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Bureaucracy saps innovation out of large corporations. Some even believe that bureaucracy is inevitable and is an outcome of a complex business operating in a complex market and regulatory environment.
So, what is the antidote to bureaucracy? Some look to startups like Uber, Airbnb, Netflix, and Spotify, but they are digital native and don’t compare well to a large monolithic corporation.
However, all is not lost for large corporations. Inspiration can be drawn from a company in China – Haier, which is not a typical poster child of the digital age like Spotify. In fact, three decades ago, it was a state-owned company with a shoddy product quality.
Haier uses an intriguing organization structure based on microenterprises and platforms that has proven to be an antidote to bureaucracy.
Vivek Mehta
Research Director, Digital & Innovation
Info-Tech Research Group
Large corporations are prone to bureaucracies, which sap their organizations of creativity and make them blind to new opportunities. Though many executives express the desire to get rid of it, bureaucracy is thriving in their organizations.
As organizations grow and become more complex over time, they yearn for efficiency and control. Some believe bureaucracy is the natural outcome of running a complex organization in a complex business and regulatory environment.
A new organizational form – the platform structure – is challenging the bureaucratic model. The platform structure makes employees directly accountable to customers and organizes them in an ecosystem of autonomous units.
As a starting point, sketch out a platform structure that works for your organization. Then, establish a governance model and identify and nurture key capabilities for the platform structure.
The antidote to bureaucracy is a platform structure: small, autonomous teams operating as startups within the organization.
Industry: Manufacturing
Source: Harvard Business Review November-December 2018
Haier, based in China, is currently the world’s largest appliance maker. Zhang Ruimin, Haier’s CEO, has built an intriguing organizing structure where every employee is directly accountable to customers – internal and/or external. A large corporation often consists of a few operating units, each with its own idiosyncrasies, which makes it slow to innovate. To avoid that, Haier has divided itself into 4,000 microenterprises (MEs), most of which have ten to 15 employees. There are three types of microenterprises in Haier:
Each ME operates as an autonomous unit with its own targets – an organizing structure that enables innovation at Haier.
(Harvard Business Review, 2018)
Tech companies like Facebook, Netflix, and Spotify are organized around a set of modular platforms run by accountable platform teams. This modular org structure enables them to experiment, learn, and scale quickly – a key attribute of innovative organizations.
Facebook ~2,603 million monthly active users
India ~1,353 million population
Netflix ~183 million monthly paid subscribers
Spotify ~130 million premium subscribers
Canada ~37 million population
(“Facebook Users Worldwide 2020,” “Number of Netflix Subscribers 2019,” “Spotify Users - Subscribers in 2020,” Statista.)
“Platforms consist of a logical cluster of activities and associated technology that delivers on a specific business goal and can therefore be run as a business, or ‘as a service’ … Platforms focus on business solutions to serve clients (internal or external) and to supply other platforms.” – McKinsey, 2019
Platforms operate as independent units with their own business, technology, governance, processes, and people management. As an instance, a bank could have payments platform under a joint business and IT leadership. This payments-as-a-service platform could provide know-how, processes, and technology to the bank’s internal customers such as retail and commercial business units.
Many leading IT organizations are set up in a platform-based structure that allows them to rapidly innovate. It’s an imperative for organizations in other industries that they must pilot and then scale with a platform play.
An organism consists of multiple cells of different types, sizes, and shapes. Each cell is independent in its working. Regardless of the type, a cell would have three features –the nucleus, the cell membrane, and, between the two, the cytoplasm.
Similarly, an organization could be imagined as one consisting of several platforms of different types and sizes. Each platform must be autonomous, but they all share a few common features – have a platform leader, set up and monitor targets, and enable interoperability amongst platforms. Platforms could be of three types (McKinsey, 2019):
The payments platform is led by an SVP – the platform leader. Business and IT teams are colocated and have joint leadership. The platform team works with a mindset of a startup, serving internal customers of the bank – retail and commercial lines of business.
Advisory Council: An Advisory Council is responsible for strategy, business, and IT architecture and for overseeing the work within the team. The Advisory Council prioritizes the work, earmarks project budgets, sets standards such as for APIs and ISO 20022, and leads vendor evaluation.
International payments (VISA, WU, etc.): Project execution teams are structured around payment modes. Teams collaborate with each other whenever a common functionality is to be developed, like fraud check on a payment or account posting for debits and credits.
Payments innovation: A think tank keeping track of trends in payments and conducting proof of concepts (POCs) with prospective fintech partners and with new technologies.
Corral your organization’s activities and associated tech into a set of 20 to 40 platforms that cover customer journeys, business capabilities, and core IT. Business and IT teams must jointly work on this activity and could use a capability map as an aid to facilitate the discussion.
Design Policy | Create Policy | Issue Policy | Service Customers | Process Claims | Manage Investments | |
---|---|---|---|---|---|---|
Defining | Market Research & Analysis | Underwriting Criteria Selection | Customer Targeting | Interaction Management | First Notice of Loss (FNOL) | Investment Strategy |
Actuarial Analysis | Product Reserving | Needs Assessment & Quotes | Payments | Claims Investigation | Portfolio Management | |
Catastrophe Risk Modeling | Reinsurance Strategy | Contract Issuance | Adjustments | Claims Adjudication | Deposits & Disbursements | |
Product Portfolio Strategy | Product Prototyping | Application Management | Renewals | Claims Recovery (Subrogation) | Cash & Liquidity Management | |
Rate Making | Product Testing | Sales Execution | Offboarding | Dispute Resolution | Capital Allocation | |
Policy Definition | Product Marketing | Contract Change Management |
Customer Retention [Servicing a customer request is a customer-journey platform.] |
Claims Inquiry [Filing a claim is a customer-journey platform.] |
Credit Bureau Reporting | |
Shared | Customer Management |
Account Management [Customer and account management is a business-capability platform to enable journeys.] |
Channel Management | Risk Management | Regulatory & Compliance | Knowledge Management |
Partner Management |
Access and Identity Management [Access and identity management is a core IT platform.] |
Change Management | Enterprise Data Management | Fraud Detection [Fraud detection is a business-capability platform to enable journeys.] | Product Innovation | |
Enabling | Corporate Governance | Strategic Planning | Reporting | Accounting | Enterprise Architecture | Human Resources |
Legal | Corporate Finance | IT | Facilities Management |
Advisory Council (AC) operates like a conductor at an orchestra, looking across all the activities to understand and manage the individual components.
Team structure, processes and technologies must be thoughtfully orchestrated and nurtured.
While platforms are distinct units, they must be in sync with each other, like individual musicians in an orchestra. The Advisory Council (AC) must act like a conductor of the orchestra and lead and manage across platforms in three ways.
“Zero distance from the customer” is the focus of platform structure. Each platform must operate with a mindset of a startup serving internal and/or external users.
Platform teams iteratively develop their offerings. With guidance from Advisory Council, they can avoid bottlenecks of formal alignment and approvals.
The raison d'être of enterprise architecture discipline is to enable modularity in the architecture, encourage reusability of assets, and simplify design.
Microservices allow systems to grow with strong cohesion and weak coupling and enable teams to scale components independently.
With their ability to link systems and data, APIs play a crucial role in making IT systems more responsive and adaptable.
With the drop in its cost, predictability is becoming the new electricity for business. Platforms use machine learning capability for better predictions.
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Bossert, Oliver, and Jürgen Laartz. “Perpetual Evolution—the Management Approach Required for Digital Transformation.” McKinsey, 5 June 2017. Accessed 21 May 2020.
Bossert, Oliver, and Driek Desmet. “The Platform Play: How to Operate like a Tech Company.” McKinsey, 28 Feb. 2019. Accessed 21 May 2020.
“Facebook Users Worldwide 2020.” Statista. Accessed 21 May 2020.
Hamel, Gary, and Michele Zanini. “The End of Bureaucracy.” Harvard Business Review. Nov.-Dec. 2018. Accessed 21 May 2020.
“Number of Netflix Subscribers 2019.” Statista. Accessed 21 May 2020.
“Spotify Users - Subscribers in 2020.” Statista. Accessed 21 May 2020.