Mechanical organizations are machinelike and effective when the environmental factors are predictable. But in today’s world, it is impossible for such companies to manage the type of change occurring around them. As an example, here are eight types of environmental factors creating friction at all levels:
1. Technological factors. Fast new technologies causing rapid product obsolescence.
2. Economic factors. Unpredictable prices, costs, currency rates, interest rates, taxes.
3. Competitive factors. Aggressive, global, highly innovative, threats from niche players, competitors who are also customers and partners.
4. Labor factors. Increased scarcity of skilled professionals, mobile workforce, increased employee benefits expenses, more reliance on contract labor.
5. Resource factors. Scarcity, increasing specialization, unknown sources of supply, rapid obsolescence.
6. Customer factors. More demanding, complex, market fragmentation, narrow market segments, increased acquisitions costs.
7. Legal and regulatory factors. More aggressive, increased costs, unlimited product liability, growing compliance on free and fair trade.
8. Global factors. Real-time communications, production, distribution, logistics, sophistication of supply chain partners, customers and competitors located anywhere in the world, outsourcing pressures, international strategic alliances.
Mechanical Engine Versus Innovation Engine
These and many other issues are generating additional pressures for today’s employees and managers in an already mechanistic and heartless environment within organizations. Due to these pressures, leaders have focused primarily on survival, with little focus on achieving sustained growth.
Is there a way out? Yes.
The primary way out is to evolve today’s strategic operating model based on mechanistic, bureaucratic, and hierarchical practices (machinelike) toward an innovation-driven execution model.
Machinelike companies focus on bottom-line performance as the primary measurement for most management decisions, at any cost. Focus is on the short-term. These firms are weak because they are inefficient at managing their future.
Experience shows that the companies that build an innovation engine are more adaptable, flexible, fast, aggressive, innovative, and able to adjust to dynamic, threatening, and a complex external environment. These firms do not take the external environment as a given. Instead, they embrace it as a challenge and act as an agent of change, leading customers, creating new markets, and rewriting the rules of the industry they serve.
Performance Wheel Versus Innovation Wheel
To better understand the two machines, I’d like to use the metaphor of a bicycle. The bicycle represents an engine. The fuel comes from a human being riding it, instead of gasoline/petrol we use in other machines.
The athlete riding is similar to the leadership team members who models the values, beliefs, skills, and behavior of the organization. The bike frame represents the organizational form—firm strategy, structure, processes, and culture.
The performance wheel is the back wheel, which represents practices for achieving organizational effectiveness, efficiencies, and stakeholder management and includes customers, suppliers, shareholders, and partners. This wheel is the source of power and acceleration for individuals, teams, and the organization.
The innovation wheel, the front wheel, represents direction and clarity about the future. It is the organization’s capacity for two very important competencies: corporate entrepreneuring (intrapreneurship) and strategic renewal. The front wheel is the first to sense new opportunities to maneuver based on the eight (internal and external) environmental factors listed previously. The innovation wheel provides the first experience of the environmental factors, the road ahead, and the ability to conduct quick experiments in the turbulent race.
Misplaced Organizational Focus
Unfortunately, today’s organizations primarily focus on the back wheel to achieve bottom-line optimization, which is why it is called the performance wheel. The values of this wheel calls for power and acceleration, but if the motives of the organizational athletes (leaders at the top) are flawed, results can lead to disaster—we have seen plenty of examples. The company may move in wrong directions, lose focus on what is ahead, not make fast enough decisions to alter the path, not be sensitive to environmental conditions, and watch others pass by.
Without the front wheel of innovation, the organization has little to no strategic lens for what is possible ahead and what directional decisions to make because the front wheel is missing or ill functioning, most teams at the top make the same decisions as their competitors. The goal of this wheel is to turn the highly mechanistic athlete into an innovative competitor who can easily gather new knowledge, experiment fast, and adapt quickly to outmaneuver other competitors in the race.
Most organizations are pretty good at operating the back wheel; they just need to improve management practices and associated discipline. For managers, as practitioners, the back wheel is a safe zone because the artifacts used are metrics, scorecards, and quantitative analysis—hard stuff. For the front wheel, though, the primary values are qualitative, abstractions, and the intuition to make midcourse corrections. Due to emphasis on performance, managers lack experience operating the front wheel—the innovation wheel.
The best performing companies evolve from machinelike short-term focus organizations to an innovation execution long-term focus.
It’s Your Turn. Please comment below.
1. Is your organization focused on the performance wheel or the innovation wheel?
2. What steps has your organization taken to be more innovative and less mechanistic?
3. Which of the outlined Environmental Factors do you feel are most important?