But in today’s world, your company is really a series of networks. These networks include both internal and external players. Knowledge is dispersed throughout the network—it is not concentrated in the managerial class. And the organization needs that knowledge to succeed. This means that a traditional hierarchical approach where knowledge and power flow from the top down will not get you the results you need. To describe this model, we borrow the image of orchestration from Peter Drucker.

Drucker used the metaphor of the orchestra conductor over and over again to describe the challenge of management in the knowledge era. He explained that an orchestra conductor does not know how to play each of the instruments of an orchestra.  Yet, the conductor clearly is the leader and manager of the team making up the orchestra. In his or her work, the conductor cannot and should not get too deeply into the technical details of each individual instrument and musician.  Rather, the conductor chooses the music, sets the pace, and ensures that all the musicians are playing together. “A great orchestra,” he asserted, “is not composed of great instrumentalists but of adequate ones who produce at their peak.”

Sound easy? Of course not. But it captures the essence of the challenge of management in the knowledge era. And makes it clear that a new management model is needed because workers underneath a manager have special talents and skills that the manager does not possess. This approach contrasts sharply with the widely understood dynamic in the industrial model. Industrial workers were expected to do as they were told. They were not valued for their knowledge or creativity. While this is an overly simplistic statement, it is more true than most people would care to admit, even today. Because the majority of organizations are still set up as if they were running factories where workers are interchangeable and dispensable—rather than businesses dependent on knowledge workers to create and preserve competitive advantage.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

It’s important to understand how damaging reputational crises can be (”What’s a Reputation Worth?” May). But the real story is how to prevent them.

Seventy percent of the value of the average company is intangible. This is because processes, knowledge, and networks (all considered intangible by accountants) are the core drivers of competitive success — and reputation.

Managing reputation starts with managing these intangibles. That’s why we say reputation is the new bottom line.

Mary Adams
Founder and Principal
I-Capital Advisors
Winchester, Massachusetts

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Join us Friday, 3 September, at 12h00 EDT for the Mission Intangible Monthly Briefing. Sean Lyon, principal, R.I.S.C. International (Ireland), corporate defense pioneer and the architect of the emerging cross-functional discipline of corporate defense management (CDM) in conversation with Robert Liscouski, member of the Board, Implant Sciences (NASDAQ:IMSC) and former Assistant Secretary, US Department of Homeland Security will explore the business case.

Registration, as always, is complimentary. Slides and an exemplary downloadable program are posted on the EVENTS tab (Link to our Summer 2010 News page, our new RepuStars composite indices, and other content below). Mary Adams, I-Capital Advisors, moderates.

If you are a senior executive, a board member, or have a financial interest in any publicly traded security, you (or a colleague Send to a Friend) won’t want to miss this event. Learn more.

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On a practical level, organizations often do take a top down approach and try to influence and improve the performance of their networks—or even to create them. Chris Meyer of Monitor Network explains this view in Consulting magazine (April, 2006–not on line) by saying “networks are like computers in that they need applications software or a design of how to use them to be productive, and to do this we begin with the work and not the technology.” In other words, networks need a task, a sense of purpose to be effective.  His suggested approach is to first define the work to be done, then identify the talent needed to make it happen, “engineer” the exchanges needed, design the experience, and assemble the technology.  In other words, build your networks by thinking about the business purpose first and then the technology and platform.

As explained in a past post, the knowledge factory is an updated version of the Value Chain diagram developed by Michael Porter. When it came time to organize the kind of business depicted in Porter’s graphic, the organization chart fit the bill. There was someone in charge of each of the boxes in the value chain. Sometimes there was a manager overseeing several of those managers—a head of manufacturing, or of an individual plant. Many companies also had Chief Operating Officers. At the top was a CEO and/or a President. Power, funding, and communications all flowed from the top to the bottom along the “chain of command,” a term that invokes a military organization but one that is changing as we speak.

Of course, every organization still has an org chart. And a chain of command. But neither is as monolithic as they used to be. The work of most organizations today cannot get done if employees are forbidden to reach into another silo or chain or command directly as opposed to the old way of “going through channels” that slowed things down and inhibited communication. As you will see in the coming posts, there is a balance to be struck between the org chart and the network map….

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

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An example of this is the “two-sided market” network which has used to explain markets where platform providers serve as a connecting node between two kinds of stakeholders. Examples include Microsoft and/or Apple who are an intermediary between consumers and application developers. Another example is Monster and CareerBuilder who serve as a connection between employers and job seekers. 

The concept of networked business models has also been applied very effectively in the nonprofit sphere. We became aware of this approach to achieving social goals through a paper by Jane Wei-Skillern and Sonia Marciano. They document how the small, networked organizations can accomplish much more than large nonprofits that do all the work themselves. They contrast two models within the organization Habitat for Humanity. The typical Habitat program in a country builds around 200 houses per year by focusing on fundraising, staffing, and programming. But the program in Egypt takes a different tack. It works through existing community organizations and averages around 1,000 houses per year. This approach puts the mission at the center of operations and is willing to cede some control in the process.

A final example of networked business models that has been used frequently in recent years is Al Queda, which was deliberately designed as a decentralized system of cells linked primarily by ideology. Our friend, Ken Jarboe at the Athena Alliance blogged in 2007 that it was ironic that the U.S. response to this networked business model was to “rearrange the bureaucracy” by creating the large Department of Homeland Security.  This can almost be seen as a battle between centralized and decentralized control.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

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