There comes a day in the life of every car when tune-ups are no longer sufficient to cover problems. When patches can’t fix systemic flaws and keep the car running smoothly. Christopher Bartlett, Harvard Business School professor, author, consultant, and organizational mechanic-extraordinaire says that day is here for many companies. He is calling for nothing less than a complete engine overhaul for today’s larger, established organizations.

LiNE Zine caught up with Bartlett and asked him about his vision of the future, and how the old boxy-sedan organizations of today need to transform into responsive, intelligent, and efficient roadsters—or risk ignominious death on the scrap heap. Bartlett tells us that organizations have to recognize their parts—their people—are critical to the success of the whole. They have to create an environment that makes the most of each individual’s knowledge and skills. And they should start by replacing old doctrines with a new management philosophy that emphasizes purpose and process, not strategy and structure. Only then can they move beyond direction and control toward freedom and better organizational performance. After all, whether in the Old Economy or the New, a smooth, high-performance ride is what we’re all after.

A Major Transformation Is Underway

Right now we are experiencing the biggest change in the corporate model in 75 years. In a world filled with big changes, this is a huge one. It portends not just a radical restructuring of the structural form, but also a major transformation in the nature of managerial work. A whole set of forces—today’s usual suspects, including globalization, the information age, the service economy, deregulation, and the knowledge revolution—are converging.

Start-ups get off pretty easily in this revolution. They can build and invent themselves around the new forces. The real challenge is for large corporations, with their embedded technology, people, and organizational models. How do they transform themselves? Unless companies see this as a systemic issue, they’ll continue to try fine-tuning at the margins—tinkering with the engine—rather than understanding that a whole systemic modeling change is happening. In effect, the engine has to be replaced.

The Old System No Longer Works

To understand where the world is moving, it helps to understand where we are coming from. Look around you. The organization that many of you are in right now is the corporate model that’s driven us for 75 years. And it’s what we now have to pull apart.

We’re coming from a corporate model based on 3 S’s: Strategy, Structure, and Systems. Strategy was set by allocating the scarce resource (capital). Structure was designed to hold units accountable (divisionalized). Systems provided the means for the elaborate planning and control process to work.

The integrated model created clear management roles and responsibilities based on delegation and control. Top management were strategic resource allocators who managed scarce capital resources, allocated them across competing needs, then measured, evaluated, and controlled them. Middle management managed the process that supported top management’s activities. They sent the capital budgets up; they controlled against the objectives top management sent down. Front line managers were the operating implementers who lived within the budgets and controls of the top managers.

So What Happened That Made Change Imperative?

For one, all those New Economy forces began converging. But at the heart of the corporate model transformation is a fundamental change in the scarce strategic resource companies need.

Today’s Scarce Strategic Resources are Information, Knowledge, and Expertise

Today’s critical scarce resource is no longer capital. Quite the opposite, since most companies today are awash in capital. It is now information, knowledge, and expertise. In essence, it’s people and the processes that link them to leverage their know-how.

This simple fact is undermining everything we know about the organizational model and changing the game completely. As a result, the control-based Strategy, Structure, and Systems processes that drove the old model are inadequate today. Consider this:

Before, capital could be accumulated at the corporate level and allocated. Now, knowledge and expertise are diffused throughout the organization and controlled by front line employees, leaving organizations very vulnerable. The critical strategic resource walks out the door each night. And people are a lot more difficult to control and predict than capital!

Before, capital could be allocated down on the basis of budgets and systems. Now learning is developed through front line experimentation and cross-organizational interaction. Indeed, that’s become the critical process, not measuring and controlling capital.

It used to be that you could evaluate performance on the basis of financially driven performance and control systems. Now, we don’t have the ability to measure the creation, implementation, diffusion, and operationalization of knowledge.

Shift From a Corporate Mentality Driven by Strategic Planning

With all of these organizations competing for information, knowledge, and expertise—essentially, people—today’s corporate competitive advantage resides in the people in the company and the organizational capability that’s built around them. Organizations need to change the way they operate.

How are companies responding? Most are simply tweaking the tired framework. Tinkering with the engine. Consultants and academics are enjoying a field day amid loud cries of "What do we do?" emanating from organizations. Witness the abundance of tools and techniques that companies desperately grasp such as reengineering, core process redesign, retention management. The list of tools and techniques, as most of us can attest, is extensive. Many companies are building up their infrastructure in sophisticated information systems, knowledge transfer processes and networks, and communities of practice.

Yet all these investments are wasted. They are focusing on systems and technology, while companies don’t attract, retain, and motivate people. So most organizations are leaking the talent the systems are built for!

Move Beyond the Old Model

At the heart of the transformation has to be a move beyond the Strategy, Structure, Systems philosophy to a broader philosophy that’s based on Purpose, Process, and People. Notice we are not moving "from-to", but rather "beyond." This is about hard-nosed organizational designs that still have Strategy, Structure, and Systems in place, but recognize that these elements alone are no longer sufficient.

Some organizational mind-shifts are crucial.

1. From Strategy to Purpose - In order to create organizational learning, companies have to create a sense of shared purpose and belonging for all individuals.

Companies are no longer simply economic enterprises. Managers must create and manage companies as social institutions as well. It’s no small order, but top management must convert the contractual employee of an economic entity into a committed member of a purposeful organization:

Attracting a scarce resource-smart, capable people-depends increasingly on creating not just a place where they come to work, but a place where they can belong, especially in a world where so many social institutions (communities, neighborhoods, families) are dysfunctional or completely broken down.

The heart of creating an environment where learning can take place is creating an internal environment where people can and do relate to each other—formally and informally. Social networks are the key link in developing and diffusing expertise through the organization.

2.From Structure to Process.

The organization is not just a hierarchy of tasks and responsibilities, but also a portfolio of flexible roles and relationships. The main task of the organization is to shape behaviors of people and create an environment that enables them to take initiative, cooperate, and learn. Formal organization charts are no longer the issue. Now, linking assets and resources through redefined relationships is key.

3. From Systems to People - Restructure systems to reflect the new source of competitive advantage.

The old system was structured to measure, evaluate, and reward people around financial measures. Not surprisingly, people were viewed and treated as costs.

Now, with people the source of competitive advantage, Human Resources is the critical function in today’s organization. HR practices and policies should no longer be abrogated to some functional unit miles away from the CEO. The chief HR officer, along with the learning and knowledge management officers, should be literally and figuratively close to the CEO, with equal (if not greater) standing than the financial officers.

Until organizations can learn to attract, motivate, develop, and retain superior people—and build a community where these people can leverage their knowledge and expertise—everything else they do is supplemental. Transforming organizations relies upon transforming human behavior. Creating an organization based on self-discipline, trust, and support is about creating this behavioral context.

People are the foundation on which all of this is built. The most sophisticated systems and technical structures will be completely wasted if there’s leakage of talent, a demotivated workforce, or a culture that doesn’t support sharing of knowledge.

Christopher Bartlett is the Daewoo Chair of Business Administration at Harvard Business School where he also serves as Chairman of the School’s General Management Area. He is the author or coauthor of five books, including (coauthored with Sumantra Ghoshal) The Individualized Corporation: A Fundamentally New Approach to Management, HBS Press, 1997, and Managing Across Borders: The Transnational Solution, HBS Press, 1989. In addition to his academic responsibilities, he maintains ongoing relationships with several major corporations, serving both as a board member and as a consultant/management advisor.

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