, market change responsiveness, more business relayed functional relationship management and less dependency on technology development operations.

However, especially in the case of new regulations, new requirements can be set for already existing BU/services. In this case, the only option to become compliant is to change the operations and related resources inside the BU/service. This can involve a new development as well as cause a chain of revisions of the suppliers and result in setting new or adjusting existing contracts.

10.     Agile and Externalised HR Capabilities

In Organic organisations, business capabilities have to be kept agile to a) corporate strategy, and b) dynamics of the market. Corporate strategy cannot predict all turns of the market changes and, to be sustainable and reasonable, has to set only high-level goals, objectives and directions. In the dynamic market (see underline explanation of the term “dynamic market” in Part 1), strategy should not contain prescriptions of how the goals should be reached because such prescriptions have a risk to become outdated even before their implementation time comes up. As a result, the business capabilities – the instrument of strategy realisation – should be defined and constructed in the way where stability “marries” adaptability

We have analysed this case and can recommend two types of business capabilities to use:

1. New Dynamic Capability explained by Amy Shuen and Sandra Siebel  based on the work of by Dr D. Teece
2. Agile Business Capability

The Teece’s Dynamic Capability Theory is based on the use of only internal resources and capabilities. The New Dynamic Capabilities framework for Web 2 extended this Theory  and pointed to the “firm’s ability to quickly orchestrate and reconfigure externally sourced competences while leveraging internal resources such as platforms, know-how, user communities and digital, social and mobile networks”. Apparently, the “externally sourced competences” cannot be reconfigured because they are owned by other businesses.  Though their invocation ‘as-is’ can be orchestrated.  Since competencies belong to a category of knowledge, the only option to orchestrate them is if competences are presented as business capabilities offered in the market. In other words, the aforementioned framework recommends engaging external capabilities and become fully dependable on them.

This approach has a serious overhead related to a need to establish not only contractual relationship with the owner of external capability but also a trust with it. It also requires taking care of the own business continuity and disaster recovery in the presence of uncontrolled (though contracted) external capabilities. Web 2 or 3 cannot help here because they are just technology means while we need sustainable business operations.

With programmatic interfaces known as API, an invocation of external capabilities has become fast and inexpensive, though still risky. It is a classic usage of the Contingency Theory, which was not considered in the Dynamic Capability Theory. The latter requires acquiring external competences and only then converting them in internal capabilities dynamically. The New Dynamic Capabilities framework proposes operations with foreign capabilities directly, which require a strong legal contractual basis while API usually ignore this. It would be incorrect to say that a company A has a capability C while it leases it from the company B (C remains the B’s capability during the lease). In essence, a New Dynamic Capability is a new dynamic usage of capability.

In contrast, the Agile Business Capability is the type, which allows a company to keep owning and control the business functionality, represented by the capability, and use internal or external resources for the capability implementation, i.e. allows to outsource competencies and/or resources, if needed. With Agile Business Capability model, the company can hire any alternative services, even from the competing providers [1] to get the best deal and outcome.

If the market changes quickly, the new resource availability can change at the same pace, but the company’s capability remains agile though it uses different resources. Here is an example: a “Training & development” BU/service used to use e-mails to interact with the trainees and training providers. Because of emerging EU GDPR (regulation), the company has to build special data privacy protection solution for e-mails, which can take a long time. The BU/service makes its operations agile to the situation and, in order to continue using e-mails and avoid losing revenue for this period, the BU/service contracts an external e-mail provider that has been certified with GDPR already.

11)     Vehicles of Regulation in the Internal Market

Earlier in this article, we have mentioned that corporate policies and centralised funding are used to regulate the company’s internal market. The third element – an Architecture of Business – completes the list of the major regulators as shown in Figure 5. The governing policies and a Practice of Architecture of Business are explicit regulators while finance is implicit. Nonetheless, all of them are tightly linked with each other.

Figure 5.

The centralised funding is formed via pre-defined contributions made by each specialised BU/service. These funds are used by the CTM for: a) financing corporate needs like facility, equipment, insurances and alike, and b) financing individual BU/services in accordance with the corporate strategy and, possibly, their temporary needs. The latter is ruled by corresponding policies that change for each new strategy or unforeseen situation in the market. For example, to convince a BU to start working in a certain direction under the AoB control, CTM can issue a policy where those BUs that support the direction right away become eligible for an additional CTM funding.

Details of the financial regulations are usually unique for each company and driven by the governing policies. The major policy rule is an avoidance of direct commands, restrictions or prohibitions. Instead, policies should create an environment where doing  undesirable things (from the company’s viewpoint) becomes extremely unprofitable. The operational and certain financial policies are usually constructed by the AoB and sanctioned by the CTM.

The Practice of Architecture of Business is conducted by Architects of Business. They are the ones who are responsible for designing business solutions for corporate strategy. Depending on the size of the company, these Architects are either belong to CTM themselves or are accountable to the CEO or CTM. The Architects of Business define and operate with business capabilities as design instruments for architectural solutions,. These solutions should be realised in the corporate Target Operating Model.

As a part of this design process, Architects of Business define functional and informational requirements for the lower-level capabilities that the BU/services are contracted to realise. The capabilities may be grouped in the core, strategic, tactical, advanced competitive and supplemental capabilities. The requirements follow the same classification and may ask for creation of new combinations/orchestrations of exciting services, or for creation of new BUs and or services, or extending a service offering from  the existing BU. As we noticed before, such invitations are accompanied by promotional policies and, potentially, financial benefits.

The Wrap-up

This 4-part article covers several important aspects and basic steps of transition into Organic Business corporate model. We do not claim we have covered such complex transition in full. However, you can find some useful information on how to split a monolithic organisational unit in a collection of its sub-functions and create small business units providing related services. We also explained a compendium of specialised BU/services and their temporary combinations.

We answered several fundamental questions about how these BU would work together in organic style. We discussed such preparation steps as operational policies and interactions between BU/services and their relationship with the company management.

A special attention has been put on corporate culture and interpersonal relationships, including accountability and responsibility. We explained the steps of transition in Organic Business and the role that service contracts play in the overall operating model. An observation of business capability and their funding completed the factors that regulate the behaviour of the BU/service within the company’s internal market of services. We clarified how external competencies available in the can be utilised for the company needs via different types of business capabilities.

This article will be followed by articles addressing special methods that Architects of Business and BU Managers might like to apply in their practices.

Acknowledgement

Author is grateful to Dr Alexander Samarin for valuable discussions and advices on several topics presented in this article.

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[1] As an example of such cooperation, we can point to the Mutual Fund Superstore platforms used in the Asset Management domain.

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