Roland Deiser is the founder and executive chairman of the European Corporate Learning Forum (ECLF) and serves as a senior fellow at the Center for the Digital Future at the University of Southern California Annenberg School of Communication. He is an internationally recognized expert on strategy, organizational design, and innovation, with a focus on building strategic capabilities into large-scale systems. His professional work is strongly rooted both in both academia and practice.

Designing the Smart Organization

John Wiley & Sons

Chapter One

We live in turbulent times that are scary and exciting at the same time. It seems that the complex global system of interdependencies we've created over the past hundred years or so is suddenly cracking at the seams, creating massive concussions that reverberate throughout the world and challenge the very basis of our political and economic foundations. The leapfrog developments in technology and communications infrastructure open up tremendous opportunities to reshape how we deal with the world, but they are also threatening and potentially destructive if we lag behind in our ability to deal with complexity, assess the systemic impact of our actions, and govern global phenomena. We have to learn as individuals, organizations, and political systems to understand the emerging opportunity spaces and capitalize on them in ways that will lead us to a new quality of a global society in ecological balance with the planet. If we fail to do this, the consequences may be dire.

Corporations-especially large corporations-play a major role in this picture. With their global reach and powerful governance structures, they contribute significantly to the context they-and we all-live in, so they bear an increasing responsibility to act as global citizens. However, they are themselves under pressure to master these turbulences in a way that lets them thrive-or at least survive. They are faced with the imperative to develop new capabilities to more effectively deal with disruptive environments-or even better, to shape them. As in an evolutionary model in which the fittest organisms survive, corporations need to make their ability to learn a core part of their organization's DNA, so that they can be naturally smart, responsive, flexible, and responsible. If they succeed in doing so, they can keep up with, if not outrun, those changes that might otherwise remove them from existence.

Five Forces That Drive the Need for Learning

The driving forces behind the corporate learning imperative are numerous, and they reinforce each other. Let us explore the five most important drivers that pressure organizations to learn more deeply and in a different way and that force all of us to fundamentally rethink our notion of learning. They are:

* Massive disruption of the business context

* The rise of the knowledge-based organization

* A competence-based view of strategy

* The growing importance of the periphery of organizations

* The transformation from self-contained hierarchical organizations to "flat" and globally networked co-creation clusters

Massive Disruption

We are in the midst of disruptive change. The complex brew of rapidly advancing technologies, globalization, ecological megachallenges, and most recently the global breakdown of the financial markets leaves virtually no industry untouched. Take, for example, the automotive industry, which is slowly but with certainty reaching the end of limitless growth and needs to introduce radically new technologies. Or look at the media industry, which is wrestling with digital copyright issues and the substitution of old media with Internet-based models of production, distribution, and consumption. The pharmaceutical industry is being revolutionized through bioengineering and genetic technology, and the energy business needs to transform itself toward clean technologies of generation and consumption. And there is banking, which will not be the same once the dust of the financial crisis of 2008-2009 has settled.

In contrast to incremental change, which we can follow and understand as it emerges from familiar patterns of industry behavior and context evolution, discontinuous change surprises us. It comes out of nowhere, radically reconfiguring and rewriting the rules of the game. Because discontinuous change is so unfamiliar, the new rules are not yet clear; established response patterns are inappropriate; and it is hard to react to it adequately. In the wake of disruptive change, companies that cling to old business models may get destroyed, those who reinvent themselves survive, and new ones that embrace and invent new paradigms create new industry spaces.

Disruptive change that reinvents industries may be scary, but it is part of the game. As the Austrian economist Josef Schumpeter pointed out in his seminal work more than sixty years ago, "creative destruction" is the innovative power behind long-term economic growth and development, and as such it is at the heart of capitalism. The pace of industry change through radical innovation may have accelerated recently, but we have seen it before, for instance, with the explosion of groundbreaking inventions that happened within a few decades at the end of the nineteenth and the beginning of the twentieth century.

But disruptive change today is different, because it is striking at more fundamental levels. We are seeing massive changes in the overall social, political, and economic contexts, all at the same time, and on a global scale. The past quarter of a century has been a period of breathtaking turbulence and disruption. The 1980s decade of Ronald Reagan and Margaret Thatcher launched emphatic industry deregulation in the Anglo-American business universe, unleashing the power of the free market with all its benefits and ugly excesses. In 1989, we witnessed the fall of the Soviet Empire, ending a period of relative political stability and predictability and adding a further dynamic to the global economy.

In the mid-1990s, the Internet took off, transforming our global communication infrastructure, reframing business-to-consumer, business-to-business, and lately also peer-to-peer relationships while generating countless new business models in its wake. We saw the burst of the Internet bubble in 2000, which solidified the new medium, transforming the adolescent dot.com craze into a mainstream business reality with a radical impact on all aspects of our lives, comparable to the invention of printing or the discovery of electricity.

Just one year later, in September 2001, we witnessed the terrorist attacks on the Twin Towers in New York and on the Pentagon in Washington, D.C., which led to radical political changes in U.S. policy, resulting in two wars and rekindling religious fundamentalism as a global conflict conduit. The first decade of the millennium also saw the rapid rise of China and India as powerful players on the world stage, reshaping the global balance of trade, reconfiguring the production value chain of most corporations, and taking globalization to a new level.

And now, as we reach the end of the first decade of the new millennium, we witness a breakdown of the global financial infrastructure that is likely to end the period of ruthless Wall Street capitalism and reset not only the way we do business, but the way the global economy-and society-works. At the same time, we are finally starting to realize the seriousness of the ecological challenge that will transform in its own way the foundations of virtually all businesses and our way of life.

All this has happened at warp speed, more or less within one generation. Each and every one of these events has a tectonic quality about it; each hits against the others, and in their combined force, they put an almost inconceivable pressure on organizations to keep pace. The imperative to innovate and reinvent oneself in these changing contexts has become ubiquitous and permanent. The capability to learn is not just nice to have; it has become a key factor for survival-not only for people, but for organizations, industries, and our global society.

The Ascent of Knowledge-Based Organizations

But there is more: During the past twenty-five years, the foundations of Western economies have become more and more knowledge based. The value of products and services lies increasingly in their inherent intellectual capital, and knowledge workers are slowly becoming the majority of the workforce. The "rise of the creative class," as social economist Richard Florida puts it, is slowly changing the texture of Western societies.

The ascent of knowledge as the strategic lever for value creation has huge consequences for the way organizations deal with this asset. The effective management of knowledge has become a key success factor for competitiveness. Companies need a clear understanding about what kind of knowledge is critical to the business model of the firm-both in terms of marketplace intelligence and internal competence-and they need appropriate policies and mechanisms to acquire, aggregate, and utilize this relevant knowledge.

This is not an easy task for organizations that have been designed to be efficient machines. While some knowledge can be treated like dead material and quickly processed according to an industrial paradigm, the bigger and more relevant parts of today's knowledge tend to be tacit and ambiguous. This type of knowledge rests in people and in practices and is closely linked with the context where it gets applied. It is harder to access and cannot be "managed" like a database of information. It needs to be absorbed and continuously reevaluated through discourse as it derives from multiple internal and external perspectives. It is of little use if it is not converted into shared meaning and sense-making organizational maps that then inform the organization's strategic response.

This leads to yet another knowledge management challenge: how to make strategically relevant information available to the right people in the right place at the right time. How do we involve stakeholders in a knowledge-generating and -disseminating process? And last, not least: How do organizations go about eliminating-or "unlearning"-obsolete or strategically irrelevant knowledge so they do not get overburdened with old and useless stuff?

We can see that knowledge management is much more than the IT-driven craze of the late 1990s that eventually gave the practice a mixed reputation. As John Seely Brown, the former director of Xerox's PARC and a passionate advocate for a new ecology of learning elegantly phrased it: information has a "social life," and if we do not recognize this fact, IT investments in learning and knowledge management fall short. Dealing with organizational knowledge in a way that makes "sense" is a comprehensive learning challenge. It requires a smart social architecture that connects the right people in settings that are conducive to sharing and collaboration, and a technical infrastructure that supports these efforts. Such an architecture may include knowledge-sharing policies, incentive systems, mechanisms to build trust, the encouragement of communities of practice, wikis, and the use of other social networking tools to connect the many internal and external resources that eventually constitute what is considered the real "knowledge."

Competence-Based Strategic Management

A third driving force that moves learning center stage in the corporation is the recognition that core competences constitute the foundation of a company's competitive advantage. The paradigm of resource-based strategy, which became popular at the beginning of the 1990s through the work of C. K. Prahalad and Gary Hamel, views the source of strategic advantage not so much as the result of a smart positioning in an existing industry space but in the distinct portfolio of the core competences of the firm. Such competences can be brands, hard assets, distinctive processes, technological expertise, distinctive talent, distinctive access to capital markets, and more. They are hard to imitate and constitute the anchor of a company's identity. A significant part of these competences result from the company's "DNA," which often goes back to the founding business idea and is deeply embedded in the organization's historical practices. But there are also competences that may have been acquired over time, either through mergers and acquisitions, or through internal organizational learning and transformation processes.

The decisions about what competences constitute the core of an organization and how they should be orchestrated and developed lies at the heart of the firm's strategy and its learning challenge. Core competences constrain the room for strategic maneuvering as the success of new business opportunities depends to a large extent on how well they connect with the firm's competence portfolio. How companies perceive their core competences has also major influence on the partnership architecture of a firm. The definition of a company's competence portfolio determines what business activities need to remain within the boundaries (that is, within direct control) of the firm and which ones can be outsourced or delivered by partners in the value chain. The choice is always a strategic one, as it is based on assumptions about which activities can maximize value creation and can best leverage a company's position in the industry.

The importance of understanding, developing, and nurturing core competences creates a complex corporate learning imperative, beyond the domain of building skill sets. Aligning employee qualification with the strategic goals of the organization is an important element in managing the competence portfolio of an organization. But people-oriented "competence management" alone does not sufficiently address the larger learning challenge. Equally important is the smart design of structures and mechanisms that build and reinforce the core competence of the organization. Here, corporate learning must help create a strategic discourse about the industry dynamics, the company's capability base, and the business opportunity spaces that result from linking the two. This requires the design of dedicated spaces that foster learning about the company and about its environment, through smart and honest interaction with internal and external stakeholders. In other words, ensuring and leveraging a company's core competence requires learning activities that are closely connected to the strategy process, transcending the current role of the corporate learning practice.

The Growing Importance of the Periphery

The accelerating change in the corporate environment has a significant effect on the leadership capabilities required by an organization. Processes that require the formal involvement of several functions and multiple internal layers of control are not only slow and tedious, they create a culture of inertia and blind obedience to rules. While these processes may work in stable and predictable environments where rules don't change, they become dysfunctional in a fast-changing context that requires entrepreneurial spirit, flexibility, and real-time response. Large corporations that are hamstrung by lengthy internal processes and a culture of silos have a significant disadvantage compared to small and nimble competitors who don't have to make their way through a jungle of red tape. To remain competitive, large corporations have to let go of steep hierarchies and central control and instead empower the periphery of the organization. Decision power and operational leadership need to move to the external boundaries of the firm, places that are in direct touch with the real world.

Empowering the periphery is a massive learning challenge for large organizations. It requires a major reset of the cognitive maps of executives, managers, and employees alike. The top must learn to let go of operational control and become instead a body that provides identity and overall strategic guidance. The key role of senior leadership is to create the right organizational architecture that encourages entrepreneurship, strategic discourse, and cross-functional collaboration. Corporate learning can play a major role in reshaping the mindset from a command-and-control mentality to a primarily enabling role that creates an environment where the periphery can thrive.

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Excerpted from Designing the Smart Organizationby Roland Deiser Copyright © 2009 by John Wiley & Sons, Ltd. Excerpted by permission.
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