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Leadership Q&A: The 7 Virtues of the 21st Century Organization


Last year I came across a report by Deloitte called The Shift Index. It provides a new way of assessing the economic condition of the contemporary corporation. Here’s a portion of the blog post where I found the report.

The 2009 Shift Index reveals a disquieting performance paradox in the US corporate sector. On the one hand, labor productivity has nearly doubled since 1965. During those same years, however, US companies’ Return on Assets (ROA) progressively dropped 75 percent from their 1965 level.

How can firms be getting lower returns even as they’re becoming more efficient? The answer resides in the heightened competition among firms. Competitive intensity nearly doubled between 1965 and 2008, forcing firms to compete away the benefits of productivity gains, which were instead captured by creative talent in the form of higher compensation and numbers of consumers through increasing performance/price ratios and wider choice.

It’s little surprise to find also that the highest-performing companies are struggling to maintain their ROA rates and are increasingly losing market leadership positions. Taken as a whole, the findings portray a U.S. corporate sector in which long-term forces of change are undercutting normal sources of economic value. “Normal” may in fact be a thing of the past: even after the economy resumes growing, companies’ returns will remain under pressure.

To respond to this performance challenge, U.S. companies will need to let go of industrial- era organizational structures (and the reporting relationships, incentive systems, and managerial processes that go with them) and operational practices in favor of the new institutional architectures and business practices needed to create and capture economic value in the era of the Big Shift.

Companies must move beyond their fixation on getting bigger and more cost-effective to make the institutional innovations necessary to accelerate performance improvement as they add participants to their ecosystems, expanding learning and innovation in collaboration curves and creation spaces. Companies must move, in other words, from scalable efficiency to scalable learning and performance. Only then will they make the most of our new era’s fast-moving digital infrastructure.

This shift is easier said that done. The dominance of industrial era structures is such that it is difficult to see anything else. Read most of the contemporary literature on leadership and growth, it is not addressing structural change, but rather personal change within an organizational structure. In effect, how to manage and cope in a structure that is ill-suited to the contemporary world.

John Hagel III, one of authors of the Index, in a separate post describes a number shifts that are taking place that mark this change. One of them is the following.

From transactions to relationships. Western corporations have increasingly focused on short-lived transactions as the way to generate profit – buy low, sell high and wherever possible squeeze partners in transactions to extract as much profit as possible.  If one group can’t meet our short-term requirements, let’s move on to find another group that can.   But here’s the problem – that transactional mindset undermines the ability to build long-term, trust based relationships.  And in the absence of those relationships it becomes almost impossible to effectively participate in the knowledge flows that matter the most.  It is very difficult to get diverse people to come together and constructively engage around challenging performance issues by sharing their tacit knowledge unless long-term trust-based relationships already exist.  Once again, since the most valuable knowledge flows are distributed well beyond the boundaries of the firm, these trust based relationships must also extend into broad, scalable networks that literally span the globe.

I offer these two long quotes as a context for understanding what the future of the traditional organization is going to be like. I see these as virtues or strengths of the 21st century organization that we should seek to create within the structures that we have today.

1. Collaboratively-led

2. Decentralized, local control

3. Long tail internal operational structures

4. Purpose-driven organic adaptability

5. Relational-asset based

6. Values that are operational

7. Ownership culture of giving

How does this work?

It begins with the realization that the organizational structures that we have are not sustainable, are inhibitors, rather than accelerators of growth, and cannot be changed by destroying them,  but by recreating them from within.

When we step back and look at what is working, in spite of the systems and structures that exist, we see people in groups, collaborating, giving, adapting, changing, creating, learning, and making a difference that doesn’t appear directly on a spreadsheet.  They are practicing these virtues in spite of the structure, not in alignment with it.

What works is a more human-scaled operation which releases people to develop relationships of respect and trust, integrity, cooperation, and effectiveness.  From this relational structure comes the insight to know precisely what kind of organizational structure is needed to achieve the goals of the group or company at any given time.

How do we understand this change?

There is a fundamental shift to acknowledge in this changing environment. In the past, people were resources applied to roles and tasks within what was essentially an industrial organizational structure. This structure compartmentalized human work, distanced the decision-making process from those who implement them, and created a structure that made it difficult for creative work to be done, because genuine creativity cannot be controlled.

The future is going to be quite different. The edifice of the old structure may remain in name only. What happens inside the business is collaborative, relationship-centric, values driven, built on openness, sharing, giving, personal ownership of group outcomes, and a communication environment that makes egotism a liability.

I see this happening in two “groups” of people with whom I work. One is Lessons In Leadership . I wrote about our group here and here, and is the topic of Peter Mello and my podcast here.

The other is a group called the Collaborative Solutions Group. Organized by Mark Maund of Cherry Bekaert & Holland Wealth Management Services, our collaborative group operates within a broad spectrum of the financial services.  This group is made of men and women from a wide variety of businesses who desire to serve clients in a particular way, and who share their clients with members of the group in order to better meet their client needs. The structure of the group is relational, guided by the values that inform our relationships, and those that we have with clients.

How to structure a 21st century business?

In the past, businesses were structures first, and social environments second. However, in reality, the strongest companies were those where the people worked around the inhibitors and constraints of the system to make their collaborative relationships work. Now, what we must do is intentionally structure organizations to facilitate a higher level of collaborate relationship building.

This change process cannot be done radically by destroying the current system. Relationship require time, openness and freedom to develop. They cannot be forced from above. This why the redesign of structures must be done with greater scrutiny about how it impacts human initiative, communication and group collaboration.  Change must begin in the relationships themselves, where there is freedom to change the way work is organized. Without this freedom, there will be no change, because the structure still drives the relationships.

The Seven Virtues of the 21st century organization

The seven virtues identified above are guides or markers of this new structural form. Each organization must define what these virtues mean for their context. For many, this process begins by a discovery of their company’s core values, followed by an intentional process to operationalize those values.

Where there is a genuine affection for the company by employees, this process of change can happen more rapidly than in others where it is lacking. This process doesn’t have to begin at the top. Ultimately, though, it is in executive leaders best interest and the company’s interest to allow for these virtues to take root and grow.

The future is happening now. There is no more waiting for the right conditions to emerge. Now is the time to begin to change structures to enable relationships to grow that will guide the organization forward into the future. I have seen the future, and it is here and now.

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About the author

Dr. Ed Brenegar I'm a leadership speaker, writer and consultant who is a mentor and catalyst for change. I assist leaders and their teams in the transitions required to succeed in today's complex organizational environment. I live in Western North Carolina. I'm involved the Boy Scouts, a charitable leadership training group called Lessons In Leadership, an ordained Presbyterian Church USA minister, and am the host of the Say Thanks Every Day social network.

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