Creating the Boundaryless Organization

What makes a company great? For most of the twentieth century, the factors that drove success were size, role clarity, specialization, and control. The larger a company was, the more efficiencies it was able to attain, the greater its ability to leverage capital, and the more powerful its clout with suppliers and customers. In the interests of efficiency, tasks were divided and subdivided, and individuals' roles and levels of authority were firm and clear. Specialties and subspecialties were created and encouraged, so that every functional area of the organization became a discipline in its own right. Above all, strong control was needed to make sure all the parts of the organization performed as needed, and to bring all the pieces together to produce whole products or services. As this century draws to a close, the advent of the microprocessor, the accelerating speed of information processing and communications, and the arrival of the global economy have knocked the traditional success factors - and the corporations that were wedded to them - for a loop. The not-so-old success factors are now, to a great extent, liabilities to success. What drive success today are speed, flexibility, integration, and innovation. Successful firms respond quickly to customers, get new products to market fast, and change strategies on a dime. Their people do multiple jobs, constantly learn new skills, and frequently shift to new assignments and different locations. Instead of subdividing tasks, such firms have learned how to pull together diverse activities and people on an as-needed basis, and to focus more on the streamlined process than on the specialized pieces. They champion the new and different, and set up processes and environments that encourage and reward creativity and innovation. The old success factors get in the way of speed, flexibility, integration, and innovation. Though size does not preclude speed, large companies are like tankers, requiring more time and space to shift direction. Role clarity locks people into specific job descriptions that hamper their ability and willingness to jump in and do whatever is needed, on a moment's notice. Putting a high value on specialization fosters a turf mentality that impedes integration. And multilayered systems of approval and control stifle creativity and drive away innovative people. The contrasting experience of two giant retail corporations illustrates the fundamental shift in success factors.

The Giant and the Upstart For decades, Sears was the world's largest retailer. It leveraged its buying power through strong centralized control. Almost all critical decisions were made at the Chicago headquarters, and all the stores mirrored the top-down control structure. Size, role clarity, specialization, and control made Sears a spectacularly successful enterprise for a very long time. In the 1980s, the retail game changed. Customers were demanding lower prices, better service, and an ever-fresh variety of merchandise. Speed became essential. Innovations in merchandise, service, and store appearance became critical to retaining a competitive edge. With its hierarchical structure and ponderous decision-making process, Sears could not do faster, better, cheaper, and it began to slip. As the losses mounted, management looked for new answers in the same old places - structure and control. A series of leadership changes, restructurings, and store closings failed to stop the hemorrhaging. Only when Sears shifted
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its focus to serving customer needs did the company begin to turn around. The new success drivers of speed, flexibility, integration, and innovation forced the company to undergo a complete renovation. While Sears was painfully learning the new rules of retail success, a brilliant entrepreneur named Sam Walton had them down pat. Right from the start, Wal-Mart Stores was aimed directly at finding out what the customer wanted, week by week, and providing it fast, at lower prices than any competitor. Wal-Mart's process of gathering quick market intelligence provides a snapshot of how different the new way of operating is from the traditional command-and-control system. Each week, at least 200 of Wal-Mart's senior executives and managers fan out to visit Wal-Mart stores and competitors in different regions of the country. They talk to store managers, employees, and customers to find out which merchandise is moving and which is staying on the shelves. On Thursday evenings they all fly back to the Bentonville, Arkansas headquarters, and on Friday they gather to compare the data from their computer systems with the eyewitness information from the field, and to make decisions about products and promotions for the next week. On Saturday mornings, a teleconference is held with more than 1,800 stores, giving everyone the week's game plan at the same time. Individual store managers are encouraged to operate with the same kind of speed and flexibility. They can set up display areas for products they think will have local appeal, and lower prices on the spot to beat the competition, without seeking approval from the corporate level. Contrasts like those between Sears and Wal-Mart can be made between Microsoft and IBM, between United and Southwest Airlines, between Dreyfus and Fidelity Investments, and many more. Organizations that persist in the old paradigm of control, specialization, and role rigidity stumble. Those that master the means to achieve speed, flexibility, integration, and innovation gain the ability to soar.

Attacking the Borders Organizations, by definition, are entities with boundaries. External boundaries separate a company from its suppliers and customers and define its geographic reach. Internal boundaries separate the CEO from the clerk, the finance department from the marketing department. Such lines of demarcation are, and always will be, necessary. But companies that thrive amid the new realities of global competition, rapidly emerging technologies, and changing markets are characterized by permeable boundaries along all fronts. We characterize this new model of success as the "boundaryless" organization. A boundaryless company is less like a fortress and more like a living organism. Its borders, along vertical, horizontal, external, and geographic dimensions, are like membranes - strong enough to provide shape and definition but permeable enough to permit an easy flow of information and ideas to all parts of the firm. Its form is not fixed and static. Over time, the vertical boundaries may change so that there fewer levels of managers. The horizontal boundaries may shift so that functions are defined or departments brought together in new ways. The external boundaries may evolve as different kinds of partnerships are formed with suppliers and customers. Organizational leaders can hasten the process of becoming faster, more flexible, more integrated, and more innovative by assessing the rigidity of their company's borders and
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determining where more permeability would have the greatest impact on becoming more competitive. It is generally unwise to attack all the borders at once, or to engineer a master plan for becoming boundaryless. Resistance to this kind of change is normal and to be expected, and loosening boundaries is best approached incrementally, always and only when there is a clear business reason for doing it. Once people have gained some experience in working in a more fluid way, the change process picks up momentum and energy. When one boundary has been crossed, it becomes easier - and almost inevitable - to extend the new behaviors to the other boundaries as well.

Reinventing the Hierarchy The vertical hierarchy is an easy target for blame and criticism, but in fact some sort of vertical structure seems almost hardwired into human experience, beginning with the family. This form has persisted because it works. There will always be a need for leaders and followers. There can be no doubt, however, that an overly rigid system of top-down control drastically impedes organizational speed of response. When a firm is being crippled by vertical barriers, it will exhibit some or all of the following symptoms: * Slow response time. It takes too long to make decisions, respond to customer requests, and react effectively to changing market conditions. When new opportunities arise, the company is unable to seize the moment. * Rigidity toward change. "We've always done it this way" is the pervasive and persuasive rationale for continuing along familiar paths. People put more energy into resisting new ways and means than into adapting to new conditions and imperatives. * Underground activity. Creativity and innovation are driven underground because people know that new ideas will not be welcomed or even taken seriously. * Internal frustration. Employees and managers are dissatisfied with the way the company works and the way they are treated. They often feel that their contributions are not heeded, acknowledged, appreciated, or rewarded. * Customer alienation. Ultimately, customers become frustrated and angry, feeling that their needs go unrecognized and their complaints are not addressed. When the hierarchy is thus signaling that it has become dysfunctional, leaders should look to easing up the control on four critical dimensions: information, competence, authority, and rewards. This is not a matter of abandoning control, but of finding a better balance between the need for high-level authority and the need for agility and ingenuity. Information moves from closely held to widely shared. When everybody has access to the same information, common understanding and common purpose are created. Because information is power, the free sharing of information empowers. Only when people have the information can they be trusted and depended upon to make fast decisions that are in line with business strategy and objectives. Competence moves toward distribution of leadership throughout all levels of the organization. In traditional hierarchies, all the leadership ability is presumed to reside at the top. At lower levels, people have narrower technical skills. Boundaryless hierarchies encourage people to pitch in and do whatever they are capable of, regardless of rank or job description. They put a great deal of emphasis on training and development, including
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strategic education for employees at all levels. When competence is widely distributed, decisions, particularly those involving customer requests, can be made on the spot. Authority moves downwards so that decisions can be made anywhere along the line that is appropriate. In traditional hierarchies, decisions are made at the top and lines of authority are firmly drawn. The rationale is that the more people who review a decision, the better the decision will be. In fact, however, this system often results in poor decisions, not only because the approval process can take weeks or months, but also because nobody in the sign-off chain feels enough ownership in the outcome to give the proposal thorough study. In boundaryless hierarchies, decisions are made by those who are closest to the issue and who have to live with the consequences. Pushing authority downward shortens the time between the decision and its implementation. Rewards move from position-based to results-based. In traditional firms, one's position on the ladder dictates what goodies will be forthcoming. Not only are salaries calibrated vertically, but stock options, company cars, conferences at fancy resorts, personal secretaries, and a host of other perks are reserved for the upper echelons. The rewards go with the position. This being so, employees have enormous incentive to want to move up, and Peter Principle promotion is one of the most obvious effects of this system. Boundaryless firms have learned that it makes excellent business sense to reward people for expanding their skills and capabilities wherever they happen to be in the hierarchy. Thus, employees can choose to be ever more effective computer programmers or salespeople or engineers, and continue to see their salaries rise. They do not have to move into management jobs for which they have little ability or inclination in order to grow and be rewarded for their contributions. As many organizations have learned, creating healthy hierarchies is not a simple matter of eliminating layers of management or instituting empowerment programs. Attempts to dismantle rigid hierarchies should be clearly aligned with business goals, so that managers and employees are able to connect their daily activities directly to the business objective, rather than making changing the hierarchy an end in itself.

Moving Beyond Turf and Territory Horizontal boundaries are like the interior walls of a house. In traditional houses, the kitchen, dining room, and living room are closed off from one another with solid walls and doors. In recent years, however, many people have found that a more open arrangement suits their needs better. With permeable boundaries between cooking, eating, and sitting areas, people can move around and communicate more freely, participate easily in a variety of activities, and group themselves according to the needs and interests of the moment. And so it is in organizations. When the walls come down, communication, collaboration, and integration are greatly facilitated. The past 50 years have been a great period for "wall building" in organizations, as more and more knowledge specialties and subspecialties have been developed. No longer do companies have engineering departments, for example; they now have departments of chemical engineering, electrical engineering, process engineering, and more. This division process goes on in all functional areas. Drawing lines between the various specialties plays into the natural desire of human beings to associate with people like themselves, and helps people in large firms find meaningful group identity.

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But all those boxes and silos on organization charts can play out like an obstacle course when it comes to getting new products to market quickly, or changing strategy to take advantage of a profitable opportunity, or commercializing a new technology first. When the horizontal boundaries are getting in the way of the synergy needed to be competitive, warning signs appear: slow, sequential cycle times; protected turf; sub-optimization of organizational goals; the "enemy within" syndrome; and customers doing their own integration. In our view, the best way to cut through the turf and territory mentality is to shift from the static, categorized picture represented by the organization chart to an understanding of the firm as a set of shared resources and processes that can be mobilized in a variety of ways to create value for the customer. The focus shifts from defending and protecting one's own turf to creating processes that use the company's resources to respond quickly, flexibly, and creatively to customer needs and desires. Keeping in mind the following five principles will help streamline the course of knocking down horizontal walls and integrating shared resources: * Keep the focus on the customer. The boundaryless organization strives to anticipate and serve customer needs, and works to see itself from the customer's point of view. The horizontal barriers have been crossed when all employees understand the needs of the customer and all internal processes are aimed at strengthening external customer relationships. * Show one face to the customer. No matter how complex the organization, and how various its product lines, customers need a single, simple, reliable point of access. Depending on the nature of the business, this might be an individual manager for a customer company, or a process point, such as an 800 number, to serve thousands of consumers. And whether the customer talks with the same service representative each time or a different one, all employees who interact with customers should have access to the same customer information and a consistent way of talking about the company's products and services. * Form and re-form teams to serve the customer. Customer service is dynamic, provided by teams that change composition according to shifting customer needs. These teams are not necessarily a part of the permanent organizational structure, and will almost always include people from several different functional areas. * Maintain a competence pool. One implication of maintaining a pool of people across several functions who are up to speed with customers is that managers of departments and divisions must constantly assess and refresh the specialized skills of their people. When serving the customer is a shared responsibility, everyone involved needs current information and cutting-edge skills. * Share learning across customer teams. When multidisciplinary teams work across boundaries to serve customers, they gain tremendous insights into those customers, the particular expertise of various team members, and the process of working together. A process for capturing and leveraging that knowledge should be created. If every team has to reinvent the wheel, boundaryless behavior becomes prohibitively expensive. The organization must establish mechanisms for sharing ideas, information, and best practices.

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Strengthening the Value Chain No organization is an island, but companies have viewed themselves traditionally as clearly separated from the vendors from whom they buy materials, components, and services, and the companies or consumers to whom they sell their products and services. Legal tradition supports the "every company for itself" model in the form of antitrust laws and regulations. And despite sound competitive reasons for not entering into alliances and joint ventures with all suppliers and customers, successful companies today are proving that closer and more trusting relationships with other members of the value chain can dramatically improve their ability to speed up product development, ensure sources of supply, enter new markets, expand distribution, and meet end-user expectations. When the external boundaries are too fortified for a company's own good, the following conditions are evident: strategies and plans are developed independently; information sharing and joint problem solving are limited; accounting, measurement, and reward systems are separate and unsynchronized; salespeople push products on their own terms; and resources are used inefficiently. In companies in which cooperating and collaborating with suppliers and customers has been anathema, a series of simple steps can set the stage for forging more productive relationships. These suggestions are intended to build an up-close and personal understanding of what it is like to be "the other guy," and to encourage people to look for areas in which improvements can be made: * Arrange customer/supplier cameos. Most people in organizations have little or no contact with suppliers and external customers. Bringing in other members of the value chain as speakers is simple to arrange. Their presentations can be structured around such questions as: What is my business and how does it work? What are the keys to the future success of this business? What market changes, risks, and problems are we experiencing? How can we do business together more effectively? * Take field trips. When people can leave their jobs for a day or two and spend time at supplier or customer locations, they get a very real sense of how their work affects other members of the value chain. It is one thing to talk to employees about quality or on-time delivery; it is another to have customers tell them and show them exactly how problems in these areas affect their ability to do their work and satisfy their customers. * Hold open-agenda dialogues between management teams. The purpose of such meetings is to take stock of the whole relationship between the two companies and look for ways they can help each other be more successful. * Map customer/supplier needs. Mapping out needs helps people identify the processes that have the most impact on the other company's requirements for success. Those processes can then be reengineered or improved. * Collect customer/supplier data. Obtaining performance feedback from customers and suppliers is so easy, it's a wonder more organizations don't do it. Sending out "How are we doing?" surveys and questionnaires is a powerful way of building an external focus; it conveys a strong message to partners that their input is valuable and desired.

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Crossing Global Boundaries Almost overnight, the global village has become a reality in which trade, business, and information from all corners of the world are commonly shared. It is abundantly clear that successful organizations of the twenty-first century will have the ability to penetrate global boundaries. The challenges of going global are at least as formidable as those of loosening vertical, horizontal, and external boundaries - and are most likely to be met by firms that have already learned to be fast, flexible, integrated, and innovative in their local and domestic markets. based on our studies of winners and losers in the global economy, taking on the world requires paying attention to the following hurdles: establishing a workable global structure; hiring global super-managers; managing people for a global environment; learning to love cultural differences; avoiding parochialism and market arrogance: designing unifying mechanisms and creating a global mindset; and overcoming complexity. The best thing a firm can do to prepare itself for cross-border opportunities is to build an awareness of cultural diversity among its people. North Americans are known the world over for ignorance of the languages, customs, and traditions of other cultures, and a naive arrogance about the superiority of American institutions and products. Cultural awareness training and foreign language training are a fundamental first step to global learning. The next step is to actually set foot on foreign soil. This could involve going on fact-finding missions, holding exploratory discussions with international counterparts, and setting up the legal and financial arrangements for doing business in another country. When the time is right, selected staff members may be assigned to live abroad and establish a permanent office and personal relationships with the local customers and suppliers. Becoming boundaryless doesn't "just happen" as a result of market pressures. Such a transformation can only come about through the vision and persistence of leaders, who themselves must discard many fixed ideas and attitudes and embrace a course that by its very nature cannot be fully controlled, planned, or measured in traditional ways. The challenge for leaders is to manage the business today while transforming it for tomorrow. Perhaps the most important lesson to be learned from firms that have achieved a high degree of "boundarylessness" is that the initial focus of change must always be measurable business results. The point is not to become boundaryless; the point is to become a more effective and competitive organization. Leaders who assume that new organizational structures and relationships will automatically produce increased effectiveness are making a dangerous mistake, as the experiences of many companies with Total Quality Management (TQM) painfully illustrate. Time and again, TQM did not measure up to expectations, despite all the resources and energy that were poured into quality programs. Managers honestly believed that changing organizational variables, in and of itself, would inevitably lead to bottom-line improvement. Achieving short-term results was often actively discouraged, with the rationale that people needed to devote themselves to truly changing their fundamental values and relationships. Several prestigious surveys show that the majority of corporations that instituted TQM concluded that the program had produced little or no tangible improvement. Many dropped their total quality initiatives, and some moved on to reengineering or reinventing. But whatever the major change initiative is called, the likelihood of success is small if there is no definite focus on fast results.

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Loosening boundaries is a more pragmatic process. The suggestions that have been given here in no way constitute a program or prescription for effecting change. Leaders who recognize some of the warning signs, and want to pick up speed, flexibility, integration, and innovation in order to become more competitive, do not need a master plan or grand design. The move to looser boundaries is iterative and empirical, based on constant experimentation and innovation. Nor is it helpful for senior executives to redraw organization charts. Better that they should pull together people from the various boundary constituencies and turn them loose to reshape their own destiny. What they experience as they work together on a meaningful assignment aimed at producing real and measurable results is what breaks down boundaries. Managers who have spent much of their careers in centralized, hierarchical structures must cross some powerful internal barriers in order to lead their firms on the ongoing journey to becoming boundaryless. They must shift from the traditional mindset of controlling and directing to a new focus of unleashing the powers of the organization. They must shift from reducing uncertainty to actually creating ambiguity. And they must move from long-term planning to minute-by-minute experimentation. Effective, competitive organizations are possible only when leaders cross their own self-limiting walls and embody the urgency and exhilaration of navigating through a white-water world.

Ron Ashkenas is the managing partner of Robert H. Schaffer & Associates, Stamford, CT, and a consultant on organizational transformation. This article is adapted from his book, The Boundaryless Organization, coauthored with Dave Ulrich, Todd Jick, and Steve Kerr (San Francisco: Jossey-Bass, 1995), which was reissued in soft cover in 1998, together with a workbook, The Boundaryless Organization Field Guide.

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