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Network Society

From Toward new organizations

We are moving toward a network society rather than an employee society.

For over a century, from their beginnings in the 1860s and 1870s, organizations were based on ownership.

The typical company owned, or at least controlled, whatever it considered its business.

Independent suppliers and distributors existed, but they were “outside.” The company itself was based on command and control, anchored in ownership.

That is still the structure of traditional businesses, but increasingly, command and control is being replaced by or intermixed with all kinds of relationships: alliances, joint ventures, minority participations, partnerships, know-how, and marketing agreements—all relationships in which no one controls and no one commands.

These relationships have to be based on a common understanding of objectives, policies, and strategies; on teamwork; and on persuasion—or they do no work at all.

And where the old command-and-control organization based on ownership was meant to be permanent, many of the new relationships are temporary and ad hoc.




Executive Jobs and Growth

You have to learn to manage in situations where you don’t have command authority, where you are neither controlled nor controlling. That is the fundamental change. Management textbooks still talk mainly about managing subordinates. But you no longer evaluate an executive in terms of how many people report to him or her. That standard doesn’t mean as much as the complexity of the job, the information it uses and generates, and the different kinds of relationships needed to do the work.

Similarly, business news still refers to managing subsidiaries. But this is the control approach of the 1950s or 1960s. The reality is that the multinational corporation is rapidly becoming an endangered species. Businesses used to grow in one of two ways: from grass-roots up or by acquisition. In both cases, the manager had control. Today businesses grow through alliances, all kinds of dangerous liaisons and joint ventures, which, by the way, very few people understand. This new type of growth upsets the traditional manager, who believes he or she must own or control sources and markets.

Managing in a Time of Great Change




Amazon link: Managing in a Time of Great Change

Chapter 6: Managing in the Network Society

For well over a hundred years all developed countries were moving steadily toward an employee society of organizations.

Now this trend is reversing itself.

The developed countries, with the United States in the lead, are moving fast toward a Network Society—in respect to the relationship between organizations and individuals who work for them, and in respect to the relationships between different organizations.

Managing in this new Network Society will require different behavior, different skills, different attitudes.

There were, of course, plenty of employed people before 1860 and 1870 when Big Business and Big Civil Service emerged as the first modern organizations.

There were domestic servants and hired hands on the farm; salesclerks in the small store; journeymen and apprentices in the craftsman’s shop.

But these people did not work for an “organization”: they worked for a “master” or a “mistress.”

In 1913—the last year before the First World War fewer than a fifth of the workforce were “employees”—primarily blue-collar workers in industry.

And most of them still worked in small family-owned enterprises rather than in big businesses.

Forty years later, in the nineteen-fifties, employees of large organizations dominated every developed economy—as blue-collar workers and managers in industry; as civil servants in giant government agencies; as nurses in rapidly growing hospitals; as teachers in even-faster growing universities.

The best-selling books of those years were Jeremiads about the “Organization Man” who immerses himself into gray conformity and puts loyalty to the organization above everything else.

Few people then doubted that by 1990 almost everyone in the workforce would be an employee of an organization, and probably of a big one.

A substantially larger proportion of adults now participate in the US. labor force than did thirty or forty years ago.

Most of them—and especially the great majority of educated people—do indeed work for an organization.

But increasingly they are not employees of that organization.

They are contractors, part-timers, temporaries (“temps”).

Recently I ran a three-day seminar for some three hundred alumni of one of the major U.S. graduate business schools—mostly people in their late thirties or early forties, and most highly successful.

Practically every one of them worked for an organization—but barely half of them as employees.

Fewer still expected to spend their entire working life as employees of an organization.

One participant—a forty-five-year-old metallurgist—only five years ago was an executive of a Fortune 500 company.

Today he is on his own and retained by five different companies, one of them his former employer.

“There simply wasn’t enough to do for me in the old company,” he said.

“It has a serious metallurgical problem only three or four times a year.

The rest of the time I wrote memoranda.

Now, when that company has a metallurgical problem I dive right in—not as a consultant—but as a full-time member of the team and as its leader, and stay until we’ve licked the problem.

And I work the same way for my other four clients.”

Then there was the thirty-eight-year-old information specialist who similarly works as a “permanent temp” for a number of state agencies in the Midwest.

There was the woman executive of an “outsourcing” firm who described herself as an “itinerant member of top management” in the twenty large hospitals for which her company keeps the books and does housekeeping and maintenance.

Among the participants there were also an engineer on the payroll of a “temporary help” firm who works as plant manager for large companies—usually on a three-year contract—whenever such a company builds and runs in a new plant;

the woman physician who similarly works as a temp in setting up emergency departments in hospitals; and

a former college dean who works as a “full-time temp”—for a year at a time—setting up and running fund-raising campaigns for small and medium-size colleges.

Temporary and part-time work emerged some thirty-five years ago to supply typists, receptionists, and checkers in the supermarket—people of relatively low skill.

At first the temps filled in whenever a regular employee was sick or went on vacation.

Increasingly, temps do high-skill and high-status work.

And increasingly, temps work for the same organization for long periods of time.

In the United States the number of temporary employment agencies doubled in the five years 1989-1994, from thirty-five hundred firms to seven thousand.

A good deal of this growth, perhaps half if not more, is in agencies providing professionals—all the way up to senior managers—rather than low-skill people or people to fill entry positions.

Relations between organizations are changing just as fast as relations between organizations and the people who work for them.

The most visible example is “outsourcing,” in which a company, a hospital, or a government agency turns over an entire activity to an independent firm that specializes in that kind of work.

Hospitals—first in the U.S. and now, increasingly, in Japan as well—have been turning over maintenance and housekeeping to outsourcing firms for many years now; increasingly, they are now outsourcing their data processing and their business management.

Outsourcing the information system has become routine for businesses, for government agencies, for universities, for hospitals.

In only one recent day (March 13, 1995), two such outsourcing ventures were announced.

The largest hospital company in the United States, Columbia/HCA Healthcare, announced that it had outsourced the purchasing and maintenance of all the diagnostic instruments in its three hundred hospitals to the Medical-Electronics Group of the General Electric Company, the world’s largest manufacturer of such instruments.

Yet these diagnostic instruments are the core of a modern hospital.

They are its biggest investment, amounting at Columbia/HCA Healthcare to many billions of dollars, its biggest revenue producer but also the key to a hospital’s medical performance.

On the same day, IBM, still the world’s largest computer maker, announced the formation of a new business (called Network Station Management) to purchase, maintain. and manage the many thousands of Personal Computers (PCs) in large companies—also by now the largest single investment in the office of the typical big U.S. company, and in some of them a larger investment than the machines in their manufacturing plants.

In another ten or fifteen years, organizations may have outsourced all work that is “support” rather than “revenue producing” and all activities that do not offer career opportunities into senior management.

This will mean that in many organizations a majority of people working might not be employees of that organization but employees of an outsourcing contractor.

Even more important may be the trend toward alliances as the vehicle for business growth.

Downsizing, divestment, mergers, acquisitions—these dominate the headlines.

But the greatest change in corporate structure, and in the way business is being conducted, may be the largely unreported growth of relationships that are not based on ownership but on partnership: joint ventures; minority investments cementing a joint-marketing agreement or an agreement to do joint research; and semi-formal alliances of all sorts.

Japanese computer makers are gaining access to software technology by buying minority stakes in hi-tech Silicon Valley firms.

Large pharmaceutical companies, both American and European, gain access to research in genetics, medical electronics, and biotechnology by similarly buying minority stakes in start-up firms in these new disciplines, or by going into partnership with university research labs.

Banks gain access to the new investment markets by going into partnership with small, independent asset managers—with or without putting in any money.

And there are any number of even less formal “alliances”—most of them unreported—like the one between the world’s leading designer of microchips, Intel, and Sharp, a major Japanese manufacturer.

Intel will do the research and the design, Sharp the manufacturing.

Each company will then separately market the resulting new products—and apparently neither firm is investing a penny in the other.

In telecommunications there are the “consortia” in which three or more big established telephone companies—one American, one English, one Swedish for instance—team up to obtain licenses for cellular-phone services all over the world, or for cable television, or to buy together into an old government monopoly system about to be privatized.

Like outsourcing, the trend toward alliances of this sort in which nobody has control—that is, the trend toward partnerships—is accelerating.

One reason is that no one company, not even the telephone giants, has enough money to swing the deal alone.

A more important reason is that no one company by itself has the needed technology.

And in many parts of the world, especially in “emerging countries” like coastal China or Malaysia, business cannot be done except through a joint venture or an alliance with a local partner.

“Today,” the CEO of a major pharmaceutical company said recently, “80 percent of our sales and profits come from products we make in plants we own a hundred percent and sell through wholly-owned subsidiaries.

In ten years, more than half of all we sell—and we plan on doubling in volume during that period—will come from joint ventures, licenses, alliances, and from products made by companies in which we have either no investment or only a minority stake, but for which we are the research and/or marketing partner.

It is simply impossible for us—and we are among the world’s research leaders—to have enough scientific expertise in all the new fields.

It is equally impossible for us—and we pride ourselves on our marketing organization—to serve all the new channels through which healthcare products will be marketed as the health-care systems of the world are re-engineering themselves.”

Not quite thirty years ago, in 1967, the world’s business best-seller was Le Defi Americain (The American Challenge) by Jean-Jacques Servan-Schreiber, a French journalist.

It predicted that by 1985 or 1990 the world’s economies would be owned and run by a mere dozen or so huge American multinationals whose plants would produce some 90 percent of the world’s manufactured products.

Even earlier, in 1955, the Fortune 500 had made bigness the measurement of business success.

Bigger was better, whether in business, in government, in the hospital, or in the university.

And in those big organizations—as in Servan-Schreiber’s giant American multinationals—top management controlled everything and ran everything.

Everyone who worked for or with that big company was its full-time employee.

By the time Servan-Schreiber published his book the tide in the world economy had already turned.

Both the Europeans and the Japanese were giving the Americans a run for their money.

A few years later, the growth dynamics in the U.S. economy (and soon thereafter in the European economies as well) were beginning to shift toward the medium-size company.

But still, the basic structures of organizations and of employment seemed to remain what they had been for a century.

Now both are changing rapidly.

Even if twenty years hence the majority of managers and professionals will still be employees of the organization they work for, the psychology of the workforce—and especially of the knowledge workforce—will largely be determined by the sizable minority who are not employees of that organization, whether they are employees of an outsourcing firm, of a partnership organization, or of half-independent contractors.

For the organization and their top management this means that they better stop talking about “loyalty.”

They will have to earn the trust of the people who work for them, whether these people are their own employees or not.

Even the professional or executive who has no intention of leaving the company’s employ will know that there are opportunities outside—they already know it, even in Japan.

And even professionals or executives who would much prefer to stay with the company they now work for will know that there is no such thing as “lifetime employment” anymore—such as was the rule in big US. or European companies only a few years ago and is still considered the rule (though with great doubt), in the big Japanese company.

Even in government service where lifetime tenure has been the rule for a century or longer, radical downsizing, privatization, and the shutting down of whole agencies is surely going to occur in all developed (and in most emerging) countries.

Conversely, individual professionals and executives will have to learn that they must take responsibility for placing themselves—both within their organization and outside of it.

This means above all that they must know their strengths.

Most résumés I get—and I get several from former students every day—list the jobs the person has held.

A few then describe the job the person would like to get.

Very, very few even mention what the person has done well and can do well.

Even fewer state what a future employer can and should expect from that person.

Very, very few, in other words, still look upon themselves as “products” that have to be marketed.

Equally novel are the demands partnerships and alliances make on managing a business and its relationships.

Executives are used to command.

They are used to think through what they want and then to get acceptance of it by subordinates.

Even Japanese “consensus management” is a way to get acceptance by the organization of whatever the higher-ups have decided should be done—and so is the much-touted “participative management.”

But in a partnership—whether with an outsourcing contractor, a joint-venture partner, or a company in which one holds a minority stake—one cannot command.

One can only gain trust.

Specifically that means that one must not start out with the question, “What do we want to do?”

The right question is “What do they want to do?

What are their objectives?

Their values?

Their ways of doing things?”

Again: these are marketing relationships, and in marketing one starts with the customer rather than with one’s own product.

I asked the participants in that alumni seminar a few months ago what to call this new organization and its society.

At first they said, “Call it free form.”

But then they reconsidered and said, “Call it the Network Society.”




New Rules for the New Economy

“The chief task in the network economy is not to do the job right, but to do the right job.”

Kevin Kelly




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“The greatest danger in times of turbulence is not turbulence; it is to act with yesterday’s logic”. — Peter Drucker

The shift from manual workers who do as they are being told — either by the task or by the boss — to knowledge workers who have to manage themselves ↓ profoundly challenges social structure

Managing Oneself is a REVOLUTION in human affairs.” … “It also requires an almost 180-degree change in the knowledge workers’ thoughts and actions from what most of us—even of the younger generation—still take for granted as the way to think and the way to act.” …

… “Managing Oneself is based on the very opposite realities: Workers are likely to outlive organizations (and therefore, employers can’t be depended on for designing your life), and the knowledge worker has mobility.” ← in a context




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